Select an organization, national or international, that has implemented an ERP system. Then, address the following components in your paper:
Your well-written report should be 4-5 pages in length, not including the title and reference pages. To make it easier to read and therefore grade, make sure you clearly delineate each section of your answer so it can be matched with the relevant question. Use Saudi Electronic University academic writing standards and APA style guidelines, citing at least two references as appropriate. Review the grading rubric to see how you will be graded for this assignment.
1. Introduction
Provide 2-3 specific examples.
9. conclusion
Required:
Chapter 10 in Information Technology for Management: On-Demand Strategies for Performance, Growth, and Sustainability
Yousif Alsharidah, Y. M., & Alazzawi, A. (2020).
Artificial Intelligence and Digital Transformation in Supply Chain Management A Case Study in Saudi Compani
es. 2020 International Conference on Data Analytics for Business and Industry: Way Towards a Sustainable Economy (ICDABI), 1–6.
Zafary, F. (2020).
Implementation of business intelligence considering the role of information systems integration and enterprise resource planning
. Journal of Intelligence Studies in Business, 10(1), 59–74.
should meet the following requirements:
Writing rules
· Use a standard format for responses to all questions (i.e., an introduction, middle paragraphs, headline (and conclusion).
· Make sure to include all the key points within conclusion section, which is discussed in the assignment. Your way of conclusion should be logical, flows from the body of the paper, and reviews the major points.
· I would like to see more depth for the question
· Responses must be submitted as a MS Word Document only, typed double-spaced, using a standard font (i.e. Times New Roman) and 12 point type size.
· Plagiarism All work must be free of any form of plagiarism.
· Written answers into your own words. Do not simply cut and paste your answers from the Internet and do not copy your answers from the textbook
Module 10: Critical Thinking
Enterprise System Recommendation (105 Points)
Select an organization, national or international, that has implemented an ERP system. Then, address the following components in your paper:
1.
What best practices did the organization use when implementing the ERP? Provide 2-3 specific examples.
2. What did the organization do poorly when implementing the ERP? What changes, as based upon the recommendations provided in the textbook, should have been made?
3. How are other organizations, in your selected organization’s industry, using ERPs? What recommendations, implemented by similar organizations in their industry, could your organization use to improve their ERP?
Your well-written report should be 4-5 pages in length, not including the title and reference pages. To make it easier to read and therefore grade, make sure you clearly delineate each section of your answer so it can be matched with the relevant question. Use Saudi Electronic University academic writing standards and APA style guidelines, citing at least two references as appropriate. Review the grading rubric to see how you will be graded for this assignment.
1. Introduction
2. What best practices did the organization use when implementing the ERP?
3. Provide 2-3 specific examples.
4. What did the organization do poorly when implementing the ERP?
5. What changes, as based upon the recommendations provided in the textbook, should have been made?
6. How are other organizations, in your selected organization’s industry, using ERPs?
7. What recommendations, implemented by similar organizations in their industry?
8. could your organization use to improve their ERP?
9. conclusion
Required:
Chapter 10 in Information Technology for Management: On-Demand Strategies for Performance, Growth, and Sustainability
Yousif Alsharidah, Y. M., & Alazzawi, A. (2020).
Artificial Intelligence and Digital Transformation in Supply Chain Management A Case Study in Saudi Compani
es. 2020 International Conference on Data Analytics for Business and Industry: Way Towards a Sustainable Economy (ICDABI), 1–6.
Zafary, F. (2020).
Implementation of business intelligence considering the role of information systems integration and enterprise resource planning
. Journal of Intelligence Studies in Business, 10(1), 59–74.
Essay should meet the following requirements:
· Be 5 pages in length, which does not include the title page, abstract, or required reference page, which is never a part of the content minimum requirements.
· Use APA (7th ed) style guidelines.
· Support your submission with course material concepts, principles, and theories from the textbook and at least nine scholarly, peer-reviewed journal articles.
· Please include in the answer Appendix ( Graph or table …)
Writing rules
· Use a standard essay format for responses to all questions (i.e., an introduction, middle paragraphs, headline (and conclusion).
· Make sure to include all the key points within conclusion section, which is discussed in the assignment. Your way of conclusion should be logical, flows from the body of the paper, and reviews the major points.
· I would like to see more depth for the question
· Responses must be submitted as a MS Word Document only, typed double-spaced, using a standard font (i.e. Times New Roman) and 12 point type size.
· Plagiarism All work must be free of any form of plagiarism.
· Written answers into your own words. Do not simply cut and paste your answers from the Internet and do not copy your answers from the textbook
IT for Management: On-Demand Strategies for Performance, Growth, and Sustainability
Eleventh Edition
Turban, Pollard, Wood
Chapter 10
Enterprise Systems
Learning Objectives (1 of 5)
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Copyright ©2018 John Wiley & Sons, Inc.
Enterprise Systems: An Introduction
An Enterprise System is a large scale application software package that supports business processes, information flows, reporting, and data analytics in complex organizations.
Four Types of Enterprise Systems:
Enterprise Resource Planning (ERP)
Supply Chain Management (SCM)
Customer Relationship Management (CRM)
Enterprise Social Platforms
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Enterprise Systems: Terminology
Core business processes
Include accounting, finance, sales, marketing, human resources, inventory, productions, and manufacturing
Value-added reseller (VAR)
Customizes or adds features to a vendor’s software or equipment and resells the enhanced product
Legacy systems
Older information systems maintained over decades because they fulfill critical needs
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Enterprise Systems: Challenges
Complexity from incorporating different organizational facets
Time-consuming coordinating an enterprise integration
Typically requires consulting, vendor, or value-added reseller (VAR) assistance
Difficult to get new modules to interface with legacy systems
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Enterprise Systems: Legacy Challenges
Major reasons why companies replace legacy systems:
High maintenance costs
Inflexibility (integration issues), older architecture designs
Integration obstacles (Hardwired, predefined, process flows)
Lack of staff (qualified/trained professionals)
Cloud-based enterprise systems are lower in cost
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Enterprise Systems: Best Practices
Redesign of business processes through simplification and redesign so that they can be automated, either totally or partially, or removed.
Changes in how people perform their jobs or accommodate the new processes.
Integration of many types of information systems so that data can flow seamlessly among departments and business partners.
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Enterprise Systems: Insights
Provide and support applications that enable workers to access, use, and understand data
Enable companies to use data about buying behaviors and help identify its loyal customers and which ones are profitable
Improved communication and integration among firms in a global supply chain justifies billions invested in ERP systems
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Enterprise Systems
Explain the purpose of an enterprise system.
Describe four types of enterprise systems.
What is a value-added reseller (VAR)?
What are two challenges of legacy systems?
Why do companies migrate to enterprise systems?
Explain the challenges of enterprise system implementation.
Explain the three types of challenges needed when an enterprise system is implemented.
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Suggested Answers:
1. Enterprise systems integrate internal core business processes by their connection to central data repositories that enable them to synch and share the latest data and they link the enterprise with suppliers, business partners, and customers.
2. Four types of enterprise systems are:
ERP: Enterprise Resource Planning
SCM: Supply Chain Management
CRM: Customer Relationship Management
Enterprise Social Platforms
4. A value-added reseller (VAR) is company that customizes or adds features to a vendor’s software or equipment and resells the enhanced product.
5. Legacy systems (older business systems that may be still in use) are difficult and expensive to maintain, update, and interface securely with leading-edge business apps.
6. Companies tend to migrate to an enterprise solution when they need to consolidate their disparate systems, such as when limitations caused by their existing legacy systems interfere with performance or the ability to compete. Here are major reasons why companies replace parts of their legacy systems or supplement them with enterprise systems. It is important to realize that many companies do not have the resources to replace all their legacy systems.
High maintenance costs. Maintaining and upgrading legacy systems are some of the most difficult challenges facing CIOs (chief information officers) and IT departments.
Business value deterioration. Technological change weakens the business value of legacy systems that have been implemented over many years and at huge cost.
Inflexibility. Legacy architectures were not designed for flexibility. These huge systems cannot be easily redesigned to share data with newer systems, unlike modern architectures.
Integration obstacles. Legacy systems execute business processes that are hardwired by rigid, predefined process flows. Their hardwiring makes integration with other systems such as CRM and Web-based applications difficult and sometimes impossible.
Lack of staff. IT departments find it increasingly difficult to hire staff who are qualified to work on mainframes and applications written in languages no longer used by the latest technologies.
Cloud. The cloud has lowered upfront costs. Cloud-based enterprise systems can be a good fit for companies facing upgrades to their legacy ERP and other enterprise systems.
7. Implementing an enterprise system is complex, time-consuming, and typically requires the help of a consulting firm, vendor, or value-added reseller (VAR). Integrating legacy systems with cloud-based applications is complex, as described in Tech Note 10-1. Much of the complexity is due to getting new apps or system modules to interface with existing or legacy systems that are several generations older.
Enterprise systems require data transfers—often to mainframes. Designing enterprise-level systems involves a variety of components that had been implemented on mainframes, midrange computers, networks, or cloud environments. In most large enterprises, mainframes are the workhorse systems that run the majority of business transactions. In contrast, customer interfaces through customer service; ERP, CRM, and SCM apps; websites; and B2B interactions are usually on distributed systems or in the cloud. Many times seemingly well-planned projects fail and require extensive reworking because integration issues had not been properly planned.
Some enterprises choose to avoid the challenges of integration by creating a new system that replaces the full functionality of the old one. This option is the most costly, difficult, and risky. An advantage is that this option offers a longer-term solution that is agile to respond to changing business needs. Despite that potential payoff, complete replacement requires a large, up-front investment for development, poses difficulties in duplicating behavior of the legacy system, and increases the risk of complete software project failure.
8. Best practices for implementing an enterprise system involves changes in the management of processes, people, and existing systems. Three required changes are as follows:
Re-design of business processes. Processes need to be simplified and re-designed so that they can be automated, either totally or partially. Tasks that are no longer necessary are removed from the processes.
Changes in how people perform their jobs. Jobs and how they are performed will change to accommodate the new processes. Enterprise systems require retraining users whose productivity will drop initially as they adjust to a new way of doing their jobs.
Integration of many types of information systems. Integrating information systems is necessary so that data can flow seamlessly among departments and business partners. Automated data flows are essential to productivity improvements.
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Learning Objectives (2 of 5)
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Enterprise Resource Planning Systems Past
Integrating accounting, finance, HR, marketing, and other critical business functions
Originally run on client-server architecture and customer-designed apps
Now web-based with a focus on social collaboration, deployment flexibility, faster response, and accessibility from mobile devices
An enterprise application integration (EAI) layer enables the ERP to interface with legacy apps
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Copyright ©2018 John Wiley & Sons, Inc.
Enterprise Resource Planning Systems Today
ERP Add-Ons:
Sales associates to process orders, take payments, and collect signatures with an iPad app
Field technicians to provide customer service from anywhere
Marketing to manage every aspect of ongoing customer relationships using a smartphone app
Production to access the real-time information needed to reduce stock-outs and excess inventory
Customers to access, pay, and view invoices online
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Enterprise Resource Planning Complexity
Figure 10.3: Overview of the complexity of ERP and its interfaces with other enterprise systems (U.S. Army Business Transformation Knowledge Center, 2009)
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Copyright ©2018 John Wiley & Sons, Inc.
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Enterprise Resource Planning Selection
Select an ERP solution that targets the company’s requirements
Evaluation potential ERP vendors’ strengths and weaknesses
Meet with each vendor and get a hands-on demo of its ERP solutions
Calculate the ERP’s total cost of ownership (TCO)
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Copyright ©2018 John Wiley & Sons, Inc.
Enterprise Resource Planning Failures
ERP Failure Factors
Cost misrepresentation
Unrealistic implementation timeframes
Software-license issues
50-70% of ERP projects fail due to one or more of these factors.
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Copyright ©2018 John Wiley & Sons, Inc.
Enterprise Resource Planning Success
Focus on business processes and requirements
Focus on achieving a measurable ROI
Use a strong project management approach and secure commitment of resources
Obtain strong and continuing commitment from senior executives
Take sufficient time to plan an prepare up-front
Provide thorough training and change management
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Figure 10.4: Experts identify the combination of factors needed for ERP success.
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Copyright ©2018 John Wiley & Sons, Inc.
Enterprise Resource Planning Systems
What are three ways ERP can be deployed?
Briefly describe the latest ERP features and add-ons.
Describe ERP from a technology perspective.
List and briefly describe three ERP implementation success factors.
Describe causes or factors that contribute to ERP failure.
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Suggested Answers:
1. Enterprise Resource Planning (ERP) is the software infrastructure that integrates an enterprise’s internal applications, supports its external business processes, and links to its external business partners. ERP systems are commercial software packages that integrate business processes, including supply chains, manufacturing, financial, human resources, budgeting, sales, and customer service. ERPs have migrated from early client-server architectures to a Web-based architecture.
ERPs were devised to help managers run a business, whether a manufacturing, distribution, retail, or service organization. Ideally, each business function would access a centralized database instead of data silos. Departments stay informed about what is ongoing in other departments that impact its operations or performance.
2. Legacy systems (older business systems that may be still in use) are difficult and expensive to maintain, update, and interface securely with leading-edge business apps.
3. Answers may vary.
Legacy architectures were not designed for flexibility. Integrating information systems is necessary so that data can flow seamlessly among departments and business partners. ERP solutions can have enough flexibility and versatility to manage different lines of business as well as changing business requirements. A full ERP offers a longer-term solution that is agile to respond to changing business needs.
4. Answers may vary.
The text shows the results of a survey to identify what ERP experts had found to be most important to successful ERP projects. These ERP experts were given the following six options and asked to select only one of them as “most important”:
Strong program management: 6 percent
Executive support and buy-in: 19 percent
Organizational change management and training: 13 percent
Realistic expectations: 8 percent
Focus on business processes: 5 percent
Interaction of all five factors: 49 percent
Nearly half of the experts indicated that the failure of any one of the five factors significantly increases the risk of ERP failure.
The text also lists the following recommendations to explain why ERP success depends on several key factors being met:
Focus on business processes and requirements. Too often, companies get caught up in technical capabilities or platforms on which the ERP runs. But compared to business processes, none of this really matters. What matters is how managers want business operations to run and what the key business requirements are. Once management and IT have defined them, they can intelligently choose the software, modules, and vendor that fits their unique business needs.
Focus on achieving a measurable ROI. Developing a business case to get approval from upper management or the board of directors is essential, but not sufficient. Establish key performance measures, set baselines and targets for those measures, and then track performance after going live. The performance results are proof of how well the ERP meets the expectations that had been listed in the business case.
Use a strong project management approach and secure commitment of resources. An ERP project depends on how it is managed. Responsibility for the management of the ERP implementation project cannot be transferred to vendors or consulting fi rms. Because of the business disruption and cost involved, ERP projects require the full-time attention and support of high-profile champions on the key functions for a long period of time, from 6 to 12 months on average. It is also known that ERP projects cannot be managed by people who can be spared. They must be managed by people who are indispensable personnel. Without powerful champions and an adequate budget, expect the ERP to fail.
Obtain strong and continuing commitment from senior executives. Any project without support from top management will fail. No matter how well run a project is, there will be problems such as conflicting business needs or business disruptions that can only be resolved by someone with the power and authority to cut through the politics and personal agendas.
Take sufficient time to plan and prepare up-front. An ERP vendor’s motive is to close the deal as fast as possible. The company needs to make sure it correctly defines its needs and what it can afford to achieve in order to intelligently evaluate and select the best vendor. Do not be rushed into a decision. Too often, companies jump right into a project without validating the vendor’s understanding of business requirements or their project plan. The principle of “measure twice, cut once” applies to vendor selection. The more time the company spends ensuring these things are done right at the start, the lower the risk of failure and the less time spent fixing problems later. Filing a lawsuit against a vendor (see Table 10.4) is not a fi x. Lawsuits are both expensive and risky, and contribute nothing to the company’s performance.
Provide thorough training and change management. Another key principle to understand is that when you design an ERP, you redesign the organization. ERP systems involve dramatic change for workers. ERPs lose value if people do not understand how to use them effectively. Investing in training, change management, and job design are crucial to the outcome of any large-scale IT project.
5. Answers may vary.
Students may give the inverse of success factors; i.e., failure to have strong program management, executive support, and buy-in, sufficient change management and training, realistic expectations, focus on business processes.
The success of an ERP depends on organizational and technological factors that occur prior to, during, and after its implementation. Knowing what to do and what not to do are important.
ERP implementations are complex—and risky. Planning, deploying, or fine-tuning these complex business software systems for your company is such a large undertaking that such projects fail more than 50 to 70 percent of the time. You need to conduct your own research rather than depend upon vendor data for the full story of enterprise system implementations.
Many times seemingly well-planned projects fail and require extensive reworking because integration issues had not been properly planned.
ERPs are expensive and such an investment needs to be justified. This includes the total cost of ownership, not simply the cost of the ERP or monthly SaaS fee.
Processes need to be redesigned so that they can be automated, either totally or partially. Tasks that are no longer necessary are removed from the processes. Jobs and how they are performed will change to accommodate the new processes. Enterprise systems require retraining users whose productivity will drop initially as they adjust to a new way of doing their jobs.
Applications must be tightly aligned with well-defined and well-designed business processes – a standard which few enterprises are able to achieve.
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Learning Objectives (3 of 5)
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Copyright ©2018 John Wiley & Sons, Inc.
Supply Chain Management Systems
Figure 10.10
Model of the supply chain
Supply Chain
Starts with the acquisition of raw materials or the procurement (purchase) of products and proceeds through manufacture, transport, and delivery—and the disposal of recycling products.
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Supply Chain Management
Figure 10.5: Build a supply chain
The efficient management of the flows of material, data, and payments along the companies in the supply chain, from suppliers to consumers.
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Copyright ©2018 John Wiley & Sons, Inc.
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Supply Chain Flows
Material or product flow: the movement of materials and goods from a supplier to its consumer.
Information flow: the movement of detailed data among members of the supply chain, for example, order information, customer information, order fulfillment, delivery status, and proof-of-delivery confirmation.
Financial flow: the transfer of payments and financial arrangements.
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Supply Chain Management Goals
SCM systems are configured to achieve the following business goals:
To reduce uncertainty and variability in order to improve the accuracy of forecasting
To increase control over processes in order to achieve optimal inventory levels, cycle time, and customer service
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Supply Chain Management: Order Fulfillment
Step 1: Make sure the customer will pay
Step 2: Check in-stock availability and reorder as necessary
Step 3: Arrange shipments
Step 4: Insurance
Step 5: Replenishment
Step 6: In-house production
Step 7: Use suppliers
Step 8: Contacts with customers
Step 9: Returns
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Supply Chain Management Innovations (1 of 2)
Always-On Supply Chain: is impacted by these innovative technologies:
Robotics and automation: demonstrating “human” capabilities
Inventory and Network Optimization Tools: providing ability to deploy assets and position inventory
Sensors and automatic identification: delivering computing and communications power to everyday devices and businesses
Predictive Analytics: predicting patterns associated with consumer behavior
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Copyright ©2018 John Wiley & Sons, Inc.
Supply Chain Management Innovations (2 of 2)
Wearables and mobile technology: performing many of the same computing tasks as mobile phones and laptop computers
Driverless vehicles and drones: transforming supply operations by monitoring functioning of plants
Cloud computing and storage: supporting an enterprise’s efforts to share data with multiple geographically dispersed partners
3D printing: which could revolutionize production processes and have far-reaching implications
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Copyright ©2018 John Wiley & Sons, Inc.
Supply Chain Management Systems Review
What is a supply chain?
List four functions carried out by companies in a supply chain.
List and describe the three main flows being managed in a supply chain.
Describe SCM.
What are steps in the order fulfillment?
Explain logistics.
What are the top two strategic priorities of SCM executives?
What are the two major barriers preventing innovation in the supply chain?
What are the top innovative digital technologies impacting SCM?
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Suggested Answers:
1. Supply chains involve the flow of materials, data, and money. The journey that a product travels, starting with raw material suppliers, to manufacturers or assemblers, then distributors and retail sales shelves, and ultimately to customers is its supply chain. Supply chain starts with the acquisition of raw materials or the procurement (purchase) of products and proceeds through manufacture, transport, and delivery—and the disposal or recycling of products.
2. The supply chain is like a pipeline composed of multiple suppliers, distributors, manufacturers, retailers, and logistics providers that:
purchase (procurement) raw materials or products
transform materials (i.e., manufacture, service) into intermediate or finished products
transport and deliver finished products to retailers or customers, and
dispose or recycle product
3. Supply chains involve the flow of materials, data, and money. Descriptions of these three main flows are:
Material or product flow: This is the movement of materials and goods from a supplier to its consumer. For example, Ford supplies dealerships that, in turn, sell to end-users. Products that are returned make up what is called the reverse supply chain because goods are moving in the reverse direction.
Information flow: This is the movement of detailed data among members of the supply chain, for example, order information, customer information, order fulfillment, delivery status, and proof-of-delivery confirmation. Most information flows are done electronically, although paper invoices or receipts are still common for non-commercial customers.
Financial flow: This is the transfer of payments and financial arrangements, for example, billing payment schedules, credit terms, and payment via electronic funds transfer (EFT). EFT provides for electronic payments and collections. It is safe, secure, efficient, and less expensive than paper check payments and collections.
4. Supply chain management (SCM) is the efficient management of the flows of material, data, and payments along the companies in the supply chain, from suppliers to consumers. SCM systems are configured to achieve the following business goals:
To reduce uncertainty and variability in order to improve the accuracy of forecasting
To increase control over the processes in order to achieve optimal inventory levels, cycle time, and customer service.
5. Step 1: Make sure the customer will pay. Depending on the payment method and prior arrangements with the customer, verify that the customer can and will pay, and agrees to the payment terms. This activity is done by the finance department for B2B sales or an external company, such as PayPal or a credit card issuer such as Visa for B2C sales. Any holdup in payment may cause a shipment to be delayed, resulting in a loss of goodwill or a customer. In B2C, the customers usually pay by credit card, but with major credit card data theft at Target and other retailers, the buyer may be using a stolen card.
Step 2: Check in-stock availability and reorder as necessary. As soon as an order is received, the stock is checked to determine the availability of the product or materials. If there is not enough stock, the ordering system places an order, typically automatically using EDI (electronic data interchange). To perform these operations, the ordering system needs to interface with the inventory system.
Step 3: Arrange shipments. When the product is available, shipment to the customer is arranged (otherwise, go to Step 5). Products can be digital or physical. If the item is physical and available, packaging and shipment arrangements are made. Both the packaging/shipping department and internal shippers or outside transporters may be involved. Digital items are usually available because their “inventory” is not depleted. However, a digital product, such as software, may be under revision, and thus unavailable for delivery at certain times. In either case, information needs to flow among several partners.
Step 4: Insurance. The contents of a shipment may need to be insured. Both the finance department and an insurance company could be involved, and again, information needs to be exchanged with the customer and insurance agent.
Step 5: Replenishment. Customized orders will always trigger a need for some manufacturing or assembly operation. Similarly, if standard items are out of stock, they need to be produced or procured. Production is done in-house or outsourced.
Step 6: In-house production. In-house production needs to be planned and actual production needs to be scheduled. Production planning involves people, materials, components, machines, financial resources, and possibly suppliers and subcontractors. In the case of assembly and/or manufacturing, several plant services may be needed, including collaboration with business partners. Production facilities may be located in a different country than the company’s headquarters or retailers. This may further complicate the flow of information.
Step 7: Use suppliers. A manufacturer may opt to buy products or subassemblies from suppliers. Similarly, if the seller is a retailer, such as in the case of Amazon. com or Walmart.com, the retailer must purchase products from its manufacturers. In this case, appropriate receiving and quality assurance of incoming materials and products must take place.
Once production (Step 6) or purchasing from suppliers (Step 7) is completed, shipments to the customers (Step 3) are arranged.
Step 8: Contacts with customers. Sales representatives keep in contact with customers, especially in B2B, starting with the notification of orders received and ending with notification of a shipment or change in delivery date. These contacts are frequently generated automatically.
Step 9: Returns. In some cases, customers want to exchange or return items. The movement of returns from customers back to vendors is reverse logistics. Such returns can be a major problem, especially when they occur in large volumes.
6. Logistics entails all the processes and information needed to move products from origin to destination efficiently. The order fulfillment process is part of logistics.
7. The top two strategic priorities of executives are supply chain analytics and multichannel fulfillment.
8. The two major barriers preventing innovation in the supply chain are a talent shortage and a continuing focus on cost reduction.
9. The top innovative digital technologies impacting SCM are: Robotics and automation, Inventory and Network Optimization Tools, Sensors and automatic identification, Predictive Analytics,
Wearables and mobile technology, Driverless vehicles and drones, Cloud computing and storage, 3D printing
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Learning Objectives (4 of 5)
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Figure 10.6 Four CRM critical success factors and their importance
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Customer Relationship Management Systems
Why does CRM Matter?
Data analytics, sophisticated predictive analytics, and BI are needed to determine customer lifetime value (CLV); then business rules need to specify how to treat or manage customers based on their value score.
Intelligently managing relationships with customers can increase revenues and net profits significantly.
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Customer Acquisition/Retention
CRM and Customer Acquisition/Retention
CRM technologies help marketing managers run effective campaigns, promotions, commercials, and advertisements to attract new customers, or to increase sales to existing customers, or to do both.
Newly acquired customers are unprofitable until they have purchased enough products or services to exceed the cost to acquire and service them.
Retaining customers that generate revenues in excess of the costs is critical.
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CRM for a Competitive Edge
Drucker on Marketing Effectiveness
Know your customers
Understand customer needs
Communicate intelligently with customers
5% reduction in customer attrition can improve profits by as much as 20%
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How to Avoid CRM Mistakes
CRM Failures
IT department in charge instead of business users.
Incorrect CRM requirements by not involving key business stakeholders from the outset.
Mobility CRM strategy is an afterthought.
Taking the wrong approach to CRM training.
Underestimating users’ resistance to change.
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Customer Relationship Management Systems Review
Explain the four critical success factors for CRM.
Why does CRM matter?
Discuss how CRM impacts customer acquisition and retention.
According to Peter Drucker, what does marketing effectiveness depend on?
Give three reasons why CRM fails.
How can CRM be justified?
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Suggested Answers:
1. The four critical success factors and their relative importance for CRM are:
Data (15%)
CRM technology (20%)
People (40%)
Process change (25%)
2. CRM systems play the major role in customer experience (CX), and good CX helps to retain customers. However, not all customers are worth retaining. Customers can be unprofitable. Intelligently managing relationships with customers can increase revenues and net profits significantly. Similar to managing inventory and supplier relationships, effective CRM is data-driven, complex, and continuously changing. The growth of mobile sales channels and social networking makes recognizing customers across multiple touchpoints complex. In addition, many companies have customer data in multiple, disparate systems that are not integrated—until they implement CRM systems.
3. CRM technologies help marketing managers run effective campaigns, promotions, commercials, and advertisements to attract new customers, or to increase sales to existing customers, or to do both. Attracting and acquiring new customers are expensive activities, for example, it costs banks roughly $100 to acquire a new customer. Newly acquired customers are unprofitable until they have purchased enough products or services to exceed the cost to acquire and service them. Therefore, retaining customers that generate revenues in excess of the costs (e.g., customer service, returns, promotional items, and the like) is critical. The purpose of loyalty or frequent purchase programs offered by online retailers, coffee shops, airlines, supermarkets, credit card issuers, casinos, and other companies is to track customers for CRM purposes and build customer loyalty to improve financial performance. Loyalty programs rely on data warehouses and data analytics to recognize and reward customers who repeatedly use services or products.
4. According to management guru Peter Drucker, “Those companies who know their customers, understand their needs, and communicate intelligently with them will always have a competitive advantage over those that don’t” (Drucker, 1969). For most types of companies, marketing effectiveness depends on how well they know their customers; specifically, knowing what their customers want, how best to contact them, and what types of offers they are likely to respond to positively. According to the loyalty effect, a five percent reduction in customer attrition can improve profits by as much as 20 percent. Customer-centric business strategies strive to provide products and services that customers want to buy.
5. Answers may vary.
Putting IT department in charge of the CRM project instead of the business users. The hands-on business users need to champion and lead the project initiative, with IT playing a supporting role.
Not getting the CRM requirements right by not involving key business stakeholders from the outset. CRM implementations need buy-in from the users and other business stakeholders, who can spread enthusiasm. Frequent communication about the project is important to engaging them in a meaningful way.
Making mobile CRM strategy an afterthought. Consider mobility a priority in the CRM project from the outset. Putting an existing CRM on mobile devices is a bad plan.
Taking wrong approach to CRM training. Make sure the interface is intuitive enough that most users will not need hands-on training. When people sit in a classroom for an hour, they will only retain 5 minutes of what they hear. A learning program during lunch that focuses on one or two lessons is a much more effective adoption strategy.
Underestimating users’ resistance to change. Users will not tolerate poorly designed systems. Frustrating users is a fast track to failure, or at a minimum, suboptimal results.
6. A formal business plan must be in place before the CRM project begins—one that quantifies the expected costs, tangible financial benefits, and intangible strategic benefits, as well as the risks. The plan should include an assessment of the following:
Tangible net benefits. The plan must include a clear and precise cost-benefit analysis that lists all of the planned project costs and tangible benefits. This portion of the plan also should contain a strategy for assessing key financial metrics, such as ROI, net present value (NPV), or other justification methods.
Intangible benefits. The plan should detail the expected intangible benefits, and it should list the measured successes and shortfalls. Often, an improvement in customer satisfaction is the primary goal of the CRM solution, but in many cases this key value is not measured.
Risk assessment. The risk assessment is a list of all of the potential pitfalls related to the people, processes, and technology that are involved in the CRM project. Having such a list helps to lessen the probability that problems will occur. And, if they do happen, a company may find that, by having listed and considered the problems in advance, the problems are more manageable than they would have been otherwise.
34
Learning Objectives (5 of 5)
35
Copyright ©2018 John Wiley & Sons, Inc.
Enterprise Social Platforms
Refers to private (company owned) social media, software, platforms, or apps specially designed for use by business leaders and employees to fulfill the strategic mission.
Three main reason for interest:
Knowledge management
Collaboration
Employee pressure
36
Copyright ©2018 John Wiley & Sons, Inc.
Enterprise Social Platforms: SharePoint
Provides tools for setting up employee social network platforms and company wikis
Share space to store documents from any desktop or mobile device, so they are not siloed on any one person’s hard drive or device
Enables coworkers to stay up-to-date and work simultaneously on a single document, save previous versions, and track updates
Uses Yammer as its main collaborative tool
Office Graph with Oslo provides navigation through other tools
37
Copyright ©2018 John Wiley & Sons, Inc.
Enterprise Social Platforms: Yammer
Features similar to Facebook likes, newsfeeds, threaded conversation, and direct messaging
This private social channel helps employees, partners, and customers communicate, exchange information, and collaborate across departments, locations, and business apps.
Includes Enterprise Graph which shows how users are related to ne another, solving social network sprawl
38
Copyright ©2018 John Wiley & Sons, Inc.
Enterprise Social Platforms: Jive and Chatter
Jive
Provides tools for communication, sharing, and content creation to make social media monitoring and engagement easier
Chatter
Salesforce.com add-on offers companies their own private network while pushing updates and news in real time to user feeds, offering smart search, which places items an employee frequently uses higher in the search list
39
Copyright ©2018 John Wiley & Sons, Inc.
Enterprise Social Platforms Review
What are the basic functions of an enterprise social platform?
What are the capabilities of SharePoint?
In what ways can enterprises realize value from Yammer or other enterprise social?
How do Office Graph and Enterprise Graph support collaboration?
How does Chatter enable workers to solve problems?
40
Copyright ©2018 John Wiley & Sons, Inc.
Suggested Answers:
1. The basic functions are to enable employees to connect and collaborate with others, stay informed, build relationships, and share documents and data.
2. SharePoint has the following social capabilities:
Intranet and Extranet
Intranets are the internal-facing sites everyone in a company logs into to find news, announcements, scheduled tasks, and access to files and data. Dashboards are customized by department and role to control access. SharePoint also provides tools for setting up employee social network platforms and company wikis. SharePoint can be used to set up a secure, access-controlled extranet site to share with external partners in the supply chain, contractors, and so on.
Documents
SharePoint provides a shared space to store documents, so they are not siloed on any one person’s hard drive or device. Documents stored on SharePoint can be accessed by anyone in the company—unless the administrator has limited access. SharePoint enables coworkers to work simultaneously on a single document, save previous versions, and track updates.
Collaboration and Business Intelligence
The platform makes it easy for users to stay up-to-date and to coordinate their efforts on projects from any desktop or mobile device; and to discover patterns and insights in enterprise data.
Yammer
Yammer is “Facebook for business.” Yammer is the social collaboration tool of choice for SharePoint going forward (Ryan, 2014).
3. To realize business value from enterprise social:
Make sure management is listening. Leaders and decision makers need to monitor social chatter to keep informed and respond promptly.
Provide visible feedback and rewards. Employee participation is largely driven by the desire to be recognized by peers and managers.
Brand the social network. Employees want to feel the company is behind the initiative. At Red Robin, for example, renaming Yammer to Yummer connected employees to the brand.
Identify and leverage change agents. Start with those employees most eager to participate, especially Millennials who are looking for recognition and purpose.
Introduce competitions and games. Experience shows that people are more likely to engage when they are having fun.
Make the rules of engagement simple. Do not over-engineer or control the social network. Make it easy to enroll and participate.
4. Office Graph uses signals from e-mail, social conversations, documents, sites, instant messages, meetings, and more to map the relationships between people and concepts.
Enterprise Graph tries to show how users are related to one another by mapping the relationships between people and information by simply recording likes, posts, replies, shares, and uploads. It enables developers and customers to seamlessly connect people, conversations, and data across all their business services.
5. With Chatter, the problem-solving process becomes a conversation rather than a series of disjointed e-mails. People can interact and spark new ideas. There is no confusion over which is the latest version of a document. Other employees can be brought into the conversation using the @ function. Chatter customer groups let users work with external customers, vendors, and partners, with the option of limiting what they can see and access. Private groups can also be set up when employees need to work on sensitive projects with certain colleagues.
40
Copyright
Copyright © 2018 John Wiley & Sons, Inc.
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41
Information Technology
for Management
On-Demand Strategies for Performance,
Growth and Sustainability
Eleventh Edition
Eleventh Edition
Information Technology
for Management
On-Demand Strategies for Performance,
Growth and Sustainability
E F R A I M T U R B A N
C A R O L P O L L A R D
Appalachian State University
G R E G O R Y W O O D
Canisius College
VP AND EDITORIAL DIRECTOR Mike McDonald
EXECUTIVE EDITOR Lise Johnson
EDITORIAL ASSISTANT Ethan Lipson
EDITORIAL MANAGER Judy Howarth
CONTENT MANAGEMENT DIRECTOR Lisa Wojcik
CONTENT MANAGER Nichole Urban
SENIOR CONTENT SPECIALIST Nicole Repasky
PRODUCTION EDITOR Loganathan Kandan
PHOTO RESEARCHER Billy Ray
COVER PHOTO CREDIT © Ditty_about_summer/Shutterstock
This book was set in 9.5/12.5 pt Source Sans Pro by SPi Global and printed and bound by Strategic
Content Imaging.
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ISBN: 978-1-118-89079-0 (PBK)
ISBN: 978-1-119-39783-0 (EVALC)
Library of Congress Cataloging in Publication Data:
Names: Turban, Efraim, author. | Pollard, Carol (Carol E.), author. | Wood,
Gregory R., author.
Title: Information technology for management : on-demand strategies for
performance, growth and sustainability / Efraim Turban, Carol Pollard,
Gregory R. Wood.
Description: 11th edition. | Hoboken, NJ : John Wiley & Sons, 2018. |
Includes bibliographical references and index. |
Identifiers: LCCN 2017037711 (print) | LCCN 2017046158 (ebook) | ISBN
9781118890868 (epub) | ISBN 9781119172390 (pdf) | ISBN 9781118890790 (pbk.)
Subjects: LCSH: Management information systems.
Classification: LCC T58.6 (ebook) | LCC T58.6 .T765 2017 (print) | DDC
658.4/038011—dc23
LC record available at https://lccn.loc.gov/2017037711
The inside back cover will contain printing identification and country of origin if omitted from this
page. In addition, if the ISBN on the back cover differs from the ISBN on this page, the one on the
back cover is correct.
v
Brief Contents
PREFACE xiii
ACKNOWLEDGMENTS xviii
PART 1 Reshaping Enterprises and Consumers
in the On-Demand Economy
1 Disruptive IT Impacts Companies,
Competition, and Careers 1
2 Information Systems, IT Architecture, Data
Governance, and Cloud Computing 25
3 Data Management, Data Analytics,
and Business Intelligence 65
4 Networks, Collaborative Technology,
and the Internet of Things 101
5 Cybersecurity and Risk Management
Technology 127
PART 2 Winning, Engaging, and Retaining
Consumers for Growth
6 Search, Semantic, and Recommendation
Technology 165
7 Web 2.0 and Social Technology 199
8 Retail, E-commerce, and Mobile Commerce
Technology 240
PART 3 Optimizing Performance, Processes,
and Productivity
9 Functional Business Systems 269
10 Enterprise Systems 300
11 Data Visualization and Geographic
Information Systems 331
PART 4 Managing Business Relationships,
Projects, and Ethical Responsibilities
12 IT Strategy, Sourcing, and Strategic
Technology Trends 354
13 Systems Development and Project
Management 385
14 IT Ethics, Privacy, and Sustainability 417
GLOSSARY 443
ORGANIZATION INDEX 448
NAME INDEX 450
SUBJECT INDEX 451
vi
PREFACE xiii
ACKNOWLEDGMENTS xviii
PART 1 Reshaping Enterprises
and Consumers in the On-Demand
Economy
1 Disruptive IT Impacts Companies,
Competition, and Careers 1
Case 1.1 Opening Case: Uber and Airbnb Revolutionize
Business Models in the On-Demand Economy 3
1.1 Doing Business in the On-Demand Economy 4
Growth of the On-Demand Economy 5
Digital Business Models 6
IT’s Role in the On-Demand Economy 7
IT Business Objectives 8
1.2 Business Process Improvement and Competitive
Advantage 8
What Is a Business Process? 9
Improving Business Processes 9
Don’t Automate, Obliterate! 10
Gaining a Competitive Advantage 11
Software Support for BPM 13
1.3 IT Innovation and Disruption 13
Social–Mobile–Analytics–Cloud (SMAC) Model 13
Technology Mega Trends 14
Lessons Learned from Companies Using Disruptive
Technologies 16
1.4 IT and You 17
On-Demand Workers 17
IT Adds Value to Your Performance and Career 19
Becoming an Informed IT User 21
Case 1.2 Business Case: The Internet of Things Comes
to the NFL 23
Case 1.3 Video Case: Knowing More and Doing More 24
2 Information Systems,
IT Architecture, Data Governance,
and Cloud Computing 25
Case 2.1 Opening Case: Detoxing Location-Based
Advertising Data at MEDIATA 27
2.1 IS Concepts and Classification 28
Components of an IS 29
Data, Information, Knowledge, and Wisdom 30
Types of ISs 31
Transaction Processing System (TPS) 32
Management Information System (MIS) 33
Decision Support System (DSS) 34
Executive Information System (EIS) 35
ISS Exist within Corporate Culture 36
2.2 IT Infrastructure, IT Architecture, and Enterprise
Architecture 37
EA Helps to Maintain Sustainability 38
Developing an Enterprise Architecture (EA) 41
2.3 Information Management and Data
Governance 42
Information Management Harnesses
Scattered Data 43
Reasons for Information Deficiencies 43
Factors Driving the Shift from Silos to Sharing
and Collaboration 45
Business Benefits of Information Management 45
Data Governance: Maintaining Data Quality
and Cost Control 46
2.4 Data Centers and Cloud Computing 48
Data Centers 48
Integrating Data to Combat Data Chaos 50
Cloud Computing 52
Selecting a Cloud Vendor 52
Cloud Infrastructure 54
Issues in Moving Workloads from the Enterprise
to the Cloud 54
2.5 Cloud Services and Virtualization 55
Anything as a Service (XAAS) Models 55
Going Cloud 58
Virtualization and Virtual Machines 58
Case 2.2 Business Case: Data Chaos Creates Risk 62
Case 2.3 Video Case: Cloud Computing at Coca-Cola Is
Changing Everything 63
3 Data Management, Data Analytics,
and Business Intelligence 65
Case 3.1 Opening Case: Coca-Cola Strategically Manages
Data to Retain Customers and Reduce Costs 66
3.1 Data Management and Database Technologies 69
Database Management Systems and SQL 69
DBMS and Data Warehousing Vendors
Respond to Latest Data Demands 72
Contents
C O N T E N T S v i i
3.2 Centralized and Distributed Database
Architectures 73
Garbage In, Garbage Out 75
Data Ownership and Organizational Politics 76
Data Life Cycle and Data Principles 77
Master Data and Master Data Management 78
3.3 Data Warehouses 79
Procedures to Prepare EDW Data for Analytics 80
Building a Data Warehouse 80
Real-Time Support from an Active Data
Warehouse 81
3.4 Big Data Analytics and Data Discovery 83
Human Expertise and Judgment are Needed 85
Data and Text Mining 88
Creating Business Value 88
Text Analytics Procedure 90
Analytics Vendor Rankings 90
3.5 Business Intelligence and
Electronic Records Management 91
Business Benefits of BI 92
Common Challenges: Data Selection
and Quality 92
Aligning BI Strategy with Business Strategy 92
BI Architecture and Analytics 93
Electronic Records Management 94
Legal Duty to Retain Business Records 94
ERM Best Practices 94
ERM Benefits 95
ERM for Disaster Recovery,
Business Continuity, and Compliance 95
Case 3.2 Business Case: Big Data Analytics is the “Secret
Sauce” for Revitalizing McDonald’s 98
Case 3.3 Video Case: Verizon Improves Its
Customer Experience with Data Driven
Decision-Making 99
4 Networks, Collaborative
Technology, and the Internet
of Things 101
Case 4.1 Opening Case: Sony Builds an IPv6 Network
to Fortify Competitive Edge 102
4.1 Network Fundamentals 104
Network Types 104
Intranets, Extranets, and Virtual Private
Networks 105
Network Terminology 105
Functions Supported by Business Networks 106
Quality of Service 107
4.2 Internet Protocols (IP), APIs, and Network
Capabilities 109
Comparing 3G, 4G, 4G LTE, and 5G Network
Standards 110
Circuit versus Packet Switching 111
Application Program Interfaces and Operating
Systems 111
4.3 Mobile Networks and Near-Field
Communication 113
Increase in Mobile Network Traffic and Users 114
Higher Demand for High-Capacity Mobile
Networks 115
Mobile Infrastructure 115
Two Components of Wireless Infrastructure 116
Business Use of Near-Field Communication 117
Choosing Mobile Network Solutions 118
4.4 Collaborative Technologies and the Internet
of Things 119
Virtual Collaboration 120
Group Work and Decision Processes 120
The Internet of Things (IoT) 121
IoT Sensors, Smart Meters, and the Smart Grid 121
Case 4.2 Business Case: Google Maps API for
Business 125
Case 4.3 Video Case: Small Island Telecom Company
Goes Global 126
5 Cybersecurity and Risk
Management Technology 127
Case 5.1 Opening Case: Yahoo Wins the Gold and Silver
Medal for the Worst Hacks in History! 129
5.1 The Face and Future of Cyberthreats 130
Intentional Threats 132
Unintentional Threats 132
Hacking 133
Cyber Social Engineering and Other Related
Web-Based Threats 134
Denial-of-Service 137
Insider and Privilege Misuse 137
Physical Theft or Loss 138
Miscellaneous Errors 138
New Attack Vectors 138
5.2 Cyberattack Targets and Consequences 139
“High-Profile” and “Under-the-Radar” Attacks 139
Critical Infrastructure Attacks 140
Theft of Intellectual Property 141
Identity Theft 142
Bring Your Own Device 142
Social Media Attacks 144
5.3 Cyber Risk Management 146
IT Defenses 146
Business Continuity Planning 149
Government Regulations 149
v i i i C O N T E N T S
5.4 Defending Against Fraud 150
Occupational Fraud Prevention
and Detection 151
General Controls 152
Internal Controls 153
Cyber Defense Strategies 153
Auditing Information Systems 155
5.5 Frameworks, Standards, and Models 155
Risk Management and IT Governance
Frameworks 155
Industry Standards 157
IT Security Defense-In-Depth Model 157
Case 5.2 Business Case: Lax Security at LinkedIn
Exposed 161
Case 5.3 Video Case: Botnets, Malware Security, and
Capturing Cybercriminals 163
PART 2 Winning, Engaging, and
Retaining Consumers for Growth
6 Search, Semantic, and
Recommendation Technology 165
Case 6.1 Opening Case: Mint.com Uses Search
Technology to Rank Above Established
Competitors 166
6.1 Using Search Technology for Business
Success 168
How Search Engines Work 168
Web Directories 168
How Crawler Search Engines Work 169
Why Search Is Important for Business 172
6.2 Organic Search and Search Engine
Optimization 178
Strategies for Search Engine Optimization 178
Content and Inbound Marketing 180
Black Hat versus White Hat SEO: Ethical Issues
in Search Engine Optimization 181
6.3 Pay-Per-Click and Paid Search Strategies 182
Creating a PPC Advertising Campaign 182
Metrics for Paid Search Advertising 184
6.4 A Search for Meaning—Semantic Technology 184
What Is the Semantic Web? 185
The Language(s) of Web 3.0 185
Semantic Web and Semantic Search 186
Semantic Web for Business 187
6.5 Recommendation Engines 188
Recommendation Filters 189
Case 6.2 Business Case: Deciding What to Watch—Video
Recommendations at Netflix 195
Case 6.3 Video Case: Power Searching with
Google 196
7 Web 2.0 and Social
Technology 199
Case 7.1 Opening Case: Social Customer Service Takes
Off at KLM 200
7.1 Web 2.0—The Social Web 201
The Constantly Changing Web 201
Invention of the World Wide Web 202
A Platform for Services and Social Interaction 202
Emergence of Social Applications, Networks,
and Services 203
Why Managers Should Understand Web
Technology 205
Communicating on the Web 206
Social Media Applications and Services 207
Social Media Is More than Facebook, YouTube, and
Twitter 207
With Web 2.0, Markets are Conversations 209
7.2 Social Networking Services and Communities 210
The Power of the Crowd 212
Crowdfunding 212
Social Networking Services 213
Facebook Dominates Social Networking 214
Google Takes on Facebook with G+ 216
Be in the Now with Snapchat 217
And Now for Something Different: Second Life 218
Private Social Networks 219
Future of Social Networking Systems 220
7.3 Engaging Consumers with Blogs and
Microblogs 220
What Is the Purpose of a Blog? 220
Blogging and Public Relations 222
Reading and Subscribing to Blogs 222
Blogging Platforms 222
Microblogs 223
Twitter 223
Tumblr Blogs 225
7.4 Mashups, Social Metrics, and
Monitoring Tools 226
What Makes a Mashup Social 226
RSS Technology 227
Social Monitoring Services 227
7.5 Enterprise 2.0: Workplace Collaboration and
Knowledge Sharing 229
Tools for Meetings and Discussions 230
Social Tools for Information Retrieval and
Knowledge Sharing 230
Social Bookmarking Tools 231
Content Creation and Sharing 232
Case 7.2 Business Case: Facebook Helps Songkick Rock
the Ticket Sales Industry 236
Case 7.3 Business Case: AT&T’s “It Can Wait” Campaign
against Distracted Driving 237
C O N T E N T S i x
8 Retail, E-commerce, and Mobile
Commerce Technology 240
Case 8.1 Opening Case: Macy’s Races Ahead with Mobile
Retail Strategies 241
8.1 Retailing Technology 243
Keeping Up with Consumer Demands and
Behavior 243
The Omni-Channel Retailing Concept 244
8.2 Business-to-Consumer (B2C) E-commerce 246
Online Banking 246
International and Multiple-Currency
Banking 246
Online Recruiting 246
Issues in Online Retailing 250
Online Business and Marketing Planning 250
8.3 Business-to-Business (B2B) E-commerce and
E-procurement 251
Sell-Side Marketplaces 251
E-Sourcing 252
E-Procurement 252
Electronic Data Interchange (EDI) Systems 253
Public and Private Exchanges 253
8.4 Mobile Commerce 253
Information: Competitive Advantage in Mobile
Commerce 255
Mobile Entertainment 258
Hotel Services and Travel Go Wireless 259
Mobile Social Networking 259
8.5 Mobile Transactions and Financial Services 260
Mobile Payment Systems 260
Mobile Banking and Financial Services 262
Short Codes 263
Security Issues 263
Case 8.2 Business Case: Chegg’s Mobile Strategy 266
Case 8.3 Video Case: Searching with Pictures
Using MVS 267
PART 3 Optimizing Performance,
Processes, and Productivity
9 Functional Business Systems 269
Case 9.1 Opening Case: Ducati Redesigns Its
Operations 271
9.1 Business Management Systems and Functional
Business Systems 272
Business Management Systems (BMSs) 273
Management Levels 273
Business Functions vs. Cross-Functional Business
Processes 274
Transaction Processing Systems 275
9.2 Production and Operations Management
Systems 277
Transportation Management Systems 278
Logistics Management 278
Inventory Control Systems 279
Computer-Integrated Manufacturing and
Manufacturing Execution Systems 281
9.3 Sales and Marketing Systems 282
Data-Driven Marketing 284
Sales and Distribution Channels 284
Social Media Customer Service 284
Marketing Management 285
9.4 Accounting, Finance, and Regulatory Systems 286
Financial Disclosure: Reporting and
Compliance 286
Fraud Prevention and Detection 289
Auditing Information Systems 291
Financial Planning and Budgeting 291
9.5 Human Resource Systems, Compliance, and
Ethics 293
HR Information Systems 293
Management and Employee Development 295
HR Planning, Control, and Management 295
Case 9.2 Business Case: HSBC Combats Fraud in Split-
second Decisions 297
Case 9.3 Video Case: United Rentals Optimizes Its
Workforce with Human Capital Management 298
10 Enterprise Systems 300
Case 10.1 Opening Case: 3D Printing Drives the “Always-
On” Supply Chain 301
10.1 Enterprise Systems 303
Implementation Challenges of Enterprise
Systems 305
Investing in Enterprise Systems 305
Implementation of Best Practices 306
Enterprise Systems Insights 307
10.2 Enterprise Resource Planning (ERP) 307
Brief History of ERP 308
Technology Perspective 308
Achieving ERP Success 311
10.3 Supply Chain Management Systems 313
Managing the Flow of Materials, Data,
and Money 315
Order Fulfillment and Logistics 315
Steps in the Order Fulfillment Process 315
Innovations Driving Supply Chain Strategic
Priorities 316
10.4 Customer Relationship Management Systems 319
How are CRM Apps Different from ERP? Why are they
Different? 319
CRM Technology Perspective 320
x C O N T E N T S
Customer Acquisition and Retention 320
CRM for a Competitive Edge 320
Common CRM Mistakes: How to Avoid
Them 321
Justifying CRM 322
10.5 Enterprise Social Platforms 323
Growth of Enterprise Social Investments
and Markets 323
Sharepoint 324
Oracle’s Social Network 326
Jive 326
Chatter 326
Case 10.2 Business Case: Lowe’s Fresh Approach to
Supply Chain Management 328
Case 10.3 Video Case: Procter & Gamble: Creating
Conversations in the Cloud with 4.8 Billion
Consumers 329
11 Data Visualization and Geographic
Information Systems 331
Case 11.1 Opening Case: Safeway and PepsiCo
Collaborate to Reduce Stock Outages using Data
Visualization 332
11.1 Data Visualization and Learning 334
Learning, Exploration, and Discovery with
Visualization 336
Data Discovery Market Separates from the
BI Market 336
How Is Data Visualization Used in Business? 340
Data Visualization Tools 341
11.2 Enterprise Data Mashups 342
Mashup Architecture 343
Why Do Business Users Need Data Mashup
Technology? 344
Enterprise Mashup Technology 344
11.3 Digital Dashboards 345
Dashboards are Real Time 347
How Operational and Strategic
Dashboards Work 348
Benefits of Digital Dashboards 348
11.4 Geographic Information Systems and
Geospatial Data 349
Geocoding 350
GIS Is Not Your Grandfather’s Map 350
Infrastructure and Location-Aware Collection
of Geospatial Data 350
Applying GIS in Business 351
Case 11.2 Visualization Case: Are You Ready for
Football? 353
Case 11.3 Video Case: The Beauty of Data
Visualization—Data Detective 353
PART 4 Managing Business
Relationships, Projects, and Ethical
Responsibilities
12 IT Strategy, Sourcing, and Strategic
Technology Trends 354
Case 12.1 Opening Case: Intel Reaps Rewards from
Sustainable IT Strategy 355
12.1 IT Strategic Planning 357
Value Drivers 358
IT Strategic Plan Objectives 358
IT and Business Disconnects 359
Corporate and IT Governance 359
Reactive Approach to IT Investments Will Fail 359
IT Strategic Planning Process 359
12.2 Aligning IT with Business Objectives 362
Achieving and Sustaining a Competitive
Advantage 364
12.3 IT Sourcing Strategies 367
Sourcing and Cloud Services 368
Factors Driving Outsourcing 369
Outsourcing Risks and Hidden Costs 370
Offshoring 370
Outsourcing Life Cycle 371
Managing IT Vendor Relationships 373
Contracts: Get Everything in Writing 373
12.4 Balanced Scorecard 374
The Balanced Scorecard 374
Using the Balance Scorecard 375
Applying the BSC 377
12.5 Strategic Technology Trends 378
Strategic Technology Scanning 380
Finding Strategic Technologies 380
Case 12.2 Business Case: Cisco IT Improves Strategic
Vendor Management 382
Case 12.3 Data Analysis: Third-Party versus Company-
Owned Offshoring 383
13 Systems Development and Project
Management 385
Case 13.1 Opening Case: Denver International Airport
Learns from Mistakes Made in Failed Baggage-
Handling System Project 386
13.1 System Development Life Cycle 388
Stages of the SDLC 388
13.2 Systems Development Methodologies 391
Waterfall Model 391
Object-Oriented Analysis and Design 392
Agile Methodology 392
C O N T E N T S x i
The DevOps Approach to Systems
Development 394
13.3 Project Management Fundamentals 395
What Is a Project? 396
Choosing Projects 396
The Triple Constraint 397
The Project Management Framework 397
13.4 Initiating, Planning, and Executing Projects 399
Project Initiation 400
Project Planning 400
Project Execution 403
13.5 Monitoring/Controlling and Closing
Projects 404
Project Monitoring and Controlling 404
Project Closing or Post Mortem 407
Why Projects Fail 408
IT Project Management Mistakes 410
Case 13.2 Business Case: Steve Jobs’ Shared Vision
Project Management Style 412
Case 13.3 Demo Case: Mavenlink Project Management
and Planning Software 413
14 IT Ethics, Privacy, and
Sustainability 417
Case 14.1 Opening Case: Lessons Learned: How Google
Glass Raised Risk and Privacy Challenges 418
14.1 IT Ethics 420
Ethical versus Unethical Behavior 420
Competing Responsibilities 423
14.2 Privacy and Civil Rights 424
Privacy and the New Privacy
Paradox 424
Social Media Recruiting 425
Legal Note: Civil Rights 426
Competing Legal Concerns 427
Financial Organizations Must Comply with Social
Media Guidelines 428
14.3 Technology Addictions and Focus
Management 430
Digital Distractions and Loss of Focus 430
Focus Management 430
14.4 ICT and Sustainable Development 432
Global Temperature Rising Too Much
Too Fast 432
IT and Global Warming 433
Technology to Transform Business and
Society 436
Next Wave of Disruption Will Be More
Disruptive 438
Case 14.2 Business Case: Android Auto and
CarPlay Keep Drivers Safe, Legal, and
Productive 439
Case 14.3 Video Case: IT Ethics in the
Workplace 440
GLOSSARY 443
ORGANIZATION INDEX 448
NAME INDEX 450
SUBJECT INDEX 451
xiii
Information Technology for Management discusses a variety of
business strategies and explains how they rely on data, digital
technology, and mobile devices to support them in the on-
demand economy. Our goal is to provide students from any
business discipline with a strong foundation for understand-
ing the critical role that digital technology plays in enhancing
business sustainability, profitability, and growth and excel in
their careers. Enabling technologies discussed in this textbook
include the following:
• Performance Combining the latest capabilities in big data
analytics, reporting, collaboration, search, and digital com-
munication helps enterprises be more agile and cuts costs to
optimize business performance and profitability.
• Growth Strategic technologies enable business to create
new core competencies, expand their markets, and move
into new markets to experience exponential growth in the
on-demand economy.
• Sustainability Cloud services are fundamental to sus-
taining business profitability and growth in today’s on-
demand economy. They play a critical role in managing
projects and sourcing agreements, respecting personal pri-
vacy, encouraging social responsibility, and attracting and
engaging customers across multimedia channels to promote
sustainable business performance and growth.
In this 11th edition, students learn, explore, and understand
the importance of IT’s role in supporting the three essential
components of business performance improvement: technology,
business processes, and people.
What’s New in the
11th Edition?
In the 11th edition of IT for Management, we present and dis-
cuss concepts in a comprehensive yet easy-to-understand for-
mat by actively engaging students through a wide selection of
case studies, interactive figures, video animations, tech notes,
concept check questions, online and interactive exercises, and
critical thinking questions. We have enhanced the 11th edition
in the following ways:
New Author Dr. Carol Pollard, Professor of Computer Infor-
mation Systems at the Walker College of Business and former
Executive Director of the Center for Applied Research in Emerg-
ing Technologies (CARET) at Appalachian State University in
North Carolina, has taken the helm for the 11th edition. Carol
has applied her innovative teaching and learning techniques to
create a stronger pedagogical focus and more engaging format
for the text.
Diverse Audience IT for Management is directed toward
undergraduate, introductory MBA courses, and Executive Educa-
tion courses in Management Information Systems and General
Business programs. Concepts are explained in a straightforward
way, and interactive elements, tools, and techniques provide
tangible resources that appeal to all levels of students.
Strong Pedagogical Approach To encourage improved learn-
ing outcomes, we employed a blended learning approach, in
which different types of delivery and learning methods, enabled
and supported by technology, are blended with traditional
learning methods. For example, case study and theoretical
content are presented visually, textually, and/or interactively
to enable different groups of students to use different learning
strategies in different combinations to fit their individual learn-
ing style and enhance their learning. Throughout the book,
content has been reorganized to improve development of the
topics and improve understanding and readability. A large
number of images that did not enhance understanding have
been removed and replaced with informative and interactive
figures and tables that better convey critical concepts.
Leading-Edge Content Prior to and during the writing pro-
cess, we consulted with a number of vendors, IT professionals,
and managers who are hands-on users of leading technologies,
to learn about their IT/business successes, challenges, experi-
ences, and recommendations. To integrate the feedback of
these business and IT professionals, new or updated chapter
opening and closing cases have been added to many of the
chapters along with the addition of relevant, leading-edge
content in the body of the chapters.
New Technologies and Expanded Topics New to this edition
are the IT framework, business process reengineering, geoco-
ding, systems developments methodologies, including Water-
fall, object-oriented analysis, Agile and DevOps, advances
in Search Technology, the growth of Mobile Commerce and
Mobile Payment Systems, the Always-On Supply Chain, and
the Project Management framework. In addition, with more
purchases and transactions starting online and attention being
a scarce resource, students learn how search, semantic, and
recommendation technologies function to improve revenue.
Table P-1 provides a detailed list of new and expanded topics.
Useful Tools and Techniques New to this edition is a feature
we call the “IT Toolbox.” This involves the provision of a set of
useful tools or techniques relevant to chapter content. Collec-
tively, these tools and techniques equip readers with a suite of
IT tools that will be useful in their university classes, workplace,
and personal life.
Preface
xiv P R E F A C E
Chapter New and Expanded IT and Business Topics Innovative Enterprises
1. Disruptive IT Impacts
Companies, Competition,
and Careers
• IT’s role in the on-demand economy
• Business process improvement
• Business process re-engineering
• SMAC model
• Nature of on-demand work
• Becoming an informed IT user
• Technology mega trends
• Uber
• Airbnb
• FitBit
• NFL
• Teradata
2. Information Systems, IT Archi-
tecture, Data Governance, and
Cloud Computing
• IS concepts and framework
• Information, knowledge, wisdom model
• Software-defined data center
• Mediata
• National Climatic Data center
• U.S. National Security Agency
• Apple
• Uber
• WhatsApp
• Slack
• Vanderbilt University Medical Center
• Coca-Cola
TA B L E P – 1 Overview of New and Expanded Topics and Innovative Enterprises Discussed in the Chapters
Engaging Students
to Assure Learning
The 11th edition of Information Technology for Management
engages students with up-to-date coverage of the most impor-
tant IT trends today. Over the years, this IT textbook has dis-
tinguished itself with an emphasis on illustrating the use of
cutting-edge business technologies for supporting and achiev-
ing managerial goals and objectives. The 11th edition contin-
ues this tradition with more interactive activities and analyses.
Real-World Case Studies Each chapter contains numerous
real-world examples illustrating how businesses use IT to increase
productivity, improve efficiency, enhance communication and
collaboration, and gain a competitive edge. Faculty will appreciate
a variety of options for reinforcing student learning that include
three different types of Case Studies (opening case, video case,
and business case), along with interactive figures and whiteboard
animations that provide a multimedia overview of each chapter.
Interactive Figures and Whiteboard Animations The unique
presentation of interactive figures and whiteboard anima-
tions facilitates reflection on the textual content of the book
and provides a clear path to understanding key concepts. The
whiteboard animations fit particularly well with the “flipping
the classroom” model and complement additional functional-
ity and assets offered throughout the 11th edition. The interac-
tive figures actively engage the students in their own learning
to effectively reinforce concepts.
Learning Aids Each chapter contains various learning aids,
which include the following:
• Learning Objectives are listed at the beginning of each
chapter to help students focus their efforts and alert
them to the important concepts that will be discussed.
• IT at Work boxes spotlight real-world cases and innova-
tive uses of IT.
• Definitions of Key Terms appear in the margins
throughout the book.
• Tech Note boxes explore topics such as “Key
Performance Indicators” and “Six Basic Systems
Development Guidelines.”
• Career Insight boxes highlight different jobs in the IT
for management field.
End-of-Chapter Activities At the end of each chapter,
features designed to assure student learning include the
following:
• Critical Thinking Questions are designed to facilitate
student discussion.
• Online and Interactive Exercises encourage students
to explore additional topics.
• Analyze and Decide questions help students apply IT
concepts to business decisions.
• Concept Questions test students’ comprehension of
each learning objective at the end of each chapter to
ensure that the students are clear on the concepts.
Students are provided with immediate feedback on
their performance.
Details of New and Enhanced
Features of the 11th Edition
The textbook consists of 14 chapters organized into four mod-
ules. All chapters have new or updated sections, as shown in
Table P-1.
P R E F A C E xv
Chapter New and Expanded IT and Business Topics Innovative Enterprises
3. Data Management, Data
Analytics, and Business
Intelligence
• Dirty data costs and consequences
• Data life cycle
• Genomics and big data
• Aligning business intelligence with business strategy
• Coca-Cola
• Capitol One
• Travelocity
• First Wind
• Argo Corporation
• Walmart
• Infinity Insurance
• DoD and Homeland Security
• CarMax
• McDonald’s
• Verizon
4. Networks, Collaborative
Technology, and the
Internet of Things
• IPv6 protocol
• Types of networks
• Network terminology
• Quality of service
• Net neutrality
• Mobile networks and near-field communication
• Internet of Things
• Sony
• AT & T
• Time-Warner
• Amazon
• Warner Music
• Proctor & Gamble
• Walmart
• Ford
• Asda
• Unilever
• Caterpillar
• Santander
• Google
• Isle of Man
5. Cybersecurity and Risk
Management Technology
• Data breaches
• Major sources of cyberthreats
• Classes of hackers
• Spear phishing
• Crimeware categories
• Denial of service
• KPMG data loss barometer
• Enterprise risk management framework
• Yahoo
• Global Payments, Inc.
• Government of China
• Google
• U.S. Chamber of Commerce
• Brookings Institution
• LinkedIn
• Damballa
6. Search, Semantic, and Recom-
mendation Technology
• Social search technologies
• Personal assistant and voice search
• Mobile search and mobile SEO
• On-page and off-page SEO factors
• Updates to Google’s ranking algorithm
• Semantic search technologies
• Mint.com
• Google
• Microsoft
• Yahoo
• Netflix
• Apple
• Amazon
• Diigo
• World Wide Web Consortium (W3C)
TA B L E P – 1 Overview of New and Expanded Topics and Innovative Enterprises Discussed in the Chapters (continued)
(continued)
xvi P R E F A C E
Chapter New and Expanded IT and Business Topics Innovative Enterprises
7. Web 2.0 and Social Technology • Snapchat, the #2 social platform
• Social bookmarking
• Social customer service moves from optional
to essential
• Role of APIs in development of new Web applications
and functionality
• The dominance of Facebook and the demise
of Google+
• Emerging virtual-world technology
• KLM Royal Dutch Airlines
• Facebook, Inc.
• Myntra
• Snap, Inc.
• Kickstarter.com
• GoFundMe.com
• Oculus VR
• High Fidelity
• Twitter
• Social Mention
• Diigo
• Clipix
• Dropbox
8. Retail, E-commerce, and
Mobile Commerce Technology
• Direct and marketplace B2B ecommerce
• In-store retail technology
• Omni-channel retailing
• Growth of mobile commerce
• Growth of the mobile gaming market
• Mobile payment methods
• Mobile visual search
• Macys Department Stores
• Amazon.com
• Ally Bank
• LinkedIn.com
• Alibaba.com
• Dell, Inc.
• The Walt Disney Company
• PayPal, Inc.
• Chegg.com
9. Functional Business Systems • Business management systems
• Cross-functional coordination and integration
of systems
• Systems that support supply-chain management
• Social customer service
• eXtensible Business Reporting Language (XBRL)
• Ducati Motor Holding S.p.A.
• Office Depot
• Schurman Fine Papers
• BAE Systems
• Adweek
• Salesforce.com
• LinkedIn
• HSBC Bank
• United Rentals
10. Enterprise Systems • 3D printing impact on supply chain
• Selecting an ERP vendor
• Factors for ERP success
• Order fulfillment
• Always-on supply chain
• Enterprise social platforms
• Organovo
• Ferrari
• GE
• Siemens
• Organic Valley Family of Farms
• Boers & Co.
• Peters Ice Cream
• ScanSource
• Avanade
• Dillards
• FoxMeyer Drugs
• Joint Munitions Command
• Flower.com
• Red Robin
• Lowe’s
• Procter & Gamble
TA B L E P – 1 Overview of New and Expanded Topics and Innovative Enterprises Discussed in the Chapters (continued)
P R E F A C E xvii
Supplemental Materials
An extensive package of instructional materials is available
to support this 11th edition. These materials are accessible
from the book companion website at www.wiley.com/college/
turban.
• Instructor’s Manual The Instructor’s Manual presents
objectives from the text with additional information to make
them more appropriate and useful for the instructor. The
manual also includes practical applications of concepts,
case-study elaboration, answers to end-of-chapter ques-
tions, questions for review, questions for discussion, and
Internet exercises.
• Test Bank The test bank contains over 1,000 ques-
tions and problems (about 75 per chapter) consisting of
multiple-choice, short answer, fill-ins, and critical thinking/
essay questions.
• PowerPoint Presentation A series of slides designed
around the content of the text incorporates key points from
the text and illustrations where appropriate.
• Chapter Summary Whiteboard Animations A series of
video animations that summarize the content of each chapter
in an entertaining way to engage the students in grasping the
subject matter.
Chapter New and Expanded IT and Business Topics Innovative Enterprises
11. Data Visualization and
Geographic Information
Systems
• Increasing reliance on data discovery
• Data visualization tools
• Enterprise data mashups
• Geocoding
• Safeway
• PepsiCo
• IBM
• ADP Corp.
• Department of Veterans Affairs
• General Motors
12. IT Strategy, Sourcing, and
Strategic Technology Trends
• Business–IT alignment
• IT strategic planning
• Porter’s competitive forces model
• Porter’s value chain model
• Five-phase outsourcing life cycle
• IT sourcing strategies
• Strategic technology trends
• Technology scanning
• Intel
• Nestle Nespresso
• LinkedIn
• ESSA Academy
• Cisco
• Citigroup
13. Systems Development and
Project Management
• SDLC stages
• Systems development methodologies
• DevOps
• Project management framework
• PM core and support knowledge areas
• Responsibility matrix
• Denver International Airport
• U.S. Census Bureau
• Apple
• Mavenlink
14. IT Ethics, Privacy, and
Sustainability
• Ethical vs. unethical behavior
• Privacy paradox
• Climate change
• Technology addiction
• “People-first” approach to technology
• Disruptive technologies
• Google
• Target
• Facebook
• SnapChat
• NASA
• Apple
TA B L E P – 1 Overview of New and Expanded Topics and Innovative Enterprises Discussed in the Chapters (continued)
xviii P R E F A C E
Acknowledgments
No book is produced through the sole efforts of its authors, and
this book is no exception. Many people contributed to its crea-
tion, both directly and indirectly, and we wish to acknowledge
their contributions.
Special thanks go to the team at John Wiley, particularly
Darren Lalonde, Emma Townsend-Merino, Ethan Lipson, and
Loganathan Kandan for their ongoing and encouraging edito-
rial expertise and leadership. Their guidance, patience, humor,
and support during the development and production of this
most recent version of the textbook made the process much
easier. We couldn’t have done it without you!
Our sincere thanks also go to the following reviewers of the
11th edition. Their feedback, insights, and suggestions were
invaluable in ensuring the accuracy and readability of the book:
Joni Adkins, Northwest Missouri State University
Ahmad Al-Omari, Dakota State University
Rigoberto Chinchilla, Eastern Illinois University
Michael Donahue, Towson University
Samuel Elko, Seton Hill University
Robert Goble, Dallas Baptist University
Eileen Griffin, Canisius College
Binshan Lin, Louisiana State University in Shreveport
Thomas MacMullen, Eastern Illinois University
James Moore, Canisius College
Beverly S. Motich, Messiah College
Barin Nag, Towson University
Luis A. Otero, Inter-American University of Puerto Rico,
Metropolitan Campus
John Pearson, Southern Illinois University
Daniel Riding, Florida Institute of Technology
Josie Schneider, Columbia Southern University
Derek Sedlack, South University
Eric Weinstein, The University of La Verne
Patricia White, Columbia Southern University
Gene A. Wright, University of Wisconsin–Milwaukee
Many thanks also go to our dedicated graphic designers,
Kevin Hawley and Nathan Sherrill, without whose help we
would not have been able to create the innovative Whiteboard
Animations, and to Senior Photo Editor, Billy Ray, whose exten-
sive and expert research into the images used in the textbook
greatly enhanced the overall “look” of this 11th edition.
Extra special thanks go to our families, friends, and col-
leagues for the enormous encouragement, support, and under-
standing they provided as we dedicated time and effort to
creating this new edition.
Finally, we dedicate the 11th edition of Information
Technology for Management to the Memory of Dr. Linda
Volonino, the driving force behind editions 7 through 10 of IT
for Management. Thank you Linda, for all your hard work in
providing the foundation for this latest edition of the textbook.
CAROL POLLARD
GREGORY WOOD
1
CHAPTER 1
Disruptive IT Impacts Companies,
Competition, and Careers
L E A R N I N G O B J E C T I V E S
1.1 Describe how the on-demand economy is changing the way
that business is conducted.
1.2 Explain the role of IT in business process improvement.
Understand the concepts of business process reengineering
and competitive advantage.
1.3 Describe innovating technologies and explain how they are
disrupting enterprises.
1.4 Understand the value of being an “informed user” of IT and
the ways in which IT can add value to your career path and
performance in the on-demand economy.
C H A P T E R O U T L I N E
Case 1.1 Opening Case: Uber, Airbnb, and the
On-Demand Economy
1.1 Doing Business in the On-Demand Economy
1.2 Business Process Improvement and
Competitive Advantage
1.3 IT Innovation and Disruption
1.4 IT and You
Case 1.2 Business Case: The Internet of Things
Comes to the NFL
Case 1.3 Video Case: What Is the Value of Knowing
More and Doing More?
Introduction
The more digital technology advances, the more it is almost instantly integrated into our daily
lives. Many managers and entrepreneurs recognize the need to integrate digital technology
into their products and services. For example, it has been estimated that 78% of business
2 C H A P T E R 1 Disruptive IT Impacts Companies, Competition, and Careers
leaders expect their organizations to be a digital business by 2020. Outdated and complex
application architectures with a mix of interfaces can delay or prevent the release of new
products and services, and maintaining these obsolete systems absorbs large portions of the
information technology (IT) budget.
Companies such as Uber, Airbnb, Shyp, TaskRabbit, and other participants in the on-
demand economy are leveraging IT to create exciting new business models and revolu-
tionize the way workers, businesses, and customers interact and compete. Peter Hinssen, a
well-known business author, university lecturer, and digital consultant, described the change
in digital technology as follows:
Technology used to be nice. It used to be about making things a little bit better, a little
bit more efficient. But, technology stopped being nice: it’s disruptive. It’s changing our
business models, our consumer markets, our organizations. (MacIver, 2015)
As businesses continue to join the on-demand economy, IT professionals must constantly
scan for innovative new technologies to provide business value and help shape the future of
the business. For example, smart devices, mobile apps, sensors, and technology platforms—
along with increased customer demand for digital interactions and on-demand services—have
moved commerce in fresh new directions. We’ve all heard the phrase “there’s an app for that”
and that kind of consumer thinking is what drives the on-demand economy.
Business leaders today need to know what steps to take to get the most out of mobile,
social, cloud, big data, analytics, visualization technologies, and the Internet of Things (IoT) to
move their business forward and enable new on-demand business models. Faced with oppor-
tunities and challenges, managers need to know how to leverage IT earlier and more efficiently
than their competitors.
A goal of this book is to empower you to improve your use and management of IT at
work by raising your understanding of IT terminology, practices, and tools and developing
your IT skills to transform you into an informed IT user. Throughout this book, you will learn
how digital technology is transforming business and society in the on-demand economy as
the IT function takes on key strategic and operational roles that determine an enterprise’s
success or failure. You will also be provided with an in-depth look at IT trends that have
immediate and future capacity to influence products, services competition, and business
relationships. Along the way, we’ll describe many different ways in which IT is being used
and can be used in business and provide you with the some of the terminology, techniques
and tools that enable organizations to leverage IT to improve growth, performance, and
sustainability.
In this opening chapter, you will learn about the powerful impacts of digital technology
on people, business, government, entertainment, and society that are occurring in today’s on-
demand economy. You will also discover how leading companies are deploying digital tech-
nology and changing their business models, business processes, customer experiences, and
ways of working. We will present examples of innovative products, services, and distribution
channels to help you understand the digital revolution that is currently shaping the future of
business, the economy and society and changing management careers. And, we’ll explain why
IT is important to you and how becoming an “informed user” of IT will add significant value to
your career and overall quality of life.
Introduction 3
Case 1.1 Opening Case
THE ON-DEMAND BUSINESS FRAMEWORK
CORE ON-DEMAND
SERVICES
Logistics Management
Offline Services Move Online
Vendor Management
Interface Layer
CONSUMER
TECHNOLOGY
Ubiquitous Connectivity
Mobile Adoption
App Marketplace
COMPLIMENTARY
RESOURCES
Payment Systems
Cloud Services
CRM Platforms
1099 Community
CONSUMER
BEHAVIOR
THE
ON-DEMAND
ECONOMY
Convenience
Efficiency
Simplicity
Instant Gratification
N
IC
O
LA
S
M
A
E
TE
R
LI
N
C
K
/
S
tr
in
g
er
/
G
et
ty
Im
ag
es
Uber and Airbnb Revolutionize Business Models
in the On-Demand Economy
If you’ve used Uber or Airbnb, then you have participated in the
on-demand economy where speed, convenience, and simplicity
are key factors in consumer behavior and purchasing decisions.
Michael Boland, author of What’s Driving the Local On-Demand Econ-
omy, explains that as consumers, “We’re being conditioned to expect
everything on-demand as the mobile device increasingly becomes the
remote control for the physical world” (Boland, 2015). For example,
the majority of consumers who tap an Uber app to get a ride would
not consider dialing an 800 number for a taxi. With all transactions
performed by apps and automated processes, the entire process from
hailing to paying for a ride is slick, quick, and easy, without cash or
credit cards.
Tech Platforms Enabled On-Demand Services to Take Off
Decades of technological innovation have given us smartphone apps,
mobile payment platforms, GPS and map technology, and social
authentication. These technologies are being used to build the infra-
structure needed for on-demand services. This infrastructure—also
referred to as a technology platform or technology stack—supports
the exchange and coordination of staggering amounts of data. The
term technology stack reflects the fact that the platform is made up of
multiple layers (stacks) of hardware, software, network connectivity,
and data analytics capabilities.
In many consumer markets today, companies that do not have
iPhone or Android apps or technology platforms that support the
exchange of goods and services—no matter how useful their website—
may find themselves losing their competitive edge.
On-Demand Economy Requires a New Business Model
Uber and Airbnb are popular examples of companies that developed
on-demand business models to transform slow-to-innovate indus-
tries. A simple definition of business model is the way a company
generates revenue and makes a profit. On-demand business mod-
els provide real-time fulfillment of goods and services, which have
attracted millions of users worldwide. This model fits best when
speed and convenience matter the most. The ground transporta-
tion, grocery, and restaurant industries are examples of hyper-growth
categories in the on-demand world. Forward-thinking companies are
reshaping these industries.
Uber Business Model
Uber disrupted the taxi industry with a workforce that is essentially
any person with a smartphone and a car. Location-aware smartphone
apps bring drivers and passengers together, while in-app accounts
make the cashless payment process effortless. By simply opening the
Uber app and pressing the middle button for several seconds (a long
press), customers can order a ride to their current location, selecting
the kind of car they want. Payment is automatically charged to the
credit card on file with receipts via email.
The Uber concept developed in response to taxi scarcities. It
started on a snowy Paris night in 2008 when the two founders could
not get a cab. They wanted a dead-simple app that could get them
a car with a tap. On June 1, 2015, the entrepreneurs celebrated
Uber fifth anniversary and announced that the company had grown
into a transportation network covering 311 cities in 58 countries in
North and South Americas, Europe, Africa, Asia Pacific, and the
Middle East.
Uber has invested in new and developing technologies and part-
nerships. The company partnered with Carnegie Mellon University to
build robotic cars and new mapping software. In March 2015, Uber pur-
chased deCarta, a 40-person mapping start-up to reduce its depend-
ence on Google maps.
Airbnb Business Model
Another disruption to a traditional industry occurred when Airbnb
blindsided the hotel industry. Airbnb allows anyone with a spare
apartment or room—even if only for a day—to run their own bed and
breakfast by giving them a technology platform to market themselves
to a global market. By 2016, the Airbnb site had over 1.5 million list-
ings in 190 countries and 34,000 cities. Over 40 million guests have
used Airbnb worldwide. For comparison, Hilton, InterContinental, and
Marriott, the largest hotel chains in the world, have less than 1 million
rooms each.
Uber and Airbnb do not own inventory. Instead, they scale up
(expand) by improving their ability to acquire and match customers
and service providers.
4 C H A P T E R 1 Disruptive IT Impacts Companies, Competition, and Careers
1.1 Doing Business in the
On-Demand Economy
The on-demand economy is revolutionizing commercial activities in businesses around the
world. The businesses in this new economy are fueled by years of technology innovation and a
radical change in consumer behavior. As companies become more highly digitized, it becomes
more and more apparent that what companies can do depends on what their IT and data man-
agement systems can do. For over a decade, powerful new digital approaches to doing business
have emerged. And there is sufficient proof to expect even more rapid and dramatic changes
due to IT breakthroughs and advances.
In market segment after market segment, mobile communications and technology stacks
make it financially feasible for companies to bring together consumers and providers of prod-
ucts and services. These capabilities have created the on-demand economy. As Ev Williams,
cofounder of Twitter says,
The internet makes human desires more easily attainable. In other words, it offers
convenience. Convenience on the internet is basically achieved by two things: speed,
and cognitive ease. If you study what the really big things on the internet are, you
realize they are masters at making things fast and not making people think.
On-demand economy is the
economic activity created by
technology companies that fulfill
consumer demand through
the immediate provisioning of
products and services.
Business Success in Terms of Company Growth
and Valuation
The ride-hailing app Uber and the housing rental app Airbnb are two
of the most valuable start-ups, as displayed in Figure 1.1. Valuation
of a company at its early stages is based heavily on its growth potential
and future value. In contrast, the valuation of an established company
is based on its present value, which is calculated using traditional
financial ratios and techniques related to revenues or other assets.
Uber’s massive market value—estimated at $60 billion—is
greater than 80% of all Standard & Poor (S&P) 500 companies, many
of which have been around for 25, 50, or 100 years. Investors valued
Airbnb at $24 billion—higher than the value of the hotel giant Marriott
International. These companies would never have been able to grow
in the old way as a traditional organization, with their own inventory of
products, services, and workforce and traditional forms of technology.
Questions
1. In what ways are the Uber and Airbnb business similar or
different?
2. How did Uber achieve its new business model?
3. To what extent do you think changing their business models con-
tributed to the success of Uber and Airbnb?
Sources: Compiled from Primack (2015), Storbaek (2015), Winkler and MacMillan
(2015,) Jaconi (2014), Uber.com (2017), Airbnb.com (2017).
Started in 2008
Airbnb—short for Air Bed and
Breakfast
The leading disrupter in the hotel
and vacation rental market
By 2016, Airbnb was valued at
about $25 billion. Exceeded the
value of Marriott International
Uber
Started in 2009. Founder Garrett
Camp wanted to tackle the taxi
shortage problem in San Francisco
Uber epitomizes disruption
Changed the way customers think
about grabbing a ride
By 2016, Uber had higher valuation
than companies that make the cars
its drivers use–GM, Honda, and Ford
Airbnb
FIGURE 1.1 On-demand business models of Airbnb and Uber have been extremely
successful.
Doing Business in the On-Demand Economy 5
The proliferation of smartphone-connected consumers, simple and secure purchase flows, and
location-based services are a few of the market conditions and technological innovations that
are propelling the explosion of on-demand services.
Just as the rapid growth of online-only Amazon and eBay transformed retail, the even faster
growth of app-driven companies, like Uber, Airbnb, and Grubhub, has disrupted the taxi, hotel,
and restaurant markets. As you read in the opening case, in six short years, Uber changed the
taxi industry as it rose from start-up to the world’s most valuable private technology company,
and Airbnb tackled the fiercely competitive hotel market and attracted more than 60 million
customers to become the third most valuable venture-capital-backed company in the world.
Another example is Grubhub who became No. 1 in online food ordering, controlling over 20%
of that $9 billion market. What today’s successful technology businesses have in common are
platform-based business models. Platforms consist of hardware, software, and networks that
provide the connectivity for diverse transactions, such as ordering, tracking, user authen-
tication, and payments. These business models are designed to serve today’s on-demand
economy, which is all about time (on-demand), convenience (tap an app), and personalized
service (my way). For example, millennials want the ease of online payment over cash and
insist on efficiency for all aspects of their lives, including shopping, delivery, and travel.
Key strategic and tactical questions that determine an organization’s profitability and
management performance are shown in Figure 1.2. Answers to each question require an
understanding of the capabilities of mundane to complex IT, which ones to implement and
how to manage them.
Growth of the On-Demand Economy
Whether it is ease of scheduled deliveries or the corresponding time savings, the growth of
the on-demand economy is a product of its alignment with consumers’ growing appetite
for greater convenience, speed, and simplicity. A recent survey reported that 86.5 million
Americans have used the services of at least one on-demand start-up company (Chriss, 2016).
The growth of the on-demand economy demonstrates the high level of interest consumers
have in on-demand services from dog walking to laundry services, short-term home rentals,
massages, and truck hauling. Although just applying a mobile app to an existing service will not
ensure a company’s success, IT is a vital and integral part of the all businesses that are part of
the on-demand economy.
Business
processes,
producers,
and technology
Strategic direction:
industry, markets,
and customers
Business model
• What do we do?
• What is our direction?
• What markets & customers should
we be targeting and how do we
prepare for them?
• How do we do it?
• How do we generate revenues &
profits to sustain ourselves and
build our brand?
• How well do we do it?
• How can we be more
efficient?
FIGURE 1.2 Key strategic and tactical questions.
6 C H A P T E R 1 Disruptive IT Impacts Companies, Competition, and Careers
Low Cost of Entry One of the reasons that the on-demand economy has taken off is
that it is easier than ever to become an on-demand business. Companies like Dispatch, a soft-
ware as-a-service company, allow entrepreneurs to move into the on-demand world quickly
and inexpensively. For example, Aatlantic Fitness, a fitness equipment repair service company,
moved into the on-demand economy using Dispatch, and Handyman Connection, a 20-year-
old home repair service company, is using Dispatch’s platform to compete with Handy, an on-
demand service for house cleaning that has raised $60 million in venture capital.
Digital Business Models
The on-demand economy is driving the transformation of traditional business models to digital
business models to serve customers what they want and where they want it.
Business models are the ways enterprises generate revenue or sustain themselves. Digital
business models define how businesses make money via digital technology. Companies that
adopt digital business models are better positioned to take advantage of business opportu-
nities and survive, according to the Accenture Technology Vision 2013 report (Accenture, 2013).
Figure 1.3 contains examples of new technologies that destroyed old business models and
created new ones.
The ways in which market leaders are transitioning to digital business models include the
following:
• NBA talent scouts rely on sports analytics and advanced scouting systems NBA talent
scouts used to crunch players’ stats, watch live player performances, and review hours of
tapes to create player profiles. Now software that tracks players’ performance has changed
how basketball and soccer players are evaluated. For example, STATS’ SportVU technology
is revolutionizing the way sports contests are viewed, understood, played, and enjoyed.
SportVU uses six palm-sized digital cameras that track the movement of every player
on the court, record ball movement 25 times per second, and convert movements into
statistics. SportVU produces real-time and highly complex statistics to complement the tra-
ditional play-by-play. Predictive sport analytics can provide a 360-degree view of a player’s
performance and help teams make trading decisions. Sports analytics bring about small
competitive advantages that can shift games and even playoff series.
• Dashboards keep casino floor staff informed of player demand Competition in the
gaming industry is fierce, particularly during bad economic conditions. The use of manual
spreadsheets and gut-feeling decisions did not lead to optimal results. Casino opera-
tors facing pressure to increase their bottom line have invested in analytic tools, such as
Location-aware technologies
track items through
production and delivery to
reduce wasted time and
inefficiency in supply chains
and other business-to-
business (B2B) transactions
Twitter dominates the
reporting of news and events
as they are still happening
Facebook became the most
powerful sharing network
in the world
Smartphones, tablets, other
touch devices, and their apps
reshaped how organizations
interact with customers—and
how customers want
businesses to interact with
them
FIGURE 1.3 Digital business models refer to how companies engage
their customers digitally to create value via websites, social channels, and
mobile devices.
Doing Business in the On-Demand Economy 7
To address these issues, IT leaders said they need to focus on relationships, meet more
frequently with top management, and spend significant amounts of time with functional
leaders, customers, and suppliers. Companies also need to emphasize finding, keeping,
and developing IT talent and on improving IT to improve business performance. These
findings point to one clear message—IT in the on-demand economy is about meeting cus-
tomer needs.
Tangam’s Yield Management solution (TYM). TYM is used to increase the yield (profitability)
of blackjack, craps, and other table games. The analysis and insights from real-time apps
are used to improve the gaming experience and comfort of players.
Today, a top concern of well-established corporations, global financial institutions, born-on-the-
Web retailers, and government agencies is how to design their digital business models in order to
• Deliver an incredible customer experience
• Turn a profit
• Increase market share
• Engage their employees
In the digital (online) space, the customer experience must measure up to the very best the
Web has to offer. Stakes are high for those who get it right—or get it wrong. Forrester research
repeatedly confirms there is a strong relationship between the quality of a firm’s customer
experience and loyalty, which, in turn, increases revenue (Schmidt-Subramanian et al., 2013).
IT’s Role in the On-Demand Economy
According to the 2016 survey conducted by the Society of Information Management (SIM), 1,213
IT leaders (including 490 chief information officers (CIOs)) from 801 companies reported com-
panies that are more highly digitized and tightly connected are putting a greater emphasis on
the strategic use of IT to enhance growth and improve performance. As a result, IT priorities and
spending are changing (Kappelman et al., 2017).
A review of the top 10 IT management priorities reported in the survey results is shown
in Table 1.1. Along with business-IT alignment and security, Table 1.1 clearly demonstrates a
need for companies to focus on strategic and organizational priorities such as innovation, IT
and business agility, speed of IT delivery, and business productivity and efficiency.
TA B L E 1 . 1 10 Top IT Management Priorities
IT Management Issues
1 Technology Alignment with the Business
2 Security, Cybersecurity & Privacy
3 Innovation
4 IT Agility & Flexibility
5 Business Agility & Flexibility
6 Business Cost Reduction & Controls
7 IT Cost Reduction & Controls
8 Speed of IT Delivery & IT Time to Market
9 Business Strategic Planning
10 Business Productivity & Efficiency
Adapted from Kappelman et al. (2017).
8 C H A P T E R 1 Disruptive IT Impacts Companies, Competition, and Careers
IT Business Objectives
Now, more than ever, IT must be responsive to the needs of consumers who are demanding a
radical overhaul of business processes in companies across diverse industry sectors. Intuitive
interfaces, around-the-clock availability, real-time fulfillment, personalized treatment, global
consistency, and zero errors—this is the world to which customers have become increasingly
accustomed. And, it’s not just about providing a superior user or customer experience—when
companies get it right, they can also offer more competitive prices because of lower costs, bet-
ter operational controls, and open themselves up to less risk.
According to Chirantan Basu of Chron (Basu, 2017), to stay abreast of the ever- changing
business landscape and customer needs, IT today must concentrate on the following six
business objectives:
1. Product development From innovations in microprocessors to efficient drug-delivery
systems, IT helps businesses respond quickly to changing customer demands.
2. Stakeholder integration Companies use their investor relations websites to
communicate with shareholders, research analysts, and others in the market.
3. Process improvement An ERP system replaces dozens of legacy systems for finance,
human resources, and other functional areas, to increase efficiency and cost-effectiveness
of internal business processes.
4. Cost efficiencies IT allows companies to reduce transaction and implementation costs,
such as costs of duplication and postage of email versus snail mail.
5. Competitive advantage Companies can use agile development, prototyping, and other
systems methodologies to being a product to market cost-effectively and quickly.
6. Globalization Companies can outsource most of their noncore functions, such as HR
and finance, to offshore companies and use ICT to stay in contact with its global employ-
ees, customers, and suppliers 24/7.
Every technology innovation triggers opportunities and threats to business models and strat-
egies. With rare exceptions, every business model depends on a mix of IT, knowledge of its
potential, the requirements for success, and, equally important, its limitations.
Questions
1. What precipitated the on-demand economy?
2. How is IT contributing to the success of the on-demand economy?
3. List the six IT business objectives.
4. What are the key strategic and tactical questions that determine an organization’s profitability and
management performance?
5. What is a business model?
6. What is a digital business model?
7. Give two examples of how companies are transitioning to digital business models.
8. What factors are driving the move to digital business models?
1.2 Business Process Improvement
and Competitive Advantage
Given that a company’s success depends on the efficiency of its business processes, even small
improvements in key processes can have significant payoff. All functions and departments in
the enterprise have tasks they need to complete to produce outputs, or deliverables, in order
to meet their objectives.
Business Process Improvement and Competitive Advantage 9
Before you can begin to improve something, you have to understand what it is you are
improving. We’ll start by defining a business process, looking at its characteristics, and then
exploring ways in which a business process can be improved either incrementally or radically
through Business Process Reengineering.
What Is a Business Process?
Business processes are series of steps by which organizations coordinate and organize tasks
to get work done. In the simplest terms, a process consists of activities that convert inputs into
outputs by doing work.
Examples of common business processes are as follows:
• Accounting Invoicing; reconciling accounts; auditing
• Finance Credit card or loan approval; estimating credit risk and financing terms
• Human resources (HR) Recruiting and hiring; assessing compliance with regulations;
evaluating job performance
• IT or information systems Generating and distributing reports and data visualizations;
data analytics; data archiving
• Marketing Sales; product promotion; design and implementation of sales campaigns;
qualifying a lead
• Production and operations Shipping; receiving; quality control; inventory management
• Cross-functional business processes Involving two or more functions, for example,
order fulfillment and product development
Three Components of a Business Process Business processes have the three
basic components shown in Figure 1.4. They involve inputs, activities, and deliverables.
Processes can be formal or informal. Formal processes are documented and have well-
established steps. Order taking and credit approval processes are examples. Routine formal
processes are referred to as standard operating procedures (SOPs). An SOP is a well-defined
and documented way of doing something. An effective SOP documents who will perform the
tasks; what materials to use; and where, how, and when the tasks are to be performed. SOPs
are needed for the handling of food, hazardous materials, or situations involving safety, secu-
rity, or compliance. In contrast, informal processes are typically undocumented, have inputs
that may not yet been identified, and are knowledge-intensive. Although enterprises would
prefer to formalize their informal processes in order to better understand, share, and optimize
them, in many situations process knowledge remains in people’s heads.
Processes range from slow, rigid to fast-moving, adaptive. Rigid processes can be struc-
tured to be resistant to change, such as those that enforce security or compliance regulations.
Adaptive processes are designed to respond to change or emerging conditions, particularly in
marketing and IT.
Improving Business Processes
Designing an effective process can be complex because you need a deep understanding of the
inputs and outputs (also known as deliverables), how things can go wrong, and how to prevent
Deliverables are the outputs
or tangible things that are
produced by a business process.
Common deliverables are
products, services, actions, plans,
or decisions, such as to approve
or deny a credit application.
Deliverables are produced in order
to achieve specific objectives.
raw materials,
data,
knowledge,
expertise
work that
transforms
inputs and acts
on data and
knowledge
products,
services,
plans,
or actions
Inputs Activities
Business Process
Deliverables
FIGURE 1.4 Three components of a business process.
10 C H A P T E R 1 Disruptive IT Impacts Companies, Competition, and Careers
things from going wrong. For example, Dell had implemented a new process to reduce the time
that tech support spent handling customer service calls. In an effort to minimize the length of
the call, tech support’s quality dropped so much that customers had to call multiple times to
solve their problems. The new process had backfired—increasing the time to resolve computer
problems and aggravating Dell customers.
The importance of efficient business processes and continuous process improvement
cannot be overemphasized. Why? Because 100% of an enterprise’s performance is the result
of its processes. Maximizing the use of inputs in order to carry out similar activities better than
one’s competitors is a critical success factor (CSF). Poorly designed, flawed, or outdated
business processes waste resources, increase costs, cause delays, and aggravate customers.
For example, when customers’ orders are not filled on time or correctly, customer loyalty
suffers, returns increase, and reshipping increases costs. The blame may not be employee
incompetence, but a flawed order fulfillment process.
Don’t Automate, Obliterate!
In today’s on-demand economy, incrementally improving a business process isn’t always
sufficient to create the type of change required. Instead, radical changes need to occur to meet
higher customer expectations. To do this, companies have to go beyond simply automating
an existing process. They must reinvent the entire business process, including reducing the
number of steps required, eliminating documents, developing automated decision-making,
and dealing with regulatory and fraud issues. Operating models, skills, organizational struc-
tures, and roles need to be redesigned to match the reinvented processes. Data models should
be adjusted and rebuilt to enable better decision-making, performance tracking, and cus-
tomer insights.
Leading organizations have come to recognize that it can take a long time to see the benefits
of traditional large-scale projects that migrate all current processes to digital and sometimes
they don’t work. Instead, successful companies are reinventing processes, challenging every-
thing related to an existing process and rebuilding it using cutting-edge digital technology. For
example, rather than creating technology tools to help back-office employees type customer
complaints into their systems, leading organizations create self-serve options for customers to
type in their own complaints.
Business Process Reengineering (BPR) The process by which these types of rad-
ical process change can be achieved is referred to as business process reengineering (BPR),
its slogan is “Don’t automate, obliterate!” (Hammer and Champy, 2006). Consisting of eight
stages, shown in Figure 1.5, BPR proposes that simply applying IT to a manual or outdated pro-
cess does not always optimize it. Instead, processes need to be examined to determine whether
they are still necessary. After unnecessary processes are identified and eliminated, the remain-
ing ones are redesigned (or reengineered) in order to automate or streamline them. Next, the
new process is implemented and put into operation and its performance is evaluated. Finally,
the process is reassessed over time to continually improve it.
The goal of BPR is to eliminate unnecessary, non-value-added processes, and simplify
and automate the remaining processes to significantly reduce cycle time, labor, and costs. For
example, reengineering the credit approval process cuts time from several days or hours to
minutes or less. Simplifying processes naturally reduces the time needed to complete the pro-
cess, which also cuts down on errors.
After eliminating waste, technology can enhance processes by (1) automating existing
manual processes; (2) expanding the data flows to reach more functions in order to make it pos-
sible for sequential activities to occur in parallel; and (3) creating innovative business processes
that, in turn, create new business models. For instance, consumers can scan an image of a
product and land on an e-commerce site, such as Amazon.com, selling that product. This pro-
cess flips the traditional selling process by making it customer-centric.
You will read more about optimizing business processes and role of business process
management (BPM) role in the alignment of IT and business strategy in Chapter 13.
Business Process Improvement and Competitive Advantage 11
Gaining a Competitive Advantage
Understanding trends that affect the new ways business is being done and getting in front of
those trends by changing adding, deleting, and changing existing business processes gives
organizations an important competitive advantage over their competitors. Helping a
company gain, maintain, and sustain a competitive advantage in the market is a very impor-
tant function of IT. In business, as in sports or politics, companies want to win—customers,
market share, and position in the industry. Basically, this requires gaining an edge over com-
petitors by being first to take advantage of market opportunities, providing better customer
experiences, offering unique products or services, or convincing customers why your business
is a more attractive alternative than your competitors.
Influential industry leaders cite “new competition” as their largest business challenge.
Once an enterprise has developed a competitive edge, it can only be sustained by continually
pursuing new and better ways to compete. Maintaining a competitive advantage requires
forecasting trends and industry changes and figuring out what the company needs to do to stay
ahead of the game. It demands continuously tracking competitors and their future plans and
promptly taking corrective actions. Competitiveness depends heavily on IT agility and
responsiveness. The benefit of IT agility is that it enables organizations to take advantage of
opportunities faster or more effectively.
Closely related to IT agility is flexibility. For example, mobile networks are flexible—able
to be set up, moved, or removed easily, without dealing with cables and other physical require-
ments of wired networks. Mass migration to mobile devices from PCs has expanded the scope
of IT beyond traditional organizational boundaries—making location practically irrelevant.
IT agility, flexibility, and mobility are tightly interrelated and fully dependent on an organi-
zation’s IT infrastructure and architecture, which are discussed in Chapter 2.
With mobile devices, applications, platforms, and social media becoming inseparable
parts of work life and corporate collaboration and with more employees working from home,
the result is the rapid consumerization of IT. IT consumerization is the migration of consumer
Competitive advantage is an
edge that enables a company
to outperform its average
competitor.
Agility means being able to
respond quickly.
Responsiveness means that IT
capacity can be easily scaled up or
down as needed, which essentially
requires cloud computing.
Flexibility means having
the ability to quickly integrate
new business functions or to
easily reconfigure software or
applications.
1. Develop
Vision and
Objectives
2. Understand
Existing
Processes
3. Identify
Process for
Redesign
4. Identify
Change Levers
5. Implement
New Process
6. Make New
Process
Operational
7. Evaluate New
Process
8. Perform
Continuous
Improvement
Business Process
Reengineering
FIGURE 1.5 Eight phases of business process reengineering.
12 C H A P T E R 1 Disruptive IT Impacts Companies, Competition, and Careers
technology into enterprise IT environments. This shift has occurred because personally owned
IT is as capable and cost–effective as its enterprise equivalents. IT at Work 1.1 demonstrates
how FitBit has maintained a competitive advantage with its fitness tracker.
As evidenced by the mergers of Grubhub/Seamless in food delivery and Handybook/Exec
in home services, consolidation will accelerate as competition grows. This trend is underscored
in the following examples:
• Collaboration of complementary, noncompetitive businesses will become commonplace
as a means to collectively educate consumers about the benefits of on-demand ser-
vices, increase awareness, and provide added value to core users. These range from
cross- promotions similar to that of Instacart/Washio to close partnerships such as that of
WunWun/Gett.
• Legacy providers in hospitality, transportation, and other Fortune 500s will “partner with”
or “acquire” more innovative on-demand companies. Ken Chenault, Chairman and CEO
of American Express, conceded in their annual report, “Our industry is being redefined by
many forces, including the continued revolution in online and mobile technologies, which
is transforming commerce and society.” Given the emerging influence of on-demand ser-
vices, Amex launched a partnership with Uber earlier this year. American Express was able
to get a foot in the door by allowing customers to earn 2× points for its spend on Uber with
an American Express credit card.
• As on-demand businesses solve for the current technological and logistical challenges,
design will increasingly become one of the most meaningful forms of competitive advantage.
Creating a memorable, frictionless user interface is the next battleground for addressing con-
sumers’ insatiable appetite for greater simplicity and convenience. Scott Belsky points out,
“A new cohort of design-driven companies are adding a layer of convenience between us and
the underlying services and utilities that improve our lives. This could change everything.”
Sources: Compiled from Ashcroft (2015), Nusca (2015), Grand View Research
(2016), and Fitbit.com (2016).
IT at Work 1.1
FitBit: Smart, Connected Device Transforms
Competition and Promotes Sustainability
In the first year of its existence, FitBit sold 100,000 devices. At the
time, there were countless weight loss and exercise programs, plans,
and gimmicks. But smart, connected wearable activity trackers
were virtually nonexistent. Five years later, FitBit managed to take
the title biggest selling manufacturer of wearable tech when it sold
a whopping 21 million devices in 1 year. It still holds that title today.
Vision: Simple Approach Plus Smart Device
FitBit was launched in San Francisco, California, by Eric Friedman
and James Park. These entrepreneurs took a basic approach to
personal health and fitness—eating right and keeping active. Their
vision was to develop a smart device that would motivate users to
be more active, eat a well-rounded diet, and ultimately become
healthier.
Throughout the day, FitBit logs data about the wearer’s activi-
ties, including the number of steps taken, distance travelled, calories
burned, and what needs to be done to reach a personal daily goal, for
example, walking 2 miles. FitBit’s internal memory can store at least a
week of activity data.
One of FitBit’s competitive strengths is the app that is accessi-
ble from a smartphone. Users can sync FitBit devices and view their
online profile, activity levels, and sleep patterns on dashboards that
display on more than 150 mobile devices, including iOS, Android, and
Windows Phone products. This compatibility maximizes the number
of friends and family in each user’s network to share performance
stats. It also motivates and increases user retention.
First Class Fitness
A smart wearable product that fits effortlessly into users’ life styles
launched an industry and made FitBit a market leader. In the sec-
ond quarter of 2015 (2Q15), FitBit shipped 4.4 million units, up
159% from the same quarter a year ago (2Q14) and held 24.3%
global market share. Second in line was Apple with 3.6 million
units shipped in 2Q15 and 19.9% global market share. Thanks to
the technology that enabled FitBit and the company’s growing
reputation, Friedman and Park are likely to be in business for a
long time.
IT at Work Questions
1. How did FitBit manage to take the title of biggest selling
manufacturer of wearable technology tech and sustain it?
2. What could other companies who produce fitness trackers
challenge FitBit in the marketplace?
3. What other features do you think consumers would like Fit-
Bit to incorporate into its fitness tracker to further improve
it? How would consumers and FitBit benefit from these
improvements?
IT Innovation and Disruption 13
Software Support for BPM
The purpose of business process management (BPM) is to help enterprises become more agile
and effective by enabling them to better understand, manage, and adapt their business pro-
cesses. Vendors, consulting and tech firms offer BPM expertise, services, software suites, and tools.
BPM software is used to map processes performed either by computers or manually—and
to design new ones. The software includes built-in templates showing workflows and rules
for various functions, such as rules for credit approval. These templates and rules provide
consistency and high-quality outcomes. For example, Oracle’s WebLogic Server Process Edition
includes server software and process integration tools for automating complex business
processes, such as handling an insurance claim.
But, BPM initiatives can be extremely challenging, and in order to be successful, BPM
requires buy-in from a broad cross section of the business, the right technology selection, and
highly effective change management processes.
Questions
1. What is a business process? Give three examples.
2. What is the difference between business deliverables and objectives?
3. List and give examples of the three components of a business process.
4. Explain the differences between formal and informal processes.
5. What is an SOP?
6. What is the purpose of BPM?
1.3 IT Innovation and Disruption
Digital technology creates new markets, businesses, products, and careers. As digital changes the
way consumers and retailers buy and sell products, companies must adapt and innovate to ensure
their product offerings, platforms, technologies, and search options cater to these changing needs.
Social–Mobile–Analytics–Cloud (SMAC) Model
We are in the era of social–mobile–analytics–cloud (SMAC) computing that is reshaping
business strategies and day-to-day operations (Figure 1.6).
Business process
management consists of
methods, tools, and technology to
support and continuously improve
business processes.
Estimated 15 billion
devices are connected to
the Internet—forecasted
to hit 50 billion by 2020
as more devices connect
via mobile networks
Current 4.2 billion IoT
devices projected to
increase to 24 billion in
2020. This represents
73% of the total Internet-
connected base
79% of online adults and
68% of all Americans use
Facebook. Mobile use
generates 30% of
Facebook’s ad revenue.
U.S. mobile commerce
sales top $104.05 billion
Facebook dominates all
other social platforms
with audience reach
FIGURE 1.6 SMAC reshapes business strategies and day-to-day
operations.
14 C H A P T E R 1 Disruptive IT Impacts Companies, Competition, and Careers
The cloud consists of huge data centers accessible via the Internet and forms the core by
providing 24/7 access to storage, applications, and services. Handhelds and wearables, such
as FitBit, Pebble, and the Apple Watch, and their users form the edge. Social channels con-
nect the core and edge. The SMAC integration creates the technical and services infrastructure
needed for digital business. This infrastructure makes it possible to meet the expectations of
employees, customers, and business partners given that almost everyone is connected (social),
everywhere they go (mobile), gets the information they need (analytics), and has 24/7 access to
products and services (cloud).
Here are three examples of SMAC’s influence:
1. Powerful social influences impact advertising and marketing Connections and feed-
back via social networks have changed the balance of influence. Consumers are more likely
to trust tweets from ordinary people than recommendations made by celebrity endorse-
ments. And, negative sentiments posted or tweeted can damage brands.
2. Consumer devices go digital and offer new services The Nike+ FuelBand wristband
helps customers track their exercise activities and calories burned. The device links to a
mobile app that lets users post their progress on Facebook.
3. eBay’s move to cloud technology improves sellers’ and buyers’ experiences The
world’s largest online marketplace, eBay, moved its IT infrastructure to the cloud. With
cloud computing, eBay is able to introduce new types of landing pages and customer
experiences without the delay associated with having to buy additional computing
resources.
The balance of power has shifted as business is increasingly driven by individuals for whom
mobiles are an extension of their body and mind. They expect to use location-aware services,
apps, alerts, social networks, and the latest digital capabilities at work and outside work. To a
growing extent, customer loyalty and revenue growth depend on a business’s ability to offer
unique customer experiences that wow customers more than competitors can.
Technology Mega Trends
For 21st-century enterprises, connectivity, big data and analytics, and digitization are tech-
nology mega trends that cannot be ignored. Business breakthroughs and innovation would be
impossible without them. They also mark the difference between outdated 20th-century
business models and practices and those of today’s on-demand economy.
The most influential IT mega trends driving digital transformation of companies in the on-
demand economy are discussed next.
Connectivity Companies need to connect with consumers and business partners across
multiple channels and devices using digital platforms that consist of hardware, software
( mobile apps), networks (social media), (embedded sensors), and cloud computing.
For example, rather than run applications or programs from software stored on a com-
puter or server owned by the company, cloud computing allows companies to access the
same kinds of applications through the Internet. Major business cloud computing providers
include Amazon Web Services (AWS), Cisco Powered, Dell Cloud Solutions, Google Cloud, IBM
Cloud Solutions, and Teradata Cloud. One of the many benefits of cloud is that it provides the
flexibility to acquire or expand connectivity and computing power as needed for operations,
business transactions, and communication.
Expanded connectivity supports smart products, which have the ability to sense, process,
report, and take corrective action, such as smart clothing, watches, phones, to smart buildings
and smart cities. This IoT is becoming a driving force in the on-demand economy.
Connectivity pushes other sub trends, like big data, to create market opportunities for
new products and services, such as social sentiment analysis, open innovation, new insurance
business models, and micro personalized marketing and medicines. Big data is one of the many
disruptive technologies that are impacting people, processes, and profits.
Mega trends are forces that
shape or create the future
of business, the economy,
and society.
IT Innovation and Disruption 15
Big Data and Data Analytics There is no question that the increasing volume of
data can be valuable, but only if they are processed and available when and where they are
needed. The problem is that the amount, variety, structure, and speed of data being generated
or collected by enterprises differ significantly from traditional data. Big data are what high-
volume, mostly text data are called. Big data stream in from multiple channels and sources,
including the following:
• Mobile devices and machine-to-machine sensors embedded in everything from airport
runways to casino chips (Later in this chapter, you will read more about the IoT.)
• Social content from texts, tweets, posts, blogs
• Clickstream data from the Web and Internet searches
• Video data and photos from retail and user-generated content
• Financial, medical, research, customer, and business-to-business transactions.
Big data are 80% to 90% unstructured. Unstructured data do not have a predictable
format like a credit card application form. Huge volumes of unstructured data flooding into an
enterprise are too much for traditional technology to process and analyze quickly. Big data tend
to be more time-sensitive than traditional (or small) data. Data collected from social, mobile, and
other channels are analyzed to gain insights and make smart decisions that drive up the bottom
line. Machine-generated data from sensors and social media texts are main sources of big data.
Big data has been one of the most disruptive forces businesses have seen in a long time.
But when an enterprise harnesses its data and is able to act on analytic insights, it can turn the
challenges into opportunities.
Digitization Across industries, companies are attempting to transform their disconnected
or disjointed approaches to customers, products, services, and operating models to an
always-on, real-time, and information-rich marketplace. Some leaders are redesigning their
capabilities and operating models to take full advantage of digital technologies to keep step
with the “connected” consumer and attract talent. Others are creating qualitatively new
business models—and tremendous value—around disruptive digital opportunities. In doing so,
these companies secure not only continued relevance but also superior returns.
Digitization often requires that old wisdom be combined with new skills, for example, by
training a merchandising manager to program a pricing algorithm and creating new roles, such
as user-experience designer. The benefits of digitizing processes, through business process
reengineering, are huge. By digitizing information-intensive processes, costs can be cut by up
to 90% and turnaround times improved by several orders of magnitude.
Examples span multiple industries. For example, one bank digitized its mortgage appli-
cation and decision process, cutting the cost per new mortgage by 70% and slashing time to
preliminary approval from several days to just one minute. A telecommunications company
created a self-serve, prepaid service where customers could order and activate phones without
back-office involvement. A shoe retailer built a system to manage its in-store inventory that
enabled it to know immediately whether a shoe and size was in stock—saving time for cus-
tomers and sales staff. An insurance company built a digital process to automatically adjudi-
cate a large share of its simple claims.
In addition, replacing paper and manual processes with software allows businesses to
automatically collect data that can be mined to better understand process performance, cost
drivers, and causes of risk. Real-time reports and dashboards on digital-process performance
enable managers to address problems before they get out of control. For example, quality
issues in a company’s supply chain can be identified and remedied more rapidly by monitoring
customer buying behavior and feedback in digital channels.
Machine-to-Machine Technology Sensors can be embedded in most products.
Objects that connect themselves to the Internet include cars, heart monitors, stoplights, and
appliances. Sensors are designed to detect and react, such as Ford’s rain-sensing front wipers that
use an advanced optical sensor to detect the intensity of rain or snowfall and adjust wiper speed
Digitization is the process of
transforming any kind of activity
or information into a digital
format that can be collected,
stored, searched, and analyzed
electronically—and efficiently.
16 C H A P T E R 1 Disruptive IT Impacts Companies, Competition, and Careers
accordingly. Machine-to-machine (M2M) technology enables sensor-embedded products to
share reliable real-time data via radio signals. M2M and the Internet of Things (IoT) are widely
used to automate business processes in industries ranging from transportation to health care. By
adding sensors to trucks, turbines, roadways, utility meters, heart monitors, vending machines,
and other equipment they sell, companies can track and manage their products remotely.
When devices or products are embedded with sensors, companies can track their move-
ments or monitor interactions with them. Business models can be adjusted to take advantage
of what is learned from this behavioral data. For example, an insurance company offers to install
location sensors in customers’ cars. By doing so, the company develops the ability to price the
drivers’ policies on how a car is driven and where it travels. Pricing is customized to match the
actual risks of operating a vehicle rather than based on general proxies—driver’s age, gender, or
location of residence. Table 1.2 lists a number of opportunities for improvement through the
application of embedded physical things.
Lessons Learned from Companies Using Disruptive
Technologies
Those companies who have adapted to change by exploiting digital technology and software
are outperforming their peers. According to a survey conducted by CA Associates, companies
who have turned the way they use technology from being a cost center and operational
function to being a genuine competitive differentiator are reaping the benefits. Many reported
doubling their revenue growth, experiencing a higher profit by a factor of 2.5 and increasing
new business-based revenue by a factor of 1.5 (Vaughn-Brown, 2014). The five factors to which
companies attribute these benefits can be summed up in the following Lessons Learned:
1. Exploit the power of software Become “app-centric” and extend core business func-
tions to include software development.
2. Develop, deliver, disrupt—quickly! Embrace agile development techniques and
broadly implement DevOps.
3. Boost speed and efficiency with automated programming interfaces (APIs) Take a
managed approach to use APIs for building full-function Web applications (particularly
mobile apps) and for integrating back-office systems.
Internet of Things (IoT) refers
to a set of capabilities enabled
when physical things are
connected to the Internet
via sensors.
TA B L E 1 . 2 Improvement Opportunities from Embedded Sensors
Industry Sector Application Payoff
Oil and gas Exploration and development rely on extensive sensor
networks placed in the earth’s crust. Sensors can
produce accurate readings of the location, structure,
and dimensions of potential fields
Lower development costs and improved oil flows
Health care Sensors and data links can monitor patients’ behavior
and symptoms in real time and at low cost allowing
physicians to more precisely diagnose disease and
prescribe treatment regimens
Reduce hospitalization and treatment costs by $1 billion
per year in the United States
Retail Sensors can capture shoppers’ profile data stored in
their membership cards to help close purchases
Additional information and discounts at point of sale
Farming Ground sensors can take into account crop and field
conditions and adjust the amount of fertilizer that is
spread on areas that need more nutrients
Reduction in time and cost
Advertising Billboards can scan people passing by, assessing
how they fit consumer profiles, and instantly change
displayed messages based on those assessments
Better targeted marketing campaigns; flexibility;
increased revenues
Automotive Systems can detect imminent collisions and take evasive
action, such as automatic braking systems
Potential accident reduction savings of more than
$100 billion annually
IT and You 17
4. Leverage third-party innovation Take a more managed approach to use APIs for
integrating third-party services into applications and enable external develop access to
systems and data.
5. Maximize returns with smarter IT investments Get smarter at assessing and prioritiz-
ing IT investments to maximize return on investment and put portfolio management in
place to prioritize and track IT programs.
Business opportunities and challenges presented by today’s technology innovations are on an
unprecedented scale. Cloud services, big data, mobility, digitization, and the IoT are likely to
disrupt many industries and shake up competitive positions.
Innovation is necessary for any company that wants to remain relevant, retain customers,
and increase profits. Increased competition, expanded global markets, and empowered
customers define today’s on-demand business environment.
Questions
1. What are the benefits of cloud computing?
2. What is M2M technology? Give an example of a business process that could be automated with M2M.
3. Describe the relationships in the SMAC model.
4. What impacts is the SMAC model having on business?
5. Why have mobile devices given consumers more power in the marketplace?
6. Explain why connectivity is important in today’s on-demand economy.
7. In what ways is IT disrupting business?
1.4 IT and You
Today, IT and information systems touch nearly all aspects of our lives. IT is a part of our social
life, our work, and every business process, and it is no longer the sole responsibility of the IT
department. Just think about much of your day you spend interacting with technology—your
iPad, PC, and smartphone. It has been reported that the average American checks his/her
phone 46 times every day! That’s an increase of 35% over the 33 looks per day reported in a
similar study just one year earlier. Aggregated across the 185 million American smartphone
users, that’s 8 billion “looks” per day (Eadicicco, 2015).
IT impacts the way you work, the way you learn, the way you communicate and socialize
and the way you entertain yourself. Today, success in any field, be it health care, marketing,
finance, accounting, law, education, sports, entertainment, etc. requires much more than a cur-
sory knowledge of IT. IT is and will remain the foundation of the global economy and is espe-
cially important in the on-demand economy.
On-Demand Workers
A recent survey of on-demand economy (Chriss, 2016) in the United States and online talent
recruiters reported an increase in people working in the on-demand economy who are enjoy-
ing a new way of working. Other facts and stats from the survey reveal the U.S. On-Demand
workforce as a community of 45 million workers, the majority of whom are younger, optimistic,
and urban-based (Table 1.3).
The survey also revealed that fewer and fewer people are looking for traditional
employment. For example, 91% like the control over where, when, and how they work that the
on-demand jobs offer them. The motivation for most is not to replace a traditional job, but to
earn supplemental income (Table 1.4).
Cloud service is any computing
resource that is provided over the
Internet on demand.
18 C H A P T E R 1 Disruptive IT Impacts Companies, Competition, and Careers
The data also shows a strong entrepreneurial drive behind people choosing on-demand work.
Just over one-third of respondents owned full- or part-time business and approximately one
quarter reporting they are working in the on-demand economy to build a business. This entre-
preneurial spirit is reflected in the ways that on-demand worker are compensated. While the
40-hour workweek is still alive and well, sources of income have changed. Instead of one pay-
check, on-demand workers typically receive their income from three different sources:
1. On-demand work
2. Contracting and consulting
3. Running a business
Changes in Work Status While the on-demand economy provides positive opportunities,
it can also offer limited benefits and inferior infrastructure. Take, for example, the “ contractor”
model that companies like Uber use. Initially, Uber set the standard for on-demand business
by labeling its drivers “independent contractors” and essentially claiming that all of its 160,000
drivers were self-employed. This pushed many of the costs of doing business onto the independent
contractors’ shoulders and deprived them of baseline labor protections such as worker’s
compensation, social security contributions, minimum wage, and discrimination protections.
This business model also allowed companies using the Uber model to sidestep federal,
state, and county taxes and insurance premiums and undercuts competitors that used a
traditional W-2 hiring model. However, not all on-demand businesses use the Uber model.
Some companies treat their workers as employees from the start, while others have
switched to the W-2 model and both approaches are reaping benefits. Shyp CEO Kevin Gibbon
posted on LinkedIn that the move to employee status was “an investment in a longer-time
relationship with our couriers, which we believe will ultimately create the best experience
for our customers.” After moving to the W-2 model, Shyp had only 1 out of 245 employees
quit and customer complaints decreased at the package delivery company. And Instacart, a
food shopping and delivery service, offered its shoppers the option to convert to part-time
employees so they could offer training to ensure a consistent customer experience and greater
customer satisfaction (National Employment Law Project, 2016).
Regardless of their work status, it would appear that overall on-demand workers are
highly satisfied with their work environment, perhaps because it fits a unique need. Intuit’s on-
demand economy survey reported the following:
• 70% of on-demand workers are satisfied with their work.
• 81% plan to continue working with the same provider over the next year.
• 63% are happier to be working in the on-demand economy.
Overall, on-demand workers are forward-looking, eager to embrace new opportunities, and
want to take charge of their careers.
TA B L E 1 . 3 Profile of U.S. On-Demand Workers
Characteristic Number
Financial situation had improved over the past year 23 million
Expected their financial situation to improve over the coming year 28.8 million
Under 35 years of age 23 million
Live in urban areas 18.45 million
TA B L E 1 . 4 Motivation to Work in the On-Demand Economy
Motivation Percent
Earn supplemental income 63
Create and control their own schedule 46
Turned to on-demand work because they couldn’t find another traditional job 11
IT and You 19
IT Adds Value to Your Performance and Career
Whether you join the ranks of the on-demand workers, or choose to stay in a traditional job, IT
can greatly enhance your performance at work and the ways you move through your career path.
Staying current in emerging technologies affecting markets is essential to the careers of
knowledge workers, entrepreneurs, managers, and business leaders—not just IT and CIO.
In the current marketplace, organizations are finding it particularly difficult to find quali-
fied IT Talent, as illustrated in IT at Work 1.2.
IT at Work 1.2
Scott Zulpo Is Facing Stiff Competition
He’s adding a senior project manager, a network analyst, and
a help desk worker to his 55-member IT staff at BCU, a Vernon
Hills, Illinois-based credit union where he is vice president of IT.
And, Zulpo will need to add even more people to keep up with an
increasing demand for tech-driven innovations.
“The challenge is twofold—first finding talent, and then deter-
mining if that talent has the skills, experience and personality to
thrive in the position,” says Zulpo, who’s mindful that “the cost and
impact of not hiring an ‘A’ player is huge.”
Zulpo has his work cut out for him. He’s hiring at time
when very few IT professionals are out of work. Consequently,
competition for tech talent is fierce. The unemployment rate
for tech workers is about 2%, according to reports on recent
data from the U.S. Bureau of Labor Statistics (Bureau of Labor
Statistics, 2016).
And, Zulpo isn’t the only one who’s having a difficult time
finding good IT talent. Many of his fellow IT leaders are seeking
the same skills. Computerworld’s Forecast 2017 survey of 196 IT
professionals found that both project management and technical
support were among the top 10 most sought-after skills among
companies that plan to recruit in the new year.
“The IT labor market is still very hot. The candidate is very
much in the driver’s seat,” says Jason Hayman, market research
manager for IT staffing firm TEKsystems.
Hayman cites a government report that estimates that 500,000
to 1 million IT jobs go unfilled every year, but notes that some ana-
lysts say the figure is closer to 2 million. He says there’s a classic
supply-and-demand scenario working here, with demand for talent
far exceeding supply.
The takeaway is that there are not enough IT workers!
Compiled from: Bureau of Labor Statistics (2016), Pratt (2016),
and Computerworld (2017).
IT at Work Questions
1. What are two reasons why Zulpo had trouble finding quali-
fied IT talent?
2. What of position was Zulpo trying to fill?
3. What methods would you recommend to Zulpo help him in
his efforts to recruit new IT personnel?
IT as a Career Fueled by corporate growth, systems expansion, need for competitive or
unique services to increase business and security initiatives, companies are increasing their
IT hires. Companies need new tech hires who have a background in both technology and
business and who can articulate IT’s value in meeting business goals. In particular, companies
are seeking IT employees with skills in programming, application development, technical
support, security, cloud, business intelligence, Web development, database administration,
and project management.
According to the U.S. Department of Labor (2016), IT job growth is estimated at 12%
from 2014 to 2024, faster than the average for all other occupations. This means about 488,500
new jobs. The median annual wage for computer and IT occupations was $81,430 in May 2015,
which was considerably higher than the median annual wage of $36,200 for all other occupa-
tions. Here are some common IT jobs and their activities:
IT managers Play a vital role in the implementation and administration of digital tech-
nology. They plan, coordinate, and direct research on the computer-related activities of
firms. In consultation with other managers, they help determine the goals of an organiza-
tion and then implement technology to meet those goals.
Chief technology officers (CTOs) Evaluate the newest and most innovative technolo-
gies and determine how they can be applied for competitive advantage. CTOs develop
technical standards, deploy technology, and supervise workers who deal with the daily IT
issues of the firm. When innovative and useful new ITs are launched, the CTO determines
implementation strategies, performs cost–benefit or SWOT analysis, and reports those
strategies to top management, including the CIO.
20 C H A P T E R 1 Disruptive IT Impacts Companies, Competition, and Careers
IT project managers Develop requirements, budgets, and schedules for their firm’s
IT projects. They coordinate such projects from development through implementation,
working with their organization’s IT workers, as well as clients, vendors, and consultants.
These managers are increasingly involved in projects that upgrade the information secu-
rity of an organization.
Data scientists Manage and analyze massive sets of data for purposes such as target mar-
keting, trend analysis, and the creation of individually tailored products and services. Enter-
prises that want to take advantage of big data use real-time data from tweets, sensors, and
their big data sources to gain insights into their customers’ interests and preference, to create
new products and services, and to respond to changes in usage patterns as they occur. Big data
analytics has increased the demand for data scientists, as described in Career Insight 1.1.
Career Insight 1.1
Data Scientists Analyze Business Data
for Actionable Business Intelligence
Online searches for data scientist are outpacing the number of job
postings by more than 20% and the large business consulting firm,
Price-Waterhouse-Cooper, recently announced they would be add-
ing more than 1,000 data scientists during the next 2 years.
Big data, analytics tools, powerful networks, and greater
processing power have contributed to growth of the field of data
science. According to Glassdoor data (glassdoor.com, 2017), the
median annual salary for data scientists in the United States is
$113,436 and experienced data scientists who manage teams of 5
to 10 people are earning more than $250,000 per annum.
But, it’s not just about the money—data scientists enjoy what
they do. The job is interesting, spanning many different aspects of
the organization and in some cases involves analyzing community
outreach programs supported by organizations.
What Does a Data Scientist Do?
Enterprises need people who are capable of analyzing and finding
insights in data captured from a range of sources, including customer
transactions, click streams, sensors, social media, log files, and GPS
plots. Their mission is to unlock valuable and predictive insights that
will influence business decisions and spur a competitive advantage.
According to Gregg Gordon, VP of the Big Data practice group at Kro-
nos, provider of workforce management solutions in the cloud,
It’s not sitting in a room all day – we take our work
and apply it to customer problems. We’re working and
interacting with customers on a daily basis talking
about real problems, then attempting to replicate,
model and solve them.
An interesting example of what a data scientist can achieve
can be found by studying Jonathan Goldman, the person who
transformed LinkedIn. At the time Goldman joined, LinkedIn had
less than 8 million members. Goldman noticed that existing mem-
bers were inviting their friends and colleagues to join, but they were
not making connections with other members at the rate executives
had expected. A LinkedIn manager said, “It was like arriving at a
conference reception and realizing you don’t know anyone. So you
just stand in the corner sipping your drink—and you probably leave
early.” Goldman began analyzing the data from user profiles and
looked for patterns to predict whose networks a given profile would
land in. While most LinkedIn managers saw no value in Goldman’s
work, Reid Hoffman, LinkedIn’s cofounder and CEO at the time,
understood the power of analytics because of his experiences at
PayPal. With Hoffman’s approval, Goldman applied data analytics to
test what would happen if a member were presented with names of
other members they had not yet connected with, but seemed likely
to know. He displayed the three best new matches for each member
based on his or her LinkedIn profile. Within days, the click-through
rate on those matches skyrocketed and things really took off. Thanks
to this one feature, LinkedIn’s growth increased dramatically.
Artist or Scientist?
The most successful—and sought-after—data scientists possess a
combination of analytical skills, technical prowess and business
acumen needed to effectively analyze massive data sets while
thinking critically and shifting assumptions on the fly, ultimately
transforming raw intelligence into concise and actionable insights.
The LinkedIn example shows that good data scientists do much
more than simply try to solve obvious business problems. Creative
and critical thinking are part of their job—that is, part analyst and
part artist. They dig through incoming data with the goal of discov-
ering previously hidden insights that could lead to a competitive
advantage or detect a business crisis in enough time to prevent it.
Data scientists often need to evaluate and select those opportunities
and threats that would be of greatest value to the enterprise or brand.
Questions
1. What types of IT career have the most potential in the
current hiring market?
2. What factors does Zulpo take into consideration when he’s
evaluating job applicants?
3. Why is IT a major enabler of business performance
and success?
4. Explain why it is beneficial to be an informed user of IT.
5. Do you think IT job prospects are strong? Explain.
Sources: Darrow (2015), Marr (2016), U.S. Department of Labor (2016), and
Bureau of Labor Statistics (2016).
IT and You 21
IT Job Prospects In 2017, only 2% of all IT workers are unemployed. Workers with spe-
cialized technical knowledge and strong communications and business skills, as well as those
with an MBA with a concentration in an IT area, will have the best prospects. Job openings will
be the result of employment growth and the need to replace workers who transfer to other
occupations or leave the labor force (Bureau of Labor Statistics, 2016)
Dow Chemical set up its own social network to help managers identify the talent they need
to carry out projects across its diverse business units and functions. To expand its talent pool,
Dow extended the network to include former employees and retirees.
Other companies are using networks to tap external talent pools. These networks include
online labor markets such as Amazon Mechanical Turk and contest services such as InnoCen-
tive that help solve business problems.
• Amazon Mechanical Turk is a marketplace for work that requires human intelligence. Its
Web service enables companies to access a diverse, on-demand workforce.
• InnoCentive is an “open innovation” company that takes R&D problems in a broad range of
areas such as engineering, computer science, and business and frames them as “challenge
problems” for anyone to solve. It gives cash awards for the best solutions to solvers who
meet the challenge criteria.
Becoming an Informed IT User
Knowing how best to you use IT and how and when to interact with IT personnel, and they with
you, will help you perform better at home and at work and enable you to become an informed
user of technology.
The department or functional area that handles the collection, processing, storing,
analysis and distribution of information using a computer-based tool can be referred to
by many names—some companies refer to it as information technology (IT), while others
refer to it as information systems (IS), management information systems (MIS), IT support,
IT services or computer information systems (CIS). Whatever the name, its purpose is the
same—to support a company’s information needs by developing, operating, securing, and
maintaining one or more information systems.
To become an informed IT user, you will learn how the six components of an information
system—hardware, software, procedures, people, networks, and data—interact to provide you
with the information that you need, when you need it, and in the format you need. These com-
ponents will be discussed in detail in Chapter 2.
By reading this book, you will become an informed user and you gain more value from
IT to improve your performance and widen your career opportunities. For example, you
will learn to
• Understand how using IT can improve organizational performance
• Understand how and why IT can benefit organizational growth
• Understand how business can use IT to enhance the customer experience
• Use how companies use IT to analyze business data and offer important insights
• Be able to offer input into the development and use of IT
• Be able to recommend and select IT applications at work
• Know how to find emerging technologies to make radical improvement in business
processes
• Understand how IT can facilitate teamwork and improve individual productivity
• Appreciate the importance of ethical behavior when using IT and explain the associated
risks and responsibilities
• Foster your entrepreneurial tendencies to start your own on-demand business.
Informed user is a person
knowledgeable about information
systems and IT.
22 C H A P T E R 1 Disruptive IT Impacts Companies, Competition, and Careers
Assuring Your Learning
Discuss: Critical Thinking Questions
1. Why are businesses experiencing a digital transformation?
2. More data are collected in a day now than existed in the world
10 years ago. What factors have contributed to this volume of data?
3. Assume you had no smartphone, other mobile device, or mobile
apps to use for 24 hours. How would that mobile blackout disrupt your
ability to function?
4. Name three highly disruptive digital technologies. Give an example
of one disruption for each technology.
5. Why are enterprises adopting cloud computing?
6. What is the value of M2M technology? Give two examples.
7. Starbucks monitors tweets and other sources of big data. How
might the company increase revenue from big data analytics?
8. Select three companies in different industries, such as banking,
retail store, supermarket, airlines, or package delivery, that you
do business with. What digital technologies does each company
use to engage you, keep you informed, or create a unique customer
experience? How effective is each use of digital technology to keeping
you a loyal customer?
9. Describe two examples of the influence of SMAC on the financial
industry.
10. What is the potential impact of the IoT on the health-care industry?
11. Why does reducing the cycle time of a business process also help
to reduce errors?
12. Research firm Gartner defines competitive advantage as a
difference between a company and its competitors that matters to
customers. Describe one use of M2M technology that could provide a
manufacturer with a competitive advantage.
13. What IT careers are forecasted to be in high demand? Explain why.
14. Why or how would understanding the latest IT trends influence
your career?
Key Terms
agility 11
barriers to entry 23
big data 15
business model 3
business process 9
business process management (BPM) 13
business process reengineering (BPR) 10
business-to-business 15
chief technology officers (CTOs) 19
cloud computing 14
cloud services 17
competitive advantage 11
critical success factor (CSF) 10
cross-functional business process 9
customer experience 7
cycle time 22
dashboards 12
data analytics 3
data science 20
deliverables 9
digital business model 7
digitization 15
flexibility 11
informed user 21
Internet of Things (IoT) 16
IT consumerization 11
IT project managers 20
machine-to-machine (M2M) technology 16
mega trends 14
objectives 8
on-demand economy 4
productivity 7
responsiveness 11
social, mobile, analytics and cloud (SMAC) 13
standard operating procedures (SOPs) 9
SWOT analysis 19
unstructured data 15
wearable technology 12
Explore: Online and Interactive Exercises
1. Research the growing importance of the IoT. Find two forecasts of its
growth. What do they forecast?
2. Go to “9 Successful Digital Disruption Examples” on the IT Business
Edge website. Close the pop-up to view the slideshow and read the
descriptions of each of the ways in which technology is disrupting our
lives. Answer the following questions:
a. Which of the following disruptions resonated best with you and
your lifestyle? Explain.
b. Which of the disruptions was most surprising to you? Why?
c. Rank order the disruptions in their order of importance to you?
Write a short report explaining your rankings.
Analyze & Decide: Apply IT Concepts to Business Decisions
1. A transportation company is considering investing in a truck tire
with embedded sensors. Outline the benefits of this investment.
Would this investment create a long-term competitive advantage for
the transportation company?
2. Visit the website of UPS (ups.com), Federal Express (fedex.com),
and one other logistics and delivery company.
a. At each site, describe what information is available to customers
before and after they send a package?
b. Compare the three customer experiences. Which one do you
prefer? Why?
3. Visit Dell.com and Apple.com to simulate buying a laptop
computer. Compare and contrast the selection process, degree of
customization, and other buying features. What are the barriers to
entry into this market, based on what you learned from this exercise?
Case 1.2
Business Case: The Internet of Things Comes
to the NFL
People love sports statistics and the more the better. Responding to
this customer demand, the NFL increased the quality and quantity of
statistics available to coaches and fans with radio frequency identifica-
tion (RFID) chips.
Player RFID Project
When the 2015 National Football League played its first game in New
England, each player was equipped with a set of RFID sensors. Each
sensor, about the size of a quarter, is embedded in players’ shoulder
pads and emits a unique radio frequency. Every stadium used by the
NFL is equipped with 20 receivers to pick up the RFID signals and pin-
point every player on the field. It also records speed, distance traveled.
acceleration in real time, and the direction the player is facing.
The NFL plans to use the data it collects to power an Xbox One
and Windows NFL apps to allow fans to call up stats for each player
tied into the highlight clips posted on the app. The data will also be
fed to broadcasters, leveraged for in-stadium displays, and provided
to coaching staff and players.
“We’ve always had these traditional NFL stats,” says Matt
Swensson, senior director of Emerging Products and Technology at
the NFL. “The league has been very interested in trying to broaden that
and bring new statistics to the fans. Along the way, there’s been more
realization about how the data can be leveraged to make workflow
more efficient around the game.”
Zebra Technologies Software Vendor
The NFL’s technology partner in its IoT push was Zebra Technologies of
Lincolnshire, Illinois.
Zebra was well known for its manufacturing and selling marking,
tracking and printing technologies such as thermal barcode label and
receipt printers, RFID smart label printer/encoders, and card and kiosk
printers. As it moved into IoT and M2M applications, Zebra launched
its MotionWorks Sports Solution, which powers the NFL IoT initiative.
Zebra was able to develop RFID tags that blink up to 85 times per sec-
ond to track motion of athletes in subseconds. Then it had to find a cus-
tomer for the product—so it turned to the biggest fish in the pond—the
NFL. Zebra trialed the tags by equipping more than 2,000 players, 18
NFL stadiums and officials, markers, and pylons. Over the course of the
season, more than 1.7 billion sets of XY player coordinates were meas-
ured, transmitted, and stored during the games. Every stadium was
connected to a command station in San Jose, California, that controls
when the data are collected, where they are sent, and stores them in
the cloud.
The Need for the Right People
An important lesson that Zebra learned is that generic data scien-
tists weren’t sufficient to gain insight into the data. Zebra needed
football experts. “When you look at analytics in football, you really
need people. We had to go out and hire football people. The analyt-
ics from manufacturing weren’t the same as the analytics from foot-
ball. We could see correlations in the data that seemed important and
then found out they weren’t. We had to bring in people that had the
football expertise who could say ‘Look, this is why it matters’,” said
Jill Stelfox, Zebra Technologies Vice President and General Manager,
Location Solutions.
The latest development in this IoT initiative is its integration with
NFL’s fantasy football offerings.
Questions
1. Why did NFL equip its players with RFID tags?
2. What factors contributed to the success of the IoT initiative
at the NFL?
3. What other types of IoT applications can you think of that could
be used in sports stadiums?
Case 1.2 23
24 C H A P T E R 1 Disruptive IT Impacts Companies, Competition, and Careers
Case 1.3
Video Case: Knowing More and Doing More
Teradata is a leading provider of big data and data analytics solutions.
In a video, Teradata explains that when you know the right thing to
do, you can do more of what truly matters for your business and your
customers. Visit Teradata’s website, search for and view the video
entitled “Manufacturing: What Would You Do If You Knew?”™ (the
video runs for 1:26 minutes).
Questions
1. What did you learn from the video?
2. What is the value of knowing more?
References
Accenture. Accenture Technology Vision 2013.
Ashcroft, S. “Fitbit sold 4.5 million trackers last quarter and smashed
financial estimates.” Wareable.com, August 6, 2015.
Barry Libert, B., Y. Wind, and M.B. Fenley. “What Airbnb, Uber, and Alib-
aba Have in Common.” Harvard Business Review, November 20, 2014.
Basu, C. “The Six Important Business Objectives of Information Tech-
nology.” Chron, 2017. Accessible from http://smallbusiness.chron
.com/six-important-business-objectives-information-technology-
25220.html
Boland, M. “What’s Driving the Local on Demand Economy?” BIA/Kel-
sey blog, May 5, 2015.
Bureau of Labor Statistics. Occupational Outlook Handbook. U.S.
Department of Labor, 2016–2017.
Chandler, N. “How FitBit Works.” HowStuffWorks.com, May 2, 2012.
Chriss, A. “How the On-Demand Economy Is Reshaping the 40 Hour
Work Week.” 2016.
Computerworld. “2017 Tech Forecast: IT Sharpens Its Focus.”
Computerworld, 2017.
Darrow, B. “Data Science Is Still White Hot, but Nothing Lasts For-
ever.” Fortune, 2015.
Eadicicco, L. “American Check Their Phones 8 Billion Times a Day.”
Time, December 15, 2015.
glassdoor.com. “Data Scientist Salaries.” April 7, 2017.
Grand View Research. “Wearable Technology Market Analysis By
Product (Wrist-Wear, Eye-Wear, Foot-Wear, Neck-Wear, Body-Wear),
by Application (Fitness & Wellness, Healthcare, Infotainment, Defense,
Enterprise and Industrial) and Segment Forecasts to 2022.” Grand
View Research, 2016.
Hammer, M. and J. Champy. “Re-engineering the Corporation: A
Manifesto for Business Revolution.” Updated and revised edition.
Harper Business Essentials, 2006.
Jaconi, M. “The ‘On-Demand Economy’ Is Revolutionizing Consumer
Behavior—Here’s How.” Business Insider, July 13, 2014.
Kappelman, L., E. McLean, V. Johnson, R. Torres, Q. Nguyen,
C. Maurer, and M. Snyder. “The 2016 SIM IT Key Issues and Trends
Study.” MIS Quarterly Executive, March 2017.
MacIver, K. “Digital Business in an Era of Disruptive Innovation.” I-CIO
.com, November 2015.
Marr, B. “Is Being a Data Scientist Really the Best Job in America?”
Forbes, February 25, 2016.
National Employment Law Project. “Employers in the On-Demand
Economy: Why Treating Workers as Employees is Good for Business.”
http://www.nelp.org/content/uploads/Fact-Sheet- Employers-in-
the-On-Demand-Economy , 2016.
Nusca, A. “The Numbers Are in: Apple Is No. 2 in Wearables.” Fortune,
August 27, 2015.
Pratt, M. “10 Hottest Tech Skills for 2017.” Computerworld, Decem-
ber 7, 2016.
Primack, D. “GrubHub Makes Major Move in Restaurant Delivery
Wars.” Fortune, February 5, 2015.
Schmidt-Subramanian, M., H. Manning, J. Knott, and Murphy. “The
Business Impact of Customer Experience, 2013.” Forrester Research,
June 10, 2013.
Storbaek, D. “The 5-Step Uber Playbook That Will Disrupt the On-
Demand Economy.” TechCrunch.com, October 15, 2015.
U.S. Department of Labor (2016). “Computer and Information
Technology Occupations”. https://www.bls.gov/ooh/computer-
and-information-technology/home.htm
Vaughn-Brown, J. “The Digital Transformation Journey: Key Technol-
ogy Considerations.” CA Technologies, 2014.
Winkler, R. and D. Macmillan. “The Secret Math of Airbnb’s $24 Billion
Valuation.” The Wall Street Journal, June 17, 2015.
25
CHAPTER 2
Information Systems,
IT Architecture, Data Governance,
and Cloud Computing
L E A R N I N G O B J E C T I V E S
2.1 Name the six components of an information system and
match the various types of information systems to the type of
support needed by business operations and decision-makers.
2.2 Describe an IT infrastructure, an IT architecture, and an
enterprisewide architecture (EA) and compare and contrast
their roles in guiding IT growth and sustaining long-term
performance.
2.3 Explain the business benefits of information management and
understand the importance of data governance and master
data management in providing trusted data that is available
when and where needed to support sustainability.
2.4 Understand the concepts of data centers and cloud computing
and understand how they add value in an organization.
2.5 Describe the different types of cloud services and the various
forms of virtualization and understand how they add value in
an organization.
C H A P T E R O U T L I N E
Case 2.1 Opening Case: Detoxing Location-Based
Advertising Data at MEDIATA
2.1 IS Concepts and Classifications
2.2 IT Infrastructure, IT Architecture, and
Enterprise Architecture
2.3 Information Management and Data
Governance
2.4 Data Centers and Cloud Computing
2.5 Cloud Services and Virtualization
Case 2.2 Business Case: Data Chaos Creates Risk
Case 2.3 Video Case: Cloud Computing at
Coca-Cola Is Changing Everything
26 C H A P T E R 2 Information Systems, IT Architecture, Data Governance, and Cloud Computing
Introduction
One of the most popular business strategies for achieving success is the development of a
competitive advantage. Competitive advantage exists when a company has superior resources
and capabilities than its competitors that allow it to achieve either a lower cost structure
or a differentiated product. For long-term business success, companies strive to develop
sustainable competitive advantages, or competitive advantages that cannot be easily copied
by the competition (Porter, 1998). To stay ahead, corporate leaders must constantly seek new
ways to grow their business in the face of rapid technology changes, increasingly empowered
consumers and employees, and ongoing changes in government regulation. Effective ways
to thrive over the long term are to launch new business models and strategies or devise new
ways to outperform competitors. Because these new business models, strategies, and per-
formance capabilities will frequently be the result of advances in technology, the company’s
ability to leverage technological innovation over time will depend on its approach to enter-
prise IT architecture, information management, and data governance. The enterprisewide IT
architecture, or simply the enterprise architecture (EA), guides the evolution, expansion, and
integration of information systems (ISs), digital technology, and business processes. This guid-
ance enables companies to more effectively leverage their IT capability to achieve maximum
competitive advantage and growth over the long term. Information management guides the
acquisition, custodianship, and distribution of corporate data and involves the management
of data systems, technology, processes, and corporate strategy. Data governance, or informa-
tion governance, controls enterprise data through formal policies and procedures. One goal of
data governance is to provide employees and business partners with high-quality data they
can trust and access on demand.
Bad decisions can result from the analysis of inaccurate data, which is widely referred to
as dirty data, and lead to increased costs, decreased revenue, and legal, reputational, and
performance-related consequences. For example, if data is collected and analyzed based on
inaccurate information because advertising was conducted in the wrong location for the
wrong audience, marketing campaigns can become highly skewed and ineffective. Com-
panies must then begin costly repairs to their datasets to correct the problems caused by
dirty data. This creates a drop in customer satisfaction and a misuse of resources in a firm.
One example of an organization taking strides to clean the dirty data collected through inac-
curate marketing is the data management platform, MEDIATA, which runs bidding systems
and ad location services for firms looking to run ads on websites (see Table 2.1). Let’s see
how they did this.
Dirty data are data of such poor
quality that they cannot be trusted
or relied upon for decisions.
Introduction 27
Case 2.1 Opening Case
DIRTY DATA
AHEAD
C
ou
rt
es
y
of
B
ill
y
R
ay
Detoxing Location-Based Advertising Data
at MEDIATA
Company Overview
MEDIATA uses its audience and media delivery platform to deliver
thousands of successful online advertising campaigns across Australia,
Hong Kong, and New Zealand. Known as a “programmatic solution
specialist,” the MEDIATA platform is truly cutting-edge. It runs bidding
systems and ad location services for companies that are looking to run
ads on websites and provides its clients with high-impact, fully man-
aged, 100% transparent advertising campaigns that produce results.
MEDIATA is committed to shaking up the online advertising industry
and is evolving into a fast-growing international business. MEDIATA
clients include Qantas, LG, Virgin Money, Konica Minolta, Optus, Carls-
berg, Honda, ACCOR Hotels, Air New Zealand, Heinz, Woolworths, Citi-
bank, and JP Morgan.
The Problem
MEDIATA uses IP address data to locate customers and ad effectiveness.
Unfortunately, as much as 80% of ad inventories come with an incor-
rect location and MEDIATA realized that this “dirty data” was adversely
affecting their business. Location-based advertising provides organi-
zations and companies alike with massive benefits. Target customers
can be reached easily and effectively through marketing campaigns
tailored specifically for them. For example, utility companies and
internet service providers usually have certain areas or regions that
they service. Using location-based targeting (see Figure 2.1), these
companies can target television, newspaper, and online display ads to
attract new customers. Another benefit includes the reduced waste of
running marketing campaigns in unprofitable areas. Firms can choose
precisely where their advertisements are displayed without wasting
resources on customer segments that will not respond because of
location or preference discrepancies.
Advanced data analytics in location-based advertising also allows
companies like MEDIATA to reach customers where and when they are
in decision-making mode using programmatic bidding algorithms and
ad inventories. Browser-based ads use these algorithms to predict
which customer segments will click on certain ads at certain times of
the day. Automated bidding then ensues, with the ad spot on the page
going to the highest bidder (Cailean, 2016). However, the data must
be accurate to be useful and MEDIATA realized that their data could be
much better than it was. Given the importance of this technology to
advertisers and digital advertising agencies, there are overwhelming
issues to overcome.
The issues stem from outdated methods of locating Internet users
through IP addresses. These old systems do not pinpoint where exactly
traffic is coming from, rather they give advertising agencies broad geo-
graphic regions to work with, and the ads go to random coordinates
within the regions. Since the value of these activities comes from having
accurate targeting, the inaccuracies of the antiquated systems severely
impact profitability. As targeting regions shrink, information becomes
more valuable and accurate, but even small inaccuracies dilute the value
of demographic information applied to an audience.
The Solution
In 2016, MEDIATA established a data governance program in which it
partnered with Skyhook, a U.S. global location software company to
TA B L E 2 . 1 Opening Case Overview
Company MEDIATA was launched as Valued Interactive
Media (VIM) in 2009. Rebranded in 2013 as
MEDIATA
Industry Communications; Advertising
Product Lines Wide range of programmatic solutions and
products to provide practical solutions for
digital marketing campaigns to deliver
successful online advertising campaigns to
organizations across Australia, Hong Kong,
and New Zealand
Digital Technology Information management and data
governance to increase trust and
accessibility of data to facilitate a
company’s vision
Business Vision Shake up the online advertising industry.
Improve transparency and foster greater
cooperation between partners
Website www.mediataplatform.com
28 C H A P T E R 2 Information Systems, IT Architecture, Data Governance, and Cloud Computing
FIGURE 2.1 Location-based advertising.
2.1 IS Concepts and Classification
Before we being to explore the value of information systems (ISs) to an organization, it’s use-
ful to understand what an IS is, what it does, and what types of ISs are typically found at differ-
ent levels of an organization.
In addition to supporting decision-making, coordination, and control in an organization,
ISs also help managers and workers analyze problems, visualize complex sets of data, and cre-
ate new products. ISs collect (input) and manipulate data (process), and generate and dis-
tribute reports (output) and based on the data-specific IT services, such as processing customer
orders and generating payroll, are delivered to the organization. Finally, the ISs save (store) the
data for future use. In addition to the four functions of IPOS, an information needs feedback
from its users and other stakeholders to help improve future systems as demonstrated in
Figure 2.2.
The following example demonstrates how the components of the IPOS work together: To
access a website, Amanda opens an Internet browser using the keyboard and enters a Web
address into the browser (input). The system then uses that information to find the correct web-
site (processing) and the content of the desired site is displayed in the Web browser (output).
Next, Amanda bookmarks the desired website in the Web browser for future use (storage).
The system then records the time that it took to produce the output to compare actual versus
expected performance (feedback).
Information systems (ISs) is
a combination of information
technology and people’s activities
using the technology to support
business processes, operations,
management, and decision-
making at different levels of the
organization.
IPOS is the cycle of inputting,
processing, outputting, and
storing information in an
information system.
improve the effectiveness of MEDIATA’s user profile data by more pre-
cisely locating IP addresses resolving MEDIATA’s challenges related to
dirty data. Skyhook’s Context Accelerator Hyperlocal IP uses big data
analytics to provide over 1 billion IP addresses to advertising platforms
and cleaned MEDIATA’s dirty data to pinpoint customers within 100
meters, thus increasing ad effectiveness for its clients. Hyperlocal IP
achieves this by using big data analytics to provide over 1 billion IP
addresses to advertising platforms.
Now, every time a device like a cell phone or laptop requests a
location, the on-device software scans for Wi-Fi, GPS, or cell tower
data. Combining all of these data points allows Skyhook to provide
extremely accurate coordinates and pass this information along to
MEDIATA to use.
While this approach still is not perfect, it allows MEDIATA’s adver-
tisements to become closer than ever to their target customers. A
nine-month study conducted after implementing Skyhook showed
that MEDIATA saw a 20% increase in marketing campaign effectiveness.
Creating and employing this data governance system allowed MEDIATA
to clean its datasets and create new, effective methods to reach target
audiences.
Questions
1. What business challenges did MEDIATA face because of its
dirty data?
2. What is the function of location-based advertising?
3. Why is it important to maintain accurate location data?
4. How did Skyhook and data governance enable MEDIATA to
achieve its vision?
5. What benefits did MEDIATA achieve as a result of implementing
data governance?
Sources: Compiled from Cailean (2016), Schneider (2014), and Schneider (2015).
IS Concepts and Classification 29
Components of an IS
A computerized IS consists of six interacting components. Regardless of type and where and by
whom they are used within an organization, the components of an IS must be carefully man-
aged to provide maximum benefit to an organization (see Figure 2.3).
PROCESSING
Programs
Equipments
Storage
FEEDBACK
Error Report
Performance Metrics
Hard Drive
Server
USB
INPUT
Data
Information
Knowledge
Instructions
STORAGE
OUTPUT
Reports
Graphics
Calculations
FIGURE 2.2 IPOS cycle.
People
DATAD
Procedures
Network Softwarek So
Hardware
FIGURE 2.3 Components of an IS.
1. Hardware Any physical device used in a computerized IS. Examples include central pro-
cessing unit (CPU), sound card, video card, network card, hard drive, display, keyboard,
motherboard, processor, power supply, modem, mouse, and printer.
2. Software A set of machine-readable instructions (code) that makes up a computer
application that directs a computer’s processor to perform specific operations. Computer
software is nontangible, contrasted with system hardware, which is the physical compo-
nent of an IS. Examples include Internet browser, operating system (OS), Microsoft Office,
Skype, and so on.
3. People Any person involved in using an IS. Examples include programmers, operators
help desk, and end-users.
4. Procedures Documentation containing directions on how to use the other components
of an IS. Examples include operational manual and user manual.
5. Network A combination of lines, wires, and physical devices connected to each other
to create a telecommunications network. In computer networks, networked computing
30 C H A P T E R 2 Information Systems, IT Architecture, Data Governance, and Cloud Computing
devices exchange data with each other using a data link. The connections between nodes
are established using either cable media or wireless media. Networks can be internal
or external. If they are available only internally within an organization, they are called
“intranets.” If they are available externally, they are called “internets.” The best-known
example of a computer network is the World Wide Web.
6. Data Raw or unorganized facts and figures (such as invoices, orders, payments, customer
details, product numbers, product prices) that describe conditions, ideas, or objects.
Data, Information, Knowledge, and Wisdom
As you can see in Figure 2.3, data is the central component of any information system. Without
data, an IS would have no purpose and companies would unable to conduct business. Gener-
ally speaking, ISs process data into meaningful information that produces corporate knowl-
edge and ultimately creates wisdom that fuels corporate strategy.
Data are the raw material from which information is produced; the quality, reliability, and
integrity of the data must be maintained for the information to be useful. Data are the raw facts
and figures that are not organized in any way. Examples are the number of hours an employee
worked in a certain week or the number of new Ford vehicles sold from the first quarter (Q1) of
2015 through the second quarter (Q2) of 2017 (Figure 2.4).
Information is an organization’s most important asset, second only to people. Information
provides the “who,” “what,” “where,” and “when” of data in a given context. For example,
Data describe products,
customers, events, activities, and
transactions that are recorded,
classified, and stored.
Information is data that have
been processed, organized, or
put into context so that they have
meaning and value to the person
receiving them.
Knowledge adds understanding,
experience, accumulated learning,
and expertise as they apply to a
current problem or activity, to
information.
Creatively assess knowledge to develop
innovative policies and procedures to
reverse downward trend in sales
Use information to determine reasons
for consistent downward trend in sales
from June 2016 to June 2017
17, 25, 54, 12, 68, 19, 39, 42, 72
Number of new vehicles sold
DATA
(Raw figures)
INFORMATION
(who, what, where, when)
KNOWLEDGE
(how)
WISDOM
(why)
Q
1
20
15
Q
2
20
15
Q
3
20
15
Q
4
20
15
Q
1
20
16
Q
2
20
16
Q
3
20
16
Q
4
20
16
Q
1
20
17
Q
2
20
17
New Vehicle Sales by Quarter
6
5
4
3
2
1
0
FIGURE 2.4 Examples of data, information, knowledge, and wisdom.
IS Concepts and Classification 31
summarizing the quarterly sales of new Ford vehicles from Q1 2015 through Q2 2017 provides
information that shows sales have steadily decreased from Q2 2016.
Knowledge is used to answer the question “how.” In our example, it would involve deter-
mining how the trend can be reversed, for example, customer satisfaction can be improved,
new features can be added, and pricing can be adjusted.
Wisdom is more abstract than data and information (that can be harnessed) and
knowledge (that can be shared). Wisdom adds value and increases effectiveness. It answers the
“why” in a given situation. In the Ford example, wisdom would be corporate strategists evalu-
ating the various reasons for the sales drop, creatively analyzing the situation as a whole, and
developing innovative policies and procedures to reverse the recent downward trend in new
vehicle sales.
ISs collect or input and process data to create and distribute reports or other outputs based
on information gleaned from the raw data to support decision-making and business processes
that, in turn, produce corporate knowledge that can be stored for future use. Figure 2.5 shows
the input-processing-output-storage (IPOS) cycle.
Wisdom is a collection of
values, ethics, moral codes, and
prior experiences that form an
evaluated understanding or
common-sense judgment.
Storage
Temporary memory (RAM), hard disks, flash memory, cloud
People
Users, clients, customers, operators, technicians, governments, companies
Sending
results,
collecting
data,
feedback
Communication
Working with
information,
changing,
calculating,
manipulating
Processing
Data collected,
captured,
scanned,
snapped from
transactions
Input
Showing
results on
screen,
hardcopy, digital
copy, archive
Output
FIGURE 2.5 Input-processing-output-storage model.
Types of ISS
An IS may be as simple as a single computer and a printer used by one person, or as complex
as several thousand computers of various types (tablets, desktops, laptops, mainframes) with
hundreds of printers, scanners, and other devices connected through an elaborate network
used by thousands of geographically dispersed employees. Functional ISs that support busi-
ness analysts and other departmental employees range from simple to complex, depending on
the type of employees supported. The following examples show the support that IT provides to
major functional areas.
1. Marketing Utilizing IBM software, Bolsa de Comercio de Santiago, a large stock exchange
in Chile, is able to process its ever-increasing, high-volume trading in microseconds. The
Chilean stock exchange system can do the detective work of analyzing current and past
transactions and market information, learning, and adapting to market trends and con-
necting its traders to business information in real time. Immediate throughput in combina-
tion with analytics allows traders to make more accurate decisions.
2. Sales According to the New England Journal of Medicine, one in five patients suffers
from preventable readmissions, which cost taxpayers over $17 billion a year. In the past,
hospitals have been penalized for high readmission rates with cuts to the payments they
receive from the government (Zuckerman et al., 2016). Using effective management
information systems (MISs), the health-care industry can leverage unstructured informa-
tion in ways not possible before, according to Matt McClelland, manager of information
32 C H A P T E R 2 Information Systems, IT Architecture, Data Governance, and Cloud Computing
governance for Blue Cross Blue Shield of North Carolina. “With proper support, informa-
tion governance can bridge the gaps among the need to address regulation and litiga-
tion risk, the need to generate increased sales and revenue, and the need to cut costs
and become more efficient. When done right, information governance positively impacts
every facet of the business,” McClelland said in the Information Governance Initiative
(Jarousse, 2016).
Figure 2.6 illustrates the classification of the different types of ISs used in organiza-
tions, the typical level of workers who use them and the types of input/output (I/O) pro-
duced by each of the ISs. At the operational level of the organization, line workers use
transaction processing systems (TPSs) to capture raw data and pass it along (output) to
middle managers. The raw data is then input into office automation (OA) and MISs by middle
managers to produce information for use by senior managers. Next, information is input into
decision support systems (DSSs) for processing into explicit knowledge that will be used
by senior managers to direct current corporate strategy. Finally, corporate executives input
the explicit knowledge provided by the DSSs into executive information systems (EISs)
and apply their experience, expertise, and skills to create wisdom that will lead to new cor-
porate strategies.
Executives
Senior Managers
Middle Managers
Line Workers
Executive Information Systems
(EIS)
Decision Support Systems
(DSS)
Management Information Systems
(MIS)
Transaction Processing Systems
(TPS)
Wisdom
Knowledge
Information
Data
FIGURE 2.6 Hierarchy of ISs, input/output, and user levels.
Transaction Processing System (TPS)
A TPS is designed to process specific types of data input from ongoing transactions. TPSs can
be manual, as when data are typed into a form on a screen, or automated by using scanners or
sensors to capture barcodes or other data (Figure 2.7). TPSs are usually operated directly by
frontline workers and provide the key data required to support the management of operations.
Organizational data are processed by a TPS, for example, sales orders, reservations, stock
control, and payments by payroll, accounting, financial, marketing, purchasing, inventory con-
trol, and other functional departments. The data are usually obtained through the automated or
semiautomated tracking of low-level activities and basic transactions. Transactions are either:
• internal transactions that originate within the organization or that occur within the orga-
nization, for example, payroll, purchases, budget transfers, and payments (in accounting
terms, they are referred to as accounts payable); or
• external transactions that originate from outside the organization, for example, from cus-
tomers, suppliers, regulators, distributors, and financing institutions.
TPSs are essential systems. Transactions that are not captured can result in lost sales, dis-
satisfied customers, unrecorded payments, and many other types of data errors with financial
IS Concepts and Classification 33
impacts. For example, if the accounting department issued a check to pay an invoice (bill)
and it was cashed by the recipient, but information about that transaction was not captured,
then two things happen. First, the amount of cash listed on the company’s financial state-
ments is incorrect because no deduction was made for the amount of the check. Second, the
accounts payable (A/P) system will continue to show the invoice as unpaid, so the accounting
department might pay it a second time. Likewise, if services are provided, but the transactions
are not recorded, the company will not bill for them and thus lose service revenue.
Batch versus Online Real-Time Processing Data captured by a TPS are pro-
cessed and stored in a database; they then become available for use by other systems.
Processing of transactions is done in one of two modes:
1. Batch processing A TPS in batch processing mode collects all transaction for a day,
shift, or other time period, and then processes the data and updates the data stores. Pay-
roll processing done weekly or bi-weekly is an example of batch mode.
2. Online transaction processing (OLTP) or real-time processing The TPS processes each
transaction as it occurs, which is what is meant by the term real-time processing. In order
for OLTP to occur, the input device or website must be directly linked via a network to the
TPS. Airlines need to process flight reservations in real time to verify that seats are available.
Batch processing costs less than real-time processing. A disadvantage is that data are inaccu-
rate because they are not updated immediately, in real time.
Processing Impacts Data Quality As data are collected or captured, they are vali-
dated to detect and correct obvious errors and omissions. For example, when a customer sets
up an account with a financial services firm or retailer, the TPS validates that the address, city,
and postal code provided are consistent with one another and also that they match the credit
card holder’s address, city, and postal code. If the form is not complete or errors are detected,
the customer is required to make the corrections before the data are processed any further.
Data errors detected later may be time-consuming to correct or cause other problems. You
can better understand the difficulty of detecting and correcting errors by considering identity
theft. Victims of identity theft face enormous challenges and frustration trying to correct data
about them.
Management Information System (MIS)
An MIS is built on the data provided by TPS. MISs are management-level systems that are used
by middle managers to help ensure the smooth running of an organization in the short to
medium term. The highly structured information provided by these systems allows managers
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FIGURE 2.7 Scanners automate the input of data into a
transaction processing system (TPS).
34 C H A P T E R 2 Information Systems, IT Architecture, Data Governance, and Cloud Computing
to evaluate an organization’s performance by comparing current with previous outputs. Func-
tional areas or departments―accounting, finance, production/operations, marketing and
sales, human resources, and engineering and design―are supported by ISs designed for their
particular reporting needs. General-purpose reporting systems are referred to as management
information systems (MISs). Their objective is to provide reports to managers for tracking
operations, monitoring, and control.
Typically, a functional system provides reports about such topics as operational efficiency,
effectiveness, and productivity by extracting information from databases and processing it
according to the needs of the user. Types of reports include the following:
• Periodic These reports are created or run according to a pre-set schedule. Examples are
daily, weekly, and quarterly. Reports are easily distributed via e-mail, blogs, internal web-
sites (called intranets), or other electronic media. Periodic reports are also easily ignored if
workers do not find them worth the time to review.
• Exception Exception reports are generated only when something is outside the norm,
either higher or lower than expected. Sales in hardware stores prior to a hurricane may be
much higher than the norm. Or sales of fresh produce may drop during a food contamina-
tion crisis. Exception reports are more likely to be read because workers know that some
unusual event or deviation has occurred.
• Ad hoc, or on demand Ad hoc reports are unplanned reports. They are generated to a
mobile device or computer on demand as needed. They are generated on request to learn
more about a situation, problem, or opportunity.
Reports typically include interactive data visualizations, such as column and pie charts, as
shown in Figure 2.8.
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to
c
kp
h
o
to
FIGURE 2.8 Sample report produced by an MIS.
Decision Support System (DSS)
A DSS is a knowledge-based system used by senior managers to facilitate the creation of knowl-
edge and allow its integration into the organization. More specifically, a DSS is an interactive
application that supports decision-making by manipulating and building upon the information
from an MIS and/or a TPS to generate insights and new information.
Configurations of a DSS range from relatively simple applications that support a single
user to complex enterprisewide systems. A DSS can support the analysis and solution of a
specific problem, evaluate a strategic opportunity, or support ongoing operations. These sys-
tems support unstructured and semistructured decisions, such as make-or-buy-or-outsource
decisions, or what products to develop and introduce into existing markets.
Degree of Structure of Decisions Decisions range from structured to unstruc-
tured. Structured decisions are those that have a well-defined method for solving and the
IS Concepts and Classification 35
data necessary to reach a sound decision. An example of a structured decision is determining
whether an applicant qualifies for an auto loan, or whether to extend credit to a new customer―
and the terms of those financing options. Structured decisions are relatively straightforward
and made on a regular basis, and an IS can ensure that they are done consistently.
At the other end of the continuum are unstructured decisions that depend on human
intelligence, knowledge, and/or experience―as well as data and models to solve. Examples
include deciding which new products to develop or which new markets to enter. Semistruc-
tured decisions fall in the middle of the continuum. DSSs are best suited to support these types
of decisions, but they are also used to support unstructured ones. To provide such support,
DSSs have certain characteristics to support the decision-maker and the overall decision-
making process.
The main characteristic that distinguishes a DSS from an MIS is the inclusion of models.
Decision-makers can manipulate models to conduct experiments and sensitivity analyses, for
example, what-if and goal seeking. What-if analysis refers to changing assumptions or data
in the model to observe the impacts of those changes on the outcome. For example, if sales
forecasts are based on a 5% increase in customer demand, a what-if analysis would replace the
5% with higher and/or lower estimates to determine what would happen to sales if demand
changed. With goal seeking, the decision-maker has a specific outcome in mind and needs
to determine how that outcome could be achieved and whether it is feasible to achieve that
desired outcome. A DSS can also estimate the risk of alternative strategies or actions.
California Pizza Kitchen (CPK) uses a DSS to support inventory decisions. CPK has over 200
locations in 32 U.S. states and 13 other countries, including 17 California Pizza Kitchen non-
traditional, franchise concepts designed for airports, universities, and stadiums. Maintaining
optimal inventory levels at all its restaurants was challenging and time-consuming. The original
MIS was replaced by a DSS to make it easy for the chain’s managers to maintain updated records,
generate reports as and when needed, and make corporate- and restaurant-level decisions.
Many CPK restaurants reported a 5% increase in sales after the DSS was implemented.
Executive Information System (EIS)
EISs are strategic-level information systems that help executives and senior managers analyze
the environment in which the organization exists. They typically are used to identify long-term
trends and to plan appropriate courses of action. The information in such systems is often
weakly structured and comes from both internal and external sources. EISs are designed to be
operated directly by executives without the need for intermediaries and easily tailored to the
preferences of the individual using them. An EIS organizes and presents data and information
from both external data sources and internal MIS or TPS in an easy-to-use dashboard format to
support and extend the inherent capabilities of senior executives.
Initially, EISs were custom-made for an individual executive. However, a number of
off-the-shelf EIS packages now exist and some enterprise-level systems offer a customizable
EIS module.
The ways in which the different characteristics of the various types of ISs are classified is
shown in Table 2.2.
Here’s an example of how these ISs are used together to add value in an organization.
Day-to-day transaction data collected by the TPS are converted into prescheduled summa-
rized reports by middle managers using an MIS. The findings in these reports are then analyzed
by senior managers who use a DSS to support their semistructured or unstructured decision-
making. DSSs contain models that consist of a set of formulas and functions, such as statistical,
financial, optimization, and/or simulation models. Corporations, government agencies, the
military, health care, medical research, major league sports, and nonprofits depend on their
DSSs to answer what-if questions to help reduce waste in production operations, improve
inventory management, support investment decisions, and predict demand and help sustain
a competitive edge.
Customer data, sales, and other critical data produced by the DSS are then selected for
further analysis, such as trend analysis or forecasting demand and are input into an EIS for
36 C H A P T E R 2 Information Systems, IT Architecture, Data Governance, and Cloud Computing
TA B L E 2 . 2 Characteristics of Types of Information Systems
Type Characteristics
TPS Used by operations personnel
Produce information for other ISs
Use internal and external data
Efficiency oriented
MIS Used by lower and middle managers
Based on internal information
Support structured decisions
Inflexible
Lack analytical capabilities
Focus on past and present data
DSS Used by senior managers
Support semistructured or unstructured decisions
Contain models or formulas that enable sensitivity analysis, what-if analysis, goal seeking,
and risk analysis
Use internal and external data plus data added by the decision-maker who may have
insights relevant to the decision situation
Predict the future
EIS Used by C-level managers
Easy-to-use, customizable interface
Support unstructured decisions
Use internal and external data sources
Focus on effectiveness of the organization
Very flexible
Focus on the future
use by top level management, who add their experience and expertise to make unstructured
decisions that will affect the future of the business.
Figure 2.9 shows how the major types of ISs relate to one another and how data flow
among them. In this example,
1. Data from online purchases are captured and processed by the TPS and then stored in the
transactional database.
2. Data needed for reporting purposes are extracted from the database and used by the MIS
to create periodic, ad hoc, or other types of reports.
3. Data are output to a DSS where they are analyzed using formulas, financial ratios,
or models.
ISS Exist within Corporate Culture
It is important to remember that ISs do not exist in isolation. They have a purpose and a social
(organizational) context. A common purpose is to provide a solution to a business problem. The
social context of the system consists of the values and beliefs that determine what is admis-
sible and possible within the culture of the organization and among the people involved. For
example, a company may believe that superb customer service and on-time delivery are critical
success factors. This belief system influences IT investments, among other factors.
The business value of IT is determined by the people who use them, the business processes
they support, and the culture of the organization. That is, IS value is determined by the
IT Infrastructure, IT Architecture, and Enterprise Architecture 37
relationships among ISs, people, and business processes―all of which are influenced strongly
by organizational culture.
In an organization, there may be a culture of distrust between the technology and business
employees. No enterprise IT architecture methodology or data governance can bridge this
divide unless there is a genuine commitment to change. That commitment must come from
the highest level of the organization―senior management. Methodologies cannot solve people
problems; they can only provide a framework in which those problems can be solved.
Questions
1. Name the six components of an IS.
2. Describe the differences between data, information, knowledge, and wisdom.
3. Define TPS and give an example.
4. Explain why TPSs need to process incoming data before they are stored.
5. Define MIS and DSS and give an example of each.
6. What characteristic distinguishes a DSS from an MIS?
7. What level of personnel typically uses an EIS?
8. What factors determine IS value?
2.2 IT Infrastructure, IT Architecture,
and Enterprise Architecture
Every enterprise has a core set of ISs and business processes that execute the transactions that
keep it in business. Transactions include processing orders, order fulfillment and delivery, pur-
chasing inventory and supplies, hiring and paying employees, and paying bills. To most effec-
tively utilize its IT assets, an organization must create an IT infrastructure, IT architecture, and
an enterprise architecture (EA) as shown in Figure 2.10.
Data
Data Data
Data are extracted,
transformed, &
loaded (ETL)
Data from online
purchases
of transactional
data
Database
Reporting
MIS
Models applied to
data for analysis
DSS
Processes raw
data
TPS
Analytical processing
of data to discover
trends and learn
insights
Data Warehouse
FIGURE 2.9 Flow of data from point of sale (POS) through processing, storage, reporting,
decision support, and analysis. Also shows the relationships among different types of ISs.
38 C H A P T E R 2 Information Systems, IT Architecture, Data Governance, and Cloud Computing
IT infrastructure is an inventory of the physical IT devices that an organization owns and
operates. The IT infrastructure describes an organization’s entire collection of hardware, soft-
ware, networks, data centers, facilities, and other related equipment used to develop, test,
operate, manage, and support IT services. It does NOT include the people or process compo-
nents of an information system.
IT architecture guides the process of planning, acquiring, building, modifying, inter-
facing, and deploying IT resources in a single department within an organization. The IT
architecture should offer a way to systematically identify technologies that work together
to satisfy the needs of the departments’ users. The IT architecture is a blueprint for how
future technology acquisitions and deployment will take place. It consists of standards,
investment decisions, and product selections for hardware, software, and communications.
The IT architecture is developed first and foremost based on department direction and
business requirements.
Enterprise architecture (EA) reviews all the information systems across all departments in
an organization to develop a strategy to organize and integrate the organization’s IT infrastruc-
tures to help it meet the current and future goals of the enterprise and maximize the value of
technology to the organization. In this way, EA provides a holistic view of an organization with
graphic and text descriptions of strategies, policies, information, ISs, and business processes
and the relationships between them.
The EA adds value in an organization in that it can provide the basis for organizational
change just as architectural plans guide a construction project. Since a poorly crafted enterprise
architecture (EA) can also hinder day-to-day operations and efforts to execute business strategy,
it is more important than ever before to carefully consider the EA within your organization when
deciding on an approach to business, technology, and corporate strategy. Simply put, EA helps
solve two critical challenges: where an organization is going, and how it will get there.
The success of EA is measured not only in financial terms, such as profitability and return
on investment (ROI), but also in nonfinancial terms, for example, improved customer satisfac-
tion, faster speed to market, and lower employee turnover as diagrammed in Figure 2.11 and
demonstrated in IT at Work 2.1.
EA Helps to Maintain Sustainability
As you read in Chapter 1, the volume, variety, and speed of data being collected or generated
have increased dramatically over the past decade. As enterprise ISs become more complex,
IT
Infrastructure
IT
Architecture
HR ACCTG.
PRODUCTION
SALES
FINANCE
ORGANIZATIONAL
STRATEGY
TO MAXIMIZE
IT VALUE
Enterprise
Architecture
Policy
FIGURE 2.10 Comparing IT infrastructure, IT architecture, and enterprise architecture.
IT Infrastructure, IT Architecture, and Enterprise Architecture 39
SUCCESS
(PROFITABILITY, ROI,
INCREASED CUSTOMER SATISFACTION,
FASTER SPEED TO MARKET,
LOWER EMPLOYEE TURNOVER)
CREATING
IT
LEVERAGING
IT
MAINTAINING
IT
EA
FIGURE 2.11 Enterprise architecture success.
IT at Work 2.1
A New Enterprise Architecture Improves Data
Quality and EIS Use
Executives at a large chemical corporation were supported by an IS
specifically designed for their needs—called an executive information
system (EIS). The EIS was designed to provide senior managers with
internal and external data and key performance indicators (KPIs) that
were relevant to their specific needs. Tech Note 2.1 describes KPIs.
As with any system, the value of the EIS depends on the data quality.
Too Much Irrelevant Data
Unfortunately, the EIS was a failure. Executives soon discovered that
only half of the data available through the EIS related to their level of
analysis and decision-making at the corporate level. A worse prob-
lem was that the data they needed were not available when and
how they wanted them. For example, executives needed to analyze
current detailed sales revenue and cost data for every strategic busi-
ness unit (SBU), product line, and operating business to compare
performance. But, data were not in standardized format as needed,
making analysis difficult or impossible. A large part of the problem
was that SBUs reported sales revenues in different time frames (e.g.,
daily, weekly, monthly, or quarterly), and many of those reports
were not available when needed. As a result, senior management
could not get a trusted view of the company’s current overall perfor-
mance and did not know which products were profitable.
There were two reasons for the failure of the EIS:
1. IT architecture was not designed for customized reporting
The design of the IT architecture had been based on financial
accounting rules. That is, the data were organized to make it
easy to collect and consolidate the data needed to prepare
financial statements and reports that had to be submitted
to the SEC (Securities and Exchange Commission) and other
regulatory agencies. These statements and reports have
well-defined or standardized formats and only need to be pre-
pared at specific times during the year, typically annually or
quarterly. The organization of the data (for financial reporting)
did not have the flexibility needed for the customized ad hoc
(unplanned) data needs of the executives. For example, it was
nearly impossible to generate customized sales performance
(nonfinancial) reports or do ad hoc analyses, such as com-
paring inventory turnover rates by product for each region
for each sales quarter. Because of lags in reports from various
SBUs, executives could not trust the underlying data.
2. Complicated user interface Executives could not easily review
the KPIs. Instead, they had to sort through screens packed with
too much data—some of interest and some irrelevant. To com-
pensate for poor interface design, several IT analysts themselves
had to do the data and KPI analyses for the executives—delaying
response time and driving up the cost of reporting.
Solution: New Enterprise Architecture with
Standardized Data Formats
The CIO worked with a task force to design and implement an entirely
new EA. Data governance policies and procedures were imple-
mented to standardize data formats companywide. Data govern-
ance eliminated data inconsistencies to provide reliable KPI reports
on inventory turns, cycle times, and profit margins of all SBUs.
The new architecture was business-driven instead of financial
reporting-driven. It was easy to modify reports—eliminating the
costly and time-consuming ad hoc analyses. Fewer IT resources are
needed to maintain the system. Because the underlying data are
now relatively reliable, EIS use by executives increased significantly.
IT at Work Questions
1. Why was an EIS designed and implemented at the large
chemical corporation?
2. What problems did the executives have with the EIS?
3. What were the two reasons for those EIS problems?
4. How did the CIO improve the EIS?
5. What are the benefits of the new IT enterprise architecture?
6. What are the benefits of data governance?
40 C H A P T E R 2 Information Systems, IT Architecture, Data Governance, and Cloud Computing
long-range IT planning is critical. Companies cannot simply add storage, new apps, or data ana-
lytics on an as-needed basis and expect those additional IT assets to work with existing systems.
The relationship between complexity and planning for the future is easier to see in physical
things such as buildings and transportation systems. For example, if you are constructing a
simple holiday cabin in a remote area, there is no need to create a detailed plan for future
expansion. On the other hand, if you are building a large commercial development in a highly
populated area, you’re not likely to succeed without a detailed project plan. Relating this to
the case of enterprise ISs, if you are building a simple, single-user, nondistributed system, you
would not need to develop a well-thought-out growth plan. However, this approach would not
be feasible to enable you to successfully manage big data, copious content from mobiles and
social networks, and data in the cloud. Instead, you would need a well-designed set of plans,
or blueprints, provided by an EA to align IT with business objectives by guiding and controlling
hardware acquisition, software add-ons and upgrades, system changes, network upgrades,
choice of cloud services, and other digital technology investments that you will need to make
your business sustainable.
There are two specific strategic issues that the EA is designed to address:
1. IT systems’ complexity IT systems have become unmanageably complex and expensive
to maintain.
2. Poor business alignment Organizations find it difficult to keep their increasingly expen-
sive IT systems aligned with business needs.
Business and IT Benefits of EA Having the right EA in place is important for the fol-
lowing reasons:
• EA cuts IT costs and increases productivity by giving decision-makers access to information,
insights, and ideas where and when they need them.
• EA determines an organization’s competitiveness, flexibility, and IT economics for the next
decade and beyond. That is, it provides a long-term view of a company’s processes, sys-
tems, and technologies so that IT investments do not simply fulfill immediate needs.
• EA helps align IT capabilities with business strategy―to grow, innovate, and respond
to market demands, supported by an IT practice that is 100% in accord with business
objectives.
• EA can reduce the risk of buying or building systems and enterprise applications that are
incompatible or unnecessarily expensive to maintain and integrate.
Tech Note 2.1
Key Performance Indicators (KPIs)
KPIs are a set of quantifiable measures used to evaluate factors that
are crucial to the success of an organization. KPIs present data in easy-
to-comprehend and comparison-ready formats to gauge or compare
performance in terms of meeting an organization’s operational and
strategic goals. KPIs are used in four main areas: increasing revenue;
reducing costs; improving process cycle-time; and improving cus-
tomer satisfaction. Examples of key comparisons include actual versus
budget, actual versus forecasted, and the ROI for this year versus prior
years. KPIs help reduce the complex nature of organizational perfor-
mance to a small number of understandable measures, including:
• Financial KPIs: accounts payable turnover; inventory turn-
over; net profit margin; sum of difference between planned
and actual project budgets
• Social media KPIs: social traffic and conversions (number of
visitors who are converted to customers); likes; new followers
per week; social visits and leads
• Sales and marketing KPIs: cost per lead; how much revenue
a marketing campaign generates; number of customer
complaints; cycle time from customer request to delivery,
percentage of correspondence replied to on time
• Operational and supply chain KPIs: units per transaction;
carrying cost of inventory; order status; back order rate
• Environmental and carbon-footprint KPIs: energy, water, or
other resource use; spend by utility; weight of landfill waste.
IT Infrastructure, IT Architecture, and Enterprise Architecture 41
TA B L E 2 . 3 Components of an Enterprise Architecture
Business
architecture
How the business works. Includes broad business strategies and plans for
moving the organization from where it is now to where it wants to be. Processes
the business uses to meet its goals.
Application
architecture
Portfolio of organization’s applications. Includes descriptions of automated
services that support business processes; descriptions of interactions and
interdependencies between the organization’s ISs.
Information
architecture
What the organization needs to know to perform its business processes and
operations. Includes standard data models; data management policies and
descriptions of patterns of information production and use in an organization.
Technology
architecture
Hardware and software that supports the organization. Examples include
desktop and server software; OSs; network connectivity components;
printers, modems.
IT at Work 2.2
EA Must Be Dynamic and Evolving
In order to keep IT aligned with the business, the EA must be
a dynamic plan. As shown in the model in Figure 2.12, the EA
evolves toward the target architecture, which represents the
company’s future IT needs. According to this model, EA defines
the following:
1. The organization’s mission, business functions, and future
direction
2. Information and information flows needed to perform the
mission
3. The current baseline architecture
4. The desired target architecture
5. The sequencing plan or strategy to progress from the baseline
to the target architecture.
Baseline Transition Target
Im
p
le
m
en
ta
ti
o
n
S
ta
tu
s
Baseline architecture
Sequencing plan
Target architecture
FIGURE 2.12 The importance of viewing EA as a
dynamic and evolving plan The purpose of the EA is
to maintain IT–business alignment. Changes in priorities
and business are reflected in the target architecture to
help keep IT aligned with them (Bloomberg, 2016).
Developing an Enterprise Architecture (EA)
Developing an EA starts with the organization’s goals, for example, where does it want to be in
three years? and identifies the strategic direction in which it is heading and the business driv-
ers to which it is responding. The goal is to make sure that everyone understands and shares
a single vision. As soon as managers have defined this single shared vision of the future, they
then consider the impact this vision will have on the business, technical, information, and solu-
tions architectures of the enterprise. This shared vision of the future will dictate changes in all
these architectures, assign priorities to those changes, and keep those changes grounded in
business value.
According to Microsoft, the EA should include the four different perspectives shown in
Table 2.3.
It is important to recognize that the EA must be dynamic, not static. To sustain its effective-
ness, it should be an ongoing process of aligning the creation, operation, and maintenance of IT
across the organization with the ever-changing business objectives. As business needs change,
so must the EA, as demonstrated in IT at Work 2.2.
42 C H A P T E R 2 Information Systems, IT Architecture, Data Governance, and Cloud Computing
Questions
1. What is the purpose of the IT infrastructure?
2. How is the IT infrastructure different from the IT architecture?
3. What is the purpose of an EA?
4. What are the business benefits of EA?
5. Explain why it is necessary to ensure that an EA maintains alignment between IT and business strategy?
6. Explain KPIs and give an example.
2.3 Information Management and Data
Governance
As shown in Figure 2.3, data is the heart of the business and the central component of an IS.
Most business initiatives succeed or fail based on the quality of their data. Effective planning
and decision-making depend on systems being able to make data available in usable formats
on a timely basis. Almost everyone manages information. You manage your social and cloud
accounts across multiple mobile devices and computers. You update or synchronize (“synch”)
your calendars, appointments, contact lists, media files, documents, and reports. Your pro-
ductivity depends on the compatibility of devices and applications and their ability to share
data. Not being able to transfer and synch whenever you add a device or app is bothersome
and wastes your time. For example, when you switch to the latest mobile device, you might
need to reorganize content to make dealing with data and devices easier. To simplify add-ons,
upgrades, sharing, and access, you might leverage cloud services such as iTunes, Instagram,
Diigo, and Box.
This is just a glimpse at some of the information management situations that organiza-
tions face today and shows why a continuous plan is needed to guide, control, and govern IT
growth. As with building construction (Figure 2.13), blueprints and models help guide and
govern future IT and digital technology investments.
Information management is
the use of IT tools and methods
to collect, process, consolidate,
store, and secure data from
sources that are often fragmented
and inconsistent.
Career Insight 2.1
Essential Skills of an Enterprise Architect (EA)
Enterprise architects need much more than technology skills. On a
daily basis, an enterprise architect’s activities can change quickly
and significantly. Ideally, enterprise architects should come from
a highly technical background. Even though enterprise architects
deal with many other factors besides technology, it is still impor-
tant to keep technical skills current. The job performance and suc-
cess of such an architect―or anyone responsible for large-scale IT
projects―depend on a broad range of skills.
• Interpersonal or people skills The job requires interacting
with people and getting their cooperation.
• Ability to influence and motivate A large part of the job is
motivating users to comply with new processes and practices.
• Negotiating skills The project needs resources―time,
money, and personnel―that must be negotiated to get things
accomplished.
• Critical-thinking and problem-solving skills Architects face
complex and unique problems. Being able to expedite solu-
tions prevents bottlenecks.
• Business and industry expertise Knowing the business
and industry improves the outcomes and the architect’s
credibility.
• Process orientation Thinking in terms of process is essential
for an enterprise architect. Building repeatable and reusable
processes as artifacts from the work they do and how they
work themselves.
The most common function an enterprise architect will perform
is that of overseeing a large-scale program. Programs are a
group of related projects and as such, managing EA implementa-
tions requires someone who is able to handle multiple aspects
of a project at one time. Project management is covered in
Chapter 13.
Information Management and Data Governance 43
Information Management Harnesses Scattered Data
Business information is generally scattered throughout an enterprise, stored in separate sys-
tems dedicated to specific purposes, such as operations, supply chain management, or cus-
tomer relationship management. Major organizations have over 100 data repositories (storage
areas). In many companies, the integration of these disparate systems is limited―as is users’
ability to access all the information they need. As a result, despite all the information flowing
through companies, executives, managers, and workers often struggle to find the information
they need to make sound decisions or do their jobs. The overall goal of information manage-
ment is to eliminate that struggle through the design and implementation of a sound data gov-
ernance program and a well-planned EA.
Providing easy access to large volumes of information is just one of the challenges facing
organizations. The days of simply managing structured data are over. Now, organizations must
manage semistructured and unstructured content from social and mobile sources even though
that data may be of questionable quality.
Information management is critical to data security and compliance with continually
evolving regulatory requirements, such as the Sarbanes-Oxley Act, Basel III, the Computer
Fraud and Abuse Act (CFAA), the USA PATRIOT Act, and the Health Insurance Portability and
Accountability Act (HIPAA).
Issues of information access, management, and security must also deal with information
degradation and disorder―where people do not understand what data mean or how the data
can be useful.
Reasons for Information Deficiencies
Organizational information and decision support technologies have developed over many dec-
ades. During that time management teams’ priorities have changed along with their under-
standing of the role of IT within the organization; technology has advanced in unforeseeable
ways, and IT investments have been increased or decreased based on competing demands on
the budget. Other common reasons why information deficiencies are still a problem include:
1. Data silos Information can be trapped in departmental data silos (also called information
silos), such as marketing or production databases. Data silos are illustrated in Figure 2.14.
Since silos are unable to share or exchange data, they cannot consistently be updated.
When data are inconsistent across multiple enterprise applications, data quality cannot
(and should not) be trusted without extensive verification. Data silos exist when there is no
overall IT architecture to guide IT investments, data coordination, and communication.
Data silos support a single function and, as a result, do not support an organization’s cross-
functional needs.
Data silo are stand-alone
data stores. Their data are not
accessible by other ISs that need it
or outside that department.
©
M
a
rt
in
B
a
rr
a
u
d
/A
la
m
y
FIGURE 2.13 Blueprints and models, like those used for
building construction, are needed to guide and govern an
enterprise’s IT assets.
44 C H A P T E R 2 Information Systems, IT Architecture, Data Governance, and Cloud Computing
For example, most health-care organizations are drowning in data, yet they cannot
get reliable, actionable insights from these data. Physician notes, registration forms, dis-
charge summaries, documents, and more are doubling every five years. Unlike structured
machine-ready data, these are messy data that take too much time and effort for health-
care providers to include in their business analysis. So, valuable messy data are routinely
left out. Millions of insightful patient notes and records sit inaccessible or unavailable in
separate clinical data silos because historically there has been no easy way to analyze the
information they contain.
2. Lost or bypassed data Data can get lost in transit from one system to another. Or, data
might never get captured because of inadequately tuned data collection systems, such
as those that rely on sensors or scanners. Or, the data may not get captured in sufficient
detail, as described in Tech Note 2.2.
3. Poorly designed interfaces Despite all the talk about user-friendly interfaces, some ISs
are horrible to deal with. Poorly designed interfaces or formats that require extra time
and effort to figure out increase the risk of errors from misunderstanding the data or
ignoring them.
4. Nonstandardized data formats When users are presented with data in inconsistent or
nonstandardized formats, errors increase. Attempts to compare or analyze data are more dif-
ficult and take more time. For example, if the Northeast division reports weekly gross sales
revenues per product line and the Southwest division reports monthly net sales per product,
you cannot compare their performance without converting the data to a common format.
Consider the extra effort needed to compare temperature-related sales, such as air condition-
ers, when some temperatures are expressed in degrees Fahrenheit and others in Centigrade.
5. Difficult to hit moving targets The information that decision-makers want keeps
changing―and changes faster than ISs can respond to because of the first four reasons in
this list. Tracking tweets, YouTube hits, and other unstructured content requires expensive
investments―which managers find risky in an economic downturn.
These are the data challenges managers have to face when there is little or no information
management. Companies undergoing fast growth or merger activity or those with decentral-
ized systems (each division or business unit manages its own IT) will end up with a patchwork
of reporting processes. As you would expect, patchwork systems are more complicated to
modify, too rigid to support an agile business, and more expensive to maintain.
Information Requirements:
Understandable
Relevant
Timely
Accurate
Secure
Parts Replenish
Procuring
Design
Build
Ship
Sales
Fulfillment
Billing
Support
Customer data
Product data
Procurement data
Contract data
Data order
Parts inventory data
Engineering data
Logistics data
Data Types
Operations
silos
Sourcing
silos
Customer-facing
silos
FIGURE 2.14 Data (or information) silos are ISs that do not have the
capability to exchange data with other systems, making timely coordination
and communication across functions or departments difficult.
Information Management and Data Governance 45
Factors Driving the Shift from Silos to Sharing
and Collaboration
Senior executives and managers are aware of the problems associated with their data silos
and information management problems, but they also know about the huge cost and
disruption associated with converting to newer IT architectures. The “silo effect” occurs when
different departments of an organization do not share data and/or communicate effectively
enough to maintain productivity. Surprisingly, 75% of employers believe team work and
collaboration are essential, but only 18% of employees receive communication evaluations
during performance critiques (Marchese, 2016). In the new age of efficiency of service, many
companies like Formaspace, an industrial manufacturing and service corporation, must work
toward complete cloud integration of old silos to increase customer service and generate more
revenue. Enabling applications to interact with one another in an automated fashion to gain
better access to data increases meaningful productivity and decreases time and effort spent in
manual collaboration efforts. In an illustration of how silo integration is essential for a modern
corporation, IT technician at Formaspace, Loddie Alspach, claims that in 2015, the company
managed to increase revenues by 20% using Amazon-based cloud technology (Shore, 2015).
However, companies are struggling to integrate thousands of siloed global applications, while
aligning them to business operations. To remain competitive, they must be able to analyze and
adapt their business processes quickly, efficiently, and without disruption.
Greater investments in collaboration technologies have been reported by the research
firm Forrester (Keitt, 2014). A recent study identified four main factors that have influenced the
increased use of cloud technologies, as shown in Table 2.4 (Rai et al., 2015).
Tech Note 2.2
Need to Measure in Order to Manage
A residential home construction company had two divisions: stand-
ard homes and luxury homes. The company was not capturing
material, labor, and other costs associated with each type of con-
struction. Instead, these costs were pooled, making it impossible
to allocate costs to each type of construction and then to calculate
the profit margins of each division. They had no way of calculating
profit margins on each type of home within the divisions. Without
the ability to measure costs, they did not have any cost control.
After upgrading their ISs, they began to capture detailed data
at the division level. They discovered a wide profit margin on stand-
ard homes, which was hiding the losses occurring in the luxury
home division. Without cost control data, the profitable standard
homes division had been subsidizing the luxury home division for
many years. Based on the cost control data, the company decided
to focus more on standard homes and adjust their pricing on luxury
homes. This new cost control strategy increased the company’s
long-term performance.
TA B L E 2 . 4 Key Factors Leading to Increased Migration to the Cloud
Cost Savings
Efficient Use of Resources
Unlimited Scalability of Resources
Lower Maintenance
Business Benefits of Information Management
Based on the examples you have read, the obvious benefits of information management are:
1. Improves decision quality Decision quality depends on accurate and complete data.
2. Improves the accuracy and reliability of management predictions It is essential for
managers to be able to predict sales, product demand, opportunities, and competitive
46 C H A P T E R 2 Information Systems, IT Architecture, Data Governance, and Cloud Computing
threats. Management predictions focus on “what is going to happen” as opposed to finan-
cial reporting on “what has happened.”
3. Reduces the risk of noncompliance Government regulations and compliance require-
ments have increased significantly in the past decade. Companies that fail to comply with
laws on privacy, fraud, anti-money laundering, cybersecurity, occupational safety, and so
on face harsh penalties.
4. Reduces the time and cost of locating and integrating relevant information.
Data Governance: Maintaining Data Quality
and Cost Control
The success of every data-driven strategy or marketing effort depends on data governance.
Data governance policies must address structured, semistructured, and unstructured data
(discussed in Section 2.3) to ensure that insights can be trusted.
Enterprisewide Data Governance With an effective data governance program,
managers can determine where their data are coming from, who owns them, and who is
responsible for what―in order to know they can trust the available data when needed. Data
governance is an enterprisewide project because data cross boundaries and are used by people
throughout the enterprise. New regulations and pressure to reduce costs have increased the
importance of effective data governance. Governance eliminates the cost of maintaining and
archiving bad, unneeded, or inaccurate data. These costs grow as the volume of data grows.
Governance also reduces the legal risks associated with unmanaged or inconsistently managed
information.
Three industries that depend on data governance to comply with regulations or reporting
requirements are the following:
• Food industry In the food industry, data governance is required to comply with food
safety regulations. Food manufacturers and retailers have sophisticated control systems in
place so that if a contaminated food product, such as spinach or peanut butter, is detected,
they are able to trace the problem back to a particular processing plant or even the farm at
the start of the food chain.
• Financial services industry In the financial services sector, strict reporting requirements
of the Dodd−Frank Wall Street Reform and Consumer Protection Act of 2010 are leading
to greater use of data governance. The Dodd−Frank Act regulates Wall Street practices by
enforcing transparency and accountability in an effort to prevent another significant finan-
cial crisis like the one that occurred in 2008.
• Health-care industry Data are health care’s most valuable asset. Hospitals have moun-
tains of electronic patient information. New health-care accountability and reporting obli-
gations require data governance models for transparency to defend against fraud and to
protect patients’ information.
Master Data and Master Data Management (MDM) Master data is the term
used to describe business-critical information on customers, products and services,
vendors, locations, employees, and other things needed for operations and business trans-
actions. Master data are fundamentally different from the high volume, velocity, and vari-
ety of big data and traditional data. For example, when a customer applies for automobile
insurance, data provided on the application become the master data for that customer.
In contrast, if the customer’s vehicle has a device that sends data about his or her driving
Data governance is the control
of enterprise data through formal
policies and procedures to help
ensure data can be trusted and
are accessible.
Information Management and Data Governance 47
behavior to the insurer, those machine-generated data are transactional or operational, but
not master data.
Data are used in two ways―both depend on high-quality trustworthy data:
1. For running the business Transactional or operational use
2. For improving the business Analytic use
Master data are typically quite stable and typically stored in a number of different sys-
tems spread across the enterprise. Master data management (MDM) links and synchronizes
all critical data from those disparate systems into one file called a master file, to provide a
common point of reference. MDM solutions can be complex and expensive. Given their com-
plexity and cost, most MDM solutions are out of reach for small and medium companies. Ven-
dors have addressed this challenge by offering cloud-managed MDM services. For example, in
2013, Dell Software launched its next-generation Dell Boomi MDM. Dell Boomi provides MDM,
data management, and data quality services (DQS)―and they are 100% cloud-based with near
real-time synchronization.
Data governance and MDM manage the availability, usability, integrity, and security of data
used throughout the enterprise. Strong data governance and MDM are needed ensure data are
of sufficient quality to meet business needs. The characteristics and consequences of weak or
nonexistent data governance are listed in Table 2.5.
Data governance and MDM are a powerful combination. As data sources and volumes continue
to increase, so does the need to manage data as a strategic asset in order to extract its full
value. Making business data consistent, trusted, and accessible across the enterprise is a criti-
cal first step in customer-centric business models. With data governance, companies are able
to extract maximum value from their data, specifically by making better use of opportunities
that are buried within behavioral data.
TA B L E 2 . 5 Characteristics and Consequences of Weak or Nonexistent Data Governance
and MDM
• Data duplication causes isolated data silos.
• Inconsistency exists in the meaning and level of detail of data elements.
• Users do not trust the data and waste time verifying the data rather than analyzing them for appro-
priate decision-making.
• Leads to inaccurate data analysis.
• Bad decisions are made on perception rather than reality, which can negatively affect the company
and its customers.
• Results in increased workloads and processing time.
Questions
1. What is information management?
2. What is the “silo effect” and how does it affect business performance?
3. What three factors are driving collaboration and information sharing?
4. What are the business benefits of information management?
5. Explain why it is important to develop an effective data governance program?
6. Explain the purposes of master data management.
7. Why has interest in data governance and MDM increased?
48 C H A P T E R 2 Information Systems, IT Architecture, Data Governance, and Cloud Computing
2.4 Data Centers and Cloud Computing
Data centers and cloud computing are types of IT infrastructures or computing systems. Data
center also refers to the building or facility that houses the servers and equipment. In the past,
there were few IT infrastructure options. Companies owned their servers, storage, and network
components to support their business applications and these computing resources were on
their premises. Now, there are several choices for an IT infrastructure strategy―including cloud
computing. As is common to IT investments, each infrastructure configuration has strengths,
weaknesses, and cost considerations.
Data Centers
Traditionally, data and database technologies were kept in data centers that were typically run
by an in-house IT department (Figure 2.15) and consisted of on-premises hardware and equip-
ment that store data within an organization’s local area network.
Today, companies may own and manage their own on-premises data centers or pay for the
use of their vendors’ data centers, such as in cloud computing, virtualization, and software-as-
a-service arrangements (Figure 2.16).
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FIGURE 2.15 A row of network servers in a data center.
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FIGURE 2.16 Data centers are the infrastructure
underlying cloud computing, virtualization, networking,
security, delivery systems, and software-as-a-service.
Data Centers and Cloud Computing 49
In an on-premises data center connected to a local area network, it is easier to restrict
access to applications and information to authorized, company-approved people and equip-
ment. In the cloud, the management of updates, security, and ongoing maintenance are out-
sourced to a third-party cloud provider where data is accessible to anyone with the proper
credentials and Internet connection. This arrangement can make a company more vulnerable
since it increases exposure of company data at many more entry and exit points. Here are some
examples of data centers.
• National Climatic Data Center The National Climatic Data Center is an example of a
public data center that stores and manages the world’s largest archive of weather data.
• U.S. National Security Agency The National Security Agency’s (NSA) data center, shown
in Figure 2.17 is located in Bluffdale, UT. It is the largest spy data center for the NSA. People
who think their correspondence and postings through sites like Google, Facebook, and
Apple are safe from prying eyes should rethink that belief. You will read more about reports
exposing government data collection programs in Chapter 5.
• Apple Apple has a 500,000-square-foot data center in Maiden, NC, that houses servers for
various iCloud and iTunes services. The center plays a vital role in the company’s back-end
IT infrastructure. In 2014 Apple expanded this center with a new, smaller 14,250-square-
foot tactical data center that also includes office space, meeting areas, and breakrooms.
Since only the company owns the infrastructure, a data center is more suitable for organiza-
tions that run many different types of applications and have complex workloads. A data center,
like a factory, has limited capacity. Once it is built, the amount of storage and the workload the
center can handle does not change without purchasing and installing more equipment.
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FIGURE 2.17 The NSA data center in Bluffdale, UT.
When a Data Center Goes Down, so Does Business Data center failures dis-
rupt all operations regardless of who owns the data center. Here are two examples.
• Uber The startup company Uber experienced an hour-long outage in February 2014 that
brought its car-hailing service to a halt across the country. The problem was caused by an
outage at its vendor’s West Coast data center. Uber users flooded social media sites with
complaints about problems kicking off Uber’s app to summon a driver-for-hire.
• WhatsApp WhatsApp also experienced a server outage in early 2014 that took the ser-
vice offline for 2.5 hours. WhatsApp is a smartphone text-messaging service that had been
bought by Facebook for $19 billion. “Sorry we currently experiencing server issues. We
hope to be back up and recovered shortly,” WhatsApp said in a message on Twitter that
was retweeted more than 25,000 times in just a few hours. The company has grown rapidly
to 450 million active users within five years, nearly twice as many as Twitter. More than
two-thirds of these global users use the app daily. WhatsApp’s server failure drove millions
of users to a competitor. Line, a messaging app developed in Japan, added 2 million new
registered users within 24 hours of WhatsApp’s outage―the biggest increase in Line’s user
base within a 24-hour period.
50 C H A P T E R 2 Information Systems, IT Architecture, Data Governance, and Cloud Computing
These outages point to the risks of maintaining the complex and sophisticated technology
needed to power digital services used by millions or hundreds of millions of people.
Integrating Data to Combat Data Chaos
An enterprise’s data are stored in many different or remote locations―creating data chaos
at times. And some data may be duplicated so that they are available in multiple locations
that need a quick response. Therefore, the data needed for planning, decision-making, opera-
tions, queries, and reporting are scattered or duplicated across numerous servers, data cent-
ers, devices, and cloud services. Disparate data must be unified or integrated in order for the
organization to function.
Data Virtualization As organizations have transitioned to a cloud-based infrastruc-
ture, data centers have become virtualized. For example, Cisco offers data virtualization, which
gives greater IT flexibility. The process of data virtualization involves abstracting, transforming,
merging, and delivering data from disparate sources. The main goal of data virtualization is to
provide a single point of access to the data. By aggregating data from a wide range of sources
users can access applications without knowing their exact location. Using data virtualization
methods, enterprises can respond to change more quickly and make better decisions in real
time without physically moving their data, which significantly cuts costs. Cisco Data Virtualiza-
tion makes it possible to:
• Have instant access to data at any time and in any format.
• Respond faster to changing data analytics needs.
• Cut complexity and costs.
Compared to traditional (nonvirtual) data integration and replication methods, data virtu-
alization accelerates time to value with:
• Greater agility Speeds 5–10 times faster than traditional data integration methods
• Streamlined approach 50–75% time savings over data replication and consolida-
tion methods
• Better insight Instant access to data
Software-Defined Data Center Data virtualization has led to the latest development
in data centers—the software-defined data center (SDDC). An SDDC facilitates the integration
of the various infrastructures of the SDDC silos within organizations and optimizes the use
of resources, balances workloads, and maximizes operational efficiency by dynamically dis-
tributing workloads and provisioning networks. The goal of the SDDC is to decrease costs
and increase agility, policy compliance, and security by deploying, operating, managing, and
maintaining applications. In addition, by providing organizations with their own private cloud,
SDDCs provide greater flexibility by allowing organizations to have on-demand access to their
data instead of having to request permission from their cloud provider (see Figure 2.18).
The base resources for the SDDC are computation, storage, networking, and security. Typi-
cally, the SDDC includes limited functionality of service portals, applications, OSs, VM hardware,
hypervisors, physical hardware, software-defined networking, software-defined storage, a
security layer, automation and management layers, catalogs, a gateway interface module, and
third-party plug-ins (Figure 2.19).
It is estimated that the market share for SDDCs will grow from the current level of $22
billion to more than $77 billion in the next five years. As the use of SDDCs grows at this extraor-
dinary rate, data center managers will be called upon to scale their data centers exponentially
at a moment’s notice. Unfortunately, this is impossible to achieve using the traditional data
center infrastructure. In the SDDC, software placement and optimization decisions are based
on business logic, not technical provisioning directives. This requires changes in culture,
Data Centers and Cloud Computing 51
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FIGURE 2.18 Corporate IT infrastructures can consist of an on-premises data center
and off-premises cloud computing.
Catalogs
3rd
Party
Plug-Ins
Gateway
Interface
Module
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Software-defined Storage
Physical & Virtual
Compute
Limited Functionality of Service Portals
FIGURE 2.19 SDDC infrastructure (adapted from Sturm et al., 2017).
processes, structure, and technology. The SDDC isolates the application layer from the physical
infrastructure layer to facilitate faster and more effective deployment, management, and moni-
toring of diverse applications. This is achieved by finding each enterprise application an optimal
home in a public or private cloud environment or draw from a diverse collection of resources.
From a business perspective moving to a SDDC is motivated by the need to improve secu-
rity, increase alignment of the IT infrastructure with business objectives and provision of appli-
cations more quickly.
52 C H A P T E R 2 Information Systems, IT Architecture, Data Governance, and Cloud Computing
Traditional data centers had dedicated, isolated hardware that results in poor utilization
of resources and very limited flexibility. Second-generation virtualization data cases improved
resource use by consolidating virtualized servers. By reducing the steps needed to decrease
the time it takes to deploy workloads, facilitating the definition of applications and resource
needs, the SDDC creates an even more flexible environment in which enterprise applications
can be quickly reconfigured and supported to provide infrastructure-as a service (IaaS). Tran-
sitioning to an SDDC enables an organization to optimize its resource usage, provide capacity
on demand, improve business-IT alignment, improve agility and flexibility of operations, and
save money (Figure 2.20).
TRADITIONAL DATA
CENTER
• Hardware silos
• Limited utilization
• Limited flexibility
VIRTUALIZED DATA CENTER
• Virtualized servers
• Better resource use
• Automate/Balance workload
• Sub-optimal
performance
SOFTWARE-DEFINED
DATA CENTER (SDDC)
• IaaS
• Optimized resource use
• Increased business-
IT alignment
• Improved agility & flexibility
• Capacity on demand
• Cost savings
FIGURE 2.20 Evolution of data centers (adapted from Sturm et al., 2017).
Cloud Computing
In a business world where first movers gain the advantage, IT responsiveness and agility pro-
vide a competitive edge and lead to sustainable business practices. Yet, many IT infrastructures
are extremely expensive to manage and too complex to easily adapt. A common solution is
cloud computing. Cloud computing is the general term for infrastructures that use the Inter-
net and private networks to access, share, and deliver computing resources. More specifically,
IBM defines cloud computing as “the delivery of on-demand computing resources—everything
from applications to data centers—over the Internet on a pay-for-use basis” (IBM, 2016).
Cloud computing is the delivery of computing and storage resources as a service to end-users
over a network. Cloud systems are scalable. That is, they can be adjusted to meet changes in
business needs. At the extreme, the cloud’s capacity is unlimited depending on the vendor’s offer-
ings and service plans. A drawback of the cloud is control because a third party manages it. Unless
the company uses a private cloud within its network, it shares computing and storage resources
with other cloud users in the vendor’s public cloud. Public clouds allow multiple clients to access
the same virtualized services and utilize the same pool of servers across a public network. In con-
trast, private clouds are single-tenant environments with stronger security and control for reg-
ulated industries and critical data. In effect, private clouds retain all the IT security and control
provided by traditional IT infrastructures with the added advantages of cloud computing.
Selecting a Cloud Vendor
Because cloud is still a relatively new and evolving business model, the decision to select a
cloud service provider should be approached with even greater diligence than other IT deci-
sions. As cloud computing becomes an increasingly important part of the IT delivery model,
assessing and selecting the right cloud provider also become the most strategic decisions that
business leaders undertake. Providers are not created equally, so it is important to investigate
each provider’s offerings prior to subscribing. When selecting and investing in cloud services,
there are several service factors a vendor needs to address. These evaluation factors are listed
in Table 2.6.
Data Centers and Cloud Computing 53
Vendor Management and Cloud Service Agreements (CSAs) The move to
the cloud is also a move to vendor-managed services and cloud service agreements (CSAs).
Also referred to as cloud service level agreements (SLAs), the CSA or SLA is a negotiated
agreement between a company and service provider that can be a legally binding contract or
an informal contract. You can review a sample CSA used by IBM by visiting http://www-05.
ibm.com/support/operations/files/pdf/csa_us .
Staff experienced in managing outsourcing projects may have the necessary expertise for
managing work in the cloud and policing SLAs with vendors. The goal is not building the best CSA
terms, but negotiating the terms that align most closely with the business needs. For example, if
a server becomes nonoperational and it does not support a critical business operation, it would
not make sense to pay a high premium for reestablishing the server within one hour. On the
other hand, if the data on the server support a business process that would effectively close
down the business for the period of time that it was not accessible, it would be prudent to nego-
tiate the fastest possible service in the CSA and pay a premium for that high level of service.
In April 2015, the Cloud Standards Customer Council (CSCC) published the Practical Guide
to Cloud Service Agreements, Version 2.0, to reflect changes that have occurred since 2012 when
it first published the Practical Guide to Cloud Service Level Agreements. The new guide provides
a practical reference to help enterprise IT and business decision-makers analyze CSAs from dif-
ferent cloud service providers. The main purpose of a CSA is to set clear expectations for service
between the cloud customer (buyer) and the cloud provider (seller), but CSAs should also exist
between a customer and other cloud entities, such as the cloud carrier, the cloud broker, and
even the cloud auditor. Although the various service delivery models, that is, IaaS, PaaS, SaaS,
and so on, may have different requirements, the guide focuses on the requirements that are
common across the various service models (Cloud Standards Customer Council, 2015, p. 4).
Implementing an effective management process is an important step in ensuring internal
and external user satisfaction with cloud services. Table 2.7 lists the 10 steps that should be
taken by cloud customers to evaluate cloud providers’ CSAs in order to compare CSAs across
multiple providers or to negotiate terms with a selected provider.
TA B L E 2 . 6 Service Factors to Consider when Evaluating Cloud Vendors or Service
Providers
Factors Examples of Questions to Be Addressed
Delays What are the estimated server delays and network delays?
Workloads What is the volume of data and processing that can be handled
during a specific amount of time?
Costs What are the costs associated with workloads across multiple
cloud computing platforms?
Security How are data and networks secured against attacks? Are data
encrypted and how strong is the encryption? What are network
security practices?
Disaster recovery and business
continuity
How is service outage defined? What level of redundancy is in
place to minimize outages, including backup services in differ-
ent geographical regions? If a natural disaster or outage occurs,
how will cloud services be continued?
Technical expertise and
understanding
Does the vendor have expertise in your industry or business
processes? Does the vendor understand what you need to do
and have the technical expertise to fulfill those obligations?
Insurance in case of failure Does the vendor provide cloud insurance to mitigate user
losses in case of service failure or damage? This is a new and
important concept.
Third-party audit or an unbiased
assessment of the ability to rely on
the service provided by the vendor
Can the vendor show objective proof with an audit that it can
live up to the promises it is making?
54 C H A P T E R 2 Information Systems, IT Architecture, Data Governance, and Cloud Computing
Cloud Infrastructure
The cloud has greatly expanded the options for enterprise IT infrastructures because any device
that accesses the Internet can access, share, and deliver data. Cloud computing is a valuable
infrastructure because:
1. It is dynamic, not static and provides a way to make applications and computing power
available on demand. Applications and power are available on demand because they are
provided as a service. For example, any software that is provided on demand is referred
to as software as a service (SaaS). Typical SaaS products are Google Apps and www.
Salesforce.com. Section 2.5 discusses SaaS and other cloud services.
2. Helps companies become more agile and responsive while significantly reducing IT costs
and complexity through improved workload optimization and service delivery.
Move to Enterprise Clouds A majority of large organizations have hundreds or thou-
sands of software licenses that support business processes, such as licenses for Microsoft
Office, Oracle database management, IBM CRM (customer relationship management), and var-
ious network security software. Managing software and their licenses involves deploying, provi-
sioning, and updating them―all of which are time-consuming and expensive. Cloud computing
overcomes these problems.
Issues in Moving Workloads from the Enterprise
to the Cloud
Building a cloud strategy is a challenge, and moving existing applications to the cloud is stress-
ful. Despite the business and technical benefits, the risk exists of disrupting operations or cus-
tomers in the process. With the cloud, the network and WAN (wide area network) become an
even more critical part of the IT infrastructure. Greater network bandwidth is needed to sup-
port the increase in network traffic. And, putting part of the IT architecture or workload into
the cloud requires different management approaches, different IT skills, and knowing how to
manage vendor relationships and contracts.
TA B L E 2 . 7 Ten Steps to Evaluate a CSA
1. Understand roles and responsibilities of the CSA customer and provider
2. Evaluate business-level policies and compliance requirements relevant to the CSA customer
3. Understand service and deployment model differences
4. Identify critical performance objectives such as availability, response time, and processing speed.
Ensure they are measurable and auditable
5. Evaluate security and privacy requirements for customer information that has moved into the
provider’s cloud and applications, functions, and services being operated in the cloud to provide
required service to the customer
6. Identify service management requirements such as auditing, monitoring and reporting,
measurement, provisioning, change management, and upgrading/patching
7. Prepare for service failure management by explicitly documenting cloud service capabilities and
performance expectations with remedies and limitations for each
8. Understand the disaster recovery plan
9. Develop a strong and detailed governance plan of the cloud services on the customer side
10. Understand the process to terminate the CSA
Cloud Services and Virtualization 55
Infrastructure Issues There is a big difference because cloud computing runs on a
shared infrastructure, so the arrangement is less customized to a specific company’s require-
ments. A comparison to help understand the challenges is that outsourcing is like renting an
apartment, while the cloud is like getting a room at a hotel.
With cloud computing, it may be more difficult to get to the root of performance problems,
like the unplanned outages that occurred with Google’s Gmail and Workday’s human resources
apps. The trade-off is cost versus control.
Increasing demand for faster and more powerful computers, and increases in the number
and variety of applications are driving the need for more capable IT architectures.
Questions
1. What is a data center?
2. What is the difference between on-premises data centers and cloud computing?
3. What is an SDDC?
4. What are the advantages of using an SDDC?
5. How can cloud computing solve the problems of managing software licenses?
6. What factors should be considered when selecting a cloud vendor or provider?
7. When are private clouds used instead of public clouds?
8. Explain three issues that need to be addressed when moving to cloud computing or services.
2.5 Cloud Services and Virtualization
Managers want streamlined, real-time, data-driven enterprises, yet they may face budget cuts.
Sustaining performance requires the development of new business applications and analytics
capabilities, which comprise the front end and the data stores and digital infrastructure, or back
end, to support them. The back end is where the data reside. The problem is that data may have
to navigate through a congested IT infrastructure that was first designed decades ago. These
network or database bottlenecks can quickly wipe out the competitive advantages from big
data, mobility, and so on. Traditional approaches to increasing database performance―manu-
ally tuning databases, adding more disk space, and upgrading processors―are not enough
when you are you are dealing with streaming data and real-time big data analytics. Cloud ser-
vices help to overcome these limitations. Cloud services are outsourced to a third-party cloud
provider who manages the updates, security, and ongoing maintenance.
At first glance, virtualization and cloud computing may appear to be quite similar. How-
ever, cloud computing and virtualization are inherently different. Unlike cloud computing that
involves multiple computers or hardware devices sending data through vendor-provided net-
works, virtualization is the replacement of a tangible physical component with a virtual one.
Each of these concepts are described and discussed in the following sections.
Anything as a Service (XAAS) Models
The cloud computing model for on-demand delivery of and access to various types of com-
puting resources also extends to the development of business apps. Figure 2.21 shows four
“as a service” (XaaS) solutions based on the concept that the resource―software, platform,
infrastructure, or data—can be provided on demand regardless of geolocation. As these as ser-
vice solutions develop, the focus is changing from massive technology implementation costs to
business-reengineering programs that enable XaaS platforms (Fresht, 2014).
Cloud services are services made available to users on demand via the Internet from
a cloud computing provider’s servers instead of being accessed through an organization’s
56 C H A P T E R 2 Information Systems, IT Architecture, Data Governance, and Cloud Computing
on-premises servers. Cloud services are designed to provide easy, scalable access to applica-
tions, resources, and services, and are fully managed by a cloud services provider.
Cloud computing is often referred to as a “stack” or broad range of services built on top of
each other under the name cloud. These cloud services can be defined as follows:
• Software as a service (SaaS) is a widely used model in which software is available to users
from a service provider as needed. A provider licenses a SaaS application to customers as
an on-demand service, through a subscription, a pay-as-you-go model, or free of charge
(where revenue can be generated by other means, such as through sale of advertisements).
• Platform as a service (PaaS) is a computing platform that enables the quick and easy
creation, testing, and deployment of web applications without the necessity of buying and
maintaining the software and infrastructure underneath it. It is a set of tools and services
that make coding and deploying these applications faster and more efficient.
• Infrastructure as a service (IaaS) is a way of delivering servers, storage, networks, work-
load balancers, and OSs as an on-demand service.
• Data as a service (DaaS) is an information provision and distribution model in which data
files (including text, images, sounds, and videos) are made available to customers over a
network by a service provider.
Software as a Service (SaaS) SaaS is a rapidly growing method of delivering soft-
ware and is particularly useful in applications in which there are considerable interactions bet-
ween the organization and external entities that do not confer a competitive advantage, for
example, e-mail and newsletters. It is also useful when an organization is going to be needing
a particular type of software for a short period of time or for a specific project, and for software
that is used periodically, for example, tax, payroll, or billing software. SaaS is not appropriate
for accessing applications that require fast processing of real-time data or applications where
regulation does not permit data being hosted externally.
Other terms for SaaS are on-demand computing and hosted services. The idea is basically
the same: Instead of buying and installing expensive packaged enterprise applications, users
can access software applications over a network, using an Internet browser. To use SaaS, a
service provider hosts the application at its data center and customers access it via a standard
Web browser.
The SaaS model was developed to overcome the common challenge to an enterprise of
being able to meet fluctuating demands on IT resources efficiently. It is used in many business
functions, primarily customer relationship management (CRM), accounting, human resources
(HR), service desk management, communication, and collaboration.
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FIGURE 2.21 Four as a service solutions: software, platform,
infrastructure, and data as a service.
Cloud Services and Virtualization 57
There are thousands of SaaS vendors. www.Salesforce.com is one of the most widely
known SaaS providers. Other examples are Google Docs and collaborative presentation soft-
ware Prezi. For instance, instead of installing Microsoft Word on your own computer, and
then loading Word to create a document, you use a browser to log into Google Docs. Only the
browser uses your computer’s resources.
Platform as a Service (PaaS) PaaS provides a standard unified platform for devel-
oping, testing, and deploying software over the Web. This computing platform allows the
creation of Web applications quickly and easily without the complexity of buying and main-
taining the underlying infrastructure. Without PaaS, the cost of developing some applications
would be prohibitive. Examples of PaaS include databases, Web servers, development tools,
and execution runtime. PaaS is particularly useful when multiple software developers are
working on a software development project of when other external parties need to interact
with the development process and for when developers want to automate testing and deploy-
ment services. It is less useful in those instances where application performance needs to be
customized to the underlying hardware and software or an application needs to be highly por-
table in terms of where it is hosted. Some examples of PaaS include Microsoft Azure Service,
www.Force.com, and Google App Engine.
Infrastructure as a Service (IaaS) Rather than purchasing all the components of
its IT infrastructure, organizations buy their computing resources as a fully outsourced Infra-
structure as a Service (IaaS) on demand. Generally, IaaS can be acquired as a Public or Private
infrastructure or a combination of the two (Hybrid). A public IaaS is one that consists of shared
resources deployed on a self-service basis over the Internet. On the other hand, a private IaaS is
provided on a private network. And, a hybrid IaaS is a combination of both public and private.
IaaS is useful where organizations experience significant highs and lows in terms of demand on
the infrastructure, for new or existing organizations who have budgetary constraints on hardware
investment and in situations where an organization has temporary infrastructure needs. Some
IaaS providers you may be familiar with include Amazon Web Services (AWS) and Rackspace.
Data as a Service (DaaS)—The New Kid on the Block DaaS is the newest
entrant into the XaaS arena. DaaS enables data to be shared among clouds, systems, apps, and
so on regardless of the data source or where they are stored. Data files, including text, images,
sound, and video, are made available to customers over a network, typically the Internet. DaaS
makes it easier for data architects to select data from different pools, filter out sensitive data,
and make the remaining data available on demand.
A key benefit of DaaS is that it transfers the risks and responsibilities associated with data
management to a third-party cloud provider. Traditionally, organizations stored and managed
their data within a self-contained storage system, however, as data become more complex, it is
increasingly difficult and expensive to maintain using the traditional data model. Using DaaS,
organizational data are readily accessible through a cloud-based platform and can be delivered
to users despite organizational or geographical constraints. This model is growing in popularity
as data become more complex, difficult, and expensive to maintain. Some of the most common
business applications currently using DaaS are CRM and enterprise resource planning (ERP).
For an example of Daas, see IT at Work 2.3.
IT at Work 2.3
Slack
Slack, the successful social chat app for companies and their
executives and/or employees, has announced a “deep product
partnership” with Salesforce (Lunden, 2016). The partnership
includes a new data sharing platform for businesses to easily share
information about conversations they are having within the app.
More specifically, businesses will be able to share details about
client accounts in real time with automatic updates for new leads
about the accounts. The new partnership will allow Slack and its
users to be even more effective in collaboration and data sharing
across many platforms and departments (Lunden, 2016).
58 C H A P T E R 2 Information Systems, IT Architecture, Data Governance, and Cloud Computing
As a Service Models Are Enterprisewide and Can Trigger Lawsuits The
various As a Service models are used in various aspects of business. You will read how these
specific services, such as CRM and HR management, are being used for operational and strategic
purposes in later chapters. Companies are frequently adopting software, platform, infrastructure,
data management, and starting to embrace mobility as a service and big data as a service because
they typically no longer have to worry about the costs of buying, maintaining, or updating their
own data servers. Both hardware and human resources expenses can be cut significantly. Ser-
vice arrangements all require that managers understand the benefits and trade-offs―and how
to negotiate effective SLAs and CSAs. Regulations mandate that confidential data be protected
regardless of whether the data are on-premises or in the cloud. Therefore, a company’s legal
department needs to get involved in these IT decisions. Put simply, moving to cloud services is
not simply an IT decision because the stakes around legal and compliance issues are very high.
Going Cloud
Cloud services can advance the core business of delivering superior services to optimize busi-
ness performance. Cloud can cut costs and add flexibility to the performance of critical busi-
ness apps. And, it can improve responsiveness to end-consumers, application developers, and
business organizations. But to achieve these benefits, there must be IT, legal, and senior man-
agement oversight because a company still must meet its legal obligations and responsibilities
to employees, customers, investors, business partners, and society.
Virtualization and Virtual Machines
There are many types of virtualization, such as virtual storage devices, virtual desktops, virtual
OSs, and virtual servers for network virtualization. You can think of virtualization as a model for
a physical component that is built into computer code, to create a software program that acts
in the same way as the physical component it is modeling. For example, a virtual machine is
a software representation of a computer, rather than an actual computer and a virtual server
sends and receives signals just like a physical one, even though it doesn’t have its own circuitry
and other physical components.
You might ask why organizations want to virtualize their physical computing and net-
working devices. The answer is a gross underutilization of inefficient use of resources. Computer
hardware had been designed to run a single OS and a single app, which leaves most computers
vastly underutilized. Virtualization is a technique that creates a virtual (i.e., nonphysical) layer
and multiple virtual machines (VMs) to run on a single physical machine. The virtual (or virtual-
ization) layer makes it possible for each VM to share the resources of the hardware. Figure 2.22
shows the relationship among the VMs and physical hardware.
Application
Virtualization Layer
Hardware Layer
Operating
System
Application
Operating
System
Application
Operating
System
Virtual Machines
FIGURE 2.22 Virtual machines running on a
simple computer hardware layer.
Cloud Services and Virtualization 59
What Is a Virtual Machine? Just as virtual reality is not real, but a software-created
world, a virtual machine is a software-created computer. Technically, a virtual machine
(VM) is created by a software layer, called the virtualization layer, as shown in Figure 2.22.
That layer has its own Windows or other OS and apps, such as Microsoft Office, as if it
were an actual physical computer. A VM behaves exactly like a physical computer and con-
tains its own virtual―that is, software-based―CPU, RAM (random access memory), hard
drive, and network interface card (NIC). An OS cannot tell the difference between a VM
and a physical machine, nor can applications or other computers on a network tell the
difference. Even the VM thinks it is a “real” computer. Users can set up multiple real com-
puters to function as a single PC through virtualization to pool resources to create a more
powerful VM.
Virtualization is a concept that has several meanings in IT and therefore several defini-
tions. The major type of virtualization is hardware virtualization, which remains popular and
widely used. Virtualization is often a key part of an enterprise’s disaster recovery plan. In gen-
eral, virtualization separates business applications and data from hardware resources. This
separation allows companies to pool hardware resources―rather than dedicate servers to
applications―and assign those resources to applications as needed.
Different types of virtualization include:
• Storage virtualization is the pooling of physical storage from multiple network storage
devices into what appears to be a single storage device managed from a central
console.
• Server virtualization consolidates multiple physical servers into virtual servers that run on
a single physical server.
• Desktop virtualization is software technology that separates the desktop environ-
ment and associated application software from the physical machine that is used to
access it.
• Application virtualization is the practice of running software from a remote server rather
than on the user’s computer.
• Network virtualization combines the available resources in a network by splitting the
network load into manageable parts, each of which can be assigned (or reassigned) to a
particular server on the network.
• Hardware virtualization is the use of software to emulate hardware or a total computer
environment other than the one the software is actually running in. It allows a piece of
hardware to run multiple OS images at once. This kind of software is sometimes known as
a virtual machine.
Virtualization Characteristics and Benefits Virtualization increases the flexi-
bility of IT assets, allowing companies to consolidate IT infrastructure, reduce maintenance
and administration costs, and prepare for strategic IT initiatives. Virtualization is not primarily
about cost-cutting, which is a tactical reason. More importantly, for strategic reasons, virtual-
ization is used because it enables flexible sourcing and cloud computing.
The characteristics and benefits of virtualization are as follows:
1. Memory-intensive VMs need a huge amount of RAM (random access memory, or pri-
mary memory) because of their massive processing requirements.
2. Energy-efficient VMs minimize energy consumed running and cooling servers in the
data center―representing up to a 95% reduction in energy use per server.
3. Scalability and load balancing When a big event happens, such as the Super Bowl,
millions of people go to a website at the same time. Virtualization provides load balanc-
ing to handle the demand for requests to the site. The VMware infrastructure automati-
cally distributes the load across a cluster of physical servers to ensure the maximum
performance of all running VMs. Load balancing is key to solving many of today’s IT
challenges.
60 C H A P T E R 2 Information Systems, IT Architecture, Data Governance, and Cloud Computing
Virtualization consolidates servers, which reduces the cost of servers, makes more effi-
cient use of data center space, and reduces energy consumption. All of these factors reduce the
total cost of ownership (TCO). Over a three-year life cycle, a VM costs approximately 75% less to
operate than a physical server. IT at Work 2.4 describes one example of how virtualization can
help organizations provide higher levels of customer service and improve productivity.
Key Terms
ad hoc report 34
batch processing 33
cloud computing 52
cloud service agreements (CSAs) 53
customer-centric 47
data 30
data as a service (DaaS) 56
data center 38
data governance 46
data silo 43
database 33
decision support systems (DSS) 32
dirty data 26
enterprise architecture (EA) 26
exception report 34
executive information systems (EISs) 32
goal seeking 35
information 30
information management 42
information systems (ISs) 28
infrastructure as a service (IaaS) 56
IT infrastructure 38
IPOS 28
knowledge 30
management information systems (MIS) 34
master data 46
master data management (MDM) 47
IT at Work 2.4
Business Continuity with Virtualization
Liberty Wines supplies to restaurants, supermarkets, and indepen-
dent retailers from its headquarters in central London. Recipient
of multiple international wine awards—including the Interna-
tional Wine Challenge on Trade Supplier of the Year for two years
running—Liberty Wines is one of the United Kingdom’s foremost
wine importers and distributors.
IT Problems and Business Needs
As the business expanded, the existing servers did not have the
capacity to handle increased data volumes, and maintenance of
the system put a strain on the IT team of two employees. Existing
systems were slow and could not provide the responsiveness that
employees expected.
Liberty Wines had to speed up business processes to meet
the needs of customers in the fast-paced world of fine dining. To
provide the service their customers expect, employees at Liberty
Wines needed quick and easy access to customer, order, and stock
information. In the past, the company relied on 10 physical servers
for applications and services, such as order processing, reporting,
and e-mail.
Virtualized Solution
Liberty Wines deployed a virtualized server solution incorporating
Windows Server 2008 R2. The 10 servers were replaced with 3 physical
servers, running 10 virtual servers. An additional server was used as
part of a backup system, further improving resilience and stability.
By reducing the number of physical servers from 10 to 4, power
use and air conditioning costs were cut by 60%. Not only was the
bottom line improved, but the carbon footprint was also reduced,
which was good for the environment.
The new IT infrastructure cut hardware replacement costs by
£45,000 (U.S. $69,500) while enhancing stability with the backup
system. Applications now run faster, too, so employees can pro-
vide better customer service with improved productivity. When
needed, virtual servers can be added quickly and easily to support
business growth.
Questions
1. What is SaaS?
2. What is PaaS?
3. What is IaaS?
4. How might companies risk violating regulation or compliance requirements with cloud services?
5. In what ways is a virtualized information system different from a traditional information system?
6. Describe the different types of virtualization.
7. What is load balancing and why is it important?
Assuring Your Learning 61
master file 47
model 26
online transaction processing (OLTP) 33
platform as a service (PaaS) 56
private cloud 52
public cloud 52
real-time processing 33
service level agreement (SLA) 61
software as a service (SaaS) 54
software-defined data center (SDDC) 50
stack 56
structured decisions 35
transaction processing systems (TPS) 32
unstructured decisions 35
virtualization 59
virtual machine (VM) 59
what-if analysis 35
wisdom 31
Assuring Your Learning
Discuss: Critical Thinking Questions
1. Why is a strong market position or good profit performance only
temporary?
2. Assume you had:
a. A tall ladder with a sticker that lists a weight allowance only
five pounds more than you weigh. You know the manufacturer
and model number.
b. Perishable food with an expiration date two days into the
future.
c. A checking account balance that indicates you have sufficient
funds to cover the balance due on an account.
In all three cases, trusting the data to be exactly correct could have
negative consequences. Explain the consequences of trusting the data
in each instance. How might you determine the correct data for each
instance? Which data might not be possible to verify? How does dirty data
impact your decision-making?
3. If business data are scattered throughout the enterprise and not
synched until the end of the month, how does that impact day-to-day
decision-making and planning?
4. Assume a bank’s data are stored in silos based on financial
product―checking accounts, saving accounts, mortgages, auto
loans, and so on. What problems do these data silos create for
the bank’s managers?
5. Why do managers and workers still struggle to find information that
they need to make decisions or take action despite advances in digital
technology? That is, what causes data deficiencies?
6. According to a Tech CEO Council Report, Fortune 500 companies
waste $480 billion every year on inefficient business processes. What
factors cause such huge waste? How can this waste be reduced?
7. Explain why organizations need to implement EA and data
governance.
8. What two problems can EA solve?
9. Name two industries that depend on data governance to comply
with regulations or reporting requirements. Given an example of each.
10. Why is it important for data to be standardized? Give an example
of unstandardized data.
11. Why are TPSs critical systems?
12. Discuss why the cloud acts as the great IT delivery frontier.
13. What are the functions of data centers?
14. What factors need to be considered when selecting a cloud vendor?
15. What protection does an effective SLA or CSA provide?
16. Why is an SLA or a CSA a legal document?
17. How can virtualization reduce IT costs while improving performance?
Explore: Online and Interactive Exercises
1. When selecting a cloud vendor to host your enterprise data and
apps, you need to evaluate the service level agreement (SLA).
a. Research the SLAs of two cloud vendors, such as Rackspace,
Amazon, or Google.
b. For the vendors you selected, what are the SLAs’ uptime per-
centages? Expect them to be 99.9% or less.
c. Does each vendor count both scheduled downtime and
planned downtime toward the SLA uptime percentage?
d. Compare the SLAs in terms of two other criteria.
e. Decide which SLA is better based on your comparisons.
f. Report your results and explain your decision.
2. Many organizations initiate data governance programs because of
pressing compliance issues that impact data usage. Organizations may
need data governance to be in compliance with one or more regula-
tions, such as the Gramm−Leach Bliley Act (GLB), HIPAA, Foreign Cor-
rupt Practices Act (FCPA), Sarbanes−Oxley Act, and several state and
federal privacy laws.
a. Research and select two U.S. regulations or privacy laws.
b. Describe how data governance would help an enterprise com-
ply with these regulations or laws.
3. Visit www.eWeek.com Cloud Computing Solutions Center for news
and reviews at www.eweek.com/c/s/Cloud-Computing. Select one
of the articles listed under Latest Cloud Computing News. Prepare an
executive summary of the article.
4. Visit Rackspace.com and review the company’s three types of cloud
products. Describe each of those cloud solutions.
62 C H A P T E R 2 Information Systems, IT Architecture, Data Governance, and Cloud Computing
5. Visit Oracle.com. Describe the types of virtualization services of-
fered by Oracle.
6. Visit YouTube.com and search for two videos on virtualization. For
each video, report what you learned. Specify the complete URL, video
title, who uploaded the video and the date, video length, and num-
ber of views.
Case 2.2
Business Case: Data Chaos Creates Risk
Data chaos often runs rampant in service organizations, such as health
care and the government. For example, in many hospitals, each line
of business, division, and department has implemented its own IT
applications, often without a thorough analysis of its relationship with
other departmental or divisional systems. This arrangement leads
to the hospital having IT groups that specifically manage a particu-
lar type of application suite or data silo for a particular department
or division.
Data Management
When applications are not well managed, they can generate terabytes
of irrelevant data, causing hospitals to drown in such data. This data
chaos could lead to medical errors. In the effort to manage excessive
and massive amounts of data, there is increased risk of relevant infor-
mation being lost (missing) or inaccurate—that is, faulty or dirty data.
Another risk is data breaches.
• Faulty data By 2015, 96% of health-care organizations had
adopted electronic health records, or EHRs (Office of the National
Coordinator for HIT, 2016). It is well known that an unintended
consequence of EHR is faulty data. According to a study pub-
lished in the Journal of the American Medical Association, data in
EHR systems may not be as accurate and complete as expected
(Conn, 2016). Incorrect lab values, imaging results, or physi-
cian documentation lead to medical errors, harm patients, and
damage the organization’s accreditation and reputation.
• Data breaches More than 25 million people have been affected
by health-care system data breaches since the Office for Civil
Rights, a division of the U.S. Department of Health and Human
Services, began reporting breaches in 2009. Most breaches
involved lost or stolen data on laptops, removable drives, or
other portable media. Breaches are extremely expensive and
destroy trust.
Accountability in health-care demands compliance with strong
data governance efforts. Data governance programs verify that data
input into EHR, clinical, financial, and operational systems are accu-
rate and complete—and that only authorized edits can be made
and logged.
Vanderbilt University Medical Center Adopts EHR
and Data Governance
Vanderbilt University Medical Center (VUMC) in Nashville, TN, was
an early adopter of EHR and implemented data governance in 2009.
VUMC’s experience provides valuable lessons.
VUMC consists of three hospitals and the Vanderbilt Clinic, which
have 918 beds, discharge 53,000 patients each year, and count 1.6 mil-
lion clinic visits each year. On average, VUMC has an 83% occupancy
rate and has achieved HIMSS Stage 6 hospital EHR adoption. HIMSS
(Healthcare Information and Management Systems Society, himss.org)
is a global, nonprofit organization dedicated to better health-care out-
comes through IT. There are seven stages of EHR adoption, with Stage
7 being a fully paperless environment. That means all clinical data are
part of an electronic medical record and, as a result, can be shared
Analyze & Decide: Apply IT Concepts to Business Decisions
1. Financial services firms experience large fluctuations in business
volumes because of the cyclical nature of financial markets. These
fluctuations are often caused by crises―such as the subprime mort-
gage problems, the discovery of major fraud, or a slowdown in the
economy. These fluctuations require that executives and IT leaders
have the ability to cut spending levels in market downturns and
quickly scale up when business volumes rise again. Research SaaS
solutions and vendors for the financial services sector. Would invest-
ment in SaaS help such firms align their IT capacity with their business
needs and also cut IT costs? Explain your answer.
2. Despite multimillion-dollar investments, many IT organizations
cannot respond quickly to evolving business needs. Also, they cannot
adapt to large-scale shifts like mergers, sudden drops in sales, or
new product introductions. Can cloud computing help organizations
improve their responsiveness and get better control of their IT costs?
Explain your answer.
3. Describe the relationship between enterprise architecture and
organizational performance.
4. Identify four KPIs for a major airline (e.g., American, United, Delta)
or an automobile manufacturer (e.g., GM, Ford, BMW). Which KPI
would be the easiest to present to managers on an online dashboard?
Explain why.
Case 2.3 63
across and outside the enterprise. At Stage 7, the health-care organi-
zation is getting full advantage of the health information exchange
(HIE). HIE provides interoperability so that information can flow back
and forth among physicians, patients, and health networks (NextGen
Healthcare, 2016).
VUMC began collecting data as part of its EHR efforts in 1997. By
2009, the center needed stronger, more disciplined data management. At
that time, hospital leaders initiated a project to build a data governance
infrastructure.
Data Governance Implementation
VUMC’s leadership team had several concerns.
1. IT investments and tools were evolving rapidly, but they were
not governed by HIM (Healthcare Information and Manage-
ment) policies.
2. As medical records became electronic so they might be trans-
mitted and shared easily, they became more vulnerable
to hacking.
3. As new uses of electronic information were emerging, the medi-
cal center struggled to keep up.
Health Record Executive Committee
Initially, VUMC’s leaders assigned data governance to their traditional
medical records committee, but that approach failed. Next, they hired
consultants to help develop a data governance structure and organ-
ized a health record executive committee to oversee the project. The
committee reports to the medical board and an executive commit-
tee to ensure executive involvement and sponsorship. The commit-
tee is responsible for developing the strategy for standardizing health
record practices, minimizing risk, and maintaining compliance. Mem-
bers include the chief medical information officer (CMIO), CIO, legal
counsel, medical staff, nursing informatics, HIM, administration, risk
management, compliance, and accreditation. In addition, a legal
medical records team was formed to support additions, corrections,
and deletions to the EHR. This team defines procedures for removal of
duplicate medical record numbers and policies for data management
and compliance.
Costs of Data Failure
Data failures incur the following costs:
• Rework
• Loss of business
• Patient safety errors
• Malpractice lawsuits
• Delays in receiving payments because billing or medical codes
data are not available.
Benefits Achieved from Data Governance
As in other industries, in health care, data are the most valuable asset.
The handling of data is the real risk. EHRs are effective only if the data
are accurate and useful to support patient care. Effective ongoing data
governance has achieved that goal at VUMC.
Questions
1. What might happen when each line of business, division, and
department develops its own IT apps?
2. What are the consequences of poorly managed apps?
3. What two risks are posed by data chaos? Explain why.
4. What are the functions of data governance in the health-care
sector?
5. Why is it important to have executives involved in data gover-
nance projects?
6. List and explain the costs of data failure.
7. Why are data the most valuable asset in health care?
Case 2.3
Video Case: Cloud Computing at Coca-Cola Is
Changing Everything
When organizations say they are “using the cloud,” they can mean
a number of very different things. Using an IaaS service such as
Amazon EC2 or Terremark is different from using Google Apps to
outsource e-mail, which is different again from exposing an API
in Facebook.
In this video Alan Boehme, CIO of the Coca-Cola Company discusses
how Coca-Cola uses cloud computing to more effectively interact with its
customers and describes the challenges Coca-Cola is facing in establish-
ing SaaS partnerships with new start-ups.
Complete these three steps:
1. Visit https://www.youtube.com/watch?v=hCxmsSED2DY
2. View the 13-minute video.
3. Answer each of the three parts of the following question.
Question
1. Explain the value of Coca-Cola’s cloud partnerships with start-up
companies to:
a. Coca-Cola
b. The start-up companies
c. Coca-Cola’s customers
Sources: Compiled from NextGen Healthcare (2016), Office of the National Coor-
dinator for HIT (2016), and Conn (2016).
64 C H A P T E R 2 Information Systems, IT Architecture, Data Governance, and Cloud Computing
IT Toolbox
Accurately Measuring the Value of Data
Governance
When developing a data governance program, it’s important to pre-
sent a strong business case to get buy-in from top executives and
stakeholders. A crucial part of the business case is an estimate of
the data governance program’s return on investment (ROI) to show
how it will add value to the company. You will need to justify the
ROI based on both business and IT strategy to ensure that available
funds are used to best meet the business objectives.
To do this you will need to carefully analyze the IT infrastruc-
ture with regard to how different components of the IT infrastructure
work together to support business processes, how data needed by
one system can be received and used by another, how easily data can
be communicated and/or repurposed. You will also need to factor in
risks and adverse events such as costs associated with rework in data
collection, costs associated with unreliable or unfit data, and delays
associated with untimely or unavailable data. Now, all of these costs
must be quantified and your level of confidence in the corporate data
has to be calculated to ensure your business case accurately reflects
the value of a data governance program.
One metric used to make this calculation is the confidence in data-
dependent assumptions metric, or CIDDA (Reeves & Bowen, 2013). The
CIDDA identifies specific areas of deficiency.
So, to sum up, when building a data governance model, it is
necessary to:
1. Establish a leadership team
2. Define the program’s scope
3. Calculate the ROI using the CIDDA.
CIDDA is computed by multiplying three confidence estimates
using the following formula:
CIDDA G M TS
where
G = Confidence that data are good enough for their intended
purpose
M = Confidence that data mean what you think they do
TS = Confidence that you know where the data come from and
trust the source.
CIDDA is a subjective metric for which there are no industry
benchmarks, yet it can be evaluated over time to gauge improve-
ments in data quality confidence.
To ensure your understanding of this IT Toolbox item, calculate
the CIDDA of Company A over time, using the stated levels of confi-
dence in the different aspects of its corporate data over Q1–Q4 2017:
Q1_ 2017 : 40%, 50%, 20%
Q2 _ 2017 : 50%, 55%, 30%
Q3_ 2017 : 60%, 60%, 40%
Q4 _ 2017 : 60%, 70%, 45%
G M TS
G M TS
G M TS
G M TS
References
Bloomberg, J. “Change as Core Competency: Transforming the Role
of the Enterprise Architect.” Forbes, June 16, 2016.
Cailean, I. “What Role Do Algorithms Play in Programmatic Advertis-
ing?” Trade Mod, January 6, 2016. http://www.trademob.com/what-
role-do-algorithms-play-in-programmatic-advertising
Cloud Standards Customer Council. Practical Guide to Cloud Service
Agreements, Version 2.0. April 2015. http://www.cloud-council.org/
deliverables/CSCC-Practical-Guide-to-Cloud-Service-Agreements
Conn, J. “EHRs vs. Paper: A Split-decision on Accuracy.” Modern
Healthcare, July 8, 2016.
Fresht, P. “The Ten Tenets Driving the As-a-service Economy.” Horses
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65
CHAPTER 3
Data Management, Data Analytics,
and Business Intelligence
L E A R N I N G O B J E C T I V E S
3.1 Describe the purpose and benefits of data management
and how database technologies help support business
processes.
3.2 Describe the differences between centralized and
distributed database architectures and the importance of
creating and maintaining data that can be trusted.
3.3 Understand the concepts of data analytics and
data warehousing and evaluate their tactical and
strategic benefits.
3.4 Explain benefits of data and text mining and business
intelligence and how they benefit an organization.
3.5 Describe electronic records management and how it helps
companies to meet their compliance, regulatory, and legal
obligations.
C H A P T E R O U T L I N E
Case 3.1 Opening Case: Coca-Cola Strategically
Manages Data to Retain Customers and
Reduce Costs
3.1 Data Management and
Database Technologies
3.2 Centralized and Distributed Database
Architectures
3.3 Data Warehouses
3.4 Data Analytics and Data Discovery
3.5 Business Intelligence and Electronic
Records Management
Case 3.2 Business Case: Big Data Analytics is the
“Secret Sauce” for Revitalizing McDonald’s
Case 3.3 Video Case: Verizon Improves its
Customer Experience with Data-Driven
Decision-Making
66 C H A P T E R 3 Data Management, Data Analytics, and Business Intelligence
Introduction
As discussed in Chapter 2, collecting and maintaining trusted data is a critical aspect of any
business. Knowing how and where to find data, store it efficiently, analyze it in new ways to
increase the organization’s competitive advantage, and enable the right people to access it at
the right time are all fundamental components of managing the ever-increasing amounts of
corporate data. Indeed, data analytics is the primary differentiator when doing business in the
21st century. Transactional, social, mobile, cloud, Web, and sensor data offer enormous poten-
tial. But without tools to analyze these data types and volumes, there would not be much dif-
ference between business in the 20th century and business today—except for mobile access.
High-quality data and human expertise are essential to the value of analytics.
Human expertise is necessary because analytics alone cannot explain the reasons for
trends or relationships; know what action to take; or provide sufficient context to determine
what the numbers represent and how to interpret them.
Database, data warehouse, data analytics, and business intelligence (BI) technologies
interact to create a new biz-tech ecosystem. Data analytics and BI discover insights or rela-
tionships of interest that otherwise might not have been recognized. They make it possible for
managers to make decisions and act with clarity, speed, and confidence. Data analytics is not
just about managing more or varied data. Rather, it is about asking new questions, formulating
new hypotheses, exploration and discovery, and making data-driven decisions. Ultimately, a
big part of data analysis efforts is the use of new analytics techniques.
Mining data or text taken from day-to-day business operations reveals valuable
information, such as customers’ desires, products that are most important, or processes that
can be made more efficient. These insights expand the ability to take advantage of opportu-
nities, minimize risks, and control costs.
While you might think that physical pieces of paper are a relic of the past, in most offices
the opposite is true. Aberdeen Group’s survey of 176 organizations worldwide found that the
volume of physical documents is growing by up to 30% per year. Document management tech-
nology archives digital and physical data to meet business needs, as well as regulatory and
legal requirements (Eisenhauer, 2015).
Case 3.1 Opening Case
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Coca-Cola Strategically Manages Data to Retain
Customers and Reduce Costs
Coca-Cola’s Data Management Challenges
The Coca-Cola Company is a Fortune 100 company with over $43.7
billion in sales revenue and $7.35 billion in profit (Figure 3.1). The
market leader manages and analyzes several petabytes (Pb) of
data generated or collected from more than 500 brands and con-
sumers in 206 countries. To understand the size of one petabyte of
data, it would take 223,000 DVDs (4.7 Gb each) to hold 1 Pb of data!
Coca-Cola’s bottling partners provide sales and shipment data,
while retail customers transmit transaction and merchandising data.
Other data sources are listed in Table 3.1. Before the introduction of
its newest BI system, Coca-Cola knew there were BI opportunities
in the mountains of data its bottlers were storing, but finding and
accessing all of that data for analytics proved to be nearly impossi-
ble. The disparate data sources caused long delays in getting analyt-
ics reports from IT to sales teams. The company decided to replace
the legacy software at each bottling facility and standardize them
on a new BI system—a combination of MicroStrategy and Microsoft
BI products.
Introduction 67
World’s largest nonalcoholic
beverage company with more
than 500 brands of beverages,
ready-to-drink coffees, juices, and
juice drinks.
Has the world’s largest beverage
distribution system, with
consumers in more than 200
countries.
Products consumed at a rate of
1.9 billion servings a day
worldwide.
Brand
Business Ethics &
Sustainability
Focused on initiatives that reduce their
environmental footprint; support
active, healthy living; create a safe
work environment; and enhance the
economic development of the
communities where they operate.
Digital Technology
Centralized database
Enterprise data warehouse (EDW)
Big data analytics
Decision models
70 million Facebook followers
The Coca-Cola
Company
FIGURE 3.1 The Coca-Cola Company overview.
TA B L E 3 . 1 Opening Case Overview
Company • The Coca-Cola Company, www.coca-cola.com
• Sustainability: www.coca-colacompany.com/sustainability
• $43.7 billion in sales revenue and profits of $7.35 billion, 2016
Industry • The global company manufactures, sells, and distributes nonalcoholic beverages
Product lines • More than 500 brands of still and sparkling beverages, ready-to-drink coffees, juices, and juice drinks
Digital technology • Enterprise data warehouse (EDW)
• Big data and analytics
• Business intelligence
• In 2014, moved from a decentralized approach to a centralized approach, where the data are combined cen-
trally and available via the shared platforms across the organization
Business challenges • Coca-Cola had 74 unique databases, many of them used different software to store and analyze data. Dealing
with incompatible databases and reporting systems was a major problem. Coca-Cola had to take a strategic
approach instead of a tactical approach with big data
Global data sources • Transaction and merchandising data
• Data from nationwide network of more than 900 bottlers and manufacturing facilities
• Multichannel retail data
• Customer profile data from loyalty programs
• Social media data
• Supply chain data
• Competitor data
• Sales and shipment data from bottling partners
Taglines “Taste the feeling!”
Website www.coca-cola.com
Enterprise Data Management
Like most global companies, Coca-Cola relies on sophisticated enter-
prise data management, BI, and analytic technologies to sustain its
performance in fiercely competitive markets. Data are managed in a
centralized database. They use data warehousing, data analytics,
data modeling, and social media to respond to competitors’ activity,
market changes, and consumer preferences.
To support its business strategy and operations, Coca-Cola
changed from a decentralized database approach to a centralized
database approach (Figure 3.2). Now its data are combined centrally
68 C H A P T E R 3 Data Management, Data Analytics, and Business Intelligence
and accessible via shared platforms across the organization to help
its major retail customers such as Walmart sell more Coca-Cola prod-
ucts and to improve the consumer experience and implemented a
data governance program to ensure that cultural data sensitivities are
respected.
Sustaining Business Performance
All data are standardized through a series of master data management
(MDM) processes. An enterprise data warehouse (EDW) generates a sin-
gle view of all multichannel retail data and creates a trusted view of
customers, sales, and transactions. This enables Coca-Cola to respond
quickly and accurately to changes in market conditions.
Throughout Coca-Cola huge volumes of data are analyzed to make
more and better time-sensitive, critical decisions about products, shop-
per marketing, the supply chain, and production. Point-of-sale (POS)
data are captured from retail channels and communicated via a central-
ized iPad reporting system to created customer profiles. POS data are
analyzed to support collaborative planning, forecasting, and replenish-
ment processes within its supply chain.
Coca-Cola’s Approach to Big Data and Decision Models Coca-
Cola takes a strategic approach instead of a tactical approach to big
data. The company is far advanced in the use of big data to manage
its products, sales revenue, and customer experiences in near real
time and reduce costs. For example, it cut overtime costs almost in
half by analyzing service center data. Big data help Coca-Cola relate
to its millions of Facebook followers—many of whom bolster the Coke
brand.
Big data play a key role in ensuring that its orange juice tastes the
same year-round and is readily available anywhere in the world. Oranges
used by Coca-Cola have a peak growing season of only three months.
Producing orange juice with a consistent taste year-round despite the
inconsistent quality of the orange supply is complex. To deal with this
complexity, an orange juice decision model was developed, the Black
Book model. A decision model quantifies the relationship between vari-
ables to reduce uncertainty. Black Book combines detailed data on the
6001 flavors that make up an orange, weather, customer preferences,
expected crop yields, cost pressures, regional consumer preferences, and
acidity or sweetness rate. The model specifies how to blend the orange
juice to create a consistent taste. Coke’s Black Book juice model is consid-
ered one of the most complex business analytics apps. It requires ana-
lyzing up to 1 quintillion (10E18) decision variables to consistently deliver
the optimal blend.
With the power of big data and decision models, Coca-Cola is
prepared for disruptions in supply far in advance. According to Doug
Bippert, Coca-Cola’s vice president of business acceleration, “If we have
a hurricane or a freeze, we can quickly re-plan the business in 5 or 10
minutes just because we’ve mathematically modeled it” (www.Business
Intelligence.com, 2013b).
Questions
1. Why does the Coca-Cola Company have petabytes of data?
2. Why is it important for Coca-Cola to be able to process POS data
in near real time?
3. How does Coca-Cola attempt to create favorable customer
experiences?
4. What is the importance of having a trusted view of the data?
5. What is the benefit of a decision model?
6. What is the Black Book model?
7. Explain the strategic benefit of the Black Book model.
Sources: Compiled from Burns (2013), BusinessIntelligence.com (2013),
CNNMoney (2014), HBS (2015), Liyakas (2015), and Ransbothom (2015).
al
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FIGURE 3.2 Data from online and offline transactions are stored in databases. Data about
entities such as customers, products, orders, and employees are stored in an organized way.
Data Management and Database Technologies 69
3.1 Data Management and Database
Technologies
Due to the incredible volume of data that the typical organization creates, effective data manage-
ment is vital to prevent storage costs from spiraling out of control and controlling data growth
while supporting greater performance. Data management oversees the end-to-end lifecycle of
data from creation and initial storage to the time when it becomes obsolete and is deleted.
The objectives of data management include the following:
1. Mitigating the risks and costs of complying with regulations.
2. Ensuring legal requirements are met.
3. Safeguarding data security.
4. Maintaining accuracy of data and availability.
5. Certifying consistency in data that come from or go to multiple locations.
6. Ensuring that data conform to organizational best practices for access, storage, backup,
and disposal.
Typically, newer data, and data that is accessed more frequently, is stored on faster, but
more expensive storage media while less critical data is stored on cheaper, slower media.
The main benefits of data management include greater compliance, higher security, less
legal liability, improved sales and marketing strategies, better product classification, and
improved data governance to reduce risk. The following data management technologies keep
users informed and support the various business demands:
• Databases store data generated by business apps, sensors, operations, and transaction-
processing systems (TPS). Data in some databases can be extremely volatile. Medium
and large enterprises typically have many databases of various types—centralized and
distributed.
• Data warehouses integrate data from multiple databases and data silos across the orga-
nization, and organize them for complex analysis, knowledge discovery, and to support
decision-making. For example, data are extracted from a database, processed to stan-
dardize their format, and then loaded into data warehouses at specific times, such as
weekly. As such, data in data warehouses are nonvolatile—and are ready for analysis.
• Data marts are small-scale data warehouses that support a single function or one
department. Enterprises that cannot afford to invest in data warehousing may start with
one or more data marts.
• Business intelligence (BI)—tools and techniques process data and do statistical analysis
for insight and discovery—that is, to discover meaningful relationships in the data, keep
informed in real time, detect trends, and identify opportunities and risks.
Each of these database management technologies will be discussed in greater detail later
in this chapter.
Database Management Systems and SQL
Data-processing techniques, processing power, and enterprise performance management
capabilities have undergone revolutionary advances in recent years for reasons you are already
familiar with—big data, mobility, and cloud computing. The last decade, however, has seen the
emergence of new approaches, first in data warehousing and, more recently, for transaction
processing. Given the huge number of transactions that occur daily in an organization, the data
in databases are constantly in use or being updated. The volatility of databases makes it impos-
sible to use them for complex decision-making and problem-solving tasks. For this reason, data
are extracted from the database, transformed (processed to standardize the data), and then
loaded into a data warehouse.
Data management is the
management of the flow of data
from creation and initial storage
to the time when the data become
obsolete and are deleted.
Databases are collections of
data sets or records stored in a
systematic way.
70 C H A P T E R 3 Data Management, Data Analytics, and Business Intelligence
Database management systems (DBMSs) integrate with data collection systems such as
TPS and business applications; store the data in an organized way; and provide facilities for
accessing and managing that data. Factors to consider when evaluating the performance of a
database management system are listed in Tech Note 3.1. Over the past 25 years, the relational
database has been the standard database model adopted by most enterprises. Relational data-
bases store data in tables consisting of columns and rows, similar to the format of a spreadsheet,
as shown in Figure 3.3.
Database management
systems (DBMSs) are software
used to manage the additions,
updates, and deletions of data as
transactions occur, and to support
data queries and reporting. They
are online transaction-processing
(OLTP) systems.
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FIGURE 3.3 Illustration of structured data format. Numeric
and alphanumeric data are arranged into rows and predefined
columns similar to those in an Excel spreadsheet.
Tech Note 3.1
Factors That Determine the Performance
of a DBMS
Factors to consider when evaluating the performance of a database
management system include:
• Data latency Latency is the elapsed time (or delay) between
when data are created and when they are available for a query
or report. Applications have different tolerances for latency.
Database systems tend to have shorter latency than data ware-
houses. Short latency imposes more restrictions on a system.
• Ability to handle the volatility of the data The database
has the processing power to handle the volatility of the data.
The rates at which data are added, updated, or deleted deter-
mine the workload that the database must be able to control
to prevent problems with the response rate to queries.
• Query response time The volume of data impacts response
times to queries and data explorations. Many databases
pre-stage data—that is, summarize or precalculate results—so
queries have faster response rates.
• Data consistency Immediate consistency means that as
soon as data are updated, responses to any new query will
return the updated value. With eventual consistency, not all
query responses will reflect data changes uniformly. Inconsis-
tent query results could cause serious problems for analyses
that depend on accurate data.
• Query predictability The greater the number of ad hoc or
unpredictable queries, the more flexible the database needs to
be. Database or query performance management is more diffi-
cult when the workloads are so unpredictable that they cannot
be prepared for in advance. The ability to handle the workload
is the most important criterion when choosing a database.
• Query processing capabilities Database queries are pro-
cessed in real time and results are transmitted via wired or
wireless networks to computer screen or handheld devices.
Query are ad hoc (unplanned)
user requests for specific data.
Relational management systems (RDBMSs) provide access to data using a declarative
language—structured query language (SQL). Declarative languages simplify data access by
requiring that users only specify what data they want to access without defining how access
will be achieved. The format of a basic SQL statement is
SELECT column_name(s)
FROM table_name
WHERE condition
An instance of SQL is shown in Figure 3.4.
Structured query language
(SQL) is a standardized query
language for accessing databases.
Data Management and Database Technologies 71
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FIGURE 3.4 An instance of SQL to access employee information based on date of hire.
Check and control data integrity over time
Data Filtering and Profiling
Data Integrity and Maintenance
Data Synchronization
Data Security
Data Access
Provide authorized access to data in both planned and ad hoc
ways within acceptable time
Integrate, match or link data from disparate sources
Correct, standardize and verify the consistency
and integrity of the data
Process and store data efficiently. Inspect data for errors,
inconsistencies, redundancies and incomplete information
FIGURE 3.5 DBMS functions.
DBMS Functions An accurate and consistent view of data throughout the enterprise is
needed so one can make informed, actionable decisions that support the business strategy.
Functions performed by a DBMS to help create such a view are shown in Figure 3.5.
Online Transaction Processing and Online Analytics Processing When
most business transactions occur—for instance, an item is sold or returned, an order is sent or
cancelled, a payment or deposit is made—changes are made immediately to the database.
These online changes are additions, updates, or deletions. DBMSs record and process transac-
tions in the database, and support queries and reporting. Given their functions, DBMSs are
referred to as online transaction processing (OLTP) systems. OLTP is a database design that
Online transaction processing
(OLTP) systems are designed to
manage transaction data, which
are volatile.
72 C H A P T E R 3 Data Management, Data Analytics, and Business Intelligence
breaks down complex information into simpler data tables to strike a balance between
transaction-processing efficiency and query efficiency. OLTP databases process millions of
transactions per second. However, databases cannot be optimized for data mining, complex
online analytics processing (OLAP) systems, and decision support. These limitations led to
the introduction of data warehouse technology. Data warehouses and data marts are optimized
for OLAP, data mining, BI, and decision support. OLAP is a term used to describe the analysis of
complex data from the data warehouse. In summary, databases are optimized for extremely fast
transaction processing and query processing. Data warehouses are optimized for analysis.
DBMS and Data Warehousing Vendors
Respond to Latest Data Demands
One of the major drivers of change in the data management market is the increased amount
of data to be managed. Enterprises need powerful DBMSs and data warehousing solutions,
analytics, and reporting. The four vendors that dominate this market—Oracle, IBM, Microsoft,
and Teradata—continue to respond to evolving data management needs with more intelligent
and advanced software and hardware. Advanced hardware technology enables scaling to much
higher data volumes and workloads than previously possible, or it can handle specific work-
loads. Older general-purpose relational databases DBMSs lack the scalability or flexibility for
specialized or very large workloads, but are very good at what they do.
Trend Toward NoSQL Systems RDBMSs are still the dominant database
engines, but the trend toward NoSQL (short for “not only SQL”) systems is clear. NoSQL sys-
tems increased in popularity by 96% from 2014 to 2016. Although NoSQL have existed for
as long as relational DBMS, the term itself was not introduced until 2009. That was when
many new systems were developed in order to cope with the unfolding requirements for
DBMS—namely, handling big data, scalability, and fault tolerance for large Web applications.
Scalability means the system can increase in size to handle data growth or the load of an
increasing number of concurrent users. To put it differently, scalable systems efficiently meet
the demands of high-performance computing. Fault tolerance means that no single failure
results in any loss of service.
NoSQL systems are such a heterogeneous group of database systems that attempts to
classify them are not very helpful. However, their general advantages are the following:
• higher performance
• easy distribution of data on different nodes, which enables scalability and fault tolerance
• greater flexibility
• simpler administration
Starting in 2010 and continuing through 2016, Microsoft has been working on the first
rewrite of SQL Server’s query execution since Version 7 was released in 1998. The goal is to offer
NoSQL-like speeds without sacrificing the capabilities of a relational database.
With most NoSQL offerings, the bulk of the cost does not lie in acquiring the database, but
rather in implementing it. Data need to be selected and migrated (moved) to the new database.
Microsoft hopes to reduce these costs by offering migration solutions.
DBMS Vendor Rankings The top five enterprise database systems of 2016 are Oracle’s
12c Database, Microsoft SQL Server, IBM DB2, SAP Sybase ASE, and PostgreSQL:
1. Oracle 12c Database consolidates and manages databases as cloud services via Oracle’s
multitenant architecture and in-memory data processing capabilities and can be rapidly
provisioned.
Centralized and Distributed Database Architectures 73
2. Microsoft SQL Server ease of use, availability, and Windows operating system integration
make it an easy choice for firms that choose Microsoft products for their enterprises.
3. IBM DB2 is widely used in large data centers and runs on Linux, UNIX, Windows, IBM iSeries,
and mainframes.
4. SAP Sybase ASE is a major force after 25 years of success and improvements. Supports
partition locking, relaxed query limits, query plan optimization, and dynamic thread
assignment.
5. PostgreSQL is the most advanced open source database, often used by online gaming
applications and Skype, Yahoo!, and MySpace. This database runs on a wide variety of
operating systems including Linux, Windows, FreeBSD, and Solaris.
Questions
1. Describe a database and a database management system (DBMS).
2. Explain what an online transaction-processing (OLAP) system does.
3. Why are data in databases volatile?
4. Describe the functions of a DBMS.
5. Describe the purpose and benefits of data management.
6. What is a relational database management system?
3.2 Centralized and Distributed Database
Architectures
Databases can be centralized or distributed, as shown in Figure 3.6. Both types of databases
need one or more backups and should be archived on- and offsite in case of a crash or secu-
rity incident.
For decades the main database platform consisted of centralized database files on
massive mainframe computers. Benefits of centralized database configurations include the
following:
1. Better control of data quality Data consistency is easier when data are kept in one
physical location because data additions, updates, and deletions can be made in a super-
vised and orderly fashion.
2. Better IT security Data are accessed via the centralized host computer, where they can
be protected more easily from unauthorized access or modification.
A major disadvantage of centralized databases, like all centralized systems, is transmission
delay when users are geographically dispersed. More powerful hardware and networks com-
pensate for this disadvantage.
In contrast, distributed databases use client/server architecture to process information
requests. The databases are stored on servers that reside in the company’s data centers, a
private cloud, or a public cloud (Figure 3.7). Advantages of a distributed database include reli-
ability—if one site crashes, the system will keep running—and speed—it’s faster to search a part
of a database than the whole. However, if there’s a problem with the network that the distrib-
uted database is using, it can cause availability issues and the appropriate hardware and soft-
ware can be expensive to purchase.
Centralized database stores all
data in a single central compute
such as a mainframe or server.
Distributed database stores
portions of the database on
multiple computers within
a network.
74 C H A P T E R 3 Data Management, Data Analytics, and Business Intelligence
Users
Los Angeles
Users
New York
Users
Kansas City
Users
Chicago
New York
Users
Los Angeles
Los Angeles
Users
Kansas City
Kansas City
Central Location
Central
Location
New York
Users
New York
(a)
(b)
New York
Users
Chicago
Chicago
FIGURE 3.6 Comparison of (a) centralized and (b) distributed databases.
Distributed databases on servers
Manufacturing
Manufacturing
clients
Headquarter
clients
Headquarters
Sales &
Marketing
Sales & marketing clients
FIGURE 3.7 Distributed database architecture for headquarters, manufacturing, and
sales and marketing.
Centralized and Distributed Database Architectures 75
Garbage In, Garbage Out
Data collection is a highly complex process that can create problems concerning the quality
of the data being collected. Therefore, regardless of how the data are collected, they need to
be validated so users know they can trust them. Classic expressions that sum up the situation
are “garbage in, garbage out” (GIGO) and the potentially riskier “garbage in, gospel out.” In the
latter case, poor-quality data are trusted and used as the basis for planning. For example, you
have probably encountered data safeguards, such as integrity checks, to help improve data
quality when you fill in an online form, such as when the form will not accept an e-mail address
or a credit card number that is not formatted correctly.
Table 3.2 lists the characteristics typically associated with dirty or poor-quality data.
TA B L E 3 . 2 Characteristics of Poor-Quality or Dirty Data
Characteristic of Dirty Data Description
Incomplete Missing data
Outdated or invalid Too old to be valid or useful
Incorrect Too many errors
Duplicated or in conflict Too many copies or versions of the same data―and the versions
are inconsistent or in conflict with each other
Nonstandardized Data are stored in incompatible formats―and cannot be
compared or summarized
Unusable Data are not in context to be understood or interpreted
correctly at the time of access
Dirty Data Costs and Consequences As discussed in Chapter 2, too often man-
agers and information workers are actually constrained by data that cannot be trusted because
they are incomplete, out of context, outdated, inaccurate, inaccessible, or so overwhelming
that they require weeks to analyze. In such situations, the decision-maker is facing too much
uncertainty to make intelligent business decisions.
On average, an organization experiences 40% data growth annually, and 20% of that
data is found to be dirty. Each dirty data point, or record, costs $100 if not resolved (Ring-
Lead, 2015). The costs of poor-quality data spread throughout a company, affecting systems
from shipping and receiving to accounting and customer service. Data errors typically arise
from the functions or departments that generate or create the data—and not within the IT
department. When all costs are considered, the value of finding and fixing the causes of data
errors becomes clear. In a time of decreased budgets, some organizations may not have the
resources for such projects and may not even be aware of the problem. Others may be
spending most of their time fixing problems, thus leaving them with no time to work on pre-
venting them. However, the benefits of acting preventatively against dirty data are
astronomical. It costs $1 to prevent and $10 to correct dirty data. While the short-run cost of
cleaning and preventing dirty data is unrealistic for some companies, the long-term
conclusion is far more expensive (Kramer, 2015).
Bad data are costing U.S. businesses hundreds of billions of dollars a year and affecting
their ability to ride out the tough economic climate. Incorrect and outdated values, missing
data, and inconsistent data formats can cause lost customers, sales, and revenue; misalloca-
tion of resources; and flawed pricing strategies.
Consider a corporation that follows the cost structure associated with clean/dirty data
explained above with 100,000 data points. Over a three-year span, by cleaning the 20% of dirty
data during the first year and using prevention methods for the following years, the corporation
will save $8,495,000. Purely based on the quality of its data, a corporation with a large amount
of data can hypothetically increase its revenue by 70% (RingLead, 2015).
Dirty data is poor-quality data
that lacks integrity and cannot
be trusted.
76 C H A P T E R 3 Data Management, Data Analytics, and Business Intelligence
The cost of poor-quality data may be expressed as a formula:
Cost of Poor-Quality Data Lost Business Cost to Prevent Errors Cost to Correct Errors
Examples of these costs include the following:
• Lost business Business is lost when sales opportunities are missed, orders are returned
because wrong items were delivered, or errors frustrate and drive away customers.
• Time spent preventing errors If data cannot be trusted, then employees need to spend
more time and effort trying to verify information in order to avoid mistakes.
• Time spent correcting errors Database staff need to process corrections to the data-
base. For example, the costs of correcting errors at U-rent Corporation are estimated
as follows:
a. Two database staff members spend 25% of their workday processing and verifying
data corrections each day:
2 people * 25% of 8 hours / day 4 hours / day correcting errors
b. Hourly salaries are $50 per hour based on pay rate and benefits:
$50 / hour * 4 hours / day $200 / day correcting errors
c. 250 workdays per year:
$200 / day * 250 days $50, 000 / year to correct errors
For a particular company, it is difficult to calculate the full cost of poor-quality data and its
long-term effects. Part of the difficulty is the time delay between the mistake and when it is detected.
Errors can be very difficult to correct, especially when systems extend across the enterprise.
Another concern is that the impacts of errors can be unpredictable, far-reaching, and serious.
Data Ownership and Organizational Politics
Compliance with numerous federal and state regulations relies on rock-solid data and trusted
metrics used for regulatory reporting. Data ownership, data quality, and formally managed
data are high priorities on the agenda of CFOs and CEOs who are held personally accountable if
their company is found to be in violation of regulations.
Despite the need for high-quality data, organizational politics and technical issues make
that difficult to achieve. The source of the problem is data ownership—that is, who owns or is
responsible for the data. Data ownership problems exist when there are no policies defining
responsibility and accountability for managing data. Inconsistent data formats of various
departments create an additional set of problems as organizations try to combine individual
applications into integrated enterprise systems.
The tendency to delegate data-quality responsibilities to the technical teams who have no
control over data quality, as opposed to business users who do have such control, is another
common pitfall that stands in the way of accumulating high-quality data.
Those who manage a business or part of a business are tasked with trying to improve
business performance and retain customers. Compensation is tied to improving profitability,
driving revenue growth, and improving the quality of customer service. These key performance
indicators (KPIs) are monitored closely by senior managers who want to find and eliminate
defects that harm performance. It is strange then that so few managers take the time to under-
stand how performance is impacted by poor-quality data. Two examples make a strong case for
investment in high-quality data.
Retail banking: For retail bank executives, risk management is the number one issue. Disre-
gard for risk contributed to the 2008 financial services meltdown. Despite risk management strat-
egies, many banks still incur huge losses. Part of the problem in many banks is that their ISs enable
them to monitor risk only at the product level—mortgages, loans, or credit cards. Product-level risk
management ISs monitor a customer’s risk exposure for mortgages, or for loans, or for credit cards,
and so forth—but not for a customer for all products. With product-level ISs, a bank cannot see the
full risk exposure of a customer. The limitations of these siloed product-level risks have serious
implications for business performance because bad-risk customers cannot be identified easily,
Centralized and Distributed Database Architectures 77
and customer data in the various ISs may differ. However, banks are beginning to use big data to
analyze risk more effectively. Although they are still very limited to credit card, loan, and mort-
gage risk data, cheaper and faster computing power allows them to keep better and more inclusive
records of customer data. Portfolio monitoring offers earlier detection and predictive analytics for
potential customers, and more advanced risk models show intricate patterns unseen by the naked
eye in large data sets. Also, more fact-based inputs and standardized organizational methods are
being implemented to reduce loan and credit officer bias to take risks on undesirable customers.
Marketing: Consider what happens when each product-level risk management IS feeds
data to marketing ISs. Marketing may offer bad-risk customers incentives to take out another
credit card or loan that they cannot repay. And since the bank cannot identify its best cus-
tomers either, they may be ignored and enticed away by better deals offered by competitors.
This scenario illustrates how data ownership and data-quality management are critical to risk
management. Data defects and incomplete data can quickly trigger inaccurate marketing and
mounting losses. Banks’ increasing dependence on business modeling requires that risk man-
agers understand and manage model risk better. Although losses often go unreported, the con-
sequences of errors in the model can be extreme. For instance, a large Asia–Pacific bank lost
$4 billion when it applied interest-rate models that contained incorrect assumptions and data-
entry errors. Risk mitigation will entail rigorous guidelines and processes for developing and val-
idating models, as well as the constant monitoring and improvement of them (Harle et al., 2016).
Manufacturing: Many manufacturers are at the mercy of a powerful customer base—large
retailers. Manufacturers want to align their processes with those of large retail customers to
keep them happy. This alignment makes it possible for a retailer to order centrally for all stores
or to order locally from a specific manufacturer. Supporting both central and local ordering
makes it difficult to plan production runs. For example, each manufacturing site has to collect
order data from central ordering and local ordering systems to get a complete picture of what to
manufacture at each site. Without accurate, up-to-date data, orders may go unfilled, or manu-
facturers may have excess inventory. One manufacturer who tried to keep its key retailer happy
by implementing central and local ordering could not process orders correctly at each manu-
facturing site. No data ownership and lack of control over how order data flowed throughout
business operations had negative impacts. Conflicting and duplicate business processes at
each manufacturing site caused data errors, leading to mistakes in manufacturing, packing,
and shipments. Customers were very dissatisfied.
These examples demonstrate the consequences of a lack of data ownership and data
quality. Understanding the impact mismanaged data can have on business performance high-
lights the need to make data ownership and data accuracy a high priority.
Data Life Cycle and Data Principles
The data life cycle is a model that illustrates the way data travel through an organization as
shown in Figure 3.8. The data life cycle begins with storage in a database, to being loaded
into a data warehouse for analysis, then reported to knowledge workers or used in business
Data Sources
and Databases
Personal
Expertise &
Judgment
Data
Visualization
SCM
E-commerce
Strategy
Others
CRM
Data AnalysisData Storage Results
Business Analytics
Business
Applications
Internal
Data
External
Data
Data
Warehouse
Data
Marts
Data
Marts
OLAP,
Queries,
EIS, DSS
Data
Mining
Decision
Support
Knowledge
and its
Management
FIGURE 3.8 Data life cycle.
78 C H A P T E R 3 Data Management, Data Analytics, and Business Intelligence
apps. Supply chain management (SCM), customer relationship management (CRM), and
e-commerce are enterprise applications that require up-to-date, readily accessible data to
function properly.
Three general data principles relate to the data life cycle perspective and help to guide IT
investment decisions:
1. Principle of diminishing data value The value of data diminishes as they age. This is
a simple, yet powerful principle. Most organizations cannot operate at peak performance
with blind spots (lack of data availability) of 30 days or longer. Global financial services
institutions rely on near real-time data for peak performance.
2. Principle of 90/90 data use According to the 90/90 data-use principle, a majority of
stored data, as high as 90%, is seldom accessed after 90 days (except for auditing pur-
poses). That is, roughly 90% of data lose most of their value after three months.
3. Principle of data in context The capability to capture, process, format, and distribute
data in near real time or faster requires a huge investment in data architecture (Chapter 2)
and infrastructure to link remote POS systems to data storage, data analysis systems, and
reporting apps. The investment can be justified on the principle that data must be inte-
grated, processed, analyzed, and formatted into “actionable information.”
Master Data and Master Data Management
As data become more complex and their volumes explode, database performance degrades.
One solution is the use of master data and master data management (MDM) as introduced
in Chapter 2. MDM processes integrate data from various sources or enterprise applications to
create a more complete (unified) view of a customer, product, or other entity. Figure 3.9 shows
how master data serve as a layer between transactional data in a database and analytical data
in a data warehouse. Although vendors may claim that their MDM solution creates “a single ver-
sion of the truth,” this claim is probably not true. In reality, MDM cannot create a single unified
version of the data because constructing a completely unified view of all master data is simply
not possible.
Transactional
Data
Master
Data
Enterprise
Data
Analytical
Data
Transactional data
supports the
applications
Master data describe
enterprises business
entities upon which
transactions are conducted
and dimensions (customers,
product, supplier, account,
site) around which analyses
are performed
Analytical data
support decision-
making and
planning
FIGURE 3.9 An enterprise has transactional, master, and analytical data.
Data Warehouses 79
Each department has distinct master data needs. Marketing, for example, is concerned
with product pricing, brand, and product packaging, whereas production is concerned with
product costs and schedules. A customer master reference file can feed data to all enterprise
systems that have a customer relationship component, thereby providing a more unified pic-
ture of customers. Similarly, a product master reference file can feed data to all the production
systems within the enterprise.
An MDM includes tools for cleaning and auditing the master data elements as well as tools
for integrating and synchronizing data to make them more accessible. MDM offers a solution for
managers who are frustrated with how fragmented and dispersed their data sources are.
Questions
1. Describe the data life cycle.
2. What is the function of master data management (MDM)?
3. What are the consequences of not cleaning “dirty data”?
4. Describe the differences between centralized and distributed databases.
5. Discuss how data ownership and organizational politics affect the quality of an organization’s data.
3.3 Data Warehouses
Data warehouses are the primary source of cleansed data for analysis, reporting, and business
intelligence (BI). Often the data are summarized in ways that enable quick responses to queries.
For instance, query results can reveal changes in customer behavior and drive the decision to
redevelop the advertising strategy.
Master Reference File and Data Entities Realistically, MDM consolidates data
from various data sources into a master reference file, which then feeds data back to the appli-
cations, thereby creating accurate and consistent data across the enterprise. In IT at Work 3.1,
participants in the health-care supply chain essentially developed a master reference file of
its key data entities. A data entity is anything real or abstract about which a company wants
to collect and store data. Master data entities are the main entities of a company, such as cus-
tomers, products, suppliers, employees, and assets.
IT at Work 3.1
Data Errors Increase Costs Downstream
At an insurance company, the cost of processing each claim is $1,
but the average downstream cost due to errors in a claim is $300.
The $300 average downstream costs included manual handling of
exceptions, customer support calls initiated due to errors in claims,
and reissuing corrected documents for any claims processed incor-
rectly the first time. In addition, the company faced significant soft
costs from regulatory risk, lost revenues due to customer dissat-
isfaction, and overpayment on claims due to claims-processing
errors. These soft costs are not included in the hard cost of $300.
Every day health-care administrators and others throughout
the health-care supply chain waste 24–30% of their time correct-
ing data errors. Each transaction error costs $60 to $80 to correct.
In addition, about 60% of all invoices among supply chain partners
contain errors, and each invoice error costs $40 to $400 to recon-
cile. Altogether, errors and conflicting data increase supply costs by
3–5%. In other words, each year billions of dollars are wasted in the
health-care supply chain because of supply chain data disconnects,
which refer to one organization’s IS not understanding data from
another’s IS.
IT at Work Questions
1. Why are the downstream costs of data errors so high?
2. What are soft costs?
3. Explain how soft costs might exceed hard costs. Give
an example.
80 C H A P T E R 3 Data Management, Data Analytics, and Business Intelligence
Three technologies involved in preparing raw data for analytics include ETL, change
data capture (CDC), and data deduplication (“deduping the data”). CDC processes capture
the changes made at data sources and then apply those changes throughout enterprise data
stores to keep data synchronized. CDC minimizes the resources required for ETL processes by
only dealing with data changes. Deduping processes remove duplicates and standardize data
formats, which helps to minimize storage and data synch.
Building a Data Warehouse
Figure 3.11 diagrams the process of building and using a data warehouse. The organization’s
data from operational transaction processes systems are stored in operational databases
Data warehouses that pull together data from disparate sources and databases across an
entire enterprise are called enterprise data warehouses (EDWs).
Data warehouses store data from various source systems and databases across an enterprise
in order to run analytical queries against huge datasets collected over long time periods.
The high cost of data warehouses can make them too expensive for a company to imple-
ment. Data marts are lower-cost, scaled-down versions of a data warehouse that can be imple-
mented in a much shorter time, for example, in less than 90 days. Data marts serve a specific
department or function, such as finance, marketing, or operations. Since they store smaller
amounts of data, they are faster and easier to use, and navigate.
Procedures to Prepare EDW Data for Analytics
Consider a bank’s database. Every deposit, withdrawal, loan payment, or other transaction
adds or changes data. The volatility caused by constant transaction processing makes data
analysis difficult—and the demands to process millions of transactions per second consume
the database’s processing power. In contrast, data in warehouses are relatively stable, as
needed for analysis. Therefore, select data are moved from databases to a warehouse. Specifi-
cally, data are as follows:
1. Extracted from designated databases.
2. Transformed by standardizing formats, cleaning the data, integrating them.
3. Loaded into a data warehouse.
These three procedures—extract, transform, and load—are referred to by their initials ETL
(Figure 3.10). In a warehouse, data are read-only; that is, they do not change until the next ETL.
Enterprise data warehouses
(EDWs) is a data warehouse that
integrates data from databases
across an entire enterprise.
©
V
al
le
p
u/
S
hu
tte
rs
to
ck
FIGURE 3.10 Data enter databases from transaction systems.
Data of interest are extracted from databases, transformed
to clean and standardize them, and then loaded into a data
warehouse. These three processes are called ETL.
Data Warehouses 81
Business Intelligence Management
Analytics
Reporting
Queries
Data Mining
InformationData Marts
Data Mart
Data
Warehouse
Data
Warehouse
Business
Intelligence
Environment
ETL
processes
Transaction
Systems
Operational
Databases
FIGURE 3.11 Database, data warehouse and marts, and BI architecture.
(left side of the figure). Not all data are transferred to the data warehouse. Frequently, only
summary data are transferred. The warehouse organizes the data in multiple ways—by
subject, functional area, vendor, and product. As shown, the data warehouse architecture
defines the flow of data that starts when data are captured by transaction systems; the
source data are stored in transactional (operational) databases; ETL processes move data
from databases into data warehouses or data marts, where the data are available for access,
reports, and analysis.
Real-Time Support from an Active Data Warehouse
Early data warehouse technology primarily supported strategic applications that did not
require instant response time, direct customer interaction, or integration with operational
systems. ETL might have been done once per week or once per month. But, demand for
information to support real time customer interaction and operations leads to real-time data
warehousing and analytics—known as an active data warehouse (ADW). Massive increases
in computing power, processing speeds, and memory made ADW possible. ADW are not
designed to support executives’ strategic decision-making, but rather to support operations.
For example, shipping companies like DHL use huge fleets of trucks to move millions of pack-
ages. Every day and all day, operational managers make thousands of decisions that affect
the bottom line, such as: “Do we need four trucks for this run?” “With two drivers delayed by
bad weather, do we need to bring in extra help?” Traditional data warehousing is not suited
for immediate operational support, but active data warehousing is. For example, companies
with an ADW are able to:
• Interact with a customer to provide superior customer service.
• Respond to business events in near real time.
• Share up-to-date status data among merchants, vendors, customers, and associates.
Here are some examples of how two companies use ADW.
Capital One. Capital One uses its ADW to track each customer’s “profitability score” to
determine the level of customer service to provide for that person. Higher-cost personalized
service is only given to those with high scores. For instance, when a customer calls Capital One,
82 C H A P T E R 3 Data Management, Data Analytics, and Business Intelligence
he or she is asked to enter a credit card number, which is linked to a profitability score. Low-
profit customers get a voice response unit only; high-profit customers are connected to a live
customer service representative (CSR) because the company wants to minimize the risk of los-
ing those customers.
Travelocity. If you use Travelocity, an ADW is finding the best travel deals especially for you.
The goal is to use “today’s data today” instead of “yesterday’s data today.” The online travel
agency’s ADW analyzes your search history and destinations of interest; then predicts travel
offers that you would most likely purchase. Offers are both relevant and timely to enhance your
experience, which helps close the sale in a very competitive market. For example, when a cus-
tomer is searching flights and hotels in Las Vegas, Travelocity recognizes the interest—the cus-
tomer wants to go to Vegas. The ADW searches for the best-priced flights from all carriers, builds
a few package deals, and presents them in real time to the customer. When customers see a
personalized offer they are already interested in, the ADW helps generate a better customer
experience. The real-time data-driven experience increases the conversion rate and sales.
Data warehouse content can be delivered to decision-makers throughout the enterprise
via the cloud or company-owned intranets. Users can view, query, and analyze the data and
produce reports using Web browsers. These are extremely economical and effective data
delivery methods.
Data Warehousing Supports Action as well as Decisions Many organiza-
tions built data warehouses because they were frustrated with inconsistent data that could not
support decisions or actions. Viewed from this perspective, data warehouses are infrastruc-
ture investments that companies make to support ongoing and future operations, including
the following:
• Marketing Keeps people informed of the status of products, marketing program effec-
tiveness, and product line profitability; and allows them to take intelligent action to maxi-
mize per-customer profitability.
• Pricing and contracts Calculates costs accurately in order to optimize pricing of a
contract. Without accurate cost data, prices may be below or too near to cost; or prices
may be uncompetitive because they are too high.
• Forecasting Estimates customer demand for products and services.
• Sales Calculates sales profitability and productivity for all territories and regions; ana-
lyzes results by geography, product, sales group, or individual.
• Financial Provides real-time data for optimal credit terms, portfolio analysis, and
actions that reduce risk or bad debt expense.
Table 3.3 summarizes several successful applications of data warehouses.
TA B L E 3 . 3 Data Warehouse Applications by Industry
Industry Applications
Airline Crew assignment, aircraft deployment, analysis of route profitability, and customer loyalty promotions
Banking and financial Customer service, trend analysis, product and service services promotions, and reduction of IS expenses
Credit card Customer service, new information service for a fee, fraud detection
Defense contracts Technology transfer, production of military applications
E-business Data warehouses with personalization capabilities, marketing/shopping preferences allowing for up-selling
and cross-selling
Government Reporting on crime areas, homeland security
Health care Reduction of operational expenses
Investment and insurance Risk management, market movements analysis, customer tendencies analysis, and portfolio management
Retail chain Trend analysis, buying pattern analysis, pricing policy, inventory control, sales promotions, and optimal
distribution channel decision
Big Data Analytics and Data Discovery 83
Questions
1. What are the differences between databases and data warehouses?
2. What are the differences between data warehouses and data marts?
3. Explain ETL.
4. Explain CDC.
5. What is an advantage of an enterprise data warehouse (EDW)?
6. Why might a company invest in a data mart instead of a data warehouse?
7. What types of decisions can benefit from a data warehouse?
3.4 Big Data Analytics and Data Discovery
Like mobile and cloud, big data and advanced data analytics are reshaping organizations and
business processes to increase efficiency and improve performance. Research firm IDC fore-
casts that big data and analytics spending will reach $187 billion in 2019 (Ovalsrud, 2016).
Data analytics is an important tool across organizations, which helps users discover
meaningful real-time insights to meet customer expectations, achieve better results and stay
competitive. These deeper insights combined with human expertise enable people to recog-
nize meaningful relationships more quickly or easily; and furthermore, realize the strategic
implications of these situations. Imagine trying to make sense of the fast and vast data gener-
ated by social media campaigns on Facebook or by sensors attached to machines or objects.
Low-cost sensors make it possible to monitor all types of physical things—while analytics
makes it possible to understand those data in order to take action in real time. For example,
sensors data can be analyzed in real time:
• To monitor and regulate the temperature and climate conditions of perishable foods as
they are transported from farm to supermarket.
• To sniff for signs of spoilage of fruits and raw vegetables and detect the risk of E. coli con-
tamination.
• To track the condition of operating machinery and predict the probability of failure.
• To track the wear of engines and determine when preventive maintenance is needed.
In this section, you will learn about the value, challenges, and technologies involved in putting
data and analytics to use to support decisions and action, together with examples of skill sets
currently in high demand by organizations expanding their efforts to train, hire and retain com-
petent data professionals (Career Insight 3.1).
Big data is an extremely large
data set that is too large or
complex to be analyzed using
traditional data processing
techniques.
Data analytics is a technique
of qualitatively or quantitatively
analyzing a data set to reveal
patterns, trends, and associations
that often relate to human
behavior and interactions,
to enhance productivity and
business gain.
Career Insight 3.1
Managing and Interpreting Big Data are High
Demand Skills
Concerns about the analytics skills gap have existed for years. It is
increasingly clear that the shortage isn’t just in data scientists, but
also data engineers, data analysts, and even the executives required
to manage data initiatives. As a result, organizations and institu-
tions are expanding their efforts to train, hire, and retain data pro-
fessionals. Here are two of those skill sets that are in high demand.
Big data specialists manage and package big data collec-
tions, analyze, and interpret trends and present their findings in
easy to understand ways to “C”-level executives. Those who can
present the data through user-friendly data visualizations will be
particularly sought after. Skills required of these big data profes-
sionals include big data visualization, statistical analysis, Big Data
reporting and presentation, Apache Hadoop, NoSQL Database
Skills, and machine learning.
Business intelligence (BI) analysts use tools and techniques
to go beyond the numbers of big data and take action based on
the findings of the big data analyses. Successful BI professionals
use self-service BI platforms, like Tableau, SAP, Oracle BI, Micro-
soft BI, and IBM Cognos, to create BI reports and visualizations
to streamline the process and reduce reliance on additional staff.
Additional skills of critical thinking, creative problem solving,
effective communication, and presentations further enhance their
attractiveness to employers (Hammond, 2015).
84 C H A P T E R 3 Data Management, Data Analytics, and Business Intelligence
When the data set is too large or complex to be analyzed using traditional data processing
applications, big data analytics tools are used. One of the biggest sectors of customer rela-
tions relative to big data is customer value analytics (CVA). CVA studies the recent phenomenon
that customers are more willing to use and purchase innovative products, services, and cus-
tomer service channels while demanding an increasing amount of high-quality, personalized
products. Companies and producers use big data analytics to capture this combination to
transform the information into usable data to track and predict trends. If companies know
what customers like, what makes them spend more, and when they are happy, they can
leverage the information to keep them happy and provide better products and services.
Companies can also use big data analytics to store and use their data across the supply
chain. To maximize the effectiveness of data analytics, companies usually complete these
objectives throughout their input transformation process:
• Invest heavily in IT to collect, integrate, and analyze data from each store and sales unit.
• Link these data to suppliers’ databases, making it possible to adjust prices in real time, to
reorder hot-selling items automatically, and to shift items from store to store easily.
• Constantly test, integrate, and report information instantly available across the organization—
from the store floor to the CFO’s office.
These big data programs enable them to pinpoint improvement opportunities across the
supply chain—from purchasing to in-store availability management. Specifically, the companies
are able to predict how customers will behave and use that knowledge to be prepared to respond
quickly. According to Louis Columbus at Forbes, the market demand for big data analytics is about
to hit its largest increase in history. Software for business analytics will increase by more than
50% by 2019. Prescriptive analytics software will be worth $1.1B in 2019, compared to its value of
$415M in 2014. Since increasing the focus on customer demand trends, effectively entering new
markets and producing better business models, and enhancing organizational performance are
the most important goals for 21st-century companies, business analytics will be needed in almost
every instance. Taking advantage of the benefits of business intelligence is allowing sectors like
health care to compete in areas they would have not been able to enter before (Columbus, 2016).
To be effective in using data analysis, organization must pay attention to the four Vs of
analytics—variety, volume, velocity, and veracity—shown in Figure 3.12.
Big data can have a dramatic impact on the success of any enterprise, or they can be a low-
contributing major expense. However, success is not achieved with technology alone. Many com-
panies are collecting and capturing huge amounts of data, but spending very little effort to ensure
the veracity and value of data captured at the transactional stage or point of origin. Emphasis in
this direction will not only increase confidence in the datasets, but also significantly reduce the
efforts for analytics and enhance the quality of decision-making. Success depends also on ensuring
that you avoid invalid assumptions, which can be done by testing the assumptions during analysis.
Big data analytics process of
examining large and varied data
sets to identify hidden patterns
and correlations, market trends,
customer preferences and other
useful information to enable
better business decisions.
Variety
Volume
Velocity
Veracity
Validating data and extracting insights that
managers and workers can trust are key factors of
successful analytics. Trust in analytics has grown
more difficult with the explosion of data sources
Speed of access reports that are drawn from
data defines the difference between effective
and ineffective analytics
Large volumes of structured and
unstructured data are analyzed
The analytic environment has expanded
from pulling data from enterprise systems
to include big data unstructured sources
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Velocity
Acceleration
FIGURE 3.12 The four Vs of data analytics.
Big Data Analytics and Data Discovery 85
Human Expertise and Judgment are Needed
Human expertise and judgment are needed to interpret the output of analytics (refer to
Figure 3.13). Data are worthless if you cannot analyze, interpret, understand, and apply the
results in context. This brings up several challenges:
• Data need to be prepared for analysis For example, data that are incomplete or dupli-
cated need to be fixed.
• Dirty data degrade the value of analytics The “cleanliness” of data is very important
to data mining and analysis projects. Analysts have complained that data analytics is like
janitorial work because they spend so much time on manual, error-prone processes to
clean the data. Large data volumes and variety mean more data that are dirty and harder
to handle.
• Data must be put into meaningful context If the wrong analysis or datasets are used,
the output would be nonsense, as in the example of the Super Bowl winners and stock
market performance. Stated in reverse, managers need context in order to understand
how to interpret traditional and big data.
Human
expertise
Data
analytics
High-quality
data
Trends or
relationships
Context to understand
what the numbers
represent and how
to interpret them
What action to take
+
+
FIGURE 3.13 Data analytics, human expertise, and high-
quality data are needed to obtain actionable information.
IT at Work 3.2 describes how big data analytics, collaboration, and human expertise have
transformed the new drug development process.
Machine-generated sensor data are becoming a larger proportion of big data (Figure 3.14),
according to a research report by IDC (2015). It is predicted that these data will increase to two-
thirds of all data by 2020, representing a significant increase from the 11% level of 2005. In
addition to its growth as a portion of analyzed data, the market for sensor data will increase to
$1.7 trillion in 2020.
On the consumer side, a significant factor in this market is the boom in wearable
technology—products like FitBit and the Apple Watch. Users no longer even have to input
data to these devices as it is automatically gathered and tracked in real time. On the
public sector and enterprise side, sensor data and the Internet of Things (IoT) are being
used in the advancement of IT-enabled business processes like automated factories and
distribution centers and IT-enabled products like the wearable tech (IDC, 2015). Federal
health reform efforts have pushed health-care organizations toward big data and ana-
lytics. These organizations are planning to use big data analytics to support revenue
cycle management, resource utilization, fraud prevention, health management, and quality
improvement.
Hadoop and MapReduce Big data volumes exceed the processing capacity of
conventional database infrastructures. A widely used processing platform is Apache Hadoop.
86 C H A P T E R 3 Data Management, Data Analytics, and Business Intelligence
It places no conditions on the structure of the data it can process. Hadoop distributes com-
puting problems across a number of servers. Hadoop implements MapReduce in two stages:
1. Map stage MapReduce breaks up the huge dataset into smaller subsets; then distributes
the subsets among multiple servers where they are partially processed.
2. Reduce stage The partial results from the map stage are then recombined and made
available for analytic tools.
IT at Work 3.2
Researchers Use Genomics and Big Data in
Drug Discovery
Drug development is a high-risk business. Almost 90% of
new drugs ultimately fail to reach the market. One of the
challenges has been the amount, variety, and complexity of the
data that need to be systematically analyzed. Big data tech-
nologies and private–public partnerships have made biomedical
analytics feasible.
New Drug Development Had Been Slow and Expensive
Biotechnology advances have produced massive data on the
biological causes of disease. However, analyzing these data
and converting discoveries into treatments are much more dif-
ficult. Not all biomedical insights lead to effective drug targets,
and choosing the wrong target leads to failures late in the drug
development process, costing time, money, and lives. Devel-
oping a new drug—from early discovery through Food and
Drug Administration (FDA) approval—takes over a decade. As a
consequence, each success ends up costing more than $1 bil-
lion. Sometimes much more! For example, by the time Pfizer
Inc., Johnson & Johnson, and Eli Lilly & Co. announced their
new drugs had only limited benefit for Alzheimer’s patients in
late-stage testing, the industry had spent more than $30 billion
researching amyloid plaque in the brain.
Reducing Risk of Failure
Drug makers, governments, and academic researchers have
partnered to improve the odds of drug success and after years of
decline, the pharmaceutical industry is beginning to experience
a greater rate of success with its clinical trials. Partnerships bring
together the expertise of scientists from biology, chemistry, bio-
informatics, genomics, and big data. They are using big data to
identify biological targets for drugs and eliminate failures before
they reach the human testing stage and many anticipate that
big data and the analytics that go with it could be a key element
in further increasing the success rates in pharmaceutical R&D
(Cattell et al., 2016).
GlaxoSmithKline, the European Bioinformatics Institute (EBI),
and the Wellcome Trust Sanger Institute established the Centre for
Therapeutic Target Validation (CTTV) near Cambridge, England.
CTTV partners combine cutting-edge genomics with the ability to
collect and analyze massive amounts of biological data. By not
developing drugs that target the wrong biological pathways, they
avoid wasting billions of research dollars.
With biology now a data-driven discipline, collaborations such
as CTTV are needed to improve efficiencies, cut costs, and pro-
vide the best opportunities for success. Other private–public part-
nerships that had formed to harness drug research and big data
include the following:
• Accelerating Medicines Partnership and U.S. National Insti-
tutes of Health (NIH) In February 2014 the NIH announced
that the agency, 10 pharmaceutical companies, and nonprofit
organizations were investing $230 million in the Accelerating
Medicines Partnership.
• Target Discovery Institute and Oxford University Oxford
University opened the Target Discovery Institute in 2013. Target
Discovery helps to identify drug targets and molecular inter-
actions at a critical point in a disease-causing pathway—that is,
when those diseases will respond to drug therapy. Researchers
try to understand complex biological processes by analyzing
image data that have been acquired at the microscopic scale.
“The big data opportunity is especially compelling in com-
plex business environments experiencing an explosion in the types
and volumes of available data. In the health-care and pharma-
ceutical industries, data growth is generated from several sources,
including the R&D process itself, retailers, patients and caregivers.
Effectively utilizing these data will help pharmaceutical companies
better identify new potential drug candidates and develop them
into effective, approved and reimbursed medicines more quickly”
(Cattell et al., 2016).
IT at Work Questions
1. What are the consequences of new drug development
failures?
2. What factors have made biomedical analytics feasible?
Why?
3. Large-scale big data analytics are expensive. How can the
drug makers justify investments in big data?
4. Why would drug makers such as Glaxo and Pfizer be
willing to share data given the fierce competition in
their industry?
Sources: Compiled from Cattell et al. (2016), HealthCanal (2014), Kitamura
(2014), and NIH (2014).
Big Data Analytics and Data Discovery 87
To store data, Hadoop has its own distributed file system, Hadoop File System (HDFS),
which functions in three stages:
• Loads data into HDFS.
• Performs the MapReduce operations.
• Retrieves results from HDFS.
Figure 3.15 diagrams how Facebook uses database technology and Hadoop. IT at Work
3.3 describes how First Wind has applied big data analytics to improve the operations of its
wind farms and to support sustainability of the planet by reducing environmentally damaging
carbon emissions.
©
K
itt
ic
ha
is
/iS
to
ck
p
ho
to
FIGURE 3.14 Machine-generated data from physical objects are becoming a much larger portion of
big data and analytics.
MySQL databases capture and
store Facebook’s data.
Results are transferred back into
MySQL for use in pages that are
loaded for members.
Members see customized Facebook
pages.
Data are loaded into Hadoop where
processing occurs, such as identifying
recommendations for you based on
your friends’ interests.
FIGURE 3.15 Facebook’s MySQL database and Hadoop technology provide customized
pages for its members.
88 C H A P T E R 3 Data Management, Data Analytics, and Business Intelligence
Data and Text Mining
Data and text mining are different from DBMS and data analytics. As you have read earlier in this
chapter, a DBMS supports queries to extract data or get answers from huge databases. But, in
order to perform queries in a DBMS you must first know the question you want to be answered.
You also have read that Data Analytics describes the entire function of applying technologies,
algorithms, human expertise, and judgment. Data and text mining are specific analytic tech-
niques that allow users to discover knowledge that they didn’t know existed in the databases.
Data mining software enables users to analyze data from various dimensions or angles, cat-
egorize them, and find correlations or patterns among fields in the data warehouse. Up to 75%
of an organization’s data are nonstructured word-processing documents, social media, text mes-
sages, audio, video, images and diagrams, faxes and memos, call center or claims notes, and so on.
IT at Work 3.4 describes one example of how the U.S. government is using data mining
software to continuously improve its detection and deterrence systems.
Text mining is a broad category that involves interpreting words and concepts in con-
text. Any customer becomes a brand advocate or adversary by freely expressing opinions and
attitudes that reach millions of other current or prospective customers on social media. Text
mining helps companies tap into the explosion of customer opinions expressed online. Social
commentary and social media are being mined for sentiment analysis or to understand
consumer intent. Innovative companies know they could be more successful in meeting their
customers’ needs, if they just understood them better. Tools and techniques for analyzing
text, documents, and other nonstructured content are available from several vendors.
Combining data and text mining can create even greater value. Burns (2016) pointed out that
mining text or nonstructural data enables organizations to forecast the future instead of merely
reporting the past. He also noted that forecasting methods using existing structured data and non-
structured text from both internal and external sources provide the best view of what lies ahead.
Creating Business Value
Enterprises invest in data mining tools to add business value. Business value falls into three
categories, as shown in Figure 3.16.
IT at Work 3.3
Industrial Project Relies on Big Data Analytics
Wind power can play a major role in meeting America’s rising
demand for electricity—as much as 20% by 2030. Using more
domestic wind power would reduce the nation’s dependence on
foreign sources of natural gas and also decrease carbon dioxide
(CO2) emissions that contribute to adverse climate change.
First Wind is an independent North American renewable energy
company focused on the development, financing, construction,
ownership, and operation of utility-scale power projects in the
United States. Based in Boston, First Wind has developed and oper-
ates 980 megawatts (MW) of generating capacity at 16 wind energy
projects in Maine, New York, Vermont, Utah, Washington, and
Hawaii. First Wind has a large network of sensors embedded in the
wind turbines, which generate huge volumes of data continuously.
The data are transmitted in real time and analyzed on a 24/7 real
time basis to understand the performance of each wind turbine.
Sensors collect massive amounts of data on the temperature,
wind speeds, location, and pitch of the blades. The data are ana-
lyzed to study the operation of each turbine in order to adjust them
to maximum efficiency. By analyzing sensor data, highly refined
measurements of wind speeds are possible. In wintry conditions,
turbines can detect when they are icing up, and speed up or change
pitch to knock off the ice. In the past, when it was extremely windy,
turbines in the entire farm had been turned off to prevent damage
from rotating too fast. Now First Wind can identify the specific por-
tion of turbines that need to be shut down. Based on certain alerts,
decisions often need to be taken within a few seconds.
Upgrades on 123 turbines on two wind farms have improved
energy output by 3%, or about 120 megawatt hours per turbine
per year. That improvement translates to $1.2 million in additional
revenue a year from these two farms.
IT at Work Questions
1. What are the benefits of big data analytics to First Wind?
2. What are the benefits of big data analytics to the environ-
ment and the nation?
3. How do big data analytics impact the performance of
wind farms?
Sources: Compiled from www.FirstWind.com (2014) and U.S. Department of
Energy (2015).
Big Data Analytics and Data Discovery 89
Here are some brief cases illustrating the types of business value created by data and
text mining.
1. Using pattern analysis, Argo Corporation, an agricultural equipment manufacturer based
in Georgia, was able to optimize product configuration options for farm machinery and
real-time customer demand to determine the optimal base configurations for its machines.
As a result, Argo reduced product variety by 61% and cut days of inventory by 81% while
still maintaining its service levels.
2. The mega-retailer Walmart wanted its online shoppers to find what they were looking for
faster. Walmart analyzed clickstream data from its 45 million monthly online shoppers;
then combined that data with product- and category-related popularity scores. The popu-
larity scores had been generated by text mining the retailer’s social media streams. Lessons
learned from the analysis were integrated into the Polaris search engine used by custom-
ers on the company’s website. Polaris has yielded a 10% to 15% increase in online shop-
pers completing a purchase, which equals roughly $1 billion in incremental online sales.
3. McDonald’s bakery operation replaced manual equipment with high-speed photo analy-
ses to inspect thousands of buns per minute for color, size, and sesame seed distribution.
Automatically, ovens and baking processes adjust instantly to create uniform buns and
reduce thousands of pounds of waste each year. Another food products company also uses
photo analyses to sort every french fry produced in order to optimize quality.
4. Infinity Insurance discovered new insights that it applied to improve the performance of
its fraud operation. The insurance company text mined years of adjuster reports to look
for key drivers of fraudulent claims. As a result, the company reduced fraud by 75%, and
eliminated marketing to customers with a high likelihood of fraudulent claims.
Making more informed decisions at the time they need to be made
Discovering unknown insights, patterns, or relationships
Automating and streamlining or digitizing business processes
FIGURE 3.16 Business value falls into three buckets.
IT at Work 3.4
DoD and Homeland Security Use Data Mining Spy
Machine for Threat Intelligence
Digital Reasoning, a large player in the field of big data analytics has
upgraded its software that is currently contracted by the Department
of Defense and Homeland Security. Synthesys 4, the name for the
brand new software, allows the agencies to monitor threats in the
homeland and gather data about potential attacks. Ironically, one
of the main tactics employed with this software is to track and deter
potential employees or contractors who have access to it. Vice
President of Federal Programs Eric Hansen says that the software
excels at monitoring behavioral patterns, language, and data to act
and respond like a human detective would to a potential threat.
While Digital Reasoning also contracts out to other organiza-
tions like Goldman Sachs, the US government is probably its most
interesting and important client. Using automatic computer software
to analyze data is much more effective at hindering attacks and
quicker for analyzing large amounts of data about potential threats
domestically and abroad. For instance, the software knows exactly
what to look for without being bogged down and distracted by super-
fluous data. As available data and analytical capabilities increase, the
US government is continuously aiming to improve its detection and
deterrence systems using software like Synthesys 4 (Bing, 2016).
IT at Work Questions
1. What is Synthesys 4?
2. How does data mining help the DoD achieve its mission?
3. What are the main threats to the government’s data sources?
4. Why does the government see Synthesys 4 as essential to its
threat deterrence measures?
Sources: Compiled from Bing (2016) and syntheses.net (2017).
90 C H A P T E R 3 Data Management, Data Analytics, and Business Intelligence
Text Analytics Procedure
With text analytics, information is extracted from large quantities of various types of textual
information. The basic steps involved in text analytics include the following:
1. Exploring First, documents are explored. This might occur in the form of simple word
counts in a document collection, or by manually creating topic areas to categorize docu-
ments after reading a sample of them. For example, what are the major types of issues
(brake or engine failure) that have been identified in recent automobile warranty claims? A
challenge of the exploration effort is misspelled or abbreviated words, acronyms, or slang.
2. Preprocessing Before analysis or the automated categorization of content, the text may
need to be preprocessed to standardize it to the extent possible. As in traditional analy-
sis, up to 80% of preprocessing time can be spent preparing and standardizing the data.
Misspelled words, abbreviations, and slang may need to be transformed into consistent
terms. For instance, BTW would be standardized to “by the way” and “left voice message”
could be tagged as “lvm.”
3. Categorizing and modeling Content is then ready to be categorized. Categorizing
messages or documents from information contained within them can be achieved using
statistical models and business rules. As with traditional model development, sample
documents are examined to train the models. Additional documents are then processed
to validate the accuracy and precision of the model, and finally new documents are evalu-
ated using the final model (scored). Models can then be put into production for the auto-
mated processing of new documents as they arrive.
Analytics Vendor Rankings
Analytics applications cover business intelligence functions sold as a standalone application
for decision support or embedded in an integrated solution. The introduction of intuitive deci-
sion support tools, dashboards, and data visualization (discussed in detail in Chapter 11) have
TA B L E 3 . 4 Top Analytics Vendors
Rank Vendor Focus Products
1 SAP Market lines of analytics products that cove BI and report-
ing, predictive analysis, performance management and
governance, risk and compliance applications
SAP Business Objects Predictive Analytics
SAP Business Objects BI
SAP Business Objects Planning and Consolidation
2 SAS Offer simple desktop solutions to high performance dis-
tributed processing solutions
SAS Analytics Pro
SAS Enterprise Minder
SAS Visual Analytics
SAS Customer Intelligence 360
3 IBM Allow users to quickly discover patterns and meanings in
data with guided data discovery, automated predictive
analytics, one-click analysis, self-service dashboards, and
a natural language dialogue
Watson Analytics
4 Oracle Offer a complete solution for connecting and collabo-
rating with analytics in the cloud. Products allow users to
aggregate, experiment, manage, and analyze/act
Oracle Data Integrator
Oracle Big Data Cloud Service
Oracle R Advanced Analytics for Hadoop
BI Cloud Service
Oracle Stream Explore
5 Microsoft Provide a broad range of products from standalone solu-
tions to integrated tools that provide data preparation,
data discovery, and interactive dashboard capabilities in
a single tool
Excel
HDInsight
Machine Learning
Stream Analytics
Power BI Embedded
Business Intelligence and Electronic Records Management 91
added some interesting interactive components to big data analytics to bring the data to life
and enable nonexperts to use it.
Organizations invest in analytics, BI, and data/text mining applications based on new fea-
tures and capabilities beyond those offered by their legacy systems. Analytics vendors offer
everything from simple-to-use reporting tools to highly sophisticated software for tackling the
most complex data analysis problems. A list of the top five analytics and BI application vendors
are shown in Table 3.4.
Questions
1. Why are human expertise and judgment important to data analytics? Give an example.
2. What is the relationship between data quality and the value of analytics?
3. Why do data need to be put into a meaningful context?
4. How can manufacturers and health care benefit from data analytics?
5. How does data mining provide value? Give an example.
6. What is text mining?
7. What are the basic steps involved in text analytics?
3.5 Business Intelligence and
Electronic Records Management
Continuing developments in data analytics and business intelligence (BI) make it increas-
ingly necessary for organizations to be aware of the differences between these terms and the
different ways in which they add value in an organization. The field of BI started in the late
1980s and has been a key to competitive advantage across industries and in enterprises of all
sizes. Unlike data analytics that has predictive capabilities, BI is a comprehensive term that
refers to analytics and reporting tools that were traditionally used to determine trends in his-
torical data.
The key distinction between data analytics and BI is that analytics uses algorithms to statis-
tically determine the relationships between data whereas BI presents data insights established
by data analytics in reports, easy-to-use dashboards, and interactive visualizations. BI can also
make it easier for users to ask data-related questions and obtain results that are presented in a
way that they can easily understand.
What started as a tool to support sales, marketing, and customer service departments
has widely evolved into an enterprise wide strategic platform. While BI software is used in
the operational management of divisions and business processes, they are also used to
support strategic corporate decision-making. The dramatic change that has taken effect
over the last few years is the growth in demand for operational intelligence across multiple
systems and businesses—increasing the number of people who need access to increasing
amounts of data. Complex and competitive business conditions do not leave much slack
for mistakes.
Unfortunately, some companies are not able to use their data efficiently, creating a higher
cost to gather information than the benefits it provides. Luckily, BI software brings decision-
making information to businesses in as little as two clicks. Small businesses have a shared
interest with large corporations to enlist BI to help with decision-making, but they are usually
unequipped to build data centers and use funds to hire analysts and IT consultants. However,
small business BI software is rapidly growing in the analytics field, and it is increasingly cheaper
to implement it as a decision-making tool. Small businesses do not always have workers spe-
cialized in certain areas, but BI software makes it easy for all employees to analyze the data and
make decisions (King, 2016).
Business intelligence (BI) is
a set of tools and techniques
for acquiring and transforming
raw data into meaningful and
useful information for business
analysis purposes in the forms of
reports, dashboards, or interactive
visualizations.
92 C H A P T E R 3 Data Management, Data Analytics, and Business Intelligence
Business Benefits of BI
BI provides data at the moment of value to a decision-maker—enabling it to extract crucial facts
from enterprise data in real time or near real time. A BI solution with a well-designed dash-
board, for example, provides retailers with better visibility into inventory to make better deci-
sions about what to order, how much, and when in order to prevent stock-outs or minimize
inventory that sits on warehouse shelves.
Companies use BI solutions to determine what questions to ask and find answers to them.
BI tools integrate and consolidate data from various internal and external sources and then
process them into information to make smart decisions. BI answers questions such as these:
Which products have the highest repeat sales rate in the last six months? Do customer likes on
Facebook relate to product purchase? How does the sales trend break down by product group
over the last five years? What do daily sales look like in each of my sales regions?
According to The Data Warehousing Institute, BI “unites data, technology, analytics, and
human knowledge to optimize business decisions and ultimately drive an enterprise’s suc-
cess. BI programs usually combine an enterprise data warehouse and a BI platform or tool
set to transform data into usable, actionable business information” (The Data Warehousing
Institute, 2014). For many years, managers have relied on business analytics to make better-
informed decisions. Multiple surveys and studies agree on BI’s growing importance in analyzing
past performance and identifying opportunities to improve future performance.
Common Challenges: Data Selection and Quality
Companies cannot analyze all of their data—and much of them would not add value. There-
fore, an unending challenge is how to determine which data to use for BI from what seems
like unlimited options (Oliphant, 2016). One purpose of a BI strategy is to provide a framework
for selecting the most relevant data without limiting options to integrate new data sources.
Information overload is a major problem for executives and for employees. Another common
challenge is data quality, particularly with regard to online information, because the source
and accuracy might not be verifiable.
Aligning BI Strategy with Business Strategy
Reports and dashboards are delivery tools, but they may not be delivering business intelligence.
To get the greatest value out of BI, the CIO needs to work with the CFO and other business lead-
ers to create a BI governance program whose mission is to achieve the following (Ladley, 2016):
1. Clearly articulate business strategies.
2. Deconstruct the business strategies into a set of specific goals and objectives—the targets.
3. Identify the key performance indicators (KPIs) that will be used to measure progress
toward each target.
4. Prioritize the list of KPIs.
5. Create a plan to achieve goals and objectives based on the priorities.
6. Estimate the costs needed to implement the BI plan.
7. Assess and update the priorities based on business results and changes in business strategy.
After completing these activities, BI analysts can identify the data to use in BI and the
source systems. This is a business-driven development approach that starts with a business
strategy and work backward to identify data sources and the data that need to be acquired
and analyzed.
Businesses want KPIs that can be utilized by both departmental users and management. In
addition, users want real-time access to these data so that they can monitor processes with the
smallest possible latency and take corrective action whenever KPIs deviate from their target
Business Intelligence and Electronic Records Management 93
values. To link strategic and operational perspectives, users must be able to drill down from
highly consolidated or summarized figures into the detailed numbers from which they were
derived to perform in-depth analyses.
BI Architecture and Analytics
BI architecture is undergoing technological advances in response to big data and the perfor-
mance demands of end-users (Wise, 2016). BI vendors are facing the challenges of social, sen-
sor, and other newer data types that must be managed and analyzed. One technology advance
that can help handle big data is BI in the cloud. Figure 3.17 lists the key factors contributing to
the increased use of BI. It can be hosted on a public or private cloud. Although cloud services
come with more upkeep, optimizing the service and customizing it for one’s company brings
undeniable benefits in data security. With a public cloud, a service provider hosts the data and/
or software that are accessed via an Internet connection. For private clouds, the company hosts
its own data and software, but uses cloud-based technologies.
have created demand for
effortless 24/7 access to
insights.
Smart Devices
Everywhere
when they provide insight
that supports decisions
and action.
Data are Big
Business
help to ask questions that
were previously unknown
and unanswerable.
Advanced Bl and
Analytics
are providing low-cost and
flexible solutions.
Cloud Enabled Bl
and Analytics
FIGURE 3.17 Four factors contributing to increased use of BI.
For cloud-based BI, a popular option offered by a growing number of BI tool vendors is
software as a service (SaaS). MicroStrategy offers MicroStrategy Cloud, which provides fast
deployment with reduced project risks and costs. This cloud approach appeals to small and
midsized companies that have limited IT staff and want to carefully control costs. The potential
downsides include slower response times, security risks, and backup risks.
Competitive Analytics in Practice: CarMax CarMax, Inc. is the nation’s larg-
est retailer of used cars and for a decade has remained one of FORTUNE Magazine’s “100 Best
Companies to Work For.” CarMax was the fastest retailer in U.S. history to reach $1 billion in
revenues. In 2016 the company had over $15 billion in net sales and operating revenues, rep-
resenting a 6.2% increase over the prior year’s results. The company grew rapidly because of
its compelling customer offer—no-haggle prices and quality guarantees backed by a 125-point
inspection that became an industry benchmark—and auto financing. As of November 30, 2016,
CarMax operated in 169 locations across 39 U.S. states and had more than 22,000 full- and
part-time employees.
CarMax continues to enhance and refine its information systems, which it believes to be a
core competitive advantage. CarMax’s IT includes the following:
• A proprietary IS that captures, analyzes, interprets, and distributes data about the cars
CarMax sells and buys.
• Data analytics applications that track every purchase; number of test drives and credit
applications per car; color preferences in every demographic and region.
94 C H A P T E R 3 Data Management, Data Analytics, and Business Intelligence
• Proprietary store technology that provides management with real-time data about every
aspect of store operations, such as inventory management, pricing, vehicle transfers,
wholesale auctions, and sales consultant productivity.
• An advanced inventory management system that helps management anticipate future
inventory needs and manage pricing.
Throughout CarMax, analytics are used as a strategic asset and insights gained from ana-
lytics are available to everyone who needs them.
Electronic Records Management
All organizations create and retain business records. A record is documentation of a business
event, action, decision, or transaction. Examples are contracts, research and development,
accounting source documents, memos, customer/client communications, hiring and promo-
tion decisions, meeting minutes, social posts, texts, e-mails, website content, database records,
and paper and electronic files. Business documents such as spreadsheets, e-mail messages,
and word-processing documents are a type of record. Most records are kept in electronic for-
mat and maintained throughout their life cycle—from creation to final archiving or destruction
by an electronic records management system (ERMS).
One application of an ERMS would be in a company that is required by law to retain finan-
cial documents for at least seven years, product designs for many decades, and e-mail mes-
sages about marketing promotions for a year. The major ERM tools are workflow software,
authoring tools, scanners, and databases. ERM systems have query and search capabilities
so documents can be identified and accessed like data in a database. These systems range
from those designed to support a small workgroup to full-featured, Web-enabled enterprise-
wide systems.
Legal Duty to Retain Business Records
Companies need to be prepared to respond to an audit, federal investigation, lawsuit, or any
other legal action against them. Types of lawsuits against companies include patent violations,
product safety negligence, theft of intellectual property, breach of contract, wrongful termina-
tion, harassment, discrimination, and many more.
Because senior management must ensure that their companies comply with legal and
regulatory duties, managing electronic records (e-records) is a strategic issue for organizations
in both the public and private sectors. The success of ERM depends greatly on a partnership of
many key players, namely, senior management, users, records managers, archivists, adminis-
trators, and most importantly, IT personnel. Properly managed, records are strategic assets.
Improperly managed or destroyed, they become liabilities.
ERM Best Practices
Effective ERM systems capture all business data and documents at their first touchpoint—data
centers, laptops, the mailroom, at customer sites, or remote offices. Records enter the enter-
prise in multiple ways—from online forms, bar codes, sensors, websites, social sites, copiers,
e-mails, and more. In addition to capturing the entire document as a whole, important data
from within a document can be captured and stored in a central, searchable repository. In this
way, the data are accessible to support informed and timely business decisions.
In recent years, organizations such as the Association for Information and Image
Management (AIIM), National Archives and Records Administration (NARA), and ARMA
International (formerly the Association of Records Managers and Administrators) have created
and published industry standards for document and records management. Numerous best
Electronic records management
system (ERMS) consists of
hardware and software that
manage and archive electronic
documents and image paper
documents; then index and
store them according to
company policy.
Business Intelligence and Electronic Records Management 95
practices articles, and links to valuable sources of information about document and records
management, are available on their websites. The IT Toolbox describes ARMA’s eight generally
accepted recordkeeping principles framework.
ERM Benefits
Departments or companies whose employees spend most of their day filing or retrieving docu-
ments or warehousing paper records can reduce costs significantly with ERM. These systems
minimize the inefficiencies and frustration associated with managing paper documents and
workflows. However, they do not create a paperless office as had been predicted.
An ERM can help a business to become more efficient and productive by the following:
• Enabling the company to access and use the content contained in documents.
• Cutting labor costs by automating business processes.
• Reducing the time and effort required to locate information the business needs to support
decision-making.
• Improving the security of content, thereby reducing the risk of intellectual property theft.
• Minimizing the costs associated with printing, storing, and searching for content.
When workflows are digital, productivity increases, costs decrease, compliance obli-
gations are easier to verify, and green computing becomes possible. Green computing is an
initiative to conserve our valuable natural resources by reducing the effects of our computer
usage on the environment. You can read about green computing and the related topics of
reducing an organization’s carbon footprint, sustainability, and ethical and social responsibil-
ities in Chapter 14.
ERM for Disaster Recovery,
Business Continuity, and Compliance
Businesses also rely on their ERM system for disaster recovery and business continuity, secu-
rity, knowledge sharing and collaboration, and remote and controlled access to documents.
Because ERM systems have multilayered access capabilities, employees can access and change
only the documents they are authorized to handle.
When companies select an ERM to meet compliance requirements, they should ask the
following questions:
1. Does the software meet the organization’s needs? For example, can the DMS be installed
on the existing network? Can it be purchased as a service?
2. Is the software easy to use and accessible from Web browsers, office applications, and
e-mail applications? If not, people will not use it.
3. Does the software have lightweight, modern Web and graphical user interfaces that effec-
tively support remote users?
4. Before selecting a vendor, it is important to examine workflows and how data, documents,
and communications flow throughout the company. For example, know which informa-
tion on documents is used in business decisions. Once those needs and requirements are
identified, they guide the selection of technology that can support the input types—that
is, capture and index them so they can be archived consistently and retrieved on-demand.
IT at Work 3.5 describes how several companies currently use ERM. Simply creating
backups of records is not sufficient because the content would not be organized and indexed
to retrieve them accurately and easily. The requirement to manage records—regardless of
whether they are physical or digital—is not new.
96 C H A P T E R 3 Data Management, Data Analytics, and Business Intelligence
Key Terms
active data warehouse (ADW) 81
big data 83
big data analytics 84
business analytics 68
business intelligence (BI) 91
business record 94
business-driven development approach 92
centralized database 73
change data capture (CDC) 80
data analytics 83
data entity 79
data management 69
data marts 80
data mining 88
data warehouse 67
database 69
database management system (DBMS) 70
decision model 68
declarative language 70
dirty data 75
distributed database 73
electronic records management system
(ERMS) 94
extract, transform and load (ETL) 80
enterprise data warehouses (EDWs) 80
eventual consistency 70
fault tolerance 72
Hadoop 85
information overload 92
immediate consistency 70
latency 70
MapReduce 86
master data management (MDM) 78
NoSQL 72
online transaction processing (OLTP)
systems 71
online analytical processing (OLAP)
systems 72
petabyte 66
query 70
relational database 70
relational management systems
(RDBMSs) 70
sentiment analysis 88
scalability 72
structured query language (SQL) 70
text mining 88
IT at Work 3.5
ERM Applications
Here some examples of how companies use ERM in the health-care,
finance, and education sectors:
• The Surgery Center of Baltimore stores all medical records
electronically, providing instant patient information to doc-
tors and nurses anywhere and at any time. The system also
routes charts to the billing department, which can then scan
and e-mail any relevant information to insurance providers
and patients. The ERM system helps maintain the required
audit trail, including the provision of records when they are
needed for legal purposes. How valuable has ERM been to
the center? Since it was implemented, business processes
have been expedited by more than 50%, the costs of these
processes have been significantly reduced, and the morale of
office employees in the center has improved noticeably.
• American Express (AMEX) uses TELEform, developed by
Alchemy and Cardiff Software, to collect and process more
than 1 million customer satisfaction surveys every year. The
data are collected in templates that consist of more than
600 different survey forms in 12 languages and 11 countries.
AMEX integrated TELEform with AMEX’s legacy system, which
enables it to distribute processed results to many managers.
Because the survey forms are now readily accessible, AMEX has
reduced the number of staff who process these forms from 17
to 1, thereby saving the company more than $500,000 a year.
• The University of Cincinnati provides authorized access to the
personnel files of 12,000 active employees and tens of thou-
sands of retirees. The university receives more than 75,000
queries about personnel records every year and then must
search more than 3 million records to answer these queries.
Using a microfilm system to find answers took days. The
solution was an ERM that digitized all paper and microfilm
documents, without help from the IT department, making
them available via the Internet and the university’s intranet.
Authorized employees access files using a browser.
IT at Work Questions
1. What are the business benefits of BI?
2. What are two-related challenges that must be resolved for BI
to produce meaningful insights?
3. What are the steps in a BI governance program?
4. What does it mean to drill down into data, and why is it
important?
5. What four factors are contributing to increased use of BI?
6. Why is ERM a strategic issue rather than simply an IT issue?
7. Why might a company have a legal duty to retain records?
Give an example.
8. Why is creating backups an insufficient way to manage an
organization’s documents?
Assuring Your Learning 97
Assuring Your Learning
Discuss: Critical Thinking Questions
1. What are the functions of databases and data warehouses?
2. How does data quality impact business performance?
3. List three types of waste or damages that data errors can cause.
4. What is the role of a master reference file?
5. Give three examples of business processes or operations that
would benefit significantly from having detailed real-time or near real-
time data and identify the benefits.
6. What are the tactical and strategic benefits of big data analytics?
7. Explain the four Vs of data analytics.
8. Select an industry. Explain how an organization in that indus-
try could improve consumer satisfaction through the use of data
warehousing.
9. Explain the principle of 90/90 data use.
10. Why is master data management (MDM) important in companies
with multiple data sources?
11. Why would a company invest in a data mart instead of a data
warehouse?
12. Why is data mining important?
13. What are the operational benefits and competitive advantages of
business intelligence?
14. How can ERM decrease operating costs?
Explore: Online and Interactive Exercises
1. Visit www.YouTube.com and search for SAS Enterprise Miner
Software Demo in order to assess the features and benefits of SAS
Enterprise Miner. The URL is https://www.youtube.com/watch?v=
Nj4L5RFvkMg.
a. View the SAS Enterprise Miner Software demo, which is about
seven minutes long.
b. Based on what you learn in the demo, what skills or expertise
are needed to build a predictive model?
c. At the end of the demo, you hear the presenter say that “SAS
Enterprise Miner allows end-users to easily develop predictive
models and to generate scoring to make better decisions about
future business events.” Do you agree that SAS Enterprise Miner
makes it easy to develop such models? Explain.
d. Do you agree that if an expert develops predictive models, it
will help managers make better decisions about future business
events? Explain.
e. Based on your answers to (c), (d), and (e), under what condi-
tions would you recommend SAS Enterprise Miner?
2. Research two electronic records management vendors, such as
Iron Mountain.
a. What are the retention recommendations made by the
vendors? Why?
b. What services or solutions does each vendor offer?
3. View the “Edgenet Gain Real time Access to Retail Product Data
with In-Memory Technology” video on YouTube. Explain the benefit of
in-memory technology.
Analyze & Decide: Apply IT Concepts to Business Decisions
1. Visit www.Oracle.com. Click the Solutions tab to open the menu;
then click Data Warehousing under Technology Solutions.
a. Scroll down to view “Procter & Gamble Drives 30X Performance
Gains with Oracle Exadata.”
b. Describe the Procter & Gamble’s challenges, why it selected
Oracle Exadata, and how that solution met their challenge.
2. Visit www.Teradata.com. Click Resources and open “Videos.” Select
one of the videos related to data analytics. Explain the benefits of the
solution chosen.
3. Spring Street Company (SSC) wanted to reduce the “hidden costs”
associated with its paper-intensive processes. Employees jokingly pre-
dicted that if the windows were open on a very windy day, total chaos
98 C H A P T E R 3 Data Management, Data Analytics, and Business Intelligence
would ensue as thousands of papers started to fly. If a flood, fire, or
windy day occurred, the business would literally grind to a halt. The
company’s accountant, Sam Spring, decided to calculate the costs of
its paper-driven processes to identify their impact on the bottom line.
He recognized that several employees spent most of their day filing
or retrieving documents. In addition, there were the monthly costs to
warehouse old paper records. Sam measured the activities related to
the handling of printed reports and paper files. His average estimates
were as follows:
a. Dealing with a file: It takes an employee 12 minutes to walk
to the records room, locate a file, act on it, refile it, and return to
his or her desk. Employees do this 4 times per day (five days
per week).
b. Number of employees: 10 full-time employees perform the
functions.
c. Lost document replacement: Once per day, a document gets
“lost” (destroyed, misplaced, or covered with massive coffee
stains) and must be recreated. The total cost of replacing each lost
document is $200.
d. Warehousing costs: Currently, document storage costs are $75
per month.
Sam would prefer a system that lets employees find and work with
business documents without leaving their desks. He’s most concerned
about the human resources and accounting departments. These person-
nel are traditional heavy users of paper files and would greatly benefit
from a modern document management system. At the same time, how-
ever, Sam is also risk averse. He would rather invest in solutions that
would reduce the risk of higher costs in the future. He recognizes that the
U.S. PATRIOT Act’s requirements that organizations provide immediate
government access to records apply to SSC. He has read that manufactur-
ing and government organizations rely on efficient document manage-
ment to meet these broader regulatory imperatives. Finally, Sam wants
to implement a disaster recovery system.
Prepare a report that provides Sam with the data he needs to evalu-
ate the company’s costly paper-intensive approach to managing docu-
ments. You will need to conduct research to provide data to prepare this
report. Your report should include the following information:
1. How should SSC prepare for an ERM if it decides to implement one?
2. Using the data collected by Sam, create a spreadsheet that calcu-
lates the costs of handling paper at SSC based on average hourly rates
per employee of $28. Add the cost of lost documents to this. Then,
add the costs of warehousing the paper, which increases by 10% every
month due to increases in volume. Present the results showing both
monthly totals and a yearly total. Prepare graphs so that Sam can eas-
ily identify the projected growth in warehousing costs over the next
three years.
3. How can ERM also serve as a disaster recovery system in case of fire,
flood, or break-in?
4. Submit your recommendation for an ERM solution. Identify two
vendors in your recommendation.
Case 3.2
Business Case: Big Data Analytics is the “Secret
Sauce” for Revitalizing McDonald’s
With 62 million daily customers and an annual revenue of $27 billion,
McDonald’s has a virtually unrivaled amount of data at its disposal to
analyze. In order to dominate the market, retain its loyal customers,
and attract new customers who are skeptical of McDonald’s practices
and quality, it lends itself to its data, becoming an “information centric
organization.” What does it mean to be information centric? Instead
of using a fixed process of production, service, etc. as a business plan
that is product driven, McDonald’s uses customer data to dictate its
next move as a customer-driven corporation. During the inception of
McDonald’s in 1940, the McDonald brothers derived a product-driven
business centered around fast service and tasty food. While that
method was successful before other restaurants entered the fast food
market, growth was stunted due to a lack of innovation and change.
So, the organization began to collect customer data as a means to
monitor successful products, customer demands, and the results of
marketing campaigns.
This venture led to McDonald’s becoming the premier fast food
chain across the United States in the 1980s. Soon after becoming a
customer-driven corporation, McDonald’s introduced the Happy Meal
so families with small children could reduce costs and waste at dinner
time, released the Egg McMuffin as the most successful breakfast item of
all time, equipped professionals and teenagers with free Wi-Fi to expand
its customer segmentation, and provided nutrition details to become the
most transparent fast food chain at the time. All of these improvements
derived from McDonald’s using its immense amount of data to set its
chain apart from the rest.
In 2008, to further improve its ability to leverage big data, McDonald’s
made the transition from average-based metrics to trend analytics.
The issue with average-based metrics is that it is hard to compare
regions and stores. A store could be growing in its sales and produc-
tivity but have the same average metrics as a store that is declin-
ing. Using trend analytics allowed McDonald’s to combine multiple
datasets from multiple data sources to visualize and understand
cause-and-effect relationships in individual stores and regions. The
correlations it found enabled its analysts to prescribe solutions to
problems in sales, production, turnover, and supply chain manage-
ment to reduce costs and save time. The variables it studies allows
McDonald’s to create a standardized experience across the world.
However, analyzing local data in each store produces minor changes
around the organization. For example, most McDonald’s locations
look the same, but each restaurant is slightly different and optimized
for the local market.
A great example of McDonald’s big data analysis in action is its
updated drive-thru system. All fast food chains have bottlenecks in their
drive-thru lanes, but McDonald’s average customer wait time is about 3
minutes, which is close to the industry’s longest wait time of 214 seconds.
One of the most prominent issues in its drive-thru was that customers
going through the line for dinner, ordering large meals and searching over
the menu for an extended period of time, created a negative experience
for each car in line behind them. In response, McDonald’s optimized the
drive-thru across three components: design, information, and people.
Design focused on the improvements to the drive-thru, including better
speaker quality and higher resolution, digital menu boards. Information
centered around what was on the menu board. In order to decrease order
times, McDonald’s removed about 40% of the drive-thru menu board. In
Case 3.3 99
its third aspect, people, the fast food chain attempted to reduce the
negative experiences for those in line by creating a second drive-thru
line with a designated order taker for each line, a third drive-thru win-
dow, and two production lines.
Another example showing McDonald’s commitment to being a
customer-driven corporation is its introduction of all day breakfast,
which was the highest priority for customers across the United
States. Being the corporation with by far the largest share of the
fast food market, McDonald’s will continue to use its growing data
sets to provide the best experience and food to its customers (van
Rijmenam, 2016).
Questions
1. Explain McDonald’s mission and responsibilities.
2. What limitation did McDonald’s face in gaining data that was
meaningful to decision-making?
3. Describe trend analytics.
4. Is McDonald’s product oriented or customer oriented?
5. Why is the ability to identify patterns and relationships critical to
McDonald’s operations?
Case 3.3
Video Case: Verizon Improves Its
Customer Experience with Data Driven
Decision-Making
Verizon leverages Teradata’s data analytics platform to shift its opera-
tions from qualitative decision-making to evidence-based and data-
driven decision-making to improve the customer experience. Visit
www.Teradata.com and search for the video “Verizon: Using Advanced
Analytics to Deliver on Their Digital Promise to Help Customers Inno-
vate Their Lifestyle.”
1. How does Verizon use Teradata to make decisions?
2. How do the three sectors of Verizon work together to create value
for the customer?
3. How does Verizon use data analytics to “penetrate the market”?
4. What impact does customer behavior data have on Verizon’s
marketing strategy?
“IT Matters” Discussion Board
Research the concept of Big Data. Find at least one company that main-
tains a “Big Data” database.
1. What is Big Data? Give at least three examples of organizations
that have Big Data sets. What are the applications?
2. Discuss one of the organizations that you identified that uses Big
Data and briefly describe the use of Big Data in the organization.
3. Discuss as much as you can find about the amount of data they
have and how they process it.
4. What did you learn or what lessons did you take away from
this research?
Provide at least two hyperlinked references to back up your findings
(one for the organization you chose to discuss and one for the concept
of big data in general). Post your findings and respond to at least two
comments posted by your fellow students.
IT Toolbox
Framework for Generally Accepted Recordkeeping
Principles
The Framework for generally accepted recordkeeping principles
is a useful tool for managing business records to ensure that they
support an enterprise’s current and future regulatory, legal, risk
mitigation, environmental, and operational requirements.
The framework consists of eight principles or best practices,
which also support data governance. These principles were created
by ARMA International and legal and IT professionals.
1. Principle of accountability Assign a senior executive to
oversee a recordkeeping program; adopt policies and proce-
dures to guide personnel; and ensure program audit ability.
2. Principle of transparency Document processes and
activities of an organization’s recordkeeping program in an
understandable manner and available to all personnel and
appropriate parties.
3. Principle of integrity Ensure recordkeeping program is
able to reasonably guarantee the authenticity and reliability
of records and data.
4. Principle of protection Construct the recordkeeping
program to ensure a reasonable level of protection to records
and information that are private, confidential, privileged,
secret, or essential to business continuity.
5. Principle of compliance Ensure recordkeeping program
complies with applicable laws, authorities, and the organiza-
tion’s policies.
6. Principle of availability Maintain records in a manner that
ensures timely, efficient, and accurate retrieval of needed
information.
7. Principle of retention Maintain records and data for an
appropriate time based on legal, regulatory, fiscal, opera-
tional, and historical requirements.
8. Principle of disposition Securely disposed of records when
they are no longer required to be maintained by laws or orga-
nizational policies.
Sources: Compiled from Van Rijmenam (2016) and McDonald’s (2017).
100 C H A P T E R 3 Data Management, Data Analytics, and Business Intelligence
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101
CHAPTER 4
Networks, Collaborative
Technology, and the
Internet of Things
C H A P T E R O U T L I N E
Case 4.1 Opening Case: Sony Builds an IPv6
Network to Fortify Competitive Edge
4.1 Network Fundamentals
4.2 Internet Protocols (IP), APIs,
and Network Capabilities
4.3 Mobile Networks
4.4 Collaborative Technologies and
the Internet of Things (IoT)
Case 4.2 Business Case: Google Maps API for
Business
Case 4.3 Video Case: Small Island Telecom
Company Goes Global
L E A R N I N G O B J E C T I V E S
4.1 Describe the different types of networks and the basic
functions of business networks.
4.2 Understand the purpose of IPs and APIs and compare wireless
3G, 4G, and 5G networks and how they support businesses.
4.3 Describe the growth in mobile data traffic and understand the
components of the mobile infrastructure including near-field
communication. List the business functions that near-field
communication supports.
4.4 Evaluate performance improvements gained from
collaborative technology and understand concept of the
Internet of Things (IoT)
102 C H A P T E R 4 Networks, Collaborative Technology, and the Internet of Things
Introduction
Across all types and sizes of organizations, the Internet and networks have changed the way
that business is conducted. Twenty years ago, computers were glorified typewriters that could
not communicate with one another. If we wanted to communicate we used the telephone.
Today computers constantly exchange data with each other over distance and time to provide
companies with a number of significant advantages. The convergence of access technologies,
cloud, 5G networks, multitasking mobile operating systems, and collaboration platforms con-
tinues to change the nature of work, the way we do business, how machines interact, and other
things not yet imagined. In this chapter you will learn about the different types of networks,
how they affect the way that businesses communicate with customers, vendors, and other
businesses, and how the largest network, the Internet, is enabling massive automatic data col-
lection efforts from “things” rather than from people.
Case 4.1 Opening Case
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Sony Builds an IPv6 Network to Fortify
Competitive Edge
Sony’s Rapid Business Growth
In the early 2000s, Sony Corporation had been engaged in strate-
gic mergers and acquisitions to strengthen itself against intensifying
competition (Figure 4.1). By 2007 Sony’s enterprise network (internal
network) had become too complex and was incapable of supporting
communication, operations, and further business growth (Table 4.1).
The enterprise network was based on IPv4. A serious limitation was
that the IPv4 network could not provide real-time collaboration among
business units and group companies.
Expansion efforts were taking too long because of the complicated
structure of the network, and total cost of ownership (TCO) was increas-
ing. Also, a number of technical limitations were blocking internal com-
munications. To eliminate these limitations, Sony decided to invest in
IPv6-based networks.
Network Limitations
Many of the Sony Group companies had developed independently—
and had independent networks. Devices connected to the independent
networks were using the same IP addresses. That situation is compara-
ble to users having duplicate telephone numbers—making it impossi-
ble to know which phone was being called. Also, phones with the same
number could not call each other.
Once these networks were integrated, the duplicate IP address
caused traffic-routing conflicts. Routing conflicts, in turn, led to the fol-
lowing problems:
1. Sony’s employee communication options were severely limited,
which harmed productivity.
2. File sharing and real-time communication were not possible.
3. Introducing cloud services was difficult and time-consuming.
Migration to IPv6 Networks: An Investment
in the Future
With its virtually unlimited number of IP addresses, IPv6 would support
Sony’s long-term, next-generation information and communications
technology (ICT) infrastructure strategy and improve collaboration
and productivity.
Migrating from IPv4 to IPv6 involved 700 sites, hundreds of thou-
sands of networking devices, and hundreds of thousands of network
users spread around the globe. During the transition, Sony realized
that it was necessary to support both IP protocols. That is, while Sony
wanted to eventually completely migrate to IPv6, the IPv6 would sup-
plement and coexist with the existing enterprise IPv4 network, rather
than replace it. Running both protocols on the same network at the
same time was necessary because Sony’s legacy devices and apps only
worked on IPv4.
Sony selected Cisco as a key partner in the migration and inte-
gration of IPv4 and IPv6 traffic because of the maturity of its IPv6
Introduction 103
technology. The integrated network has been used by Sony as infra-
structure for product development. Sony also upgraded its Cisco net-
work switches at the corporate data center, campuses, and remote
offices to handle concurrent IPv4 and IPv6 traffic.
Business Results
The use of IPv6 eliminated the issue of conflicting IP addresses, ena-
bling Sony employees in all divisions to take advantage of the produc-
tivity benefits of real-time collaboration applications. Other business
improvements are as follows:
• Flexibility to launch new businesses quickly.
• Reduced TCO of enterprise network.
• Network without communications constraints, supporting “One
Sony” through information systems:
Decreased lead time of connecting a new group to the
enterprise network.
Automated network processes by ridding of manually config-
ured NAT devices.
However, Sony’s networks are far from perfect, especially when
it comes to its PlayStation Network Service. Unfortunately for gamers,
the PSN consistently crashes without warning and for relatively long
periods of time. The first crash of 2016 on January 4th caused the ser-
vice to be down for about 8 hours for all users. During that time, many
users could not play their games, use streaming services, or access the
online store.
Questions
1. Explain how Sony’s IPv4 enterprise network was restricting the
productivity of its workers.
Sony Corporation
Global Reach
Network Solution
Sony aims to accelerate global
collaboration and business across
business units to achieve goal of
“One Sony.”
Cisco Enterprise IPv6 network
integrated with IPv4 network.
Consumer electronics equipment
and services; music, pictures,
computer entertainment.
More versatile network
Network without communications
constraints, supporting “One Sony”
through information systems.
Brand
Business Results
FIGURE 4.1 Sony Corporation overview.
TA B L E 4 . 1 Opening Case Overview
Company Sony Corporation, Sony.com
Location Headquartered in Tokyo, Japan. Over 700 total network sites worldwide.
Industries One of the largest consumer electronics and entertainment companies in the world,
including audio/video equipment, semiconductors, computers, and video games.
Also engaged in production and distribution of recorded music, motion picture,
and video.
Business
challenges
• Network expansion required too much time due to complexity of
enterprise network.
• Networking TCO (total cost of ownership) was continually increasing.
• Numerous constraints on networks obstructing communication between com-
panies in Sony Group.
Network
technology
• Integrated its IPv4 networks with new IPv6 solutions from Cisco. The integrated
IPv4/IPv6 network has been used by Sony as infrastructure for the development of
new products and enterprise-wide collaboration.
• Sony also upgraded its Cisco switches at the corporate data center, campuses, and
remote offices to handle concurrent IPv4 and IPv6 traffic.
104 C H A P T E R 4 Networks, Collaborative Technology, and the Internet of Things
4.1 Network Fundamentals
Today’s managers need to understand the technical side of computer networks to make intel-
ligent investment decisions that impact operations and competitive position. Enterprises run
on networks—wired and mobile—and depend upon their ability to interface with other net-
works and applications. Computer networks are changing significantly in their capacity and
capabilities.
Network Types
Computers on a network are called nodes. The connection between computers can be
done via cabling, most commonly through Ethernet, or wirelessly through radio waves.
Connected computers share resources, such as the Internet, printers, file servers, and other
devices. The multipurpose connections enabled by a network allow a single computer to
do more than if it were not connected to other devices. The most well-known network is
the Internet.
Computer networks are typically categorized by their scope. Common types of networks
are shown in Table 4.2. Of these, LAN and WAN are the two primary and best-known categories
of networks.
Computer networks are a set of
computers connected together for
the purpose sharing resources.
TA B L E 4 . 2 Types of Networks
Acronym Type Characteristics Example
LAN Local Area Network Connects network devices over a relatively short distance
Owned, controlled, and managed by one individual or
organization
Office building
School
Home
WAN Wide Area Network Spans a large physical distance
Geographically dispersed collection of LANs
Owned and managed by multiple entities
Internet
Large company
WLAN Wireless Local
Area Network
LAN based on Wi-Fi wireless network technology Internet
Large company
MAN Metropolitan Area
Network
Spans a physical area larger than a LAN but smaller
than a WAN
Owned and operated by a single entity, e.g.,
government agency, large company
City
Network of suburban fire stations
SAN Storage Area Network
Server Area Network
Connects servers to data storage devices High-performance database
CAN Campus Area Network
Cluster Area Network
Spans multiple LANs but smaller than a MAN University
Local business campus
PAN Personal Area Network Spans a small physical space, typically 35 feet or less
Connects personal IT devices of a single individual
Laptop, smartphone, and portable
printer connected together
2. What problems did duplicate IP addresses cause at Sony? Give
an analogy.
3. Why did Sony need to run both protocols on its network instead of
replacing IPv4 with IPv6?
4. Describe the strategic benefit of Sony’s IPv6 implementation.
5. Do research to determine the accuracy of this prediction:
“Today, almost everything on the Internet is reachable over
IPv4. In a few years, both IPv4 and IPv6 will be required for
universal access.”
Sources: Cisco (2016) and Neal (2016).
Network Fundamentals 105
Intranets, Extranets, and Virtual Private Networks
Intranets are used within a company for data access, sharing, and collaboration. They are por-
tals or gateways that provide easy and inexpensive browsing and search capabilities. Colleges
and universities rely on intranets to provide services to students and faculty. Using screen shar-
ing and other groupware tools, intranets can support team work.
An extranet is a private, company-owned network that can be logged into remotely via
the Internet. Typical users are suppliers, vendors, partners, or customers. Basically, an extranet
is a network that connects two or more companies so they can securely share information.
Since authorized users remotely access content from a central server, extranets can drastically
reduce storage space on individual hard drives.
A major concern is the security of the transmissions that could be intercepted or compro-
mised. One solution is to use virtual private networks (VPNs), which encrypt the packets before
they are transferred over the network. VPNs consist of encryption software and hardware that
encrypt, send, and decrypt transmissions, as shown in Figure 4.2. In effect, instead of using a
leased line to create a dedicated, physical connection, a company can invest in VPN technology
to create virtual connections routed through the Internet from the company’s private net-
work to the remote site or employee. Extranets can be expensive to implement and maintain
because of hardware, software, and employee training costs if hosted internally rather than by
an application service provider (ASP).
©
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ng
p
ho
to
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to
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to
FIGURE 4.2 Virtual private networks (VPNs) create encrypted
connections to company networks.
Network Terminology
To be able to evaluate the different types of networks and the factors that determine their func-
tionality, you need to be familiar with the following network terminology:
• Modem It is a device designed to adapt/modify the information signals in a way that can
be transported by the media. The word modem is composed of two terms: Modulator and
Demodulator, the modulator adapts the information signal in order to be transported by
the media and the demodulator does the inverse process at reception. Digital modems are
called “CSU/DSU” (Channel Service Unit/Data Service Units).
• Modulation and coding These are the specific techniques used by the modem to
adapt the signal to the media. There are several ways to do this process like Amplitude
Modulation, Phase modulation, Frequency Modulation. In a few words modulation/
coding is to decide how the “1s” and “0s” are represented in terms of voltages and/or
frequencies.
106 C H A P T E R 4 Networks, Collaborative Technology, and the Internet of Things
• Signal It is the information we want to send, every signal is composed of a combination
of 1s and 0s. Every signal has a frequency spectrum.
• Signal frequency spectrum These are all the frequency components of a signal. The
more 1s and 0s are transmitted per unit of time (i.e., per second) the highest will be the
frequency components of a signal. The bandwidth of the signal is measured in hertz or
number of variations per second. The more 1s and 0s are transmitted within one second
the higher will be the frequency spectrum or signal bandwidth.
• Media bandwidth Every media (i.e., Copper, Coaxial, and Fiber Optics) has a limitation
in the range of frequency signals that can move through it without significant attenua-
tion. The bandwidth of the media varies by type, is limited, and typically can’t accept the
entire signals frequency spectrum (Figure 4.3). The range of frequencies that can move
through the media without significant attenuation is called bandwidth and it is also mea-
sured in hertz.
The mission of a modem/DSU-CSU is to adapt the information signal so that it can
move through the media without significant attenuation. Typically “significant attenua-
tion” means that the signal has not lost more than half of its original power.
Generally speaking, the media bandwidth (in hertz) can be defined as the range of
frequencies (i.e., fmax − fmin) at which the signal has not lost more than 50% of its power.
Upon coding-modulation techniques, it is possible to pack many binary symbols in
one hertz (many binary symbols per second), for example, it is possible to pack 5 bits in
each hertz of the signal. So if the bandwidth is 200,000 hertz then up to 1,000,000 bits/s
(2000,000 hertz *5 bits/hertz) can be transmitted.
A different modulation/coding technique (i.e., for the same signal and the same
media) might pack 10 bits per every hertz of bandwidth and up to 2 Mbits/s (200,000 hertz
*10 bits/hertz = 2 Mbits/s). The media bandwidth provided should be capable of transport-
ing this coded-modulated signal without significant attenuation.
• Capacity or digital bandwidth It is the maximum amount of bits/second that can be
transmitted over the media. Upon ideal conditions, it is possible to reach the maximum
capacity in a connection although this seldom happens (see Figure 4.4).
Functions Supported by Business Networks
Figure 4.5 describes the basic business functions supported business networks: communica-
tion, mobility, collaboration, relationships, and search. These functions depend on network
switches and routers—devices that transmit data packets from their source to their destina-
tion based on IP addresses. A switch acts as a controller, enabling networked devices to talk to
each other efficiently. For example, switches connect computers, printers, and servers within an
office building. Switches create a network. Routers connect networks. A router links computers
1 Gbps Ethernet
100 Mbps Ethernet
Gigabit Passive Optical Network (GPON)
Ethernet Passive Optical Network (EPON)
CableDSL
ISDN
FIGURE 4.3 Bandwidth variation by media type.
Network Fundamentals 107
to the Internet, so users can share the connection. Routers act like a dispatcher, choosing the
best paths for packets to travel.
Investments in network infrastructure, including data networks, IP addresses, routers, and
switches are business decisions because of their impact on productivity, security, user experi-
ences, and customer service.
Quality of Service
An important management decision is the network’s quality of service (QoS), especially for
delay-sensitive data such as real-time voice and high-quality video. The higher the required
QoS, the more expensive the technologies needed to manage organizational networks.
Bandwidth-intensive apps are important to business processes, but they also strain network
capabilities and resources. Regardless of the type of traffic, networks must provide secure, pre-
dictable, measurable, and sometimes guaranteed services for certain types of traffic. For exam-
ple, QoS technologies can be applied to create two tiers of traffic:
• Prioritize traffic Data and apps that are time-delay-sensitive or latency-sensitive apps,
such as voice and video, are given priority on the network.
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Current Bandwidth Usage – Last 5 Minutes
Enterprise Current Policy Threshold
Bandwidth Monitor
Current Policy Threshold(06:51:55): 300
FIGURE 4.4 Bandwidth capacity monitor.
Communication
Mobility
Provides secure, trusted,
and reliable access from any
mobile device anywhere at
satisfactory download and
upload speeds.
Relationships
Manages interaction with
customers, supply chain
partners, shareholders,
employees, regulatory
agencies, and so on.
Search
Able to locate data, contracts,
documents, spreadsheets, and other
knowledge within an organization
easily and efficiently.
Collaboration
Supports teamwork
that may be synchronous
or asynchronous;
brainstorming; and
knowledge and
document sharing.
Provides sufficient capacity for human
and machine-generated transmissions.
Delays are frustrating, such as when
large video files pause during download
waiting for the packets to arrive.
Buffering means the network cannot
handle the speed at which the video is
being delivered and therefore stops to
collect packets.
FIGURE 4.5 Basic functions of business networks.
108 C H A P T E R 4 Networks, Collaborative Technology, and the Internet of Things
• Throttle traffic In order to give latency-sensitive apps priority, other types of traffic need
to be held back (throttled).
The ability to prioritize and throttle network traffic is referred to as traffic shaping and
forms the core of the hotly debated Net neutrality issue, which is discussed in IT at Work 4.1.
Net neutrality is a principle that Internet service providers (ISPs) and their regulators
treat all Internet traffic the same way. It’s essentially equal opportunity for Internet speeds and
access to website—no unfair fast or slow lanes and no blocking of anything that’s legal on your
phone, computer, or table.
IT at Work 4.1
Net Neutrality Debate Intensifies
In 2016, the battle over the complicated issue of net neutrality
heated up due to AT&T’s purchase of Time-Warner. However, with
AT&T’s takeover of Time-Warner, which owns HBO and DC Comics,
it is almost certain that AT&T will give priority to customers who
try to access its newfound property (Pachal, 2016). On the opposing
side of that issue is traffic shaping. Traffic shaping creates a two-tier
system for specific purposes such as:
1. Time-sensitive data are given priority over traffic that can be
delayed briefly with little-to-no adverse effect. Companies like
Comcast and AT&T argue that Net neutrality rules hurt con-
sumers. Certain applications are more sensitive to delays than
others, such as streaming video and Internet phone services.
Managing data transfer makes it possible to assure a certain
level of performance or QoS.
2. In a corporate environment, business-related traffic may be
given priority over other traffic, in effect, by paying a premium
price for that service. Proponents of traffic shaping argue that
ISPs should be able to charge more to customers who want to
pay a premium for priority service.
Specifically, traffic is shaped by delaying the flow of less important
network traffic, such as bulk data transfers, P2P file-sharing pro-
grams, and BitTorrent traffic.
Traffic shaping is hotly debated by those in favor of Net neu-
trality. They want a one-tier system in which all Internet data
packets are treated the same, regardless of their content, destina-
tion, or source. In contrast, those who favor the two-tiered system
argue that there have always been different levels of Internet ser-
vice and that a two-tiered system would enable more freedom of
choice and promote Internet-based commerce.
Federal Communications Commission’s 2010 Decision
On December 21, 2010, the Federal Communications Commission
(FCC) approved a compromise that created two classes of Inter-
net access: one for fixed-line providers and the other for the
wireless Net. In effect, the new rules are Net semi-neutrality.
The FCC banned any outright blocking of and “unreasonable
discrimination” against websites or applications by fixed-line
broadband providers. But the rules do not explicitly forbid “paid
prioritization,” which would allow a company to pay an ISP for
faster data transmission. Net neutrality supporters include major
internet companies who provide the content you read and watch
online, including AOL, Facebook, Netflix, Twitter, and Vimeo who
don’t want to be discriminated against by network owners. Those
against it include AT&T, Comcast Time Warner Cable, Verizon, and
other internet service providers who own the networks and fear
price controls.
Net Neutrality Overturned in 2014
In January 2014, an appeals court struck down the FCC’s 2010
decision. The court allowed ISPs to create a two-tiered Internet, but
promised close supervision to avoid anticompetitive practices, and
banned “unreasonable” discrimination against providers.
On April 24, 2014 FCC Chairman Tom Wheeler reported that
his agency would propose new rules to comply with the court’s
decision. These new rules were approved by the FCC in 2015.
Wheeler stated that these rules “would establish that behavior
harmful to consumers or competition by limiting the openness of
the Internet will not be permitted” (Wheeler, 2014). But Wheeler’s
proposal would allow network owners to charge extra fees to
content providers. This decision has angered consumer advocates
and Net neutrality advocates who view Wheeler with suspicion
because of his past work as a lobbyist for the cable industry and
wireless phone companies.
Rolling Back Net Neutrality Protections in 2017
The process to overhaul how the Internet is regulated is now offi-
cially underway. On May 18, 2017 the FCC voted 2-1 to move forward
with a proposal to roll back net neutrality protections. The contro-
versial vote is the first step in a lengthy process to overturn the rules
put into place during the Obama administration. Longtime net neu-
trality advocates predict there will be negative consequences for
businesses and consumers if net neutrality is overturned. Michael
Cheah, general counsel at Vimeo, summed it up by saying that net
neutrality is about “allowing consumers to pick the winners and
losers and not [having] the cable companies make those decisions
for them” (Fiegerman, 2017).
IT at Work Questions
1. What is Net neutrality?
2. What tiers are created by traffic shaping?
3. Why did the battle over Net neutrality intensify in 2014?
4. Did the FCC’s 2015 net neutrality rules favor either side of the
debate? Explain.
5. What consequences may occur when the 2015 net neutrality
rules are overturned?
Sources: Compiled from Federal Communications Commission (fcc.gov, 2017),
Fiegerman (2017), Pachal (2016), Wheeler (2014), and various blog posts.
Internet Protocols (IP), APIs, and Network Capabilities 109
Questions
1. Name the different types of networks.
2. What is meant by “bandwidth”?
3. What is the difference between an intranet and an extranet?
4. How does a virtual private network (VPN) provide security?
5. What is the purpose of a modem?
6. Describe the basic functions of business networks.
7. How do investments in network infrastructure impact an organization?
8. Name the two tiers of traffic to which quality of service is applied.
4.2 Internet Protocols (IP), APIs,
and Network Capabilities
The basic technology that makes global communication possible is a network protocol com-
monly known as an Internet Protocol (IP). Each device attached to a network has a unique
IP address that enables it to send and receive files. Files are broken down into blocks known
as packets in order to be transmitted over a network to their destination’s IP address. Ini-
tially, networks used IP Version 4 (IPv4). In April 2014 ARIN, the group that oversees Internet
addresses, reported that IPv4 addresses were running out—making it urgent that enterprises
move to the newer IP Version 6 (IPv6) (Figure 4.6).
The IPv6 Internet protocol has features that are not present in IPv4. For example, IPv6
simplifies aspects of how addresses are assigned, how networks are renumbered and places
responsibility for packet fragmentation when packets are processed in routers. The IPv6 pro-
tocol does not offer direct interoperability with IPv4, instead it creates a parallel, independent
network. Fortunately, several transition mechanisms, such as NAT64 and 6rd, have been devel-
oped to allow IPv6 hosts to communicate with IPv4 servers.
Network protocols serve the following three basic functions:
1. Send data to the correct recipient(s).
2. Physically transmit data from source to destination, with security protected as needed.
3. Receive messages and send responses to the correct recipient(s).
The capacity and capabilities of data networks provide opportunities for more automated
operations and new business strategies. M2M communications over wireless and wired
Internet Protocol (IP) is the
method by which data are sent
from one device to another over
a network.
IP address is a unique
identifier for each device that
communicates with a network
that identifies and locates
each device. An IP address is
comparable to a telephone
number or home address.
Packet is a piece of a message
that is collected and re-assembled
with the other pieces of the same
message at their destination.
To improve communication
performance and reliability, each
larger message sent between
two network devices is often
subdivided into packets.
IP Version 4 (IPv4) has been
Internet protocol for over three
decades, but has reached the
limits of its 32-bit address design.
It is difficult to configure, it is
running out of addressing space,
and it provides no features for site
renumbering to allow for an easy
change of Internet Service Provider
(ISP), among other limitations.
IP Version 6 (IPv6) is the most
recent version of the Internet
Protocol. IPv6 is replacing IPv4
because of IPv4’s limitations in
number of IP addresses it can
generate. IPv6 has a 128-bit address
and allows 7.9 × 1028 times as many
addresses as IPv4, which provides
about 4.3 billion addresses.
IPv4
IPv6
32 bit address
0000.0000.0000.0000
128 bit address
0000.0000.0000.0000.0000.0000.0000.0000
FIGURE 4.6 IPv4 addresses have 4 groups of four alphanumeric
characters, which allow for 232 or roughly 4.3 billion unique IP
addresses. IPv6 addresses have 8 groups of alphanumeric characters,
which allows for 2128, or 340 trillion, trillion, trillion addresses. IPv6
also offers enhanced quality of service that is needed by the latest
in video, interactive games, and e-commerce.
110 C H A P T E R 4 Networks, Collaborative Technology, and the Internet of Things
networks automate operations, for instance, by triggering action such as sending a message
or closing a valve. The speed at which data can be sent depends on several factors, including
capacity, server usage, computer usage, noise, and the amount of network traffic. Transfer rate
or speed is an instantaneous measurement.
Comparing 3G, 4G, 4G LTE, and 5G Network Standards
Over the past 20 years, networks have evolved from 3G networks designed for voice and
data to 4G and 5G networks that support broadband Internet connectivity. In its 2016 report,
SNS Research, a major market analysis and consulting firm, announced its forecast of 5G
network contribution to the world economy. Experts predict that by 2020, “LTE and 5G infra-
structure investments are expected to account for a market worth $32 billion” (PRNews-
wire, 2016).
3G networks support multimedia and broadband services over a wider distance
and at faster speeds than prior generation networks. 3G networks have far greater ranges
than 1G and 2G networks since they use large satellite connections to telecommunica-
tion towers.
4G networks are digital, or IP, networks that enable even faster data transfer rates. 4G
delivers average realistic download rates of 3 Mbps or higher (as opposed to theoretical rates,
which are much higher). In contrast, today’s 3G networks typically deliver average download
speeds about one-tenth of that rate.
5G networks—the coming generation of broadband technology. 5G builds on the
foundation created by 4G. 5G will dramatically increase the speed at which data is transferred
across the network.
Unlike its predecessors, 2G and 3G that have a circuit-switched subsystem, 4G is based
purely on the packet-based IP. Users can obtain 4G wireless connectivity through one of the
following standards:
1. WiMAX is a technology standard for long-range wireless networks. WiMax is based on the
IEEE 802.16 standard. IEEE 802.16 specifications are as follows:
• Range: 30 miles (50 km) from base station.
• Speed: 70 megabits per second (Mbps).
• Line-of-sight not needed between user and base station.
WiMAX operates on the same basic principles as Wi-Fi in that it transmits data from one
device to another via radio signals.
2. Long-Term Evolution (LTE) is a GSM-based technology that provides the fastest and most
consistent download speeds and most closely follows the United Nation technical stand-
ard for 4G networks. In the United States, LTE is deployed by Verizon, AT&T, and T-Mobile.
LTE capabilities include the following:
• Speed: Downlink data rates of 100 Mbps and uplink data rates of 50 Mbps.
Improved network performance, which is measured by its data transfer capacity, pro-
vides fantastic opportunities for mobility, mobile commerce, collaboration, supply chain
management, remote work, and other productivity gains.
5G mobile networks will offer huge gains in both speed and capacity over existing 4G net-
works—along with opportunities at the operations and strategic levels. In the short term, the
5G infrastructure build-out will create new jobs. In the longer term, 5G will create entirely new
markets and economic opportunities driven by superior mobile capabilities in industries rang-
ing from health care to automotive.
5G networks are designed to support the escalation in mobile data consumption, with
users demanding higher data speeds and traffic volumes expected to increase by hundreds or
even thousands of times over the next 10 years. It is likely that 5G networks will have to deliver
baseline data speeds of 100 Mbit/s and peak speeds of up to 10 Gbit/s. 5G will make it easier to
Internet Protocols (IP), APIs, and Network Capabilities 111
send texts, make calls, and download and upload Ultra HD and 3D videos. 5G operates with a
5-Ghz signal and is set to offer speeds of up to 1 gigabyte per second for tens of thousands of
connections or tens of megabytes per second for tens of thousands of connections.
The move to 5G is being driven by the significant increase in the number of devices to
be supported. Mobile networks will no longer be concerned primarily with person-to-person
communications, as the Internet of Things (IoT) creates billions of new devices for remote
sensing, telemetry, and control applications which will lead to huge numbers of machine-to-
machine and person-to-machine interactions. Although 5G isn’t expected until 2020, many
organizations are already investing in the infrastructure required to run this new mobile
wireless standard.
Circuit versus Packet Switching
All generations of networks are based on switching. Prior to 4G, networks included
circuit switching, which is slower than packet switching. 4G was first to be fully packet
switched, which significantly improved performance. The two basic types of switching are
as follows:
Circuit switching A circuit is a dedicated connection between a source and destination.
In the past, when a call was placed between two landline phones, a circuit or connection
was created that remained until one party hung up. Circuit switching is older technology
that originated with telephone calls; it is inefficient for digital transmission.
Packet switching Packet switching transfers data or voice in packets. Files are broken
into packets, numbered sequentially, and routed individually to their destination. When
received at the destination, the packets are reassembled into their proper sequence.
Wireless networks use packet switching and wireless routers whose antennae transmit
and receive packets. At some point, wireless routers are connected by cables to wired net-
works. The first real network to run on packet-switching technology was ARPAnet described in
Tech Note 4.1.
Tech Note 4.1
Origin of the Internet, E-mail, and TCP/IP
The Advanced Research Projects Agency network (ARPAnet) was
the first real network to run on packet-switching technology. In
October 1969, computers at Stanford University, UCLA, and two
other U.S universities connected for the first time—making them
the first hosts on what would become the Internet. ARPAnet was
designed for research, education, and government agencies.
ARPAnet provided a communications network linking the country
in the event that a military attack or nuclear war destroyed conven-
tional communications systems.
In 1971 e-mail was developed by Ray Tomlinson, who used
the @ symbol to separate the username from the network’s name,
which became the domain name.
On January 1, 1983, ARPAnet computers switched over to
the transmission control protocol/Internet protocols (TCP/IPs)
developed by Vinton Cerf. A few hundred computers were affected
by the switch. The original ARPAnet protocol had been limited to
1,000 hosts, but the adoption of the TCP/IP standard made larger
numbers of hosts possible. The number of Internet hosts in the
domain name system (DNS) topped 1.05 billion in 2016, almost
double the number reported in 2010.
Application Program Interfaces and Operating Systems
When software developers create applications, they must write and compile the code for a spe-
cific operating system (OS). Figure 4.7 lists the common OSs. Each OS communicates with
hardware in its own unique way; each OS has a specific API that programmers must use. Video
game consoles and other hardware devices also have application program interfaces (APIs)
that run software programs.
Application program interface
(API) An interface is the
boundary where two separate
systems meet. An API provides a
standard way for different things,
such as software, content, or
websites, to talk to each other in
a way that they both understand
without extensive programming.
112 C H A P T E R 4 Networks, Collaborative Technology, and the Internet of Things
What Is an API? An API consists of a set of functions, commands, and protocols used
by programmers to build software for an OS. The API allows programmers to use predefined
functions or reusable codes to interact with an OS without having to write a software program
from scratch. APIs simplify the programmer’s job.
APIs are the common method for accessing information, websites, and databases.
They were created as gateways to popular apps such as Twitter, Facebook, and Amazon and
enterprise apps provided by SAP, Oracle, NetSuite, and many other vendors.
Automated API The current trend is toward automatically created APIs that are making
innovative IT developments possible. Here are two examples of the benefits of automated
APIs:
• Websites such as the European Union Patent office have mappings of every one of their
pages to both URLs for browser access and URLs for REST APIs. Whenever a new page is
published, both access methods are supported.
• McDonald’s, along with Unilever and Gatorade, are using automated API’s to bring adver-
tisements to Snapchat users. The social network app is using an auction-based system and
targeting to choose which users see which advertisements (Joseph, 2016).
API Value Chain in Business APIs deliver more than half of all the traffic to major
companies like Twitter and eBay. APIs are used to access business assets, such as cus-
tomer information or a product or service, as shown in Figure 4.8. IT developers use APIs
to quickly and easily connect diverse data and services to each other. APIs from Google,
Twitter, Amazon, Facebook, Accuweather, Sears, and E*Trade are used to create many
thousands of applications. For example, Google Maps API is a collection of APIs used by
developers to create customized Google Maps that can be accessed on a Web browser or
mobile devices. Tech Note 4.2 describes a new API that Amazon developed for its Internet
assistant, Alexa.
API Developers
Provides quick,
easy access to
business assets.
Applications
created using
APIs
Use APIs to
create new
business.
Business Assets
Data
information
products
services
Customers, employees,
and end-users use the
business apps that give
them access to assets.
FIGURE 4.8 API value chain in business.
Android
iOS
Windows Phone
Common Mobile OS
Windows
Mac OS X
Linux
Common Desktop OS
FIGURE 4.7 Common mobile and desktop operating systems.
Each computer OS provides an API for programmers. Mobile OSs are
designed around touchscreen input.
Mobile Networks and Near-Field Communication 113
Questions
1. Why has IPv6 become increasingly important?
2. What is the difference between IPv4 and Ipv6?
3. What is the purpose of an IP address?
4. What are the benefits of using an API?
5. What is the difference between 4G and 5G?
6. What is the most current network standard?
7. What benefits will the upcoming 5G network standard offer businesses?
8. What is the difference between circuit switching and packet switching?
Tech Note 4.2
Amazon Develops New API for Alexa
Online retail giant Amazon announced in 2016 its new and improved
API for its voice-automated speaker Alexa, along with other devel-
oped applications. The new API allows software developers to
increase the efficiency of Alexa’s list feature, which allows users to
add items to their lists within Alexa. For example, a user can ask
Alexa to “add buy soccer cleats” to their to-do lists (Zeman, 2016).
This application extends to shopping lists, buy lists, and even
music playlists.
The new API called the List Skills API means that developers
will have a standardized voice interaction model instead of having
to create one of their own. In other words, applications like Alexa
will all have standardized instructions that users can take advan-
tage of universally. Similarly, Apple developed Siri for iPhones,
Apple compuers, and iPads. List Skills API gives customers the
ability to add anything to their lists or give commands across any
device or application that uses it.
The API value chain takes many forms because the organiza-
tion that owns the business asset may or may not be the same as
the organization that builds the APIs. Different people or organiza-
tions may build, distribute, and market the applications. At the end
of the chain are end-users who benefit from the business asset.
Often, many APIs are used to create a new user experience. The
business benefits of APIs are listed in Table 4.3.
TA B L E 4 . 3 Business Benefits of APIs
Characteristic Benefit
APIs are channels to new
customers and markets
APIs enable partners to use
business assets to extend the
reach of a company’s products
or services to customers and
markets they might not
APIs promote innovation Through an API, people who
are committed to a challenge or
problem can solve it themselves
APIs are a better way to
organize IT
APIs promote innovation by
allowing everyone in a company
to use each other’s assets
without delay
APIs create a path to
lots of Apps
Apps are going to be a crucial
channel in the next 10 years.
Apps are powered by APIs.
Developers use APIs and
combinations of APIs to create
new user experiences
4.3 Mobile Networks and Near-Field
Communication
In the 21st-century global economy, advanced wireless networks are a foundation on which
global economic activity takes place. Current 4G and 5G networks and technologies provide
that foundation for moving entire economies. For any nation to stay competitive and prosper-
ous, it is imperative that investment and upgrades in these technologies continue to advance
to satisfy demand. Cisco forecasts that the average global mobile connection speed will more
114 C H A P T E R 4 Networks, Collaborative Technology, and the Internet of Things
than double from the current 1.4 to 3 Mbps and 5G networks are promising speeds that will
be 100 times faster than current speeds. The factors that are driving global mobile traffic are
shown in Figure 4.9.
More Mobile
Connections
• Over 11.6
billion
Faster Mobile
Speeds
• 3Megabits
per second
(Mbs)
More Mobile
Users
• Appx. 6.1
billion
More Mobile
Video
• 75% of
mobile traffic
FIGURE 4.9 Four drivers of global mobile traffic through 2020.
Busy-hour Internet
Traffic
Increase by factor of 4.6
Average traffic will only increase by factor of 2
29% of network traffic
30% of network traffic
67% of total network traffic
Three times the entire global population
Increase 100%
Equivalent to 95 times the volume of the entire global
Internet in 2005
It will take an individual 5 million years to watch the amount of
video that will cross global IP networks EACH month!
PCs
Smartphones
Wireless & Mobile
Global Internet
Traffic
Devices connected to
IP networks
Broadband Speeds
Video
FIGURE 4.10 Mobile Data Traffic Milestone by 2020.
Increase in Mobile Network Traffic and Users
In its most recent Visual Networking Index Forecast (VNI), Cisco reported that mobile data
traffic has grown 400 million times over the past 15 years. They also predict that by 2020
monthly global mobile data traffic will be 30.6 Exabytes; number of mobile-connected
devices will exceed 11.6 billion (exceeding the world’s projected population of 7.8 billion)
and smartphones will account for 81% of total mobile traffic. This includes a major
increase in machine-to-machine communications and the number of wearable technol-
ogy devices.
Smartphone users are expected to rise from the 2.6 billion reported in 2014 to 6.1 billion
in 2020 and 80% of these new smartphone users will be located in Asia Pacific, the Middle East,
and Africa. Much of that traffic will be driven by billions of devices talking to other devices wire-
lessly and consumers’ growing demand for more and more videos.
According to the Cisco Visual Networking Index (VNI): Forecast and Methodology 2015–2020.
(Cisco 2016), annual global IP traffic will reach 2.3 Zettabytes or 194 Exabytes per month and
smartphone traffic will exceed PC traffic by 2020. Figure 4.10 lists the milestones that mobile
data traffic will reach by 2020.
Exabyte is one quintillion bytes
(1,000,000,000,000,000,000 Bytes)
which is the equivalent of 1,000
petabytes of data or 7 trillion
online video clips. Five Exabytes is
equal to all words ever spoken by
human beings.
Zettabyte is one sextillion bytes
(1,000,000,000,000,000,000,000
Bytes) which is approximately
equal to 1,000 Exabytes.
Mobile Networks and Near-Field Communication 115
Higher Demand for High-Capacity Mobile Networks
This increase in mobile networks capacity and use is increasing the demand for high-capacity
mobile networks. The four drivers of the increase in global mobile traffic demand are shown in
Figure 4.10. Demand for high-capacity networks is growing at unprecedented rates. Examples
of high-capacity networks are wireless mobile, satellite, wireless sensor, and VoIP (voice over
Internet Protocol) such as Skype. Voice over IP (VoIP) networks carry voice calls by converting
voice (analog signals) to digital signals that are sent as packets. With VoIP, voice and data trans-
missions travel in packets over telephone wires. VoIP has grown to become one of the most
used and least costly ways to communicate. Improved productivity, flexibility, and advanced
features make VoIP an appealing technology.
Mobile Infrastructure
Enterprises are moving away from the ad hoc adoption of mobile devices and network infra-
structure to a more strategic planning build-out of their mobile capabilities. As technologies
that make up the mobile infrastructure evolve, identifying strategic technologies and avoid-
ing wasted investments require more extensive planning and forecasting. Factors to consider
are the network demands of multitasking mobile devices, more robust mobile OSs, and their
applications. Mobile infrastructure consists of the integration of technology, software, support,
standards, security measures, and devices for the management and delivery of wireless com-
munications, including the following.
Wi-Fi and Bluetooth Bluetooth is a short-range—up to 100 meters or 328 feet—wireless
communications technology found in billions of devices, such as smartphones, computers,
medical devices, and home entertainment products. When two Bluetooth-enabled devices
connect to each other, this is called pairing.
Wi-Fi is the standard way computers connect to wireless networks. Nearly all computers
have built-in Wi-Fi chips that allow users to find and connect to wireless routers. The router
must be connected to the Internet in order to provide Internet access to connected devices.
Wi-Fi technology allows devices to share a network or Internet connection without the
need to connect to a commercial network. Wi-Fi networks beam packets over short distances
using part of the radio spectrum, or they can extend over larger areas, such as municipal Wi-Fi
networks. However, municipal networks are not common because of their huge costs. See
Figure 4.11 for an overview of how Wi-Fi works.
Wi-Fi Networking Standards
• 802.11ac This is the newest generation of Wi-Fi signaling in popular use. 802.11ac uti-
lizes dual-band wireless technology and support simultaneous connections on both the
2.4 and 5 GHz Wi-Fi bands. 802.11ac offers backward compatibility to 802.11b/g/n and
bandwidth rated up to 130 Mbps on 5 GHz, plus up to 450 Mbps on 2.4 GHz.
• 802.11b This standard shares spectrum with 2.4-GHz cordless phones, microwave
ovens, and many Bluetooth products. Data are transferred at distances up to 100 meters
or 328 feet.
• 802.11a This standard runs on 12 channels in the 5-GHz spectrum in North America,
which reduces interference issues. Data are transferred about 5 times faster than 802.11b,
improving the quality of streaming media. It has extra bandwidth for large files. Since the
802.11a and b standards are not interoperable, data sent from an 802.11b network cannot
be accessed by 802.11a networks.
• 802.11g This standard runs on three channels in the 2.4-GHz spectrum, but at the speed
of 802.11a. It is compatible with the 802.11b standard.
• 802.11n This standard improves upon prior 802.11 standards by adding multiple-input
multiple-output (MIMO) and newer features. Frequency ranges from 2.4 to 5 GHz with a
data rate of about 22 Mbps, but perhaps as high as 100 Mbps.
Bluetooth is a short-range
wireless communications
technology.
Wi-Fi is the standard
way computers connect to
wireless networks.
116 C H A P T E R 4 Networks, Collaborative Technology, and the Internet of Things
Two Components of Wireless Infrastructure
There are three general types of mobile networks: wide area networks (WANs), WiMAX, and
local area networks (LANs). WANs for mobile computing are known as wireless wide area
networks (WWANs). The range of a WWAN depends on the transmission media and the wire-
less generation, which determines which services are available. The two components of wire-
less infrastructures are wireless LANs and WiMAX.
WLANs Wireless LANs use high-frequency radio waves to communicate between com-
puters, devices, or other nodes on the network. A wireless LAN typically extends an existing
wired LAN by attaching a wireless AP to a wired network.
WiMAX Wireless broadband WiMAX transmits voice, data, and video over high-frequency
radio signals to businesses, homes, and mobile devices. It was designed to bypass traditional
telephone lines and is an alternative to cable and DSL. WiMAX is based on the IEEE 802.16 set of
standards and the metropolitan area network (MAN) access standard. Its range is 20–30 miles
and it does not require a clear line of sight to function. Figure 4.12 shows the components of a
WiMAX/Wi-Fi network.
Wireless Network
Access Point
Cable/DSL
Modem
Antenna
Radio
Waves
Directional Antenna
and PC Card
Laptop(s) or Desktop(s)
1
2
3
Radio-equipped access point connected to the Internet
(or via a router). It generates and receives radio waves
(up to 400 feet).
Several client devices, equipped with PC cards, generate
and receive radio waves.
Router is connected to the Internet via a cable or
DSL modem, or is connected via a satellite.
Wireless Network
PC Card
2
1 3
Satellite
Internet
PC
Router
FIGURE 4.11 Overview of Wi-Fi.
Mobile Networks and Near-Field Communication 117
Mashup of GPS and Bluetooth The mashup of GPS positioning and short-range
wireless technologies, such as Bluetooth and Wi-Fi, can provide unprecedented intelligence.
These technologies create opportunities for companies to develop solutions that make a
consumer’s life better. They could, for example, revolutionize traffic and road safety. Intelligent
transport systems being developed by car manufacturers allow cars to communicate with
each other and send alerts about sudden braking and will even allow for remote driving in the
future. In the event of a collision, the car’s system could automatically call emergency services.
The technology can also apply the brakes automatically if it was determined that two cars
were getting too close to each other or alert the driver to a car that is in their blind spot in the
next lane.
Advancements in networks, devices, and RFID sensor networks are changing enterprise
information infrastructures and business environments dramatically. The preceding exam-
ples and network standards illustrate the declining need for a physical computer, as other
devices provide access to data, people, or services at anytime, anywhere in the world, on
high-capacity networks.
Business Use of Near-Field Communication
If you’ve used AirDrop on your smartphone you’ve engaged in near-field communication.
NFC is a location-aware technology that is more secure than other wireless technolo-
gies like Bluetooth and Wi-Fi. And, unlike RFID, NFC is a two-way communication tool.
An NFC tag contains small microchips with tiny aerials which can store a small amount of
information for transfer to another near-field communication (NFC) device, such as a
mobile phone.
Location-aware NFC technology can be used to transfer photos and files, make pur-
chases in restaurants, resorts, hotels, theme parks and theaters, at gas stations, and
on buses and trains. Here are some examples of NFC applications and their potential
business value.
• The Apple iWatch wearable device with NFC communication capabilities could be ideal
for mobile payments. Instead of a wallet, users utilize their iWatch as a credit card
or wave their wrists to pay for their Starbucks coffee. With GPS and location-based
e-commerce services, retailers could send a coupon alert to the iWatch when a user
Mashup is a general term
referring to the integration of two
or more technologies.
Near-field communication
(NFC) enables two devices
within close proximity to establish
a communication channel and
transfer data through radio waves.
Notebook with
built-in
WiMAX adapter
Wi-Fi
Hotspots
Base Station
WiMAX
Hub
InternetWiMAX
Network
FIGURE 4.12 WiMAX/Wi-Fi network.
118 C H A P T E R 4 Networks, Collaborative Technology, and the Internet of Things
passes their store. Consumers would then see the coupon and pay for the product with
the iWatch.
• The self-healthcare industry is being radically transformed by the growing use of NFC tech-
nology. Wearable devices such as Fit-Bits, smart glucose monitors, and electrical nerve
stimulators are becoming increasingly cheap and popular due to the proliferation of NFC
tech. These devices can not only monitor, but they also can provide “automated or remote
treatment” to users (Patrick, 2016). Remote control with health-care devices allow for
smarter preventive care without the need for doctor or hospital visits and can increase the
well-being of those living with chronic illnesses.
• Passengers on public transportation systems can pay fares by waving an NFC smartphone
as they board.
Another interesting near-field application is described in IT at Work 4.2 when technology
was used as an incentive in a marketing campaign by Warner Music.
IT at Work 4.2
NFC-Embedded Guitar Picks
Fans attending gigs by The Wild Feathers were given guitar picks
embedded with an NFC tag. Warner Music had distributed the
guitar picks for fans to enter a competition, share content via social
media, and vote at the gig simply by tapping with an NFC phone.
NFC-embedded picks were inserted into the band’s promotional
flyers at six European venues. Each pick was encoded with a unique
URL and also printed with a unique code for iPhone users to enable
tracking and monitoring.
Marketing Campaign Success Shows an Exciting
Future for NFC
The tags generated a high response rate. Over 65% of the NFC guitar
picks had registered in the competition. And 35% of the fans had
shared content on social media—spending an average of five min-
utes on the site.
NFC is being used in marketing campaigns because the
technology offers slick one-tap interaction. NFC allows brands to
engage with their customers in unique ways and create exciting
user experiences. With millions of NFC-equipped smartphones set
to reach users over the next few years and the technology’s advan-
tages for shoppers and businesses, NFC is emerging as a major
technology.
IT at Work Questions
1. Assume you attended a concert and were given a brochure
similar to the one distributed to fans at The Wild Feathers
concert. Would you use the guitar pick or comparable
NFC-embedded item to participate in a contest? To post
on Facebook or tweet about the concert? Explain why
or why not.
2. How can NFC be applied to create an interesting user
experience at a sporting event? At a retail store or coffee
shop?
3. Refer to your answers in Question 2. What valuable informa-
tion could be collected by the NFC tag in these businesses?
Bluetooth and Wi-Fi seem similar to near-field communication on the surface. All three
allow wireless communication and data exchange between digital devices like smartphones.
The difference is that near-field communication utilizes electromagnetic radio fields while
technologies such as Bluetooth and Wi-Fi focus on radio transmissions instead.
Choosing Mobile Network Solutions
When you are choosing a mobile network solution, it’s important to carefully consider the four
factors shown in Figure 4.13.
1. Simple Easy to deploy, manage, and use.
2. Connected Always makes the best connection possible.
3. Intelligent Works behind the scenes, easily integrating with other systems.
4. Trusted Enables secure and reliable communications.
Collaborative Technologies and the Internet of Things 119
Questions
1. What are the factors contribute to mobility?
2. Why is mobile global traffic increasing?
3. What accounts for the increased in mobile traffic?
4. Give some examples of VoIP networks.
5. How is NFC different from RFID?
6. What are the two components of a wireless network infrastructure?
7. What is near-field communication and how is it used in business?
8. What factors should be considered when evaluating mobile networks?
SIMPLE
• Easy to deploy, manage, and use
CONNECTED
• Always makes the best connection possible
INTELLIGENT
• Works behind the scenes
• Easily integrated with other systems
TRUSTED
• Enables secure and reliable communications
FIGURE 4.13 Four important factors to consider when choosing a mobile
network solution.
4.4 Collaborative Technologies and the
Internet of Things
Now more than ever, business gets done through information sharing and collaborative plan-
ning. Business performance depends on broadband data networks for communication, mobil-
ity, and collaboration. For example, after Ford Motor Company began relying on UPS Logistics
Group’s data networks to track millions of cars and trucks and to analyze any potential prob-
lems before they occur, Ford realized a $1 billion reduction in vehicle inventory and $125 mil-
lion reduction in inventory carrying costs annually.
More and more people need to work together and share documents over time and dis-
tance. Teams make most of the complex decisions in organizations and many teams are geo-
graphically dispersed. This makes it difficult for organizational decision-making when team
members are geographically spread out and working in different time zones.
Messaging and collaboration tools include older communications media such as e-mail,
videoconferencing, fax, and texts—and blogs, Skype, Web meetings, and social media. Yam-
mer is an enterprise social network that helps employees collaborate across departments,
locations, and business apps. These private social sites are used by more than 400,000 enter-
prises worldwide. Yammer functions as a communication and problem-solving tool and is rap-
idly replacing e-mail. You will read about Yammer in detail in Chapter 7.
120 C H A P T E R 4 Networks, Collaborative Technology, and the Internet of Things
Virtual Collaboration
Leading businesses are moving quickly to realize the benefits of virtual collaboration. Several
examples appear below.
Information Sharing Between Retailers and Their Suppliers One of the
most publicized examples of information sharing exists between Procter & Gamble (P&G) and
Walmart. Walmart provides P&G with access to sales information on every item Walmart buys
from P&G. The information is collected by P&G on a daily basis from every Walmart store, and
P&G uses that information to manage the inventory replenishment for Walmart.
Retailer–Supplier Collaboration: Asda Corporation Supermarket chain Asda
has rolled out Web-based electronic data interchange (EDI) technology to 650 suppliers. Web
EDI technology is based on the AS2 standard, an internationally accepted HTTP-based pro-
tocol used to send real-time data in multiple formats securely over the Internet. It promises
to improve the efficiency and speed of traditional EDI communications, which route data over
third-party, value-added networks (VANs).
Lower Transportation and Inventory Costs and Reduced Stockouts:
Unilever Unilever’s 30 contract carriers deliver 250,000 truckloads of shipments annually.
Unilever’s Web-based database, the Transportation Business Center (TBC), provides these car-
riers with site specification requirements when they pick up a shipment at a manufacturing
or distribution center or when they deliver goods to retailers. TBC gives carriers all of the vital
information they need: contact names and phone numbers, operating hours, the number of
dock doors at a location, the height of the dock doors, how to make an appointment to deliver
or pick up shipments, pallet configuration, and other special requirements. All mission-critical
information that Unilever’s carriers need to make pickups, shipments, and deliveries is now
available electronically 24/7.
Reduction of Product Development Time Caterpillar, Inc. is a multinational
heavy-machinery manufacturer. In the traditional mode of operation, cycle time along the
supply chain was long because the process involved paper—document transfers among man-
agers, salespeople, and technical staff. To solve the problem, Caterpillar connected its engi-
neering and manufacturing divisions with its active suppliers, distributors, overseas factories,
and customers through an extranet-based global collaboration system. By means of the collab-
oration system, a request for a customized tractor component, for example, can be transmitted
from a customer to a Caterpillar dealer and on to designers and suppliers, all in a very short
time. Customers also can use the extranet to retrieve and modify detailed order information
while the vehicle is still on the assembly line.
Group Work and Decision Processes
Managers and staff continuously make decisions as they develop and manufacture products,
plan social media marketing strategies, make financial and IT investments, determine how
to meet compliance mandates, design software, and so on. By design or default, group pro-
cesses emerge, referred to as group dynamics, and those processes can be productive or dys-
functional.
Group Work and Dynamics Group work can be quite complex depending on the fol-
lowing factors:
• Group members may be located in different places or work at different times.
• Group members may work for the same or different organizations.
Collaborative Technologies and the Internet of Things 121
• Needed data, information, or knowledge may be located in many sources, several of which
are external to the organization.
Despite the long history and benefits of collaborative work, groups are not always
successful.
Online Brainstorming in the Cloud Brainstorming ideas is no longer limited to a
room full of people offering their ideas that are written on a whiteboard or posters. Companies
are choosing an alternative—online brainstorming applications, many of them cloud-based. An
advantage is the avoidance of travel expenses if members are geographically dispersed, which
often restricts how many sessions a company can afford to hold. The following are two exam-
ples of online brainstorming apps:
• Evernote is a cloud-based tool that helps users gather and share information, and brain-
storm ideas. One function is Synch, which keeps Evernote notes up-to-date across a user’s
computers, phones, devices, and the Web. A free version of Evernote is available for down-
load from www.evernote.com.
• iMindmap Online, from UK-based ThinkBuzan, relies on mind mapping and other
well-known structured approaches to brainstorming. iMindmap Online helps streamline
work processes, minimize information overload, generate new ideas, and boost
innovation.
The Internet of Things (IoT)
The Internet of Things has the potential to impact how we live and how we work. The IoT is a
subset of the Internet which dictates that objects we interact with everyday send and receive
signals to and from each other to exchange data about almost everything. The IoT can best be
described as a collection technology in that it collects data from millions of data sensors
embedded in everything from cars to refrigerators to space capsules. This aggregation of data
points through smart meters, sensors, etc. contribute to the “Internet of Things” (IoT).
Analytics, big data, and sensor integrations are revolutionizing how we live and work. A
recent study conducted by IndustryWeek (2016), reported that more than half of U.S. manufac-
turers report they are currently using IoT technology to collect machine data, and a significant
but smaller percentage (44%) are collecting data from sensors embedded in their products.
Several things have created the “perfect storm” for the creation and growth of the IoT. These
include more widely available broadband Internet, lower cost of connecting, development of more
devices with Wi-Fi capabilities and embedded sensors, and the overwhelming popularity of the
smartphone. In layperson’s terms, the IoT is the concept of connecting any device that has an on/
off switch to the Internet or each other. This includes everything from everyday items such as cell-
phones, coffee makers, washing machines, lamps, and headphones to airplane jet engines or an
oil rig drill, smart traffic signals, smart parking, traffic congestion monitoring, air pollution sensors,
potable water monitoring, and river, dam, and reservoir water level monitors. In other words, if
it can be connected, it will be connected. Just think of the IoT as a giant network of connected
“things” with relationships between people-to-people, people-to-things, and things-to-things.
The primary driver for IoT is the broader adoption and deployment of sensors and smart
devices. Some industries have had IoT in place for quite some time, but for others it is an
entirely new concept. Lately, IoT has been gaining in popularity and use. The use of the smaller
sensors, as compared to the traditional IT infrastructure, enables companies to gain more com-
puting capacity and reduce power consumption for less cost. All in all, it’s a win-win situation.
IoT Sensors, Smart Meters, and the Smart Grid
It has been estimated that the number of network-connected sensors and devices could triple
to 21 billion by 2020 (IndustryWeek, 2016).
Internet of Things is the
network of physical objects
or “things” embedded with
electronics, software, sensors,
and network connectivity, that
enables these objects to collect
and exchange data.
122 C H A P T E R 4 Networks, Collaborative Technology, and the Internet of Things
Sensors The heart of IoT resides in the source of the data, that is, the sensors. Sensors
generate data about activities, events, and influencing factors that provide visibility into perfor-
mance and support decision processes across a variety of industries and consumer channels.
Smart Grid and Smart Cities With a combination of smart meters, wireless tech-
nology, sensors, and software, the smart grid allows utilities to accurately track power grids
and cut back on energy use when the availability of electricity is stressed. And consumers
gain insight into their power consumption to make more intelligent decisions about how to
use energy.
A fully deployed smart grid has the potential of saving between $39.69 and $101.57, and
up to 592 pounds of carbon dioxide emissions, per consumer per year in the United States,
according to the Smart Grid Consumer Collaborative (SGCC).
On a broader scale, the IoT can be applied to things like “smart cities” that can help reduce
waste and improve efficiency. IT at Work 4.3 describes how a town in Spain is using the IoT to
improve everyday life for its’ citizens, or is it?
IT at Work 4.3
Smart City or Police State?
In the small city of Santander on Spain’s Atlantic coast, Mayor
Iñigo de la Serna raised $12 million, mostly from the European
Commission, to launch SmartSantander. SmartSantander is a
smart city experiment that is improving the quality of life,
reducing energy consumption, and engaging its citizens in civic
duties.
20,000 Sensors Embedded
The city implemented wireless sensor networks and embedded
20,000 sensors in its streets and municipal vehicles to monitor gar-
bage collection, crime, and air quality and manage street lighting
for better energy efficiency. “The internet of Things unites all the
data coming from sensors, along with the data the city already has
and data provided by citizens,” says Joaquin Gonzalez, director of
Telefonica in Cantabria (Frangoul, 2016). Sensors communicate
with smartphone apps to inform drivers and commuters on parking
availability, bus delays, road closures, and the current pollen count
in real time. Parking apps direct drivers to available spaces via
cell phone alerts. Drivers benefit from a reduction in the time and
annoyance of finding parking spots. Anyone can feed his or her own
data into the system by, for example, snapping a smartphone photo
of a pothole or broken streetlight to notify the local government
that a problem needs to be fixed. Users can even point their smart-
phones at landmarks in the city to learn more about them and
events happening around the city.
Build-Out of Smart City Applications
This mobile technology can help cities contribute to a greener
planet. Municipal landscape sprinklers can send facts to city
agencies for analysis to conserve water usage. Sensors can monitor
weather and pollen counts as well as water and power leaks. City
officials also claim that the development has saved money through
automated and data driven applications such as dimming street
lights at optimal times, resulting in 25% savings on electricity bills
and 20% on garbage.
Police State
The data streams and mobile apps that keep citizens informed also
keep the government informed. What is the difference between a
smart city and a police state? Many see the new sensor saturation as
a sort of “Big Brother” experiment. Consider how data collected from
sensors mounted outside a bar to track noise levels might be used.
• Scenario #1: Instances of loud noises and squealing tires are
transmitted to local police. The city uses the information to
enforce public nuisance laws and make arrests.
• Scenario #2: People who live in the neighborhood show civic
leaders what is keeping them up at night and receive help in
resolving the problem.
• Scenario #3: Landlords could use data showing less noise and
cleaner air to promote their apartments or office buildings.
The Dark Side of Smart
The wireless networks and sensors need to be maintained. Thou-
sands of batteries embedded in roadways could have expensive
and disruptive maintenance requirements.
Parking space alerts might create other annoyances. If
everyone becomes aware of a parking spot up the street, the rush
of cars converging on a few open locations could lead to rage and
defeat the purpose of such an alert.
IT at Work Questions
1. What are the benefits of a smart city?
2. What are the potential abuses of data collected in this way?
3. Consider the dark side of smart. Are you skeptical of the ben-
efits of a smart city?
4. Would you want to live in a smart city? Explain.
5. How would you prevent Santander from becoming a police
state?
Sources: Compiled from Eggers (2016), Frangoul (2016), O’Connor (2013),
and Edwards (2014).
Collaborative Technologies and the Internet of Things 123
Security and Privacy in the IoT Network security and data privacy are manufac-
turers’ top concerns about IoT technology. With billions of devices connected together there are
a multitude of end-points where security breaches can occur and individuals or organizations
can be hacked.
Advantages and Disadvantages of IoT Organizations are struggling with the
advantages and disadvantages associated with the IoT and seeking to understand how it will
impact their business.
Wireless hospitals and remote patient monitoring, for example, are growing IoT trends.
Tracking medical equipment and hospital inventory, such as gurneys, is done with RFID tag-
ging at a number of hospitals. Remote monitoring apps are making health care easier and more
comfortable for patients while reaching patients in remote areas.
Organizations can expect to gain from using the IoT in a number of ways, for example,
expected benefits from using IoT include the following:
1. Monitoring performance, quality, and reliability of products and services
2. Gaining insight into potential new products and service
3. Support sales
4. Better understand product use
5. Remote troubleshooting of products
6. Deliver revenue-generating post-sales service
7. More efficiently deliver post-sales services
Similarly, there are concerns around using the IoT and the ability to collect and analyze the
massive amounts of data that it enables. Main disadvantages that organizations have about the
use of IoT include the following:
1. Network security
2. Data privacy
3. Data analysis capabilities
4. Data collection capabilities
5. Realistic efficiency opportunities
6. Realistic new revenue opportunities
7. Cost
Questions
1. Why has group work becoming more challenging?
2. What might limit the use of face-to-face brainstorming?
3. How can online brainstorming tools overcome those limits?
4. List ways in which virtual collaboration can be used in business.
5. What devices do you have that take advantage of the IoT? Describe how they impact the way that you
live and work.
6. What is driving the rise of the IoT?
7. What is the main concern that organizations have about the IoT?
8. Do you think the advantages outweigh the disadvantages of the IoT? Explain.
124 C H A P T E R 4 Networks, Collaborative Technology, and the Internet of Things
Key Terms
3G 110
4G 110
5G 110
application program interface (API) 111
Bluetooth 115
circuit switching 111
computer networks 104
Exabyte 114
extranet 105
fixed-line broadband 108
group dynamics 120
information and communications
technology (ICT) 102
Internet of Things 121
Internet Protocol (IP) 109
Intranet 105
IP address 109
IP Version 4 (IPv4) 109
IP Version 6 (IPv6) 109
latency-sensitive apps 107
local area network (LAN) 116
Long-Term Evolution (LTE) 110
mashup 117
near-field communication (NFC) 117
Net neutrality 108
Net semi-neutrality 108
packet 109
packet switching 111
protocol 109
quality of service (QoS) 107
router 106
sensors 122
smart grid 122
smart city 122
switch 106
traffic shaping 108
transmission control protocol/Internet
protocols (TCP/IPs) 111
virtual private networks (VPNs) 105
voice over IP (VoIP) 115
wide area network (WAN) 116
Wi-Fi 115
WiMAX 116
Zettabyte 114
Assuring Your Learning
Discuss: Critical Thinking Questions
1. Explain how network capacity is measured.
2. How are devices identified to a network?
3. Explain how digital signals are transmitted.
4. Explain the functions of switches and routers.
5. QoS technologies can be applied to create two tiers of traffic. What
are those tiers? Give an example of each type of traffic.
6. Typically, networks are configured so that downloading is faster
than uploading. Explain why.
7. What are the differences between 3G, 4G, and 5G networks?
8. What are two 4G wireless standards?
9. How is network performance measured?
10. Discuss two applications of near-field communication (NFC).
11. What are the benefits of APIs?
12. Describe the components of a mobile communication in-
frastructure.
13. What is the range of WiMAX? Why does it not need a clear
line of sight?
14. Why are VPNs used to secure extranets?
15. How can group dynamics improve group work? How can it disrupt
what groups might accomplish?
16. What are the benefits of using software to conduct brainstorming
in the cloud (remotely)?
Explore: Online and Interactive Exercises
1. Visit the Google apps website. Identify three types of collaboration
support and their value in the workplace.
2. Compare the various features of broadband wireless networks
(e.g., 3G, Wi-Fi, and WiMAX). Visit at least three broadband wireless
network vendors.
a. Prepare a list of capabilities for each network.
b. Prepare a list of actual applications that each network can
support.
c. Comment on the value of such applications to users. How can
the benefits be assessed?
Case 4.2 125
Case 4.2
Business Case: Google Maps API for Business
A restaurant owner has a website where customers can place orders for
delivery. When a customer inputs a delivery address, a software script
verifies whether the address is within the delivery range of the restau-
rant. If the address is not in the delivery range, the site does not let
the customer check out and sends a message informing the customer
that he or she is outside of the delivery range. The script requests infor-
mation from Google Maps via an API to calculate whether or not the
address was in the range. The free version, called Google Maps API,
allows up to 2,500 requests per day from a single IP address and is lim-
ited to noncommercial purposes.
The owner needs to purchase a Google Maps API for Business license
because any requests in excess of 2,500 will be ignored. The Google Maps
API for Business provides better resolution, scale, and enhanced features
and support to businesses that add maps to their websites, mobile apps,
or asset-tracking applications.
Directions and Routing Features
The Google Maps API delivers the full power of Google’s routing engine
to applications. Among other features, it:
• Generates routes between up to 23 locations for driving, walking,
or cycling.
• Generates routes to avoid toll roads or highways.
• Reduces travel time by calculating the optimal order to visit
each location.
• Calculates travel time and distance between locations, for
example, to offer users a way to filter search results by drive time.
Data Visualization
The Google Maps API lets managers visualize data using heat maps,
symbols, and custom styles. For U.S. maps, companies have access to
a demographics layer containing up-to-date census data provided by
Nielsen and five-year projections of many data fields. The demograph-
ics layer may only be used on intranets or internal websites.
Advanced Analytics
The Google Maps API for Business offers an analytics tool that shows
how visitors interact with the maps—for example, how many visitors
switched to satellite view, what they zoomed, and which map features
were used the most. Using this information, businesses can customize
the user experience based on their preferences and better engage with
customers.
Automobile Association
Google Maps is the most widely used online mapping service in
the world, with more than 800,000 sites using the Google Maps
API and over 250 million active users on mobile devices alone. In
the United Kingdom, the Automobile Association (AA) provides
roadside assistance and directions to motorists. AA invested in the
Google Maps API for Business to offer interactive route planning
and improve visitors’ experiences. The value AA derived from the
API was a 12% increase in the number of routes downloaded, hit-
ting an average of 4 million downloads per week of its routing or
trip-planning service. Approximately 20% of site visitors remained
on the site for at least five minutes—up from only 6% prior to imple-
mentation. The API also cuts the time and cost of IT support for the
mapping platform.
Questions
1. Describe Google Maps API.
2. Why do you think Google provides free noncommercial use of
its Maps API?
3. How many times have you used a website’s mapping feature for
directions or to calculate distance? How did having a familiar
interface improve your experience?
4. Google claims that its Maps API helps a company’s customers and
employees make better business and purchasing decisions by
visualizing important information on a familiar map. Explain how
data visualization provides these benefits. Give two examples in
your explanation.
Analyze & Decide: Apply IT Concepts to Business Decisions
1. Visit www.Youtube.com and search for tutorials on the latest ver-
sion of iMindMap. Watch a few of the tutorials. As an alternative, watch
the video at http://www.youtube.com/watch?v=UVt3Qu6Xcko&list
=PLA42C25431E4EA4FF. Describe the potential value of sharing maps
online and synching maps with other computers or devices. What is
your opinion of the ease or complexity of the iMindMap interface?
2. Visit the AT&T website and read the article “What you Need to
Know about IoT Wide Area Networks.” Write a short report discussing
the benefits of each type of network that can be used in an organiza-
tion’s IoT and make a choice for your “business.”
126 C H A P T E R 4 Networks, Collaborative Technology, and the Internet of Things
References
Cisco. “Sony Adopts Cisco Solution for Global IPv6 Project.” Cisco
Public Information, Customer Case Study. October 28, 2014.
Cisco. “Cisco Visual Networking Index: Forecast and Methodology,
2015–2020,” 2016.
Edwards, J. “The Connected Life.” Teradata Magazine, Q1, 2014.
Eggers, W. D. “8 Ways Digital is Transforming Governments around
the World.” The Huffington Post, July 18, 2016.
Fiegerman, S. “Trump’s FCC May Try to Roll Back Net Neutral-
ity. Here’s Why it Matters.” 2017. Accessed at: http://money.cnn.
com/2017/01/24/technology/fcc-net-neutrality/index.html
Frangoul, A. “Thousands of Sensors are Making This Famous City
Smarter.” CNBC, May 5, 2016.
IndustryWeek. “The Internet of Things: Finding the Path to Value.”
IndustryWeek. 2016.
Joseph, S. “McDonald’s, Unilever and Gatorade Among the First to
Run Snapchat API Campaigns.” TheDrum, October 6, 2016.
Neal, D. “Sony’s Playstation Network Is Down in the UK, Again.” The
Inquirer, October 26, 2016.
O’Connor, M. C. “Santander: Test Bed for Smart Cities and Open Data
Policies.” SmartPlanet.com, May 8, 2013.
Pachal, P. “How the AT&T-Time Warner Deal Threatens Net Neutral-
ity.” Mashable, October 23, 2016.
Patrick, M. “How Will the Internet of Medical Things Change Health-
care?” Electronic Design, October 20, 2016.
PRNewswire. “LTE and 5G Infrastructure Investments are Expected to
Account for a Market Worth $32 Billion by 2020—Research and Mar-
kets.” October 20, 2016.
Wheeler, T. “Setting the Record Straight on the FCC’s Open Internet
Rules.” FCC blog, April 24, 2014.
Zeman, E. “Amazon Opens Beta for Alexa List Skills API.” Programma-
bleWeb, October 13, 2016.
Case 4.3
Video Case: Small Island Telecom Company
Goes Global
Go online to research the Isle of Man, a small island in the Irish Sea
off the coast of Great Britain. Visit the Cisco website. Search for
the video “Island Telecom Competes on a Global Level.” Watch the
video to learn how this small telecom company was able to evolve
from a traditional local service provider to a global cloud services
innovator thanks to Cisco’s networking technology (video runs
2:09 minutes).
Questions
1. Describe the benefits that Island Telecom achieved through using
Cisco’s networking product.
2. What factors allowed Island Telecom to make the transition from
local to global?
127
CHAPTER 5
Cybersecurity and Risk
Management Technology
C H A P T E R O U T L I N E
Case 5.1 Opening Case: Yahoo wins the gold and
silver medal for the worst hacks in history!
5.1 The Face and Future of Cyberthreats
5.2 Cyberattack Targets and Consequences
5.3 Cyber Risk Management
5.4 Internal Audits and Controls
5.5 Frameworks, Standards, and Models
Case 5.2 Business Case: Lax Security at LinkedIn
Exposed
Case 5.3 Video Case: Botnets, Malware Security,
and Capturing Cybercriminals
L E A R N I N G O B J E C T I V E S
5.1 Describe the extent of incidents and data breaches in
organizations and the sources of cyberthreats that are putting
organizations in jeopardy.
5.2 Describe the targets of cyberattacks and the impact these
attacks have on both public and private sector organizations.
5.3 Explain why cyber risk management must be a top business
priority and outline an organizational model for cybersecurity.
5.4 Describe the internal audits and controls that are used
to defend against occupational fraud at all levels of an
organization.
5.5 Explain how risk management frameworks, standards, and
models help ensure compliance with industry and federal
regulations. Assess the risk associated with a network crash,
debilitating hacker attack, or other IT disruption.
a. Explain how compliance and security can diverge such
that being compliant is not necessarily equivalent to being
secure. (Home Depot, Target, and a myriad of others were
all PCI compliant.)
128 C H A P T E R 5 Cybersecurity and Risk Management Technology
Introduction
Today, most business leaders know they are responsible for cybersecurity and privacy threats,
wherever they occur. What most don’t understand is how to design, implement, and manage
threat-intelligent business strategies and risk management plans to prevent data breaches and
protect IT and business resources.
In the digital economy, organizational data is typically available on demand 24/7 to enable
companies to benefit from opportunities for productivity improvement and data sharing with
customers, suppliers, and business partners. The concept of data on demand is an operational
and competitive necessity for global companies, but unfortunately, it also opens them up to
cyberattacks.
New vulnerabilities are continuously being found in operating systems, applications, and
wired and wireless networks. Left unaddressed, vulnerabilities provide an open door for cyber-
attacks that can cause business disruptions and devastating financial consequences. Managers
no longer question whether their networks will be breached, but when it will happen, how
much damage will be done, how long the investigation will take, and how much the investiga-
tion and fines will cost.
For example, after detecting a network hack, credit card processing company Global
Payments, Inc. spent 14 months investigating the resulting data breach that exposed 1.5 million
U.S. debit and credit card accounts. Global’s damages totaled $93 million. This loss consisted of
$36 million in fraud losses and fines and $77 million for the investigation, remediation, credit
monitoring, and identity theft insurance for affected consumers. And this is not an unusual
occurrence, according to a global study conducted by the Ponemon Institute, the average cost
of a breached record is $141 and the average cost of an overall data breach is $3.62 million
(Ponemon Institute, 2017).
These reports of data breaches focus primarily on what companies are required to
report publicly—theft of personally identifiable information (PII), payment data, and
personal health information (PHI). Consequently, the costs commonly associated with data
breaches only take into consideration these more easily understood impacts. But these
are not always an attacker’s objective. Rarely brought into full view are theft of intellectual
property (IP), espionage, data destruction, attacks on core operations, or attempts to dis-
able critical infrastructure. These attacks can have a much more significant impact on orga-
nizations. But the damage they cause is not widely understood and is much more difficult
to quantify.
As a result, organizations need to acquire a deeper knowledge of cyberattacks and com-
bine it with business context, valuation techniques, and financial quantification to establish the
true costs of their losses. Applying this more accurate knowledge of potential business impacts,
leaders can be much more effective in managing and controlling cyber risk and improve their
ability to recover from a cyberattack.
In Chapter 5, you will learn about cybersecurity terminology, the rising number of
data breaches, sources of cyberthreats, damage caused by cybercriminals’ aggressive tac-
tics and their impacts on organizations. You will also learn how organizations can defend
against cyberattacks, correctly assess the damage they cause, and ensure the actions
needed for business continuity. But, first, let’s take a look at two of the biggest cyberattacks
ever reported.
Introduction 129
Case 5.1 Opening Case
Yahoo Wins the Gold and Silver Medal for the Worst
Hacks in History!
It wasn’t until Fall 2016 that Yahoo alerted its users and the public to
the first of two of the largest known breaches of user information in
history that had occurred 2–3 years earlier. On September 22, 2016,
Yahoo publicly disclosed that over 1 billion Yahoo account records
were stolen in mid-2013. A second news release on December 15, 2016,
revealed a second attack that occurred in 2014 when the account
information of over 500 million Yahoo account holders was breached.
The delay in reporting is partly due to the fact that Yahoo itself did
not know of the breach until shortly before releasing these statements
to the public. The information leaked in the attacks included e-mail
accounts, telephone numbers, street addresses, unencrypted security
questions and answers, but no financial information.
To add insult to injury, at the time of the first news release, Yahoo
was in negotiations with mega-corporation Verizon to acquire Yahoo for
$4.83 billion. After the first news release, Verizon said that the announce-
ment could have a negative impact on their purchasing decision. The
second news release caused Verizon to further review the financial impli-
cations of the two breaches and reduce its offer by $350 million.
The 2013 breach was conducted by an unknown unauthorized third
party. The information stolen in the 2014 attack was sold by a “state-
sponsored actor” on the Dark Web for 3 Bitcoins (approx. $1,900). The actor,
who used the name “Peace” is of Russian origin and attempted to sell data
from 200 million Yahoo users online. Yahoo urged all of its users to change
their passwords and security questions and to review their accounts for
suspicious activity. To date, little information has been released on the
2013 breach, but more is known about the incident that occurred in 2014.
How the Second Attack was Carried Out
The data theft was similar to the way in which a typical online attack of
a database is carried out. The protections used for database containing
the login and personal information were insufficient to protect against
the advanced methods used by the hackers. In this case, the encryption
method employed in the database was broken by the hacker. Addition-
ally, cybercrime analyst Vitali Kremez maintains that the hacker stole
the information from Yahoo slowly and methodically so as to not draw
attention to the breach taking place.
Since the breach was not immediately detected, the hacker had
plenty of time to leverage the information in a financially, personal, or
politically beneficial manner. It is not clear if the seller is the original hacker.
Impact of the Data Breach
Since the breaches were so devastating and far reaching to most of
Yahoo’s customer base, Verizon is having second thoughts about the
acquisition. Craig Silliman, general counsel to Verizon, said Verizon has
“a reasonable basis” to believe that the data breach will have a sig-
nificant impact on the deal proceedings and the likelihood that it will
actually happen (Fiegerman, 2016). He furthers to explain that Yahoo
will have to convince Verizon that the breach will not affect future pro-
cesses in the company and that more security features have been and
will be implemented. Also, the incidents could make the Yahoo deal
worth about $200 million less than the $4.8 billion initially settled
upon. In addition to the decreased value of Yahoo’s core assets, the
company’s stock fell about 2% after the comments by Craig Silliman.
Justice is Served
On March 17, 2017, the U.S. Department of Justice indicted two Russian
Intelligence agents and two state-sponsored hackers, Alexsey Belan
and Karim Baratov, for the theft of the Yahoo user data in 2014. Belan,
one of the FBI’s most notorious criminal hackers, had been previously
indicted in two other cases. In the indictments it was revealed that the
targets of the theft included Russian journalists, U.S. and Russian gov-
ernment officials, military personnel, and private-sector employees of
financial, transportation, and other companies (Balakrishnan, 2017).
The obvious issue surrounding the Yahoo data breaches is Inter-
net security. Simple username, password, and security questions sim-
ply are not enough to keep hackers at bay. UC Davis professor Hemant
Bhargava notes that two-factor authentication (TFA) is successful in
many other companies and that Yahoo should follow suit (Matwyshyn
& Bhargava, 2016). An example of TFA would be that a user is asked to
enter information such as username and password, then a mobile app
generates and sends a random number code for the user to enter before
being granted access to his or her account. Both the Yahoo account and
the mobile app are linked to a common, secure account. This method is
exceptionally popular and useful since over 50% of Web users access the
Web through their mobile phones.
Questions
1. Why do you think Yahoo was targeted for these data breaches?
2. Why did Yahoo keep the breaches from the public eye? How did
their nondisclosure affect Yahoo’s relationship with its customers
and partners?
3. In addition to the data theft, what else was damaged by
this incident?
4. Were these cybersecurity incidents foreseeable? Were they
avoidable?
5. Assuming that the CEO and CIO were forced to resign, what mes-
sage does that send to senior management at Yahoo?
Sources: Compiled from Fiegerman (2016), Hackett (2016a), Kan (2016), Lee
(2016), Matwyshyn and Bhargava (2016), Murgia (2016), Sterling (2015), and
Balakrishnan (2017).
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130 C H A P T E R 5 Cybersecurity and Risk Management Technology
5.1 The Face and Future of Cyberthreats
Over the past several years, the number of cyberattacks in which data records have been stolen by
hackers has increased at an alarming rate. In 2016, the total number of U.S. data breaches hit an all-
time record high of 1,093 according to a report released on January 19, 2017, by the Identity Theft
Resource Center (ITRC) (Goldman, 2017). This represents a 40% increase over the previous year. The
general business sector reported the highest number of cyberattacks with 494 reported incidents,
followed by the healthcare/medical industry with 377, education sector with 98, government/
military with 72, and the banking/credit/financial sector with 52 breaches (see Figure 5.1).
Vulnerability is a gap in IT security defenses of a network, system, or application that can
be exploited by a threat to gain unauthorized access. Vulnerabilities can be exemplified by
lack of controls around people (user training, inadequate policies), process (inadequate sep-
aration of duties, poor process controls), or tools (lack of technical controls enforcement or
monitoring).
Data incidents and breaches in 2016 exposed everything from usernames to passwords to
Social Security numbers and are caused by the successful exploitation of vulnerabilities in
information systems by a threat (risk = threat × vulnerability). Vulnerabilities threaten the confi-
dentiality, integrity, or availability (CIA) of data and information systems, as defined in Figure 5.2.
Data incident is an attempted
or successful unauthorized
access to a network, system, or
application; unwanted disruption
or denial of service; unauthorized
use of a system for processing or
storage of data; changes to system
without the owners knowledge,
instruction, or consent.
Data breach is the successful
retrieval of sensitive information
by an individual, group, or
software system.
Business, 494,
45%
Health care, 377,
34%
Education,
98, 9%
Government,
72, 7%
Finance, 52, 5%
Total Incidents = 1,093
FIGURE 5.1 Number of 2016 U.S. data breaches by industry sector.
Confidentiality: No unauthorized data disclosure.
Integrity: Data, documents, messages, and other files
have not been altered in any unauthorized way.
Availability: Data is accessible when needed by those
authorized to do so.
FIGURE 5.2 The three objectives of data and information
systems security.
The Face and Future of Cyberthreats 131
Hacks of high-tech companies like Yahoo, LinkedIn, Google, Amazon, eBay, and Sony,
and top security agencies like the CIA and FBI are proof that no one is safe. Cyberwarriors
are too well funded and motivated. Taking a global perspective, Verizon’s 2016 Data Breach
Investigations Report (DBIR) examined over 100,000 incidents, including 3,141 confirmed
data breaches across 82 countries. Of these, 89% of the breaches were motivated by finan-
cial gain or espionage. In over 90% of the breaches, it took attackers mere minutes (or less)
to compromise a system. On the other hand, it took companies weeks to months to dis-
cover that a breach had occurred and in most cases it was external sources, such as cus-
tomers or law enforcement that sounded the alarm! Cyberthreats can be intentional or
unintentional.
Table 5.2 lists eight sources of intentional and unintentional cyberthreats that account for
the vast majority of data breaches and other cybersecurity incidents.
Cyberthreat is a threat posed
by means of the Internet (a.k.a.
cyberspace) and the potential
source of malicious attempts to
damage or disrupt a computer
network, system, or application.
Fifty-six percent of all breaches were phishing attacks, where hackers trick an employee
into clicking a specially crafted e-mail link or attachment which then provides the hackers
access to the user’s system and ultimately corporate network and data. These attacks were
up 38% from 2015. Table 5.1 lists the top five data breaches worldwide in 2016. Although
these numbers are high, it’s important to remember that a vast majority of data breaches go
unreported, according to cybersecurity experts, because corporate victims fear that disclo-
sure would damage their stock price, or because they never knew they were hacked in the
first place.
The consequences of insufficient cybersecurity include damaged reputations, consumer
backlash, lost market share, falling share prices, financial penalties, and federal and state
government fines. As a result, companies are investing heavily in security-related technol-
ogies—worldwide spending on security-related hardware, software, and services rose to $73.7
billion in 2016 from $68.2 billion a year earlier and that number is expected to approach $90
billion in 2018.
TA B L E 5 . 1 2016 Biggest Data Breaches Worldwide, in Terms of Number of Data Records Breached
Company Type of Data Breach Records Breached
Anthem Insurance The attack against U.S.-based health insurer Anthem was an identity theft
breach that resulted in the theft of 78.8 million records, making it the largest
data breach of the year in terms of records compromised. Current and former
members of one of Anthem’s affiliated health plans, as well as some members of
other independent Blue Cross and Blue Shield plans who received health-care
services in any of the areas that Anthem serves, were said to be affected.
78.8 Million
Turkish General Directorate
of Population and
Citizenship Affairs
The Turkish government agency experienced an identity theft attack at the
hands of a malicious outsider. The attack exposed 50 million records, and
information pertaining to citizens was stolen.
50 Million
Korean Pharmaceutical
Information Center
The South Korean organization that distributes pharmacy management soft-
ware to many of the country’s pharmacies was hit by an identity theft breach
launched by a malicious insider. The result was the exposure of 43 million
records. According to the Korea Herald, medical information of nearly 90% of the
South Korean population was sold to a multinational firm, which processed and
sold the data.
43 Million
U.S. Office of Personnel
Management
The state-sponsored attack, which was described by federal officials as being
among the largest breaches of government data in the history of the United
States, scored a 9.6 on the risk assessment scale. The attack exposed data
including PII such as Social Security numbers, names, dates and places of birth,
and addresses.
22 Million
Experian The U.S.-based credit bureau and consumer data broker experienced an iden-
tity theft breach by a malicious outsider that resulted in the theft of 15 million
records. The data included some PII about consumers in the United States,
including those who applied for T-Mobile services or device financing.
15 Million
Source: Breach Level Index (2016).
132 C H A P T E R 5 Cybersecurity and Risk Management Technology
Intentional Threats
Examples of intentional threats include data theft such as inappropriate use of data (e.g.,
manipulating inputs); theft of computer time; theft of equipment and/or software; deliberate
manipulation in handling, entering, programming, processing, or transferring data; sabotage;
malicious damage to computer resources; destruction from malware and similar attacks; and
miscellaneous computer abuses and Internet fraud.
Unintentional Threats
Unintentional threats fall into three major categories: human error, environmental hazards,
social unrest and computer system failures.
• Human error can occur in the design of the hardware or information system. It can also
occur during programming, testing, or data entry. Neglecting to change default passwords
in applications or on systems or failing to manage patches creates security holes. Human
TA B L E 5 . 2 Major Sources of Cyberthreats
Source/Type Characteristics Solution
Intentional Cyberthreat
Hacking Unauthorized access of networks, systems or applications for
economic, social, or political gain. Use of programs such as
backdoor services to promote reentry or further incursion into
target environment
Train your staff
Change password frequently
Have “strong” passwords
Phishing Social engineering, targeting human behavior rather than computer
technology
Train your staff
Monitor activity
Crimeware Use of malware and ransomware Use antimalware/AV software
Patch promptly
Monitor change and watch key indicators
Back-up system regularly
Capture data on attacks
Practice principle of least privilege
Distributed denial-
of-service
Use of compromised systems to overwhelm a system with
malicious traffic
Segregate key servers
Choose your providers carefully
Test your anti-DDoS service
Insider and privi-
lege misuse
Employees, contractors, partners, suppliers, and other external
entities with specific insider roles abusing access granted to systems
for legitimate business purposes.
Monitor user behavior
Track mobile media usage
Know your data
Physical theft Theft of laptops, tablets, peripherals, printed material, etc. Encrypt your data
Train your staff
Reduce use of paper
Unintentional Cyberthreat
Physical loss Theft of laptops, tablets, and peripheral devices Encrypt your data
Train your staff
Miscellaneous errors Any unintentional action that compromises security, except theft, and
loss of assets
Learn from your mistakes
Strengthen controls
Ensure all assets go through a rigorous
check by IT before they are decommis-
sioned or disposed of
Source: Verizon (2016).
The Face and Future of Cyberthreats 133
An Inside Look at How the Hacking Industry Operates Hacking is an
industry with its own way of operating, a workforce, and support services. Hackers use social
networks, underground forums, and the Deep Web to rate and promote services, share exploits,
and recruit others. In certain forums and in the Deep Web, hackers can purchase the use of any
number of services. These include the following:
Educational services
Software platforms for building and distributing hacking tools and malware/ransomware
Sale or purchase of stolen data ranging from items as simple as e-mail accounts to credit
cards, PII, and corporate data.
error also includes untrained or unaware users falling prey to social engineering like
phishing scams or ignoring security procedures. Human errors contribute to the majority
of internal control and information security problems.
• Environmental hazards include volcanoes, earthquakes, blizzards, floods, power fail-
ures or strong fluctuations, fires (the most common hazard), defective heating, ventilation
and air-conditioning (HVAC) systems, explosions, radioactive fallout, and water-cooling-
system failures. In addition to the primary damage, computer resources can be damaged
by the side effects of a hazard, such as smoke and water. Such hazards may disrupt normal
computer operations resulting in extended data inaccessibility and exorbitant restoration
and recovery costs.
• Computer systems failures can occur as the result of poor manufacturing, defective
materials, or poor maintenance. Unintentional malfunctions can also occur for other rea-
sons, ranging from administrator inexperience to inadequate testing.
In the next sections, you will learn more about the various sources of cyberthreats and
their potential impact on organizations.
Hacking
Hacking is a very profitable industry. In 2016, 56% of reported data breaches were reported to
be the result of hacking, which is 18% higher than those reported for 2015 (Verizon, 2016).
Hacking is a big part of underworld cybercrime, and a way for hacktivists to protest. Both the
anonymity of the Internet and lack of international treaties provide hackers with a feeling of
near invincibility because they face very low risk of capture and punishment.
It is important to note that in the Hacker culture there are three classes of Hackers, shown
in Table 5.3.
Hacking is broadly defined
as intentionally accessing a
computer without authorization
or exceeding authorized access.
Various state and federal laws
govern computer hacking.
Hacktivist is short for hacker-
activist or someone who performs
hacking to promote awareness
for or otherwise support a social,
political, economic, or other
cause. Hacking an application,
system, or network without
authorization, regardless of
motive, is a crime.
TA B L E 5 . 3 Three Classes of Hackers
Type Characteristics Outcome
White hat Computer security specialist
who breaks into protected
systems and networks to test
and assess their security.
Use their skills to improve security by exposing
vulnerabilities before malicious hackers (black
hats) can detect and exploit them.
Black hat Person who attempts to find
computer security vulnera-
bilities and exploit them for
personal financial gain or
other malicious reasons.
Can inflict major damage on both individual com-
puter users and large organizations by stealing
personal financial information, compromising
security of major systems, or shutting down or
alerting the function of websites and networks.
Gray hat Person who may violate eth-
ical standards or principles,
but without the malicious
intent ascribed to black
hat hackers.
May engage in practices that are less than ethical,
but are often operating for the common good,
e.g., exploits a security vulnerability to spread
public awareness that the vulnerability exists.
134 C H A P T E R 5 Cybersecurity and Risk Management Technology
Contract hackers are available for hire or complete hack attacks can be bought.
Hacking help desks provide 24/7 support—making sophisticated attacks easier to manage
and execute.
Organized crime groups quickly learned that cybercrime has better payoffs with substan-
tially lower risks to life, limb, and liberty than other activities like human trafficking, smug-
gling, extortion, and the drug trade. They become virtually untouchable by law enforcement
because often no one sees the crime and if it is identified, the lack of international treaties
and cooperation make capture and trial between those non-extradition countries virtu-
ally impossible. Given this, it is not surprising that almost every survey identifies the same
troubling trend—the recovery costs and frequency of cybercrimes are increasing while
the costs of execution are declining. This means much stronger IT security practices and
defenses are obviously needed. One of the greatest cybersecurity weaknesses is users who
ignore the dangers of weak passwords—more than half of all confirmed data breaches
involve weak or stolen passwords. The capture and misuse of credentials, such a user’s IDs
and passwords, is one of the foundations of the cybercriminal and nation-state hackers
used in executing numerous other types of cyberthreats, including phishing (discussed in
more detail later in the chapter). Proper credential management is essential to security.
Cyber Social Engineering and Other Related
Web-Based Threats
Experts believe the greatest cybersecurity dangers over the next few years will involve persis-
tent threats, mobile computing, and the use of social media for social engineering. From an IT
security perspective, social engineering is a hacker’s clever use of deception or manipulation
of people’s tendency to trust, be helpful, or simply follow their curiosity. Powerful IT security
systems cannot defend against what appears to be authorized access.
Notorious hacker Kevin Mitnick, who served time in jail for hacking, used social engineering
as his primary method to gain access to computer networks. In most cases, the criminal never
comes face-to-face with the victim, but communicates via the phone or e-mail.
Humans are easily hacked, making them and their social media posts high-risk attack vec-
tors. For instance, it is often easy to get users to infect their corporate network or mobile devices
by tricking them into downloading and installing malicious applications or backdoors.
Phishing Phishing is the term used to describe a social-engineering attack that can use
e-mail sent to the recipient under false pretense to steal confidential information from the
target. This is done by the sender pretending to be a known person or legitimate organization,
such as PayPal, a bank, credit card company, or other trusted source and asking the user to
perform an action that would expose his or her computer to a cyberthreat or reveal credentials,
personal, financial, or business-related private information. Phishing messages are either sent
in mass campaigns or they are specifically targeted at a particular group of people or person.
The former requires no front work to gain context for the target but relies on sheer volume of
messages (millions to tens of millions) to achieve returns.
The latter requires more effort to gather relevant context about the message target and
is therefore sent out in far smaller batches but has a higher rate of return on both the number
of opened messages and the payback per message for that effort. The latter approach is dis-
cussed later in this section.
Phishing messages include a request to respond with information of some kind or a link
to a fraudulent website that often looks like an authentic site the user works with. When the
user clicks the link to the site, he or she falls victim to a malware download, drive-by attack, or
information skimming such as being asked for a credit card number, Social Security number,
account number, or password.
Criminals use the Internet and private networks to hijack large numbers of systems
including PC’s mobile devices, servers, and Internet of Thing (IoT) devices to spy on users,
spam them, shake down businesses, and steal identities. Once captured, they are called Bots,
The Face and Future of Cyberthreats 135
short for robots or Internet Robots. But why are they so successful? The Information Security
Forum, a self-help organization that includes many Fortune 100 companies, compiled a list of
the top information problems and discovered that nine of the top 10 incidents were the result
of three factors:
1. Mistakes or human errors leading to misconfigured systems, applications, or networks
2. Malfunctioning systems
3. Failure to patch or otherwise properly maintain software on existing systems
Unfortunately, these factors can too easily create gaps in cybersecurity controls that com-
panies and individuals use to protect their information.
Spear Phishing Spear phishing targets select groups of people who have something in
common. They can work at the same company, bank at the same financial institution, use a
specific Internet provider, or attend the same church or university. The scam e-mails appear to
be sent from organizations or people the potential victims normally receive e-mails from, mak-
ing them even more deceptive.
Here is how spear phishing works:
1. Spear phishers gather information about people’s activities, social groups, companies,
and/or jobs from general media announcements, social media or compromised accounts,
applications that are poorly designed and leak information or they can steal it from web-
sites, computers, or mobile devices they have compromised, and then use that informa-
tion to customize messages.
2. Then they send the customized e-mails to targeted victims, creating some sort of pretext
requiring the user to act or respond. These can be threats of account closure, loss of access
or privilege, loss of funds or additional charges, legal actions impact to friends or family
members, and so on. With the background information gained the message creates a very
legitimate-sounding and compelling explanation as to why they need your personal data.
3. Finally, the victims are asked to click on a link inside the e-mail that takes them to a phony
but realistic-looking website, where they are asked to provide passwords, account num-
bers, user IDs, access codes, PINs, and so on.
When spear phishing targets are executives or persons of significant wealth, power,
influence, or control the activity is known as “whaling.”
Crimeware IT security researchers discover almost 1 million malicious programs every
day. Why would so many hackers be spending so much time generating or launching these pro-
grams? The answer is simple—it pays well! Crimeware can be broken down into several cate-
gories, including spyware, adware, malware, and ransomware.
Malware Assaults are Part of Everyday Operations There have been
numerous test cases of malware overheating devices, causing them to physically distort or
worse. These attacks, bundled into a cyberattack, could have devastating and lasting effects
beyond what we commonly associate with an aggravating distributed denial-of-service
(DDoS) attack.
Viruses, worms, trojans, rootkits, backdoors, and keyloggers are types of malware. Most
viruses, trojans, and worms are activated when an attachment is opened or a link is clicked.
But when features are automated, they may trigger malware automatically, too. For example:
• If an e-mail client, such as Microsoft Outlook or Gmail, is set to allow scripting, then virus
infection occurs by simply opening a message or attachment.
• Viewing e-mail messages in HTML, instead of in plain text, can trigger virus infections.
Malware is not just about e-mail. It also includes rogue applications and malicious websites.
Spyware is tracking software
that is not designed to
intentionally damage or disable
a system. For example, an
employer may install spyware
on corporate laptops to monitor
employee browsing activities, or
an advertiser might use cookies to
track what Web pages a user visit
in order to target advertising in a
marketing campaign.
Adware is software that
embeds advertisements in the
application. It is considered a
legitimate alternative offered to
consumers who do not wish to pay
for software.
Malware refers to hostile or
intrusive software, including
computer viruses, rootkits, worms,
trojan horses, ransomware, and
other malicious programs used
to disrupt computer or mobile
operations, gather sensitive
information, gain access to private
computer systems.
Ransomware is a type of
malware that is designed to block
access to a computer system until
a sum of money has been paid.
136 C H A P T E R 5 Cybersecurity and Risk Management Technology
Remote access trojans (RATS) are a form of Trojan horse that creates an unprotected
backdoor into a system through which a hacker can remotely control that system. As the name
implies, a backdoor provides easy access to a system, computer, or account by creating the
access that may or may not require authentication.
However, hackers are very territorial and don’t want someone else using systems they
worked to compromise, so RATS often require some form of access control to eliminate the
need to authenticate with a username and password.
A malware’s payload is code that is dropped on the system that performs any or all of
the following functions: facilitates the infection or communicates with the command and con-
trol server or downloads more code. In doing so, the payload carries out the purpose of the
malware. The payload could cause damage that is visible or operate in stealth mode so as to
remain undetected. A vector is the specific method that malware uses to propagate, or spread,
to other machines or devices. Malware may also replicate to make copies of itself.
Malware creators often use social engineering to maximize the effective distribution of
their creations. For example, the ILoveYou worm, released in May, 2000, used social engineering
to entice people to open malware-infected e-mail messages. It successfully attacked tens of
millions of Windows computers when it was sent as an e-mail attachment with the subject line:
ILOVEYOU. Within nine days, the worm had spread worldwide, crippling networks, destroying
files, and causing an estimated $5.5 billion in damages.
Malware Reinfection, Signatures, Mutations, and Variants When a host
computer is infected, attempts to remove the malware may fail—and the malware may reinfect
the host for these two reasons:
1. Malware is captured in backups or archives Restoring the infected backup or archive
also restores the malware.
2. Malware infects removable media Months or years after the initial infection, the remov-
able media may be accessed, and the malware could attempt to infect the host.
Most antivirus (AV) software relies on signatures to identify and then block malware.
According to the Worldwide Malware Signature Counter, at the start of 2013, there were an esti-
mated 19 million malware signatures. Detecting and preventing infections are not always a pos-
sibility. Zero-day exploits—malware so new their signatures are not yet known—are an example.
Malware authors also evade detection by AV software and firewalls by altering malware code to cre-
ate variants, which have new signatures. But not all procedures or AV tools are capable of removing
every trace of the malware. Even if the malicious parts of the infection can be cleaned from a system,
the remaining pieces of code could make the system unstable or expose to future infection.
Botnets Today’s malware is often designed for long-term control of infected machines.
Advanced malware sets up outbound communication channels in order to upload stolen data,
download payloads, or do reconnaissance.
In contrast, a botnet is a group of external attacking entities and is a totally different attack
method/vector from malware which is internal to the system. Infected computers, called zom-
bies, can be controlled and organized into a network of zombies on the command of a remote
botmaster (also called bot herder). Storm worm, which is spread via spam, is a botnet agent
embedded inside over 25 million computers. Storm’s combined power has been compared to
the processing might of a supercomputer. Storm-organized attacks are capable of crippling any
website. Zombies can be commanded to monitor and steal personal or financial data—acting
as spyware. Botnets are used to send spam and phishing e-mails and launch DDoS attacks. Bot-
nets are extremely dangerous because they scan for and compromise other computers, which
then can be used for every type of crime and attack against computers, servers, and networks.
Ransomware Is Increasingly Becoming a Problem Ransomware has been
around for more than a decade. The problem began on a fairly small scale, targeting individual
users, but the ransomware cyberthreat has been growing in the last couple of years and the
Trojan horse is a program that
appears harmless, but is, in fact,
malicious.
The Face and Future of Cyberthreats 137
attacks have become large scale. Now, some company executives fear entire companies will be
shut down by ransomware until they pay up, or risk losing all their data.
Ransomware works by first infiltrating a computer with malware and then encrypting
all the files on the disk. The malware used to encrypt files can be difficult to defend against,
and the encryption in most cases can’t be broken. Then, the user is presented with a limited
time offer: Lose all your data or send money with the promise the data will be unlocked. The
fee typically varies from a few dollars to hundreds of dollars and often has to be transmitted
in Bitcoin. One hospital in Los Angeles, whose electronic medical record system was locked
out for 10 days, was forced to pay cyberattackers 40 Bitcoins to get its system unlocked
when law enforcement and computer experts were unable to help in restoring the hospital’s
data files.
Computer security experts have theorized that this type of attack has a higher rate of
success versus other cybercrime activity that has become more difficult. The best insurance
against ransomware is to have offline or segregated backups of data.
Denial-of-Service
Cybersecurity experts warn that battling the increasing number of Denial-of-Service (DoS)
threats needs to be a top priority. DoS threats come in a number of “flavors,” depending on
their target. The three most prominent forms are:
Distributed Denial-of-Service (DDoS)—crashes a network or website by bombarding it
with traffic (i.e., requests for service) and effectively denying services to all those legiti-
mately using it and leaving it vulnerable to other threats.
Telephony Denial-of-Service (TDoS)—floods a network with phone calls and keeps the
calls up for long durations to overwhelm an agent or circuit and prevents legitimate callers
such as customers, partners, and suppliers from using network resources.
Permanent Denial-of-Service (PDoS)—completely prevents the target’s system or device
from working. This attack type is unique. Instead of collecting data or providing some
ongoing perverse function its objective is to completely prevent its target’s device(s) from
functioning. The damage PDoS causes is often so extensive that hardware must be rein-
stalled or reinstated. PDoS is also known as “phlashing.”
A “chilling” example of the havoc that PDoS can cause was demonstrated when a PDoS
attack took the building management system offline in a block of residential apartments in
Finland. The system’s Internet connection was blocked causing the system to repeatedly try to
reconnect by rebooting itself. During this downtime, the system was unable to supply heat at
a time when temperatures were below freezing! Fortunately, the energy company was able to
find alternate accommodations for residents until the system was brought back online.
Insider and Privilege Misuse
Threats from employees, referred to as internal threats, are a major challenge largely due to
the many ways an employee can carry out malicious activity. Insiders may be able to bypass
physical security (e.g., locked doors) and technical security (e.g., passwords) measures that
organizations have put in place to prevent unauthorized access. Why? Because defenses such
as firewalls, intrusion detection systems (IDSs), and locked doors mostly protect against
external threats. Despite the challenges, insider incidents can be minimized with a layered
defense-in-depth strategy consisting of security procedures, acceptable use policies (AUPs),
and technology controls.
Data tampering is a common means of attack that is overshadowed by other types of
attacks. It refers to an attack during which someone enters false or fraudulent data into a com-
puter, or changes or deletes existing data. Data tampering is extremely serious because it may
not be detected. This is the method often used by insiders.
138 C H A P T E R 5 Cybersecurity and Risk Management Technology
Physical Theft or Loss
The threat of an information asset going missing, whether through negligence or malice can
send companies into a panic. The “miniaturization” of computing has led to an increase in
physical theft or loss. Laptops, tablets, modems, routers, and USBs are much more easily trans-
portable than mainframes or servers! When a laptop or tablet with unencrypted sensitive docu-
ments on it goes missing it’s difficult to determine if a data breach has actually occurred, but
precautions must always be taken. Theft of laptops occurs primarily in victims’ own work area
or from their vehicles. On the positive side, lost items are much more prevalent than theft. Theft
is more likely to be related to the procurement of USB drives and printer paper.
Miscellaneous Errors
The main concern related to this source of cyberthreat is a shortage of capacity, thus prevent-
ing information from being available when needed. Other threat actions that fall within this
category of miscellaneous errors are shown in Table 5.4.
New Attack Vectors
Vulnerabilities exist in networks, operating systems, applications, databases, mobile devices,
and cloud environments. These vulnerabilities are attack vectors or entry points for malware,
hackers, hacktivists, and organized crime. Mobile devices and apps, social media, and cloud
services introduce even more attack vectors for malware, phishing, and hackers. As a result,
new cyberthreats are on the horizon.
Malicious (Rogue) Mobile Applications The number of malicious Android applica-
tions is growing at an alarming rate. According to a report by AV provider and software analysis
group Trend Micro, more than 850,000 Android phones worldwide have been infected by the
new “Godless” malware, as of June, 2016 (Goodin, 2016). The malware is transferred to users’
phones through rogue applications in the Google Play store. According to mobile security cloud
service providers Marble Security and Trend Micro, over 42% of the more than 300 rogue mobile
applications found in the Google Play store are published in the United States (RT.com, 2015;
Duan, 2016). Almost all of these applications were found in unreliable third-party stores. Rogue
mobile applications can serve up trojan attacks, other malware, or phishing attacks.
Companies offering legitimate applications for online banking, retail shopping, gaming, and
other functions might not be aware of threats lurking in their app stores. And despite their best
efforts, legitimate app store operators cannot reliably police their own catalogs for rogue apps.
With a single click on a malicious link, users can launch a targeted attack against their
organizations.
Attack vector is a path or
means by which a hacker can
gain access to a computer or
network server in order to deliver
a malicious outcome.
TA B L E 5 . 4 Threat Actions Classified as Miscellaneous Errors
Misdelivery Information delivered to the wrong person, when e-mails or documents
are sent to the wrong people
Publishing error Information published to an unintended audience, such as the entire
Internet, enabling them to view it
Misconfiguration A firewall rule is mistyped allowing access to a sensitive file server from all
internal networks rather than a specific pool of hosts
Disposal error A hard drive is not “wiped” on decommissioned devices
Programming error Code is mistyped or logic is flawed
Date entry error Data is entered incorrectly or into the incorrect file or duplicated
Omission Data is not entered; document is not sent
Cyberattack Targets and Consequences 139
Questions
1. Define and give an example of an intentional threat and an unintentional threat.
2. Why might management not treat cyberthreats as a top priority?
3. Describe the differences between distributed denial-of-service (DDoS), telephony denial-of-service
(TDoS), and permanent denial-of-service (PDoS).
4. Why is social engineering a technique used by hackers to gain access to a network?
5. List and define three types of malware.
6. What are the risks caused by data tampering?
7. Define botnets and explain why they are dangerous.
8. Why is ransomware on the rise? How might companies guard against ransomware attacks?
5.2 Cyberattack Targets and Consequences
Every enterprise has data that profit-motivated criminals want. Customer data, networks, web-
sites, proprietary information systems, and patents are examples of assets—things of value
that need to be protected. However, it would appear that management may not be doing
enough to defend against cyberattacks. Even high-tech companies and market leaders appear
to be detached from the value of the confidential data they store and the ways in which highly
motivated hackers will try to steal them.
One of the biggest mistakes managers make is underestimating IT vulnerabilities and
threats. For example, workers use their laptops and mobiles for both work and leisure, and in
an era of multitasking, they often do both at the same time. Yet off-time or off-site use of devices
remains risky because, despite policies, employees continue to engage in dangerous online
and communication habits. Those habits make them a weak link in an organization’s otherwise
solid security efforts.
Some of the most prevalent and deadly targets that cyber criminals will attack in companies
and governmental agencies include: critical infrastructure; theft of IP; identity theft; bring your
own device (BYOD); and social media. Some of these attacks will be conducted as high-profile
attacks while others will fall into the category of “under-the-radar” attacks. Before discussing the
different cyberattack targets, let’s take a look at the differences between these two approaches.
“High-Profile” and “Under-the-Radar” Attacks
Advanced persistent threat (APT) attackers operate “under the radar” so they can continue
to steal data, as described in IT at Work 5.1 and profit from it. These APT attackers are profit-
motivated cybercriminals who often operate in stealth mode. In contrast, hackers and hacktiv-
ists with personal agendas carry out high-profile attacks to gain recognition and notoriety.
Hacktivist groups, such as Anonymous, a loosely associated international network of
activist and hacktivist entities and its spin-off hacker group, LulzSec, have committed daring
data breaches, data compromises, data leaks, thefts, threats, and privacy invasions. Consider
the following three examples:
Philippine Commission on Elections A few months before a Philippine election, the
hacker group Anonymous tapped into the commission’s website and released personal
information on 55 million registered voters. The demonstration was in response to the
Philippines’ lax security measures around its voting machines; 1.3 million overseas voters’
information, which included passport numbers, were included in the breach.
Combined Systems, Inc. Proudly displaying its hacktivist flag, Anonymous took credit
for knocking Combined Systems, Inc. offline and stealing personal data from its clients.
Anonymous went after Combined Systems, which sells tear gas and crowd-control devices
to law enforcement and military organizations, to protest war profiteers.
140 C H A P T E R 5 Cybersecurity and Risk Management Technology
CIA Twice in one year, Anonymous launched a DoS attack that forced the CIA website
offline. The CIA takedown followed a busy week for the hacktivists. Within 10 days, the
group also went after Chinese electronics manufacturer Foxconn, American Nazi groups,
AV firm Symantec, and the office of Syria’s president.
In contrast, APTs typically steal corporate and government secrets. Most APT attacks are
launched through phishing. Typically, this type of attack begins with some reconnaissance on
the part of attackers. This can include researching publicly available information about the
company and its employees, often from social networking sites. This information is then used
to create targeted phishing e-mail messages. A successful attack could give the attacker access
to the enterprise’s network.
APTs are designed for long-term espionage. Once installed on a network, APTs transmit
copies of documents, such as Microsoft Office files and PDFs, in stealth mode. APTs collect and
store files on the company’s network; encrypt them; then send them in bursts to servers often in
China or Russia. This type of attack has been observed in other large-scale data breaches that
exposed significant numbers of identities.
Both high-profile and under-the-radar attacks can be launched against a number of differ-
ent targets. We will discuss those next.
Critical Infrastructure Attacks
Hackers, hacktivists, crime syndicates, militant groups, industrial spies, fraudsters, and hostile
governments continue to attack networks for profit, fame, revenge, or an ideology; to wage
warfare and terrorism, fight against a terrorist campaign, or disable their target. For example,
the Department of Homeland Security (DHS) Industrial Control Systems Cyber Emergency
Response Team (ICS-CERT) warned that attacks against critical infrastructure are growing. In
2015, more than 427 vulnerability incidents were reported, far surpassing the 245 total attacks
reported in 2014. The most affected industry was the energy sector.
Figure 5.3 shows the 16 critical infrastructure sectors whose assets, systems, and net-
works, whether physical or virtual, are considered so vital to the United States that their
incapacitation or destruction would have a debilitating effect on security, national economic
security, national public health or safety, or any combination thereof.
Critical infrastructure is
defined as, “systems and assets,
whether physical or virtual, so
vital to the a country that the
incapacity or destruction of
such systems and assets would
have a debilitating impact on
security, national economic
security, national public health
or safety, or any combination of
those matters” (Department of
Justice, 2001).
Chemical
Water and
Wastewater
Transportation
Systems
Nuclear Reactors,
Materials & Waste
IT
Health care &
Public Health
Energy
Emergency
Services
Defense
Industrial Base
Critical Mfg.CommunicationsCommercial
Food &
Agriculture
Financial
Government
Facilities
Dams
FIGURE 5.3 U.S. critical infrastructure sectors.
Cyberattack Targets and Consequences 141
Attacks on critical infrastructure sectors can significantly disrupt the functioning of
government and business—and trigger cascading effects far beyond the targeted sector and
physical location of the incident. These cyberattacks could compromise a country’s critical
infrastructure and its ability to provide essential services to its citizens.
For example, the first cyberattack against a nation’s power grid occurred in December,
2015, when a cyberattacker successfully seized control of the Prykarpattyaoblenergo Control
Center (PCC) in the Western Ukraine leaving 230,000 citizens without power for up to six hours.
The attackers carefully planned their assault over many months. They studied the networks
and siphon operator credentials and finally launched their devastating synchronized assault
in the middle of winter. The PCC operated a supervisory control and data acquisition (SCADA)
system, which is a common form of industrial control system, that distributed electricity. The
critical devices at 16 substations became unresponsive to any remote command by its oper-
ators after attackers overwrote its firmware. This type of control system is surprisingly more
secure than some used in the United States since they have robust firewalls that separate
them from control center business networks. Governments around the world have plans in
place to deal with the consequences of natural disasters, yet none have disaster relief plans
for a downed power grid. Clearly, this must change. Local and state governments must work
together with their national counterparts to produce and quickly implement plans to address
future attacks.
In response to the consistently growing number of cyberattacks over the past decade,
the Inter-American Committee Against Terrorism (CICTE) issued a formal declaration to
protect critical infrastructure from emerging threats and a Presidential executive order
was signed in May 2017 to strengthen the cybersecurity of Federal networks and critical
infrastructure.
Theft of Intellectual Property
Intellectual property (IP) can represent more than 80% of a company’s value and as such is a
critical part of all 21st-century organizations. Losing customer data to hackers can be costly
and embarrassing but losing IP, commonly known as trade secrets, could threaten a company’s
existence. It’s a business leaders’ nightmare—that gut-wrenching realization that a corporate
network has been breached and valuable intellectual assets have been stolen by unknown
cybercriminals (Gelinne et al., 2016).
Theft of IP has always been a threat from corporate moles, disgruntled employees, and
other insiders. While some IP may still be obtainable exclusively through physical means, dig-
itization has made theft easier. Advancements in technology, increased mobility, rapid global-
ization, and the anonymous nature of the Internet create growing challenges in protecting IP.
Hackers’ preferred modus operandi is to break into employees’ mobile devices and leapfrog
into employers’ networks—stealing trade secrets without a trace.
Cybersecurity experts and government officials are increasingly concerned about breaches
from other countries into corporate and government networks either through mobile devices
or other means. For example, a government agency could have blueprints for a secret new
weapon system stolen by foreign agents, or an employee of a popular game developer might
steal their latest game before it is released to the public.
In May of 2016, President Barack Obama signed the Defend Trade Secrets Act (DTSA), to
allow “the owners of trade secrets to bring a civil action in federal court for trade secret mis-
appropriation” (Gibson Dunn, 2016). Until the signing of the DTSA, corporations had to rely
on state law regarding trade secrets. Now, every American corporation is equally protected
under federal law. Moreover, it extends the power of the federal government in regulation
of trade secrets through interstate and foreign commerce while maintaining existing trade
secret laws.
A famous example of theft of IP is the APT attack named Operation Aurora perpetrated
against Google, described in IT at Work 5.1.
Intellectual property is a
work or invention that is the
result of creativity that has
commercial value, including
copyrighted property such as a
blueprint, manuscript, or a design,
and is protected by law from
unauthorized use by others.
142 C H A P T E R 5 Cybersecurity and Risk Management Technology
Identity Theft
One of the worst and most prevalent cyberthreats is identity theft. Thefts where individuals’
Social Security and credit card numbers are stolen and used by thieves are not new. Criminals
have always obtained information about other people—by stealing wallets or dumpster diving.
But widespread electronic sharing and databases have made the crime worse. Because finan-
cial institutions, data-processing firms, and retail businesses are reluctant to reveal incidents in
which their customers’ personal financial information may have been stolen, lost, or compro-
mised, laws continue to be passed that force those notifications.
Bring Your Own Device
Another, more recent, vulnerability is bring your own device (BYOD). Roughly 74% of U.S. organ-
izations are either already using or planning to use BYOD. It’s an appealing concept because
BYOD enables companies to cut costs by not having to purchase and maintain employees’
IT at Work 5.1
Operation Aurora
Operation Aurora was a counterespionage operation being run by
the Chinese government. It was a series of cyberattacks conducted
by APTs with ties to the People’s Liberation Army in China. Attackers
successfully accessed a database that flagged Gmail accounts
marked for court-ordered wiretaps to gain insights into active inves-
tigations being conducted by the FBI and other law enforcement
agencies that involved undercover Chinese operatives.
To access IP, Operation Aurora exploited security flaws in
e-mail attachments to sneak into the networks of major financial,
defense, and technology companies and research institutions in the
United States by performing six steps, as described in Figure 5.4.
Standard IT security technologies at Google failed to prevent these
six steps from occurring and neither Google nor its Gmail account
holders knew they had been hacked.
Once the APTs gained access to Google’s internal systems
(Step 6), they were free to steal corporate secrets. Reportedly, over
30 other large companies from a wide range of industries were sim-
ilarly targeted by Operation Aurora.
Most hack activities do not become headline grabbers until
after the incidents are detected and reported. Even then, victimized
companies are reluctant to discuss them so statistics are scarce. In
the case of Operation Aurora, the attack was not discovered until
almost one year after the fact!
IT at Work Questions
1. Describe the six steps of Operation Aurora.
2. What was the purpose of Operation Aurora?
3. What could Google have done to prevent Operation
Aurora?
1. A targeted user
receives a link in an
e-mail or text from
a “trusted” source.
4. The exploit
downloads a binary
disguised as an
image and executes
the malicious payload.
5. The payload sets
up a backdoor and
connects to C and C
servers in Taiwan.
6. Attackers now
have complete
access to internal
systems. They are
now a persistent
threat.
2. When the user
clicks the link, a
website hosted in
Taiwan loads. It
contains malicious
JavaScript.
3. The user’s
browser downloads
and executes the
JavaScript, which
includes a zero-day
IE exploit.
FIGURE 5.4 Overview of the six steps in the Operation Aurora APT attack.
Cyberattack Targets and Consequences 143
mobile devices. Unfortunately, many companies have rushed into it without considering issues
relating to security. Mobile devices rarely have strong authentication, access controls, and
encryption even though they connect to mission-critical data and cloud services. For example,
only 20% of androids have a security app installed.
The BYOD trend is driven by employees using their own devices for business purposes
because they are more powerful than those the company has provided. Another factor is
mobility. In the past, and before the BYOD push, employees worked at their desks on a land-
line and on a computer plugged into the wall with a network cable. This change in exposure
requires greater investment to defend against BYOD risks. As more and more people work
from home and on the go, the office-bound traditional 9-to-5 workday has become a thing
of the past.
Users bringing their personal mobile devices and their own mobile applications to
work and connecting them to the corporate network is part of the larger consumerization
of information technology (COIT) trend. Bring your own device (BYOD) and bring your
own apps (BYOA) are practices that move enterprise data and IT assets to employees’ mo-
bile devices and the cloud, creating a new set of tough IT security challenges. Figure 5.5 sum-
marizes how apps, mobile devices, and cloud services put organizations at a greater risk of
cyberattack. Widely used applications that are outside of the organization’s firewall are Twitter,
Google Analytics, Dropbox, WebEx, and Salesforce.com.
Enterprises take risks with BYOD practices that they never would consider taking with con-
ventional computing devices. One possible reason is that new devices, apps, and systems have
been rolled out so quickly. As a result, smartphones are not being managed as secure devices,
with fewer than 20% of users installing antimalware and 50% using some type of data encryp-
tion. In fact, employees expected instant approval of (or at least no disapproval of) and support
for their new tablet computers within hours of the product’s release.
BYOD Raises Serious and Legitimate Areas of Concern Hackers break into
employees’ mobile devices and leapfrog into employers’ networks—stealing secrets without a
trace. New vulnerabilities are created when personal and business data and communications
are mixed together. All cybersecurity controls—authentication, access control, data confiden-
tiality, and intrusion detection—implemented on corporate-owned resources can be rendered
useless by an employee-owned device. The corporation’s mobile infrastructure may not be
able to support the increase in mobile network traffic and data processing, causing unaccept-
able delays or requiring additional investments.
Another serious problem arises when an employee’s mobile device is lost or stolen. The
company can suffer a data breach if the device is not adequately secured by a strong password
and the data on the BYOD is not encrypted.
Tech Note 5.1 demonstrates why users should only download applications from trusted
sources and check reviews to verify the legitimacy of the application being downloaded.
• Business operations are controlled by apps, systems,
and networks that are so interconnected that
anyone’s mobile device is an entry point for attacks.
• Cloud services have created vulnerabilities in systems
and apps that are surprising even the experts.
Cloud services
create
vulnerabilities
Apps and mobiles
create attack
vectors
FIGURE 5.5 Factors that expose companies and users to attack.
144 C H A P T E R 5 Cybersecurity and Risk Management Technology
Social Media Attacks
Companies’ poor social media security practices put their brands, customers, executives, and
entire organizations at serious risk. According to Cisco, Facebook scams are the most common form
of malware distributed in 2015. The FBI reported that social media-related events had quadrupled
over the past five years and PricewaterhouseCoopers (2015) found that more than one in eight
enterprises has suffered at least one security breach due to a social media-related cyberattack.
Social networks and cloud computing increase vulnerabilities by providing a single point
of failure and attack for organized criminal networks. Critical, sensitive, and private information
is at risk, and like previous IT trends, such as wireless networks, the goal is connectivity, often
with little concern for security. As social networks increase their offerings, the gap between
services and information security also increases. For example, virus and malware attacks on a
well-established service such as e-mail have decreased as e-mail security has improved over
the years. Unfortunately, malware is still finding ways to successfully disrupt new services and
devices, such e-readers, netbooks, Google’s Chrome OS, Facebook, YouTube, Twitter, LinkedIn,
and other cloud-based social media networks. For example, in Twitter and Facebook, where
users build relationships with other users, cybercriminals are hacking in using stolen logins.
These types of attacks that take advantage of user trust are very difficult to detect. Facebook
recently reported that up to 2% of its 31 million accounts are false, Twitter estimates 5%, and
LinkedIn openly admitted, that they don’t have a reliable system for identifying and counting
duplicate or fraudulent accounts.
To combat these cyberthreats, Web filtering, user education, and strict policies are key to
preventing widespread outbreaks.
Networks and Services Increase Exposure to Risk An overriding reason why
these networks and services increase exposure to risk is the time-to-exploitation of today’s
sophisticated spyware and mobile viruses. Time-to-exploitation is the elapsed time between
when vulnerability is discovered and when it is exploited. That time has shrunk from months to
minutes so IT staff have ever-shorter timeframes to find and fix flaws before they are compro-
mised by an attack. Some attacks exist for as little as two hours, which means that enterprise IT
security systems must have real-time protection.
When new vulnerabilities are found in operating systems, applications, or wired and
wireless networks, patches are released by the vendor or security organization. Patches are
software programs that users download and install to fix a vulnerability. Microsoft, for example,
releases patches that it calls service packs to update and fix vulnerabilities in its operating
systems, including Vista, and applications, including Office 2010. Service packs can be down-
loaded from Microsoft’s website.
Left undetected or unprotected, vulnerabilities provide an open door for IT attacks and business
disruptions and their financial damages. Despite the best technology defenses, information secu-
rity incidents will occur mostly because of the users who do not follow secure computing practices
and procedures. IT at Work 5.2 illustrates how Google’s new automated cybersecurity initiative is
poised to reduce Google’s losses suffered due to cyberattacks in the cloud.
Tech Note 5.1
Android Botnet over SMS
A botnet of exploited android phones was sending massive
amounts of spam via Yahoo e-mail servers using the short mes-
saging service (SMS) as the command and control (C&C) chan-
nel. Infected androids, or bots, log into the owner’s Yahoo Mail
account to send spam. Most of the devices were located in Chile,
Venezuela, Thailand, Indonesia, Lebanon, Philippines, Russia,
and Saudi Arabia—in countries where users are less likely to get
their android applications from the Google Play market, which
automatically ensures that the applications are safe. Users down-
loading free phone apps from third-party app stores to avoid
paying for legitimate versions were actually downloading the
android malware.
User should only download applications from trusted sources
and also check the reviews to verify the applications are legitimate
because there are many bogus applications.
Cyberattack Targets and Consequences 145
IT at Work 5.2
Google’s Automated Game of Monkey in the Middle
Google is the world’s largest Internet-based search engine, servicing
2 trillion Internet searches every year (Burgess, 2016). In addition
to being the largest encyclopedia known to man, Google has also
expanded its services into cloud computing and online advertising.
The Internet security sector is becoming increasingly important as
the amount of global cyberattacks grows every year. Encryption tech-
nologies serve the purpose of hiding information from unauthorized
personnel and hackers using binary code (0 s and 1 s instead of plain
text). In October, 2016, Google made the leap to becoming a security
platform for Internet communication using encryption technology.
In order to do this, Google created three adversarial neural net-
works, that is, an information processing unit that acts very much like
the brain, using interconnected processing “neurons” to gather con-
clusions about large data sets or other sources of information. In turn,
adversarial neural networks are those that compete with each other to
gain the same information more quickly or efficiently. Google named
its three neural networks Eve, Alice, and Bob. Alice was tasked to send
secret, encrypted messages to Bob, while Eve attempts to intercept the
information before Bob receives it. The purpose of this demonstration
is to test the plausibility of neural networks in Internet security appli-
cations and train them to better encrypt sensitive information.
Google’s Neural Network Effectiveness
Throughout 15,000 simulations, Alice and Bob were able to send
and decrypt hidden messages without Eve fully decrypting any of
them. In fact, as the study progressed, Eve made more decryption
errors as Bob and Alice became more effective (Figure 5.6). The
implications of this study are significant to the future of machine
learning and security. While neural networks are relatively
simple in terms of cryptanalysis, because the adversarial neural
networks were able to learn how to better secure information,
other, more complex security technologies can also learn how to
protect information and determine which information is worth
protecting.
IT at Work Questions
1. Why is decryption security important in today’s inter-
connected society?
2. What can Google’s AI teach us about cybersecurity?
3. What are the future implications of this study?
8
7
6
5
4
B
its
w
ro
n
g
(
o
f
16
)
3
2
1
0
50005000 10000 15000 20000
steps
25000 30000 35000 400000
Bob Eve
FIGURE 5.6 Effectiveness of Bob and Eve in receiving and decrypting messages
over time.
Sources: Compiled from Berman (2016), Burgess (2016), and Abadi and
Andersen (2016).
Questions
1. What is a critical infrastructure?
2. List three types of critical infrastructures.
3. How do social networks and cloud computing increase vulnerability?
4. Why are patches and service packs needed?
5. Why is it important to protect IP?
6. How are the motives of hacktivists and APTs different?
7. Explain why data on laptops and computers need to be encrypted.
8. Explain how identity theft can occur.
146 C H A P T E R 5 Cybersecurity and Risk Management Technology
5.3 Cyber Risk Management
Top management needs to sponsor and promote security initiatives and fund them as a top
priority. As you will read in this section, robust data security is not just the responsibility of IT
and top management, but the ongoing duty of everyone in an organization.
It is becoming more important than ever that security is viewed as a high priority as the
growth of mobile technologies and the IoT threaten to provide attackers with new opportu-
nities. The five key factors contributing to the rising number of data breaches that must be
addressed in a cyber risk management program are listed in Table 5.5.
Keep in mind that security is an ongoing, unending process—something akin to painting
the Golden Gate Bridge in San Francisco—and not a problem that can be solved with just
hardware or software. Hardware and software security defenses cannot protect against irre-
sponsible business practices. These are organizational and people issues.
IT Defenses
Since malware and botnets use many attack methods and strategies, multiple tools are
needed to detect them and/or neutralize their effects. Three essential defenses are the
following:
1. Antivirus Software Antimalware tools are designed to detect malicious codes and pre-
vent users from downloading them. They can also scan systems for the presence of worms,
trojans, and other types of threats. This technology does not provide complete protection
because it cannot defend against zero-day exploits. Antimalware may not be able to detect
a previously unknown exploit.
2. Intrusion Detection Systems (IDSs) As the name implies, an IDS scans for unusual or
suspicious traffic. An IDS can identify the start of a DoS attack by the traffic pattern, alert-
ing the network administrator to take defensive action, such as switching to another IP
address and diverting critical servers from the path of the attack.
3. Intrusion Prevention Systems (IPSs) An IPS is designed to take immediate action—
such as blocking specific IP addresses—whenever a traffic-flow anomaly is detected. An
application-specific integrated circuit (ASIC)-based IPS has the power and analysis capa-
bilities to detect and block DDoS attacks, functioning somewhat like an automated cir-
cuit breaker.
Business policies, procedures, training, and disaster recovery plans as well as hardware
and software are critical to cybersecurity. Table 5.6 lists the characteristics of an effective
cybersecurity program.
To help keep managers updated on the latest cyberthreats and prioritize defenses, KPMG
publishes its Data Loss Barometer. The annual report describes the latest trends and statistics
for data losses worldwide. Key findings and predictions are listed in Table 5.7.
The higher the value of the asset to the company and to cybercriminals, the greater the
risk is to the company and the higher the level of security needs to be. The smart strategy is
Risk is the probability of a
threat successfully exploiting a
vulnerability and the estimated
cost of the loss or damage. TA B L E 5 . 5 Five Key Factors Leading to an Increase in Cyberattacks
1. Interconnected, interdependent, wirelessly networked business environment
2. Smaller, faster, cheaper computers and storage devices
3. Decreasing skills necessary to be a computer hacker
4. International organized crime taking over cybercrime
5. Lack of management support
Cyber Risk Management 147
to invest more to protect the company’s most valuable assets rather than trying to protect all
assets equally, as discussed in IT at Work 5.2. The IT security field—like sports and law—has
its own terminology, which is summarized for quick reference in Figure 5.7 and Table 5.8.
TA B L E 5 . 6 Characteristics of an Effective Cybersecurity Program
Make data and documents available and accessible 24/7 while simultaneously restricting access.
Implement and enforce procedures and AUPs for data, networks, hardware, and software that are
company or employee owned, as discussed in the opening case.
Promote secure and legal sharing of information among authorized persons and partners.
Ensure compliance with government regulations and laws.
Prevent attacks by having network intrusion defenses in place.
Detect, diagnose, and respond to incidents and attacks in real time.
Maintain internal controls to prevent unauthorized alteration of data/records.
Recover from business disasters and disruptions quickly.
TA B L E 5 . 7 Worldwide Data Loss Key Findings and Predictions
Key findings from KPMG Data Loss Barometer Report and its predictions for the next few years:
• Hacking is the number one cause of data loss.
• Internal threats have reduced significantly, while external threats are increasing significantly.
• The most hacked sectors are technology, financial services, retail, and automotive.
• Expect increased loss of data from mobile devices.
• Expect a steep rise in automated hacking and botnets.
• Expect less tolerant regulators and greater fines and negative consequences.
• Expect greater visibility and reporting of data loss as a result of less tolerant regulators.
Source: KPMG (2016).
Threat
Someone or something that
can cause loss, damage,
or destruction.
Vulnerability
Weakness or flaw in a system that
allows an attack to be successful.
Companies’ IT security defenses
influence how vulnerable they are
to threats.
Asset
Something of value that needs to
protected.
Customer data, trade secrets,
proprietary formulas, and other
intellectual property.
Exploit
A program (code) that allows attackers
to automatically break into a system
through a vulnerability.
To attack or take advantage of a
vulnerability.
Risk
Probability of a threat exploiting a
vulnerability and the resulting cost of
the loss, damage, disruption,
or destruction.
Risk = f (Threat, Vulnerability, Cost of
the impact)
FIGURE 5.7 Basic IT security concepts.
148 C H A P T E R 5 Cybersecurity and Risk Management Technology
Minimum Security Defenses for Mobiles Minimum security defenses for mobile
devices are mobile biometrics, rogue app monitoring, remote wipe capability, and encryption.
For travelers, do-not-carry rules may be a necessary defense.
A biometric control is an automated method of verifying the identity of a person, based
on physical or behavioral characteristics. The most common biometrics are a thumbprint or
fingerprint, voice print, retinal scan, and signature.
Mobile biometrics, such as voice and fingerprint biometrics, can significantly improve the
security of physical devices and provide stronger authentication for remote access or cloud
services. Biometric controls have been integrated into e-business hardware and software prod-
ucts. Biometric controls do have some limitations: They are not accurate in certain cases, and
some people see them as an invasion of privacy. Most biometric systems match some personal
characteristic against a stored profile.
When Apple acquired Siri, Inc., the voice-based personal assistant Siri was integrated into
its Apple’s operating system, Siri gave Apple the potential to move into voice biometrics.
Voice biometrics is an effective authentication solution across a wide range of consumer
devices including smartphones, tablets, and TVs. Future mobile devices are expected to have
fingerprint sensors to add another authentication factor.
Another type of defense is rogue app monitoring to detect and destroy malicious applica-
tions in the wild. Several vendors offer 24/7 monitoring and detection services to monitor major
app stores and shut down rogue applications to minimize exposure and damage.
In the event of loss or theft of a device, a mobile kill switch or remote wipe capability
as well as encryption are needed. All major smartphone platforms have some kind of remote-
erase capability and encryption option.
In response to mobile security threats, many U.S. companies and government agencies
are imposing do-not-carry rules on mobiles to prevent compromise. Travelers can bring only
“clean” devices and are forbidden from connecting to the government’s network while abroad.
Do-Not-Carry Rules The U.S. Chamber of Commerce did not learn that it and its member
organizations were the victims of a cybertheft for months until the FBI informed the Chamber
that servers in China were stealing data from four of its Asia policy experts, individuals who fre-
quently travel to Asia. Most likely, the experts’ mobile devices had been infected with malware
TA B L E 5 . 8 IT Security Terminology
Term Definition
Exposure Estimated cost, loss, or damage that can result if a threat exploits a vulnerability
Access control Security feature designed to restrict who has access to a network, IS, or data
Audit Procedure of generating, recording, and reviewing a chronological record of system events to determine
their accuracy
Encryption Transforming data into scrambled code to protect them from being understood by unauthorized users
Plaintext or clear text Readable text
Ciphertext Encrypted text
Authentication Method (usually based on username and password) by which an IS validates or verifies that a user is really
who he or she claims to be
Biometrics Methods to identify a person based on a biological feature, such as a fingerprint or retina
Firewall Software or hardware device that controls access to a private network from a public network (Internet) by
analyzing data packets entering or exiting it
Intrusion detection
system (IDS)
A defense tool used to monitor network traffic (packets) and provide alerts when there is suspicious traffic,
or to quarantine suspicious traffic
Fault tolerance The ability of an IS to continue to operate when a failure occurs, but usually for a limited time or at a
reduced level
Cyber Risk Management 149
that was transmitting information and files back to the hackers. By the time the Chamber hard-
ened (secured) its network, hackers had stolen at least six weeks of e-mails, most of which were
communications with the largest U.S. corporations. Even later, the Chamber learned that its
office printer and a thermostat in one of its corporate apartments were communicating with
an Internet address in China. The Chamber did not disclose how hackers had infiltrated its sys-
tems, but its first step was to implement do-not-carry rules.
U.S. companies, government agencies, and organizations are now imposing do-not-
carry rules, which are based on the assumption that devices will inevitably be compromised
according to Mike Rogers, current chairman of the House Intelligence Committee. For example,
House members can bring only “clean” devices and are forbidden from connecting to the gov-
ernment’s network while abroad. Rogers said he travels “electronically naked” to ensure cyber-
security during and after a trip. IT at Work 5.3 explains how one cybersecurity expert complies
with do-not-carry rules while traveling.
Business Continuity Planning
Risk management is not complete without a business continuity plan that has been tested to
verify that it works. Business continuity refers to maintaining business functions or restoring
them quickly when there is a major disruption. The plan covers business processes, assets,
human resources, business partners, and more. Fires, earthquakes, floods, power outages,
malicious attacks, and other types of disasters hit data centers. Yet, business continuity plan-
ning capabilities can be a tough sell because they do not contribute to the bottom line—that
is, until it is too late. Compare them to an insurance policy: If and only if a disaster occurs, the
money has been well spent. And spending on business continuity preparedness is an ongoing
process because there is always more that could be done to prepare better.
The purpose of a business continuity plan is to keep the business running after a disaster
occurs. Each function in the business should have a feasible backup plan. For example, if the
customer service center or call center was destroyed by a storm or lost all power, would anyone
know how the reps would continue to answer customer calls? The backup plan could define
how to provide necessary network access to enable business to continue.
Government Regulations
Cyberattacks are now the number one type of danger facing many countries around the globe.
As a result, international, federal, and state laws and industry regulations mandate that enter-
prises invest in cybersecurity defenses, audits, and internal controls to help secure confidential
data, prevent attacks, and defend against fraud and unauthorized transactions such as money
laundering (Morris 2016).
IT at Work 5.3
Traveling Electronically Clean
When Kenneth G. Lieberthal, an expert at the Brookings Institution,
travels to other countries, he follows a routine that seems straight
from a secret agent movie. He leaves his smartphone and laptop
at home. Instead, he brings loaner devices, which he erases before
he leaves the United States and wipes clean the minute he returns.
While traveling, he disables Bluetooth and Wi-Fi and never lets his
phone out of his sight. While in meetings, he not only turns off his
phone, but also removes the battery for fear his microphone could
be turned on remotely.
Lieberthal connects to the Internet only through an encrypted,
password-protected channel. He never types in a password directly,
but copies and pastes his password from a USB thumb drive. By not
typing his password, he eliminates the risk of having it stolen if key-
logging software were to be installed on his device.
IT at Work Questions
1. Many travelers might consider Lieberthal’s method
too inconvenient. Clearly, his electronically clean
methods are time consuming and expensive. In your
opinion, is there a trade-off between cybersecurity and
convenience? Explain.
2. Create a list of best cybersecurity practices for travelers
based on Lieberthal’s methods.
150 C H A P T E R 5 Cybersecurity and Risk Management Technology
IT defenses must satisfy ever-stricter government and international regulations. All
mandate the protection of PII. To protect consumers, some countries require strict compli-
ance with these regulations. For example, in the United States the director of the Bureau of
Consumer Protection at the Federal Trade Commission (FTC) warned that the agency would
bring enforcement action against small businesses lacking adequate policies and procedures
to protect consumer data. Some examples of major national security regulations are listed in
Figure 5.8. Some of these regulations also apply to occupational fraud that is described in the
next section.
To ensure compliance with these regulations in United Sates, the SEC and FTC impose
huge fines for data breaches to deter companies from underinvesting in data protection.
Questions
1. Explain why it is becoming more important for organizations to make cyber risk management
a high priority?
2. Name four U.S. government regulations that relate to cyber risk management.
3. What is the purpose of rogue application monitoring?
4. Why is a mobile kill switch or remote wipe capability an important part of managing cyber risk?
5. Why does an organization need to have a business continuity plan?
6. Name the three essential cybersecurity defenses.
7. Name three IT defenses.
8. Why do companies impose do-not-carry rules?
5.4 Defending Against Fraud
Not all cybercrimes are “attacks” conducted from outside the organization. Some are con-
ducted by employees within the organization. This is called fraud. Fraudsters carry out their
crime by abusing the power of their position or by taking advantage of the trust, ignorance, or
laziness of others. According to the latest Annual Global Fraud Survey, 81% of organizations
Fraud is a nonviolent crime in
which fraudsters use deception,
confidence, and trickery for their
personal gain.
Personal Information Protection
and Electronic Document Act
(PIPEDA)
Sarbanes–Oxley Act (SOX)
Gramm-Leach-Bliley Act (GLB)
Federal Information Security
Management Act (FISMA)
USA PATRIOT Act
Basel III
CANADA
USA
UNITED
KINGDOM
GLOBAL FINANCIAL SERVICES
Data Protection Act
JAPAN
Personal Information
Protection Act
AUSTRALIA
Federal Privacy Act
FIGURE 5.8 Global government regulations of PII.
Defending Against Fraud 151
have been victims of frauds perpetrated by insiders. Of these, 36% were carried out by senior or
middle managers and 45% were attributed to junior employees. Only 23% of the reported
frauds resulted from actions of an agent or nonemployee with access.
Occupational Fraud Prevention and Detection
High-profile cases of occupational fraud committed by senior executive have led to an increase
in government regulations. Unfortunately, this increased legislation has not put an end to fraud.
The single most effective fraud prevention tactic is making employees aware that fraud will
be detected by IT-monitoring systems and punished, with the fraudster possibly turned over to
the police or FBI. The fear of being caught and prosecuted is a strong deterrent. IT must play a
visible and major role in detecting fraud. A strong corporate governance program and internal
audits and controls are essential to the prevention and detection of occupational fraud.
Several examples of occupational fraud, their characteristics and the extent to which they
impact corporate financial statements are illustrated in Figure 5.9.
Corporate Governance An enterprise-wide approach that combines risk, security,
compliance, and IT specialists greatly increases the prevention and detection of fraud. Preven-
tion is the most cost-effective approach, since detection and prosecution costs are enormous
in addition to the direct cost of the loss. It starts with corporate governance culture and ethics
at the top levels of the organization.
IT monitoring and control also demonstrate that the company has implemented effec-
tive corporate governance and fraud prevention measures. Regulators look favorably on
companies that can demonstrate best practices in corporate governance and operational risk
management. Management and staff would then spend less time worrying about regulations
and more time adding value to their brands and business.
Internal fraud prevention measures are based on the same controls that are used to pre-
vent external intrusions—perimeter defense technologies, such as firewalls, e-mail scanners,
and biometric access. They are also based on human resource (HR) procedures, such as recruit-
ment screening and training.
Intelligent Analysis and Anomaly Detections Most detection activity can be han-
dled by intelligent analysis engines using advanced data warehousing and analytics techniques.
These systems take in audit trails from key systems and personnel records from the HR and
finance departments. The data are stored in a data warehouse where they are analyzed to detect
anomalous patterns, such as excessive hours worked, deviations in patterns of behavior, copy-
ing huge amounts of data, attempts to override controls, unusual transactions, and inadequate
Type of Fraud Impacts Financial Statements? Typical Characteristics
Operating Management
Corruption
No Occurs off the books. Median loss due to corruption is 6X
median loss due to misappropriation
Conflict of Interest No Breach of confidentiality, such as revealing competitor bids.
Often occurs coincident with bribery.
Bribery No Uses positional power or money to influence others
Embezzlement or
“misappropriation”
Yes Employee theft. Employee access to company property creates
the opportunity for embezzlement
Senior management financial
reporting fraud
Yes Involves massive breach of trust and leveraging of
positional power
Accounting Cycle fraud Yes Also called “earnings management” or “earnings engineering.”
Violates generally accepted accounting principles (GAAP) and
other all other accounting principles. See aicpa.org
FIGURE 5.9 Types, impact, and characteristics of occupational fraud.
152 C H A P T E R 5 Cybersecurity and Risk Management Technology
documentation about a transaction. Information from investigations is fed back into the detec-
tion system so it learns of any anomalous patterns. Since insiders might work in collusion with
organized criminals, insider profiling is important to find wider patterns of criminal networks.
General Controls
It is also important to have a set of general controls in place. The major categories of general
controls are physical controls, access controls, data security controls, communication network
controls, and administrative controls.
Physical Controls Physical security refers to the protection of computer facilities and
resources. This includes protecting physical property such as computers, data centers, soft-
ware, manuals, and networks. It provides protection against most natural hazards as well as
against some human hazards. Appropriate physical security may include several physical
controls such as the following:
• Appropriate design of the data center. For example, the data center should be noncombus-
tible and waterproof.
• Shielding against electromagnetic fields.
• Good fire prevention, detection, and extinguishing systems, including a sprinkler system,
water pumps, and adequate drainage facilities.
• Emergency power shutoff and backup batteries, which must be maintained in operational
condition.
• Properly designed and maintained air-conditioning systems.
• Motion detector alarms that detect physical intrusion.
Access Controls Access control is the management of who is and who is not autho-
rized to use a company’s hardware and software. Access control methods, such as firewalls
and access control lists, restrict access to a network, database, file, or data. It is the major line
of defense against unauthorized insiders as well as outsiders. Access control involves authori-
zation (having the right to access) and authentication, which is also called user identification
(proving that the user is who he or she claims to be).
Authentication methods include:
• Something only the user knows, such as a password
• Something only the user has, for example, a smart card or a token
• Something only the user is, such as a signature, voice, fingerprint, or retinal (eye) scan;
implemented via biometric controls, which can be physical or behavioral
Administrative Controls While the previously discussed general controls are technical
in nature, administrative controls deal with issuing guidelines and monitoring compliance
with the guidelines. Examples of controls are shown in Table 5.9.
To guard against fraud and protect clients, customers, and constituents, all public and
private enterprises are subject to federal and state laws and regulations, some of which are
shown in Figure 5.8. In the United States, the Sarbanes–Oxley Act requires that companies prove
that their financial applications and systems are controlled (secured) to verify that financial
reports can be trusted. It is intended to discourage fraud at the corporate and executive levels.
Sarbanes–Oxley Act Mandates More Accurate Business Reporting and
Disclosure of Violations The Sarbanes–Oxley Act (SOX) mandates more accurate
business reporting and disclosure of generally accepted accounting principles (GAAP) viola-
tions. Section 302 deters corporate and executive fraud by requiring that the CEO and CFO verify
that they have reviewed the financial report, and, to the best of their knowledge, the report
Defending Against Fraud 153
does not contain an untrue statement or omit any material fact. To motivate honesty, executive
management faces criminal penalties including long jail terms for false reports. Section 805 man-
dates a review of the Sentencing Guidelines to ensure that “the guidelines that apply to organi-
zations . . . are sufficient to deter and punish organizational criminal conduct.” The Guidelines
also focus on the establishment of “effective compliance and ethics” programs. As indicated in
the Guidelines, a precondition to an effective compliance and ethics program is “an organiza-
tional culture that encourages ethical conduct and a commitment to compliance with the law.”
Among other measures, SOX requires companies to set up comprehensive internal controls.
There is no question that SOX, and the complex and costly provisions it requires public com-
panies to follow, have had a major impact on corporate financial accounting. For starters, com-
panies have had to set up comprehensive internal controls over financial reporting to prevent
fraud, catching it when it occurs. Since the collapse of Arthur Andersen, following the accounting
firm’s conviction on criminal charges related to the Enron case, outside accounting firms have
gotten tougher with clients they are auditing, particularly with regard to their internal controls.
SOX and the SEC are making it clear that if controls can be ignored, there is no control.
Therefore, fraud prevention and detection require an effective monitoring system. If a company
shows its employees that it can find out everything that every employee does and use that evi-
dence to prosecute a wrongdoer to the fullest extent possible under the law, then the likelihood
of any employee adopting an “I can get away with it” attitude drops drastically.
Approximately 85% of occupational fraud could be prevented if proper IT-based internal
controls had been designed, implemented, and followed.
Internal Controls
The internal control environment is the work atmosphere that a company sets for its employees.
Internal control (IC) is a process designed to achieve:
• Reliability of financial reporting, to protect investors
• Operational efficiency
• Compliance with laws, regulations, and policies
• Safeguarding of assets
Cyber Defense Strategies
The objective of IT security management practices is to defend all of the components of an
information system, specifically data, software applications, hardware, and networks, so
they remain in compliance. Before they make any decisions concerning defenses, the people
responsible for security must understand the requirements and operations of the business,
which form the basis for a customized defense strategy.
TA B L E 5 . 9 Representative Administrative Controls
• Appropriately selecting, training, and supervising employees, especially in accounting and
information systems
• Fostering company loyalty
• Immediately revoking access privileges of dismissed, resigned, or transferred employees
• Requiring periodic modification of access controls, such as passwords
• Developing programming and documentation standards (to make auditing easier and to use the
standards as guides for employees)
• Insisting on security bonds or malfeasance insurance for key employees
• Instituting separation of duties, namely, dividing sensitive computer duties among as many
employees as economically feasible in order to decrease the chance of intentional or uninten-
tional damage
• Holding periodic random audits of the system
154 C H A P T E R 5 Cybersecurity and Risk Management Technology
The defense strategy and controls that should be used depend on what needs to be pro-
tected and a cost–benefit analysis. That is, companies should neither underinvest nor overin-
vest. The major objectives of defense strategies are listed in Table 5.10.
A defense strategy is also going to require several controls, as shown in Figure 5.10.
General controls are established to protect the system regardless of the specific application.
For example, protecting hardware and controlling access to the data center are independent
of the specific application. Application controls are safeguards that are intended to protect
specific applications. In the next two sections, we discuss the major types of these two groups
of information system controls.
TA B L E 5 . 1 0 Major Objectives of Defense Strategies
Action Details
Prevention and deterrence Properly designed controls may prevent errors from occurring, deter criminals from attacking the
system, and, better yet, deny access to unauthorized people. These are the most desirable controls.
Detection Like a fire, the earlier an attack is detected, the easier it is to combat, and the less damage is done.
Detection can be performed in many cases by using special diagnostic software, at a minimal cost.
Contain the damage This objective involves minimizing or limiting losses once a malfunction has occurred. It is also called
damage control. This can be accomplished, for example, by including a fault-tolerant system that
permits operation in a degraded mode until full recovery is made. If a fault-tolerant system does not
exist, a quick and possibly expensive recovery must take place. Users want their systems back in oper-
ation as fast as possible.
Recovery A recovery plan explains how to fix a damaged information system as quickly as possible. Replacing
rather than repairing components is one route to fast recovery.
Correction Correcting the causes of damaged systems can prevent a problem from occurring again.
Awareness and compliance All organization members must be educated about the hazards and must comply with the security
rules and regulations.
Defense Control
Web Controls
Biometrics
Data Security
Communication
Administrative
Other
Access
Physical
Output
Processing
Input
Encryption
Cable Testers
Firewalls
Virus Protection
Authentication Biometrics
General Application
FIGURE 5.10 Major defense controls.
Frameworks, Standards, and Models 155
Auditing Information Systems
Some companies rely on surprise audits. But being proactive about searching for problems
is more effective and can stop frauds early on, before the losses mount. An audit is an impor-
tant part of any control system. Auditing can be viewed as an additional layer of controls or
safeguards. It is considered as a deterrent to criminal actions, especially for insiders. Auditors
attempt to answer questions such as these:
• Are there sufficient controls in the system? Which areas are not covered by controls?
• Which controls are not necessary?
• Are the controls implemented properly?
• Are the controls effective? That is, do they check the output of the system?
• Is there a clear separation of duties of employees?
• Are there procedures to ensure compliance with the controls?
• Are there procedures to ensure reporting and corrective actions in case of violations
of controls?
Auditing a website is a good preventive measure to manage the legal risk. Legal risk is
important in any IT system, but in Web systems it is even more important due to the content
of the site, which may offend people or be in violation of copyright laws or other regulations
(e.g., privacy protection). Auditing e-commerce is also more complex since, in addition to the
website, one needs to audit order taking, order fulfillment, and all support systems.
Questions
1. What defenses help prevent occupational fraud?
2. What level of employee commits the most occupational fraud?
3. What is the purpose of internal controls?
4. What federal law requires effective internal controls?
5. Explain the concepts of intelligence analysis and anomaly detection.
6. Name the major categories of general controls.
7. Explain authentication and name two methods of authentication.
8. What are the six major objectives of a defense strategy?
5.5 Frameworks, Standards, and Models
A number of frameworks, standards, and models have been developed to guide cyber defense
strategies.
Risk Management and IT Governance Frameworks
Two widely accepted frameworks that guide risk management and IT governance are Enter-
prise Risk Management (ERM) and Control Objectives for Information and Related Tech-
nology (COBIT) 5.
Enterprise Risk Management Framework ERM is a risk-based approach to
managing an enterprise developed by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). ERM integrates internal control, the Sarbanes–Oxley Act man-
dates, and strategic planning.
ERM consists of eight components, listed in Table 5.11.
156 C H A P T E R 5 Cybersecurity and Risk Management Technology
These eight components can be viewed from a strategic, operations, reporting, and com-
pliance perspective at all level of the organizations. Taking a portfolio view of risk, management
must consider how individual risks are interrelated and apply a strong system of internal
controls to ensure effective enterprise risk management. Those involved in ERM include
management, Board of Directors, Risk officers, and internal auditors. ERM is intended to be
part of routine planning processes rather than a separate initiative. The ideal place to start is
with buy-in and commitment from the board and senior leadership.
COBIT 5 COBIT 5, is the internationally accepted IT governance and control framework
created by the International Systems Audit and Control Association (ISACA) to align IT with
business objectives, delivering value, and manage associated risks. It provides a framework for
management, users, and IS audit, control, and security practitioners that allows them to bridge
the gap between control requirements, technical issues, and business risks.
COBIT 5 is the leading framework for the governance and security of IT. COBIT 5, the most
current version of the COBIT 5 framework is based on five principles, shown in Figure 5.11.
COBIT 5 contains highly relevant guidance for IT practitioners and business leaders regarding
TA B L E 5 . 1 1 Enterprise Risk Management Components
Component Description
Internal environment Assess risk management philosophy and culture
Objective setting Determine relationship of risk to organizational goals
Event identification Differentiate between risks and opportunities; negative/
positive impact
Risk assessment Assess risk probability and impact
Risk response Identify and evaluate risk responses
Control activities Develop policies and procedures to ensure implementation of
risk responses
Information and communication Identify, capture, and communicate information
Monitoring Conduct ongoing and separate evaluations of risk-related activities
1. Meeting
Stakeholder
Needs
5. Separating
Governance
From
Management
4. Enabling a
Holistic
Approach
3. Applying a
Single
Integrated
Framework
2. Covering
the
Enterprise
End-to-End
COBIT 5
Principles
FIGURE 5.11 COBIT 5 principles.
Frameworks, Standards, and Models 157
governing and protecting data and information. COBIT 5 encourages each organization to
customize COBIT to fit its priorities and circumstances and can be downloaded from isaca.org.
Three of the five COBIT 5 principles are most applicable to security:
1. A system needs to be in place that considers and effectively addresses enterprise
information security requirements. At a minimum, this would include metrics for the
number of clearly defined key security roles and the number of security-related inci-
dents reported.
2. An established security plan has been accepted and communicated throughout the
organization. This would include level of stakeholder satisfaction with the security
plan, the number of security solutions that are different from those in the plan and the
number of security solutions deviating from the enterprise security architecture that
can lead to security gaps and potentially lengthen the time to resolve security or com-
pliance issues.
3. Information security solutions are implemented throughout the organization. These
should include the number of services and solutions that align with the security plan and
security incidents caused by noncompliance with the security plan.
By following these three principles, using a specified set of IT-enabling processes, and tak-
ing additional steps to move from an application centric focus to a data centric focus, organiza-
tions that use COBIT 5 can improve the governance and protection of their data and information.
While COBIT 5 provides sound and comprehensive improvement recommendations to
start the security governance journey, organizations clearly need to move beyond reactive
compliance and security to proactively mandating the need for data privacy and security
enterprise-wide. In this way data are always protected.
ERM and COBIT 5 can be used separately or jointly. As with most improvement methodol-
ogies, the key to success is to start using them one step at a time.
Industry Standards
Industry groups impose their own standards to protect their customers and their members’
brand images and revenues. One example is the Payment Card Industry Data Security
Standard (PCI DSS) created by Visa, MasterCard, American Express, and Discover. PCI is
required for all members, merchants, or service providers that store, process, or transmit
cardholder data. PCI DSS requires merchants and card payment providers to make certain
their Web applications are secure. If done correctly, this could reduce the number of Web-
related security breaches.
The purpose of the PCI DSS is to improve customers’ trust in e-commerce, especially when
it comes to online payments, and to increase the Web security of online merchants. To motivate
following these standards, the penalties for noncompliance are severe. The card brands can
fine the retailer, and increase transaction fees for each credit or debit card transaction. A find-
ing of noncompliance can be the basis for lawsuits.
IT Security Defense-In-Depth Model
The Defense-in-Depth Model encourages a multilayered approach to information security.
The basic principle is that when one defense layer fails, another layer provides protection. For
example, if a wireless network’s security was compromised, then having encrypted data would
still protect the data, provided that the thieves could not decrypt it.
The success of any type of IT project depends on the commitment and involvement of
executive management, also referred to as the tone at the top. The same is true of IT security.
This information security tone makes users aware that insecure practices and mistakes will not
be tolerated. Therefore, an IT security model begins with senior management commitment and
support, as shown in Figure 5.12. The model views information security as a combination of
people, policies, procedures, and technology.
158 C H A P T E R 5 Cybersecurity and Risk Management Technology
To use the Defense-in-Depth Model an organization must carry out four major steps:
Step 1: Gain senior management commitment and support Senior managers’ influence
is needed to implement and maintain security, ethical standards, privacy practices, and
internal control. IT security is best when it is top-driven. Senior managers decide how stringent
infosec policies and practices should be in order to comply with laws and regulations. Finan-
cial institutions are subject to strict security and anti-money laundering (AML) rules because
they face numerous national and international regulations and have high-value data. Advertis-
ing agencies and less regulated firms tend to have more lenient rules. Other factors influencing
infosec policies are a corporation’s culture and how valuable their data are to criminals.
For instance, management may decide to forbid employees from using company
e-mail accounts for nonwork purposes, accessing social media during work hours, or
visiting gambling sites. These decisions will then become rules stated in company policy,
integrated into procedures, and implemented with technology defenses. Sites that are
forbidden, for instance, can be blocked by firewalls.
Step 2: Develop acceptable use policies and IT security training Organizations need
to put in place strong policies and processes that make responsibilities and accountabilities
clear to all employees. An acceptable use policy (AUP) explains what management has
decided are acceptable and unacceptable activities, and the consequences of noncompli-
ance. Rules about tweets, texting, social media, e-mail, applications, and hardware should
be treated as extensions of other corporate policies—such as physical safety, equal oppor-
tunity, harassment, and discrimination. No policy can address every future situation, so
rules need to be evaluated, updated, or modified. For example, if a company suffers a mal-
ware infection traced to an employee using an unprotected smartphone connected to the
company network, policies to restrict or prohibit those connections might be advisable.
Step 3: Create and Enforce IT security procedures and enforcement Secure proce-
dures define how policies will be enforced, how incidents will be prevented, and how an
incident will be responded. Here are the basic secure procedures to put in place:
a. Define enforcement procedures Rules that are defined in the AUP must be enforced
and enforcement procedures must be applied consistently. Procedures for monitoring
employee Internet and network usage are defined at this stage.
b. Designate and empower an internal incident response team (IRT) The IRT typi-
cally includes the CISO, legal counsel, senior managers, experienced communicators,
and key operations staff. Minimizing the team size and bureaucracy can expedite
decision making and response. Because there may be significant liability issues, legal
counsel needs to be involved in incident response planning and communication.
c. Define notification procedures When a data breach occurs the local police depart-
ment, local office of the FBI, Securities and Exchange Commission (SEC), the U.S. Secret
Service, or other relevant agency need to be notified immediately. Federal and state laws
or industry regulations may define how and when affected people need to be notified.
Step 4
Hardware and software
(kept up-to-date)
Step 3
IT security procedures
and enforcement
Step 2
Acceptable use policies
and IT security training
Step 1
Senior management
commitment and support
FIGURE 5.12 IT security defense-in-depth model.
Frameworks, Standards, and Models 159
d. Define a breach response communications plan Effective incident response com-
munication plans include personnel and processes with lists, channels, and social
media needed to execute all communications that might be needed.
e. Monitor information and social media sources Monitor Twitter, social media, and
news coverage as a standard procedure to understand how people are responding to
the incident and criticizing the company. Damage control procedures may be needed.
When an incident occurs, the organization is ready to respond intelligently—having
the correct information to be honest, open, and accountable, and to communicate with
consumers and other important audiences as quickly as possible.
Step 4: Implement Security Tools: Hardware and software The last step in the
model is implementation of software and hardware needed to support and enforce the
AUP and secure practices. The selection of hardware and software defenses is based on
risk, security budget, AUP, and secure procedures. Every device that connects to an organi-
zation’s network; every online activity and mobile app of employees; and each file sent or
received are access points. Technology defense mechanisms need to be:
• able to provide strong authentication and access control of industrial grade
• appropriate for the types of networks and operating systems
• installed and configured correctly
• tested rigorously
• maintained regularly
How much does a cyberattack really cost an organization? Regulatory fines, public rela-
tions costs, breach notification and protection costs, and other consequences of large-scale
data breaches are easy to see and quantify. However, the effects of a cyberattack can linger for
years, resulting in a wide range of intangible costs tied to a damaged reputation, disruption of
operations, loss of IP or other strategic assets. The latter are much more difficult to measure
since they are not easily quantifiable.
No matter which frameworks, standards, and controls are used to assess, monitor, and
control cyber risk, a balanced approach to measuring direct costs and intangible impacts asso-
ciated with cyberattacks must be used to paint an accurate picture of the damage sustained
and to guide the creation of increased security measures going forward.
Questions
1. Who created the Enterprise Risk Management Framework? What is its purpose?
2. What are the five principles of COBIT 5? Explain.
3. What is the difference between internal and external controls?
4. Why do industry groups have their own standards for cybersecurity? Name one standard.
5. Are measurements of direct costs sufficient to reflect total damage sustained by a cyberattack?
6. What four components comprise the IT security defense-in-depth model?
7. What are the four steps in the IT security defense-in-depth security model?
8. Explain why frameworks, standards, and models are important parts of a cybersecurity program.
Key Terms
acceptable use policy (AUP) 158
access control 152
administrative controls 152
advanced persistent threat (APT) 139
adware 135
Anonymous 139
application controls 154
assets 139
attack vector 138
audit 155
backdoor 134
biometric control 148
160 C H A P T E R 5 Cybersecurity and Risk Management Technology
Explore: Online and Interactive Exercises
1. Visit http://www.informationisbeautiful.net/visualizations/worlds-
biggest-data-breaches-hacks
a. Choose two companies where data breaches have occurred.
b. Explain the reasons for these breaches and discuss how they
could have been avoided.
2. Visit https://www.identityforce.com/resources/quiz and take the
Identity Theft Quiz. What was your score? Explain ways in which you could
improve your score so that you are not as much at risk for identity theft.
3. Visit https://www.identityforce.com/blog/2016-data-breaches and
choose one of the major data breaches listed. Read about the data breach.
What lessons did you learn from the article?
black hat 133
botnet 136
bring your own apps (BYOA) 143
bring your own device (BYOD) 143
business continuity plan 149
business impact analysis (BIA) 163
command and control (C&C) channel 144
consumerization of information technology
(COIT) 143
contract hacker 134
Control Objectives for Information and
Related Technology (COBIT) 5 155
corporate governance 151
critical infrastructure 140
cyberthreat 131
data breach 130
Data incident 130
data tampering 137
distributed denial-of-service (DDoS)
attack 135
do-not-carry rules 149
enterprise risk management (ERM) 155
fraud 150
general controls 154
gray hat 133
hacking 133
hacktivist 133
intellectual property 141
internal control (IC) 153
internal threats 137
intrusion detection system (IDS) 137
intrusion prevention system (IPS) 146
IT governance 156
LulzSec 139
malware 135
mobile biometrics 148
occupational fraud 150
patches 144
payload 136
Payment Card Industry Data Security
Standard (PCI DSS) 157
permanent denial-of-service (PDoS) 137
phishing 134
physical controls 152
ransomware 135
remote access trojan (RAT) 136
remote wipe capability 148
risk 146
rogue app monitoring 148
rootkit 135
service pack 144
signature 136
social engineering 133
spam 136
spear phishing 135
spyware 135
telephony denial-of-service (TDoS) 137
threat 130
time-to-exploitation 144
trojan 135
Trojan horse 136
vector 136
Virus 135
voice biometrics 148
vulnerability 130
white hat 133
worm 135
zero-day exploit 136
zombie 136
Assuring Your Learning
Discuss: Critical Thinking Questions
1. Why is cybercrime expanding rapidly? Discuss some possible
solutions.
2. In addition to hackers, what kinds of cybercriminals do organiza-
tions need to defend against?
3. What are the major motives of cybercriminals?
4. In what ways do users make themselves vulnerable to cybercrimes?
5. Why do malware creators alter their malware?
6. Why should you set a unique password for each website, service,
and device that you use?
7. How can malware be stopped from stealing or disclosing data from
an organization’s network?
8. What impact might huge fines have on how much a company budg-
ets for IT security defenses?
9. Why are BYOD, BYOA, and do-not-carry rules important to IT secu-
rity? Why might users resist such rules?
10. Why do users refuse to use strong passwords even though they
know how dangerous weak passwords are?
11. How can the risk of occupational fraud be decreased?
12. Why should information control and security be of prime concern
to management?
13. Explain what firewalls protect and what they do not protect.
14. Why are authentication and authorization important in
e-commerce?
15. Some insurance companies will not insure a business unless the
firm has a computer disaster recovery plan. Explain why.
16. Explain why risk management should involve the following ele-
ments: threats, exposure associated with each threat, risk of each
threat occurring, cost of controls, and assessment of their effectiveness.
17. Discuss why the Sarbanes–Oxley Act focuses on internal control.
How does that focus influence information security?
Case 5.2 161
Case 5.2
Business Case: Lax Security at LinkedIn Exposed
On any social network, most users mistakenly believe that their privacy is
only as good as the privacy of their most careless—or temporary—friend.
In fact, weak passwords and hackers can deprive users of all privacy.
When the business social networking site LinkedIn was hacked
(Figure 5.13), hackers stole 6.5 million passwords and e-mail addresses.
This data breach was discovered by IT security experts when they found
millions of LinkedIn passwords posted on a Russian underground web-
site (Figure 5.14). Experts also determined that a hacker named Dwdm
was asking underground members for help in cracking the stolen
passwords. Within only 2 days, most passwords were cracked. Why
were LinkedIn’s passwords cracked so quickly? The simple answer is
that LinkedIn was using an outdated encryption method instead of up-
to-date industry-standard encryption. As a result, members’ passwords
were really only camouflaged—and crackable.
LinkedIn Criticized for Bad Data Security
What could hackers do to your online accounts if they had your pass-
words for 48 hours and you did not know? That is what LinkedIn
allowed to happen by waiting 2 days before notifying members that
their passwords had been stolen. The company took a lot of criticism
Hackers breached Linkedln’s
network and stole 6.5 million of its
customers’ passwords, which had
been only lightly encrypted. They
were posted to a Russian hacker
forum for all to see and steal.
Data Breach
Linkedln
Hack attack led to 6.5 million
e-mail addresses and passwords
being compromised.
Over $1 million in costs
associated with forensic work,
investigating, and addressing
the breach.
Seven-figure investments in IT
infrastructure to update and
harden network and data security.
Costs
FIGURE 5.13 LinkedIn data breach overview.
©
K
ev
in
B
rit
la
nd
/A
la
m
y
FIGURE 5.14 LinkedIn did not discover its own data breach
and, when informed of it, delayed notifying members.
4. Research vendors of biometrics. Select one vendor and discuss three
of its biometric devices or technologies. Prepare a list of major capabili-
ties. What are the advantages and disadvantages of its biometrics?
5. Visit https://learn-umbrella.cisco.com/product-videos/what-is-
a-secure-internet-gateway to watch the video “What is a Secure In-
ternet Gateway?”, where Dan Hubbard, Cloud Security Product CTO at
Cisco explains how security needs to adapt to keep up with the evolv-
ing workforce and how Cisco Umbrella can assist companies protect
their employees wherever they choose to work.
a. Describe two things that you learned from watching this video.
b. Do you think Cisco Umbrella would be an effective tool for
companies to use? Explain why or why not.
Analyze & Decide: Apply IT Concepts to Business Decisions
1. Many firms concentrate on the wrong questions and end up throw-
ing a great deal of money and time at minimal security risks while ig-
noring major vulnerabilities. Why?
2. Assessing how much a company is legally obligated to invest in cy-
bersecurity remains a challenge. Since there is no such thing as perfect
security (i.e., there is always more that you can do), resolving these
questions can significantly affect cost.
a. When are a company’s security measures sufficient to com-
ply with its obligations? For example, does installing a firewall
and using virus detection software satisfy a company’s legal
obligations?
b. Is it necessary for an organization to encrypt all of its data?
3. Assume that the daily probability of a major earthquake in Los An-
geles is .07%. The chance of your computer center being damaged dur-
ing such a quake is 5%. If the center is damaged, the average estimated
damage will be $1.6 million.
a. Calculate the expected loss (in dollars).
b. An insurance agent is willing to insure your facility for an annual
fee of $15,000. Analyze the offer, and discuss whether to accept it.
4. Should an employer notify employees that their usage of comput-
ers is being monitored? Why or why not?
5. Twenty-five thousand messages arrive at an organization each year.
Currently, there are no firewalls. On average, 1.2 successful hackings
occur each year. Each successful hack attack results in a loss of about
$130,000 to the company. A major firewall is proposed at a cost of
$66,000. The estimated useful life is three years. The chance that an in-
truder will break through the firewall is 0.0002. In such a case, the dam-
age will be $100,000 (30%), $200,000 (50%), or there will be no dam-
age. There is an annual maintenance cost of $20,000 for the firewall.
a. Should management buy the firewall?
b. An improved firewall that is 99.9988% effective and that costs
$84,000, with a life of three years and annual maintenance cost of
$16,000, is available. Should this firewall be purchased instead of
the first one?
162 C H A P T E R 5 Cybersecurity and Risk Management Technology
for not notifying members via Twitter or Facebook immediately.
According to the chief executive of the Public Relations Consultants
Association, Francis Ingham, LinkedIn ignored the first rule of crisis
management, which is to be first to tell your customers.
What surprised customers and IT security experts was that a com-
pany that collects and profits from vast amounts of data had taken a
negligent approach to protecting it. Figure 5.15 explains why it was sur-
prising and alarming that LinkedIn’s password protection was weak.
E-mail Addresses are Universal Usernames
At most e-commerce and social sites, usernames are e-mail addresses—
making them our universal username for online accounts. If the e-mail
is a work account, then everyone also knows where we work and our
login name. Therefore, knowing users’ usernames and passwords pro-
vides authorized access to corporate accounts with almost no risk of
being detected. Hackers attacked LinkedIn to gain access to over 161
million members’ credentials as a means to gain access to much more
valuable business networks and databases.
Business Risks and Collateral Damage
The hack caused the following business risks and collateral damage.
• Takeover of members’ other accounts by hackers, fraudsters, and
other criminals. Hackers know that people reuse passwords; once
their LinkedIn accounts are linked to Facebook and Twitter, far too
much information may be revealed. Knowing where people worked
and their e-mail accounts allowed hackers to quickly use the stolen
LinkedIn passwords to log in to corporate accounts, online bank
accounts, and so on to steal more data or transfer funds.
• Damage to LinkedIn’s biggest revenue source—its advertising
business. LinkedIn’s financial success is tied to its advertising rev-
enues, which in turn are based on the number of active members
and membership growth.
• Fines for violating privacy laws and regulations. Any company
exposing the confidential data of customers or employees faces
steep fines. Regulators impose harsh penalties for breaking pri-
vacy laws and not taking reasonable care to defend against data
breaches. Strict data privacy laws in states such as Massachusetts
and California could keep LinkedIn fighting legal battles for years.
• Cleanup costs. The cleanup cost LinkedIn nearly $1 million and
another $2–$3 million in upgrades. Forensic work on the pass-
word theft cost another $500,000 to $1 million.
Data Security: A Top Management Concern
Data security is a senior management concern and responsibility. It
affects a company’s operations, reputation, and customer trust, which
ultimately impact revenue, profits, and competitive edge. Yet, defenses
that could help to prevent breaches are not always implemented.
Some experts argue that senior management continues to skimp
on basic protections because computer security is not regulated—that
is, until a business suffers a major crisis. After the data breach, LinkedIn
implemented improved password storage encryption, hired private
security and forensics experts, and called in the FBI to help investigate
the security breach.
Comparison with Other Cyberattacks
While 6.5 million leaked passwords represent a serious breach, it
affected a relatively small percent of the more than 175 million mem-
bers LinkedIn had at that time. Overall, the LinkedIn breach, while
somewhat costly, did not do as much harm as those experienced by
other hacked companies such as Global Payments, Sony, and Certifi-
cate Authority DigiNotar, which were literally hacked out of business.
Just the Beginning
Four years after the data breach, the number of released account details
was found to be 117 million rather than 6.5 million. In May, 2016, Russian
hacker “Peace,” who sold the Yahoo data breach information in the Open-
ing Case, made available for purchase LinkedIn account details on a mar-
ketplace in the Dark Web for $2,300. In response to the massive breach
of additional accounts, LinkedIn required the affected accountholders
to change their passwords and urged all other users to change theirs as
well. In addition, LinkedIn spent about $4 million repairing and upgrad-
ing their security infrastructure to combat future leaks (Hackett, 2016b).
Questions
1. LinkedIn does not collect the credit card or other financial
account information of its members. Why then would profit-
motivated hackers be interested in stealing LinkedIn’s stored
data? What data would hackers be most interesting in accessing?
2. Companies are often slow to self-detect data breaches so a
cyberattack can occur without a company even knowing it has a
problem. What effect do you think LinkedIn’s failure to self-detect
its massive data breach had on its popularity and credibility?
3. Most corporate security incidents are uncovered by a third party,
like a security firm, that picks up on evidence of malicious activity.
Why do you think IT security experts and not LinkedIn discovered
the data breach?
4. Explain why LinkedIn’s lax approach to members’ information
security and weak passwords was very surprising to members
and information security professionals.
5. Identify and evaluate the actual and potential business risks and
damages from LinkedIn’s data breach.
6. In your opinion, was LinkedIn negligent in protecting its main
asset? Explain.
• Linkedln’s business model: collect and profit from data.
• Linkedln was not some cash-poor startup company.
The company had piles of cash from its successful
initial public offering (IPO) in May 2011. Once it went
public, Linkedln, like all public companies, had to
report hack attacks to the SEC.
• Linkedln’s net income for the first quarter of 2012 was
$5 million, more than double its $2.1 million net income
in the first quarter 2011. Linkedln had a lot to protect . . .
and lose.
Its most valuable asset is data
It’s a high-tech, public company with a brand
image to protect
It had a lot of net income to protect
FIGURE 5.15 Three reasons why LinkedIn’s underinvestment in
data security did not make business sense.
Sources: Compiled from Franceschi-Bicchierai (2016), Hackett (2016b), and
Ponemon Institute (2017).
Case 5.3 163
Case 5.3
Video Case: Botnets, Malware Security, and
Capturing Cybercriminals
Gunter Ollmann, vice president of research at Damballa, Inc., explains
what companies have learned from the Operation Aurora attacks
against major companies. In the video, you will learn why it is difficult
for law enforcement to track and prosecute cybercriminals, includ-
ing botnet operators who now launch targeted botnet attacks with
the help of automated tools. Also discussed is the effectiveness of
Microsoft’s legal action to shut down the C&C (command and control)
network of the Waladec botnet. Visit searchsecurity.techtarget.com/
video/Botnets-malware-and-capturing-cybercriminals to view the
video, read its transcript and answer the following questions.
Questions
1. Why are botnets used?
2. What is needed to get started in the botnet industry? Explain why.
3. Given your answers, what should users and organizations do and/
or not do to reduce the threat of botnets?
IT Toolbox
Conducting a Cost–Benefit Analysis
It is usually not economical to prepare protection against every
possible threat. Therefore, an IT security program must provide a
process for assessing threats and deciding which ones to prepare
for, which ones to ignore and which ones to provide reduced protec-
tion against. Two commonly used cost-benefit analysis tools are risk
assessment and business impact analysis. Risk assessment relies
solely on quantitative measures, while the business impact analysis
takes into account both qualitative and quantitative indicators.
• Risk assessment
Risk assessments are done using an app or spreadsheet. The
basic computations are shown here:
1 2Expected loss P P L
where
P1 = probability of attack (estimate, based on judgment)
P2 = probability of attack being successful (estimate, based
on judgment)
L = loss occurring if attack is successful
Example:
An organization estimates that the probability of a cyberattack
is 2% and the attack has only a 10% chance of being successful. If the
attack is successful, the company estimates that it will lose $1 million.
This would be expressed as:
1 2.02, .10, $1,000,000P P L
Then expected loss from this particular attack is
1 2 0.02 0.1 $1,000,000 $2,000P P L
• Business impact analysis
A business impact analysis (BIA) estimates the consequences
of disruption of a business function and collects data to develop
recovery strategies.
Potential loss scenarios are first identified during the risk assess-
ment. Operations may also be interrupted by the failure of a supplier
of goods or services or delayed deliveries. There are many possible
scenarios that should be considered.
The BIA identifies both operational and financial impacts result-
ing from a disruption. The financial impacts are easier to assess, but
the operational impacts are more difficult to determine because of
their qualitative nature. Several examples of operational and finan-
cial impacts to consider are shown in Table 5.12.
The losses assessed using these two methods should be com-
pared with the costs for possible recovery strategies to determine net
risk. The BIA report should also prioritize the order of events for resto-
ration of the business, with processes having the greatest operational
and financial impacts being restored first.
TA B L E 5 . 1 2 Business Disruption Qualitative and Quantitative Impacts
Type Metric Description
Financial Quantitative Lost sales and income
Delayed sales or income
Increased expenses (e.g., overtime labor, outsourcing, expediting costs)
Regulatory fines
Contractual penalties or loss of contractual bonuses
Operational Qualitative Customer dissatisfaction or defection
Delay of new business plans
164 C H A P T E R 5 Cybersecurity and Risk Management Technology
References
Abadi, M., and D.G. Andersen. “Learning to Protect Communications
with Adversarial Neural Cryptography.” Cornell University Library,
October 24, 2016.
Balakrishnan, A. “U.S. Accuses Russia of Hacking Yahoo.” CNBC,
March 15, 2017.
Berman, R. “Alice, Bob, and Eve Are Neural Networks. And They Have
Secrets.” Big Think, November 1, 2016.
Breach Level Index. “2015: The Year Data Breaches Got Personal.”
February 18, 2016.
Burgess, M. “How Google’s AI taught itself to create its own encryp-
tion.” Wired, October 31, 2016.
Department of Justice. “The USA Patriot Act: Preserving Life and
Liberty”. 2001. Accessed from https://www.justice.gov/archive/ll/
highlights.htm
Duan, E. “DressCode and its Potential Impact for Enterprises.” Trend-
Micro, September 29, 2016.
Fiegerman, S. “Verizon says Yahoo’s massive breach could impact
deal.” CNN, October 13, 2016.
Franceschi-Bicchierai, L. “Another Day, Another Hack: 117 Million
LinkedIn Emails and Passwords.” Motherboard Vice, May 18, 2016.
Gelinne, J., J. Fancher, and E. Mossburg. “The Hidden Costs of an IP
Breach: Cyber Theft and the Loss of Intellectual Property.” Deloitte
Review, Issue 19, July 25, 2016.
Gibson Dunn. “President Obama Signs Federal Trade Secrets Law.”
May 11, 2016.
Goldman, J. “All-Time High of 1,093 Data Breaches Reported in U.S.
in 2016.” E-Security Planet, January 24, 2017. Accessed from: http://
w w w.esecurit yplanet.com/net work-securit y/all-time -high – of-
1093-data-breaches-reported-in-u.s.-in-2016.html
Goodin, D. “Godless Apps, Some Found in Google Play, Can Root 90%
of Android Phones.” ArsTechnica, June 23, 2016.
Hackett, R. “Yahoo’s Titanic Data Breach Highlights Risk to M&A.” For-
tune, September 23, 2016a.
Hackett, R. “LinkedIn Lost 167 Million Account Credentials in Data
Breach.” Fortune, May 18, 2016b.
Kan, M. “Hackers Now Have a Treasure Trove of User Data with the
Yahoo Breach.” International Data Group, September 22, 2016.
KPMG. Consumer Loss Barometer. 2016. https://assets.kpmg
.com/conte nt /dam/ k pmg /cn/p df/e n/ 2016/0 8/consum e r- los s –
barometer-v1
Lee, D. “‘State’ Hackers Stole Data from 500 Million Users.” BBC, Sep-
tember 23, 2016.
Matwyshyn, A., and H. Bhargava. “Will Yahoo’s Data Breach Help
Overhaul Online Security?” Knowledge@Wharton: University of
Pennsylvania, September 27, 2016. Accessed from http://knowl-
edge.whar ton.upenn.edu/ar ticle/will-yahoos-data-breach-help-
overhaul-online-security/
Morris, A., D. Nathan, and A. Ayyar. “Broker-Dealers and Their
Auditors Face Increased Regulatory Scrutiny.” Bloomberg Legal,
November 3, 2016.
Murgia, M. “Cyber experts look to usual suspects in Yahoo hack.”
Financial Times, September 25, 2016.
Ponemon Institute. “2017 Cost of Data Breach Study: Global Over-
view” June, 2017.
PricewaterhouseCoopers. “US Cybersecurity: Progress Stalled.”
July, 2015.
RT.com. “Buyer Beware: US Is Biggest Creator of Malicious Mobile
Apps.” February 4, 2015.
Sterling, G. “Bing Reaches 20 Percent Search Market Share Milestone
in US.” SearchEngineLand, April 16, 2015.
Verizon. “2016 Data Breach Investigations Report.” Accessed from:
http://www.verizonenterprise.com/verizon-insights-lab/dbir/2016
165
CHAPTER 6
Search, Semantic, and
Recommendation Technology
C H A P T E R O U T L I N E
Case 6.1 Opening Case: Mint.com Uses Search
Technology to Rank Above Established Competitors
6.1 Using Search Technology for Business
Success
6.2 Organic Search and Search Engine
Optimization
6.3 Pay-Per-Click and Paid Search Strategies
6.4 A Search for Meaning—Semantic Technology
6.5 Recommendation Engines
Case 6.2 Business Case: Deciding What to Watch—
Video Recommendations at Netflix
Case 6.3 Video Case: Power Searching with Google
L E A R N I N G O B J E C T I V E S
6.1 Describe how search engines work and identify ways that
businesses gain competitive advantage by using search
technology effectively.
6.2 Explain how to improve website ranking on search
results pages by optimizing website design and creating
useful content.
6.3 Describe how companies manage paid search advertising
campaigns to increase awareness and drive sales volume.
6.4 Describe how semantic Web technology enhances the accuracy
of search engines results and how businesses can optimize their
websites to take advantage of this emerging technology.
6.5 Describe how recommendation engines are used to enhance
user experience and increase sales on e-commerce websites.
Introduction
Every day, over 1.5 billion people around the world use what seems to be a simple tool to find
information online—a search engine. We sometimes take for granted that behind a relatively
simple user interface, an increasingly complex set of search engine technologies are at work,
166 C H A P T E R 6 Search, Semantic, and Recommendation Technology
helping us find the information we need to do our jobs, conduct research, locate product
reviews, or find information about the television shows we watch. Because most search engine
services are free, people are not generally aware that “Search” has become a multibillion- dollar-
a-year business. More importantly, the way search engines work and how they rank-order the
links displayed when we conduct a search have huge implications for millions of other busi-
nesses. Because consumers typically don’t look past the first few pages of search results, hav-
ing your business appear at the top of a search results page can make a big difference in how
much traffic your website gets. In this chapter, you will read about how search engines work
and how they determine which websites are listed at the top of search results. You will also read
about the strategies companies use to increase their presence on search results pages includ-
ing search engine optimization (SEO) and pay-per-click (PPC) advertising.
Semantic technologies are increasingly being used by search engines to understand
Web page content. In this chapter you will read about the ways that search engines are using
semantic technology to improve performance, increasing relevant pages and decreasing the
number of irrelevant pages that appear in search results.
Finally, you will read about recommendation engines. These tools attempt to anticipate
online information you might be interested in. Netflix uses recommendation engines to sug-
gest movies you might like to watch and news organizations use them to recommend stories
you might want to read on their websites. Amazon credits its recommendation technology for
increasing sales by suggesting products that customers might want to buy.
Business managers need to understand search and recommendation technologies because
their influence in directing potential consumers to business websites is already significant and
expected to grow substantially in the future.
Case 6.1 Opening Case
Mint.com Uses Search Technology to Rank Above
Established Competitors
Company Overview
Mint is a popular, Web-based personal finance service that makes it
easy for users to keep track of bank, credit card, and other financial
accounts using a computer or mobile device. Customers can also use
the service to create budgets and monitor progress toward financial
goals. Since it began in 2006, the company has grown rapidly despite
competition from more established companies. In 2009, Mint was
acquired by Intuit, the maker of TurboTax and Quicken financial soft-
ware. Today, over 20 million people use Mint’s free financial manage-
ment service (Table 6.1).
The Business Challenge
In the months leading up to the 2006 launch of Mint.com, a personal
finance service, the leadership team faced a formidable challenge: How
to establish name awareness and brand equity in a market filled with
established competitors, without spending a lot of money? Mint knew
it would be competing in a market space already populated by familiar
brands like Quicken Online and Microsoft Money Online. Since online
platforms and communication channels tend to favor existing compa-
nies with established audiences and reputations, the team knew they
had to come up with a powerful strategy for overcoming the estab-
lished brands.
Mint’s Content Marketing Strategy
As a Web-based service, it was critical for Mint.com to rank high on
search engine results pages (SERPs) when consumers used sites like
Google or Bing to find information about personal finance services and
related topics. Consumers are more likely to visit websites that appear
at the top of SERPs. While the service was still in the beta (trial) stage
of development, workers at Mint developed an aggressive strategy to
optimize the brand’s ranking on popular search engines. Their strat-
egy involved building the company’s Web presence on criteria used by
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Introduction 167
TA B L E 6 . 1 Opening Case Overview
Company Mint
History Mint was launched in 2006 as a free, Web-based personal finance app by founder Aaron Patzer. In 2009,
the company was acquired by the financial software company Intuit.
Growth Within two years of launch, Mint claimed over 1.5 million users. By 2012, the company claimed
10 million users and by 2016, the number of users rose to over 20 million.
Product lines Mint’s original service allowed users to track balances and transactions on credit card, investment, and
bank accounts as well as to create budgets and establish financial goals. In addition, Mint now offers
users a bill pay service and credit score monitoring.
Social technology Prior to the release of its flagship personal finance app, Mint created a large following of prospective
users with MintLife, a blog that offered valuable advice targeted to young professionals.
Search technology Mint utilized an aggressive SEO strategy to rank highly on search results pages. Specific actions
included the following:
• Creation of useful personal finance content on its blog, MintLife
• Use of targeted keywords in website content
• Established audiences on popular social media sites such as Facebook and Twitter
• Used various strategies, including sponsorship of third-party blogs, to generate links (or “backlinks”)
to Mint.com from other websites
Website Mint.com
search engines to determine SERP ranking. The strategy focused on
the following:
• Increasing the number of other websites that linked back to
Mint’s website (called “backlinks”)
• Creating interesting and useful content about personal finance
topics that prospective customers would find helpful
• Identifying keywords and phrases used by prospective customers
when searching for personal financial services, and creatively
inserting these words and phrases into website content
• Regularly updating and adding to their collection of personal
finance content
• Establishing a presence on popular social media sites, expanding
their audience on those sites, and encouraging the audience to
share links to Mint’s website content
Months prior to the launch of its personal finance service, Mint
rolled out a personal finance blog called MintLife and quickly devel-
oped a reputation for providing helpful financial advice targeted to
young professionals. Blog posts on MintLife were creatively seeded
with keywords and phrases the team had identified as likely to be
used by prospective customers when conducting Internet searches
for financial services. Mint also created landing pages on their web-
site containing content optimized for keywords and phrases related
to financial services. As search engines tracked this content, Mint
began to lay a foundation for eventually being viewed by search
engines as a credible authority for personal finance topics. New
posts were regularly added to the blog, which further enhanced
Mint’s ranking since search engines favor websites with lots of
content (content depth) and regular updates. To further establish
its position as a useful and authoritative site, Mint sponsored sev-
eral third-party blogs and cultivated relationships with authors of
established finance and money management blogs. Mint’s founder,
Aaron Patzer, gave hundreds of interviews, resulting in print media
and online articles about the start-up company. These and other
actions resulted in more third-party websites posting links back to
Mint.com. These “backlinks” were tracked by search engines and
resulted in additional increases to the site’s ranking on SERPs. Popu-
lar search engines also track a company’s presence on social media
and the extent to which users share information about the company
and its products. Mint’s blog featured content in a variety of inter-
esting formats: videos, podcasts, infographics, and so on. Users on
social news sites like Reddit.com frequently shared and “upvoted”
interesting infographics from Mint’s blog. Links to other types of blog
content were shared by users on Facebook, Twitter, and other social
media platforms. As a result, Mint’s expanding audiences on Face-
book, Twitter, and other social media platforms further enhanced
the new company’s SERP ranking.
Results
In 2007, Mint launched its new financial services website into a market
where it already enjoyed considerable name recognition and aware-
ness. Within 2 years, the service acquired 1.5 million users and was
purchased by Intuit for $170 million. The company continued its suc-
cessful content marketing strategy, climbing to 10 million users in 2012
and over 20 million users today.
Questions
1. Why did Mint invest the time and effort to publish a financial
services blog almost two years before the launch of its service?
2. How did Mint use social media sites to increase its ranking on the
search results pages of popular search engines?
3. Why did Mint use keywords and phrases associated with personal
finance when creating content for its blog?
4. Why did Mint put so much emphasis on improving the rank of its
website on SERPs?
5. Why did Mint use infographics, videos, and other types of rich
media in its financial services blog?
Sources: Compiled from Sukhraj (2015), Bulygo (2013a), Obi-Azubuike (2016),
Prince (2016), Greene (2016).
168 C H A P T E R 6 Search, Semantic, and Recommendation Technology
6.1 Using Search Technology
for Business Success
Search engines like Google, Bing, Yahoo, and others have traditionally been regarded as a
consumer technology. But search technology has become an important business tool with
many different uses and applications. In this section, you will learn how search engines work
and the role they play in generating revenue and consumer awareness for organizations. You
will also discover how businesses use enterprise search technology to unlock hidden content
with their organizations. Finally, you will read about how search and Internet technology is
evolving to provide more accurate and useful results.
How Search Engines Work
People use the word search engine to refer to many different kinds of information retrieval (IR)
services that find content on the World Wide Web. These services vary in significant ways.
Understanding how these services differ can improve the quality of results obtained when con-
ducting a search for online information. Listed below is a brief description of different IR ser-
vices for finding Web content:
• Crawler search engines rely on sophisticated computer programs called spiders, crawlers,
or bots that surf the Internet, locating Web pages, links, and other content that are then
stored in the search engine’s page repository. The most popular commercial search engines,
Google and Bing, are based on crawler technology.
• Web directories list Web pages organized into hierarchical categories. Originally, Web direc-
tories were created and maintained by human editors who decided how a website would
be categorized. Today, many Web directories use technology to automate new website list-
ings. Web directories are typically classified as “general” directories that cover a wide-range
topical categories, or “niche” directories that focus on a narrow range of topics. Examples
of popular general directories include Best of the Web, JoeAnt, and LookSmart. Wikipedia
maintains a list of general and niche Web directories.
• Hybrid search engines combine the results of a directory created by humans and results
from a crawler search engine, with the goal of providing both accuracy and broad coverage
of the Internet.
• Meta-search engines compile results from other search engines. For instance, Dogpile
generates listings by combining results from Google and Yahoo.
• Semantic search engines are designed to locate information based on the nature and
meaning of Web content, not simple keyword matches. The goal of these search engines
is to dramatically increase the accuracy and usefulness of search results. Semantic search
engines are described in more detail in Section 6.4.
Web Directories
Before crawler search engines became the dominant method for finding Web content, people
relied on directories created by human editors to help them find information. Web directories are
typically organized by categories (for instance, see the categories listed on Best of the Web). Web
page content is usually reviewed by directory editors prior to its listing in a category to make sure
it is appropriate. This reduces the number of irrelevant links generated in a search. The review
process, however, is very slow compared to the automated process used by crawlers (described
in the following section). As a result, the listings in a Web directory represent a relatively small
portion of the Web. Directories are particularly useful when conducting searches on a narrow
topic, such as identifying suppliers of a specific type of product or service. Companies who need
Search engine an application
for locating Web pages or other
content (e.g., documents, media
files) on a computer network.
Popular Web-based search
engines include Google, Bing,
and Yahoo.
Spiders also known as
crawlers, Web bots, or simply
“bots,” spiders are small computer
programs designed to perform
automated, repetitive tasks over
the Internet. They are used by
search engines for scanning Web
pages and returning information
to be stored in a page repository.
Using Search Technology for Business Success 169
to identify vendors or suppliers may consult a niche Web directory created for just this purpose.
For example, see the Web directory at business.com.
How Crawler Search Engines Work
The two most popular commercial search engines on the Web, Google and Bing, are based
on crawler technology. Behind the relatively simple interfaces of these two powerful search
engines, a great deal of complex technology is at work (Figure 6.1). Because modern search
engines use proprietary technology in the race to stay ahead of competitors, it is not possible
to tell exactly how they decide what websites will appear in a SERP. While they each produce
different results, it is possible to describe the basic process shared by most crawler search
engines. The following description is based on publications by Grehan (2002) and Oak (2008).
1. The crawler control module assigns Web page URLs to programs called spiders or bots. The
spider downloads these Web pages into a page repository and scans them for links. The
links are transferred to the crawler control module and used to determine where the spi-
ders will be sent in the future. (Most search engines also allow Web masters to submit
URLs, requesting that their websites be scanned so they will appear in search results.
These requests are added to the crawler control queue.)
2. The indexer module creates look-up tables by extracting words from the Web pages and
recording the URL where they were found. The indexer module also creates an inverted
index that helps search engines efficiently locate relevant pages containing keywords
used in a search. (See Figure 6.2 for examples of an inverted index.)
3. The collection analysis module creates utility indexes that aid in providing search results.
The utility indexes contain information about things such as how many pages are in a web-
site, the geographic location of the website, number of pictures on a Web page, Web page
length, or other site-specific information the search engine may use to determine the rel-
evance of a page.
4. The retrieval/ranking module determines the order in which pages are listed in a SERP.
The methods by which search engines determine website listing order varies and the spe-
cific algorithms they use are often carefully guarded trade secrets. In some cases, a search
engine may use hundreds of different criteria to determine which pages appear at the top
of a SERP. Google, for instance, claims to use over 200 “clues” to determine how it ranks
pages (Google.com, 2014).
Page repository a data
structure that stores and manages
information from a large number
of Web pages, providing a fast and
efficient means for accessing and
analyzing the information at a
later time.
Crawler control module
a software program that controls
a number of “spiders” responsible
for scanning or crawling through
information on the Web.
Page Repository
WWW
Text Utility
Indexer
Module
Structure
Collection
Analysis Module
Surfer–Client QueriesSpiders/
Crawlers
Crawler Control
Indexes
URL
Submissions
1. URL
2. URL
3. URL
.
Query
Formulation
Results
Ranking
..
FIGURE 6.1 Components of crawler search engine (Adapted from Grehan, 2002).
170 C H A P T E R 6 Search, Semantic, and Recommendation Technology
5. Web pages retrieved by the spiders, along with the indexes and ranking information, are
stored on large servers (see IT at Work 6.1).
6. The query interface is where users enter words that describe the kind of information they
are looking for. The search engine then applies various algorithms to match the query string
with information stored in the indexes to determine what pages to display in the SERP.
Each search engine utilizes variations and refinements of the aforementioned steps in
an attempt to achieve superior results. The Web search industry is highly competitive and
the proprietary advances in search technology used by each company are closely guarded
secrets. For instance, even the first step in the process, crawling the Web for content, can vary
greatly depending on the strategic goals of the search engine. Some search engines limit the
number of pages scanned at each website, seeking instead to use limited computing power
and resources to cover as many websites as possible. Other search engines program their spi-
ders to scan deep into each website, seeking more complete coverage of each site’s content.
Still other search engines direct their spiders to seek out websites that contain certain types
of content, such as government sites or shopping (e-commerce) sites. Another decision that
search engines make regarding spiders is the amount of resources directed at searching
new websites versus devoting resources to exploring previously indexed pages for updates
or changes.
One of the many challenges faced by large commercial search engines is storage. In the
simplest sense, the crawler approach to search requires a company to store a copy of the Web
in large data centers. In addition to the petabytes of storage required to maintain this copy of
the Web, the search engine must also store the results of its indexing process and the list of
links for future crawls.
Petabyte a unit of measurement
for digital data storage. A petabyte
is equal to one million gigabytes.
Document ID
1
To the heart, real love
always endures.
Though passion may
cool, love remains true.
True love kindles the
passion in my heart.
2
3
Content URL
Search Query:
Page Index
Inverted Index
ID Term Document: Position
1 1:3, 3:7
1:4
1:5, 2:5, 3:2
1:6
1:7
2:7, 3:2
2:1
2:2, 3:5
2:3
2:4
2:6
3:3
3:8
heart
real
love
always
endures
true
though
passion
may
cool
remains
kindles
heart
2
3
4
5
6
7
8
9
10
11
12
13
True love
Results Ranking (based on position)
True love kindles the passion in my heart.
Though passion may cool, love remains true.
Documents with
both terms: 2 and 3
FIGURE 6.2 Search engines use inverted indexes to efficiently locate Web content based on search query terms.
Using Search Technology for Business Success 171
IT at Work 6.1
Google Data Centers
Not only does Google maintain a copy of the Internet for its search
engine services, it is also constantly updating a map of the entire
planet for users of its popular Google Earth application. In addition,
the company is making a full-text, searchable copy of over 129,864,880
known books, equal to 4 billion pages or 2 trillion words. And then
there are applications like Gmail, serving roughly 425 million people
and YouTube, where 300 hours of video are uploaded every minute!
Add all this up, and Google is facing perhaps the biggest data storage
challenge ever. So where does Google store all of these data?
Challenges: Energy, Performance, and Security
Information collected by Google is housed on over 1 million servers
spread across 12 different facilities worldwide. The facilities are
large, factory-like installations containing row upon row of racked
and stacked servers. Cooling systems, required to keep servers from
overheating, are a significant component of any large data center
(Figure 6.3). Google pioneered the software systems that connect
the company’s servers and make it possible for various applications
to access data stored on the machines. Unlike other companies that
purchase servers from outside suppliers, Google builds its own.
Based on its experience creating the hardware, software, and facil-
ities necessary to power the company on a global scale, Google is
recognized as a leader in data center operations.
The company’s data centers, including the servers, are built
with energy efficiency, reliability, and performance in mind. As
Google is a leading provider of Internet services, its data infrastruc-
ture must keep up with growing consumer demand for speedy
performance and reliability. A typical Google search delivers millions
of pages of results in less than half a second. Consumer expectations
for performance have grown so high that waiting more than a few
seconds for an e-mail to load or a search to run can cause frustration.
More recently, Google has had to contend with revela-
tions that the U.S. National Security Agency (NSA) breached
its server network security. This follows cyberattacks in 2010
and 2011 by hackers suspected of being associated with the
Chinese government. Protecting company data from criminals
is a significant challenge in itself, but Google is understandably
frustrated by the fact that it must now fight off cyber-attacks from
two world superpowers, one of which is its own government.
Environmental Impact
Industrywide, data centers used 70 billion kilowatt-hours of
electricity in 2014, representing a 4% increase from the amount
used in 2012. Industrywide, data center energy use and the related
environmental impact have become an issue of growing concern.
Google is widely recognized as operating some of the most efficient
data centers in the world, but many critics are disturbed by the
industry’s overall level of energy consumption. According to some
estimates, data centers account for about 2% of the world’s energy
use and the fast rate of growth is cause for concern (see Figure 6.4).
Google has taken an active approach to reducing its environmental
footprint. Beginning in 2017, Google will source 100% of its energy
needs for offices and data centers from renewable sources. See
Google’s data center Web page https://www.google.com/about/
datacenters for additional information.
Google Data Center Statistics
• Number of servers worldwide Over 1 million
• Number of data centers Nine in North America, one in
South America, two in Asia, and four in Europe
• 2016 Capital investment in data centers Approximately
$11 billion
• Data processing volume Over 100 petabytes a day
• Average energy efficiency PUE* = 1.12
• Energy use Continual use of about 260 megawatts of
electricity, approximately 0.01% of global energy consumption
• Energy use comparisons Owns about 3% of servers world-
wide, but only uses about 1% of data center industry energy
• Renewable energy Claims that 100% percent of its energy
use comes from renewable sources
*PUE stands for Power Usage Effectiveness. A PUE of 2.0 means that for
every watt of power devoted to computing, an additional watt is spent
on cooling, power distribution, and overhead. The Data Center Industry
average PUE falls between 1.8 and 1.89.
Sources: Jacobson (2010), Grifantini (2011), Newman (2011), Schneider
(2011), Glanz (2011, 2012), Gallagher (2012), Venkatraman (2012), Anthony
(2013), Miller (2013), Sverdlik (2016).
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FIGURE 6.3 Pipes pass through the chiller plant at the
Google, Inc., data center in Changhua, Taiwan. Google doubled
its spending plan for its new data center in Taiwan to $600
million amid surging demand from Asia for its Gmail and
YouTube services.
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FIGURE 6.4 New, large-scale data centers being constructed
for companies like Google, Microsoft, and Facebook house
thousands of servers and are creating concern among
environmentalists over increases in energy consumption.
172 C H A P T E R 6 Search, Semantic, and Recommendation Technology
Why Search Is Important for Business
Search engines have become a part of our everyday life. They are free, easy to use, and become
more powerful and effective every day. Most of us take them for granted and are generally
unaware of the complex technologies that power these tools. For the average Web user,
it may not be vitally important to understand how search technology is evolving. But for
business managers, understanding the potential power of search technology is crucial and
becoming more important every day. It has long been recognized that access to information
is a competitive advantage. Search technology impacts business in each of the following ways:
• Enterprise search—finding information within your organization
• Recommendation engines—presenting information to users without requiring them to
conduct an active search
• Search engine marketing (SEM)—getting found by consumers on the Web
• Web search—finding crucial business information online
Each of these important search technology applications are described in what follows.
Enterprise Search Enterprise search tools are used by employees to search for and
retrieve information related to their work in a manner that complies with the organization’s
information-sharing and access control policies. Information can come from a variety of sources,
including publicly available information, enterprise information (internal records) found in
company databases and intranets, as well as information on individual employee computers
(Delgado, Renaud, & Krishnamurthy, 2014). Enterprise search tools allow companies to gain
competitive advantages by leveraging the value of internal information that would otherwise
remain hidden or “siloed.” Information can be inaccessible as a result of incompatible technol-
ogies in various units, lack of coordination or cooperation between units, security concerns,
and concerns about the cost of making information accessible (Thomas, 2013; Walker, 2014).
In most organizations today, a large portion of employees are “knowledge workers”
(e.g., business analysts, marketing managers, purchasing agents, IT managers, etc.). Access
to information has a significant impact on their productivity. Enterprise search tools allow
workers to extract internal information from databases, intranets, content management sys-
tems, files, contracts, policy manuals, and documents to make timely decisions, adding value
to the company and enhancing its competitive advantage.
Structured versus unstructured data One of the challenges encountered by devel-
opers of enterprise search tools is that information is not always in the same format. Data exist
in two formats: structured or unstructured. Structured data can be defined as highly orga-
nized information, which is easily searchable using simple search engine algorithms or related
procedures. Unstructured data, sometimes called messy data, refers to information that is not
organized in a systematic or predefined way. Unstructured data files are also more likely to con-
tain inaccuracies or errors. Examples of unstructured data include e-mails, articles, books, and
documents. Unstructured data accounts for a majority of all the data present on computers
today. Originally, enterprise search tools worked only with structured data. Many newer sys-
tems claim to work with unstructured information as well, although there is great variability in
terms of how well they actually do this.
Security issues in enterprise search Unlike a Web search, enterprise search tools must
balance the goal of making information widely available throughout the organization with the
need to restrict access based on an employee’s job function or security clearance. Limiting access
to certain documents or data is referred to as access control. Enterprise search tools introduce
the potential for a number of security breaches or access of unauthorized information. Most of
these can be addressed as long as the organization’s IT workers install and maintain the search
system’s security features, including security integrations with other enterprise programs. An
audit of requests logs should be conducted regularly to look for patterns or inconsistencies.
Using Search Technology for Business Success 173
Enterprise search vendors Market analysts Frost and Sullivan (Prnewswire.com, 2013)
estimate that the global market for enterprise search tools was over $1.47 billion in 2012; it is
predicted that the market will grow to over $5 billion by 2020. Clearly, organizations around
the world recognize the value of this technology. Several different companies make and sell
enterprise search systems, Autonomy, Google, Coveo, and Perceptive Software being the top
contenders (Andrews & Koehler-Kruener, 2014). Vendors can be broken down into the following
three categories:
• Specialized search vendors (for instance, Attivio, Endeca, Vivisimo): Software designed to
target specific user information needs
• Integrated search vendors (for instance, Autonomy, IBM, and Microsoft): Software designed
to combine search capabilities with information management tools
• Detached search vendors (for instance, Google, ISYS): Software designed to target flexi-
bility and ease of use
With so many options available for enterprise search, it is important that organizations
conduct a careful needs analysis prior to acquisition.
Recommendation Engines Recommendation engines represent an interesting
twist on IR technology. Unlike Web search engines that begin with a user query for information,
recommendation engines attempt to anticipate information that a user might be interested in.
Recommendation engines are used by e-commerce sites to recommend products; news orga-
nizations to recommend news articles and videos; Web advertisers to anticipate the ads people
might respond to; and so on. They represent a huge potential for businesses and developers.
While the use of recommendation engines is widespread, there is still much work to be done to
improve the accuracy of these fascinating applications. You can read more about recommen-
dation engines in Section 6.5.
Search Engine Marketing Most traditional advertising methods target customers
who are not actively engaged in shopping for a product. Instead, they are watching television,
listening to the radio, reading a magazine, or driving down the road, paying little attention to
the billboards they pass. To most people, advertising represents an unwelcome interruption.
On the other hand, people using search engines are actively looking for information. As a result,
they are much more likely to be interested in product and service information found in SERPs
as long as it is related to the topic they are searching for. Efforts to reach this targeted audience
are much more likely to produce sales. That’s why search engine marketing (SEM) has become
an important business strategy. Industry experts report that people generally engage in three
basic types of searches:
1. Informational search Using search engines to conduct research on a topic. This is the
most common type of search.
2. Navigational search Using a search engine to locate particular websites or Web pages.
3. Transactional search Using a search engine to determine where to purchase a product
or service.
You might think businesses would be primarily interested in transactional searches, but all
three types are important and play a key role in the buying process. Say you are interested in
purchasing a new tablet computer. Your first step is likely to engage in an informational search,
attempting to learn about the product category of mobile tablet devices. Businesses should
offer content on their websites and social media sites for consumers seeking general product
information. An informational search also represents an opportunity to influence consumers
early in the purchasing process.
After researching a product category, you might try finding websites of particular com-
panies to learn more about individual tablet computer brands (navigational search). Com-
panies need to design their websites so that they can be found easily by search engines.
Search engine marketing
(SEM) a collection of online
marketing strategies and tactics
that promote brands by increasing
their visibility in SERPs through
optimization and advertising.
174 C H A P T E R 6 Search, Semantic, and Recommendation Technology
Finally, you might try to determine where to buy your tablet computer by searching on
terms like “lowest price,” “free shipping,” and so on. This is an example of a transactional search.
Search engine marketing (Figure 6.5) consists of designing and advertising a Web page,
with the goal of increasing its visibility when consumers conduct the three types of searches
just described. SEM strategies and tactics produce two different, but complementary outcomes:
1. Organic search listings are the result of content and website design features intended to
improve a site’s ranking on SERPs that result from specific keyword queries. No payments
are made to the search engine service for organic search listings.
2. Paid search listings are a form of advertising and are purchased from search engine
companies. The placement and effectiveness of paid search ads on SERPs are a function of
several factors in addition to the fees paid by advertisers. You will read more about these
factors in Section 6.3.
Businesses utilize search engine optimization (SEO) to improve their website’s organic
listings on SERPs. SEO specialists understand how search engines work and guide companies
in designing websites and creating content that will produce higher organic SERP rankings than
competitive websites.
Paid search listings are often referred to as pay-per-click (PPC) advertising because adver-
tisers pay search engines based on how many people click on the ads. Typically, PPC ads are
listed separately from organic search results. Managing an effective PPC ad campaign involves
making strategic decisions about what keyword search queries you want to trigger the display
of your ad. You will read more about PPC or paid search advertising in Section 6.3.
Social media optimization refers to strategies designed to enhance a company’s standing
on various social media sites. Increasingly, search engines evaluate a company’s presence on
social media to determine its reputation, which in turn influences how the company is ranked
in SERPs. You will read more about social media strategies in Chapter 7.
Growth of search engine marketing As companies begin to realize the power of SEM,
more money is being spent on this highly effective strategy. In 2016, businesses spent an esti-
mated $65 billion on SEO services to improve the rank or listing order of their organic listings on
SERPs. This figure is expected to rise to almost $80 billion in 2020 (Sullivan, 2016). In addition,
the research firm eMarketer (2016) estimates that spending on PPC search advertising reached
$86.25 billion in 2016, an increase of 15.4% from the year before. Both types of spending, SEO
and PPC, illustrate how important search marketing is to businesses these days. Companies
now spend more on SEM than they do on television or print advertising. Unlike most traditional
advertising methods, return on investment (ROI) can be calculated for SEM by tracking click-
through rates (CTRs), changes in site traffic, and purchasing behavior.
Click-through rates (CTRs) the
percentage of people who click
on a hyperlinked area of a SERP
or Web page.
Search Engine
MarketingSEO
Search Engine
Optimization
SMO
Social Media
Optimization
PPC
Pay-Per-Click
Advertising
FIGURE 6.5 Search engine marketing
integrates three different strategies: search
engine optimization, pay-per-click advertising,
and social media optimization.
Using Search Technology for Business Success 175
Mobile Search and Mobile SEO Mobile devices have become ubiquitous. With the
emergence of smartphones and tablet computers, mobile devices now account for over half of
all Web traffic. In some developing countries, mobile devices account for an even larger share
of Internet use since they are less expensive than computers. Since more people are using mo-
bile devices to surf the Web, it should come as no surprise that more Internet searches are
conducted using mobile devices instead of computers.
With the dramatic increase in mobile device usage, companies need to make sure their
websites and content can be found via mobile search. This means optimizing mobile websites
differently from desktop sites. Two issues essential to mobile SEO include:
1. Properly configuring the technical aspects of the mobile site so that it can be crawled and
indexed by search engines.
2. Providing content that is useful to people using mobile devices. Webmasters should con-
sider how people use their mobile devices differently from computers and adjust content
on their mobile websites accordingly. For instance, if consumers are likely to use their
mobile device to check product reviews while shopping in a store, make this information
easy to find on the mobile website.
When designing a mobile site for e-commerce, Web developers should make sure that
information about store location, product reviews, and promotional offers is easily available and
optimized so that it will appear in a mobile SERP. Mobile shoppers also use barcode scanning
apps as a kind of mobile search engine for locating product reviews and price comparisons while
shopping in stores. This practice, called showrooming, is becoming increasingly popular with con-
sumers and creating a great deal of frustration and worry on the part of brick-and-mortar retailers.
Social Search Most major social media websites (i.e., Facebook, YouTube, Twitter,
LinkedIn, etc.) have search engines designed to help users find content on their platforms. Of
course, some search tools are better than others. It probably comes as no surprise that Face-
book users have access to some advanced search features. People can search for friends by
name or find information related to their friends using more complex queries such as “Movies
liked by friends who liked The Godfather” or “Music liked by friends who liked Lady Gaga.” Face-
book search can be used to find services, events, places, and groups. You can use it to find some
place to eat with a search phrase like “Seafood restaurants in New Orleans.” Clearly, Facebook
hopes to leverage the content and connections created by users to power a search tool that
people will use instead of Google, Bing, or some other general Web search engine.
Recently, Facebook added a new image search feature powered by artificial intelligence
that allows users to search for pictures using words that describe what’s in the picture instead
of relying on tags and captions. For instance, you might search for “Santa Claus photo” and
the search engine will be able to find photos with Santa Claus even if no tags or text associate
the picture with Santa Claus. Developers say that eventually the image search will be able to
recognize photos based on objects, actions (e.g., walking, running, dancing), and other descrip-
tive terms. Eventually, this technology could be used to perform similar searches for video and
other immersive formats (Candela, 2017).
Facebook undoubtedly can devote more resources to innovations of this nature than
other social media platforms. However, while other platforms may take longer to develop
sophisticated social search tools, most have the same motivations as Facebook when it comes
enhancing user experience and providing a mechanism for highlighting content from individ-
uals and organizations with commercial interests. With over 2 billion searches conducted on
Facebook each day, businesses will undoubtedly be willing to pay for ways to reach this sizable
social media audience in much the same way that they currently advertise on Google, Bing, and
other Internet search engines (Kraus, 2015; Constine, 2016).
Personal Assistants and Voice Search Major Internet technology firms Apple,
Amazon, Google, and Microsoft and a host of smaller firms have launched intelligent personal
assistant (IPA) systems that threaten to disrupt conventional SEM paradigms. IPA software
is typically designed to help people perform basic tasks like turning on/off lights and small
176 C H A P T E R 6 Search, Semantic, and Recommendation Technology
appliances, activating household alarm systems, and searching the Internet for music, videos,
weather, and other types of information. While IPAs are still in the growth stages of the product
life cycle, forecasted demand for the foreseeable future seems strong.
The typical IPA system is a voice-activated program that uses commands that approx-
imate natural language. For instance, to learn about the weather, you might ask Amazon’s
IPA, “Alexa, what’s the weather for this weekend?” To get Apple’s IPA to play a specific music
genre, you might say, “Siri, play some R&B music.” In the not too distant future, we can expect
voice-activated IPAs will be integrated with mobile devices, televisions, automobiles, and even
hotel rooms.
Business that have become skilled at using SEO and PPC campaigns to drive traffic to their
websites will have to go back to the drawing board to figure out how the rise in voice search will
affect some fundamental marketing strategies. Currently, IPAs act like a kind of filter, screening
search results and often basing answers on a single source. Just as businesses once faced the
challenge of reformatting website content for smaller screens on mobile devices, they must
now determine how to serve up information in a format optimized to make it attractive to a
variety of IPAs acting as proxies for their owners.
Web Search for Business Commercial search engines and Web directories are use-
ful tools for knowledge workers in business. To use search engines effectively, workers should
familiarize themselves with all the features available on the search engine they use. Since
Google is the most popular search engine, we highlight some of those features in the following
list. Many of these features are also available on Bing.com.
• Focused search You can focus your search to information in different formats—Web
pages, videos, images, maps, and the like—by selecting the appropriate navigation button
on the SERP page.
• Filetype If you are looking specifically for information contained in a certain file format,
you can use the “filetype:[file extension]” command following your keyword query. For in-
stance, the search “private colleges filetype:xls” will produce links to MS Excel files with
information related to private colleges. Use this command to find Adobe files ( ), MS
Word files ( x), MS PowerPoint files (.pptx), and so on.
• Advanced search To narrow your search, go to the Advanced Search panel. From this
page, you can set a wide range of parameters for your search, including limiting the search
to certain domains (e.g., .gov, .org, .edu), languages, dates, and even reading level. You can
also use this to narrow your search to a particular website.
• Search tools button Allows you to narrow your results to listings from specific locations
or time frames.
• Search history Have you ever found a page using a search engine, but later had trouble
finding it again? If you are logged into your Google account while using the search engine,
it’s possible to review your search history. It will show you not only your search queries but
also the pages you visited following each query.
These are just a few of the many features you can use to conduct a power search. While you
are in college, take the time to become proficient with using different search engine features.
Not only will it help with your immediate research needs, it will help you in your career as well.
At the end of this chapter, we include information for a free online Power Search course offered
by Google. This is a good way to enhance your ability to find the information you need.
Finding intellectual property Your business may have an interest in protecting certain
kinds of intellectual property being used without permission on the Web. This might include
confidential reports, images, copyrighted blog posts, creative writing (e.g., poetry, novels, etc.),
and so on. You can use search engines to find where someone may have posted your intellec-
tual property on the Web without permission (see Osher, 2014). You can search for text-based
work by simply using queries containing strings of text from the material you’re looking for.
Images can be found by using Google’s reverse image search engine. Tin Eye is an alternative
reverse image search engine with a number of interesting features.
Using Search Technology for Business Success 177
Real-time search Sometimes you need information about things as they happen. For in-
stance, you may be interested in monitoring news stories written about your company or you
might need to know what people are saying about your brand or a political candidate on Twit-
ter. For these situations, you’ll need a real-time search tool.
Say your company wants to explore accepting Bitcoin payments. (Bitcoin is a digital
currency that was launched in 2009.) After engaging in a traditional Web search to learn about
the currency, you decide you want to learn about public interest in Bitcoin and find news
stories that have recently been published about the currency. You might consider using the
following tools:
• Google Trends This tool will help you identify current and historical interest in the topic
by reporting the volume of search activity over time. Google Trends allows you to view the
information for different time periods and geographic regions.
• Google Alerts Use Google Alerts to create automated searches for monitoring new Web
content, news stories, videos, and blog posts about some topic. Users set up alerts by
specifying a search term (e.g., a company name, product, or topic), how often they want to
receive notices, and an e-mail address where the alerts are to be sent. When Google finds
content that match the parameters of the search, users are notified via e-mail. Bing has a
similar feature called News Alerts.
• Twitter Search You can leverage the crowd of over 650 million Twitter users to find
information as well as gauge sentiment on a wide range of topics and issues in real time.
Twitter’s search tool looks similar to other search engines and includes an advanced search
mode. In addition to real-time search, the Twitter search tool is also an example of social
search, which was explained earlier in the chapter.
Social bookmarking search Social bookmarking sites like Diigo provide a way for users
to save links to websites they want to access at a later time. When saving page links, users tag
them with keywords that describe the page’s content. The bookmarked links form a graph of
content on the Web that can be used by others. Because the Web pages are tagged by humans,
search results are often more relevant than results from commercial search engines. Pinterest
is a variation on the social bookmarking idea, allowing users to save and share images they find
online. You can find information about various topics by searching Pinterest to see what other
users have collected on the subject.
Vertical search As described previously, large commercial search engines use indicators
of popularity or reputation to determine website quality. This seems to work well for a gener-
alized Web search, but it might not be effective when users search on very specific topics such
as rare disease, which, by definition, does not generate a lot of activity on the Web. Crawlers do
not often index pages in the lower levels of less popular websites. Vertical search engines are
programmed to focus on Web pages related to a particular topic and to drill down by crawling
pages that other search engines are likely to ignore. Vertical search engines exist for a variety
of industries. Ironically, the best way to find a vertical search engine is to search for it on a
commercial search engine like Google or Bing.
Questions
1. What is the primary difference between a Web directory and a crawler-based search engine?
2. What is the purpose of an index in a search engine?
3. Why are companies increasingly interested in enterprise search tools capable of handling unstruc-
tured data?
4. What is the difference between SEO and PPC advertising?
5. Describe three different real-time search tools.
178 C H A P T E R 6 Search, Semantic, and Recommendation Technology
6.2 Organic Search and Search Engine
Optimization
The goal of SEO practitioners is to help organizations increase traffic to their websites. They
accomplish this by optimizing websites in an effort to increase visibility and ranking on SERPs.
Using Web analytics programs like Google Analytics, companies can determine how many peo-
ple visit their site, what specific pages they visit, how long they spend on the site, and what
search engines are producing the most traffic (see Figure 6.6). More sophisticated SEO prac-
titioners will also attempt to determine what keywords or phrases generated traffic to their
website. These are just a few of the many metrics used to measure the effectiveness of SEO
strategies. In the sections that follow, we will use the most popular search engine, Google, to
explain the basics of SEO. Most of what we write, however, will also apply to other popular
search engines.
Strategies for Search Engine Optimization
As mentioned at the beginning of this chapter, all search engines use somewhat different pro-
prietary algorithms for determining where a website will appear in search results. As a result,
it is not possible to tell what specific factors will be used or how much weight they will carry
in determining SERP ranking. Over time, there has been a significant increase in the number
of factors that search engines like Google use to determine how a site is listed on a SERP. The
general consensus among SEO experts is that Google probably uses over 200 different factors.
To make things even more challenging, Google updates its algorithm hundreds of times a year.
This presents somewhat of a moving target for SEO professionals hired to improve the organic
SERP listings of their clients.
Why Does Google Keep Changing Its Algorithm? Google’s overall goal is to
constantly improve the experience of people using its search engine. Over time, Google engi-
neers have developed ways to predict if a website will provide a positive experience for people
using its search engine. Whenever a new way to improve user experience is found, they imple-
ment the change by updating the algorithm. Google also employs sophisticated technologies
like artificial intelligence and semantic search algorithms to enhance the search experience.
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FIGURE 6.6 Tools like Google Analytics are used to monitor changes in website traffic as a result of
SEO practices.
Organic Search and Search Engine Optimization 179
Artificial intelligence constantly monitors how users respond to search results and modifies
the listing algorithm to improve results. Semantic technology helps Google do a better job
of understanding the content on a Web page and matching that content with the words and
phrases people use to conduct a search.
Ranking Factors: On-Page and Off-Page SEO To understand how Google ranks
website listings in search results, we begin by dividing ranking factors into on-page factors and
off-page factors.
On-page factors are elements of the Web page that can be directly controlled by the pub-
lisher or Web page creator. SEO professionals attempt to improve a website’s SERP listing by opti-
mizing on-page factors related to content, functionality, and HTML programming (Sullivan, 2015).
Content Perhaps one of the biggest changes Google has made to its ranking algorithm
over the years is an increased emphasis on high-quality content. Content marketing is a strategy
that has gained popularity in recent years because of the significant weight assigned to high-
quality content when determining search results and its role in attracting increased Web traffic.
Some specific ways that Google determines if a website has high-quality content include the
following:
• The quality of writing on the Web page
• The presence of relevant keywords and phrases associated with the topic
• How “fresh” or up-to-date the content is
• Use of multiple content formats (i.e., news, video, podcast, blog, and social content)
• Depth or quantity of topical content
• Links that point to other well-respected and trustworthy websites
• The proportion of relevant to irrelevant text about a topic
• Barriers to content have a negative impact on user satisfaction. Examples include making
people register, provide names, or fill out forms to get to content.
Functionality and programming Website functionality has an impact on SERP rankings.
Pages that don’t load quickly or display well on mobile devices are less likely to result in a
positive user experience. Information in a page’s HTML (programming language) source code
also influences ranking algorithms. Functionality and programming can be assessed by factors
such as the following:
• How easily search engine programs can “crawl” the Web page.
• How well the Web page works with mobile devices.
• How quickly the Web page loads.
• Availability of secure (https://) connections for visitors.
• Minimal presence of duplicate content on the website.
• Page URLs that contain keywords.
• Use of topical words and phrases in source code metadata (e.g., title tags, page descrip-
tions, keywords).
• How frequently users click on a listing in search results. Click-through rates (CTR) are
determined in part by how attractive a website’s listing is on a SERP. The way a SERP listing
looks is the result of the Web page’s HTML source code.
• Hacked websites, sites that infect users with malware, and sites that fail to clean up spam
or irrelevant content in comment sections are all factors that negatively impact user
experience.
Off-page factors can be influenced but not directly controlled by SEO professionals. Many
off-page factors are strongly related to a website’s relevance and credibility. Other off-page
factors are related to personalized search, a relatively new effort by Google to improve user
experience (Sullivan, 2015).
180 C H A P T E R 6 Search, Semantic, and Recommendation Technology
Relevance and credibility Google uses a number of different metrics to determine if a
website is a trustworthy source of information on a particular topic. Many of these metrics are
based on user behavior and how the site is represented on other websites and social media
platforms:
• Backlinks to the target website on other well-respected and trustworthy websites. The
use of backlinks is based on the assumption that people who create website content are
more likely to place links to high-quality websites than poor-quality sites on their Web
pages. Google assigns a PageRank score to each Web page based on the quality and
quantity of backlinks associated with the page. Since the PageRank score is believed to be
a heavily weighted factor, SEO professionals have developed several creative strategies for
increasing legitimate backlinks to their websites while avoiding certain tactics that Google
disapproves of. Google downgrades websites that use methods that artificially inflate their
backlink count.
• Click-through rate (CTR) is also an indicator of relevance. Users are more likely to click on
SERP listings related to the information they’re searching for.
• Amount of advertising on the website—Too many ads detract from topical website content.
• Dwell time—This is a measure of how long a user remains on a page. Users stay on pages
with useful content longer than pages that lack useful content.
• Sites listed in respected Web directories are more likely to contain quality content because
they have been reviewed by human editors. Positive comments on review sites like
Yelp.com and Zagat.com also have a positive impact on a website’s reputation.
• High-quality or helpful websites are more likely to be discussed on social media. Examples
include comments on Facebook and Google+, shares, Tweets, Likes, and so on.
• Site traffic—Sites with high-quality content tend to get more traffic over time.
Personalized search Google uses information about the person conducting the search
in an effort to enhance their experience:
• User location—the country, city or area the user is from
• Past experience—Google SERPs can be influenced by search and Web browsing history
• Social experience—the extent to which the user or people in their network engaged
with or discussed the website favorably on social media including Google+, Facebook,
Twitter, and so on
Content and Inbound Marketing
The ultimate goal of search engines is to help users find information. Sometimes it seems that
SEO practitioners lose sight of this and spend too much time chasing down hundreds of factors
they think are being used by search engine ranking algorithms. At worst, SEO can represent an
attempt to “game the system” or trick search engines into ranking a site higher than its content
deserves (see the discussion of black hat SEO in the next section).
Perhaps the most important action an organization can take to improve its website’s rank-
ing and satisfy website visitors is to provide helpful content that is current and updated reg-
ularly. When SEO practices are combined with valuable content, websites not only become
easier to find but also contribute to building brand awareness, positive attitudes toward the
brand, and brand loyalty.
Inbound marketing represents an alternative approach to traditional outbound
marketing strategies (e.g., mass media advertising). Inbound marketers attract customers
to their websites with content that is informative, useful, or entertaining. Inbound marketing
campaigns are based on strategies that integrate content generation, SEO, and social media
tactics. In Chapter 7, you will read more about how inbound marketers integrate content,
SEO, and social media strategies in powerful marketing campaigns that deliver sales and
profit. See Figure 6.7.
Organic Search and Search Engine Optimization 181
Black Hat versus White Hat SEO: Ethical Issues in Search
Engine Optimization
Search engines regularly update their algorithms to improve results. Two well-known Google
updates called Panda (released in 2011) and Penguin (released in 2012) were designed to
improve the ranking of websites with quality content and downgrade poor-quality sites. Both
updates are designed to defeat what are commonly referred to as “black hat SEO” tactics.
People who employ black hat SEO tactics try to trick the search engine into thinking a web-
site has high-quality content, when in fact it does not. With stronger detection systems now
in place, websites that use these tactics (or even appear to use them) will be severely down-
graded in Google’s ranking system. Some examples of black hat SEO tactics are defined in the
following list:
Link spamming—Generating backlinks for the primary purpose of SEO, not adding value
to the user. Black hat SEOs use tricks to create backlinks. Some examples include adding
a link to a page in the comments section of an unrelated blog post, or building sites called
“link farms” solely for the purpose of linking back to the promoted page.
Keyword tricks—Black hat SEOs will embed several high-value keywords on pages with
unrelated content to drive up traffic statistics. For instance, an e-commerce site might
embed words like “amazon” (a word that frequently shows up in search queries) in an
attempt to get listed on SERPs of people looking for amazon.com.
Ghost text—This tactic involves adding text on a page that will affect how a website is
listed on SERPs. The text may not have anything to do with the real content of the page, or
it may simply repeat certain words to increase the content density. The text is then hidden,
usually by making it the same color as the background.
Shadow pages—Also called “ghost pages” or “cloaked pages,” this black hat tactic involves
creating pages that are optimized to attract lots of people. The pages, however, contain a
redirect command so that users are sent to another page to increase traffic on that page.
These particular tactics are no longer effective as a result of updates to the Google ranking
system. Most likely, other search engines have adopted similar measures. However, there will
always be people who take shortcuts attempting to achieve higher SERP rankings. Businesses
must be careful when hiring SEO consultants or agencies to make sure they do not use prohib-
ited SEO techniques. When these actions are discovered, Google and other search engines will
usually punish the business by dramatically reducing their visibility in search results.
Communication
is interactive
or two-way
Marketers
promote
company by
educating or
entertaining
Typical
strategies:
content, social
media, and SEO
Customers
seek
out the
business
Inbound Marketing
Communication
is one-way
Businesses
broadcast
messages that
interrupt
customers
Typical
strategies:
TV, radio,
print, outdoor,
cold calls
Businesses
seek out
customers
Outbound Marketing
FIGURE 6.7 Inbound marketers use valuable content, search engine optimization,
and social media to attract customers.
182 C H A P T E R 6 Search, Semantic, and Recommendation Technology
Questions
1. Search engines use many different “clues” about the quality of a website’s content to determine how
a page should be ranked in search results. Explain how a search engine uses specific factors to deter-
mine the quality of a website’s content.
2. SEO professionals strive to increase a Web page’s PageRank score which is based on the quality and
quantity of backlinks. Explain what a backlink is and why search engines use the PageRank score to
determine the order in which websites are listed in SERPs.
3. Explain why the so-called black hat SEO tactics are ultimately short-sighted and can lead to significant
consequences for businesses that use them.
4. What is the fundamental difference between on-page and off-page SEO factors?
5. Explain why providing high-quality, regularly updated content is the most important aspect of any
SEO strategy.
6.3 Pay-Per-Click and Paid Search
Strategies
In addition to organic listings, most search engines display paid or sponsored listings on their
SERPs. These advertisements provide revenue for the search engine and allow it to offer Web
search services to the general public for free. They also provide a way for smaller organizations
with new websites to gain visibility on SERPs while waiting for their SEO strategies to produce
organic results. Most major search engines differentiate organic search results from paid ad list-
ings on SERPs with labels, shading, and placing the ads in a different place on the page. Some
critics have complained that paid advertisements receive preferential page placement and are
not clearly distinguished from organic listings. However, at the time of this publication, it is
easy to distinguish ads from organic results on Google and Bing SERPs. Defenders of the search
engine companies argue that since the paid ads make it possible for everyone to use search
services for free, the preferential page placement is justified.
Creating a PPC Advertising Campaign
There are five steps to creating a PPC advertising campaign on search engines.
1. Set an overall budget for the campaign.
2. Create ads−most search engine ads are text only, but this is likely to change in the future.
3. Select keywords and other parameters associated with the campaign.
4. Set up billing account information.
5. Modify key words and ad copy based on results.
Search advertising allows businesses to target customers who are likely to purchase their
products. They do this by selecting keywords that correspond to search queries that potentially
identify someone as a customer. For instance, a company that sells women’s purses may want to
appear on a SERP when someone conducts a search using any of the following terms or phrases:
• Purse
• Handbag
• Women’s purses
• Ladies’ purses
• Designer purses
• Designer handbags
Pay-Per-Click and Paid Search Strategies 183
Google and other search engines provide advertisers with tools for evaluating the impact
of different keywords or phrases. These tools typically display information about how often
people use the word in a search and also recommend alternative words to consider using in
the campaign. Advertisers “bid” on having their ads appear when someone searches on one
of their keywords. Higher bids result in a greater probability that the ad will appear in search
results associated with the keyword. However, this might also deplete the advertiser’s budget
more quickly. On the other hand, if a bid is too low, the ad might not appear at all. Keyword
tools usually provide information about typical bid prices for each keyword or phrase. Smart
advertisers start with a modest bid and increase it over time to achieve the ad placement rate
they desire.
The likelihood of ad placement is also influenced by a quality score representing the
search engine’s estimate of how successful the ad will be. Quality scores are determined by
factors related to ad relevance and user experience factors. Relevant ads closely match the
intent of the user’s search. The expected CTR indicates how likely the ad will be clicked on.
The user’s landing page experience is determined by things such as how relevant, transparent,
and easy-to-navigate the page is. According to Google, quality scores are determined by sev-
eral factors:
• Expected keyword CTR
• The past CTR of your URL
• Past effectiveness (overall CTR of ads and keywords in the account)
• Landing page quality (relevance, transparency, ease of navigation, etc.)
• Relevance of keywords to ads
• Relevance of keywords to customer search query
• Geographic performance—account success in geographic regions being targeted
• How well ads perform on different devices (quality scores are calculated for mobile,
desktop/laptop, and tablets)
Relevant ads that produce sales are good for all parties. The search engine makes more
money from clicked ads, the advertiser benefits from increased revenue, lower costs-per-click,
and more favorable ad placement. When ads are relevant and landing pages are functional and
contain relevant information, customers are more likely to find and purchase what they are
looking for.
In addition to selecting keywords and setting bid prices, advertisers also set parameters
for the geographic location and time of day they want the ad to appear. These factors allow for
additional customer targeting designed to help advertisers reach the consumers most likely to
purchase their products.
Companies need to consider the fit between ad content and landing page content and
functionality. For instance, sometimes companies create product-oriented ads, but then link
to the main page of their website instead of a page with information about the product in the
ad. Other factors include landing page design, call to action (CTA) effectiveness, and quality
of the shopping cart application. It does not make sense to spend money on a PPC campaign
designed to drive consumers to an unattractive and dysfunctional website.
One of the attractive features of PPC ad campaigns is that managers can monitor results
in real time and make adjustments to the campaign parameters if necessary. Advertisers fre-
quently set up A/B tests to evaluate the relative effectiveness of two different ads. After a period
of time, the advertiser checks to see which ad is producing better results and discontinues
use of the less effective ad for the remainder of the campaign. Some advertisers run A/B tests
throughout the campaign, constantly testing ad copy and other elements in the spirit of con-
tinuous improvement. You can learn more about advertising on the major commercial search
engines by visiting the following websites:
• Google adwords.google.com
• Bing advertise.bingads.microsoft.com
• Yahoo advertising.yahoo.com
184 C H A P T E R 6 Search, Semantic, and Recommendation Technology
Metrics for Paid Search Advertising
In addition to more effective targeting, one of the key benefits of online advertising is the ability
to evaluate its contribution to sales revenue more effectively. PPC advertisers use the following
metrics to gauge the effectiveness of their campaigns:
Click-through rates (CTRs) By themselves, CTRs do not measure the financial perfor-
mance of an ad campaign. But they are useful for evaluating many of the decisions that go
into a campaign, such as keyword selection and ad copy and ad attractiveness.
Keyword conversion High CTRs are not always good if they do not lead to sales. Since
the cost of the campaign is based on how many people click an ad, you want to select key-
words that lead to sales (conversions), not just site visits. PPC advertisers monitor which
keywords lead to sales and focus on those in future campaigns.
Cost of customer acquisition (CoCA) This metric represents the amount of money
spent to attract a paying customer. To calculate CoCA for a PPC campaign, you divide the
total budget of the campaign by the number of customers who purchased something from
your site. For instance, if you spent $1,000 on a campaign that yielded 40 customers, your
CoCA would be $1,000/40 = $25 per customer.
Return on advertising spend (ROAS) The campaign’s overall financial effectiveness is
evaluated with ROAS (revenue/cost). For example, if $1,000 was spent on a campaign that
led to $6,000 in sales, ROAS would be $6,000/$1,000 = $6. In other words, for every dollar
spent on PPC ads, $6 was earned.
Questions
1. What would most people say is the fundamental difference between organic listings and PPC listings
on a SERP?
2. What are the five primary steps to creating a PPC advertising campaign on search engines?
3. In addition to the “bid price” for a particular keyword, what other factor(s) influence whether or not
an advertisement will appear on a search results page? Why don’t search engines use just the adver-
tiser’s bid to determine if an ad will appear on search results pages?
4. How do on-page factors influence the effectiveness of PPC advertisements?
5. What factors determine an ad’s quality score?
6. Describe four metrics that can be used to evaluate the effectiveness of a PPC advertising campaign.
6.4 A Search for Meaning—Semantic
Technology
If there is one thing history has taught us, it is that the future is hard to predict. It might seem
silly to predict what the future Internet will look like when it’s clear so many people are having
trouble understanding all the implications of the present Internet. However, forward-thinking
businesses and individuals are beginning to plan for the next evolution which is sometimes
called Web 3.0.
The current Web is disjointed, requiring us to visit different websites to get content, engage in
commerce, and interact with our social networks (community). The future Web will use context,
personalization, and vertical search to make content, commerce, and community more relevant
and easier to access. With the addition of mobile technology, this Web will be always accessible.
• Context defines the intent of the user; for example, trying to purchase music, to find a job,
to share memories with friends and family.
A Search for Meaning—Semantic Technology 185
• Personalization refers to the user’s personal characteristics that impact how relevant the
content, commerce, and community are to an individual.
• Vertical search, as you have read, focuses on finding information in a particular content
area, such as travel, finance, legal, and medical.
What Is the Semantic Web?
Semantic refers to the meaning of words or language. The semantic Web is one in which
computers can interpret the meaning of content (data) by using metadata and natural
language processing to support search and retrieval, analysis and information amalgamation
from both structured and unstructured sources. Semantic technologies are being developed
that will create a new, richer experience for Web users.
Tim Berners-Lee, creator of the technology that made the World Wide Web possible, is
director of the World Wide Web Consortium (W3C). This group develops programming standards
designed to make it possible for data, information, and knowledge to be shared even more
widely across the Internet. The result of these standards is a metadata language, or ways of
describing digital information so that it can be used by a wide variety of applications.
Much of the world’s digital information is stored in files structured so they can only be read
by the programs that created them. With metadata, the content of these files can be labeled
with tags describing the nature of the information, where it came from, or how it is arranged. At
the risk of sounding too dramatic, metadata transforms a connected, but largely uninterpreta-
ble Web (network) of pages into a large database that can be searched, analyzed, understood,
and repurposed by a variety of applications.
It is helpful to think about the semantic Web against the background of earlier Internet
functionality (see Table 6.2). The early Internet allowed programmers and users to access
information and communicate with one another without worrying about the details associ-
ated with the machines they used to connect to the network and store the information. The
semantic Web continues this evolution, making it possible to access information about real
things (people, places, contracts, books, chemicals, etc.) without knowing the details associ-
ated with the nature or structure of the data files, pages, and databases where these things
are described or contained (Hendler & Berners-Lee, 2010). This will greatly expand the ways in
which we search for and find information related to our needs and interests.
The Language(s) of Web 3.0
The early Web was built using hypertext markup language (HTML). Web 2.0 was made
possible, in part, by the development of languages like XML and JavaScript. The semantic Web
utilizes additional languages that have been developed by the W3C. These include resource
description framework (RDF), Web ontology language (OWL), and SPARQL protocol and
RDF query language (SPARQL). RDF is a language used to represent information about
resources on the Internet. It will describe these resources using metadata uniform resource
identifiers (URIs) like “title,” “author,” “copyright and license information.” It is one of the
features that allow data to be used by multiple applications.
TA B L E 6 . 2 Evolution of the Web
Web 1.0 (The Initial Web)
A Web of Pages
Pages or documents are “hyperlinked,” making it easier than ever
before to access connected information.
Web 2.0 (The Social Web)
A Web of Applications
New applications and technologies allow people to easily create,
share, and organize information.
Web 3.0 (The Semantic Web)
A Web of Data
Using metadata tags, artificial intelligence, natural language
processing, and other semantic tools, computers can be used to
access specific information across platforms and applications,
regardless of the original structure of the file, page, or document. It
turns the Web into a giant readable database.
186 C H A P T E R 6 Search, Semantic, and Recommendation Technology
As the acronym SPARQL implies, it is used to write programs that can retrieve and manip-
ulate data stored in RDF format. OWL is the W3C language used to categorize and accurately
identify the nature of things found on the Internet. These three languages, used together, will
enhance the element of context on the Web, producing more fruitful and accurate information
searches. The W3C continues its work, with input by programmers and the broader Internet
community, to improve the power and functionality of these languages.
Semantic Web and Semantic Search
As you have read, the semantic Web is described by metadata, making it easier for a broad
range of applications to identify and utilize data. One of the barriers to creating a semantic Web
based on metadata, however, is the tagging process. Who will tag all the data currently on the
Web? How can we be sure that such data will be tagged correctly? Will people purposely tag
data incorrectly to gain some kind of advantage in the same way that black hat SEO tactics are
used to mislead search engines?
Semantic search engines can be programmed to take advantage of metadata tags,
but their usefulness would be very limited if that was the only way they could understand
Web content.
Metadata tags, therefore, are just one approach used by semantic search engines to under-
stand the meaning of online content. In addition to metadata tags, semantic search engines
use a variety of other strategies to find meaning:
• Natural language processing
• Contextual cues
• Synonyms
• Word variations
• Concept matching
• Specialized queries
• Artificial Intelligence
Semantic search will seek to understand the context or intent of users looking for
information in an effort to increase the relevance and accuracy of results (DiSilvestro, 2013).
For instance, if a search engine understood the proper context of a search query containing the
word “Disneyworld,” it would know if the user was
• planning a vacation, or
• looking for a job at the theme park, or
• interested in the history of Disney World.
Semantic Search Features and Benefits So what can semantic search engines
do that is so much better compared to search engines that work solely on keyword match-
ing? Grimes (2010) provides a list of practical search features based on semantic search
technology.
Related searches/queries The engine suggests alternative search queries that may pro-
duce information related to the original query. Search engines may also ask you, “Did you
mean: [search term]?” if it detects a misspelling.
Reference results The search engine suggests reference material related to the query,
such as a dictionary definition, Wikipedia pages, maps, reviews, or stock quotes.
Semantically annotated results Returned pages contain highlighting of search terms,
but also related words or phrases that may not have appeared in the original query. These
can be used in future searches simply by clicking on them.
A Search for Meaning—Semantic Technology 187
Full-text similarity search Users can submit a block of text or even a full document to
find similar content.
Search on semantic/syntactic annotations This approach would allow a user to indi-
cate the “syntactic role the term plays—for instance, the part-of-speech (noun, verb, etc.)—
or its semantic meaning, whether it’s a company name, location, or event.” For instance,
a keyword search on the word “center” would produce too many results. Instead, a search
query could be written using a syntax such as the following:
This would only return documents where the word “center” was part of an organization’s
name (e.g., Johnson Research Center or Millard Youth Center). Google currently
allows you to do something similar to specify the kind of files you are looking for (e.g.,
filetype:pdf).
Concept search Search engines could return results with related concepts. For instance,
if the original query was “Tarantino films,” documents would be returned that contain the
word “movies” even if not the word “films.”
Ontology-based search Ontologies define the relationships between data. An ontol-
ogy is based on the concept of “triples”: subject, predicate, and object. This would allow
the search engine to answer questions such as “What vegetables are green?” The search
engine would return results about “broccoli,” “spinach,” “peas,” “asparagus,” “Brussels
sprouts,” and so on.
Semantic Web search This approach would take advantage of content tagged with
metadata as previously described in this section. Search results are likely to be more accu-
rate than keyword matching.
Faceted search Faceted search provides a means of refining or filtering results based
on predefined categories called facets. For instance, a search on “colleges” might result
in options to “refine this search by. . .” location, size, degrees offered, private or public,
and so on. Many e-commerce websites provide users with faceted search features, allow-
ing shoppers to filter search results by things like price, average rating, brand name, and
product features.
Clustered search This is similar to a faceted search, but without the predefined cat-
egories. Visit Carrot2.org to better understand this concept. After conducting a search,
click on the “foamtree” option to see ways to refine your search. The refining options are
extracted from the content in pages of the initial search.
Natural language search Natural language search tools attempt to extract words from
questions such as “How many countries are there in Europe?” and create a semantic
representation of the query. Initially, this is what people hoped search engines would
evolve toward, but Grimes wonders if we have become so accustomed to typing just one or
two words into our queries that writing out a whole question may seem like too much work.
You may recognize some of these search enhancements when using popular commercial
search engines like Google or Bing. That is because they have been building semantic tech-
nologies into their systems to improve user experience. You are encouraged to explore other
search engines with semantic search features like DuckDuckGo and SenseBot.
Semantic Web for Business
What opportunities and challenges does the semantic Web hold for businesses? Perhaps
the most immediate challenge faced by businesses is the need to optimize their websites for
semantic search. Because search engines are responsible for directing so much traffic to business
websites, it will be important that companies take advantage of semantic technologies to
ensure they continue to remain visible to prospective customers who use search engines. While
188 C H A P T E R 6 Search, Semantic, and Recommendation Technology
the details of semantic SEO are beyond the scope of this book, we can illustrate one important
benefit of semantic website optimization. Websites optimized for semantic technology with
metadata produce richer, more attractive listings on SERPs. Google calls these rich snippets
(see Figure 6.8).
Note how detailed the organic search listing in Figure 6.8 is compared to a basic listing.
These enhanced search listings are more visually attractive and produce greater CTRs.
Businesses need to stay up to date with advances in semantic search so that they can
continuously optimize their sites to increase traffic from major search engines.
Questions
1. List five different practical ways that semantic technology is enhancing the search experience of users.
2. How do metadata tags facilitate more accurate search results?
3. Briefly describe the three evolutionary stages of the Internet?
4. Define the words “context,” “personalization,” and “vertical search.” Explain how they make for better
information search results.
5. What are three languages developed by the W3C and associated with the semantic Web?
6.5 Recommendation Engines
A lot of times, people don’t know what they want until you show it to them.
—Steve Jobs (quoted in Business Week, May 12, 1998)
Think about the challenge faced by large e-commerce websites like Amazon or Netflix.
Brick-and-mortar retailers can capture people’s attention in the store with eye-catching point-
of-purchase displays or suggestive selling by store employees. However, these are not options
FIGURE 6.8 The Google search listing for this New
York-based grocery chain is more attractive because
it uses metadata from the business’s website. (Google
and the Google logo are registered trademarks of
Google, Inc., used with permission.)
Recommendation Engines 189
for retail websites. They need an effective way of recommending their vast array of products
to customers. Most e-commerce sites provide website search tools based on the technologies
previously discussed in this chapter. Relying on customers to find products through an active
search, however, assumes customers know what they want and how to describe it when form-
ing their search query. For these reasons, many e-commerce sites rely on recommendation
engines (sometimes called recommender systems). Recommendation engines proactively
identify products that have a high probability of being something the consumer might want
to buy. Amazon has long been recognized as having one of the best recommendation engines.
Each time customers log into the site, they are presented with an assortment of products
based on their purchase history, browsing history, product reviews, ratings, and many other
factors. In effect, Amazon customizes their e-commerce site for each individual, leading to
increased sales. Consumers respond to these personalized pages by purchasing products
at much higher rates when compared to banner advertisements and other Web-based pro-
motions. At Amazon, the recommendation engine is credited with generating 35% of sales
(Arora, 2016).
Recommendation Filters
There are three widely used approaches to creating useful recommendations: content-based
filtering, collaborative filtering, and hybrid strategies (Asrar, 2016).
Content-Based Filtering Content-based filtering recommends products based on
the product features of items the customer has interacted with in the past (Figure 6.9). Inter-
actions can include viewing an item, “liking” an item, purchasing an item, saving an item to
a wish list, and so on. In the simplest sense, content-based filtering uses item similarity to
make recommendations. For instance, the Netflix recommendation engine attempts to recom-
mend movies that are similar to movies you have already watched (see IT at Work 6.2). Music-
streaming site Pandora creates its recommendations or playlists based on the Music Genome
Project©,a system that uses approximately 450 different attributes to describe songs. These
detailed systems for describing movies and songs enhance Netflix’s and Pandora’s positions
in highly competitive industries because of their ability to offer superior recommendations to
their customers.
3. Recommendation: “Based on your rating of fruity
cocktail umbrella drink you may also like…”
1. Customer likes fruity cocktail
umbrella drink
2. Computer searches products for fruity
cocktail umbrella drink
FIGURE 6.9 Content-based filtering produces recommendations based on
similarity of product features.
190 C H A P T E R 6 Search, Semantic, and Recommendation Technology
Collaborative Filtering Collaborative filtering makes recommendations based on a
user’s similarity to other people. For instance, when a customer gives a product a high rating,
he or she may receive recommendations based on the purchases of other people who also
gave the same product a high rating. Sometimes, websites will explain the reason for the rec-
ommendations with the message “Other people who liked this product also bought. . .” Many
collaborative filtering systems use purchase history to identify similarities among customers. In
principle, however, any customer characteristic that improves the quality of recommendations
could be used (see Figure 6.10).
In an effort to develop increasingly better recommendation engines, developers are
exploring a number of creative ways to predict what consumers might like based on patterns of
consumer behavior, interests, ratings, reviews, social media contacts and conversations, media
use, financial information, and so on.
In addition to content filtering and collaborative filtering, two other approaches to rec-
ommendation engines are mentioned in the literature: knowledge-based systems and
demographic systems. Knowledge-based systems use information about a user’s needs to rec-
ommend products. This kind of system is useful for developing recommendations for products
IT at Work 6.2
Violent Nightmare-Vacation Movies and Other Fun
Movie Genres at Netflix
Alexis Madrigal (2014) reverse-engineered Netflix’s list of movie
genres and was surprised to learn the company uses approxi-
mately 76,897 different ways to describe movies, creating the
potential for some unusually specific movie recommendations.
Christian Brown (2012) compiled a list of humorous and some-
times disturbing movie categories, a few of which are listed below:
10. Cerebral Con-Game Thrillers
9. Visually Striking Father–Son Movies
8. Violent Nightmare-Vacation Movies
7. Understated Independent Workplace Movies
6. Feel-Good Opposites-Attract Movies
5. Witty Dysfunctional-Family TV Animated Comedies
4. Period Pieces about Royalty Based on Real Life
3. Campy Mad-Scientist Movies
2. Mind-Bending Foreign Movies
1. More like Arrested Development
The fact that Netflix went to the trouble of creating so many
detailed and descriptive labels suggests that a content-based fil-
tering strategy is at use in the company’s recommendation system.
3. Recommendations: “Other customers who like pink beverage also like…”
1. Customer likes pink beverage 2. Other customers like pink beverage
FIGURE 6.10 Collaborative filtering bases recommendations on similarity to other
customers.
Recommendation Engines 191
that consumers do not shop for very often. For instance, an insurance company may ask a cus-
tomer a series of questions about his or her needs, and then use that information to recom-
mend policy options. Demographic systems base recommendations on demographic factors
corresponding to a potential customer (i.e., age, gender, race, income, etc.). While similarity
to other customers might play a role in developing these recommendations, such systems are
different from collaborative filtering systems that typically rely on information about a person’s
behavior (i.e., purchase, product ratings, etc.).
Systems are being developed that leverage big data streams from multiple sources to
refine and enhance the performance of current systems.
Limitations of Recommendation Engines While recommendation engines have
proven valuable and are widely used, there are still challenges that must be overcome. Four
commonly cited limitations are described as follows:
Cold start or new user Making recommendations for a user who has not provided any
information to the system is a challenge since most systems require a starting point or
some minimal amount of information about the user (Adomavicius & Alexander, 2005;
Burke, 2007). Tiroshi and colleagues (2011) have suggested consumers’ existing social
media profiles from sites like Facebook and Twitter could be used in situations where a
website did not have sufficient information of its own to make recommendations.
Sparsity Collaborative systems depend on having information about a critical mass of
users to compare to the target user in order to create reliable or stable recommendations.
This is not always available in situations where products have only been rated by a few
people or when it is not possible to identify a group of people who are similar to a user with
unusual preferences (Burke, 2007).
Limited feature content For content filter systems to work, there must be sufficient
information available about product features and the information must exist in a struc-
tured format so it can be read by computers. Often feature information must be entered
manually, which can be prohibitive in situations where there are many products (Adoma-
vicius & Alexander, 2005).
Overspecialization If systems can only recommend items that are highly similar to a
user profile, then the recommendations may not be useful. For instance, if the recommen-
dation system is too narrowly configured on a website that sells clothing, the user may
only see recommendations for the same clothing item he or she liked, but in different sizes
or colors (Adomavicius & Alexander, 2005).
Hybrid Recommendation Engines Hybrid recommendation engines develop
recommendations based on some combination of the methodologies described above
(content-based filtering, collaboration filtering, knowledge-based and demographic systems).
Hybrid systems are used to increase the quality of recommendations and address shortcomings
of systems that only use a single methodology. Burke (2007) identified various ways that hybrid
recommendation engines combine results from different recommender systems. To illustrate
the potential complexity and variation in hybrid systems, four approaches are listed below:
• Weighted hybrid Results from different recommenders are assigned a weight and
combined numerically to determine a final set of recommendations. Relative weights are
determined by system tests to identify the levels that produce the best recommendations.
• Mixed hybrid Results from different recommenders are presented alongside of each other.
• Cascade hybrid Recommenders are assigned a rank or priority. If a tie occurs (with two
products assigned the same recommendation value), results from the lower-ranked sys-
tems are used to break ties from the higher-ranked systems.
• Compound hybrid This approach combines results from two recommender systems
from the same technique category (e.g., two collaborative filters), but uses different algo-
rithms or calculation procedures.
192 C H A P T E R 6 Search, Semantic, and Recommendation Technology
Recommendation engines are now used by many companies with deep content (e.g., large
product inventory) that might otherwise go undiscovered if the companies depended on cus-
tomers to engage in an active search.
To simplify our description of recommendation engines, most of the examples above
have been based on the e-commerce sites recommending products to customers. However,
this technology is used by many different kinds of business organizations, as illustrated
in Table 6.3.
Questions
1. How is a recommendation engine different from a search engine?
2. Besides e-commerce websites that sell products, what are some other ways that recommendation
engines are being used on the Web today?
3. What are some examples of user information required by recommendation engines that use collab-
orative filtering?
4. Before implementing a content-based recommendation engine, what kind of information would
website operators need to collect about their products?
5. What are the four limitations or challenges that recommendation systems sometimes face?
6. What is a recommendation engine called that combines different methodologies to create recom-
mendations? What are three ways these systems combine methodologies?
TA B L E 6 . 3 Examples of Recommendation Engine Applications
Company How It Uses Recommendation Engines. . .
Amazon Recommends products using multiple filtering methods.
Netflix Approximately 75% of Netflix movies are selected as a result of its
recommendation system.
Pandora This streaming music site creates playlists based on similarity to
initial songs or artists selected by the user.
CNN, Time, Fast Company,
Rolling Stone, NBCNews.com,
Reuters, Us Weekly
These news and entertainment companies all use a recom-
mendation engine (or “content discovery system”) created by
Outbrain.com to suggest additional articles related to the one
site visitors initially viewed.
YouTube YouTube uses a variation of Amazon’s recommendation engine to
suggest additional videos people might like to watch.
Goodreads This social website for readers recommends books based on user
ratings of books they have read.
Samsung Uses recommendation engines built into its “smart TVs” to sug-
gest television programming to viewers.
Facebook and LinkedIn These social networking services use recommendation engines
to suggest people that users may want to connect with.
Apple Helps users find mobile apps they might enjoy.
Microsoft Xbox 360 Suggests new games based on what users have previously shown
an interest in.
Tripadvisor Recommends travel destinations and services based on destina-
tions people have viewed or rated.
Stitch Fix This fashion start-up uses a recommender system in conjunction
with human stylists to select and ship clothing products to
customers, before customers viewed or ordered them!
Assuring Your Learning 193
Assuring Your Learning
Key Terms
access control 172
backlinks 180
click-through rates (CTRs) 174
collaborative filtering 190
collection analysis module 169
content-based filtering 189
crawler control module 169
crawler search engines 168
dwell time 180
enterprise search 172
ghost text 181
hybrid recommendation engines 191
hybrid search engines 168
inbound marketing 180
indexer module 169
informational search 173
keyword conversion 184
keywords 169
link spamming 181
metadata 185
meta-search engines 168
navigational search 173
organic search listings 174
page repository 169
PageRank 180
paid search listings 174
pay-per-click (PPC) 174
petabyte 170
quality score 183
query interface 170
recommendation engines 173
resource description framework (RDF) 185
retrieval/ranking module 169
rich snippets 188
search engine 168
search engine marketing (SEM) 173
search engine optimization (SEO) 174
search engine results page (SERP) 166
semantic search engines 168
semantic Web 185
shadow pages 181
showrooming 175
social media optimization 174
SPARQL protocol and RDF query language
(SPARQL) 185
spiders 168
structured data 172
transactional search 173
uniform resource identifiers (URIs) 185
unstructured data 172
vertical search engines 177
Web directories 168
Web ontology language (OWL) 185
Discuss: Critical Thinking Questions
1. Why is it important that businesses maintain a high level of visibil-
ity on SERPs?
2. Why are organic search listings more valuable than paid search
listings for most companies over the long term? Even though organic
search listings are more valuable, what are some reasons that com-
panies should consider using PPC advertising as part of their search
marketing strategies?
3. Why is relevant and frequently updated content a significant factor
for companies concerned about their visibility on popular search en-
gines? Does the quality of content impact organic results, paid results,
or both? Explain.
4. Explain the differences between Web directories, crawler search en-
gines, and hybrid search engines.
5. Why do search engines consider their algorithms for rank ordering
Web page listings on SERPs to be trade secrets? What would be the
consequences of publicizing detailed information about how a search
engine ranks its results?
6. Why do consumer search engines like Google and Bing require vast
amounts of data storage? How have they addressed this need? What
environmental issues are associated with the way large technology
companies operate their data storage facilities?
7. Explain why enterprise search technology is becoming increasingly
important to organizations. Describe how enterprise search applica-
tions are different from consumer search engines in terms of their func-
tionality, purpose, and the special challenges they must overcome.
8. Explain why people are much more likely to view and pay attention
to product and service information in SERPs compared to traditional
mass media advertising? What strategies are businesses adopting to
take advantage of this trend?
9. Why is it easier to measure the return-on-investment of re-
sources spent on search engine marketing compared to mass media
advertising?
10. How has the widespread adoption of mobile devices impacted the
SEO practices?
11. Identify at least five ways that Google has changed its algo-
rithms in recent years to encourage website developers to do more
than simply list keywords in an attempt to improve their ranking on
search results.
12. The ultimate goal of Google, Bing, and other consumer search en-
gines is to provide users with a positive user experience. What recom-
mendations would you make to a website owner with regard to using
website content to improve the site’s rank on search result listings?
13. Why are “black hat” SEO techniques (see Section 6.2) considered
unethical? Who is harmed by the use of such techniques? What are the
consequences of using these questionable SEO tactics?
14. Explain how search engines determine if websites contain infor-
mation relevant to a user’s search inquiry.
15. Identify and describe the five steps to creating a PPC ad campaign.
16. How does an advertiser’s bid and quality score determine the like-
lihood of PPC ad placement on SERPs? What are the factors that Google
uses to determine an advertiser’s quality score? Why does Google use
the quality score instead of relying solely on the advertiser’s bid?
17. Describe three metrics used by PPC advertisers to evaluate the ef-
fectiveness of their search ad campaign.
194 C H A P T E R 6 Search, Semantic, and Recommendation Technology
18. Identify the three things that SEO practitioners can optimize by
making changes to on-page factors. What three things can SEO prac-
titioners attempt to optimize by making changes to off-page factors?
19. Describe five ways that semantic search engines could enhance
functionality for users. How will businesses benefit from the develop-
ment of semantic search functions?
20. Recommender systems use different approaches to generating
recommendations. Explain the difference between content-based
filtering and collaborative filtering. Describe the kind of information
required for each approach to work.
21. What are the alternatives to content-based filtering and collabora-
tive filtering recommender systems? When is it most useful to use these
alternatives?
22. Hybrid recommendation engines utilize two or more filtering
strategies to create recommendations. Describe the four different ap-
proaches to creating a hybrid system.
Explore: Online and Interactive Exercises
1. Select a search query term or phrase based on a class assignment,
a product you plan to purchase, or some area of personal interest. Use
the query at each of the following search engines:
a. Google.com
b. Bing.com
c. Yahoo.com
d. DuckDuckGo.com
For each site, make the following observations:
a. How relevant or useful are the websites listed on the first two
pages of search results?
b. What differences do you observe in terms of how the search
engines list websites on the search results page?
c. Do you see any indication that the search engine is using
semantic technology to generate results (see “Semantic Search
Features and Benefits” in Section 6.4)?
2. Visit the website for fitbit products at fitbit.com and familiarize
yourself with the products and website content.
a. Make a list of nonbranded keywords and phrases (i.e., doesn’t
contain the word “fitbit”) that you would recommend fitbit use to
optimize its pages so they show up in organic search listings.
b. Based on your list of keywords and phrases, make a list
of recommendations for content (i.e., articles, blog posts,
information, etc.) that fitbit should add to its website to increase
the chances that it will show up in organic search results. What
keywords should be emphasized in the content you recommend?
3. Use an existing account, or sign up for an account, at one of
the websites listed in Table 6.3. Make a list of the ways the website
recommends its content, goods, or services to you. Based on your
observations, are you able to determine what kind of recommendation
system is in use by the website?
4. Pretend you are going to purchase an expensive item like a large
flat-screen television or a major appliance from a national retailer
like Best Buy or Sears. Using your mobile phone, attempt to find store
locations, product information, and customer reviews. Next, install
one of the popular shopping and price comparison apps listed below
on your phone:
• Red Laser
• Amazon Price Check, or Flow (also by Amazon)
• Barcode Scanner
• Or, find a similar price-checking app at your mobile app store
Now, go shopping (visit the store). While shopping, use your mobile
app to find product reviews and make price comparisons of the products
you find. Briefly describe your mobile shopping experience. How did
the mobile technology help or hinder your shopping experience? What
challenges does mobile technology pose for traditional retailers?
5. Pretend you are an SEO consultant for a local business or not-
for-profit organization. Visit the organization’s website to familiarize
yourself with the brand, mission, products, services, and so on. Next,
make a list of keywords or phrases that you think should be used to
optimize the site for search engines. Rank-order the list based on
how frequently you think the words are used in searches. Finally, go
to google.com/trends/explore and enter your keywords or phrases,
creating a graph that illustrates how often they have been used in
search queries. Based on what you learn, what keywords or phrases
would you recommend the organization use to optimize its site?
Analyze & Decide: Apply IT Concepts to Business Decisions
1. Perform a search engine query using the terms “data center” +
“environmental impact.” Describe the environmental concerns that
large-scale data centers are creating around the globe and steps that
companies are taking to address these concerns. Read about Google’s
efforts at environment.google. In your opinion, is Google making a
satisfactory effort to minimize the negative impact of its business on
the environment? Explain your answer.
2. Review the information in Section 6.1 about the three types of
searches (informational, navigational, and transactional) that people
conduct on search engines. Put yourself in the role of an SEO consultant
for your college or university. Create a set of content and/or keyword
strategies that you would recommend to your institution’s leaders to
increase the chances of appearing on SERPs resulting from prospective
students conducting each kind of search.
Case 6.2 195
3. Review the information about website relevance and credibility in Sec-
tion 6.3. Next, generate a list of strategies or ways that a website owner
might use to improve its ranking on search results pages by optimizing the
site for relevance and credibility. For instance, if one of your factors is “site
traffic,” you might recommend that the website owner post links to the
website on the company Facebook page to increase traffic. Or, you might
recommend the website run a contest that requires people to visit the site
to enter. This would increase traffic during the contest.
4. Traditional brick-and-mortar stores are increasingly frustrated by
competition with online retailers. Online websites often have a cost
advantage because they do not have to maintain physical storefronts
or pay salespeople, and can use more efficient logistical and opera-
tional strategies. This sometimes allows them to offer better prices
to consumers. With the emergence of recommendation engines, they
appear to be gaining another advantage—the ability to suggest prod-
ucts to customers based on their past shopping history and personal
characteristics. Pretend you are a senior manager for a national retail
chain. How could your company make use of recommendation sys-
tems to suggest products to customers shopping in your store? Outline
a creative approach to this problem that identifies the information you
would need to collect, the in-store technology required, and the man-
ner in which you would inform customers about the personalized rec-
ommendations generated by your system.
5. Select a consumer product or service for which there are at least
three popular brand names. For example, you might choose the cat-
egory “cell phone carriers,” which includes Verizon, AT&T, Sprint, and
T-Mobile. On the Google.com/trends page, type the brand names,
separated by commas, into the search field at the top of the screen
(e.g., Verizon, AT&T, Sprint, T-Mobile). The resulting chart will display
the search query volume by brand, an indicator of how much interest
each brand has received over time. Using the Google Trends data, an-
swer the following questions.
Tip: Before answering the questions below, use Google’s search
engine to find articles on “how to interpret Google trends.” This will help
you better understand the Google trends report and make it easier to
answer the following questions.
a. Using the date setting at the top of the Google Trends page, ex-
plore different periods of time. Briefly summarize how interest in
each brand has changed over the last four years.
b. In the Regional Interest section, you can see how interest in
each brand varies by country or city. In which countries and cities
is each brand most popular?
c. In the Related Searches section, you will see a list of topics
and query terms of interest to people who used one of the brand
names in a search. How does the list of related topics change from
one brand name to another? Do the topic and query term lists give
you any insight into what kind of information people may be inter-
ested in relative to each brand?
d. Using a search engine, see if you can find market share data
for the product or industry you researched on Google Trends. If
you find this information, does there seem to be any relationship
between search volume and market share for the brand names
you explored?
Case 6.2
Business Case: Deciding What to Watch—Video
Recommendations at Netflix
Netflix is the undisputed leader of video streaming services, account-
ing for more than half (53%) of U.S. video streaming subscriptions.
Amazon Prime Video (25%) and Hulu (13%) are the company’s largest
competitors. Netflix is also the oldest company in this group, having
originally started as a DVD by mail rental service. Unlike other com-
panies that dominated the DVD rental business, Netflix successfully
made the transition to on-demand video streaming by investing in
new technology and redefining its business model. The service is
now available in 190 countries and claims over 90 million subscrib-
ers globally.
Netflix executives credit the company’s recommendation system for
driving the “Netflix experience” and boosting profitability (Gomez-Uribe
& Hunt, 2015; Raimond & Basilico, 2016). Surprisingly, the origin of the
recommendation system dates back to 2000, when Netflix was still a DVD
rental service. Recommendations during these early days were based
largely on members’ movie ratings. Ratings often reflect how people want
to be perceived as opposed to how they act. For instance, rating data will
tend to overemphasize how much people like documentaries and foreign
language films, whereas behavioral metrics provide more accurate meas-
ures of how subscribers use the service. Today, when Netflix subscribers
use the online service, they see recommendations generated by multiple
algorithms that use descriptive information about the subscriber and
their past viewing behavior (Gomez-Uribe & Hunt, 2015). Netflix claims
that 75% of the activity on the service is a result of the recommendations
it offers subscribers.
Netflix Analytics
Netflix enjoys a significant advantage over traditional television chan-
nels because the company collects information about how subscrib-
ers use the service. Netflix can make marketing and product decisions
based on several behavioral metrics. You might be surprised at the
details Netflix collects:
• The device you use (tablet, Roku, smart TV, etc.)
• Where (zip code) you watch from
• The days and times you watch
• When you pause, rewind, or fast-forward during viewing
• How you search—the words and phrases used, how long you
search, etc.
• Whether or not you watch the credits following a show
• How many episodes of a series you watched
• Whether or not you watch all episodes in a series
• How long it takes you to watch all episodes in a series
196 C H A P T E R 6 Search, Semantic, and Recommendation Technology
• How many hours you spend using the service
• What movies and television shows you watch
• How often you use the service
In addition to making recommendations, Netflix uses the informa-
tion to do the following:
• Identify subscribers who are likely to cancel the service
• Select new movies to add to their catalog
• Decide if a television show should be renewed for another season
• Identify movies and television shows to drop from the catalog
• Determine the days and times to recommend certain movies
or shows
• Determine what to recommend immediately following the view-
ing of another movie or show
• Determine how to describe movies and shows (i.e., long vs. short
descriptions)
Recommendation Algorithms at Netflix
The Netflix home screen can offer up to 40 rows of recommendations
to a subscriber. Each row is generated by a different algorithm
designed to personalize recommendations as well as determine the
order in which movies and shows are listed. Each row is based on a
different theme or rationale for the titles appearing in the row. Netflix
even uses a Page Generation Algorithm to personalize the type of
row-level recommendations and their order when creating the page.
Some examples of the different recommendation rows include the
following:
Genre Rows Several of the rows appearing on the home page are
based on movie or television show genres that Netflix believes the
subscriber will be interested in based on past viewing behavior. Genre
rows are generated by what Netflix calls its Personalized Video Ranker
(PVR). The rows reflect three levels of personalization: (1) the selection
of the genre, (2) the selection of specific titles within the genre, and
(3) the ordering of the titles.
Continue Watching Titles appearing in the Continue Watching
row highlight episodic content that Netflix thinks a subscriber might
want to return to. The Continue Watching ranker evaluates recently
viewed videos for signals that a subscriber intends to resume watching
or is no longer interested in the title. These signals include things like
time since last viewing, point of abandonment (mid-program, end
of program), if other titles have been viewed since, and type of
device used.
Because You Watched The Because you watched (BYW) row is
based on the similarity of recommended videos to past videos watched
by the subscriber. The BYW row is determined by the Sims Ranker,
which generates an ordered list of videos, based on similarity, for
every title in the catalog. Various personalization cues are then used
to further refine the subset of videos that actually appear in the row on
the home page.
Top Picks The goal of the Top Picks row is to feature Netflix’s best
guess as to the videos in its catalog that are most likely to be of interest
to the subscriber. The Top Picks algorithm uses cues from the individual
subscriber along with viewing trend information to recommend titles
from among the most popular or top-ranked videos in the catalog.
Netflix believes that its recommendation system plays a
significant role in user satisfaction and customer retention. A team
of workers regularly updates the system with new algorithms and
modifications to existing ones. Their ultimate goal is to generate such
high-quality recommendations that subscribers will rarely have to
search for videos to watch.
Questions
1. You read about four different types of recommendations that Netf-
lix features on their home page. Think of a new type of recommen-
dation row that Netflix could use and the kind of information or
behavioral metrics that would be needed to generate your recom-
mendations.
2. Based on the information in this case, would you say that Netflix
primarily uses content-based filtering, collaborative filtering, or
both? Explain your answer.
3. Netflix is expanding globally. When Netflix first enters a market,
the recommendation system can face “cold start” or “sparsity”
problems. Explain why this happens and suggests ways that Netf-
lix might deal with these challenges.
4. What metrics do you think Netflix could use to identify subscribers
who are likely to cancel the service?
5. Visit Netflix’s Technology Blog http://techblog.netflix.com. Iden-
tify three challenges that the company faces in generating recom-
mendations for its subscribers.
Sources: Compiled from Bulygo (2013b), Alvino and Basilico (2015), Gomez-
Uribe and Hunt (2015), Arora (2016), Cheng (2016), Lubin (2016), Nicklesburg
(2016), Raimond and Basilico (2016).
Case 6.3
Video Case: Power Searching with Google
This video case is a bit different from what you have seen in other chap-
ters. Google has created two easy-to-follow video courses designed to
teach you how to use search engines more effectively: Power Search-
ing and Advanced Power Searching. Each course contains a series of
videos that you can view at your own pace. Following each video, you
are shown a set of activities and small quizzes that you can use to test
your knowledge. Start with the Power Searching course. Once you
have mastered the basic skills discussed in that course, move on to the
Advanced Power Searching course.
Visit Google’s Search Education Online page powersearching-
withgoogle.com. On this page, you will see links for the two self-guided
courses: Power Searching and Advanced Power Searching. Select
References 197
the Power Searching link and begin viewing the course videos. After
each video, do the related activities and test your knowledge with any
online quizzes or tests that are provided. After you have completed the
Power Searching course, go back and take the Advanced Power Search-
ing course.
While it may take several days to complete both courses, we encour-
age you to do so. The time you invest in learning these power search
techniques will pay off next time you need to use a search engine for a
class- or work-related research project.
Question
1. Describe two or three search techniques you learned from these
tutorial videos that you think will be particularly helpful.
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199
CHAPTER 7
Web 2.0 and Social Technology
L E A R N I N G O U T C O M E S
7.1 Understand the key technologies that made Web 2.0
possible, and appreciate the opportunities and challenges
that social media represents for business organizations.
7.2 Describe the features and capabilities of large social
networking services.
7.3 Explain how blogs and microblogs facilitate communication
on a global scale.
7.4 Describe how mashups, RSS technology, and monitoring
tools are valuable to business organizations and
individual users.
7.5 Describe how organizations and groups make use of new Web
2.0 collaboration tools and services.
C H A P T E R O U T L I N E
Case 7.1 Opening Case: Social Customer Service
Takes Off at KLM
7.1 Web 2.0—The Social Web
7.2 Social Networking Services and Communities
7.3 Engaging Consumers with Blogs and
Microblogs
7.4 Mashups, Social Metrics, and
Monitoring Tools
7.5 Enterprise 2.0: Workplace Collaboration and
Knowledge Sharing
Case 7.2 Business Case: Facebook Helps Songkick
Rock the Ticket Sales Industry
Case 7.3 Business Case: AT&T’s “It Can Wait”
Campaign against Distracted Driving
Introduction
Everyone is talking about social media. Chances are you and your friends connect on social
networking services or other forms of social media frequently. Every day, people discover new
ways to share things with their network of friends through messaging, photographs, videos,
and blogs. The digital-savvy, connected generation or millennials—teens and those in their
200 C H A P T E R 7 Web 2.0 and Social Technology
early twenties—“get” social media, but might not be able to accurately define it or explain how
companies use social technology to influence brand attitudes and consumer behavior. After you
venture past the big brand names—Facebook, Twitter, YouTube, and LinkedIn—awareness of
social media tools drops off quickly. Most social media use among Millennials is for recreational
or entertainment purposes. There is little understanding of how social media can be used for
marketing, recruiting, research, collaboration on projects, or personal branding.
Facebook has caught the attention of business organizations because the number of peo-
ple who use the site is huge (and continues to grow!). Businesses are also exploring promo-
tional opportunities on sites like Twitter, Pinterest, LinkedIn, and YouTube. Companies get 24/7
advertising, live interaction with customers and prospects, and targeted ads. Organizations are
working feverishly to prompt consumers to engage—to like, tweet, comment, and share their
brand experiences with others. And they are spending a lot of time doing just that. According
to eMarketer (2016), U.S. companies will spend over $72 billion advertising on social networks,
more than they spend on television ($71.29 billion).
In this chapter, you will learn what makes social media social. You will also learn about
social media applications that have both personal and professional uses, and you will learn
how business organizations make use of social media to gain competitive advantages in the
marketplace.
Case 7.1 Opening Case
Social Customer Service Takes Off at KLM
On April 14, 2010, an Icelandic volcano with a difficult name (Eyjafjal-
lajökull) erupted, spewing volcanic ash several kilometers into the
atmosphere and disrupting air travel for 10 million people across
northwestern Europe for days. Like many other airlines in the area,
KLM Royal Dutch Airlines was overwhelmed by stranded passengers
seeking information by phone and e-mail. While some people waited
on hold for hours trying to reach a call center, other passengers turned
to social media to find answers.
Just a year before, KLM had launched an exploratory effort to
figure out how the company could use social media. With a relatively
new Twitter account and Facebook page, the company’s social media
team suddenly found themselves fielding questions from countless
frustrated travelers. The team quickly set up a special social media
room, called in 100 reinforcements from other units in the company,
and began responding around the clock to inquiries coming in on Face-
book and Twitter. This marked the beginning of social customer service
at KLM. Today, KLM employs over 235 social media service agents who
respond each week to 15,000 questions or comments from customers
in 13 different languages (Table 7.1).
Customer Service Is Not an Option
While KLM uses social media to run contests, entertain passengers,
and promote the airline, customer service remains the clear priority for
the social unit. The company believes that in today’s fast paced, com-
petitive environment, customers expect businesses to provide sup-
port services via social media. Companies that fail this test will suffer
consequences.
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TA B L E 7 . 1 Opening Case Overview
Company KLM Royal Dutch Airlines
Location Headquartered in Amstelveen, KLM is the national airline of the Netherlands. KLM currently oper-
ates passenger and cargo service to 133 destinations in 70 countries around the world.
History Founded in 1919, KLM is the oldest airline in the world still operating under its original name.
Social media Customers can contact KLM on Twitter, Facebook, Facebook Messenger, and LinkedIn. The company
publishes a blog and also maintains a presence on Pinterest, Google+, YouTube, and Instagram.
Customer service KLM is credited with pioneering the use of social media for customer service. The company is
widely recognized within the airline industry for providing excellent customer support.
Web 2.0—The Social Web 201
Be Where Your Customers Are
A company’s social media strategy can’t be effective if they aren’t
using the same social channels as their customers. Over the years,
KLM has expanded their social media coverage based on the platforms
their customers use. In addition to Facebook and Twitter, custom-
ers can now contact KLM social agents from LinkedIn and Facebook
Messenger. Agents can help customers book or change a flight, check-
in, pick a seat, or assist with any problems that might occur. In addi-
tion, KLM publishes a blog and maintains a presence on Pinterest,
Google+, YouTube, and Instagram.
One-Stop Shopping Means Social Revenue
The KLM model of customer service adheres to a one-stop shop
principle. That means if a customer asks about changing their ticket,
the social agent will look up the information and respond with a cus-
tomized answer instead of just sending a link to the company’s general
terms and conditions Web page. The goal is to resolve the customer’s
issue through the social channel used to contact the company. After
answering questions about flight times, pricing, and other details,
KLM social agents provide a direct link to a payment page where cus-
tomers complete their purchase. For many customers, the process is
simply more convenient than purchasing through another channel.
“Move fast, break things, and don’t be afraid to fail.”
Karlijn Vogel-Meijer, Manager Social Media at KLM, explains that the
company understands mistakes are bound to happen from time to
time, especially if you’re moving fast. The social unit has support from
the top of the organization, giving it the freedom to try new things and
innovate. As a result, KLM is considered a leader for the way its social
customer service unit has pioneered the use of social media to support
customers and maintain high levels of positive sentiment. It’s hard to
be innovative if you’re always worried about making mistakes. As Vogel-
Meijer says, “If you’re afraid, you will stall.” One of KLM’s latest inno-
vations is the use of artificial intelligence, a new technology that helps
agents answer many routine questions they receive from customers.
Faster Response Times
As more companies gear up to engage customers through social
media, customer expectations also increase. When customers contact
a company about a problem, they not only expect an answer, they also
want a response quickly. KLM strives to answer each customer within
30 minutes. At the top of KLM’s Twitter page, the company posts the
average response time and updates it every 5 minutes so even if things
are taking a little longer, customers know when to expect a reply. By
managing expectations, KLM minimizes customer frustrations.
Conclusion
KLM Royal Airlines is recognized around the world as the leader in social
media customer service. Some airlines aren’t prepared for the chal-
lenges associated with social media. For instance, when a disgruntled
customer contacts a call center to make a complaint, only the customer
and company know about the call. When a customer complains on
social media, the world can see the complaint and how well the com-
pany works to resolve the problem. The social media customer service
unit at KLM not only contributes to the company’s high customer satis-
faction and positive sentiment, but also to the bottom line. In 2015, KLM
estimated that each social agent was responsible for approximately
$170,000 in revenue. With 235 social agents, that translates into over
$39 million.
Questions
1. Why does KLM think that Customer Service is the most important
application of social media?
2. How does KLM determine which social media platforms to use?
3. Explain the reasoning behind KLM’s “. . . don’t be afraid to fail”
philosophy.
4. KLM’s “one-stop shop” model probably increases the time a social
agent spends responding to a customer’s inquiry. Why does the
company use this approach?
5. Many airlines have yet to embrace the use of social media like
KLM. What challenges do you think other airlines face when mak-
ing the transition to using social media?
Source: Compiled from Baer and Brown (n.d.), ter Haar (2015), Koetsier (2015),
Simson (2015), Azfar (2016), Hutchinson (2016), KLM (2016), Talkwalker.
com (2017).
7.1 Web 2.0—The Social Web
In your lifetime, there have been dramatic changes in the way people use the Internet. In the
early 1990s, many people did not have regular access to the Internet, and those who did typi-
cally “dialed up” their network from a home or office telephone. Dial-up access meant long
waits as content from Web pages “downloaded” onto the screen. Some users joked that the
letters “www” in a Web address stood for “world wide wait.” E-mail was the primary mechanism
for communicating on the Internet. Online communities were often like public bulletin boards
where all members of the community could read the messages that others posted. Websites
were static, essentially online billboards for the businesses that created them. Online purchas-
ing (e-commerce) was rare and risky because there were few safeguards in place to protect your
credit card information. But all that has changed.
The Constantly Changing Web
Today, most of us access the Internet using wired or wireless broadband technology, consum-
ing bandwidth that was unheard of a few years ago. We expect to be able to stream audio and
202 C H A P T E R 7 Web 2.0 and Social Technology
video files, and watch feature-length films over wireless connections and mobile devices. We
surf Web pages that constantly change their appearance in response to how we interact with
them. While e-mail is still a common form of communication in business, young people tend
to view it with disdain in favor of tweets, texts, or social networking sites like Twitter and Face-
book. We keep track of our world, interests, and hobbies by reading blogs and online news-
papers, and use a variety of tools and services for sharing them with others. In addition to
consuming content, we add comments or reviews and signal our appreciation for the content
by retweeting or clicking a “Like” button.
Increasingly, Internet users are becoming content creators—they write their own blogs,
post videos on YouTube, share personal experiences on Facebook, and share pictures using
sites like Flickr or Photobucket. E-commerce continues to grow and evolve, in some cases
changing entire industries. E-books are now more popular than print books on sites like
Amazon. More people purchase music from sites like iTunes or use streaming-music sites like
Pandora or Spotify than purchase music on CDs. Sites like Travelocity and Orbitz have almost
completely replaced traditional travel agencies and agents. Many people are more likely to use
sites like eBay and Craigslist to get rid of unwanted household items instead of holding garage
sales or placing classified ads in a local paper. One of the biggest changes in online retail is the
use of social features by e-commerce sites. Most online retailers make use of customer reviews,
customer ratings, and information sharing on social networks.
While there are many exciting examples of companies that have embraced the potential of
Web 2.0 technologies and the emerging social culture that characterizes our modern online
experience, many businesses, agencies, and individuals have been slow to understand the chal-
lenges and opportunities created by the social Web. Smart managers are constantly evaluating
how changes in social media and related technologies affect their business and industry. Busi-
nesses and business professionals must devote time and resources to consistently monitoring
technological innovation and related changes in consumer behavior in order to remain relevant,
taking advantage of potential opportunities to create competitive advantages when they arise.
Invention of the World Wide Web
The World Wide Web (WWW) was invented by Tim Berners-Lee and launched in 1991. Its use
outside of scientific and academic circles was uncommon until the mid-1990s. Web access from
homes was mostly via telephone lines, slow 56-kbps (kilobits per second) dial-up modems, and
paid subscription network services such as CompuServe and America Online (AOL). Websites
were primitive static designs that served as online billboards or postcards. You can view
archived websites using the Wayback Machine. During that time, e-mail was viewed as a
sophisticated communications tool that most people accessed at work or on college campuses,
but not from home.
As the above description suggests, communication was primarily unidirectional. There
were no easy-to-use conduits for widespread social interaction. The average user was the
target or recipient of communications, not a creator.
A Platform for Services and Social Interaction
Now the Web is a platform for all kinds of activity—shopping, entertainment, news, education,
research, and business processes like logistics and electronic funds transfer (EFT). Homes maintain
broadband wireless networks to connect multiple users simultaneously to the Internet from
computers, tablets, video game systems, and video-streaming devices like the Roku box. In
addition to the aforementioned activities, new technologies gave rise to websites with features
and services that make it easy for people to interact with one another. As a result, these services
collectively are referred to as social media. While the applications that are labeled as Web 2.0 may
simply be an extension of earlier advances, it is the change in user behavior that matters most to
business organizations around the world. The new technologies dramatically increase the ability
of people to interact with businesses and each other, sharing and finding information, and forming
relationships. This perspective explains why Web 2.0 is often called the social Web (Table 7.2).
Web 2.0 a term used to
describe a phase of World Wide
Web evolution characterized
by dynamic Web pages, social
media, mashup applications,
broadband connectivity, and user-
generated content.
World Wide Web (WWW) a
network of documents on the
Internet, called Web pages,
constructed with HTML markup
language that supports links
to other documents and media
(e.g., graphics, video, audio, etc.).
Broadband refers to wide
bandwidth technologies
that create fast, high-volume
connections to the Internet and
World Wide Web.
Social media a collection of
Web applications based on Web
2.0 technology and culture that
allows people to connect and
collaborate with others by creating
and sharing digital content.
Web 2.0—The Social Web 203
Emergence of Social Applications, Networks, and Services
Starting in 2000, a series of developments in the technology and business environment occurred
that set the stage (infrastructure) for Web 2.0.
1. Broad bandwidth (broadband) Internet access became faster and more widely avail-
able due to large-scale adoption of broadband technology. Website load times shrank
from a minute to instantaneous. Huge bandwidth is required to support byte-intensive
music downloads and streaming video and movie services. As residential broadband con-
nections became common place and public broadband connections increased in coffee
shops, malls, college campuses, and other community centers, people began to rely on
applications that required fast, high-volume data connections. These broadband connec-
tions increased the overall attractiveness and accessibility of the Internet—laying the foun-
dation for interactivity and the social Web.
2. Sustainable business models After the dot.com bust in the late 1990s when many badly
conceived Internet businesses failed, a new breed of business emerged. These businesses
had realistic revenue models. Companies like Amazon, Google, eBay, and others began to
demonstrate that it was possible to create e-commerce and consumer service sites that
could generate revenue and become not only self-sustaining, but also profitable.
3. New Web programming technologies New Web programming languages and technologies
were developed that made it possible for programmers to create dynamic and feature-rich
websites. In some cases, these new features and website capabilities created new business
opportunities, which in turn led to increased demand for Web access. Increased Web usage
then led to larger potential markets for businesses with successful revenue models. The busi-
nesses frequently reinvested earnings into expanding their technological capabilities in an
effort to attract even more customers. This cycle of enhanced technological features leading
to greater value for the consumer/Web user and then to more people using the Web continues
today. Some of these new Web technologies are described in more detail in Tech Note 7.1.
4. Application programming interfaces (API) and software development kits (SDK) One
of the big differences between Web 1.0 and Web 2.0 is the extent to which business
organizations are willing to share information (data) with other organizations and
developers who are creating new programs or services. For instance, Google Maps might
allow a restaurant review website like Yelp.com to use its mapping application to create a
feature on the Yelp site showing restaurant locations on a map. Historically, businesses have
been highly protective of their intellectual property and were generally unwilling to share it
with other companies. However, many companies that emerged during the Web 2.0 era have
come to recognize the benefits of certain types of sharing or collaboration with others. For
instance, when Google makes part of its mapping program available to others, it increases
the number of people using the Google product and expands its share of the marketplace.
In turn, Yelp frequently makes some of its data available to companies developing new
applications. For instance, Trulia is a real estate company that helps people find new homes.
TA B L E 7 . 2 Web 1.0 versus Web 2.0
Web 1.0—The Early Web Web 2.0—The Social Web
Static pages, HTML Dynamic pages, XML, and Java
Author-controlled content User-controlled content
Computers Computers, cell phones, televisions, PDAs, game systems, car dashboards
Users view content Users create content
Individual users User communities
Marketing goal: influence Marketing goal: relationships
Data: single source Data: multiple sources, for example, mashups
204 C H A P T E R 7 Web 2.0 and Social Technology
They use information from Yelp.com to help their customers learn about businesses, res-
taurants, grocery stores, and other amenities in the neighborhood they are considering,
without having to leave the Trulia website. Businesses have learned that when done right,
sharing information often creates synergies that benefit all involved. From a technology
standpoint, two programming tools make this data sharing possible: APIs and SDKs.
An API is a set of commands and programming standards used by developers to write appli-
cations that can communicate with other applications. In other words, it aids developers in
determining how their applications can pass data back and forth with some other application.
An SDK is a bit more complex than an API. SDKs are a collection of software tools used by
developers for writing applications that run on a specific device or platform. For instance,
a Facebook SDK helps third-party developers write programs that will run on Facebook.
Businesses that share data with other companies usually write the APIs and SDKs that
define the rules and restrictions for information sharing. In that way, they retain control
over who uses their data and how it is used. If a developer simply needs to share data with
another website, they will likely use an API created by the other website. If they are creating
an application that will actually run on the other website, they will most likely use an SDK
developed by the other website. Together, APIs and SDKs have fundamentally changed
the degree to which businesses share their information resulting in a vastly improved and
more useful World Wide Web.
While APIs and SDKs can either be proprietary (user pays a fee) or open source, most
popular APIs are open source, which means that anyone can use them for free, although
other conditions may be placed on their use. Visit programmable Web.com for a listing of
popular APIs.
Tech Note 7.1
AJAX Technologies and APIs
AJAX technologies, or asynchronous JavaScript and XML (AJAX),
is a term referring to a group of technologies and programming lan-
guages that make it possible for Web pages to respond to users’
actions without requiring the entire page to reload. AJAX makes it
possible for Web developers to create small apps that run on a page
instead of a server. This capability makes programs run much faster,
eliminating a key source of frustration with the early Web. Another
important programming development is the API, which acts as a
software gateway programmers can use to pass data back and forth
between two or more applications, platforms, or websites (see IT at
Work 7.1). With AJAX and APIs, website programmers can import
data from other sources to create new functions and features that
we have come to associate with social media applications (see the
discussion of mashups later in this chapter).
AJAX technologies include JavaScript, extendable markup
language (XML), document object model (DOM), hypertext
markup language (HTML), XMLHttpRequest, and cascading
style sheets (CSS), all of which are defined in Table 7.3.
TA B L E 7 . 3 AJAX Technologies for Web 2.0
Hypertext markup language (HTML): The predominant language for Web pages; it is used, along with CSS, to
describe how things will appear on a Web page.
Cascading style sheets (CSS): A language used to enhance the appearance of Web pages written in a
markup language.
Document object model (DOM): A programming API for documents. Programmers use it to manipulate (e.g.,
build, add, modify, delete, etc.) HTML documents.
Extensible markup language (XML): A set of rules and guidelines for describing data that can be used by other
programming languages. It makes it possible for data to be shared across the Web.
JavaScript: An object-oriented language used to create apps and functionality on websites. Examples of JavaScript
apps include pop-up windows, validation of Webform inputs, and images that change when a cursor passes over them.
XMLHttpRequest: A JavaScript object that serves as an API used by programs to retrieve data or resources from
a URL without requiring a page load. It plays an important role in providing programmers with the ability to create
dynamic and interactive Web pages and applications.
Sources: van Kesteren et al. (2014), techterms.com (2014), W3C (2015), Grigorik (2017) .
Web 2.0—The Social Web 205
Why Managers Should Understand Web Technology
You might ask yourself why business managers who are not directly involved in managing an
organization’s website should be concerned about the underlying technology of Web 2.0 and
social media. The answer is that these technologies determine website features and capabil-
ities. In other words, they determine what is possible on the Web. Understanding how Web
technology is evolving helps managers identify strategic opportunities and threats as well as
the ways in which a company might develop sustainable competitive advantages in the mar-
ketplace. Therefore, it is important to monitor the ongoing development of APIs, Web develop-
ment languages, and other technologies that affect the functioning of the Web.
APIs For instance, APIs associated with Facebook determine the nature of apps that can
be written to interact with core Facebook features. Major changes to the Facebook APIs
are often rolled out to much fanfare because they define opportunities for developing new
ways for users to create and share content on Facebook and across the Web, as described
in IT at Work 7.1.
At Facebook’s annual developer conferences in 2010 and 2011, founder Mark Zuckerberg made
announcements about changes in Facebook APIs that would extend the social networking
giant’s presence across the Web through the use of social plug-ins, which are listed in Table 7.4.
See the discussion of Open Graph in Section 7.2.
IT at Work 7.1
Myntra Leverages Facebook APIs and SDKs
for Success in Mobile Fashion Sales
Myntra is India’s largest fashion e-commerce company, serving
millions of customers and featuring over 2,000 of the world’s top
fashion brands. The company generates sales of over 200,000 items
from its mobile app on any given day. Myntra is recognized as being
the world’s first mobile-only e-commerce platform and reportedly
sold $500 million in gross merchandise volume in FY2015–16. Using
Facebook’s Open Graph API and SDK, the company was able to
install features that let customers easily post information to their
Facebook pages without leaving the Myntra app. This makes it pos-
sible for the company to leverage the social network of each cus-
tomer to increase brand awareness and interest in the marketplace.
Using Facebook’s SDK, the company implemented Facebook Login
for its app as well as developed programs to access customer
insight data and a range of analytics about the performance of their
Facebook ads, conversion channels, and the success of various cus-
tomer retention strategies. As a result of these integrations with
Facebook, Myntra experienced significant growth and credits Face-
book for as much as 25% of its sales revenue. In addition, Myntra
improved the effectiveness of ad targeting and reduced advertising
costs after learning that customers who use Facebook Login to
access the e-commerce app were 32% more likely to convert (make
a purchase) than other customers.
Sources: “Myntra – Best of Fashion” at developers.facebook.com.
TA B L E 7 . 4 Facebook Social Plug-Ins Used Across the Web
Plug-in What It Does. . .
Like button Shares pages from a website back to a user’s Facebook profile with a single click.
Send button Allows users to send content from a website to their Facebook friends.
Comments This plug-in allows users to comment on a Web page’s content using their Face-
book profile and shows the activity to the user’s friends in a newsfeed.
Embedded Places content from any public Facebook post on to a website post or blog.
Facepile This feature displays the profile photos of the people who have connected with a
Facebook page or app.
Login button Shows profile pictures of the user’s friends who have already signed up for a
Website in addition to a login button.
Source: Facebook (2014).
206 C H A P T E R 7 Web 2.0 and Social Technology
Plug-ins Plug-ins are buttons or features on non-Facebook sites that interact with Face-
book in some way. For instance, CNN.com might include a Recommend button on all its
news articles. When a Facebook user presses the button, a link to the story is automatically
created on the user’s Facebook page. You don’t have to be a Web programmer to follow
and understand public announcements about API updates from Facebook, Google Maps,
YouTube, Twitter, and other popular social media platforms. Using the monitoring tools
discussed later in this chapter, you can stay informed about these changes and begin to
assess how they will impact you as an individual, website developer, or business manager.
Communicating on the Web
Collectively, social media apps have shifted the locus of control for mass communications from
large organizations to one shared with individual users. Now people as well as organizations
control both the message and the medium. Instead of an organization broadcasting a single
message to a mass audience, a massive number of conversations take place among any num-
ber of people and organizations.
No one has complete control over the message or the medium, yet everyone can play a
part. The challenge for businesses today is to change mindsets and develop strategies that
take advantage of social media. Instead of a focus on developing sophisticated ways of getting
their message heard, companies must now develop sophisticated strategies for listening and
responding to what their consumers are saying.
Because of the relatively low cost and ease of use, social media is a powerful force for
democratization; the network structure enables communication and collaboration on a mas-
sive scale. Figure 7.1 shows the emergence of mass social media. The figure compares tradi-
tional and social media and illustrates the new tools of social media, for example, blogs and
video blogs (vlogs), as being in the consumer’s control. With traditional media, content is
tightly controlled and brand messages are “pushed” out to users, often in the form of an ad
interruption. With social media, users are frequently attracted or “pulled” to content that is
interesting to them and they have greater freedom to decide if, when, and how they want to
interact with such content.
Notice that traditional media content goes from the technology to the people, whereas in
social media, people create and control the content.
Network
Effects
Consumer
Control
Videos
Podcasts
Tweets
Forums
Wikis
Enterprise 2.0 Platforms
Institutional
Control
Traditional Media
Social
Consumption
Social Media
Blogosphere
Blog
Blog
Blog Blog
Blog Blog
Print
Via comments,
Inst. Msg., Feedback,
Ratings, Reviews
Radio
Movies
Media
Outlets
S
h
ift
Observe
Pu
blis
h
Contribute
Television
FIGURE 7.1 The emergence and rise of mass social media.
Web 2.0—The Social Web 207
Social Media Applications and Services
Early descriptions of Web 2.0 would often identify the applications listed in Table 7.5 as typical
of social media. You will read more about each of these applications later in the chapter.
Few applications fit neatly into these categories anymore because of feature convergence.
For instance, Facebook started as a social networking service (SNS), but now has features that
span almost all of the categories in Table 7.5. It is a sharing site used by many to distribute photos.
It is increasingly common for people to tag or label photos with the names of people in the picture,
making it easy to find and display photos of individuals that have been saved in multiple locations
on Facebook. Users can maintain blogs on their Facebook page and Facebook hosts thousands
of apps that pull data from sources outside of the social network, making it a huge mashup app.
Likewise, YouTube started as a sharing site, making it easy for people to share video clips
with others. However, YouTube now contains many features that make it difficult to distin-
guish from an SNS. The same is true of Flickr, a photo-sharing site that has really become a
community platform for people interested in photography.
While some original social media applications are still present on the Web today, thou-
sands of newer applications have sprung up and continue to blur the lines of the original social
media application categories.
Social Media Is More than Facebook, YouTube, and Twitter
Many people think that social media is limited to a few iconic companies or brand names: Face-
book, Twitter, YouTube, and LinkedIn. While those companies have certainly capitalized on the
new technology and tend to dominate their respective market niches, social media is a term
describing a range of technologies that are used across the Internet and are part of most web-
sites you use today.
While you may be familiar with using social media for recreational purposes or com-
municating with friends and family, businesses use social technologies for a wide variety of
other benefits:
• Collaboration
• Communication and engagement with customers (marketing)
• Image and reputation management (public relations)
• Communication and engagement with employees and partners (management)
• Talent acquisition and recruiting (human resources)
• Research and knowledge management
• Productivity and information utilities
• Fund raising
Social networking service
(SNS) an online platform or
website that allows subscribers
to interact and form communities
or networks based on real-life
relationships, shared interests,
activities and so on.
TA B L E 7 . 5 Web 2.0 Applications
Application Description
Social networking service Online communities
Blogs Online journals
Mashups/widgets/RSS Web applications that pull data from various sources and display on
another page to create new functionality
Social bookmarking/tags An application for tagging or labeling online content for later retrieval
Wikis A collaborative application that allows multiple people to create and
edit online content
Sharing sites Websites that make it easy for users to upload and share digital
content like photos, videos, or music
208 C H A P T E R 7 Web 2.0 and Social Technology
The following section lists some of the key elements of social media that distinguish it from
other types of media.
Elements of Social Media: What Makes It Different? In order to understand
what makes the modern Web so different from its earlier incarnation, it is helpful to understand
the differentiating features and benefits made possible by XML, Java Script, APIs, and related
technologies.
User-generated content (UGC) In contrast to traditional media—TV, radio, and
magazines—social media makes it possible for users to create and share their own content.
Using social technologies, people share photographs, music, and video with the world.
They express themselves using the written word in stories, articles, and opinion pieces
that they publish on their own websites or other platforms. They rate products and write
reviews. Many individuals and groups have become Internet celebrities as a result of the
shows they created for YouTube. And because of YouTube’s revenue-sharing policy, those
that attract the largest audiences earn millions of dollars.
Content control Most content creation and sharing is done without editorial review. As
a result, users decide for themselves what they want to create and share. Social technolo-
gies have shifted control of online content to a broad base of users. It is users who deter-
mine what content “goes viral” or becomes highly popular through sharing, not advertising
agencies or companies with large advertising budgets.
Conversation With the advent of social media, a paradigm shift occurred in marketing
communications from a broadcast (one-way) model to a conversation (two-way) model.
Dialogue takes place in the form of one-to-one, one-to-many, and many-to-one formats.
Social media websites contain features that allow people to talk back in a variety of ways.
Community (common values, culture) Many social media technologies ultimately
result in the creation of communities. Like their offline counterparts, these online commu-
nities are made up of people who share a bond of common interests, values, norms, and
even sanctions. Some communities are highly structured, whereas others may be more
fluid and informal. As businesses learn to communicate on Web 2.0, some will attempt
to create communities made up of consumers who have a strong interest in a particular
brand. Social networking services lend themselves to this type of strategy, but brand com-
munities can be developed around blogs, wikis, sharing sites, and many other types of
social media applications.
Categorization by users (tagging) Newer Web technologies have begun to allow users
to decide for themselves how to categorize and label information they find online. This has
created the potential for powerful forms of collaboration and information sharing as well
as alternative forms of information search (see the discussion of social bookmarking later
in the chapter).
Real people (profiles, usernames, and the human voice vs. the corporate “we”)
Social media technologies allow people to express their individuality through the crea-
tion of online identities. In traditional media, communication and expression come from
celebrities or corporate spokespersons. Web 2.0 provides people with the tools to create
personal brands that characterize their personal, professional, or creative identity.
Connections (followers, friends, members, etc.) There are many ways to establish
additional levels of connection and reflect some level of a relationship. You can become
someone’s friend on Facebook. Follow someone on Twitter. Subscribe to a person’s blog.
Perhaps just as important, these connections can be severed when one party wants to end
the relationship.
Constant updating (real time, dynamic) Unlike the static Web of the 1990s, social tech-
nologies reflect our constantly evolving relationships, opinions, political views, religious
beliefs, and values. The social Web is a constant stream of communications that never
turns off and can sometimes be overwhelming. Popular examples of this characteristic
include Twitter, Facebook Live, or Snapchat.
Web 2.0—The Social Web 209
Content separated from form Data from one source can be used or exported to other
platforms. This allows users to organize and display content in ways they find most helpful.
For instance, with a really simple syndication (RSS) aggregator, users pull content from a
number of sources into a single location, making it easier to follow news stories and blog
posts from multiple sites. Someone writing about local restaurants can pull content from
food critics, customer comments, and map location information from a variety of sources
and aggregate this information into a single site, making it easier for users to get a com-
plete picture of a restaurant without having to surf around to different sites.
Equipment independence Increasingly, people access the Web and social media from
a variety of computers and mobile devices, including laptops, tablets, smartphones, video
game systems, DVD players, and televisions. In the near future, you might access the Web
from such home appliances as your refrigerator or even a kitchen countertop. (Check out
the amazing new technology featured on videos by Corning Glass. Go to YouTube and
search for “A Day Made of Glass” using the YouTube search engine.)
With Web 2.0, Markets are Conversations
As you have read, the availability of Web 2.0 applications is changing not only how people
behave but also the way they think about things. This new way of thinking is captured in a pro-
vocative list of 95 statements called the Cluetrain Manifesto (Levine et al., 2000). Perhaps the
fundamental principle of the Manifesto is described by its first thesis: Markets are conversations.
Other excerpts from the Manifesto are listed in Table 7.6. Over time, successful companies will
learn to engage customers in conversations as an alternative to the unidirectional or broadcast
method of communication. While the Cluetrain Manifesto seemed idealistic, impractical, and
revolutionary when it was first written in 2000, we are starting to see increasing examples of
individuals and companies turning those principles into action.
While many companies still struggle with the concept of conversation, Forrester researchers
Charlene Li and Josh Bernoff (2008) describe a number of companies that recognize the power
of what they call the groundswell, “a spontaneous movement of people using online tools to
connect, take charge of their own experience and get what they need—information, support,
ideas, products, and bargaining power—from each other”. Li and Bernoff identify five key stra-
tegic priorities that companies should focus on to leverage the groundswell:
1. Listening Monitoring what your customers say on social media. By listening to what
customers say to your company and what they say to each other, organizations can gain
valuable insights.
2. Talking While listening is perhaps the most important priority, businesses still need to
develop their message and communicate to their target audience(s).
3. Energizing Using a variety of tactics, companies can create and maintain relationships
with brand advocates who will support and promote the brand to their friends and follow-
ers on the Web. Energizing brand advocates is analogous to generating word-of-mouth
communications in traditional marketing.
TA B L E 7 . 6 Excerpts from the Cluetrain Manifesto
Select Cluetrain Theses
• “Markets are conversations.”
• These conversations enable powerful forms of social organization and knowledge exchange.
• People have figured out they obtain better information and support from one another than from
vendors. So much for corporate rhetoric about adding value to commoditized products.
• Companies should realize their markets are often laughing. At them.
Source: Levine et al. (2000).
210 C H A P T E R 7 Web 2.0 and Social Technology
4. Supporting Using social media to deliver effective and convenient customer service is
one way to support your customers. Some businesses create communities where custom-
ers can help each other with product-related issues and questions.
5. Embracing Many companies are utilizing social media to solicit new product ideas
and suggestions for improving customer satisfaction from current customers. Managers
are often surprised to learn that customers have great ideas for how the company can
do better.
These groundswell strategies identify the most significant activities that companies should
focus on with regard to using social media.
In the rest of this chapter, we describe a variety of social media applications that are
growing in popularity. We highlight some of the most attractive features, and encourage you
to explore them firsthand. Most are free, so they are easy to try. You are also encouraged to
stay on top of new trends and applications by following online sources like Mashable, Social
Media Today, and Social Media Examiner. The only way to truly understand the social media
environment is to immerse yourself in it, experiencing it directly. We think it is both fascinating
and fun, and hope you will too.
Questions
1. How has Web 2.0 changed the behavior of Internet users?
2. What are the basic tools or applications that characterize Web 2.0?
3. Why is Web 2.0 referred to as the social Web?
4. What are some of the benefits or advantages that Web developers gain from using AJAX technologies?
5. What are some of the most important messages for business organizations in the Cluetrain Manifesto?
6. What is feature convergence? Give some examples of this trend with regard to social media apps.
7.2 Social Networking Services
and Communities
Online or virtual communities parallel physical communities, such as neighborhoods, clubs,
and associations, except they are not bound by political or geographic boundaries. These
communities offer several ways for members to interact, collaborate, and trade. Virtual or
online communities have been around for a long time and predate the World Wide Web. The
Usenet provided the initial platform for online communities by making it possible for users to
exchange messages on various topics in public newsgroups, which are similar in many ways to
online bulletin board systems. While the Usenet is technically not part of the Internet, much of
its content can be accessed from Internet sites like Google Groups or subscription-based news
services like Giganews and Astraweb.
Online communities can take many forms. For instance, some people view the blogosphere
(all the blogs on the Web) as a community. YouTube is a community of people who post, view,
and comment on videos. Epinions is a community of people who share their experiences
and opinions about products and companies. Flickr, Photobucket, and similar sites are
photo-sharing communities. Wikipedia is a community of people who create, edit, and main-
tain an online knowledge base. Twitter is a community, or perhaps several communities, of
people who frequently exchange short, 140-character messages with one another about a
variety of topics. Obviously, social networking sites like Facebook and LinkedIn are commu-
nities and have seen tremendous growth in recent years. People today spend a significant
portion of their time on social networks (see Figure 7.2). For better or worse, social media has
Social Networking Services and Communities 211
changed the way we interact with others, how we communicate with companies and brands,
how we learn about local and international events, and how we define relationships, reputa-
tion, privacy, group affiliations and status.
Social network analysis (SNA) is the mapping and measuring of relationships and flows
between people, groups, organizations, computers, or other information- or knowledge-
processing entities. The nodes in the network are the people and the groups, whereas the links
show relationships or flows between the nodes. SNA provides a visual and a mathematical
analysis of relationships. In its corporate communications, Facebook has begun using the
term social graph to refer to the global social network reflecting how we are all connected to
one another through relationships. Berners-Lee (2007) extended this concept even further
when he coined the term giant global graph. This concept is intended to illustrate the
connections between people and/or documents and pages online. Connecting all points on
the giant global graph is the ultimate goal for creators of the semantic Web, which you read
about in Chapter 6.
Online communities have received increasing attention from the business community.
Online communities can be used as a platform for the following:
• Selling goods and services
• Promoting products to prospective customers; for example, advertising
• Prospecting for customers
• Building relationships with customers and prospective customers
• Identifying customer perceptions by “listening” to conversations
• Soliciting ideas for new products and services from customers
• Providing support services to customers by answering questions, providing information,
and so on
• Encouraging customers to share their positive perceptions with others; for example, via
word of mouth
Semantic Web an extension of
the World Wide Web that utilizes
a variety of conventions and
technologies that allow machines
to understand the meaning of
Web content.
Facebook
Average Weekly Minutes on Social Media
Snapchat
Instagram
Pinterest
Tumblr
Twitter
Google+
LinkedIn
Vine
1,039
900
332
111
317
95
115
79
174
62
120
40
47
21
16
20
19
6
0 200 400 600 800 1000 1200
Age 18 to 34 Age 35+
FIGURE 7.2 Data collected in 2016 illustrate that people spend more time on Facebook
than any other social networking site. One of the newest social platforms, Snapchat, is
already in second place across age groups, although younger people spend almost three
times longer on the service than older people. (Adapted from comScore, 2016.)
212 C H A P T E R 7 Web 2.0 and Social Technology
• Gathering information about competitors and marketplace perceptions of competitors
• Identifying and interacting with prospective suppliers, partners, and collaborators (See the
discussion of Enterprise 2.0 in the next section.)
The Power of the Crowd
In recent years, several companies have created online communities for the purpose of
identifying market opportunities through crowdsourcing. Crowdsourcing is a model of
problem solving, production and idea generation that marshals the collective talents of a
large group of people. Using Web 2.0 tools, companies solicit, refine, and evaluate ideas for
new products and services based on input from their customers. Business organizations that
have implemented this approach include Fiat, Sara Lee, BMW, Kraft, Procter & Gamble, and
Starbucks. See Table 7.7 for a list of other examples.
Crowdfunding
More recently, businesses and entrepreneurs have turned to the crowdsourcing model to raise
money for business start-ups or projects. A number of crowdfunding sites have become
popular in recent years, including GoFundMe and Kickstarter. Each crowdfunding site is
governed by different rules that establish the kinds of projects or organizations that can use
them and the types of crowdfunding allowed on the site (Table 7.8). Crowdfunding sites
TA B L E 7 . 7 Examples of Crowdsourcing Websites
Category Crowdsource Websites
R&D crowdsourcing
InnoCentive—Challenge Driven Innovation
Yet2—Innovation and IP Marketplace
NineSigma—Technology Problem Solving
Hypios—Problem Solving for Advanced Technology
Crowdsourcing for
marketing, design,
and ideas
Brand Tags—Brand Identification from the Crowd
Guerra Creativa—Logos and Designs
LeadVine—Leads and Referrals
Challenge.gov—Solutions to Government Problems
Crowdsourced product
ideas
Procter & Gamble—Crowdsource Product Ideas for P&G
Quirky—Community Sourced Product Ideas
CafePress—Buy, Sell, Create Your Product
Crowdsourcing HR &
freelance work
Amazon Mechanical Turk—“A Marketplace for Work”
Clickworker—Cloud-based global workforce
Topcoder—Crowd Coding
Crowdfunding websites
ArtistShare—New Artist Projects
Kickstarter—Large, general crowdfunding site
GoFundMe—For personal fundraisers
Crowdrise—Funding for Inspiring Social Causes
Peer-2-peer websites
Wikipedia—Online Encyclopedia Produced by the People
Quora—Answers from Experts, Amateurs and Insiders, Voted
Up or Down
Yahoo Answers—Another P2P Question & Answer Site
Diigo—Crowdsourced Web Bookmarks, Tags, and More
Adapted from Board of Innovation Crowdsourcing Examples. See this page for additional examples.
Social Networking Services and Communities 213
typically collect a percentage of the money raised, but even this can vary, so it is important to
read the terms of service (TOS) agreement carefully before selecting a site to raise money on.
See Crowdfunding.com for a list of the most popular sites.
Social Networking Services
Social networking services represent a special type of virtual community and are now the dom-
inant form of online community. With social networking, individual users maintain an identity
through their profile and can be selective about which members of the larger community they
choose to interact with. Over time, users build their network by adding contacts or friends.
On some social networks, organizations create an identity by establishing discussion forums,
group pages, or some other presence.
The number of SNSs has grown tremendously in recent years. It is expected that the social
networking sector will segment and consolidate in the future just like other industries. Among
general-purpose SNS platforms, Facebook is the clear leader with over 2 billion active users.
Facebook’s dramatic growth over the past decade has been unparalleled in the social media
world (Table 7.9).
Terms of service (TOS)
agreement a formal listing of
the policies, liability limits, fees,
user rights and responsibilities
associated with using a particular
service. Users are typically
required to acknowledge they
have read, understand, and agree
to the TOS before they are allowed
the service to use.
TA B L E 7 . 8 Types of Crowdfunding
Donations Often used by charities and political campaigns. Contributors do not receive anything
tangible in exchange for their donation, just the knowledge that they are supporting
a cause they like or believe in. (In some cases, contributors may be eligible for a tax
write-off.)
Rewards Contributors receive some kind of “perk” or thank-you gift. Often, it is something
related to the project. For instance, people who contribute to a filmmaker’s project
may receive a copy of the finished work on DVD.
Credit Contributors essentially make microloans to fund projects and expect to be repaid
with interest.
Equity Contributors make “micro investments” and receive a proportional ownership stake
in the company. It is likely that regulatory agencies that oversee equities markets in
the United States and other countries will establish rules governing or even restrict-
ing this type of crowdfunding.
Royalties Contributors receive a percentage of the sales revenue generated by a project. For
instance, people who contribute to a musician’s recording project might receive roy-
alties from the sale of the artist’s music.
Sources: Outlaw (2013), Wikipedia (2014).
TA B L E 7 . 9 Facebook Statistics
2 billion monthly active users as of July 5, 2017
1.28 billion daily active users on average for March 31, 2017
1.74 billion mobile monthly active users as of December 31, 2016
1.15 billion mobile daily active users on average for December 2016
Approximately 85.8% of daily active users are outside the United States and Canada
Facebook owns several other companies including Instagram (mobile photo-sharing), WhatsApp
(mobile messenger app), Oculus (virtual reality), Moves (activity log), and Masquerade (selfie filters)
Over 2 billion people use one of Facebook’s mobile messenger apps every month—Facebook
Messenger or WhatsApp. That’s in addition to the billions of active Facebook.com users
Source: Facebook, Inc.
214 C H A P T E R 7 Web 2.0 and Social Technology
Facebook Dominates Social Networking
Facebook was launched in 2004 by a former Harvard student, Mark Zuckerberg. Facebook
features include Profile, News Feed, Messenger, Groups, Events, Photo and Video Sharing,
Search and Pages (for individuals, groups, and organizations to create public profiles). Apart
from these basic applications, users can add any of the millions of Facebook apps that have
been developed by others. Today over 90% of users access the site from mobile devices
instead of desktop computers and over 50% only access the site from a mobile device (see
Figure 7.3).
Facebook pioneered the Newsfeed feature, a constantly updated stream of status updates
and postings from a user’s friends. Today the Newsfeed also contains sponsored posts (adver-
tisements) as part of Facebook’s growing advertising program. In late 2011, Facebook intro-
duced another major revision to its site called Timeline. The Timeline app is designed to show
the chronological progression of key events in a person’s life as illustrated by his or her Facebook
status updates, photos, songs listened to, bad haircuts, as well as changes in occupations, loca-
tions, relationships, and the like. The Timeline feature effectively curates all the content users
share on the networking service. When it was initially launched, many users were surprised by
While SNS sites share some common features, they are not all alike. As the category
matures, sites are differentiating themselves in a variety of ways:
• Target age group
• Geographic location of users
• Language
• Area of interest, for example, music, photography, gaming, travel
• Social versus professional networking (see IT at Work 7.2)
• Interface, for example, profile page, microblog, virtual world, emphasis on graphic versus
text content
IT at Work 7.2
Recruiters Use Professional Networking Sites
Susan Heathfield, a human resources (HR) expert at About.com,
maintains that it is no longer sufficient to post job openings on
monster.com, Careerbuilder.com, and Craigslist.com. Job postings
on these large sites often generate hundreds of applications from
unqualified candidates. This can be overwhelming for recruiters
and very inefficient. Instead, many have turned to professional
networking sites like LinkedIn. Heathfield identified a number of
specific ways that businesses recruiters use LinkedIn to increase
their effectiveness:
• Identify potential candidates among their existing network of
professionals.
• Ask their network to identify or recommend candidates for
a position.
• Evaluate potential employees based on references and refer-
rals from their existing network.
• Actively search for relevant keywords or qualifications in the
profiles of LinkedIn users.
• Ask current employees to search among their LinkedIn net-
works for potential candidates.
• Post job openings on LinkedIn.
• Request introductions to potential candidates through their
existing network of professionals.
• Use Inmail (the internal LinkedIn e-mail system) to contact
potentially qualified individuals.
It is clear that recruiters have come to embrace LinkedIn as
an effective and cost–efficient way of generating qualified candi-
dates. As LinkedIn’s global presence grows, this will provide an
important benefit to companies who need to fill positions inter-
nationally.
IT at Work Questions
1. Why have monster.com, Careerbuilder.com, and Craigslist.
com lost their effectiveness?
2. Why have HR departments turned to professional net-
working sites like LinkedIn?
3. Why is it so essential for career-minded workers to build
a professional social network? What can this network
do for you?
Source: Heathfield (2012).
Social Networking Services and Communities 215
what they felt was a radical interface change and were uncomfortable with how easy it became
for others to access old, long forgotten posts and status updates. Facebook responded with pri-
vacy features that gave users greater control over who could view their content.
When Zuckerberg created Facebook, he had very strong social ambitions aimed at helping
people connect to others on the Web. Facebook was initially an online social space for college
and high school students. It started by connecting students to all others at the same school.
In 2006 Facebook expanded to anyone 13 years or older with a valid e-mail address. The lack
of privacy controls was among the biggest reasons why some business people resisted joining
Facebook during its early years.
In 2008 Facebook introduced controls that allowed users to set different access levels to
information for various groups of people in their network; for example, family, friends from
school, friends from work, and so on. For instance, close friends might see your mobile phone
number, music favorites, e-mail address, and so forth, while other friends might see only the
basic information. Facebook is sometimes criticized for its approach to user privacy, high-
lighting an ongoing tension between the corporate goals of Facebook, which depends on a high
level of access to user data, and the desire of individual users to control access to their personal
information. See IT at Work 7.3 for additional information about social media privacy issues.
Facebook has expanded to the rest of the world with the help of its foreign-language
members: Engineers first collected thousands of English words and phrases throughout the site
and invited members to translate those bits of text into another language. Members then rated
translations until a consensus was reached. The Spanish version was created by about 1,500
volunteers in less than a month. The German version was created by 2,000 volunteers in less than
2 weeks. In early March 2008, Facebook invited French members to help out. They completed the
translations in a few days. Facebook exists in over 100 different languages and approximately
85% of users reside outside of the United States and Canada. In May 2012, Facebook went public
with its initial public offering (IPO), selling company shares on the NASDAQ stock exchange. It
raised over $16 billion, making it the third largest ever IPO in U.S. history. While founder Mark
Zuckerberg sold some 30 million shares during the offering (for $1.15 billion), he continues to
own approximately 15% of the company. His net worth of over $56.7 billion places him among
the 10 wealthiest people on the planet.
The Open Graph Initiative A primary reason that Facebook expands is the network
effect: More users mean more value. In April 2010, Zuckerberg announced Facebook’s new
initiative called Open Graph. The goal was to connect all the different relationships that exist
on the Internet by linking websites to Facebook. Programmers at external websites were
encouraged to include a Facebook “Like” button on their websites. That way, when a Facebook
member visits the website, they can click “Like” and their relationship with that website will be
reflected back on their Facebook page for friends to see.
Network effect from the field
of economics, the network effect
explains how the perceived value
of a product or service is affected
by the number of people using the
product or service.
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as
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la
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FIGURE 7.3 People are increasingly using mobile devices
like smartphones and tablets to access Facebook and other
social media sites.
216 C H A P T E R 7 Web 2.0 and Social Technology
Social Logins Facebook also encourages other websites to allow people to use their Face-
book username and password to sign in or create accounts. For instance, if you are a Facebook
member and you visit ESPN (a sports news site) or Yelp (a local directory service), you can
sign into the sites using your Facebook username and password. Facebook will then share your
profile information with those sites. A number of services compete for social logins including
Google+, Twitter, Yahoo, and LinkedIn. Toward the end of 2015, Facebook had the largest share
of social logins (62%) followed by Google+ with 24% (Peterson, 2016).
Google Takes on Facebook with G+
Launched in June 2011, Google+, or G+, was the search engine giant’s attempt to capture a
share of the social networking market. Determining how well Google+ has performed takes a
bit of calculation. Officially, there are over 2.5 billion G+ user accounts. But that figure is mis-
leading because everyone that signs up for Google’s popular e-mail service (Gmail) automati-
cally gets a Google+ account. More realistic estimates of activity and users on Google+ suggest
that the service probably has between 4 and 6 million users that engage, interact, and post
publically (Gallagher, 2015). Having failed to meet early expectations for a big Facebook ver-
sus Google+ rivalry, one might wonder why the company continues to maintain the social
platform. Some speculate that Google wants to maintain its position in social logins where it
holds second place. Others have suggested that while few people actually use Google+, there
is value in all those billions of profiles. The profiles, combined with the data you generate using
IT at Work 7.3
Addressing Social Media Privacy Concerns
Privacy rights are too easily abused. Governments and industry
associations are trying to control these abuses through legisla-
tion and professional standards, but they frequently fail to provide
adequate protection. One of the most effective deterrents is fear of
backlash from abuses that become public and cause outrage. So it
is important to identify privacy issues that pertain to social media
and specifically SNSs. Examples of privacy violations include the
following:
• Posting pictures of people on social networking sites without
their permission
• Tricking people into disclosing credit or bank account
information or investing in “work at home” scams
• Sharing user information with advertisers without users’
knowledge or consent
• Disclosing an employer’s proprietary information or trade
secrets on social networking sites
• Posting information on social networking sites that could com-
promise people’s safety or make them targets for blackmail
Taking Control of Your Privacy
The most important thing that users can do to protect themselves
is to understand that they are responsible for protecting their
own information. The basic solution is common sense. Unfortu-
nately, most social networking sites create the illusion of privacy
and control. This sometimes can lull even the most vigilant users
into making mistakes. Sites like Facebook make us feel like our
information is only going to be seen by those we have allowed to
become part of our network. Wrong. Listed below are common-
sense guidelines:
• Do not post private data. Nothing, absolutely nothing you put
on a social networking site is private. You should avoid posting
personal information including full birth date, home address,
phone number, and the like. This information can be used for
identity theft.
• Be smart about who you allow to become part of your net-
work. It is not uncommon for teenagers to “friend” hundreds
of individuals on their Facebook accounts. With this many con-
tacts, there is no way to protect profile or other information.
• Do not rely on current privacy policies or terms of service
(TOS) agreements. Social networking sites change their
privacy policies regularly. Many have accused Facebook of
doing this specifically to wear down user vigilance with regard
to maintaining desired privacy settings. Regularly review
your social network service privacy policies explained in the
TOS. Set your privacy settings at the level offering maximum
protection—operating as if you have no privacy whatsoever.
• Minimize your use of applications, games, and third-party
programs on social networking sites until you have carefully
investigated them. They can expose you to malicious pro-
grams or viruses. Do not automatically click on links that look
as if they were sent to you by members of your network.
IT at Work Questions
1. Which of these guidelines is the easiest to follow? Which is
the toughest? Explain why.
2. Why is it recommended that you not post private data on a
social network, even those with privacy settings?
Social Networking Services and Communities 217
other Google products, helps the company better understand your interests as well as how to
effectively place ads in front of you as you surf the Web. Finally, the company does announce
updates, improvements, and changes to Google+ from time to time. Given Google’s tradition of
regularly evolving products, perhaps the social network will emerge as something useful down
the line. For now, Google hasn’t given any indication that it is ready to close the doors on its
social network (Pierce, 2015).
Be in the Now with Snapchat
Compared to social networks like LinkedIn (2003), Facebook (2004), YouTube (2005), and
Twitter (2006), Snapchat, founded in 2011, is a relative newcomer to the social media big
leagues. But that hasn’t kept Snapchat from quickly becoming one of the most popular
social platforms, second only to Facebook in terms of where people spend their time (see
Figure 7.2). As Facebook’s appeal among teens and young adults declines, the mobile-only
Snapchat service has become the hot new social platform for an age group that some experts
call digital natives or The App Generation because they were born after digital technologies
became ubiquitous. Snapchat’s core feature set can be described as a fun messaging app
that emphasizes communication through pictures and videos instead of the text-based mes-
sages people have sent to each other for years. Snapchat’s rapid growth during a relatively
short life has been nothing but spectacular and mirrors in a way its most distinctive fea-
ture when compared to other social platforms—Snapchat picture and video messages self-
destruct within 10 seconds after being viewed. When founder and CEO Evan Spiegel first
pitched the concept to classmates at Stanford University, they frowned on disappearing
picture idea, claiming nobody would use an app that couldn’t save messages. On most other
social platforms, it seems the goal is to curate or build a collection of photos, posts, and mes-
sages. Facebook even goes so far as to remind users of updates and pictures posted years
ago, encouraging people to reshare the memories with others in their network. One of the
post popular features on Twitter is the “retweet,” or the act of forwarding an interesting tweet
from someone to other people in your network. That’s not allowed on Snapchat—no saving,
no forwarding, no looking back through silly pictures that special someone sent you when
your relationship was, well, less complicated. According to some of its most rabid fans, Snap-
chat is all about the “now.” Most likely you’ve heard stories about people who spend hours
cultivating their personal brand by sharing carefully retouched photographs of themselves,
regularly posting witty status updates, and telling stories of doing “absolutely amazing
things, all the time, with tons of friends.” Snapchat seems to rebel against the rehearsed and
unnaturally choreographed public images that people sometimes become obsessed with
creating on other sites. Instead, Snapchat encourages users to have fun and be a little crazy
while using the service. In the emerging Snapchat culture, spontaneous silliness is the norm.
Some speculate that young people enjoy the app because it allows them to ignore all those
warnings from parents, teachers, and future employers about posting incriminating images
on social media. According to Snapchat, any consequences are likely to be short-lived, dis-
appearing within 10 seconds. But while Snapchat’s growing fan base might be enjoying the
thrill of adding doggy noses and ears to selfies they just took with their friends at a party,
senior leadership at the company is busy managing a host of serious issues. In 2012, Snap-
chat’s daily user base of 10 million people were sharing about 20 million images a day. Fast
forward to 2017, and the daily user base has grown to more than 160 million people sharing
2.5 billion snaps a day (snaps is a metric that counts both photographs and videos). With that
kind of growth, the company must be continuously expanding its computing infrastructure,
which, in turn, means arranging for venture capital funding and ultimately launching an IPO
on March 2, 2017. Following its first day of trading, the app’s parent company, Snap, Inc.,
had a public market valuation of over $28 billion. While the company reported revenue of
$404.5 million in 2016, like many start-up companies it still hasn’t made a profit. Almost 98%
of its revenue comes from advertising. While users have been quick to join the new social
network, advertisers are still figuring out how Snapchat integrates with their overall promo-
tion strategy. In addition, older social platforms obviously have advertising and promotional
218 C H A P T E R 7 Web 2.0 and Social Technology
programs that advertisers already understand. As well, they have years of behavioral
data and consumer insights that help advertisers accurately target prospective custom-
ers. In conclusion, while Snapchat is a hit with consumers, the business challenges facing
the leadership team as they manage the company’s growth, financing, infrastructure, and
branding are monumental. Hopefully, the company’s lively ghost logo will prove to represent
the playful spirit in all of us and not the omen of a company that lived fast, but died young.
And Now for Something Different: Second Life
Second Life is a social network service unlike most others. What makes it unique is that it uses
a 3D virtual world interface in which users, called Residents, are represented by avatars, or
cyber bodies that they create (Figure 7.4).
Developed by Linden Research in 2003, Second Life lets residents communicate with others
in the virtual world through chat or voice communications. Residents can create and trade things
they make in Second Life, including virtual clothes, art, vehicles, houses, and other architectural
structures. They can also earn money by providing services such as instruction in a foreign lan-
guage or serving as a DJ in a virtual club. This has led to the evolution of a Second Life economy
with its own currency, the Linden dollar (L$). While most of the economic activity remains in the
Second Life world, there have been news reports of a few entrepreneurs who made consider-
able sums of real money. The most common businesses were operated by programmers and art-
ists with the skills to make virtual objects that less talented residents were willing to pay real
money for.
Between 2006 and 2008, there was a big spike in interest on the part of businesses that
witnessed great potential in using Second Life. For example, IBM used it as a location for meet-
ings, training, and recruitment. Musicians performed concerts to crowds in virtual amphithe-
aters, and to smaller audiences in virtual nightclubs and bars. American Apparel was the first
major retailer to set up shop in Second Life. Starwood Hotels used Second Life as a relatively
low-cost market research experiment in which avatars visit Starwood’s virtual Aloft hotel. The
endeavor created publicity for the company, and feedback on the design of the hotel was
solicited from visiting avatars. This information was used in the creation of the first real-world
Aloft hotel, which opened in 2008 (Carr, 2007). Starwood subsequently donated its Second
Life property to a not-for-profit educational organization. Fashion and clothing manufacturers
like Reebok, American Apparel, Adidas, and others used Second Life as a place to feature new
clothing designs, setting up virtual stores where Second Life citizens could purchase digital
clothing for their avatars. The hope was that awareness of fashion products on Second Life
would spur interest and eventual purchase of real-world products. But efforts by these and
Avatars an icon, figure or visual
representation of a person in
computer games, simulations,
virtual worlds or online
discussion forms.
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es
FIGURE 7.4 Second Life residents participate in a virtual world
beauty contest sponsored by cosmetics manufacturer L’Oreal.
Social Networking Services and Communities 219
other businesses, like 1-800-flowers, to get Second Life citizens to purchase real-world prod-
ucts through the virtual community proved disappointing. Many businesses that were quick
to become part of the early excitement around Second Life eventually left the virtual world
community.
The general consensus seems to be that we’re still not ready for virtual world applications.
Based on past experience, significant technological, social, cultural, and financial hurdles have
to be overcome before virtual worlds like Second Life develop the kind of mass appeal that
innovators predicted back in 2008. That said, there are signs that the virtual world concept may
be entering a new phase of innovation. Second Life recently rolled out an upgraded virtual
reality (VR) space called “Sansar” that takes advantage of new technology like the Oculus Rift,
a VR headset that creates an immersive experience for users. Linden Labs, the company that
operates Second Life believes the new VR technology will solve many of the in-world function-
ality problems that frustrated new users in the early days. This time, however, Linden Labs will
have some competition. Philip Rosedale, the founder of Linden and Second Life has left that
company and started a new “social VR” venture called High Fidelity. Rosedale’s new company
is also creating virtual world applications that make use of VR technology. He envisions an
open-source platform where users can build their own virtual worlds connected to the worlds
created by others, a type of virtual world social network.
Of course, given the history of virtual worlds up to now, it might be easy to dismiss claims
and predictions about the potential of VR and virtual worlds if it weren’t for the backing of
companies like Facebook which invested close to $2 billion to acquire Oculus. Zuckerberg said
that he believes the acquisition is a long-term bet on the future of social networking. Only time
will tell if these new technologies represent the future of social networking (see Hay, 2015;
Johnson, 2015; Kushner, 2017; Metz, 2017).
Private Social Networks
The ultimate niche community is the private SNS. Private SNSs use social technology to create
a community restricted to members selected by the SNSs’ owner. Private SNSs allow a greater
degree of control over the network. Companies can easily monitor activity on their own SNS
platforms and track conversations taking place about their brands and products. However,
managing a private SNS requires considerably more time, attention, and resources than main-
taining a presence on a general SNS. Organizations need to understand up-front that they are
making a substantial commitment with this strategy.
Most colleges and universities have Facebook pages. In addition, many institutions have
set up private SNSs to engage students even before they have started school there. Students
typically gain access to these private SNSs when they are admitted to the institution. On the
system, they can interact with admissions counselors, current students, and other admitted
students. Interactions that occur on these networks set the stage for relationships and engage-
ment that are simply not possible with e-mail and phone calls.
In 2008 Mercedes-Benz created two private SNSs designed to increase engagement with
current and potential customers. The Mercedes Advisor network is for current Mercedes-Benz
owners. GenerationBenz.com is a private network for prospective Mercedes owners. Member-
ship in the network is limited to those who fit Mercedes’ profile for younger luxury car buyers.
Both of these communities provide the company with an opportunity to engage their target
audiences directly. Members participate in market surveys and polls, provide feedback on
prospective ad campaigns and product features, and participate in discussion groups with
company managers. This provides valuable feedback to Mercedes as well as creates strong
advocates for the company’s luxury car brand.
While engaging customers on a private SNS can be time-consuming and potentially require
significant staffing resources, the technological challenges associated with setting up a private
SNS are relatively small. A number of companies offer a combination of free and subscription-
based pricing for individuals or organizations wishing to create a private social network. Basic
SNS sites can be set up fairly quickly for free. Search on “private social network services” for the
latest information.
220 C H A P T E R 7 Web 2.0 and Social Technology
Future of Social Networking Systems
Social networking services are perhaps the most feature-rich applications of Web 2.0. It is
expected that growth and innovation in this sector will continue as individual users and busi-
ness organizations discover its power for building networks and relationships. We expect that
Facebook will continue to dominate the field, but that smaller SNSs will stake out strong posi-
tions in niche markets using traditional market segmentation strategies that focus on the needs
of specific geographic, cultural, age, or special interest segments. Finally, with the advent of VR
technologies, more powerful computers, and large-capacity Web server installations, virtual
worlds may become an exciting new platform for all types of social interaction in the future.
Questions
1. What are the major differences between SNSs and older online communities?
2. What is the basic difference between the social graph and Berners-Lee’s concept of the Giant
Global Graph?
3. Explain Facebook’s Open Graph initiative and how it plans to expand its influence across the
World Wide Web.
4. What are some potential ways that business organizations can take advantage of Second Life’s
unique virtual world interface?
5. Why would a business want to create a private SNS? What are some of the challenges associated with
doing this?
7.3 Engaging Consumers with Blogs
and Microblogs
One of the problems with traditional media, like newspapers and magazines, is that editors and
publishers decide what you should read. Often their decisions are based on what the masses will
buy at the newsstands. Space is limited and barriers to getting published are high. News services
frequently fail to devote sufficient space to complex issues or viewpoints that might challenge the
financial or business interests of the publication’s owners or advertisers. But with social media,
anyone can write a column or article and publish it online for the world to read (see IT at Work 7.4).
Of course, this creates another potential problem: clutter. Blogging is so easy that even
people who do not have much to say can publish their thoughts, opinions, and ideas. Readers
need to be prepared to look at online content with a skeptical eye and find ways to judge the
credibility of the material they find on social media.
In their simplest form, blogs are websites where people regularly post content. Some
personal blogs are simply online diaries or journals where people share their thoughts, reflec-
tions, or an account of their life. Other blogs are more sophisticated and professional in format,
resembling online newspapers or magazines. Because blogging technology has become so
commonplace, you may not always realize you are reading a blog when accessing online
content. Many organizations have integrated one of the blogging platforms discussed later
with their website. Blogging tools make it easy for organizations to provide website visitors
with frequently updated content on pages with titles such as “What’s New,” “Company News,”
or “Product Updates.” As a result, you may be a frequent blog reader without realizing it!
Blogs contain content in a variety of digital formats including text, photographs, video, and
music. People who create and maintain blogs are referred to as bloggers.
What Is the Purpose of a Blog?
Many professionals now blog as a way to establish their reputation and promote their busi-
ness interests, or because they enjoy writing and sharing their viewpoints with others.
Engaging Consumers with Blogs and Microblogs 221
Corporate bloggers use the medium to tell stories about their brands and connect with
customers.
On the surface, blogging appears to be a broadcast (one-to-many) communication tool.
However, it can also be an effective tool for interactive dialogue. Many blogs utilize comment
features, allowing readers to respond to blog posts, interacting with the blogger and other
readers. Successful bloggers tend to comment on and link to other blogs in their posts, in effect
maintaining a dialogue or conversation with other bloggers. These connections between blogs
create what some refer to as the blogosphere, or a network of blogs. IT at Work 7.5 lists a
number of ways that organizations use blogs for marketing.
IT at Work 7.4
How to Create a Blog
Setting up a blog is relatively easy. Making the effort to regularly
write and post content that others will find interesting is more chal-
lenging. The following steps outline the process of setting up a blog.
1. Create a plan. Successful blogging requires a certain degree of
organization and discipline. You can address this part of the
project by developing a plan at the outset. The plan should
answer questions like these:
a. What are you going to blog about? What will be the focus or
topic of your blog?
b. Identify your target audience. For whom are you writing?
c. How often do you intend to update your blog? Some blog-
gers post new material daily, some weekly, and some just a
few times a month. As a general rule, readers are more likely
to follow blogs that are updated regularly. Avoid sporadic
updates or only blogging when you feel like it. Successful
bloggers frequently set up a publication schedule outlining
topics and posting dates to keep themselves on track.
d. Who else is blogging about the same topic? Identify blog-
gers you can interact with through your posts and com-
ments on their blogs.
2. Determine if you will self-host your blog by purchasing a host-
ing plan and domain name (URL), or if your blog will use a free
blogging service. Free services allow you to get up and running
quickly and do not require any long-term commitments. This
provides an easy, low-risk way to get started. While this might
be the most convenient approach, you do not actually own your
blog or the content you post there because it is on a domain
owned by someone else. Your domain name in these situations
is usually in the form of “myblogname.blogspot.com,” which
can appear less professional to some readers. Purchasing a
hosting plan and domain name, however, is the better long-term
strategy since it creates a unique identity for your blog.
3. Select a blogging platform (see the section below). This is the
software that will provide the look and feel of your site and
give you myriad features you can employ to build a successful
blog. Standard features in most blog platforms include a com-
ment section, RSS buttons so readers can subscribe to your
blog, and share buttons so readers can post links to your blog
on other social media sites (e.g., Twitter, Facebook, Digg, etc.).
4. Set up your blog. Once you’ve set up your hosting and platform
arrangements, you will need to create the aesthetic design for
your site. Most platforms make this easy with a multitude of
template options that you can further customize to give your
blog a unique look.
5. Get started. Now comes the challenging part, writing your
posts and regularly updating your blog to attract readers. You
can read blogs about blogging to get great tips and advice.
IT at Work 7.5
How Marketers Use Blogs and Microblogs
Blogs and microblogs provide individuals and organizations with a
means to accomplish a variety of communications objectives. Mar-
keters use blogs and microblogs to
• Develop relationships with independent bloggers, encour-
aging them to write positive stories about the brand, product,
and company
• Engage members of the blogging community, via corporate
blogs, by providing helpful and interesting information
• Tell the company’s “story,” position a product, create brand
identity, and differentiate from the competition
• Engage customers and readers by soliciting comments and
feedback about information provided in blog posts
• Drive traffic to the company website by using Twitter to
announce recent updates to the company blog
• Inform current or prospective customers about positive blog
posts featuring your product or company that were written by
independent, third-party bloggers
• Encourage repeat visits to the company website through reg-
ular updates or new posts to the blog
• Have a celebrity or influential expert send a tweet with a
promotional message about your brand using Twitter’s new
advertising program
222 C H A P T E R 7 Web 2.0 and Social Technology
Blogging and Public Relations
Some bloggers have become highly successful and have developed a large audience for
their material. Many people approach blogging like a business and consider themselves
“publishers,” with the goal of generating enough readers or subscribers that they can make
money from advertisers and ad agencies who will pay to display their ads on an individual
blogger’s site. Earlier in this chapter, you read about a set of groundswell social media
strategies described by Charlene Li and Josh Bernoff. One of those strategies, Energizing,
is accomplished when a business identifies a blogger whose audience matches its target
market and persuades that person to write about the company’s product. This is similar
to a public relations manager sending a press release to a journalist, hoping he or she
will write a news story about the company in the local paper. When a highly credible and
influential blogger writes a positive story about your company, it can have a very positive
impact on your brand’s image. Bloggers can also have a negative impact if they write unfa-
vorable posts about the company or its products. As a result, public relations professionals
are learning how to identify and form positive relationships with influential bloggers with
the goal of generating favorable coverage of the company and its products. Frequently,
this will involve doing things like providing the blogger with information in advance of it
being released to the public, providing access to company executives for interviews, send-
ing the blogger samples of the company’s product so that he or she can write about it from
firsthand experience, and so on. For some companies, particularly those in the technology
industry, building relationships with influential bloggers has become an important public
relations strategy.
Reading and Subscribing to Blogs
The best way to gain an understanding of the blogging phenomenon is to simply start reading
blogs. You can use search engines like Google or Yahoo to find blogs on all kinds of topics. Most
blogs make it easy to subscribe using an RSS reader (see Section 7.4 later on in this chapter).
Reading blogs is a great way to stay current on rapidly evolving topics related to technology
and business.
Blogging Platforms
Selecting a blogging platform is an important decision when setting up a blog. Installing a
platform when you are creating a blog is relatively easy. Converting to a new blogging platform
after using another one for a while is not. Two of the most popular platforms are WordPress
followed by Google’s Blogger platform. Other blog platforms include TypePad, Movable Type,
and Tumblr. The Tumblr platform is significantly different from traditional platforms in that it
emphasizes easy posting of photos and light copy. As such, it is considered to be a microblog-
ging platform and is discussed later in this chapter.
When choosing between WordPress and Blogger, WordPress is a feature-rich platform
and offers greater control over site appearance (Figure 7.5). Blogger is simpler and easier to
use, making it a more desirable choice for beginning bloggers who want to get up and running
without becoming bogged down in technological issues. Blogger’s affiliation with Google might
also be attractive because of the potential for integration with other Google services. For in-
stance, Blogger comes with a built-in analytics program that appears to share many similarities
with Google Analytics, a stand-alone Web traffic-monitoring tool.
For now, begin by reading blogs about social media, information technology, and other
topics that are of personal interest. Note how these blogs vary in terms of style, length, and
appearance. Identify the features they offer readers for commenting on and sharing content.
After you get a feel for how people blog, try setting up your own blog using Google’s free
platform and hosting service at www.google.com/blogger.
Blogging platform a software
application used to create, edit,
and add features to a blog.
WordPress and Blogger are two
of the most popular blogging
platforms.
Engaging Consumers with Blogs and Microblogs 223
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FIGURE 7.5 WordPress is one of the leading platforms for
online blogs.
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FIGURE 7.6 Twitter is a microblogging
SNS that limits users to messages of 140
characters or less.
Microblogs
You may be a microblogger and not even know it! Microblogging is a way of sharing content
with people by the regular, often frequent posting of short messages. Although people don’t
usually call it microblogging, perhaps the most common form of this social media activity
occurs when you update your status message on Facebook. More often, however, the term is
used to describe popular microblogging services like Twitter and Tumblr.
Most microblog content consists of text-based messages, although there appears to be an
increase in people who are microblogging photos and video on Twitter and Tumblr. Tumblr has
increased in popularity recently among younger Internet users because of its multimedia capa-
bilities and ease of use.
Twitter
Twitter has grown in popularity over the last few years, becoming one of the world’s largest
communication platforms. According to Twitter, approximately 5 million messages, or tweets,
are sent each day by over 310 million active monthly users (see Figure 7.6). People frequently
attach descriptive keywords or hashtags, designated by the # sign, to their tweets to make
them easier for others to find (e.g., #news, #politics, #fail).
Microblog a blog that consists
of frequent, but very brief posts
containing text, pictures, or
videos. Twitter is perhaps the
most well-known example of a
microblog.
Tweet a brief 140-character
message or post broadcast on
Twitter, a microblogging service.
224 C H A P T E R 7 Web 2.0 and Social Technology
Twitter has played a significant role in both global and domestic events (Lee, 2013). In
countries where the media is largely dominated by government control, Twitter has proven
to be a valuable tool for activists engaged in organizing protests, debating political view-
points, and broadcasting real-time information about significant events that might otherwise
be ignored by the mainstream media. Twitter has become a primary channel for real-time
updates on events and issues in politics, entertainment, social causes, and sports. In 2016,
Twitter kept people informed about the #RIO2016 Olympics, #Brexit—Britain’s separation
from the European Union, the #BlackLivesMatter movement, news about the popular televi-
sion show #GameofThrones, and, of course, the U.S. presidential #Election2016 where Twitter
was used heavily by both candidates. For better or worse, President Donald Trump continues
to use Twitter as a primary communications tool since winning the election. Because of Twit-
ter’s reach, most federal and state political leaders now use Twitter as a regular channel for
communicating with their followers. For the same reason, most advocacy groups engage in
what some call hashtag activism, using the service to maintain awareness levels about their
cause as well as influence people’s beliefs and attitudes on key issues. Twitter has even begun
to influence investment decisions made on Wall Street. Financial research analysts have cre-
ated algorithms that use the volume and sentiment of Twitter traffic to predict the future stock
value of a company.
Twitter is attractive to individuals, groups, and organizations because it provides a direct
link to the public, bypassing traditional mass media, which often acts as an information gate-
keeper. Ironically, Twitter frequently influences what we see on traditional media. Journalists
regularly use Twitter to broadcast breaking news stories. “Hashtag journalists” increasingly
monitor Twitter to identify newsworthy events being tweeted (reported) by eyewitnesses and
to gauge the public’s interest in an event or issue by monitoring trending topics. Using Twit-
ter to monitor public sentiment as well as influence public opinion has become an important
skill for public relations professionals working for business and not-for-profit organizations.
Organizations can no longer afford to ignore the conversations that take place on Twitter
about their brands, products, and executives. Furthermore, public relations professionals
must understand how to actively participate in these conversations or risk appearing aloof
and out-of-touch.
Twitter is often used by consumers to complain about frustrations they are having with
a company or its products. In response, some companies have adopted Twitter as a cus-
tomer service channel, along with e-mail and telephone call centers (see Opening Case 6.1).
When customer service representatives find people complaining about their brand or prod-
uct, they can use the service to empathize with the customer’s frustration and offer solutions
for resolving the problem. Because conversations on Twitter are public, other customers can
watch or “listen in” on interactions between an unhappy customer and a customer service rep-
resentative and judge how effective the company is at solving problems. This can be a benefit
or liability for organizations depending on how adept they are at communicating and resolving
customer problems on Twitter.
Just a few years ago, many businesses appeared to be somewhat confused about how to
incorporate the microblogging service into their communications strategy. That has changed.
Over 65% of companies now use Twitter for marketing communications and are increas-
ingly expanding their reach by encouraging employees to share relevant messages with their
personal social networks. In addition to organic (unpaid) tweets, companies are spending
close to $3 billion a year on promoted tweets, or paid ads sent out over the network. Twitter is
viewed by many companies as a good way to reach people on mobile devices.
Like other social media tools, the best way to gain an understanding of Twitter is to use it.
The official Twitter interface is simple and efficient, but a large segment of the Twittersphere
uses third-party apps that have been developed to enhance the site’s functionality and user
experience. Some are considered essential tools in the life of the power Twitter user:
• TweetDeck is an advanced, split-screen app that allows users to view messages stream-
ing from followers, people being followed, and people the user might wish to follow. It
also makes it easy to quickly reply to incoming tweets, increasing the frequency of Twitter
Twittersphere the universe
of people who use Twitter, a
microblogging service.
Engaging Consumers with Blogs and Microblogs 225
conversations. The TweetDeck interface makes it easy to participate in Twitter forums or
online discussion groups similar to what takes place in a chat room. In 2011, this popular
Twitter application was acquired by Twitter and continues to be a popular interface appli-
cation for people accessing the service from a computer.
• Dlvr.it automates posts to Twitter and other social platforms published on a blog using
RSS technology.
• Twitterholic is a service that ranks users by the number of followers, friends, and updates.
Many users believe Twitter is best suited for mobile devices like smartphones or tablets,
which enable users to post spontaneous messages and updates regardless of their location.
There are literally hundreds of third-party Twitter apps for computers and mobile devices, with
more being written every day. You can find the most popular mobile apps by using an Internet
search engine or searching your phone’s app store.
How Do People and Businesses Use Twitter? Think of Twitter as a social net-
work where the dominant focus is on status updates. People tweet messages to their followers
that they think will be of interest. While some businesses still struggle with ways to use Twitter
effectively, many have adopted strategies that engage consumers, enhance brand image, and
improve revenue. Examples include the following:
• Celebrities use Twitter to update loyal fans about their day-to-day activities.
• Social media experts like Jeremiah Owyang and Brian Solis use Twitter to share links to
online material that people in their profession will find interesting.
• Companies use Twitter to update customers about new products and special offers.
• Mobile food service trucks in large cities use Twitter to update customers about their
current and future locations.
• Businesses can advertise on Twitter using a variety of ad types including promoted tweets,
promoted accounts, and promoted trends ads.
• News services like CNN and Mashable use Twitter as a “headline news” stream, sending
links to news stories on their websites.
• Coupon and shopping services use Twitter to send daily deals and special offers to their
followers.
• People use Twitter to send status updates to their friends, keeping others informed about
their activities, sharing stories and links to online material they find interesting.
• Politicians use Twitter to communicate with their constituents, often linking to stories or
material on their website that they believe will help support their positions on issues.
• Businesses can use Twitter to increase traffic to their website by tweeting links to
information on the website that they think people will find interesting.
When users receive a tweet from someone they follow, they can “Reply” to the message, or
retweet it by forwarding the message to everyone in their network. In this way, users engage in
a dialogue of sorts with people they are connected to on the service. Tweets that are retweeted
among many different users can go viral.
Tumblr Blogs
Tumblr is often described as a microblogging service because it makes the posting of mul-
timedia content easy for users and allows them to update their blogs frequently. However,
Tumblr blogs can include just as much text as a regular blog, although most who use the ser-
vice emphasize photographs and video as the primary content. This emphasis on multimedia
makes the Tumblr blogs more visually compelling. Tumblr is particularly popular among those
who are blogging about things like fashion, entertainment, and the arts.
226 C H A P T E R 7 Web 2.0 and Social Technology
Questions
1. What is the difference between a blog and a microblog?
2. What is a blogging platform?
3. Why do marketers use blogs and microblogs?
4. What makes Twitter a more attractive communication channel than traditional media for many indi-
viduals and organizations?
5. How is Tumblr different from other types of blogging platforms?
7.4 Mashups, Social Metrics, and
Monitoring Tools
A mashup is a Web application that combines information from two or more sources and pre-
sents this information in a way that creates some new benefit or service. Using AJAX technolo-
gies and APIs, websites and applications can pull information from a variety of sources.
One of the most common examples of a consumer mashup that you are likely to
encounter involves the integration of map data (from companies such as Google or MapQuest)
with information like store names, locations, phone numbers, and consumer reviews from
other websites.
By combining this information in a single location or application, users enjoy a powerful
and visually compelling service. ProgrammableWeb maintains a helpful directory of mashups.
Enterprise mashups combine data from internal business sources (e.g., sales records,
customer information, etc.) and/or information from external sources for enhanced usefulness
and productivity. For instance, a bank may utilize an enterprise mashup to display a mortgage
application from its own records, the property location on a Google map, and information from
county government property tax records.
What Makes a Mashup Social
To begin with, many of the most popular APIs used in mashup apps are from social media sites.
That means the data involved in the mashup are likely to be user-generated social information.
The other reason mashups are considered social media is that they represent the power to
separate content from form—allowing Web developers (and sometimes users) greater control
over how information is displayed and used on the Web.
Mashups also represent a change in philosophy for content creators. Traditionally, a
business that created content operated a closed system where it maintained almost complete
control over the “product.” On the social Web, content creators enjoy greater distribution by
allowing others access to their digital information through an API. For instance, the Google
brand name appears on thousands of websites due to its open-source mapping API. If Twitter
did not have an open-source API, awareness and use of the service would be far less than it is
today because users would have to go to the Twitter site in order to use it. By giving up some
control, these content creators enjoy wider distribution and market penetration.
While the ability to create powerful mashup applications has not yet reached most
individual Web users, it has decentralized control over how content is displayed and used,
which is a key principle of Web 2.0 social technologies (Section 7.1). We anticipate that it will
not be long before someone develops a technology that will make it easier for the average user
to create his or her own custom mashup applications.
Mashup technology also represents a tremendous opportunity for new Web-based busi-
nesses with limited start-up capital. For example, the online directory and business review
service, Yelp.com, uses the Google Maps API to make it easier for users to locate restaurants
Mashups, Social Metrics, and Monitoring Tools 227
and bars in their area. In turn, Yelp has an API that allows sites like Zillow.com to use Yelp’s
information when displaying information about homes and neighborhoods to prospective real
estate customers.
RSS Technology
Another technology that extends control of Web content beyond the creator is really simple
syndication (RSS) (Figure 7.7). Traditionally, users had to visit multiple sites in order to view
content at each location. This is potentially time-consuming and difficult for users who are
interested in following several sources. RSS technology allows users to subscribe to multiple
sources (e.g., blogs, news headlines, social media feeds, videos, and podcasts) and have the
content displayed in a single application, called an “RSS reader” or “RSS aggregator.” In effect,
users can create a customized news and information site by personalizing how they want infor-
mation from their news sources organized and displayed. Popular RSS aggregators include
Feedly, Digg Reader, and The Old Reader. Many other free or freemium aggregators are avail-
able with a variety of features.
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FIGURE 7.7 Many blogs use the RSS logo to identify the
subscription link that readers use to import the blog’s content to
their RSS aggregator.
Social Monitoring Services
A fast-growing sector in the social technology field involves social monitoring services. Moni-
toring applications allow users to track conversations taking place on social media sites. The
initial impetus for the growth of monitoring tools was the need for business organizations to
better understand what people were saying about their brands, products, and executives (the
“listening” part of the Groundswell Strategy model discussed in Section 7.1). Monitoring ser-
vices can be used to identify industry experts, commentators, and opinion leaders who post
regularly to social media sites. Once identified, public relations professionals can build rela-
tionships with these individuals and encourage them to become brand advocates who regu-
larly portray the brand or company positively in their online writing and social media posts. See
IT at Work 7.6.
In the next section, we describe two categories of social monitoring tools: subscription-
based services and free monitoring services.
Subscription Monitoring Services The most comprehensive social media moni-
toring tools require the user to pay a subscription or licensing fee. These tools not only monitor
the social media environment for mentions of your brand or company name but also provide
analytics and tools for measuring trends in the amount of conversation occurring, the tone or
sentiment (e.g., positive, negative, neutral) of the conversation, and other important aspects
228 C H A P T E R 7 Web 2.0 and Social Technology
IT at Work 7.6
Businesses Monitor Social Activity. . .
• To identify brand advocates—people who repeatedly discuss
a particular topic
• To find experts talking about technical or business topics
• To assess reputation or sentiment in the online community
about a brand, person, or issue
• To understand customers by listening—identifying topics of
interest to the online community
• To track trends in the volume or nature of online conversations
• To assess the relationship between marketing actions (e.g.,
product launch) and online conversations
• To identify potential problems with your brand’s reputation
before things get out of control
of the social interactions occurring online. Some of these tools are actually social media
management platforms that help companies administer social media marketing campaigns
and inbound marketing programs. The monitoring tools are just one of several features avail-
able in these enterprise-level applications.
Most high-end monitoring tools report information using a dashboard interface, which
graphically represents the data it collects. Some of the most popular among these paid ser-
vices include the following:
• Salesforce’s Social Studio (formerly Radian 6)
• Sysomos
• Cision
• Sprout Social
• Oracle Social Cloud
While prices for these high-end monitoring services can vary widely (typically, hundreds of
dollars a month), they are usually beyond the budget of individual users.
Free Monitoring Services Fortunately, there are number of free monitoring tools that
can be used by anyone. Some of these tools, like Twitter Search, are designed to monitor conver-
sations on a single social media platform, while others, like Social Mention, are designed to pro-
vide feedback on activity across a number of social media platforms including Facebook, Twitter,
and blogs. The following list provides a brief description of some free social monitoring services.
Social Mention Our favorite free monitoring tool is Social Mention. This tool aggregates
content from over 80 different social media sites including Facebook, YouTube, and Twitter. The
best thing about Social Mention is that it provides users with four metrics that give insight into
the nature of conversations taking place on the Web.
Users can generate these statistics daily for a particular topic (e.g., brand name, public
figure, current event) and record them in a spreadsheet. Over a period of time, it becomes easy
to see trends developing with regard to factors such as how many people are talking about a
topic or how they feel about a topic. This is useful information for the social media marketer.
Social Mention Metrics
• Strength The likelihood that a particular topic is being discussed on social media platforms
• Passion The degree to which people who are talking about your brand will do so
repeatedly
• Sentiment The tone of the conversation; this metric helps you understand if people are
feeling positive, negative, or neutral about the topic
• Reach Measures the range of influence. It is the number of unique authors divided by the
number of mentions.
Enterprise 2.0: Workplace Collaboration and Knowledge Sharing 229
Go to www.socialmention.com and explore what people are talking about with regard to
current events, celebrities, popular products, or any other issue you are interested in. See what
you can learn from the four metrics listed by the site.
Twitter Search This tool on the Twitter website generates a list of recent tweets containing
a specific word or phrase. You can use the search engine to generate a list of tweets containing
keywords related to an issue, a brand name, a company name, elected official, and so on. If
your goal is to measure the sentiment of the conversation about a particular topic or brand, you
can accomplish this informally by simply scrolling through the messages to get a feel for what
people are saying (see twitter.com/search).
If you want to do a more formal analysis, randomly sample, say, 100 tweets and manually
categorize each as positive, negative, or neutral. Repeat this on a daily basis and you will be
able to identify trends in the sentiment of online conversations over time. Companies can use
Twitter search to identify users who are having problems or complaining about their product
and take corrective action by responding to specific tweets.
Hootsuite Hootsuite is a popular social media management platform with specific tools for
engagement, publishing, analytics, monitoring, and advertising across multiple social media
channels. Users can open a free account to explore the service and upgrade to a larger range of
features for as little as $10/month. When fully configured, Hootsuite is similar to an enterprise-
level system.
Google Alerts Unlike the other tools listed above, Google alerts do not provide much in the
way of metrics that describe social media activity. However, it is an extremely useful monitoring
tool that conducts automated Google searches for new Web content. Searches can be general or
specific to social content on blogs and discussion forums. Users receive regular e-mail updates
with search results (see www.google.com/alerts). This tool is particularly useful for managers
who need to be aware of any news stories, blog posts, and discussion forums where a particular
product, brand name, company, or person is mentioned. It is great for monitoring competitive
organizations. It is easy to use, and because the searches are automated, it is very convenient.
Social monitoring tools play an essential role in helping social media marketers gain
insight into the conversations taking place on the Web. They represent a set of powerful tools in
the arsenal of firms that seek to understand consumers, what they are interested in, what they
are talking about, and what they are thinking. As such, it is important that you become familiar
with these tools, their strengths and weaknesses.
Questions
1. Why are mashups considered part a social technology?
2. Describe a typical consumer mashup.
3. What is an RSS reader?
4. Describe the ways in which businesses can benefit from using social media monitoring tools.
5. Explain the difference between the Strength metric and the Sentiment metric reported by www.
Socialmention.com.
7.5 Enterprise 2.0: Workplace Collaboration
and Knowledge Sharing
Working on a team project or coordinating the efforts of a work group or committee can be chal-
lenging. In addition to the normal challenges associated with teamwork, many organizations
and their employees today are located in different locations across a region, a country, or the
230 C H A P T E R 7 Web 2.0 and Social Technology
globe. Whether you are working with a group of fellow students on a class project, or a team
of employees charged with developing a global marketing plan for your company’s new brand,
there are all kinds of factors that can be difficult to overcome for even the most dedicated groups.
In today’s competitive environment, businesses must be agile, able to respond quickly to
a rapidly evolving marketplace. Employees must be able to work collaboratively, communi-
cate clearly, reach consensus, make decisions, and implement their action plans effectively.
Many businesses use Intranets to deploy tools for employee collaboration and productivity.
An Intranet is a password-protected network that uses the same Web-based technologies
(e.g., browsers, Web pages, and hyperlinked text) found on the World Wide Web. Think of it
as a private or internal Web. As organizations update their Intranets, employees can now take
advantage of many social features they have become accustom to using on the World Wide
Web. This trend is sometimes referred to as Enterprise 2.0. While employees may be familiar
with the new technology, there is still a need to change work-related behaviors and organiza-
tional culture to maximize the benefit from these enterprise social technologies.
In this section, we review a number of social tools for collaboration that are available to
everyone. Small businesses, startups, and nonprofits that lack resources to deploy modern
Intranets can use these tools for increased productivity. Larger companies will use similar tools
as part of their enhanced (Enterprise 2.0) Intranets.
Tools for Meetings and Discussions
Dialogue or synchronous communication is an important part of the collaborative process.
This can pose a challenge, however, for teams that cannot meet face to face. In the last few
years, services like Skype, and GoToMeeting have become a popular way to make reasonably
good-quality video calls between two or three people. Fuze and Google+ Hangouts are free
video conferencing platforms that have the advantage of allowing up to 10 people to participate
in a video conference (see Figure 7.8). Several other companies also offer free or low-cost video
conferencing platforms with variations in performance quality and number of features. In addi-
tion to basic video conferencing features, some platforms offer the ability to share desktop
views with other callers, which makes it possible to share presentations, spreadsheets, and
documents just like you would in a face-to-face meeting.
Social Tools for Information Retrieval and
Knowledge Sharing
When people work together as part of a group or team, they frequently need to share informa-
tion with other members of the group. As you learned in Chapter 6, search engines like Google
Synchronous communication
dialogue or conversation that
takes place in real time, without
the long delays between
exchanges that occur, for instance,
in e-mail or discussion board
conversations.
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FIGURE 7.8 On January 30, 2012, President Barack Obama
participated in an online interview held through a Google+ Hangout,
making it the first completely virtual interview from the White House.
Enterprise 2.0: Workplace Collaboration and Knowledge Sharing 231
and Bing are among the most frequently used tools on the Web. These large search engines
now use information culled from social media sites to improve the relevance of SERP listings. In
addition, some sites continuously update a real-time listing of trending search topics, providing
users with another means of information retrieval based on the search behavior of the crowd.
While the most popular search engines use social media data as part of their search results
ranking algorithm, the information retrieval process on Internet search engines is not particu-
larly social. Over the last decade, some attempts have been made to personalize search results
based on information from a user’s social network. For instance, the names of people from your
social network might appear alongside certain Web page listings if they visited a page, “liked”
a page, or perhaps made a comment on a page. By and large that information is no longer
provided on SERPs because of privacy concerns and the fact that it did not tend to result in an
improved user experience. However, Internet search engines are not the only option available
for information retrieval. Other services do a better job of integrating our social connections
with social technology to create useful tools for information retrieval and knowledge sharing.
Discussion groups on SNSs can provide a forum for asking questions to groups of people.
For instance, the American Marketing Association maintains a discussion group on LinkedIn
that has over 52,000 members. Participants can ask questions and solicit input from other
members of the group. Members can also monitor discussion groups, receiving periodic digests
of group activity that can be scanned for material of interest. LinkedIn can be a particularly use-
ful website for business professionals with questions that can be answered by experts or other
business professionals. Facebook and Twitter also host topical discussion groups that can be a
helpful resource for information. In addition to hosting different types of discussion groups, all
three of these SNSs can serve as a platform or “virtual office” for the working group or team. For
instance, a team can set up a private group page on LinkedIn and use it to communicate with
one another as well as share information the team will need to conduct its work.
Q&A websites are very similar to discussion groups in that they provide a forum for peo-
ple to ask questions and get answers from experts or knowledgeable professionals. There are
literally hundreds of Q&A websites on the Internet and each site tends to target a different
audience. Sites like Quora are considered high quality, general Q&A, which means that a
wide array of topics are discussed on the site and the impact of disruptive users is limited by
moderation, user profiles, website policy, and other controls that help maintain a constructive
and useful environment. Reddit is another generalist Q&A site containing thousands of distinct
discussion groups or “subreddits.” The discussion groups on Reddit range from highly technical
and professional to groups that engage in discussions and content sharing that most people
would consider to be in extremely poor taste. But it is the lack of regulation and policing that
appeals to a large portion of Reddit’s audience, making it one of the top five most popular
U.S. sites on the Web today. Another Q&A website likely to be useful to business professionals
is Stack Exchange. This site is a collection of over 150 Q&A “communities” or groups where
people share information. Many of these groups focus on programming and technology
topics, but Stack Exchange also hosts communities for topics like Personal Finance & Money,
Project Management, Personal Productivity, and Sustainable Living. Depending on the specific
information needed, it is quite likely that some form of discussion group or Q&A website will
prove useful in helping the group find answers to important questions in a timely manner.
Social search tools were discussed in Chapter 6 where you learned that many social net-
working sites like Facebook, YouTube, and Twitter have developed powerful search engines
capable of finding information and multimedia content on their networks. These search tools
have been largely overlooked by business professionals in favor of search engines like Google
and Bing. However, for some topics, social media search engines may provide more timely and
relevant information than Internet search engines.
Social Bookmarking Tools
Most Web browsers allow users to store links to online content by saving them to a list of favorites
or bookmarks. This approach becomes cumbersome as more information is saved because lists
grow long and difficult to use. Organizing bookmarks into folders helps a bit, but the folders tend
to hide information and users can forget what folder they have stored information in.
232 C H A P T E R 7 Web 2.0 and Social Technology
Diigo, Delicious, Clipix, and Teamgum Social bookmarking tools allow users to
tag Web content with keywords of their choosing. Users can later retrieve those links by search-
ing on one or more of these keywords. In addition to helping users retrieve the saved URLs of
websites they want to return to, many social bookmarking sites can be used as an alternative
search engine, helping users search for and discover Web content tagged by other users.
This is what makes the bookmarking system “social.” Information searches on these sites will
produce different results than Google or Bing because the websites are categorized based on a
folksonomy (folk taxonomy). In other words, humans tag websites differently than the com-
puter algorithms used by Google or Bing, and that’s why the search will generate a different and
potentially more useful list of websites.
Delicious has a long history as a social bookmarking service. Founded in 2003, it was
for many years the most popular application of its kind. Over the last decade however, its
standing in the category has diminished as the company was bought and then sold several
times. It appears that owners had trouble figuring out how to properly monetize the service.
It is currently owned by Delicious Media, a joint venture between Domainer Suite, a website
development company, and Science, Inc., an Internet technology investment company.
While it continues to operate under its original brand name, Delicious, the company recently
announced that its domain name would be changing back to the original, somewhat quirky
spelling: del.icio.us.
In addition to developing new features that will attract social bookmarkers away from
competing services, the company will have to reestablish its reputation and regain the trust of
users who left Delicious during a turbulent time when it appeared the site would close down
and leave users without a way to retrieve hundreds or thousands of bookmarks they had col-
lected over a period of years. Today, the site continues to offer basic social bookmarking fea-
tures. In addition, it appears the new management team is working on a business model where
Delicious has become part of a sophisticated content/advertising/e-commerce network of pub-
lishers. Hopefully, the new strategy will allow the social bookmarking pioneer to become a suc-
cessful company once again.
One of Delicious’ competitors, Diigo, has developed several social bookmarking and col-
laboration tools, making it perhaps the best application in this category. On the Diigo platform,
users can create either public or private groups for sharing Web content. Social tools on Diigo
allow group members to comment on and discuss shared bookmarks as well as indicate their
approval using a “Like” button. Diigo has a highlight tool that allows users to feature excerpts
from Web pages for other members of the group and they can leave digital “sticky notes” with
comments on websites for other members of the group to read. Public groups on Diigo can
become quite large and take on the feel of an online community, with users contributing, liking,
and commenting on bookmarks related to a particular topic.
While Diigo appears to be the most fully featured application in this category, two newer
websites show strong potential for offering similar benefits. Clipix and Teamgum are social
bookmarking sites that also allow users to tag Web content with their own keywords and
phrases. Using the Teamgum application, users are encouraged to “Gum” (save) interesting
Web content by clicking a small tab the program installs on your browser. The application
makes saving and sharing images, videos and screenshots particularly easy. Teamgum also
keeps everyone on the team updated about which members have viewed the shared content.
Clipix users also tag content with their own keywords, but the application’s user interface is
almost completely visual, representing saved bookmarks as pictures. Diigo and Teamgum take
a more traditional approach, using words to label the bookmarks with names and titles.
Content Creation and Sharing
Work groups and committees typically find it necessary to share documents and files as part
of their collaborative efforts. In the past, a large amount of paper was consumed when every-
one on the team was given a hard copy of the documents being used and discussed. With the
advent of e-mail, workers began distributing documents electronically, which was perhaps the
Folksonomy a system of
classifying and organizing online
content into categories by the use
of user-generated metadata such
as keywords.
Enterprise 2.0: Workplace Collaboration and Knowledge Sharing 233
easiest way for working teams to share documents. Now business professionals are starting to
experience the limitations of e-mail as a distribution and document storage system. It is not
uncommon for successful business people to be overwhelmed by the volume of e-mail they
receive each day. As a result, members of a team or work group will sometimes overlook an
e-mail containing the latest version of an important document. Also, when documents are dis-
tributed via e-mail, it isn’t always clear which team members are responsible for the different
changes made to the original document. If the group determines that a previous version of the
document is better than a later version, it isn’t always easy to simply reverse the latest changes.
And finally, some e-mail systems will reject the attachment of files that exceed a certain file size
limit. This usually isn’t a problem for text documents, but files containing pictures, sound, or
other multimedia content can be problematic. Fortunately, today a number of different file-
sharing and storage options are widely available.
Dropbox Dropbox is a cloud storage service that makes it easy to access your documents
from any of the devices you work on. Think of it as a shared hard drive for your computer, phone,
and tablet computer. Dropbox also allows you to share files and folders with others, making it
a great tool for document sharing. There are two Dropbox features that make it particularly
attractive. First, saving files to Dropbox is just as easy as saving a file to your hard drive. Other
cloud-based document services require you to manually upload and download files. Dropbox
also maintains a version history record for documents, making it easy to see the changes made
to a document and undo them if necessary. This is a great feature for teams working on col-
laborative writing projects. Dropbox prices its service based on the amount of storage space
users anticipate needing. It also offers a free plan for people who will use less than 1 terabyte
(1,024 gigabytes) of space. This makes Dropbox a good solution for students and small busi-
nesses. Business users will typically purchase a premium plan that provides for much more
space, enhanced security, and account administrative features as well as API access, which will
allow the company to integrate Dropbox with existing computer applications.
Box Like Dropbox, Box is a cloud storage service but places greater emphasis on social tools
and features, which make it a great choice for collaborating teams. Users can edit files stored
on Box without downloading to their hard drives. Like many other social companies, Box has
created an open-source API, allowing third-party developers to write applications for Box users
that offer additional sharing and collaboration features. Over 60 such apps have been devel-
oped so far.
Wikis While Dropbox and Box allow teams to collaborate on the creation of documents, a
wiki allows teams to collaborate on the creation of Web pages. A wiki is a website that allows
many people to add or update information found on the site. Wikis can be used as a work space
for collaborative teams or they can become public websites built by groups of collaborators. The
most popular wiki project is Wikipedia, the online encyclopedia (alexa.com, 2014). Businesses
can create wikis for a particular product and allow employees and even customers to con-
tribute information that will form a knowledge base resource for those who need information
about the product.
There are many different sites like wikispaces.com and wikidot.com that offer free, basic
wiki services to users. Wikis can be a particularly good way for a small business to distribute
nonconfidential information to employees and business partners. Setting up a wiki is much
easier than creating a full-featured website and it doesn’t require anyone to administer the
sharing of documents placed on the wiki.
Thanks to the features and benefits of social technology, teams and work groups today
can communicate, conduct research, find information, and share results with others more
easily than ever before. Videoconferencing in particular has enhanced our ability to converse
and conduct meetings with people in distant locations. Social bookmarking services not only
provide a better means of curating lists of websites we may want to return to someday, but
these services also leverage the power of the crowd to index websites on the basis of human
234 C H A P T E R 7 Web 2.0 and Social Technology
Assuring Your Learning
Discuss: Critical Thinking Questions
1. Explain the fundamental differences between Web 1.0 and Web 2.0.
2. Define social media and explain why how the use of social technol-
ogies fundamentally changed how people and organizations used the
World Wide Web.
3. Compare the communication practices of organizations using the
broadcast model versus the communication practices of organizations
using a conversation model and Web 2.0 technologies.
4. What are the four primary factors described in the text that set the
stage for Web 2.0 or the social Web that we enjoy today?
5. What is an API? Why should marketing professionals monitor
changes in the access and functionality of APIs used by website and
application developers?
6. Explain Facebook’s Open Graph Initiative. How do Facebook’s
social plug-ins play a role in the Open Graph program?
7. Briefly describe each of the following kinds of social media:
a. social networking service
b. blog
c. microblogging service
categorization, which can sometimes yield more useful results than the index systems of Web
crawler search engines (see Chapter 6.) Finally, wikis and cloud-based services for document
storage and sharing make it easier to save and organize our data. Many of these systems also
provide features that facilitate collaboration among team or work group members improving
organizational efficiency and productivity.
Questions
1. How can working teams use social media as an alternative to face-to-face meetings?
2. Why are social bookmarking services superior to the traditional method of saving “favorites” or
“bookmarks” in a browser?
3. What are some ways you can use social media to solicit knowledge, information, and advice from
experts on the Web?
4. What advantages do sites like Dropbox and Box have over e-mail as a way of sharing and collabo-
rating on creating documents?
5. Why are search results generated on a social bookmarking site likely to be different from search
results from Google or Bing?
Key Terms
application programming interface (API) 203
asynchronous JavaScript and XML (AJAX) 204
avatars 218
blogs 220
blogging platform 222
broadband 202
cascading style sheets (CSS) 204
cloud storage service 233
crowdfunding 212
crowdsourcing 212
document object model (DOM) 204
enterprise mashups 226
extendable markup language (XML) 204
feature convergence 207
folksonomy 232
giant global graph 211
hashtag activism 224
hypertext markup language (HTML) 204
Intranet 230
JavaScript 204
mashup 226
microblog 223
network effect 215
promoted tweets 224
really simple syndication (RSS) 227
semantic Web 211
sharing sites 208
social bookmarking 232
social media 202
social monitoring services 227
social network analysis (SNA) 211
social networking service (SNS) 207
social web 202
synchronous communication 230
terms of service (TOS) agreement 213
tweet 223
twittersphere 224
Usenet 210
Web 2.0 202
wiki 208
World Wide Web (WWW) 202
XMLHttpRequest 204
Assuring Your Learning 235
d. social bookmarking service
e. RSS reader
f. sharing communities
g. mashups
h. document storage and sharing site
8. Explain what is meant by “feature convergence” and how it is blur-
ring the distinction between different types of social media platforms.
9. Each of the following was listed as an element of social media. De-
scribe each and explain its role in shaping and defining the social Web.
a. user generated content
b. content control
c. conversation
d. community (common values, culture)
e. categorization by users (tagging)
f. real people
g. connections
h. constant updating
i. content separated from form
j. equipment independence
10. If you were looking for a job or wanted to build your reputation as
an expert in some area related to marketing, what social media tools
would you use for your personal branding strategy and why?
11. How can companies utilize social media collaboration tools to be-
come more competitive?
12. Describe how mashups create new benefits and functionality from
existing data or information.
13. Describe some common ways that marketers can benefit by using
social media monitoring tools.
14. How will concern for individual privacy affect the growth and
expansion of social networking services and other social Web
applications?
Explore: Online and Interactive Exercises
1. Using online sources, research Facebook’s Open Graph initiative.
Make a list of “pros” and “cons” regarding these changes from the
viewpoint of a Facebook user.
2. Using Google to find interesting and helpful blogs:
Step 1 First go to Google.com and enter a search word(s) or
phrase related to the topic you are interested in.
Step 2 When the results page appears, click on the word “News”
that appears under the left side of the search window. Then,
click on the word “Tools” that appears under the right side of the
search window.
Step 3 After you click Tools, a new row of filter words will
appear. Look for the words “All news”. Click on “All news” and
select Blogs from the drop-down list. This will limit the SERP list-
ings to blog Web pages.
Step 4 Find a blog or two that seem interesting and read a few
posts. Leave comments in the response section (if available). See
if the blog author or other readers reply.
3. Set up an account on two different RSS readers (e.g., Digg Reader
and Feedly.com) and use them to subscribe to some blogs that are of
interest to you (see question 2 above for how to find blogs). Prepare a
report or presentation comparing the strengths and weakness of each
application.
4. Using articles you can find online, prepare a report on the economic
activity that takes place on Second Life. Describe how people make
money in the virtual world and identify the opportunities and chal-
lenges associated with making a living via Second Life.
5. If you have an account on Twitter, download TweetDeck, an alter-
native interface for Twitter. Use TweetDeck and prepare a brief report
on the advantages or disadvantages of using this program.
6. Visit the LinkedIn page for college students: students.linkedin.com.
Using the information on this page, create a LinkedIn account and be-
gin building your professional network. Search the Internet for addi-
tional tips on using LinkedIn to find jobs and prepare a brief report on
your findings.
7. Using a search engine, find four examples of mashup applica-
tions. Prepare a report describing each one. If possible, identify the
website(s) where data are pulled from to create the application.
8. Create an account on diigo.com, the social bookmarking site.
Actively use it to tag and categorize Web pages that you want to re-
member for future viewing. Use the search engine on diigo.com to find
pages that other users have tagged. Compare the effectiveness of your
searches to similar searches using Google and Yahoo.
Analyze & Decide: Apply IT Concepts to Business Decisions
1. Use socialmention.com to evaluate the nature of conversations
people are having about three telecommunications companies: AT&T,
Verizon, and Sprint. Based on the four metrics provided by Social
Mention, decide which company is viewed most favorably and least
favorably by the marketplace. Using Twitter search, read a sample of
tweets where people discuss the companies. Can you draw any conclu-
sions as to specific reasons why the companies are viewed favorably
or unfavorably?
2. Your boss would like you to recommend a free service for stor-
ing and sharing documents in the cloud. Create accounts at Box.com
and Dropbox.com. Explore each service so that you understand how it
works. Make a recommendation and provide your reasons for the ser-
vice you select.
3. The supervisor of your department recently read a story about
companies that use Second Life to conduct virtual meetings on the ser-
vice. Create an account on Second Life and spend a few hours learning
236 C H A P T E R 7 Web 2.0 and Social Technology
how to use it. With a handful of other students, arrange to meet in
Second Life for a brief discussion. Based on your experience, prepare a
recommendation for your supervisor stating whether or not you think
using Second Life for meetings would be a good idea. Justify your
recommendation.
4. The marketing manager in your department just read a story about
the rapid growth Snapchat, a relatively new social media app. Because
your company sells fashion items to women in the 18- to 34-year-old age
group, the manger thinks this may be a good platform for promoting
your company’s brand. You are asked to research the advertising and
promotional opportunities on Snapchat and come up with a list of ways
to promote your brand on the app. After visiting snapchat.com/ads to
conduct your research, you might also want to use a search engine to
find additional websites with information about advertising on Snap-
chat. After collecting your information, prepare a brief memo outlining
your recommendations
Case 7.2
Business Case: Facebook Helps Songkick Rock the
Ticket Sales Industry
Web 2.0 or social technology makes it possible for business to share
information in mutually beneficial ways. Specifically, programming
tools like APIs and SDKs make it possible for developers to create
applications that will connect Facebook with other websites as well as
applications that exchange data with applications on Facebook. For
instance, Facebook has created several different programming tools
that help organizations leverage the power social networking data for
attracting and engaging customers. When IT and marketing managers
understand the capabilities of Facebook’s programs, they are better
able to imagine the myriad ways to leverage the technology for engag-
ing customers, promoting brands, enhancing brand reputations and
reducing marketing expenses.
Songkick is the world’s second largest seller of concert tickets,
sending out over a million geo-targeted concert alerts each day via
e-mail and push notifications. In a crowded industry of ticket sellers,
Songkick’s unique mission is to be the “. . . world’s leading independ-
ent artist- ticketing and concert discovery platform.” Their strategy is
to treat artists with respect, providing multiple ways for musicians
and bands to promote their music, grow their fan base, and provide
a simple, cost– effective program for selling concert tickets. Their
vision is simple, they want every show to sell out! For music fans, the
mission is not just to sell you tickets to
concerts you already know about, but
to alert you to artists and events that you
might not otherwise be aware of. As a busi-
ness strategy, the company’s mission and
vision are inspirational, empowering and
easy to understand. However, translat-
ing this simplicity into action requires a
sophisticated combination of integrated
technologies that rely heavily on APIs,
SDKs, analytics programs, data sharing
and social media.
For Songkick’s customers to find
value in the concert alerts they receive,
the company must understand its cus-
tomer base and be able to predict the
kinds of shows people are most likely to
be interested in. When customers create
their Songkick account prior to purchas-
ing tickets, they use Facebook’s Login instead of filling out forms with
lots of questions. This not only makes it easier to set up a Songkick
account, but it gives the company access to a rich set of demographic
and behavioral data that will later help them make personalized rec-
ommendations about artists and events. The Facebook Login feature
is created by developers using the Facebook SDK, which provides tools
programmer’s use to integrate the login feature with their own plat-
forms. Approximately 50% of Songkick’s customers use the feature to
create or log in to their account.
To further expand their understanding of customers and their
behavior, Songkick’s developers used the Facebook SDK and the
App Events Export API to connect with the Facebook Analytics for Apps
program. This provided Songkick with an in-depth view of its audi-
ence, their preferences, and behaviors associated with patterns
of engagement and retention. Based on insights from Analytics for
Apps program, Songkick was able to identify new features and ser-
vices for their app that improved its value to customers. Finally,
Songkick programmers used the Facebook SDK and APIs to inte-
grate with the Facebook App Ads program. This program connected
Songkick ads that appear on Facebook with the Songkick app, pro-
viding analytics and improving customer engagement. For instance,
Songkick can use what Facebook calls Deep Linking with their ads.
Deep Linking makes it easier for new app installers (customers) to
reach the information that originally inspired them to try the service.
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Case 7.3 237
What this means in practice is that when a Facebook user sees a
personalized Songkick ad promoting a Goo Goo Dolls concert, they will
download and open the Songkick app, and be promptly taken to the
app page for the Goo Goo Dolls concert, the reason they downloaded
the app in the first place. Without Deep Linking, users would likely have
to navigate several account setup and introductory screens before
reaching the desired information. Deep Linking improves customer
satisfaction, engagement, retention, and conversions.
As a result of Songkick’s integration and data sharing with Face-
book programs, the company experienced 7% more purchases by
people using Facebook Login and a 15% increase in sales as a result
of insights gained from Analytics for Apps. Furthermore, customers
acquired from the Facebook network had a 35% higher lifetime value
than customers acquired from other channels.
Questions
1. Why is Facebook motivated to share so much data about its
users with other companies as well as creating ways for users
to log in into other websites with their Facebook username and
password?
2. What does Songkick gain by having customers use Facebook
Login to create accounts and log in to their website or mobile
app?
3. How does Facebook’s Deep Linking program improve customer
satisfaction and increased conversions (purchases)?
4. How did Songkick benefit from integrating its platform with Face-
book’s Analytics for Apps program?
5. How does Songkick use information it obtains from Facebook
to effectively alert customers to artists and concert events they
might not otherwise hear about? Couldn’t they just as easily do
that by sending information about all the upcoming concerts in a
customer’s geographic area?
Sources: For more information, see “Songkick Orchestrates a Sound Growth
Strategy” at developers.facebook.com and Songkick.com.
Case 7.3
Business Case: AT&T’s “It Can Wait” Campaign against
Distracted Driving
Launched in 2010, AT&T has used the power of traditional and social
media to change the way that people think and act about using
their phones while driving. The It Can Wait campaign has grown
over the years into a multipronged approach to reach new and
experienced drivers from multiple age groups. Specific strategies
that have been used during the life of the campaign so far include the
following:
Online resource center The campaign website (itcanwait.com)
features downloadable resources and informational material for
individuals, schools, and business organizations. The site also
contains posters, educational guides, and fact sheets as well
as links to videos and public service ads created for television.
Recent additions to the site include an immersive, 360-view
simulation of distracted driving, links to the DriveMode app
(see below) and information about the organization’s VR tour,
which uses the VR technology to illustrate the dangers of dis-
tracted driving.
Traditional media Campaign slogans “It can wait” and “No
text is worth dying for” were incorporated into advertisements
in print media, television, radio, and billboards. Television ads
in particular were noted for their ability to convey the dramatic
and emotional impact of fatal accidents resulting from dis-
tracted driving.
Social media Multiple social media platforms were used to pro-
mote the campaign’s message against distracted driving.
• Social buttons on the campaign’s website are used to post
anti-distracted-driving messages to a user’s Facebook page
and Twitter feed. These same messages provided links to the
campaign website, encouraging people in the user’s network to
visit the site and learn more about the issue.
• The hash tag #ItCanWait has been appended to messages on
Twitter and other social media platforms, resulting in over a bil-
lion impressions during the life of the campaign.
• Almost 130,000 people follow the campaign’s Twitter handle,
@ItCanWait. The campaign actively monitors and responds to
tweets sent to @ItCanWait as well as messages with the #ItCan-
Wait hashtag.
• Television ads and videos created specifically for social media
have received over 6 million views on YouTube. A documentary
about distracted driving by famed director Werner Herzog has
over 3.3 million views on YouTube. Campaign advocates regu-
larly share these videos with their social networks on Facebook,
Twitter, and other social media platforms.
Online pledges To further increase engagement with various
audiences, people are encouraged to make a pledge on the cam-
paign website to never engage in distracted driving. To increase
public commitment to their pledges, people can post a “pledge
picture” declaring their support of the #ItCanWait movement. So
far, over 14 million people have made the pledge. After making
their pledge, people can post it to Facebook and Twitter. Research
has shown that people are more likely to follow through on public
commitments.
The DriveMode app AT&T created a smartphone app that
allows users to customize auto-generated messages that are sent
in response to any texts the user receives while driving. The app
has been downloaded 10 million times. While the app receives
generally positive reviews, comments on the apps download sites
report a range of concerns including functionality issues that have
caused users to abandon the app. AT&T also makes a commercial
238 C H A P T E R 7 Web 2.0 and Social Technology
version of the app for business organizations that want to dis-
courage employees from distracted driving during work.
Social support and advocacy All AT&T employees take the
pledge and encourage every customer they speak with to take
the pledge as well—that’s 500,000 a day. In addition, the cam-
paign has received public support from over 1,500 organiza-
tions across the United States and numerous celebrities have
attended promotional events for the campaign and use their
social media networks to express support for the campaign
and its message.
VR Simulator The organization sponsors hundreds of events
across the country each year where people have the opportunity
to experience distracted driving in a 3D VR simulator developed
by AT&T. Users sync their phones with the simulator, which then
challenges them to operate a vehicle while reading and sending
texts, with predictable outcomes.
The organization regularly collects data to evaluate the impact
its efforts are having on distracted driving across the country.
Some positive signs include the fact that more people are more
aware of the dangers of texting and driving, and most people
now agree that it is unsafe to text while driving. Preliminary
research in a small number of states suggests a correlation between
ItCanWait campaign activities and a reduction in distracted-driv-
ing-related accidents.
Questions
1. Visit the campaign website at itcanwait.com. After reviewing the
website, describe which features you think are the most effective
in terms of reducing the likelihood that people will engage in dis-
tracted driving.
2. Charlene Li and Josh Bernoff identified five key strategic prior-
ities that companies should focus on to leverage the ground-
swell. Describe how the It Can Wait campaign has made use of the
“Energizing” strategy described by Li and Bernoff.
3. Describe how the It Can Wait campaign has engaged in the
“Listening” strategy described by Li and Bernoff.
4. Describe how the It Can Wait campaign has engaged in the
“Talking” strategy described by Li and Bernoff.
5. Describe how the It Can Wait campaign has engaged in the “Sup-
porting” strategy described by Li and Bernoff.
Sources: Herzog (2013), Schlackman (2014), AT&T (2016), Governors Highway
Safety Association (2016), Kaker (2016).
References
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ity.” technologyreview.com, January 27, 2017.
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240
CHAPTER 8
Introduction
This is both an exciting and challenging time to be a retailer. Traditional brick-and-mortar stores
face increasingly intense competition from other traditional retailers as well as competitors
in the online and mobile retail channels. Consumers, armed with mobile devices, have more
information than ever before about products, prices, and alternative places to buy products. A
Retail, E-commerce, and Mobile
Commerce Technology
C H A P T E R O U T L I N E
Case 8.1 Opening Case: Macy’s Races Ahead with
Mobile Retail Strategies
8.1 Retailing Technology
8.2 Business-to-Consumer (B2C) E-commerce
8.3 Business-to-Business (B2B) E-commerce and
E-procurement
8.4 Mobile Commerce
8.5 Mobile Transactions and Financial Services
Case 8.2 Business Case: Chegg’s Mobile Strategy
Case 8.3 Video Case: Searching with Pictures
Using MVS
L E A R N I N G O U T C O M E S
8.1 Describe how the concept of omni-channel retailing is
changing the nature of shopping for consumers.
8.2 Identify five key challenges faced by online retail businesses in
the Business-to-Consumer (B2C) marketplace.
8.3 Identify various ways that e-businesses are facilitating trade
between buyers and sellers in the Business-to-Business (B2B)
marketplace.
8.4 Understand how mobile technologies are creating
opportunities for new forms of commerce in established
industries.
8.5 Recognize how mobile payment methods benefit both
consumers and retailers.
Introduction 241
Case 8.1 Opening Case
Macy’s Races Ahead with Mobile Retail Strategies
Mobile devices, particularly smartphones, have become a key tool in
the arsenal of modern-day shoppers. Using barcode scanner apps,
customers in brick-and-mortar retail stores can quickly compare
prices with other stores and online retailers. They can access product
information, check expert and consumer product reviews, and even
purchase products from online retailers. This practice, called show-
rooming, represents a significant threat to many traditional retailers
who continue to ignore the impact of mobile consumer behavior.
Showrooming is frustrating to retailers who bear the costs of pro-
viding sales support, product inventory and maintaining a store front,
only to see customers purchase products at a lower price from an online
retailer with lower overhead costs. At one point, Target asked several of
its vendors to create special products, only sold in Target stores, in an
attempt to stifle consumer comparison shopping via mobile devices
(Zimmerman, 2012). But other retailers, recognizing the pervasive nature
of mobile shopping trends, are developing strategies to embrace and
engage the mobile shopper.
Department store giant Macy’s is recognized as a pioneer when it
comes to using mobile technologies to enhance the shopping experience
of its customers (Table 8.1). The online trade magazine Advertising Age
says that Macy’s is one of the most innovative when it comes to digital,
social, and mobile technology (Figure 8.1). Macy’s uses in-store displays
to encourage customers to use mobile devices while shopping. The Back-
stage Pass Program is designed to enhance the in-store shopping expe-
rience at Macy’s. Using quick response (QR) codes and short message
service (SMS) technology, customers can easily access fun and informa-
tive 30-second videos that highlight the retailer’s celebrity designers and
fashion experts (see related videos at youtube.com/Macys). Mobile shop-
pers can access the videos by scanning the QR codes posted on displays
in each department. Shoppers who do not have a QR code scanner can
access the videos by texting a special keyword to Macy’s using codes sup-
plied on the displays. Backstage Pass is an example of what marketers
call a mobile display strategy. It is supported by an integrated communi-
cations campaign involving traditional television and print media adver-
tising. Macy’s can measure customer interest in the program by tracking
the number of times customers watch the videos. Based on the initial suc-
cess of the program, Macy’s increased spending on mobile display strate-
gies by 70%.
Another key mobile strategy used by Macy’s is the SMS database
strategy, growing its list of customers who have opted in to receive dis-
counts and special offers via text message. According to Martine Rear-
don, executive vice president of national marketing at Macy’s, New York,
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particular source of frustration for traditional retailers is the practice of showrooming, where
consumers visit a store to look at merchandise, seek information and advice from salespeople,
maybe even try on clothes, and then leave the store to make their purchases online from a
company that offers lower prices.
Online retailers also face significant challenges. Maintaining an e-commerce website
requires ongoing investment in new technologies designed to enhance the online shopping
experience, increase operational and logistical efficiency, as well as maintain high levels of cus-
tomer satisfaction. Thanks to social media, dissatisfied customers now have numerous forums
for informing others about frustrating experiences they might have with a company. It can be dif-
ficult meeting customer expectations that seem to grow more and more demanding every day.
Companies that are branching out into mobile commerce face challenges as well. For
years, industry pundits have said that mobile commerce, or m-commerce, is going to be
huge. But those predictions have failed to materialize for a number of reasons, leaving some
to question their investments in mobile technology. However, there are signs that mobile
devices have finally begun to make an impact on retailing in noticeable ways. Nevertheless,
the question still remains whether or not this emerging channel will become as big a force as
some have predicted for years. In this chapter, you will read about the forces that are shaping
consumer shopping behavior and the ways that traditional, online, and mobile retailers are
using technology to address the many challenges they face.
Quick response (QR) code A
machine-readable code typically
used to store a link to a URL or
Web address that can be read by a
mobile device.
Barcode A machine-readable
code consisting of numbers and
a pattern of thick and thin lines
that can be scanned to identify the
object on which the code appears.
Showrooming The practice
of examining products in a
traditional retail store, sometimes
with the help of a salesperson,
and then purchasing the
product online.
Short message service (SMS)
A technology used to send
and receive text messages
on mobile devices via a
telecommunications network.
242 C H A P T E R 8 Retail, E-commerce, and Mobile Commerce Technology
©
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FIGURE 8.1 Macy’s encourages shoppers to use mobile technology
in its stores through a variety of strategies, including mobile videos
that describe merchandise, benefits from mobile check-in, and fun
augmented-reality apps.
TA B L E 8 . 1 Opening Case Overview
Company Macy’s, Inc.
The business Macy’s is a premier department store retailer with a significant online
e-commerce website and mobile shopping app.
Product lines Macy’s department stores offer a range of products, including fashionable
clothing, jewelry, footwear, furniture, bedding, small kitchen appliances,
cookware, and other household goods.
Business challenges Implementation of an omni-channel retail concept that allows con-
sumers to freely and seamlessly engage with Macy’s through a traditional
storefront, e-commerce website, or mobile technology.
Digital technology Macy’s embraces technology to enhance the shopping experience through
the use of QR codes and SMS text messaging, mobile videos to provide
information about merchandise, and an SMS database for distribution of
mobile coupons and marketing communications.
Taglines “The Magic of Macy’s,” “Macy’s, way to shop!”
the retailer is including SMS short codes in most of its printed coupons
to encourage customers to opt in to receive coupons and other offers
via text message. Macy’s customers have responded well to these kinds
of promotions, so growing the list of people who opt in to this program
should be easy.
With its mobile check-in strategy, Macy’s has partnered with Four-
square and Shopkick to create check-in programs that reinforce shop-
ping behavior at retail outlets. Mobile customers using the Shopkick
app on their phones receive points on their account just for visiting a
Macy’s store. They may also receive special offers from Macy’s via the
Shopkick app when they visit particular departments or scan featured
merchandise. The points can be redeemed for restaurant vouchers,
iTunes gift cards, and gift cards from a variety of participating retailers.
Macy’s partnered with Foursquare and a charitable foundation cre-
ated by insurance company Aflac. For every consumer who checks-in
at Macy’s via the Foursquare app, Aflac donates $1 to its charity, The
Aflac Cancer Center and Blood Disorders Service of Children’s Health-
care of Atlanta. Aflac made the same offer to customers who checked
in while watching Macy’s famous Thanksgiving Day Parade, using an
entertainment check-in service called GetGlue.com (now called tvtag.
com). These kinds of partnerships and programs not only reinforce
store shopping behavior but also enhance Macy’s positive brand repu-
tation among target consumers.
Via the mobile payment strategy, customers can pay for products
at Macy’s using Google Wallet, a mobile payment app (Figure 8.2). At the
register, customers simply tap their phones on a Near-Field Communi-
cations (NFC) device in order to transfer funds to Macy’s. Google Wallet
is one of several approaches to mobile payment competing to become
the dominant alternative to traditional credit cards. Mobile payment is
expected to become widespread in the near future as banks, retailers,
and telecommunications companies gain experience with the technol-
ogy. (Read more about mobile payment in Section 8.5.)
In an augmented reality strategy, during the Thanksgiving and
Christmas holiday season, Macy’s runs a program to benefit the Make-
A-Wish Foundation. Over the past few years, Macy’s has donated $1 for
every customer who visits a store and “mails” a letter to Santa. In 2011,
Macy’s made that visit even more fun, inviting customers to take pictures
of their children in special holiday displays using augmented reality apps
Augmented reality A
technology that superimposes
a computer-generated image
onto an image of the real world
to provide information or
entertainment.
Retailing Technology 243
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FIGURE 8.2 Customers at Macy’s can pay for purchases with their
smartphones by using a mobile wallet app.
8.1 Retailing Technology
Life is not easy for managers in the retail sector these days. The challenges faced by retailers
have never been more complex, frustrating, and fraught with peril. Consumers are demanding,
price-conscious, and easily swayed by competitors. Technology is both a blessing and a curse.
Countless new and innovative technology “solutions” to retailing problems are offered by a
dizzying array of vendors. Many of the newest technologies promise to give retailers a competi-
tive edge in the marketplace but are unproven. Budgets for technology are limited, and making
the wrong decision can lead to financial consequences, operational failures, and lost custom-
ers. However, because of intense competition, retailers cannot afford to be too conservative, or
they risk losing out to competitors with technologies that enhance the shopping experience,
reduce costs, integrate sales channels, and improve recordkeeping, data collection, and analysis
of key performance indicators (KPIs).
Keeping Up with Consumer Demands and Behavior
Understanding and responding to consumer needs and behavior is the key to survival for the
modern retailer. The challenge, however, is increasingly complex as retailers are confronted
with a number of difficult industrywide trends and changing consumer behavior (Galgey and
Pattinson, 2013).
Empowered Price Sensitivity Consumers have always been concerned about price. In
today’s retail environment, the consumer is more empowered than ever to find the lowest
that inserted one of the animated characters associated with the cam-
paign into the picture. Pictures could then be uploaded into a holiday card
template, shared by e-mail, or posted to the customer’s Facebook page.
While other retailers are still trying to understand mobile consumer
behavior, Macy’s is already adapting to a new retail environment where
increasing numbers of consumers are using handheld devices. It has
shown that traditional brick-and-mortar retailers can enhance the in-
store shopping experience using mobile technologies in a variety of ways.
Questions
1. Describe how each of Macy’s mobile retail strategies enhances
the in-store shopping experience for customers.
2. What will most customers think about Target’s attempt to make
mobile price comparison more difficult?
3. How does Macy’s benefit from the use of location-based apps
such as Foursquare and Shopkick?
4. Why is it important that Macy’s get customers to “opt in” to its
program before sending promotional text messages?
5. Does Macy’s Backstage Pass Program really add value to the cus-
tomer, or is it just a “gimmick” with short-term benefits?
6. Traditional retailers spend a considerable amount of money to
maintain an inventory of products and provide salespeople to
service in-store customers. Explain whether or not the practice of
showrooming is unethical. What can retailers do to respond to the
showrooming trend?
Sources: Compiled from Zimmerman (2012), Tsirulnik (2011), Macy’s (2011),
Johnson (2011), Kats (2012).
244 C H A P T E R 8 Retail, E-commerce, and Mobile Commerce Technology
price available for a product. Using the Web and mobile technology, consumers can look
up information about alternative products and prices from a variety of local and online
retailers using a mobile device. Retailers need clear strategies to respond to the empow-
ered consumer by price matching or finding ways to offer greater value.
Nonlinear Search and Influence Patterns The path by which consumers pursue pur-
chases today is often varied and unpredictable. In simpler times, consumers were largely
influenced by mass media advertising that drove them to brick-and-mortar stores for pur-
chase. While things were perhaps never quite that simple, consumers today are influenced
by a range of new communications channels including social media, mobile ads, e-mail,
search marketing, and other digital communications.
Channel Hopping Just as consumers are influenced by a greater number of communica-
tions channels, their options for purchasing products have increased. Consumers can now
purchase products through traditional retailers, online, and via mobile devices and apps.
Some experts are beginning to view social media as a potential retail channel called social
commerce. For instance, Dell sells millions of dollars of refurbished computer equipment
each year through its @delloutlet Twitter account. The manner in which consumers use
each channel varies. Some consumers will use a brick-and-mortar store to gather informa-
tion about a product but purchase it online. Others will do their research online but prefer
to purchase the product through a traditional retailer. Some may plan to purchase the
product at a store, but if they find that the product they want is not available, they will buy
it from their mobile device while in the store. The many combinations of shopping chan-
nel, communications channel, and stage of the shopping process are enormous and make
strategic planning a challenge. Modern retailers will increasingly rely on data analytics to
distinguish patterns or trends in consumer shopping behavior across channels to identify
the best ways to satisfy customer needs.
Digital Immigrants, Natives, and Dependents Retailers have long been aware of the dif-
ference between digital immigrants and digital natives. Digital natives are the first genera-
tion to have grown up surrounded by digital devices (i.e., computers, smartphones, digital
cameras, video recorders, etc.) and Internet connectivity. They are comfortable using tech-
nology to move easily between various retail channels to optimize their purchasing on price,
convenience, and desire for instant gratification. Digital immigrants, however, are older,
and although they are increasingly comfortable with technology, they fundamentally view
retail channels as separate and distinct. They are much less likely than natives to incorporate
mobile technology into their shopping behavior. Digital dependents represent the emerg-
ing generation of young people who are growing up in a world of broadband connections,
constant connectivity, and related technology and become uncomfortable if they do not
have access to it. This generation will place even greater demands on retailers, expecting to
use technology to accomplish all facets of the shopping experience. Brick-and-mortar retail-
ers will continue to play an important role in the lives of this generation, but they will expect
in-store shopping to be fully integrated with the technology they have come to depend on.
Need for Convenience As economic and social factors lead to more stressful lives, con-
sumers will be looking for products and shopping channels that reduce the impact on their
time and financial resources, while satisfying their demand for immediate gratification
and desirable goods and services.
The Omni-Channel Retailing Concept
As the retailing world began to evolve as a result of digital technology and the Internet, new chan-
nels emerged that were initially thought to be separate and distinct. Most retailers and a fairly
large segment of the consumer market still view online shopping (e-commerce) and mobile
commerce (m-commerce) channels as competing with traditional brick-and-mortar stores.
As you read in the opening case, Target feels threatened by customers who showroom its
stores using mobile devices. However, as businesses learn about the full potential of mobile and
other digital technologies, the distinction between the newer channels and in-store retailing is
Retailing Technology 245
beginning to blur. While most businesses currently operate their e-commerce and mobile chan-
nels separately from the traditional retail channel, it is expected that strategies integrating the
customer experience across channels will emerge, resulting in what the National Retail Federa-
tion (2011) refers to as the omni-channel retailing approach.
As illustrated in Figure 8.3, many businesses operate separate retail channels. For
instance, in-store product prices may be different from those the customer finds on the com-
pany’s e-commerce website and direct mail catalog. Records of customer purchases from the
e-commerce site may not be available to service personnel assisting the customer at the store
level. But retail strategy is evolving. The ultimate goal is to offer consumers multiple brand-
based “touchpoints” that leverage the strengths of each channel. For instance, a company
with a truly integrated or omni-channel strategy might spark a customer’s interest using mo-
bile advertising or direct mail catalogs. The customer then visits a brick-and-mortar store to
examine the product firsthand and speak to a salesperson. In-store purchases might be made
using one of the mobile payment methods discussed later in this chapter. If the store does not
have the particular size or color of the product desired, the customer might order it by access-
ing the store’s e-commerce site with his or her smartphone by scanning a QR code placed stra-
tegically on an in-store display. The product would then be delivered through the mail. Product
returns could be handled through the mail or returned to the store, depending on what is
most convenient for the customer. Customer service reps in a call center would have a record
of the customer’s purchase regardless of which channel the transaction had been completed
through. The omni-channel strategy will also take into consideration the potential impact of
social media, whereby customers interact with the brand on sites such as Facebook or Twitter
and share brand experiences with others in their social network.
Single Channel
The Legacy
Consumer contact with
retailers limited to single
channel.
Retailers only had a single
“touch point” with which to
connect with consumers.
Retailers operate separate channels
as independent “silos” that
sometimes compete for consumer
attention.
Retailers have a single view of the
consumer, but continue to operate
separate channels as silos.
Retailers leverage the functionality of
each channel as well as their single
view of the customer to provide
optimal overall experience.
Customers enjoy an integrated,
value-added experience with brand
across multiple channels.
Customers see multiple but separate
channels with which they can interact
with the same brand.
Customers see multiple retail
channels available for acquiring
goods and servies.
The Reality The Aspiration Nirvana
Multi-Channel Cross-Channel Omni-Channel
FIGURE 8.3 Retail strategy is evolving toward an omni-channel approach (adapted from
National Retail Federation, 2011).
Questions
1. Describe the factors that influence consumer shopping behavior today.
2. What does the concept of digital native, digital immigrant, and digital dependent help us to under-
stand about people’s use of technology during shopping activities?
3. Why are retailers likely to view technology as both a blessing and a curse?
4. Describe how an omni-channel retailer is likely to be different from a traditional, single-channel
retailer?
246 C H A P T E R 8 Retail, E-commerce, and Mobile Commerce Technology
8.2 Business-to-Consumer (B2C)
E-commerce
During the late 1990s, the idea of purchasing things online was still a novel concept. People
who purchased books and other low-priced items from websites were seen as innovators.
Nowadays, shopping for things online and finding the best deal by comparing online prices
with those in brick-and-mortar stores are common consumer behaviors. In the past decade, the
variety of goods and services available through e-commerce sites has skyrocketed. If you look
through older textbooks in the IT field, you will find authors predicting that e-commerce will
only be successful with low-priced consumer goods. But we now know that this is simply not
the case. People today purchase everything from toothpaste to cars and diamond rings online.
E-commerce in the B2B sector is even larger than it is in the B2C marketplace.
Retail sales via online channels, financial services, travel services, and digital products
(e.g., music- and movie-streaming services) are widely popular forms of B2C commerce. The
most well-known B2C site is Amazon.com, whose IT developments received U.S. patents that
keep it ahead of competition. Many of these are described in IT at Work 8.1.
Several of the leading online service industries are banking, trading of securities (stocks,
bonds), and employment, travel, and real estate services.
Online Banking
Online banking includes various banking activities conducted via the Internet instead of at a
physical bank location. Online banking, also called direct banking, offers capabilities ranging
from paying bills to applying for a loan. Customers can check balances and transfer funds at any
time of day. For banks, it offers an inexpensive alternative to branch banking. Transaction costs
are about 2 cents per transaction versus $1.07 at a physical branch.
Most brick-and-mortar conventional banks provide online banking services and use
e-commerce as a major competitive strategy. Customers are aware that if they bank exclu-
sively with a brick-and-mortar institution, they may be missing out on high-paying investment
options or competitive loan rates that easily undercut those of many traditional banking
entities. For an illustration of how online banks operate differently than traditional banks,
see IT at Work 8.2.
International and Multiple-Currency Banking
International banking and the ability to handle trading in multiple currencies are critical for
international trade. Electronic fund transfer (EFT) and electronic letters of credit are impor-
tant services in international banking. An example of support for e-commerce global trade is
provided by TradeCard (tradecard.com). TradeCard offers a software-as-a-service (SaaS) model
that provides supply chain collaboration and a trade finance compliance platform.
Although some international retail purchasing can be done by giving a credit card number,
other transactions may require cross-border banking support. For example, Hong Kong and
Shanghai Bank (HSBC) has developed a special system, HSBCnet, to provide online banking
in 60 countries. Using this system, the bank has leveraged its reputation and infrastructure in
the developing economies of Asia to rapidly become a major international bank without devel-
oping an extensive new branch network.
Online Recruiting
Most companies and government agencies advertise job openings, accept résumés, and
take applications via the Internet. The online job market is especially effective and active
for technology-oriented jobs. While sites such as dice.com and monster.com can still be
Electronic fund transfer (EFT)
A transfer of funds from one
bank account to another over a
computerized network.
Business-to-Consumer (B2C) E-commerce 247
IT at Work 8.1
Amazon.com’s IT Patents Create Competitive Edge
Entrepreneur and e-commerce pioneer Jeff Bezos envisioned the
huge potential for retail sales over the Internet and selected books
for his e-commerce venture. In July 1995, Bezos started Amazon.
com, offering books via an electronic catalog from its website.
Key features offered by Amazon.com were broad selection, low
prices, easy searching and ordering, useful product information
and personalization, secure payment systems, and efficient
order fulfillment. Early on, recognizing the importance of order
fulfillment, Amazon.com invested hundreds of millions of dollars
in building physical warehouses designed for shipping small pack-
ages to hundreds of thousands of customers.
Amazon has continually revised its business model by
improving the customer’s experience. For example, customers can
personalize their Amazon accounts and manage orders online with
the patented One-Click order feature. This personalized service
includes an electronic wallet (e-wallet), which enables shoppers
to place an order in a secure manner without the need to enter their
address, credit card number, and so forth, each time they shop.
One-Click also allows customers to view their order status and
make changes on orders that have not yet entered the shipping pro-
cess. To emphasize its large inventory of books, Amazon obtained
registered trademarks for its retail slogans: “Earth’s Biggest Selec-
tion” and “If It’s in Print, It’s in Stock.”
In addition, Amazon added services and alliances to attract
more customers and increase sales. In January 2002, Amazon.com
declared its first-ever profit during the 2001 fourth quarter; 2003
was the first year it cleared a profit in each quarter.
Amazon has heavily invested in its IT infrastructure and
obtained patents for much of the technology that powers its web-
site. The following list of patents gives a glimpse into the legal
side of the e-commerce giant and explains why numerous major
retailers, such as Sears and Sony, have used Amazon.com as their
sales portal.
• 6,525,747: Method and system for conducting a discussion
relating to an item
• 6,029,141: Internet-based customer referral system, also
known as the Affiliate program
• 5,999,924: Method for producing sequenced queries
• 5,963,949: Method for data gathering around forms and
search barriers
• 5,960,411: Method and system for placing a purchase order via
a communications network (One-Click purchase)
• 5,826,258: Method and apparatus for structuring the querying
and interpretation of semistructured information
• 5,727,163: Secure method for communicating credit card data
when placing an order on a nonsecure network
• 5,715,399: Secure method and system for communicating a
list of credit card numbers over a nonsecure network
Amazon launched the Kindle e-reader in 2007. Its success dem-
onstrated the viability of the e-book market and led to the entry
of numerous competitors, such as Barnes & Noble’s Nook and the
Apple iPad. E-books now account for about 30% of all books sold,
and Amazon’s share of the e-book market is 65% (Bercovici, 2014).
Since 2011, Amazon has sold more e-books than print books (Miller
and Bosman, 2011).
In mid-2010, Amazon started rolling out a software upgrade for
Kindle, adding the ability for users to share e-book passages with
others on Facebook and Twitter. The new social networking feature
in Version 2.5 adds another Web link to the standard Kindle and the
larger Kindle DX, as Amazon finds itself in an increasingly competitive
market because of the iPad’s features. The iPad is designed for reading
digital books, watching online video, listening to music, and Web
browsing, making it more of a tablet device than simply an e-reader.
Amazon also created the Kindle app that can be used on a wide range
of mobile devices, so now customers can purchase and read e-books
from Amazon without having to purchase a Kindle reader.
Finally, as you read in Chapter 6, Amazon has been a pioneer
in the development of recommendation engines designed to sug-
gest products to customers based on their purchase history and
shopping behavior. Amazon’s recommendation system is consid-
ered among the best in the industry.
IT at Work Questions
1. Why is order fulfillment critical to Amazon’s success?
2. Why did Amazon patent One-Click and other IT infrastruc-
ture developments?
3. How has Amazon adapted the Kindle to new technologies?
4. Why would other retailers form an alliance with Amazon.com?
Sources: Compiled from Gonsalves (2010), Rappa (2010), Bercovici (2014),
Miller and Bosman (2011).
Electronic wallet (e-wallet) A
software application that can
store encrypted information
about a user’s credit cards, bank
accounts, and other information
necessary to complete electronic
transactions, eliminating the need
to re-enter the information during
the transaction.
helpful, job seekers nowadays are employing a variety of social media tools, including the
use of LinkedIn.com, to develop a network of contacts and establish an online reputation. A
number of studies suggest that over 95% of recruiters use LinkedIn to identify prospective
job candidates. Some candidates have used blogging as a way of creating a personal brand,
establishing themselves as an expert in a particular area by sharing content that reflects
their professional interests, expertise, and insight. For candidates that wish to employ this
strategy without the hassle of maintaining their own personal blogs, LinkedIn provides a
forum called LinkedIn Pulse. In many countries, governments must advertise job openings
on the Internet.
248 C H A P T E R 8 Retail, E-commerce, and Mobile Commerce Technology
IT at Work 8.2
Ally Bank – Building Trust and Confidence Online
A Crisis of Confidence in Consumer Banking
While the first Internet-only bank, or direct bank, appeared in the
mid-1980s, it wasn’t until around 2010 that these online institutions
became mainstream. Some have attributed general consumer frustra-
tion resulting from the 2008 economic crisis with generating consumer
interest in new, agile banking institutions that appear to be more
responsive to consumer needs for convenience and customer support.
Banks have historically built their reputations on trust and
consumer confidence that they would act ethically, protect con-
sumers’ money, and make customer interests a priority. However,
the financial crisis of 2008 led to large-scale consumer mistrust and
frustration with traditional banks and financial services companies.
Banking is now considered one of the least trustworthy industries
by consumers (Edelman, 2013, O’Connell, 2013). Consumers also
believe that irresponsible behavior by banking organizations was
a primary cause of the economic meltdown that led to high levels
of unemployment and fiscal uncertainty in the United States and
across the globe (The Financial Brand, 2013).
Many banks only made matters worse during this period
when they instituted a number of business practices that further
alienated consumers (O’Connell, 2013). During a time when con-
sumers were already frustrated with financial institutions because
of the economic crisis, many banks hiked interest rates on loans,
reduced the interest rate they paid on consumer savings and
checking accounts, made it more difficult for consumers to open
credit accounts, imposed new types of fees on consumer services,
and oftentimes failed to transparently disclose information about
fees and interest rates in promotional messages and other forms of
communication with consumers. As a result, consumer confidence
in the banking industry dropped to an all-time low following the
2008 financial crisis (Gallup, 2014). See Figure 8.4.
In an effort to take advantage of widespread consumer frus-
tration and dissatisfaction with traditional banking companies, a
number of new, smaller, and more agile banks are moving to offer
alternative approaches to consumer banking services. Ally Bank is
a popular Internet-only bank that is widely recognized for its suc-
cess in developing a business model with significant appeal to retail
banking customers.
Overview of Ally Bank
Ally Bank, based in Midvale, Utah, is a subsidiary of Ally Financial,
formerly GMAC, the financial unit of General Motors Corporation.
Since its launch in 2009, Ally Bank has worked hard to create a
public image that differentiates itself from business practices that
caused consumers to mistrust and grow frustrated with traditional
banks and financial service corporations. Ally’s marketing commu-
nications messages emphasize that it:
• Puts customer needs first.
• Offers consumers smart banking alternatives with no
hidden fees and higher interest rates on savings and
investment accounts.
• Is friendly, transparent, and easy to work with, unlike large,
fee-happy banks.
• Is new, innovative, fun and offers an attractive alternative to
traditional banking corporations.
What Makes Ally Bank Different?
Apart from a brand image that differentiates Ally Bank from its com-
petitors, the company uses technology to distinguish itself in three
important ways:
1. The company is part of a growing group of Internet-only or
direct banks. Instead of brick-and-mortar bank branches, Ally
Bank’s customers use the Web to access their accounts, make
transactions, and monitor their funds.
2. Unlike other banks that have been slow to embrace social
media, Ally Bank is recognized as a leader in the banking
industry for its use of social media to engage consumers.
3. Ally Bank offers customers mobile banking apps to make
doing business with the company even more convenient.
0.00%
*percent of consumers who indicated a “great deal” or “quite a lot” of confidence in banks
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
1
9
7
9
1
9
8
1
1
9
8
3
1
9
8
4
1
9
8
5
1
9
8
6
1
9
8
7
1
9
8
8
1
9
8
9
1
9
9
0
1
9
9
1
1
9
9
2
1
9
9
3
1
9
9
4
1
9
9
5
1
9
9
6
1
9
9
7
1
9
9
8
1
9
9
9
2
0
0
0
2
0
0
1
2
0
0
2
2
0
0
3
2
0
0
4
2
0
0
5
2
0
0
6
2
0
0
7
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
2
0
1
2
2
0
1
3
2
0
1
4
Consumer confidence in banking industry*
FIGURE 8.4 Consumer confidence in the banking industry from 1979 to 2014. Source: Gallup, 2014.
Business-to-Consumer (B2C) E-commerce 249
Internet banks provide customers with the convenience of 24/7
banking services through the Web. Consumers access their account
information using a computer, tablet, or smartphone. Deposits are
made by scanning or photographing checks and transferring the image
to the bank. Checks can also be mailed to the bank. Internet banks
typically offer savings and checking accounts, certificates of deposit,
retirement accounts, and various types of loans and mortgages.
Because Internet banks do not bear the cost of maintaining physical
branch offices, they often offer customers better interest rates and
lower fees compared to traditional banks. To retrieve cash, customers
use ATM machines. Many Internet banks reimburse customers for fees
they incur when using the ATM machines of other banks.
Social Media
Traditional banks have been reluctant to utilize social media chan-
nels for engaging consumers for fear of violating long-standing
banking regulations that govern disclosures and consumer pri-
vacy. Given the current level of consumer frustration, many banks
are probably also hesitant about what their customers are likely to
say about them through comments, ratings, and reviews on social
media. This hesitation to embrace new media has created an oppor-
tunity for upstart banking organizations such as Ally Bank. Since the
Internet bank lacks a physical presence, social media is the primary
channel for interacting with customers in ways that promote trust,
confidence, and loyalty, key ingredients for maintaining long-term
financial relationships.
Ally Bank is recognized as an industry leader when it comes to
its innovative use of social media. According to Smith (2014), Ally
Bank excels in three areas of social media:
• Communicating the brand via social channels
• Using data to drive social marketing decisions
• Cross-platform integration of marketing strategies
Examples of Ally’s social media marketing include using
Twitter to offer personal finance advice. Ally has also teamed up
with Bankrate.com to sponsor a monthly, hour-long TweetChat
(discussion group) called #AllyBRchat, where participants discuss
a range of personal finance issues. The firm’s Facebook page is
used to engage consumers with links to Ally’s “Straight Talk Blog,”
opinion polls, and educational videos. On Ally Bank’s YouTube
channel, visitors will find installments of financial advice programs
with titles such as “Ally Bank Financial Etiquette,” “Discovering
Retirement,” and “Behind the Scenes with Kiplinger.” Across all of
these social platforms, Ally Bank offers consumers information,
advice, and tools by posting over 1,500 pieces of content every
month (Tejwani, 2012).
Ally Bank’s Mobile Strategy
Ally Bank’s adoption of mobile technology follows the bank’s philos-
ophy of putting the customer first and creating the most convenient
ways for them to access and manage their money. According to Car-
rie Sumlin, a Digital Deposits Executive at Ally Bank, the company’s
goal with both mobile and Web technology is to make sure that
all applications live up to the promise of transparency, simplicity,
and ease of use (Yurcan, 2014). First introduced in April 2012, Ally’s
mobile apps offer a wide range of functionality including account
management, bill payment, fund transfers to external banks, and a
tool for finding ATM and cash-back locations. Managers at Ally Bank
are constantly evaluating customer reaction to the mobile apps by
monitoring how the apps are used, which devices are being used,
and customer feedback collected through social media, Web-based
consumer surveys, and calls to their customer service center.
Results
In a 2015 study of the top 100 banks, Ally Bank was ranked #1 for its
use of social media. The study reported that Ally demonstrated the
highest level of engagement compared to other banks. Customers
found a series of posts about DeEtte Sauer, who became a competi-
tive swimmer and adopted a healthier lifestyle after retiring, particu-
larly interesting. The company used Facebook, Twitter, and YouTube
videos to tell her story. More than 60,000 people responded to the
series by liking, commenting, or sharing Ally Bank’s posts. “Our goal
was to engage consumers in a dialogue by featuring real-life retirees
and their decisive financial turning points and actions that enabled
their current retirement lifestyle,” according to a bank spokesperson
(McCormick, 2016).
Ally Bank was rated among the best in the nation by the Pew
Charitable Trusts for its use of best disclosure practices, evidence
that the company is succeeding in its goal to be transparent about
fees and other information important to consumers (Malone, 2014).
Ally Bank is regularly recognized by organizations and publica-
tions such as Money Magazine, Huffington Post, Kiplinger, Forester
Research, and Bank Tracker as being among the best banks in the
industry, providing the best banking website, and providing an excel-
lent customer experience. For an extensive list of awards and recog-
nitions, see the Media Center—Awards and Recognitions page on the
Allybank.com website.
Conclusion
Ally Bank is clearly an innovator and a disruptive competitor in an
otherwise tradition-bound industry that has not always been respon-
sive to consumer needs. The company has distinguished itself by its
innovative, technology-driven approach to providing financial ser-
vices, a provocative and engaging marketing and branding strategy,
and an ability to communicate with consumers through social media
channels. In the short time that Ally Bank has been in business, it
has attracted over 825,000 customers, manages $45 billion in retail
deposits, and achieves customer satisfaction levels of over 90% (Ally
Financial, 2014). It is recognized as a leader in the direct banking seg-
ment of the consumer banking industry.
IT at Work Questions
1. Visit Ally Bank’s Facebook page. Identify examples of how the
company speaks in an authentic or real voice to its customers.
2. How has Ally Bank attempted to take advantage of negative
consumer sentiment toward traditional banks in the industry?
3. As Ally Bank develops its mobile banking service, what guides
the company’s development of the necessary technological
applications?
4. Visit Ally Bank’s YouTube channel. After reviewing video clips
of Ally’s past advertising campaigns, how would you describe
its brand image?
5. Visit Allybank.com and review the information about its
banking services. Do you think that Internet-only banks will
eventually attract a significant number of customers away
from traditional banks?
250 C H A P T E R 8 Retail, E-commerce, and Mobile Commerce Technology
Issues in Online Retailing
Despite the tremendous growth of online retailers, many face challenges that can interfere with
business growth. Major issues include the following:
1. Resolving channel conflict Sellers that are click-and-mortar companies, such as Levi’s
or GM, face a conflict with their regular wholesale and retail distributors when they circum-
vent those distributors by selling online directly to customers. (These distributors are
other businesses that carry the company’s product.) This situation is called channel
conflict because it is a conflict between an online selling channel and physical selling
channels. Channel conflict has forced some companies to limit their B2C efforts or not to
sell direct online. An alternative approach is to try to collaborate in some way with the
existing distributors whose services may be restructured. For example, an auto company
could allow customers to configure a car online but require that the car be picked up from
a dealer, where customers could also arrange financing, warranties, and service.
2. Resolving conflicts within click-and-mortar organizations When an established
company sells online directly to customers, it creates conflict with its own offline opera-
tions. Conflicts may arise in areas such as pricing of products and services, allocation of
resources (e.g., advertising budget), and logistics services provided by the offline activities
to the online activities (e.g., handling of returns of items bought online). To minimize this
type of conflict, companies may separate the online division from the traditional division.
The downside is that separation can increase expenses and reduce the synergy between
the two organizational parts.
3. Managing order fulfillment and logistics Online retailers face tough order fulfillment
and logistics problems when selling online because of the need to design systems to
accept and process a huge volume of small orders, to physically pick items from ware-
house shelves and put them into boxes, to be sure that the correct labels are applied, and
to accept returns. The return process is referred to as reverse logistics.
4. Determining viability and risk of online retailers Many pure online retailers went
bankrupt in the dot.com era, the result of problems with cash flow, customer acquisition,
order fulfillment, and demand forecasting. Online competition, especially in commodity-
type products such as CDs, toys, books, or groceries, became very fierce due to the ease
of entry into the marketplace. As Porter’s (2008) five competitive forces model explains,
low entry barriers intensify competition in an industry. So a problem most new and estab-
lished online retailers face is to determine how long to operate while you are still losing
money and how to finance those losses.
5. Identifying appropriate revenue (business) models One early dot.com model was
to generate enough revenue from advertising to keep the business afloat until the cus-
tomer base reached critical mass. This model did not always work. Too many dot.coms
were competing for too few advertising dollars, which went mainly to a small number of
well-known sites such as AOL, MSN, Google, and Yahoo. In addition, there was a “chicken-
and-egg” problem: Sites could not get advertisers to come if they did not have enough
visitors. To succeed in e-commerce, it is necessary to identify appropriate revenue models
and modify those models as the market changes.
Online Business and Marketing Planning
Online marketing planning is very similar to any other marketing plan. It is not a best prac-
tice, though, and somewhat strange, to devise separate online and offline plans because that is
not how customers perceive a business. Here are several online business and planning recom-
mendations:
1. Build the marketing plan around the customer, rather than on products.
2. Monitor progress toward the one-year vision for the business in order to identify when
adjustments are needed, and then be agile enough to respond.
Channel conflict Competition
between a manufacturer’s
distribution partners who sell
through different channels.
Channel conflict can occur at the
wholesale, retail, or internal sales
department level.
Business-to-Business (B2B) E-commerce and E-procurement 251
3. Identify all key assumptions in the marketing plan. When there is evidence that those
assumptions are wrong, identify the new assumptions and adjust the plan.
4. Make data-driven, fact-based plans.
Questions
1. Describe how digital content and services can lead to significantly lower costs.
2. Why does channel conflict sometimes occur when companies sell their products through both
traditional and online channels?
3. How has Amazon maintained its competitive edge?
4. Describe some of the ways that Ally Bank has become one of the most successful direct banks in the
industry today.
5. Explain why retail banking has become one of the least trusted industries by consumers since the
early 2000s.
6. List three online marketing planning recommendations.
8.3 Business-to-Business (B2B)
E-commerce and E-procurement
In business-to-business (B2B) markets, the buyers, sellers, and transactions involve only
organizations. B2B comprises about 85% of e-commerce dollar volume. It covers applications
that enable an enterprise to form electronic relationships with its distributors, resellers, sup-
pliers, customers, and other partners. By using B2B, organizations can restructure their supply
chains and partner relationships.
There are several business models for B2B applications. The major ones are sell-side mar-
ketplaces and e-sourcing (the buy-side marketplace).
Sell-Side Marketplaces
In sell-side B2B markets, there are basically two types of e-commerce: direct and marketplace.
In direct e-commerce, organizations sell their products or services to other organizations from
their own private website or one managed by a third party. This model is similar to the B2C
model in which the buyer is expected to come to the seller’s site, view catalogs, and place an
order. In the B2B sell-side marketplace, however, the buyer is an organization. B2B marketplace
e-commerce takes place on websites where the products of many different companies can be
purchased. The marketplace model creates much greater competition for the companies that
sell their products on the site and therefore creates an advantage for buyers. For this reason,
some sellers prefer the direct model. A recent introduction of a B2B marketplace website is
Amazon Business. Alibaba is a wholesaling e-commerce site that primarily sells products from
Chinese manufacturers to other companies around the world.
In an attempt to avoid the cut-throat competition that can be produced by market-
place e-commerce sites, some B2B sellers are integrating back-office solutions to their direct
e-commerce sites that add extra value to their buyers and create exit barriers for customers. For
example, integrated B2B solutions can include things such as digital order writing for fields sales
staff, automated order sync, which integrates orders with accounting or other administrative
software, and integrations with Enterprise Resource Planning (ERP) systems. These integrated
solutions can streamline the procurement process, saving the buyer time and money, giving
them a reason to stick with a seller that offers these benefits.
252 C H A P T E R 8 Retail, E-commerce, and Mobile Commerce Technology
Some B2B sellers such as Dell Computer use auctions extensively. In addition to auc-
tions from their own websites, organizations can use third-party auction sites, such as eBay,
to liquidate items. Companies such as Overstock help organizations to auction obsolete and
excess assets and inventories.
B2B e-commerce websites are used by hundreds of thousands of companies. This
strategy can be especially powerful for companies with superb reputations. The seller can
be either a manufacturer (e.g., IBM), or a distributor (e.g., avnet.com is an example of a large
distributor in IT), or a retailer (e.g., Office Depot). The seller uses e-commerce to increase
sales, reduce selling and advertising expenditures, increase delivery speed, and reduce
administrative costs.
E-Sourcing
E-sourcing refers to many different procurement methods that make use of an electronic venue
for identifying, evaluating, selecting, negotiating, and collaborating with suppliers. The pri-
mary methods are online auctions, RFQ (request for quote) processing, and private exchanges.
E-sourcing also applies to many other secondary activities, which add to the cycle time and
transaction costs when performed using traditional methods. Secondary activities include
trading partner collaboration, contract negotiation, and supplier selection.
E-Procurement
Corporate procurement, also called corporate purchasing, deals with the transactional
elements of buying products and services by an organization for its operational and func-
tional needs. Organizations procure materials to produce finished goods, which is referred to
as direct procurement, and products for daily operational needs, which is referred to as
indirect procurement. E-procurement refers to the reengineered procurement process using
e-business technologies and strategies. Strategies and solutions linked to e-procurement have
two basic goals:
• Control costs The first goal is to control corporate spending. Organizations want to
spend intelligently for procurement activities to maximize the value of their spending,
that is, to ensure that money spent to procure items results in procuring the right
products at the best value. Corporate e-procurement constitutes a substantial portion
of an organization’s operational spending. For example, it is common for large manu-
facturing organizations to spend millions of U.S. dollars procuring products and ser-
vices. Organizations thus design e-procurement systems to facilitate and control overall
procurement spending.
• Simplify processes The second goal is to streamline the procurement process to make
it efficient. Inefficiencies in the procurement process introduce delays in ordering and
receiving items and tax internal resources.
The two goals of cost control and streamlining can be met in three ways:
1. Streamline the e-procurement process within an organization’s value chain. Doing so
reduces the number of employees needed to process purchasing, reduces the procure-
ment cycle time to order and receive items, and empowers an organization’s staff with
enough information about the products and services to enable them to make intelligent
decisions when procuring items.
2. Align the organization’s procurement process with those of other trading partners, which
belong to the organization’s virtual supply chain. Alignment can be achieved by automat-
ing the process from end to end, including trading partner’s systems, and simplifies the
buying process. This enables suppliers to react efficiently to buyers’ needs.
3. Use appropriate e-procurement strategies and solutions. Organizations analyze spending
patterns in an effort to improve spending decisions and outcomes.
Mobile Commerce 253
Electronic Data Interchange (EDI) Systems
Electronic data interchange (EDI) systems are typically set up by large companies for the effi-
cient procurement of products from an assortment of established vendors. While EDI technol-
ogies predate large scale use of the Internet, most EDI systems now use the Internet as the
primary method of transmitting data. EDI systems are designed as a way to efficiently exchange
documents, eliminating many of the costs associated with processing paper documents. As
such, they lend themselves to buyers and suppliers that need to convey information to each
other in the form of purchase orders, invoices, bills of lading, customs documents, shipping
status documents, payment documents, and so on. While EDIs use the Internet for data trans-
mission, they are not accessible to the public. Instead, only approved or authorized vendors are
given access to a company’s EDI system.
Public and Private Exchanges
Exchanges are sites where many buyers and sellers conduct business transactions. They may be
public or private, depending on whether or not they are open to the public. The two most com-
mon types of B2B online exchanges are vertical and horizontal exchanges. Vertical exchanges
serve one industry (e.g., automotive, chemical), along the entire supply chain. Horizontal
exchanges serve many industries that use the same products or services (e.g., office supplies,
cleaning materials), although many exchanges sell a variety of wholesale goods, primarily to
retail businesses.
1. Vertical exchanges for direct materials These are B2B marketplaces where direct
materials—materials that are inputs to manufacturing or specialized services such as
health care—are traded, usually in large quantities. An example is PlasticsNet.com, a verti-
cal marketplace for industry professionals.
2. Horizontal exchanges These are many-to-many e-marketplaces for indirect materials,
such as office supplies, light bulbs, and cleaning materials used by any industry. Because
these products are used for maintenance, repair, and operations (MRO) (and not resold
to generate revenue), these indirect supplies are called MRO supplies. Prices are fixed or
negotiated in this systematic exchange. Examples include Worldbid B2B Market, Global
Sources and Alibaba.com.
Another important facet of managing procurement is demand management—knowing or
predicting what to buy, when, and how much. The best procurement cost is zero, when people
are not buying what they do not need.
Questions
1. Briefly differentiate between the sell-side marketplace and e-sourcing.
2. What are the two basic goals of e-procurement? How can those goals be met?
3. What is the role of exchanges in B2B?
4. Explain why maverick buying might take place and its impact on procurement costs.
8.4 Mobile Commerce
In 1997, two Coca-Cola vending machines that accepted payment via SMS text message were
installed in Helsinki, Finland. Ever since, industry experts and pundits have been predicting
that mobile commerce was about to become “the next big thing” in marketing and the sale
254 C H A P T E R 8 Retail, E-commerce, and Mobile Commerce Technology
of consumer goods. Before we explore how mobile commerce has evolved since 1997, let us
define some terms related to this topic:
Mobile commerce or m-commerce The buying or selling of goods and services using a
wireless, handheld device such as a cell phone or tablet (slate) computer.
Mobile e-commerce The use of a wireless handheld devices to order and/or pay for
goods and services from online vendors. Example: Ordering a pair of shoes from Zappos.
com using a mobile app, or purchasing music from iTunes from your iPod.
Mobile retailing The use of mobile technology to promote, enhance, and add value to
the in-store shopping experience. Example: Using a coupon on your cell phone when check-
ing out at the Hard Rock Café, or “checking in” to a retail location using a mobile app from
ShopKick.com or Foursquare.com.
Mobile marketing A variety of activities used by organizations to engage, communi-
cate, and interact over Wi-Fi and telecommunications networks with consumers using
wireless, handheld devices. Example: Sending special offers to customers who have opted
in to receive discounts via SMS text message or advertising a brand on a popular mobile
game app such as Angry Birds. For additional illustrations of mobile marketing, see
IT at Work 8.3.
IT at Work 8.3
Angry Birds Make Mobile Game
Developers Happy
Have you ever played popular mobile games such as Angry Birds,
Candy Crush, or Pokémon Go? For years, games have been the
most popular type of mobile app, second only to news apps.
According to Business Insider, over 20% of the apps in Apple’s
App Store were mobile games, the largest category. While many
apps in this category are free, 93% of app downloaders are wil-
ling to pay for game apps, compared to 76% for news apps. While
the average time that people spend playing mobile games is only
about 2 minutes a day, “core gamers,” or the 20% that spend the
most time playing, can log 1.6 hours a day or almost 12 hours
a week. Revenue from the 2016 mobile game market is esti-
mated to exceed $36 billion, and expect it to rise to over $52 bil-
lion by 2019.
To put this in perspective, in 2009, iOS and Android mobile
gaming apps accounted for just 11% of the portable (handheld)
gaming market dominated by Sony and Nintendo. By 2017, mo-
bile games accounted for 37% of the overall gaming market. It
is also the fastest growing segment (+21.3%) compared to PC
games (+3.4%) and game consoles (+0.9%). Clearly, mobile gam-
ing apps have become a disruptive force in the marketplace, dis-
placing two historically strong companies who underestimated
the potential of the mobile platform for gaming. Even more
impressive is the fact that the aforementioned statistics are
based on revenues produced by paid downloads and don’t reflect
the millions of free games downloaded every year. But even free
games make money through advertising and in-app purchases.
Some games, such as Angry Birds, become so popular that they
generate additional revenue through sales of game-related mer-
chandise (Figure 8.5).
IT at Work Questions
1. Why did established companies such as Nintendo and Sony fail
to gain an early position in the growing mobile gaming market?
2. How are mobile games different from traditional video
games? What advantages do mobile game apps have over
traditional video games?
3. Gaming and social media are among the most popular mo-
bile app categories in the United States. What do you think
this says about the role of mobile devices in the lives of U.S.
consumers?
4. Since many gaming apps are free, how do developers make
money in this category?
5. From a business perspective, what evidence suggests that the
mobile gaming market represents a significant marketplace?
Sources: Compiled from Meola (2016), Statista.com (2016), Asante (2012).
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FIGURE 8.5 Angry Birds was such a popular mobile game
that it generated additional revenue from sales of clothing,
plush toys, posters, lunch boxes, and even bed linens.
Mobile Commerce 255
These four terms are not mutually exclusive. Mobile e-commerce, mobile retailing, and
mobile marketing are all forms of mobile commerce. Mobile e-commerce emphasizes the use
of mobile apps and mobile websites for carrying out transactions and does not necessarily
involve interaction with a traditional retail store. Mobile retailing, on the other hand, empha-
sizes in-store shopping using a mobile device but could include situations where the customer
ultimately orders from a website or mobile app. Mobile marketing is the term used to describe
promotional strategies and tactics that encourage both mobile e-commerce and mobile retail.
See IT at Work 8.4 for examples of mobile marketing. This overlap is a reflection of the evolu-
tion toward the omni-channel retail concept discussed earlier in the chapter (see Figure 8.3).
Although there have been some interesting and even successful examples of m-commerce
since 1997, predictions about mobile technology becoming a pervasive force in consumer
retailing have proven overly optimistic over the years. There are several reasons why con-
sumers and businesses have been slow to embrace m-commerce:
• Relatively primitive mobile devices (compared to modern smartphones and tablets)
• Concerns about privacy and security
• Slow network connection speeds
• Limited market size
• Limited and inconvenient mobile payment options
• Lack of technological standardization (devices, OSs, browsers, etc.)
However, many of these barriers have been reduced or eliminated. As you read in the
previous section, the number of people who now own mobile devices, particularly smart-
phones, has grown dramatically. According to one widely quoted statistic, more people own cell
phones today than own toothbrushes! Telecommunications carriers have expanded their cov-
erage of populated areas using high-speed networks. Modern smartphones and tablet devices
have features that make shopping via bright colorful screens fun and easy. Mobile devices have
become the dominant way that people engage in some types of Internet activity, such as using
social media, while other reports indicate that more people use mobile devices now than use
personal computers. While security will always be an evolving concern, consumer comfort with
completing transactions on mobile devices continues to grow. A number of mobile payment
methods are emerging that are more convenient than traditional transaction methods. So after
years of waiting, it appears that earlier predictions about m-commerce are finally starting to
come true. In this section, we will describe some of the many ways businesses and consumers
are using mobile technologies to buy and sell goods and services.
Information: Competitive Advantage in Mobile Commerce
Integrating mobile technology with a brand’s retail and e-commerce strategy provides
another important benefit to business: customer information and identification. When
customers interact with a brand using a mobile device, information is collected about the
customer that can be used to optimize the interaction. For instance, when customers use a
brand’s mobile app to shop for products, their shopping experience can be customized based
on the company’s knowledge of previous purchases, payment methods, product preferences,
and even location.
In-Store Tracking In-store shopping experiences can be optimized through mobile
technology that can track a customer’s movement through a retail store. This is analogous
to e-commerce sites that track the pages a customer looks at in order to better understand
consumer interests and to make decisions about website design. Tracking how a customer
moves through a store, noting what displays the customer looks at, or what departments
the customer spends the most time in can be extremely helpful for understanding
256 C H A P T E R 8 Retail, E-commerce, and Mobile Commerce Technology
IT at Work 8.4
Wireless Marketing and Advertising in Action
Industry analysts expect advertising in the mobile channel to heat
up. Increasing numbers of smartphones, better browsers, enhanced
GPS capabilities, and better ways of measuring advertising effec-
tiveness are all factors powering this growth. The following are a
few examples of wireless advertising in action.
Location-Based Marketing Many apps that people use for
shopping, travel, entertainment, and product/service reviews
provide information useful to advertisers. In addition, many of
these apps provide information about a user’s GPS location
while others employ a “mobile check-in” strategy. As previ-
ously discussed, many retailers are deploying in-store tracking
with the use of apps. Advertisers can use this information to
generate targeted in-app advertising messages, increasing the
chances that the ads will lead to a purchase transaction.
Foursquare.com was one of the most popular apps in
the emerging field of mobile location-based marketing and
mobile advertising. It used social media and gamification
to encourage users to share their location through mobile
check-in. However, now that many other apps and social media
platforms offer similar features, Foursquare has become less
popular. But the number of companies using location-based
marketing continues to increase.
Mobile Location-Based Marketing A marketing strategy
that uses information from a mobile device’s GPS or custom-
er’s mobile check-in on a social network to determine the con-
tent of marketing communications they receive on the device
(e.g., advertisements, coupons, special offers).
Another location-based mobile marketing app is Shopkick.
When the Shopkick app is activated, users receive points
when they visit a participating retailer. Retailers use the app to
encourage and reward specific kinds of shopper behavior. Shop-
kick points are used to reward consumers for visiting specific
locations in a store, purchasing products, scanning featured
products, and even participating in brief surveys. Shoppers often
receive targeted discounts and promotional offers when they are
in a store. Shopkick users can trade in their points for restaurant
vouchers, iTunes cards, or gift cards from participating retailers.
Augmented Reality (AR) AR apps superimpose computer-
generated graphic images on pictures of real things (e.g., peo-
ple, rooms, buildings, roads, etc.). This technology can be used
by advertisers in several ways. For instance, a mobile phone
user might point his or her phone camera at an office building
and activate an AR app that generates the logos of all food-
service outlets (e.g., Starbucks, Subway, McDonalds) inside
the building. Furniture retailer IKEA offers shoppers an AR app
that allows them to project images of its products onto pic-
tures of the rooms in their homes so they can “visualize” how
the products will look. Legos and Converse also use AR to help
customers visualize their products. Industry experts expect
that AR advertising will grow as smartphone users become
more familiar with the concept (see Figure 8.6). You can find
several interesting examples of AR applications on YouTube.
Simply go to YouTube and enter “augmented reality” in the
search engine.
Mobile Search Almost 60% of all Internet searches are con-
ducted from a mobile device, and over half of all Web traffic
comes from mobile devices. As a result, Google and other Inter-
net search engines now use the performance of a company’s
mobile website as part of the criteria for ranking listing in
search results. SEO specialists must now focus on a set of new
factors for optimizing websites for mobile search to help com-
panies maintain their status in search listings. Marketers need
to think about context or how the things that people look for
using a mobile device differ from the things they search for on a
PC. For instance, 88% of all searches with the phrase “near me”
come from mobile devices. This should then shape the content
used on a company’s mobile website to influence ranking by
search engines and to provide the most useful information to
consumers. Some companies, such as Yellow Pages, use loca-
tion-based technology to create mobile directory apps that
allow users to find services near their current location.
IT at Work Questions
1. Although the benefits of location-based apps for business
are perhaps obvious, many previous attempts to get people
to use apps that identify their location have met with limited
results. Why do you think consumers are less enthusiastic
about location apps and what would it take to prompt peo-
ple to use a location-based app regularly?
2. What kind of information do you think people are most likely
to search for with their smartphone? Based on your answer,
what specific kinds of information should retailers make
readily available on their mobile websites?
3. At present, AR apps are still relatively new and have not
enjoyed high levels of adoption. What do you predict will
happen with this technology? What applications of AR seem
most interesting to you? What barriers will have to be over-
come to get people to use this technology?
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FIGURE 8.6 IBM’s augmented reality shopping app
automatically delivers personalized coupons, customer reviews,
and hidden product details (such as whether packaging is
biodegradable) to smartphones as consumers browse store
shelves. The app transforms marketing promotions from
intrusions into services that customers welcome.
Sources: Compiled from Williams (2016), Gevelber (2016), YellowPages.com
Mobile Commerce 257
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FIGURE 8.7 Smartphone users can scan QR codes that help them
easily access product information on the Internet without the hassle
of typing a URL code into a mobile browser.
individual consumer preferences as well as creating optimal store layout. Systems for
tracking customers based on signals emitted from cell phones and other mobile devices
are being deployed. However, stores must be cautious about how they use these systems
because consumers generally respond quite negatively to the idea when asked. Consumers
generally don’t trust stores to keep their data private or secure. Recent news stories about
data breaches involving credit card and other information at large retailers suggest there is
reason for concern. Stores that use “opt-in” methods, receiving the customer’s permission
in exchange for some defined benefit, are more likely to get a positive reception. Those
that opt in typically expect to receive discounts or some form of meaningful convenience
benefit. Some will only agree to in-store tracking in exchange for free products. Consumer
acceptance is sometimes accomplished through loyalty programs that offer discounts and
special premiums to customers who opt in.
Not all tracking systems rely on user smartphones. Disney uses signal emitting wrist-
bands to make everything in the Magic Kingdom more magical. The wristbands aid guests
with hotel check-ins, replace tickets for park admission, make it easy to reserve times for
popular rides, and even help Disney employees to deliver the correct dinners to hungry
guests in large, crowded restaurants. Still, retailers and the makers of in-store tracking sys-
tems need to be concerned about consumer backlash related to this new technology since
less magical applications are considered “creepy” by many shoppers. Therefore, it is impor-
tant that brands involved in mobile e-commerce and mobile retailing have clear privacy
statements and use an opt-in system to obtain permission from customers before tracking
their online and offline shopping behaviors.
While relatively few businesses fully utilize mobile tracking and monitoring systems at
present, as brands become more sophisticated with mobile technology, it is expected they
will strive to gain a competitive advantage by using this information to provide better service,
convenience, and a more personalized, enjoyable shopping experience, both online and in
traditional stores.
Quick Response (QR) Codes In Japan, many products are tagged with QR codes. Con-
sumers in that country frequently scan QR codes to access product information from a
mobile device. Using a barcode scanner app and the camera feature of a mobile device,
customers scan the QR code containing a link to an Internet Web page. You read in the
case at the beginning of this chapter how Macy’s uses QR codes on in-store displays to
direct customers to promotional videos that feature its products. The QR code is supposed
to be an easier alternative to typing a URL address into a mobile browser (see Figure 8.7).
While QR codes have not been as popular in the United States as they are in Asia, marketers
Mobile browser A Web browser
that is optimized to display
Web content effectively on a
small mobile device such as a
smartphone.
Mobile location-based
marketing A marketing strategy
that uses information from a
mobile device’s GPS or customer’s
mobile check-in on a social
network to determine the content
of marketing communications
they receive on the device
(e.g., advertisements, coupons,
special offers).
258 C H A P T E R 8 Retail, E-commerce, and Mobile Commerce Technology
have used them in print advertising and direct mail ads with some success. Charitable
organizations use QR codes on the outside of direct mail solicitations. Scanning the code
takes the user to a video explaining the mission of the organization and typically makes a
more compelling request for a donation than is possible through print media. Additionally,
responses to the QR code promotions can be tracked and used to evaluate program
effectiveness.
Some experts believe, however, that QR code technology is never going to be as
popular in the United States as it is in Asia. They cite studies reporting that many smart-
phone users simply do not know what to do with a QR code. Other research suggests users
think that the scanning process is inconvenient or that QR codes frequently direct users to
pages that do not really contain anything of interest. For QR codes to become something
American consumers use frequently, businesses will have to prove that they help mobile
users find content that is interesting and valuable. Mobile visual search technology is
emerging as an alternative to QR codes. See Video Case 8.3 at the end of this chapter for
additional information.
Mobile Entertainment
Mobile entertainment is expanding on wireless devices. Most notable are music, movies, vid-
eos, games, adult entertainment, sports, and gambling apps. For more information about the
most popular mobile app category, mobile gaming, see IT at Work 8.3.
Sports enthusiasts enjoy a large number of apps and services on their mobile devices.
Apps exist to check game scores; track news about specific athletes, teams, or sports; take
part in fantasy team contests such as fantasy football; and participate in sports-oriented
social networking services. A number of sports-related games such as mobile golf and sports
trivia apps are widely available. There are even apps designed to provide tips and information
for improving your own athletic performance. Apps are available to record workout times,
schedule training exercises, record heart rates and a variety of other information related to
athletic training. The iPhone even has an app that analyzes a person’s golf swing and provides
advice for improving performance.
ESPN is widely acknowledged as a leader in mobile marketing to the sports fan. It offers
a number of popular branded mobile apps that deliver information and entertainment to
its target audience. It also utilizes well-designed mobile websites and has a large database
of fans that have opted in to receive sports-related news alerts sent to their phones via
text messages.
Industry analysts predict that recent improvements in mobile devices will lead to an
even bigger increase in the number of people who watch video clips, movies, and television
programming on their mobile devices. The screen size of tablet computers make watching
video programming more attractive than on a smartphone. However, the number of people
viewing video on smartphones seems to be increasing as well as smartphone sizes increase.
Popular fee-based video streaming services such as Netflix, Amazon, and Hulu now offer mobile
apps for most mobile devices.
The iTunes Store, Google, and Amazon continue to be leading distributors of digital music,
movies, TV shows, e-books, and podcasts available to consumers. Mobile users can also access
music from digital streaming sites such as Pandora.com and Spotify.com. Both of these ser-
vices offer free streaming music. Users can upgrade their accounts by paying a subscription fee,
which then reduces the amount of advertising they are exposed to.
While still relatively small, the mobile gambling industry is expected to grow substantially
over the next few years. Some predict that this type of mobile commerce could generate as
much as $20 billion in the near future. Primary growth of this market is expected to take place in
Japan and other Asian countries, such as horse racing in Hong Kong. Current laws in the United
States prohibit most forms of online gambling; consequently, gambling via mobile devices is
largely unavailable in the United States.
Mobile visual search engine A
search engine that uses an image
instead of a text-based query to
search for information on the Web.
Mobile Commerce 259
Many mobile apps are available for consumers interested in home-based entertainment
activities. The Food Network offers an app with tips and recipes for fine dining and enter-
taining. Martha Stewart publishes articles about home entertainment and lifestyle apps while
a number of bartending apps with numerous recipes for cocktails and party drinks can be found
on iTunes and Google Play.
Hotel Services and Travel Go Wireless
In recent years, smartphones and other mobile devices have become essential travel aids.
Most major airlines, hotel chains, and Internet travel agencies have developed mobile apps
to help travelers manage their arrangements. Airlines frequently give passengers the option
of receiving up-to-date information about their flights through an app or via SMS text messag-
ing. Google Maps is perhaps one of the most popular apps used by travelers, particularly those
traveling by automobile. Even AAA, the automobile club, has a mobile app that helps drivers
plan their trips and an app for drivers who need roadside assistance. Other interesting mobile
travel tools include apps that translate voice or text when traveling abroad, apps for finding
nearby Wi-Fi hotspots, and apps created by a number of popular travel guides.
Most large hotel chains, independent hotels, and inns offer guests in-room, wireless
high-speed Internet connections, although this is not always a free service. Some of these
same hotels offer Wi-Fi Internet access in public areas such as the lobby and meeting rooms.
Larger hotel chains have apps that allow guests to make reservations, check their bills, and
locate hotel services using a mobile app. Starwood, Hilton, and other hotels have mobile
check-in programs whereby guests use their mobile devices to gain access to their rooms. This
makes it possible to check in to the hotel without having to stop first at the front desk. Most
airlines now offer travelers the option of loading a boarding pass onto their mobile devices
(see Figure 8.8).
Mobile Social Networking
More people access social media from social apps than from personal computers now. As a
result, Facebook and other popular sites have added mobile features in recent years to stay
competitive. Some social media, such as the popular Snapchat platform, is entirely app based.
Much as Web-based social networking, mobile social networking occurs in virtual communi-
ties. All of the most popular social networking sites offer apps that allow users to access their
accounts from a smartphone or other mobile device, making social media a primary driver of
growth in the mobile app industry.
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FIGURE 8.8 Travelers use mobile apps to book reservations, find
directions, and locate reviews and recommendations for a wide range
of travel and hospitality services.
260 C H A P T E R 8 Retail, E-commerce, and Mobile Commerce Technology
Questions
1. Describe some of the ways that people are using mobile devices to shop for products and services.
2. What are some ways in which traditional brick-and-mortar retailers can use mobile technology to
enhance a customer’s in-store shopping experience?
3. List the types of mobile entertainment available to consumers.
4. List some ways that travelers and travel-related businesses are using mobile technology.
5. How are companies using QR codes to promote products and services to mobile consumers? Why are
QR codes not as popular in the United States as they are in Asia and other parts of the world?
6. Explain why the mobile gaming market represents such a lucrative market opportunity.
8.5 Mobile Transactions and
Financial Services
Mobile Payment Systems
Consumers use mobile devices for a wide range of shopping and other activities. As discussed
in the case at the beginning of this chapter, shoppers are using mobile devices to compare
prices, research products prior to purchase, and identify alternative product options and alter-
native retailers. Increasingly, mobile devices are becoming an attractive way to pay for prod-
ucts. Mobile payment is increasingly being accepted by retailers and is popular with consumers
who now can use a variety of apps available on iTunes, Google Play, and from banks, credit card
companies, and even smartphone manufacturers such as Samsung. Some forms of mobile pay-
ment represent an attractive option for consumers who do not have credit cards. Additionally,
retailers may benefit from new payment options that carry lower transaction costs compared
to what banks charge when credit cards are used. In 2016, approximately 38.4 million Ameri-
cans will have used a mobile phone to purchase goods or services at least once in the preceding
six months. That’s only 19.4% of U.S. smartphone users; however by 2020, the figure is expect
to increase to 33.1%. Proximity mobile payments, a common method based on RFID (Radio
Frequency Identification) technology, are expected to reach $62.49 billion in 2017 and increase
to more than $314 billion by 2020. RFID payment systems typically allow consumers to transfer
payment authorization to a vendor by simply tapping on or passing their phone over the ven-
dor’s mobile payment terminal.
While most consumer mobile payment systems are based on the use of a smartphone and
related technologies such as SMS text messaging, some companies are building mobile payment
into wristbands, key fobs, watches, and similar wearables. Lyle and Scott, a Scottish knitwear
brand, has even built mobile payment into a jacket (more specifically, the wrist cuff of the jacket).
As mobile commerce grows, a greater demand exists for payment systems that make
transactions from mobile devices convenient, safe, and secure. A number of businesses have
attempted to meet this demand using a variety of technologies. There are two basic transac-
tion types of interest: using a mobile device for the online purchase of goods and services (e.g.,
ordering a book from Amazon.com) and for payment of goods and services in a traditional brick-
and-mortar store. Here are examples of some approaches under development or in use today:
Charge to Phone Bill with SMS Confirmation This e-commerce payment solution
is a lot easier than entering credit card and other information on a small mobile hand-
held device. It requires users to set up an account with a payment company such as zong.
com. When completing an online transaction, users click the “ZONG–Buy with Mobile”
button and enter their phone number. They receive an SMS text message with a secure
Mobile Transactions and Financial Services 261
PIN number that they enter on the e-commerce website to complete the transaction. The
amount of the charge is then added to the payer’s phone bill, and the telecom carrier
remits this amount to the payee. Telecom companies may deduct a service charge from
the amount paid. Example: boku.com.
Near-Field Communications (NFC) NFC is a high frequency form of RFID technology.
Unlike other types of RFID technology, NFC devices are capable of both sending and receiv-
ing information with other NFC devices. At check-out, the mobile user simply passes or
taps his or her phone on a merchant terminal and payment is transferred. Users receive
an SMS text message confirmation. While Google Wallet has received considerable atten-
tion in the technology press, in part because of Google’s power and influence in the indus-
try, relatively few consumers can use this option. Only a small number of phones have
the required NFC feature. Additionally, the program is only available to people with Citi
MasterCard with PayPass or Google’s prepaid credit card. However, the number of phones
equipped with NFC technology is expected to increase, which in turn will increase mobile
payment options based on NFC. Example: Google Wallet.
QR Code Systems A number of companies are developing mobile payment systems that
generate a QR code on the user’s phone, which is, in turn, scanned by the retailer. Star-
bucks uses this approach with its mobile payment system (Tsirulnik, 2011). Customers
create an account with Starbucks as part of the retailer’s loyalty program and transfer
money to a prepaid account. Upon check-out, a user activates the Starbucks app, which
creates a barcode that can be scanned at check-out. The funds are then deducted from
the user’s account. With other QR code systems, the merchant has a QR code that the
customer scans and then authorizes payment when a confirmation message appears.
Several other retailers are adopting QR-code-based systems including: Walmart, Kohls,
IKEA, and Chase Pay.
Credit Card 1 Webform Using a mobile Web browser, the buyer makes online purchases
by entering his or her credit card number and other identifying information just the way
that person would if using a personal computer. This process can be cumbersome given
the smaller screens and keyboards on most mobile devices, but it is an option.
Transfer of Funds from Payment Account Using SMS (see obopay.com and paypal.
com). Using this approach, the user creates an account at a company such as obopay.com
and transfers money into it from a bank or credit card account. Using a mobile phone and
SMS, the user can then transfer money to anyone else with a mobile phone number. The
receiver must create an account at the payment company in order to retrieve the funds.
Example: obopay.com, paypal.com.
Mobile Phone Card Reader (see Square.com and Paypal.com). This novel approach
requires mobile phone users to insert a small card reader into the audio jack of their
mobile device. The card reader, which resembles a small cube (Square) or pyramid (Pay-
Pal), allows those with accounts at Square or PayPal to make or receive credit card pay-
ments without a merchant account.
Almost all of the payment systems thus described are illustrated by videos on You-
tube.com. Interested readers are encouraged to view these video resources for a more
complete explanation of how the different mobile payment systems work.
Wireless payment systems transform mobile phones into secure, self-contained
purchasing tools capable of instantly authorizing payments over the cellular network.
One advantage of many mobile payment systems over traditional credit card systems is
the ability to handle micropayments or transactions involving relatively small sums of
money. The ability to make micropayments allows individuals to use their mobile devices
to do things such as purchase a beverage from a vending machine or make a payment to
a municipal parking meter. Many cities in Europe, and a growing number in the United
States, have adopted mobile phone payment systems for parking and report dramatic
increases in revenue because of the reduction in loss due to theft and broken meters and
the reduced expense associated with collecting cash from traditional meters.
262 C H A P T E R 8 Retail, E-commerce, and Mobile Commerce Technology
Mobile Bill Payments In addition to paying bills through wireline banking or from ATMs,
a number of companies are now providing their customers with the option of paying bills
directly from a cell phone. Western Union, HDFC Bank in India, Citibank, and several other
institutions worldwide currently offer mobile bill payment services. This trend is proving
particularly attractive to mobile users in developing countries where many people do not
have bank accounts.
Mobile Banking and Financial Services
Mobile banking is generally defined as carrying out banking transactions and other related
activities via mobile devices (Figure 8.9). The services offered include bill payments and money
transfers, account administration and checkbook requests, balance inquiries and statements
on an account, interest and exchange rates, and so on.
Banks and other financial institutions allow customers to use mobile devices for a wide
range of services (see Table 8.2).
People access financial services using a combination of mobile media channels including
SMS, mobile Web browsers, and customized apps. Mobile banking is a natural extension of
online banking services, which have grown in popularity over the last decade.
Throughout Europe, the United States, and Asia, an increasing percentage of banks offer
mobile access to financial and account information. In 2009, ABI Research evaluated 29 U.S.
banks on accessibility of their mobile banking services. Six of the banks received top marks:
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FIGURE 8.9 Mobile banking, stock trading, and payment services
have increased in recent years.
TA B L E 8 . 2 Most Common Mobile Banking Services
Account alerts, security alerts, and reminders
Account balances, updates, and history
Customer service via mobile
Branch or ATM location information
Bill-pay (e.g., utility bills) and delivery of online payments by secure agents and mobile phone
client apps
Funds transfers
Transaction verification
Source: Mobile Marketing Association (2009).
Mobile Transactions and Financial Services 263
BB&T, Eastern Bank, Fifth Third Bank, Northeast Bank, USAA, and Wells Fargo. Bank of America
and Chase also received positive evaluations.
In Sweden, Merita Bank has pioneered many services, and the Royal Bank of Scotland
offers mobile payment services. Banamex, one of Mexico’s largest banks, is a strong provider
of wireless services to customers. Many banks in Japan allow all banking transactions to be
done via cell phone. Experts predict that growth in the mobile banking services sector could
reach between 894 million and 1.5 billion customers globally by 2015. The Asia-Pacific region
is expected to emerge as the predominant market for mobile banking services (berginsight.
com, 2010, Global Industry Analysts, 2010).
Short Codes
Banks and financial service organizations have two basic options for providing mobile services.
Smartphone users can download dedicated apps to conduct banking transactions. The other
option is to provide service through SMS (text message) technology. As you know, text mes-
saging is still widely popular, even with people who use smartphones. Many mobile financial
services make use of short codes for sending SMS texts. A short code works similarly to a tel-
ephone number, except that it is only five or six characters long and easier to remember. Busi-
nesses lease short codes from the Common Short Code Association (CSCA) for $500 to $1,000
a month. The lower price is for randomly assigned codes, whereas companies that want a spe-
cific short code pay a higher monthly rate. Once a company has leased its short code, it can
begin using that code in promotions and interactive exchanges with customers.
Short codes are used for a wide variety of SMS text services, not just financial services.
For example, voting on the popular television show American Idol is done with short codes.
Each contestant is assigned a specific short code, and viewers are encouraged to send text
messages indicating which performer they like the best. The annual MTV Movie Awards also
uses short code voting, which allows viewers to pick the winning entry in certain prize cat-
egories. On some telecommunications networks, ring tones are sold using short codes and
SMS texts.
Security Issues
At present, the benefits associated with mobile banking seem to outweigh potential secu-
rity threats. However, as the number of people who engage in mobile banking increases,
the likelihood that criminals will target mobile financial activity is sure to grow as well.
What kinds of threats exist to mobile banking? Table 8.3 lists the most common mobile
banking risks.
TA B L E 8 . 3 Mobile Banking Security Risks
Cloning Duplicating the electronic serial number (ESM) of one phone and using it in second phone,
the clone. This allows the perpetrator to have calls and other transactions billed to the original phone.
Phishing Using a fraudulent communication, such as an e-mail, to trick the receiver into divulging
critical information such as account numbers, passwords, or other identifying information.
Smishing Similar to phishing, but the fraudulent communication comes in the form of an
SMS message.
Vishing Again, similar to phishing, but the fraudulent communication comes in the form of a voice
or voicemail message encouraging the victim to divulge secure information.
Lost or stolen phone Lost or stolen cell phones can be used to conduct financial transactions without
the owner’s permission.
Sources: Compiled from Howard (2009), McGee (2008), and Mobile Marketing Association (2009).
264 C H A P T E R 8 Retail, E-commerce, and Mobile Commerce Technology
Questions
1. What are the two basic technologies used for mobile banking and financial services?
2. Why have e-wallets not been widely adopted and what will makers of e-wallets need to do to make
this payment method more attractive to consumers?
3. What are the most common types of mobile banking activities consumers perform?
4. What are the most common security risks associated with online retailers?
5. Research some of the mobile payment systems currently available to merchants and consumers.
6. What is a micropayment and why is it beneficial to consumers and businesses that mobile payment
systems can process these types of transactions?
Key Terms
augmented reality 242
barcode 241
business-to-business (B2B) 251
channel conflict 250
corporate procurement 252
corporate purchasing 252
demand management 253
digital dependents 244
digital immigrants 244
digital natives 244
direct procurement 252
disruptive innovation 266
e-commerce 244
electronic fund transfer (EFT) 246
electronic wallet (e-wallet) 247
e-procurement 252
e-sourcing 252
horizontal exchanges 253
indirect procurement 252
in-store tracking 257
micropayments 261
mobile browser 257
mobile check-in strategy 242
mobile commerce 244
m-commerce 244
mobile display strategy 241
mobile location-based marketing 257
mobile marketing 255
mobile payment 242
mobile retailing 255
mobile visual search
engine 258
MRO supplies 253
omni-channel retailing 245
quick response (QR) codes 241
short code 263
short message service (SMS) 241
showrooming 241
SMS database strategy 241
social commerce 244
vertical exchanges 253
Assuring Your Learning
Discuss: Critical Thinking Questions
1. What is showrooming? Are customers who engage in it acting ethi-
cally? Provide reasons for your answer.
2. What are some creative and constructive ways for traditional retail-
ers to respond to showrooming?
3. Describe the ways in which online retailer Amazon.com has act-
ed strategically to maintain its position as a leading e-commerce
site. What does this suggest about what it takes to be successful in
e-commerce today?
4. How is Amazon’s investment in the Kindle and e-books consistent
with other trends in consumer behavior today?
5. Why is mobile technology potentially important to the banking in-
dustry? What consumer needs does it fulfill?
6. Identify and describe five key challenges faced by online retailers in
the market today.
7. Why is the online B2B market so much larger than the online
B2C market?
8. Explain the fundamental difference between vertical and horizontal
exchanges in the online B2B market.
9. What is the difference between a direct and a marketplace B2B
e-commerce website? Why do sellers find marketplace websites
challenging?
10. What are the two primary goals of companies who engage in
e-procurement and what strategies do they use to achieve those goals?
11. What is the purpose of an EDI procurement system?
12. How do direct B2B e-commerce sites attempt to make their sites
more attractive to business buyers?
13. Why do you think that company employees engage in maverick
buying? What can companies do to limit maverick buying?
14. Explain how mobile computing technology is being used by brick-
and-mortar retailers to enhance the in-store shopping experience.
15. QR codes are very popular in Japan and other parts of Asia. Manu-
facturers place QR codes on product packages and advertisements,
making it easy for consumers to access information about the prod-
ucts using a mobile device. Why do you think QR codes are not popular
with U.S. consumers? Do you think QR codes will eventually become
accepted by U.S. consumers? Why or why not?
Assuring Your Learning 265
16. How are people using mobile devices to conduct banking and
other financial services?
17. Evaluate the various mobile electronic payment processes
described in this chapter. Which one do you think is likely to emerge as
the dominant method for mobile payment? Explain your answer.
18. What are some of the risks faced by consumers who use mobile
devices for banking and other financial transactions?
19. What are the key benefits of using a mobile wallet? Do you think
new improvements to this mobile application will make it more attrac-
tive to end-users?
20. How has mobile computing changed the retail shopping behavior
of consumers?
21. Describe the mobile entertainment market and the ways people
can use their mobile devices to have fun.
22. How do travelers use mobile technology when flying, using hotels,
and traveling in foreign countries?
23. How is mobile computing creating an attractive opportunity for
advertisers? Will consumers be receptive to this type of communica-
tion? Why or why not?
24. List some location-based services and explain their value to both
businesses and mobile device users.
Explore: Online and Interactive Exercises
1. Assume that you are interested in buying a car. You can find
information about financing and insurance for cars at autos.msn.
com or autobytel.com. Decide what car you want to buy. Configure
your car by going to the car manufacturer’s website. Finally, try to
find the car at autobytel.com. What information is most supportive
of your decision-making process? Was the experience pleasant or
frustrating?
2. Visit amazon.com and identify at least three specific elements of its
personalization and customization features. Browse specific books on
one particular subject, leave the site, and then go back and revisit the
site. What do you observe? Are these features likely to encourage you
to purchase more books in the future from Amazon.com? How does
the “One-Click” feature encourage sales from mobile devices?
3. Read Google’s new privacy policy. What types of information does
Google collect about people who use its services? How can people
either restrict or avoid having Google collect information about them?
How does Google say it uses the information it collects about people
who utilize its services?
4. Conduct a study on selling diamonds and gems online. Each group
member investigates one company such as Blue Nile, Diamond.com,
Thai Gem Store, Tiffany, or The Jewelry Exchange.
a. What features are used in these sites to educate buyers about
gemstones?
b. How do the sites attract buyers?
c. How do the sites increase trust in online purchasing?
d. What customer service features are provided?
e. Would you buy a $5,000 diamond ring online? Why or why not?
5. If you have a smartphone, download the shopping app Shopkick.
com. Use the app for a few weeks and then prepare a report or presen-
tation about your experience. Describe how Shopkick uses behavioral
reinforcement to encourage specific kinds of shopping behaviors (e.g.,
store visits, looking for promotional products, participating in market-
ing surveys, etc.). Explain whether or not you think you will continue
using this application.
Analyze & Decide: Apply IT Concepts to Business Decisions
1. What is the National Automated Clearing House Association
(NACHA)? What is its role? What is the Automated Clearing House
(ACH)? Who are the key participants in an ACH e-payment? Describe
the “pilot” projects currently under way at ACH.
2. Use an Internet search engine such as Google or Bing to identify
a list of online banks. Form teams and have each team research one
of the banks. Each team should attempt to convince the class that its
e-bank activities are the best.
3. As an independent IT contract worker, you must often arrange
travel to and from your clients’ places of business. You do not typically
have time to always explore every travel website when planning travel,
so you wish to identify the one that over time will work the best for you.
Working in a small group of three to four people, use the Internet to
explore the following travel sites: orbitz.com, travelocity.com, kayak.
com, concierge.com, and expedia.com (search “online travel sites” for
additional options). Select a handful of travel destinations and see
how helpful each site is in terms of:
a. Finding the lowest airfare.
b. Identifying hotels for business travel.
c. Recommendations for dining and other location-based
services.
d. Evaluate the site for its ability to aid in international travel ar-
rangements.
e. Availability and usefulness of travel tips, advisories, and other
helpful information.
f. Prepare a report comparing how each site performed in terms
of its ease of use, helpfulness, and best overall deal. Which site
would you recommend?
4. Using Youtube.com or any other video-sharing site, watch exam-
ples of AR mobile apps and promotional campaigns. Write a brief re-
port describing your reaction to this new technology and predict if it
will become more commonplace in the future.
266 C H A P T E R 8 Retail, E-commerce, and Mobile Commerce Technology
Case 8.2
Business Case: Chegg’s Mobile Strategy
Mobile technologies are considered a disruptive innovation because
they have the capability of transforming traditional business practices
by creating new value networks, spawning new markets, and eventu-
ally displacing earlier technologies. Popular examples of disruptive
innovation include Apple’s iTunes service that replaced music CDs with
downloadable digital mp3 files. Netflix and other movie-streaming
services disrupted the previous model of distributing movies on DVDs
through brick-and-mortar retail outlets. Several companies are now
exploring the use of mobile technologies as a disruptive innovation in
the college textbook market.
End users (college students) have traditionally had very lit-
tle power in the college textbook market. Textbook publishers pro-
moted their products to college professors who decided what books
are required for their courses. Competition at the retail level was
for the most part nonexistent—students almost always had to pur-
chase textbooks from a college bookstore or a used textbook from
another student.
All that began to change, however, with the emergence of
e-commerce. Nowadays, students have a range of options for purchas-
ing new and used textbooks, renting textbooks, reading books online,
or purchasing textbooks in an e-book format. Publishers and book-
sellers who once held fairly secure positions in the distribution chan-
nel now face competition from a variety of nonconventional sources,
including online retailers (e.g., Amazon), C2C (consumer to consumer)
e-commerce sites (e.g., Craigslist, eBay, half.com), and publishers who
sell directly to students (e.g., Flatworld Knowledge).
Chegg.com
As part of this industry restructuring, Chegg.com began renting text-
books to students in 2007, creating an alternative to purchasing from
college bookstores and online booksellers such as Amazon.com. While
renting textbooks was an innovative approach at the time, Chegg
managers realized that to remain competitive, they needed to position
their company in a way that was not focused on a particular product
form (e.g., printed textbook) or distribution method (e.g., retail book-
store). Instead, Chegg set out to create a learning network for students,
offering a range of products and services through various channels
that enhance students’ educational experience. See Table 8.4.
Mobile technology has been a key component of Chegg’s value
strategy from the beginning. In 2009, just 2 years after entering the
rental market, Chegg created a mobile website and an SMS-based ser-
vice that made it possible for students to check rental prices for text-
books by texting the ISBN number of the book they were interested
in. The following year, Chegg launched an app for iPhone and iPad
users. Android users can still access services from the company’s well-
designed mobile site. In 2012, Chegg launched a cloud-based e-text-
book reader designed to give students access to their textbooks from a
wide range of mobile devices. While Chegg is not the first company to
make textbooks available online, the e-textbook reader provides pow-
erful features for highlighting text, taking notes, and checking word
definitions. Users can view Key Highlights or material crowdsourced
from the highlighting activities of other students using the reader.
Finally, readers can access Chegg’s Always on Q&A Service, where stu-
dents ask questions about various academic subjects and often receive
an answer back from subject matter experts within hours.
Despite Chegg’s innovative and customer-oriented strategy, it
faces an increasingly competitive marketplace. Well-funded competi-
tors such as Amazon.com and Barnes & Noble now offer textbook rent-
als and e-textbooks with some of the same features as Chegg’s reader.
VitalSource is another online vendor offering digital content from
major publishers such as Pearson, Cengage, McGraw Hill, and John
Wiley & Sons (the publisher of this textbook). VitalSource provides a
number of mobile apps for various devices as well as the capability
to read texts through mobile browsers (no app download necessary).
Finally, Apple has announced its desire to transform the textbook mar-
ket in much the same way it changed the music business. However, the
existing list of companies that are already practicing disruptive innova-
tion may make it more difficult for Apple to have quite the same impact
as it did in the music business.
Questions
1. Evaluate the mobile features of Chegg’s textbook program. Does
it offer services that are truly helpful to college students or are
they just a gimmick?
2. Go to Chegg.com to view a demo of its e-textbook reader. After
reviewing the service, evaluate whether the reader will motivate
students to obtain their textbooks from Chegg instead of using
alternative textbook suppliers.
3. How does Chegg’s mobile price comparison service provide
a benefit to college students? Do you think it helps to increase
rentals and purchases from Chegg?
4. What other ways could Chegg use mobile technologies to provide
further value to college students?
5. Using a mobile device, check the purchase and/or rental prices of
the textbooks you are using this semester. Compare these with
prices from alternative vendors (e.g., your college bookstore,
Amazon.com, half.com, etc.). Prepare a table comparing your
overall cost from each supplier. Based on your findings, do you
plan to change the way you obtain textbooks in the future?
Sources: Chegg.com (2010), Conneally (2012), Wired Academic (2012), Crook
(2009), Eldon (2012).
TA B L E 8 . 4 The Chegg Learning Network
Purchase New/Used Textbooks
Online, mobile app, or mobile website
Renting Textbooks
Online, mobile app, mobile website, and bookstores and rental
stands at select colleges
Homework Help Q&A
Online and mobile website
e-Textbooks
Cloud-based mobile textbook reader
Course Reviews, Grade Distributions, and Schedule
Planning Tools
Online and mobile website
Source: Chegg.com (2012).
Case 8.3
Video Case: Searching with Pictures Using MVS
Earlier in the chapter, you read that U.S. consumers were not respond-
ing to QR code marketing with the same enthusiasm as Asian con-
sumers. In response, some companies are experimenting with an
alternative to QR codes called mobile visual search (MVS) technology.
MVS is an image recognition technology that proponents claim will be
more attractive to consumers.
With an MVS app, users scan the pictures they find on product labels,
catalogs, or advertisements. This initiates a search function that returns
information to the user. Depending on the MVS app used, the search infor-
mation might be general in nature, similar to what you get when conduct-
ing a search on Google. Or, the app may return specific information, for
instance, a page where the user can order the product. This technology has
spawned a new industry of mobile visual search services that include com-
panies such as BuzzAR, Blippar, and, of course, Google (see Figure 8.10).
Find and watch videos of three different MVS applications on You-
Tube or other video-sharing sites:
MVS Application/
Developer
Videos at YouTube.com
Goggles/Google Search for “Google Goggles Experiment
Video”
LTU Mobile Search for “Shopgate–Mobile Shopping”
Blippar Search for “Unlock the world around you
– #DiscoverMore with Blippar”
You may find videos about other MVS apps by entering “mobile
visual search” into the YouTube search engine. Get the latest news and
information about MVS by searching on the phrase “mobile visual search”
using Google or another search engine. Compare and contrast MVS with
marketing strategies using QR codes.
Questions
1. If consumers begin to use MVS on a large-scale basis, how should
businesses adjust their marketing practices to take advantage of
this technology?
2. Based on the videos and additional research, how do the MVS ser-
vices differ from one another?
References 267
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©
G
re
g
or
y
R
. W
oo
d
FIGURE 8.10 Mobile visual search
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269
CHAPTER 9
Functional Business Systems
C H A P T E R O U T L I N E
Case 9.1 Opening Case: Ducati Redesigns Its
Operations
9.1 Business Management Systems and
Functional Business Systems
9.2 Production and Operations Management
Systems
9.3 Sales and Marketing Systems
9.4 Accounting, Finance, and Regulatory
Systems
9.5 Human Resource Systems, Compliance,
and Ethics
Case 9.2 Business Case: HSBC Combats Fraud in
Split-Second Decisions
Case 9.3 Video Case: United Rentals Optimizes Its
Workforce with Human Capital Management
L E A R N I N G O B J E C T I V E S
9.1 Describe various types of functional systems and how they
support managers and workers at the operational level.
9.2 Define how manufacturing, production, and transportation
information systems enable organizational processes and
support supply chain operations and logistics.
9.3 Explain how sales and marketing information systems support
advertising, market research, intelligence gathering, getting
products and services to customers, and responding quickly
and efficiently to customers’ needs.
9.4 Describe how accounting, auditing, and finance application
systems meet compliance mandates, help deter fraud, and
facilitate capital budgeting and forecasting.
9.5 Analyze how human resources information systems (HRIS)
improve business-to-employee (B2E) communications,
workforce productivity, and compliance with federal
employment laws; discuss ethical issues related to the use of
HRIS data.
270 C H A P T E R 9 Functional Business Systems
Introduction
Every business is managed through multiple business functions, each responsible for manag-
ing certain aspects of the business. The finance function is responsible for acquiring capital
needed for research and development (R&D) and other investment processes. The market-
ing function is responsible for product promotion and pricing, identifying target customers,
and improving the customer experience (CX). The operations function plans and coordinates
all the resources needed to design, manufacture, and transport products. The IT function
is responsible for the technology infrastructure, data management, and social, mobile,
and cloud services. Accounting manages assets and meets compliance mandates. Human
resource (HR) recruits, trains, and develops a talented workforce. These business func-
tions involve complex processes that depend on access to data, collaboration, communica-
tion, and data analysis to pinpoint what must be done and employees’ workflows to make
that happen.
While most attention is on external interests—customers, competitors, and partners—they
are only part of the solution. Business success also depends on internal factors—the efficiency
and effectiveness of managers, employees, core business processes and functions. A wide
range of specialized technologies, such as Salesforce.com and eXtensible Business Reporting
Language (XBRL) for financial reporting, support problem-solving, decision-making, and com-
pliance. Ultimately, data from functional systems are used by enterprise applications, including
business intelligence (BI), e-commerce, customer relationship management (CRM), and supply
chain management (SCM), as shown in Figure 9.1.
Business is messy, sometimes chaotic. Resolving those situations requires human crea-
tivity, critical thinking, and judgment—all of which relate back to corporate culture, training,
and empowerment of employees. The technology and software applications described in this
chapter are designed to help employees and managers make better decisions and improve
efficiency and performance in the functional areas of a typical business organization.
Accounting
External Systems
Customers
Partners
Government
Support Systems
Finance
Manufacturing, Production, &
Transportation
Acccccouunttiing
Government
Finnaancce
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TTrransssporttaation
Integration
Integration
Integration
Transaction
Processing
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Human Resources
Sales &
Marketing
Knowledge Management,
Customer Relationship
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at
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FIGURE 9.1 Data from functional area ISs support enterprise applications.
Introduction 271
Case 9.1 Opening Case
Ducati Redesigns Its Operations
Company Overview
Ducati Motor Holding manufactures motorcycles known worldwide
for their precision engineering, lightning speed, and sleek design
and for customers who are passionate about their motorcycles
(Table 9.1). Six models make up the product lines, with prices starting
at $15,000 to the $90,000 Superleggera Superbike, which produces up
to 200 HP at the crankshaft. Ducati is owned by Audi through its Italian
subsidiary Lamborghini. Its 2013 net sales were $518 million.
Awards
In March 2014, Ducati received five awards at the annual Motorrad des
Jahres (Motorcycle of the Year) event in Stuttgart, Germany. Ducati’s
Multistrada and Diavel were awarded Motorcycle of the Year in the
Allrounder and Cruiser categories, respectively (Figure 9.2). Ducati’s
models are benchmarks in innovative design and technology.
Product Lines
In addition to six motorcycle brands, the company sells parts, apparel,
accessories, and other items to create the Ducati experience. Dealers
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TA B L E 9 . 1 Opening Case Overview
Company Ducatiusa.com and Ducati.com
Founded in 1926, the company has 1168 employees.
Ducati’s main factory site and headquarters are located in Bologna, Italy, with an additional assembly factory
in Thailand.
Industry Racing-inspired motorcycles characterized by “Desmodromic” performance engines and innovative design and
technology.
Product lines Four models: Diavel, Hypermotard, Monster, Superbike, and SuperSportter.
Digital technology New dealer communication application for mobile devices called DCS or Ducati Communication System. The inter-
face lets dealers easily find, send, and receive all the information they need to place orders and track them through
production and delivery. The high-performance global communication system serves more than 5,500 users world-
wide in seven languages.
Business challenges Because of competition and tough economic conditions worldwide, motorcycle dealerships had to offer customers
better value and after-sales services.
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FIGURE 9.2 Ducati’s Multistrada and Diavel were awarded Motorcycle of the Year in 2014 in their class for their innovative design and
technology.
272 C H A P T E R 9 Functional Business Systems
need to be familiar with thousands of products and customization
options for their customers.
Business Challenges
Companies worldwide were faced with tougher competition and eco-
nomic conditions after the financial meltdown in 2008. And as global
manufacturers, geography was a marketing challenge.
Internally, its sales staff struggled with conflicting or outdated data
on product inventory, availability, and ordering time schedules. The
source of the problem was multiple communication systems and data
silos that were not coordinated.
To resolve these challenges and grow the business, Ducati focused
on the following:
1. Improving the sales process
2. Engaging the customer in the design of its motorcycles
3. Decreasing the cost of operations
The plan was to redesign dealer operations, business processes, and
communication tools to align them with leading industry practices.
Partnership with Accenture and Apple
Ducati selected Accenture to help redesign operations and processes
and to roll out a new integrated communication application for its
dealers worldwide. Ducati equipped its sales network with iPads and
developed a custom in-house app called DCS or Ducati Communication
System. The DCS app gives dealers a single point of access to Ducati’s
back-end systems. The DCS is an SAP-based interface used by dealers
to easily find, send, and receive data necessary to place orders through
a point-of-sale (POS) device and then to track orders through the pro-
duction and delivery processes. (SAP is a global software company that
specializes in Enterprise Resource Program (ERP) applications.)
Authorized dealers receive updates directly through the Apple App
Store. They also have access to a configurator app on their iPads to con-
figure a customer’s dream motorcycle. An e-mail detailing the customized
motorcycle and accessories is then sent to the customer. Dealers commu-
nicate in real time with colleagues and complete the sale without delay.
Intuitive User Experience
The familiar user experience was designed to be the same for desktop
computers, iPads, and iPhones.
Cristiano Silei, vice president of Global Sales at Ducati, said: “It
was clear from the start that iPad was the right device. It’s the simplic-
ity, the immediate usability. Everyone understands how it works in just
a few minutes.”
Visiting a dealership is a very emotional experience for customers.
Dealers want to make the experience unforgettable. According to Silei,
the iPad helps gives the future Ducati owner a richer experience.
In addition to providing real-time sales support, the DCS app on iPad
acts as a training interface to keep dealers updated on Ducati’s evolving
product line. A change management program helped dealers transition
smoothly from the old solution to DCS. DCS was quickly embraced by
Ducati dealers, whose positive feedback included comments such as “It’s
a game changer” and “a great time saver.”
Performance Improvements
Ducati’s high-performance global DCS was deployed in 88 countries
across four continents. DCS serves more than 5,500 users worldwide in
seven languages. By leveraging dealer communication, Ducati is able
to capture and consolidate local and global sales activity, spare parts,
warranty, and service activity. As a result:
• Ducati is able to capture and consolidate local and global sales
activity, spare parts, warranty, and service activity, improving the
company’s ability to respond daily to changing consumer demand.
• Dealers run all parts of their business and have a robust tool to
execute their operational, growth, and customer objectives.
• Dealers respond more quickly to customer demands and market
conditions, making each dealership easier for customers to do
business with.
• Dealers are equipped with leading practices for their processes
to help them better serve customers in a simple, stream-
lined manner.
The dealer system is one of the most innovative and effective user
experiences in the industry. It is user-friendly and sleek and reinforces
Ducati’s brand.
Questions
1. What pressured or motivated Ducati to implement new digital
technology?
2. What costs could Ducati cut? What costs could it not cut? For
example, could Ducati cut its R&D budget? Explain your answers.
3. Why did Ducati need to improve communications with dealers?
4. Explain the capabilities and benefits of the DCS.
5. Why was it important to implement a change manage ment
program?
6. What other factors contributed to the success of DCS? Explain
their contributions.
7. Visit the Apple iPad store at apple.com/ipad and search for
“Ducati.” Review the Ducati Communication System app. Explain
how the DCS app gives the future Ducati owner a richer experience.
Sources: Compiled from Ducati websites (2014), LexisNexis company profiles
(2014), Apple.com (2014), Accenture.com (2014).
9.1 Business Management Systems
and Functional Business Systems
In this section, we will provide an overview of two types of information systems (ISs) that sup-
port different areas or activities in an organization. Business Management Systems (BMS) are
ISs designed to support planning and the implementation process across the entire organiza-
tion. Functional Business Systems (FBSs) are ISs designed to improve the efficiency and perfor-
mance of a specific functional area within the organization.
Business Management Systems and Functional Business Systems 273
Business Management Systems (BMSs)
BMSs aid leadership teams by using technology to improve cross-functional collaboration,
clarify the relationship between steps in the planning and implementation process, assign
responsibilities, and monitor progress toward objectives and outcomes. BMSs typically employ
a variety of visual aids (e.g. flowcharts, dashboards, process charts) to communicate alignment
of strategies, goals, objectives, and tactics as well as the metrics selected to measure perfor-
mance and progress. Typical features or modules in a BMS include the following:
• Definition of Organizational Mission
• Identification of Strengths, Weakness, Opportunities, and Threats (SWOT Analysis)
• Establishing Goals and Measurable Objectives
• Defining Strategies and Key Performance Indicators (KPIs)
• Articulation of Tactical or Action Plans—Assigning Responsibilities and Time Tables
• Monitoring and Reporting Progress and Performance
Planning occurs at three levels of the organization—strategic, managerial, and opera-
tional, as illustrated in Figure 9.3. Managers at each level operate with a different time frame,
which transitions from long term (a few years) at the strategic level to “in the moment” (daily)
at the operations level.
For the organization to be fully effective, operational, tactical, and strategic plans and
goals must be aligned. That is, they must be consistent, mutually supportive, and focused on
achieving the enterprise’s mission. BMSs help optimize organizational performance by aligning
the planning and activities at each of these three levels.
Management Levels
Strategic planning is a top management activity that establishes goals and objectives, identi-
fies strategies, allocates resources, and aligns operational activity for achieving desired out-
comes. Strategic plans are visionary and future-oriented. As part of the strategic planning
process, companies conduct a SWOT analysis of their strengths, weaknesses, opportunities,
and threats. Data from external sources—the economy, markets, competitors, and business
trends—are used in a BMS to evaluate opportunities and threats. Data from internal sources
Mission defines the
organization’s purpose and what it
hopes to achieve.
Strategic plan is a document
used to communicate the
company’s goals and the actions
needed to achieve them.
Strategic level
How do we do it?
How do we generate
revenues & profits to sustain
ourselves and build our
brand?
How well do we do it?
How can we be more
efficient?
Market,
Customer,
Products,
& Services
Business Model
& Organization
Policies, Processes,
& Technology
Managerial or
administrative
level
Operational
level
What do we do? What is our
direction?
What markets & customers
should we be targeting and
how do we prepare for them?
FIGURE 9.3 Three organizational levels, their concerns, and strategic and tactical questions, planning,
and control.
274 C H A P T E R 9 Functional Business Systems
are captured in a BMS to provide insight into a company’s financial, human, marketing, and
production resources and capabilities. Many BMSs employ Application Programming Inter-
faces (APIs) that allow companies to import data from sources from FBSs and other sources
outside the system for use in the strategic planning process. (You read about APIs in Chapter 7
and the role they play in the development of Web 2.0 and social media.) Over time, strategic
plans are reexamined and adjusted as elements of the internal and external environment
change. Good BMSs anticipate the need to change plans, goals and outcomes and possess
functionality that allows organizations to make these changes without undue difficulty.
At the tactical level, mid-level managers design business processes, procedures, and pol-
icies to implement strategic plans.
At the operations level, managers and supervisors work closely with the workforce
and customers. They are on the “front lines” so to speak, ensuring that employees have the
resources necessary to carry out their roles and ensuring that customers are well-served and
satisfied with their experience. They depend on detailed data in real time or near real time
to do their jobs, get work done, and close the deal. They need to track work schedules and
employee performance; inventory levels, sales activity, and order fulfillment; production
output and delivery schedules; and resolve disruptions or deviations from expected outcomes.
In many companies today, operations-level managers and employees use handheld technol-
ogies to both gather data and receive real-time reporting on the processes they are responsible
for. Decision-making is mostly immediate or short term because decisions are made to close
the deal or control ongoing activities and operations. Feedback and control are vital to identify
deviations from goals as soon as possible in order to take corrective action. Data captured or
created within the company are most important at this level.
Business Functions vs. Cross-Functional Business Processes
FBSs are ISs designed to improve an organization’s efficiency and performance in a functional
business area. Traditional functional business areas include the following:
• Finance and Accounting
• Production/Operations & SCM
• Marketing and Sales
• HR Management
In addition, managers and business scholars frequently expand this list of functional areas
to include Strategic Planning, Information Technology & Support, Business Development, R&D,
and Customer Service. While each of these additional areas make important contributions to
the success of an organization, our goal in this chapter will be to describe ISs designed for the
four traditional functional areas listed earlier. In some cases, there is considerable overlap
between areas on both lists. For instance, business development and customer service might
easily be considered part of the marketing and sales function. While we do not list strategic
planning as a traditional functional area, we have described BMSs as a technology that sup-
ports strategic planning activities.
Cross-Functional Coordination and Integration Originally, ISs were designed
to support the accounting function. Systems for other functions were rolled out later. This frag-
mented roll-out approach created data silos where information was effectively trapped in one
functional area of the business and could not support cross-functional business processes. For
example, accounting systems record sales, payments, customer profile information, product
pricing, promotional expenses, and so on. To effectively evaluate the impact of past promo-
tional activities and pricing decisions, the marketing department must be able to analyze the
relationship between the product’s price, promotional expenditures, and sales volume dur-
ing a specific time period. In addition, the marketing unit might need to analyze the revenue
generated by each customer to determine how the salesforce should prioritize accounts.
However, if this information is trapped in the accounting system, it may not be available to
Business Management Systems and Functional Business Systems 275
the marketing unit. In some cases, employees in marketing may not be granted access to the
accounting system, or even more problematic, the system may only be programmed to use the
data for creating standard accounting reports and statements and might not permit retrieval of
information in ways that are useful to the marketing department or other units in the company.
In today’s fast-paced, competitive business environment, departments or functions must be
able to coordinate in the development of strategic plans and the performance of operations-level
actions. FBSs that do not support cross-functional collaboration are an impediment to organiza-
tional success. Workflows and data flows between departments that are not coordinated result in
delays, errors, poor customer service, and higher costs. When FBSs do allow for cross-functional
coordination, it becomes possible for the company to monitor and evaluate progress toward
goals and objectives established during the strategic planning process. It also becomes easier to
identify problems or barriers to achieving objectives and develop solutions to those problems.
The data requirements of operations-level units are extensive and relatively routine
because they have fixed sources of input and tasks that follow standard operating procedures
(SOPs). Functional area ISs help companies and employees adhere to SOPs, which are often
easily automated. SOPs are an integral part of a quality control (QC) system because they pro-
vide individuals with information to perform jobs properly. A key benefit of SOPs is that they
minimize variation and promote quality through consistent implementation of a process or
procedure within the organization, even if there are temporary or permanent personnel
changes. For example, SOPs are written for handling purchase orders, order fulfillment, cus-
tomer complaints, recruitment and hiring, emergency response, and disaster recovery. Data
that are lost or compromised have financial implications. As such, it is critical that businesses
have SOPs to maintain three related data properties in company ISs:
Data security Data security refers to the protection of data from malicious or uninten-
tional corruption, unauthorized modification, theft, or natural causes such as floods. The
purpose of data security is to maintain data integrity.
Data validity Data validation involves tests and evaluations used to detect and correct
errors, for instance, mistakes that might occur during data entry in fields such as customer
name and address.
Data integrity Data integrity refers to the maintenance of data accuracy and validity
over its life cycle including the prevention of unintended modification or corruption.
Transaction Processing Systems
Transaction processing is information processing that is divided into distinct, undividable
operations called transactions. While transaction processing certainly applies to the financial
transactions that take place in a business (i.e., the data generated by a store cash register),
transaction processing is used in the FBSs of all areas. For example:
• Production/Operations The tracking of materials or component parts as they enter and
exit a warehouse or manufacturing facility.
• Marketing and Sales Management of sales orders and order fulfillment.
• Human Resources Processing of payroll and employee records.
• Finance/Accounting Processing of credits and debits to a customer’s checking account
at a bank.
Transaction processing systems (TPSs) are software and/or hardware technologies that
collect, monitor, store, process, and distribute transactional data according to certain criteria
referred to as the ACID test, which is short for atomicity, consistency, isolation, and durability:
• Atomicity If all steps in a transaction are not completed, then the entire transaction is
canceled. For example, if you transfer funds from your savings account to your checking
account, a debit is made to savings, while a credit is made to the checking account. If one of
these actions fails, the other is not allowed to occur, effectively canceling the transaction.
Standard operating procedures
(SOPs) are a set of written
instructions on how to perform a
function or activity. SOPs provide
the framework for complex
processes to be managed more
effectively.
276 C H A P T E R 9 Functional Business Systems
• Consistency Only operations that meet data validity standards are allowed. For instance,
systems that record checking accounts only allow unique check numbers for each transac-
tion. Any operation that repeats a check number will fail in order to maintain accuracy in
the database. Network failures can also cause data consistency problems.
• Isolation Transactions must be isolated from each other. For example, bank deposits
must be isolated from a concurrent transaction involving a withdrawal from the same
account. Only when the withdrawal transaction is successfully completed will the new
account balance be reported.
• Durability Backups by themselves do not provide durability. A system crash or other
failure must not cause any loss of data in the database. System failures can occur for
any number of reasons including human error, computer virus or an attack by com-
puter hackers, hardware failure, or natural disasters. Durability is achieved through
separate transaction logs that can be used to recreate all transactions from a known
checkpoint. Other ways include the use of recovery manager programs that utilize a
range of solutions including cloud-based database mirrors that replicate the database
on another server.
Real Time and Batch Processing Transactions can be processed in two ways:
batch processing and real time. Batch processing involves the collection of transactional data
over some period of time, and then all of the transactions are processed as a batch at one
time. The opposite of batch processing is real-time processing where transactions are pro-
cessed as they occur, which means that account balances and other related counts are kept
up to date. For instance, when you purchase two tickets to a show at a Broadway theater, not
only is the count of remaining tickets immediately reduced by two, but also the specific seats
indicated on your tickets are blocked off so that the ticketing system doesn’t sell your seats to
someone else.
Online Transaction Processing Systems Increasingly, organizations today are
employing Online Transaction Processing Systems (OTPS). These are TPSs that employ client
server systems that allow transactions to run on multiple computers on a network, processing
transactions in real time. Data are accessed directly from the database, and reports can be gen-
erated automatically (Figure 9.4).
INPUTS
Transaction
Manager
TPS
PROGRAMS
• • •
Update
database
& produce
TPS
reports
Detail Reports,
Documents, Other
Outputs
Exception
Reports
PROCESSES OUTPUTS
Operational
Database
with Master
Transaction Files
Hard Drive
Internal and
External
Data
Entry
Downloading
and Uploading
Queries
and Answers
User
EVENTS
DETAILS
Exceptions
FIGURE 9.4 Information flows triggered by a transaction or event.
Production and Operations Management Systems 277
9.2 Production and Operations
Management Systems
Historically, the production and operations area focused primarily on activities within the com-
pany related to the manufacture of products and services. Considerable emphasis was placed
on increasing product quality and reducing manufacturing costs, believing that these were criti-
cal factors in business success. More recently, businesses have developed a broader perspec-
tive, understanding that customer value is a more critical success factor. Significant advances in
customer value require more than just improvements in product quality and reduced costs. In
addition, because of globalization, many companies began outsourcing tasks traditionally per-
formed by the company. As a result, SCM was adopted as a way to coordinate all of the factors
that contribute to customer value, including supplier relationships, logistics, inventory manage-
ment across the supply chain, order fulfillment, and so on. In some companies, manufacturing
simply became a supply chain factor that could be performed internally, outsourced or both, as
conditions in different markets evolved (see Figure 9.5). As a result, production and operations
Questions
1. Explain the purpose of BMSs.
2. Define what an SOP is and give an example.
3. Explain each component of the ACID test.
4. Explain the differences between batch and real-time processing.
5. Explain the relationship between TPSs and FBSs.
Supply Chain
Management
Order
Fulfillment
Demand
Management
Supplier
Relationships
Procurement
Manufacturing
Logistics
Inventory
Management
Product Lifecycle
Management
FIGURE 9.5 Companies recognize that careful management of supply chain processes is critical
for success in the highly competitive global economy.
278 C H A P T E R 9 Functional Business Systems
are sometimes viewed in the larger context of SCM, and ISs have been developed to support
organizations with traditional production and operations management (POM) as well as SCM
processes. It is not always clear if a function such as logistics is part of a company’s production
and operations process or part of the company’s supply chain. Oftentimes, the way a function
is managed will depend on if the company is responsible for the function or if it outsources the
function, relying on supply chain partners. In either case, production operations management
and SCM ISs both play a critical role in managing these important functions and facilitating coor-
dination between different divisions within an organization or between the organization and its
partners. In this section, we will describe FBSs commonly associated with POM. As you will read
in Chapter 10, some of these process are also considered part of SCM and supported by SCM ISs.
Transportation Management Systems
Transportation management systems (TMSs) are relied on to handle transportation plan-
ning, which includes shipping consolidation, load and trip planning, route planning, fleet and
driver planning, and carrier selection. TMSs also support vehicle management and accounting
transactions.
Four trend factors contributing to the growth of TMS are as follows:
1. Outdated transportation systems need to be upgraded or replaced Many systems
were installed over 10 years ago—before tablet computers and mobile technologies had
become widespread in business. They are considered legacy (old) systems, and are inflex-
ible, difficult to integrate with other newer systems, and expensive to maintain.
2. Growth of intermodal transport Intermodal transportation refers to the use of two or
more transport modes, such as container ship, air, truck, and rail, to move products from
source to destination. Many more companies are shipping via intermodals, and their older
TMSs cannot support or deal with intermodal movement, according to Dwight Klappich, a
research vice president for Gartner.
When brick-and-mortar manufacturers began selling online, for example, they learned
that their existing TMSs were inadequate for handling the new line of business. Shippers
that expand globally face similar challenges when they try to manage multiple rail, truck,
and ocean shipments. Thus, there is a growing need for more robust TMSs to handle mul-
tidimensional shipping arrangements.
3. TMS vendors add capabilities The basic functions performed by a TMS include gather-
ing data on a load to be transported and matching those data to a historical routing guide.
Then the TMS is used to manage the communication process with the various carriers. New
feature-rich TMSs are able to access information services to help the shipper identify opti-
mal routes, given all current conditions. For example, the latest TMSs can interact directly
with market-data benchmarking services. An automated, real-time market monitoring
function saves shippers time and errors and cuts costs significantly.
4. TMSs handle big data Transportation tends to generate a high volume of transactional
data. Managing the data is not easy. TMS vendors are developing systems that make valu-
able use of the big data that are collected and stored. By drilling down into specific regions
or focusing on particular market trends, for example, shippers can use their big data to
make better decisions.
Logistics Management
Logistics management deals with the coordination of several complex processes, namely
ordering, purchasing or procurement, inbound logistics, and outbound logistics activities.
Logistics management systems:
• Optimize transportation operations.
• Coordinate with all suppliers.
Outbound logistics refers to
shipping inventory.
Inbound logistics refers to
receiving inventory.
Production and Operations Management Systems 279
• Integrate supply chain technologies.
• Synchronize inbound and outbound flows of materials or goods.
• Manage distribution or transport networks.
These systems enable real-time monitoring and tracking of supply chain shipments,
schedules, and orders.
Inventory Control Systems
Inventory control systems are important because they minimize the total cost of inventory
while maintaining optimal inventory levels. Inventory levels are maintained by reordering the
quantity needed at the right times in order to meet demand. POM departments keep safety
stock as a hedge against stockouts. Safety stock is needed in case of unexpected events, such
as spikes in demand or longer delivery times. One of the crucial decisions involved in inventory
management is weighing the cost of inventory against the cost of stockouts. Stockouts of mate-
rials and parts can slow or shut down production while stockouts of final products result in
reduced sales. Both of these situations can have significant short and long-term financial con-
sequences that need to be balanced against the potential savings associated with lower inven-
tory levels.
Managing inventory is important to profit margins because of numerous costs associated
with inventory, in addition to the cost of the inventory. Inventory control systems minimize the
following three cost categories:
• Inventory carrying costs
• Inventory ordering costs
• Cost of shortages
To minimize the sum of these three costs (see Figure 9.6), the company must decide when
to order and how much to order. One inventory model that is used to answer both questions is
the economic order quantity (EOQ) model. The EOQ model takes all costs into consideration.
Just-in-Time Inventory Management Systems Just-in-time (JIT) and
lean manufacturing are two widely used methods or models to minimize waste and deal
with the complexity of inventory management. Minimizing inventory costs remains a major
objective of SCM.
JIT inventory management attempts to minimize holding costs by not taking possession of
inventory until it is needed in the production process. With JIT, costs associated with carrying
large inventories at any given point in time are eliminated. However, the trade-off is higher
Inventory control systems are
stock control or inventory
management systems.
Safety stock is extra inventory
used as a buffer to reduce the
risk of stockouts. It is also called
buffer stock.
Stockouts inventory shortage
arising from unexpected demand,
delays in scheduled delivery,
production delays, or poor
inventory management.
INVENTORY COSTSNVENTORY COSTSI
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BILL PAYING
SALARIES/WAGES
OF PURCHASING
DEPT
ELECTRONIC DATA
INTERCHANGE (EDI)
COSTS/FEES
(ORDERING
SYSTEM)
INTEREST CHARGES
OPPORTUNITY COST
OF MONEY TIED UP
IN INVENTORY
TAXES, INSURANCE
STORAGE SPACE
PHYSICAL
HANDLING
SPOILAGE/
OBSOLESENCE
SHRINKAGE (THEFT,
DAMAGE, SHIPPING
ERRORS, ETC.)
COST OF
PRODUCTION
DELAYS
COST OF LOST
SALES REVENUE
FIGURE 9.6 Inventory Control Systems help companies balance inventory
ordering and carrying costs against the costs inventory shortages.
280 C H A P T E R 9 Functional Business Systems
ordering costs because of more frequent orders. Because of the higher risk of stockouts, JIT
requires accurate and timely monitoring of materials’ usage in production.
Everything in the JIT chain is interdependent, so coordination and good relationships with
suppliers are critical for JIT to work well. Any delay can be very costly to all companies linked
in the chain. Delays can be caused by labor strikes, interrupted supply lines, bad weather,
market demand fluctuations, stockouts, lack of communication upstream and downstream in
the supply chain, and unforeseen production interruptions. In addition, inventory or material
quality is critical. Poor quality causes delays, for example, fixing products or scrapping what
cannot be fixed and waiting for delivery of the reorder.
JIT was developed by Toyota because of high real-estate costs in Tokyo, Japan, which made
warehousing expensive. It is used extensively in the auto manufacturing industry. For example,
if parts and subassemblies arrive at a workstation exactly when needed, holding inventory is
not required. There are no delays in production, and there are no idle production facilities or
underutilized workers, provided that parts and subassemblies arrive on schedule and in usable
condition. Many JIT systems need to be supported by software. JIT vendors include HP, IBM, CA,
and Steven Engineering.
Despite potential cost-saving benefits, JIT is likely to fail in companies that have the
following:
• Uncooperative supply chain partners, vendors, workers, or management.
• Custom or non-repetitive production.
Lean Manufacturing Systems In a lean manufacturing system, suppliers deliver
small lots on a daily or frequent basis, and production machines are not necessarily run at
full capacity. One objective of lean manufacturing is to eliminate waste of any kind, that is, to
eliminate anything that does not add value to the final product. Holding inventory that is not
needed very soon is seen as waste, which adds cost but not value. A second objective of lean
manufacturing is to empower workers so that production decisions can be made by those who
are closest to the production processes.
Oracle, Siemens, and other vendors offer demand-driven lean manufacturing systems. As
any IS, JIT needs to be justified with a cost−benefit analysis. And all JIT success factors apply to
lean manufacturing. For example, JIT requires that inventory arrive on schedule and be of the
right quality. For companies subject to bad weather or labor strikes, lean manufacturing may
not be suitable.
Quality Control Systems Manufacturing quality control (QC) systems can be
stand-alone systems or part of an enterprise-wide total quality management (TQM) effort.
QC systems provide data about the quality of incoming materials and parts, as well as the
quality of in-process semifinished and finished products. These systems record the results of
all inspections and compare actual results to expected results.
QC data may be collected by sensors or radio frequency identification (RFID) systems and
interpreted in real time, or they can be stored in a database for future analysis. Reports on
the percentage of defects or percentage of rework needed can keep managers informed of
performance among departments. KIA Motors introduced an intelligent QC system to analyze
customer complaints, so it could more quickly investigate and make corrections.
Other Production/Operations Technologies Many other areas of production/
operations are improved by ISs and tools. Production planning optimization tools, product
routing and tracking systems, order management, factory layout planning and design, and
other tasks can be supported by POM subsystems. For example, a Web-based system at Office
Depot matches employee scheduling with store traffic patterns to increase customer satisfac-
tion and reduce costs. Schurman Fine Papers, a manufacturer/retailer of greeting cards and
specialty products, uses special warehouse management software to improve demand fore-
casting and inventory processes. Its two warehouses efficiently distribute products to over
30,000 retail stores.
Production and Operations Management Systems 281
Computer-integrated Manufacturing and Manufacturing
Execution Systems
Computer-integrated manufacturing (CIM) systems control day-to-day shop floor activities.
In the early 1980s, companies invested greatly in CIM solutions even though they were complex,
difficult to implement, and costly to maintain. They had required the integration of many prod-
ucts and vendors.
Prior to CIM, production managers were given many pieces of information such as time,
attendance, receiving reports, inspection reports, and so on to figure out how to accomplish
production tasks. The information was frequently late, rarely current or reliable, voluminous,
and extremely difficult to assimilate. CIM helps production managers better use information to
execute manufacturing plans.
Manufacturing execution systems (MESs) manage operations on the shop floors of fac-
tories. Some MESs schedule a few critical machines, while others manage all operations on
the shop floor. Functions of MES programs include the following: compiling a bill of materials,
resource management and scheduling, preparing and dispatching production orders, pre-
paring work-in-progress (WIP) reports, and tracking production lots. For instance, an MES can
schedule and track each step of the production phase of a particular job and then print out the
bill of materials for the operator and the production steps to complete at each phase. It repeats
this process for each operator and each step until a particular job is complete.
CIM and MES are very similar concepts, but there are differences. MES typically refers to a
broader infrastructure compared to CIM. MES is based much more on standard reusable appli-
cation software, instead of custom-designed software programs on a contract-by-contract
basis. MES tries to eliminate the time and information gap of early years on the shop floor by
providing the plant with information in real time. Corporate business functions are given timely
plant information to support business planning decisions. For the most part, the term CIM is
more commonly used and will be used in the rest of this section.
Today’s CIM systems provide scheduling and real-time production monitoring and report-
ing. CIM data-driven automation affects all systems or subsystems within the manufacturing
environment: design and development, production, marketing and sales, and field support and
service. CIM systems can perform production monitoring, scheduling and planning, statistical
process monitoring, quality analysis, personnel monitoring, order status reporting, and pro-
duction lot tracking. The manufacturer BAE has implemented CIM.
MESs are generally installed on-premises, but cloud-based solutions are becoming avail-
able. MES is a subset of enterprise resource planning (ERP) systems, which you will read about
in Chapter 10.
BAE Systems Uses CIM in Its Combat Aircraft Facility BAE Systems is a
global company headquartered in London, England, engaged in the development, delivery,
and support of advanced defense, security, and aerospace systems. BAE is among the world’s
largest military contractors.
In September 2010, BAE opened a titanium-machining facility to manufacture components
for the F-35 Lightning II combat aircraft. It took 10 months to complete the facility, during which
time engineers at BAE considered a number of ways to ensure that it would be able to accom-
modate the high throughput of titanium military aircraft parts cost-effectively. According to Jon
Warburton, BAE’s F-35 program manager, after conducting a thorough examination of numerous
potential manufacturing solutions, the BAE team finally decided to deploy a highly automated
CIM system (Wilson, 2011). The CIM system ensures that titanium parts for the aircraft can be
manufactured on a JIT basis. To do so, it coordinates the orders received at the plant, as well as
the movement of raw materials and tooling, and optimizes the use of the machine tools.
A key element of the CIM strategy was the deployment of two flexible manufacturing
systems (FMSs) that can accommodate the manufacture of different parts at different vol-
umes. When an order for a part is received, the data relating to it are passed to the FMSs,
which schedule the manufacture of a part in the most expedient way by examining the current
workload across each of eight machine tools. Each FMS can store up to 1,000 cutting tools in a
282 C H A P T E R 9 Functional Business Systems
racking system ready to be loaded into the machine tools. A series of twin robot systems deliver
the stored cutting tools into each machine, as well as replenishing any worn tools. The biggest
challenge faced by the team in the development of the facility was to ensure that the FMS and
the machine tools communicated effectively with one another and with BAE’s CIM system.
Reasons Why Companies Invest in CIM The benefits of CIM are as follows: (1) It
simplifies manufacturing technologies and techniques, (2) automates as many of the manufac-
turing processes as possible, and (3) integrates and coordinates all aspects of design, manufac-
turing, and related functions. CIM is comprehensive and flexible, which is especially important
in the redesign or elimination of business processes. Without CIM, it may become necessary to
make large investments to change existing ISs to fit new processes.
9.3 Sales and Marketing Systems
As a result of the Internet and other technology, significant changes have occurred in the field of
marketing over the last decade. Not only has technology created entire new service and prod-
uct categories, but also many traditional marketing functions including product development,
pricing, distribution, and promotion have changed. ISs and digital networks that have emerged
in the last 10–15 years have resulted in new revenue streams, new business models, new retail,
promotion and distribution channels, and entirely new industries. IT at Work 9.1 describes
such an example. In general, sales and marketing systems support the following:
• Digital advertising
• Social media monitoring and promotions
• Sales and customer support
• Automated ad placement and media buying
• Market research
• Intelligence gathering
• Distributing products and services to customers
• Order tracking
• Online and mobile order processing
• Online and mobile payment methods
Many of these systems are depicted in Figure 9.7. Chapters 7, 8, and 10 covered or will dis-
cuss sales and marketing systems and strategies, including e-commerce and CRM. This chapter,
specifically this section, focuses on data-driven marketing and the capabilities of sales and
marketing ISs.
Questions
1. What is the function of SCM in an organization?
2. What trends are contributing to the growing use of TMS?
3. Define logistics management.
4. What are the three categories of inventory costs?
5. What are the objectives of JIT?
6. Explain the difference between EOQ and JIT inventory models.
7. What is the goal of lean manufacturing?
8. What is CIM?
Sales and Marketing Systems 283
Market Intelligence
Systems
Target Marketing
Systems
Customer Support
Systems
Sales Systems
Dealer Systems
Delivery
Systems
• Customer Profiling
and Segmentation
• Market Tracking
• Competitor
Surveillance
• New Product
Development
• Decision Support, BI Predictive Analysis
• Trend Monitoring
• Cross-Selling
• ADS for Pricing
• Marketing and Sales
Support and Services
• Value-Added
Partnerships
• Dealers’
Communications
• Business Management
Support Functions
• Database Marketing
• Telemarketing
• Niche/Regional
Marketing and
Microsegmentation
• Customer Profitability
Analysis
• Internet Marketing • Communications
with the Field
• Sales Process/
Account Management
• Selling Aids/Sales
Force Support
• Selling Aids/Point
of Purchase
• Prospecting
• Wireless Sales Force
Automation
• Internet Marketing
• Customer
Communications
• Customer Satisfaction
• Service and Support
• Training/User
Education
• Usage Enhancement
• Customer Portals
• Social Networking
• EDI
• Demand Forecasting
• Inventory
Management
• Order Entry and
Fulfillment
• Invoicing
• Sourcing
• Time-to-Market
Reduction
• RFID
Channel Systems
Manufacturing R&D/Design
Distribution Accounting/Finance
The Selling
Company
FIGURE 9.7 Sales and marketing systems and subsystems.
IT at Work 9.1
Google Customer Surveys
Google Customer Surveys is a service that publishers can use
to generate revenues from their online content. The service is
an alternative to having a paywall for online news content. For
example, when users visit the websites of partners such as the New
York Daily News and Texas Tribune, they find several articles partially
blocked. To continue reading the full article, they have to answer a
question or micro-survey provided by Google.
Adweek
Adweek’s editors, reporters, and designers spend a lot of time ana-
lyzing how digital technology transforms businesses and the peo-
ple they cover. They needed to monetize their digital assets to keep
the brand profitable. To that end, Adweek partnered with Google on
a new Web-based revenue play. By answering a single marketing
question per day, readers receive full access to Adweek.com and
reporting, analysis, and video.
Market Research
One or two market research multiple-choice questions are asked,
for instance, “Which types of candy do you usually buy for your
household?” Possible answers: none, chocolate, hard candies,
gummies, toffees. Advertisers pay Google to host the surveys, and
the sites receive 5 cents per response from Google. To minimize the
possibility that people select untruthful answers leading to poor-
quality data, Google makes the questions as engaging as possible.
And if users start to just answer the first question on each page, or
answer too quickly, the program notices that behavior and forces
readers to answer new questions.
284 C H A P T E R 9 Functional Business Systems
Data-Driven Marketing
Data-driven, fact-based decision-making increasingly relies on data that are hot—impacting the
business or potential customer right now or in real time. One use of hot data is pay-per-click (PPC)
website advertising that “appears” on the screens of consumers’ devices based on their location,
behavior, interests, or demographic information. Unlike search engine PPC ads that appear based
on the user’s keyword searches, website ads use data about the person to determine whether the
ad should appear. This capability creates opportunities for highly targeted advertising programs.
For example, Facebook members self-report data about their location, age, interests, and so on.
Based on these data, advertisers can request that their ad be pushed to Facebook members who
fit a specific profile based on demographic, geographic, or behavioral factors.
Sales and Distribution Channels
Marketers need to determine the optimal ways to distribute their products and services through
a combination of electronic, mobile, and physical channels. For example, integrating a PPC
advertising campaign with other online and offline advertising initiatives generally provides
the best overall results.
Here are representative topics relating to sales and distribution channels:
• In Macy’s stores and many other retailers, customers can check current sale prices on
digital screens with barcode readers.
• Customers use Exxon Mobil Speedpass to fill their tanks by waving a token, embedded with
an RFID device, at a gas-pump sensor. Then the RFID starts an authorization process, and
the purchase is charged to the debit or credit card linked to the account.
• Home Depot and many supermarkets installed self-check-out machines. Self-service
kiosks cut labor costs for retailers and can reduce customers’ check-out times, as shown
in Figure 9.8.
Social Media Customer Service
As described in Chapter 7, many companies now employ customer support representatives to
monitor social media platforms such as Twitter and Facebook to identify customers with questions
or who are frustrated because of a problem they are having with a product or service. These social
media customer service representatives are trained to offer support and solutions to customer
©
M
ar
m
ad
uk
e
S
t.
Jo
hn
/A
la
m
y
FIGURE 9.8 Self-check-out kiosks
reduce labor costs.
Sales and Marketing Systems 285
problems in order to retain the customer’s loyalty and demonstrate the brand’s commitment to
customer satisfaction. Failure to respond to these customers has public consequences, since by
definition, social media tends to be a public forum and both the customer’s complaint and the
company’s response can be viewed by other people using the social media platform. On the other
hand, companies that have learned how to handle these situations stand to benefit by demonstrat-
ing their responsiveness to a wide audience of prospective customers. As with more traditional
forms of customer service, such as call centers, social customer service engagement is recorded in
a customer service IS so that performance metrics, volume and type of complaint can be analyzed.
Marketing Management
The following are some representative examples of how marketing management is being
accomplished.
Pricing of Products or Services Sales volume as well as profits are determined by
the prices of products or services. Pricing is a difficult decision, particularly during economic
recessions. ISs used in conjunction with data collected from online markets are able to help
companies maximize profits using a variety of yield management practices. For instance,
online retailers can personalize the Web pages shown to individual customers and display a
combination of products and prices customized to entice that customer to make a purchase.
The automated decisions about what products and prices to display to a customer are deter-
mined by a complex algorithm based on the customer’s previous purchases, Web viewing
history, activity on social media, and product searches. While airlines have been charging dif-
ferent ticket prices for the same flight for years, the practice is now employed by many dif-
ferent businesses as part of a mass-customization strategy made possible by information and
computing technologies. Another example of technology-driven pricing and promotional strat-
egies includes flash sales designed to engage customers and trigger a quick spike in sales. Flash
sales work by offering customers an incredible deal for a very short time, usually announced via
mobile text message, e-mail, or social media.
Salesperson Productivity The performance of salespeople is collected in the sales and
marketing TPS and used to compare performance along several dimensions, such as time, prod-
uct, region, and even the time of day. Actual current sales can be compared to historical data
and to expectations. Multidimensional spreadsheet software facilitates this type of analysis.
Sales productivity can be boosted by Web-based call centers. When a customer calls
a sales rep, the rep can look at the customer’s history of purchases, demographics, services
available where the customer lives, and more. This information enables reps to provide better
customer service.
Sales automation software is especially helpful to small businesses, enabling them to rap-
idly increase sales and growth. One leading software is Salesforce.com, which is a CRM applica-
tion that is offered as a software as a service (SaaS). You will read about Salesforce.com in detail
in the CRM section of Chapter 10.
Profitability Analysis In deciding on advertising and other marketing efforts, man-
agers need to know the profit contribution or profit margin (profit margin = sale price − cost
of good) of certain products and services. Profitability metrics for products and services can
be derived from the cost-accounting system. For example, profit performance analysis soft-
ware available from IBM, Oracle, SAS, and Microstrategy is designed to help managers assess
and improve the profit performance of their line of business, products, distribution channels,
sales regions, and other dimensions critical to managing the enterprise. Several airlines, for
example, use automated decision systems to set prices based on profitability.
Marketing activities conclude the primary activities of the value chain. Next, we look at
the functional systems that are support activities, also called secondary activities, in the value
chain: accounting, finance, and HR management.
286 C H A P T E R 9 Functional Business Systems
9.4 Accounting, Finance,
and Regulatory Systems
Accounting and finance departments control and manage cash flows, assets, liabilities, and
net income (profit). Financial accounting is a specialized branch of accounting that keeps
track of a company’s financial transactions and prepares financial statements, such as
balance sheets and income statements. Investors, regulators, and others rely on the
integrity and accuracy of external financial statements. Accounting must comply with gener-
ally accepted accounting principles (GAAP) and the Financial Accounting Standards
Board (FASB).
Corporations whose stock is publicly traded must also comply with the reporting require-
ments of the Securities and Exchange Commission (SEC), a regulatory agency of the U.S.
government. Using standardized guidelines, the transactions are recorded, summarized,
and presented in a financial report or financial statement such as an income statement or a
balance sheet. However, the objective of financial accounting is not simply to report the value
of a company. Rather, its purpose is to provide sufficient and accurate information for others
to assess the value of a company for investment or other purposes.
Financial Disclosure: Reporting and Compliance
As part of an organization’s compliance obligations, the accounting function must attest (ver-
ify) that there are no material weaknesses in internal controls. A weakness in an internal control
is a major cause of fraud, which is also known as white-collar crime. The prevention, detection,
and investigation of financial fraud are needed to reduce the risk of publicly reporting inaccu-
rate information. High-profile examples of financial misrepresentations are Bernard L. Madoff
Investment Securities (2008), Lehman Brothers (2008), Enron (2001), and many related to the
subprime mortgage crisis. Table 9.2 describes three of the worst accounting fraud cases of all
time. The FBI investigates white-collar crime and reports on the subject at its website FBI.gov.
Accounting Software Packages Accounting software is a foundational technology
for many companies, and as a business grows, powerful and effective accounting solutions
are critical. Most accounting software packages offer the same basic features necessary for
managing finances: accounts receivable (A/R), accounts payable (A/P), general ledger, billing
and invoicing, purchase and sales orders, and reporting. In addition to basic functionality, the
top accounting solutions offer additional features to give users more power, flexibility, and cus-
tomization. Often, accounting solutions are closely integrated with enterprise systems, such as
ERP systems that include an extensive accounting module.
Many providers offer cloud-based solutions. SaaS accounting software solutions include
the features of traditional systems, with the added benefit of anytime, anywhere accessibility
and updating.
Income statement summarizes
a company’s revenue and
expenses for one quarter of a fiscal
year or the entire fiscal year. It is
also known as a P&L (profit and
loss) or earnings statement.
Financial Accounting Standards
Board (FASB) establishes
financial accounting and reporting
standards for public and private
companies and not-for-profit
organizations.
Financial
misrepresentation occurs
when a company has intentionally
deceived one or more
other parties.
Questions
1. Explain push-through marketing and pull-through marketing.
2. List two sales and distribution channels.
3. Describe profitability analysis.
4. How do some online businesses determine the prices they will charge to individual customers?
Accounting, Finance, and Regulatory Systems 287
Financial Disclosure The SEC’s financial disclosure system is central to its mission
of protecting investors and maintaining fair, orderly, and efficient markets. Since 1934, the
SEC has required financial disclosure in forms and documents. In 1984, the SEC began col-
lecting electronic documents to help investors obtain information, but those documents
made it difficult to search for and find specific data items. To eliminate that difficulty and
improve how investors find and use information, the SEC now requires public companies,
called filers, to submit their financial reports as tagged interactive data files (FASB.org, 2012)
formatted in eXtensible Business Reporting Language (XBRL). In addition, data in the
reports must be tagged according to standards established by the Financial Accounting
Securities Board (FASB). Each year, FASB updates the list of over 15,000 computer readable
tags known as the GAAP Financial Reporting Taxonomy. Annual updates reflect changes in
accounting standards and other enhancements designed to improve the reporting process
and usability.
XBRL Tagging XBRL is a language for the standards-based exchange of business
information between business systems. Each item, such as cash or depreciation expense, is
tagged with descriptive metadata or labels, such as calendar year, audited/unaudited status,
currency, and so on, as defined by the GAAP Financial Reporting Taxonomy. The taxonomy is
like a data dictionary that defines financial concepts and the relationships between various
types of data that might be included in a financial report. The XBRL language and data tags
make it possible for the reports to be read by any software that includes an XBRL processor.
Interactive (tagged) data make it easier for investors to analyze and compare the financial
performance of public companies, increasing the efficiency and transparency of reporting
processes and the ability to consolidate financial data from different operating systems. Prior
to XBRL, reports were noninteractive. Investors who wanted specific data had to manually
search lengthy corporate annual reports or mutual fund documents. As more companies use
interactive data, sophisticated analysis tools used by financial professionals are now available
to average investors.
Creating XBRL documents does not require XML computer programming. As requirements
for XBRL reporting become increasingly common around the world, more vendors are devel-
oping software products for marking up reports, tagging data, submitting reports to various
TA B L E 9 . 2 Three of the Worst Accounting Scandals of All Time
Company and Fraudsters Damages How They Did It Penalties
Bernie Madoff Investment
Securities LLC (2008)
Bernie Madoff, his accountant
David Friehling, and CFO Frank
DiPascalli
Tricked investors out of $64.8
billion through the largest Ponzi
scheme in the history.
Investors were paid returns out
of their own money or money
from other investors—rather than
from profits.
150 years in prison for
Madoff + $170 billion restitu-
tion. Prison time for Friehling
and DiPascalli.
Lehman Brothers (2008)
Lehman executives and the
company’s auditors,
Ernst & Young
Hid over $50 billion in loans dis-
guised as sales.
Allegedly sold toxic assets to
Cayman Island banks with the
understanding that they would be
bought back eventually. Created
the impression that Lehman had
$50 billion more in cash and $50
billion less in toxic assets than it
actually had.
Forced into the largest bank-
ruptcy in U.S. history.
Enron (2001)
CEO Jeffrey Skilling and former
CEO Ken Lay
Shareholders lost $74 billion,
thousands of employees and
investors lost their retirement
accounts, and many employees
lost their jobs.
Kept huge debts off its
balance sheets.
Lay died before serving time;
Skilling received 24 years
in prison. The company
filed for bankruptcy. Arthur
Andersen was found guilty of
fudging Enron’s accounts.
288 C H A P T E R 9 Functional Business Systems
recipients, as well as receiving and analyzing tagged data from other sources. Figure 9.9 shows
how XBRL documents are created. XBRL helps companies:
• Generate cleaner data, including written explanations and supporting notes.
• Produce more accurate data with fewer errors that require follow-up by regulators.
• Transmit data more quickly to regulators and meet deadlines.
• Increase the number of cases and amount of information that staffers can handle.
XBRL Reporting Compliance In addition to the public companies required by the
SEC to submit their financial reports as XBRL documents, other businesses are being required
to use XBRL-formatted reporting. For instance, the SEC requires mutual funds to submit risk
return summaries in XBRL format, and banks in the United States must submit certain types of
XBRL reports to the Federal Deposit Insurance Corporation (FDIC). Globally, regulators in many
other countries require companies to file reports using XBRL. When international firms file XBRL
reports, they will oftentimes use the International Financial Reporting Standards (IFRS) Tax-
onomy created by the International Accounting Standards Board (IASB). We anticipate that
XBRL reporting will increase over time as regulatory agencies, investors, and organizations
responsible for setting accounting standards increasingly argue that XBRL reporting is good for
both business and the economy.
Financial institutions
Investors
Public
Regulators
Analysts
Sources: ERP Databases
Information Generation
Financial Data
USAA GAAP Taxonomy
Standards
Company Extension Taxonomy
XBRL Documents
Distribution,
Consumption
Output
Validate
and Publish
Files
FIGURE 9.9 Overview of the creation of XBRL documents.
Accounting, Finance, and Regulatory Systems 289
Fraud Prevention and Detection
Fraud is a crime with severe financial consequences, as you observed in Table 9.2. Fighting
fraud is an ethical duty—and essential to public trust and the integrity of a company’s brand.
Insider fraud is a term referring to a variety of criminal behaviors perpetrated by an organi-
zation’s employees or contractors. Other terms for this crime are internal, employment, or
occupational fraud.
Why Fraud Occurs Fraud occurs because internal controls to prevent insider fraud—no
matter how strong—will fail on occasion. Fraud risk management is a system of policies and
procedures to prevent and detect illegal acts committed by managers, employees, customers,
or business partners against a company’s interests. Although each corporation establishes its
own specific procedures, fraud risk management involves assessing a company’s exposure to
fraud; implementing defenses to prevent and detect fraud; defining procedures to investigate,
prosecute, and recover losses from fraud. Analyzing why and how fraud could occur is as impor-
tant as detecting and stopping it. This analysis is used to identify necessary corporate policies
to deter insider fraud and fraud detection systems when prevention fails.
Fraud Risk Factors Factors that increase a company’s exposure to fraud are illustrated
in Figure 9.10. ISs are implemented to harden it against these factors. Companies make them-
selves targets because of the interaction of these four factors:
1. A high level of trust in employees without sufficient oversight to verify that they are not
stealing from the company
2. Relying on informal processes of control
3. A mindset (belief) that internal controls and fraud prevention systems are too expensive
to implement
4. Assigning a wide range of duties for each employee, giving them opportunities to
commit fraud
When a small manufacturer was the victim of theft of intellectual property, the computer
network logs identified the computer that had been used to commit the alleged crime. But
there was no way to connect that computer to one specific individual. A manager’s conviction
that he knew who had perpetrated the crime was not sufficient evidence. The lesson learned
was that the internal control—separation of duties—is important not only to fraud prevention
but also to fraud prosecution and recovery of losses. At the company, employees had shared
computer accounts, so they were not able to link the fraud to the person who committed it.
Fraud
target
Informal
processes
Too much
trust
Cost
mindset
Range of
duties
FIGURE 9.10 Factors that make companies targets
for fraud.
290 C H A P T E R 9 Functional Business Systems
Designing effective fraud response and litigation-readiness strategies (postincident strategies)
is crucial to be able to do the following:
• Recover financial losses.
• Punish perpetrators through lawsuits, criminal charges, and/or forfeited gains.
• Stop fraudsters from victimizing other organizations.
History has shown that if the punishment for committing fraud is not severe, the fraud-
ster’s next employer will be the next victim, as described in IT at Work 9.2.
Trying to keep fraud hidden can mean either doing nothing or simply firing the employee.
These approaches to dealing with fraud are not sustainable because they erode the effective-
ness of fraud prevention measures and produce moral hazard—that is, they take the risk out
of insider fraud.
One of the most effective fraud prevention techniques is the perception of detection
and punishment. If a company shows its employees that it can find out everything that every
employee does and will prosecute to the fullest extent anyone who commits fraud, then the
feeling that “I can get away with it” drops drastically (Johnson et al., 2011). The Catch-22 is
that companies may have limited resources that hinder a proper fraud diagnosis or forensic
accounting investigation, even though they cannot afford unrecoverable losses either.
Financial Meltdowns Triggered by Fraud In the early 2000s, the U.S. business
economy was significantly impacted by fraud scandals that involved senior executives at a
number of major corporations. Lawmakers believed that the scope of the crimes destroyed the
public’s confidence in the country’s financial systems and markets. A number of laws were passed
that heightened the legal responsibilities of corporate management to actively guard against
fraud by employees, established stricter management and reporting requirements, and intro-
duced severe penalties for failure to comply. As a result, fraud management became a necessary
functional process. These frauds played a role in the SEC’s rule for XBRL data reporting.
Internal Controls In companies with lax accounting systems, it is too easy for employees
to misdirect purchase orders and payments, bribe a supplier, or manipulate accounting data.
When senior managers are involved in a fraud, preventing fraud is extremely tough. Consider
Bernie Madoff, who committed a record-setting fraud scheme for many years even after the
Sarbanes–Oxley Act was passed in 2002 to help prevent financial fraud.
In a much smaller but still serious fraud case involving a New York-based nonprofit, a
volunteer was responsible for counting cash receipts at the annual fundraiser. The volunteer
IT at Work 9.2
Serial Fraudster
A dental practice with $4 million in annual revenues had fired its
bookkeeper after a tax audit revealed to the owners that she had
been stealing over $100,000 per year for at least four years. The
bookkeeper was responsible for all accounting duties and finan-
cial reporting for tax purposes. Her work was not inspected closely
by external auditors or the owners. No internal control systems,
for example, controls that would prevent checks being written to
bogus vendors or employees, were implemented.
The classic red flags or fraud indicators—lavish vacations, jew-
elry, and cars that she could not afford—were evident, but ignored
by the owners/managers. The bookkeeper was a “serial fraudster,”
having defrauded at least two prior employers: a religious organiza-
tion and a nonprofit where she had worked as a volunteer.
The defrauded medical practice decided to keep the incident
quiet, so it did not take legal action against the bookkeeper. That
turned out to be a mistake because the bookkeeper used that situation
to her advantage. She filed a wrongful termination lawsuit. For several
reasons, including not being able to collect evidence (lax internal con-
trols enabled the bookkeeper to destroy evidence), the practice set-
tled the lawsuit by paying her over $5,000. In effect, the fraudster had
turned to extortion, knowing that the practice was unprepared to fight
back. Inarguably, she must be defrauding her current employer.
IT at Work Questions
1. How was the fraud detected?
2. How long had it been going on?
3. What were the red flags that suggested that the bookkeeper
was living beyond her means?
4. What mistakes were made in the handling of the fraud?
5. In your opinion, did the dental practice have an ethical
responsibility to prosecute the fraudster?
Accounting, Finance, and Regulatory Systems 291
had performed this task for 30 years. One year, an accountant was assigned to assist the volun-
teer with the count. The volunteer offered the accountant a “cut” of the cash in exchange for her
silence about the theft.
Strong internal controls, which depend on IT for their effectiveness, consist of the following:
• Segregation of duties tops the list of best practices in control procedures. When handling
a company’s assets, the work of managers and employees needs to be subject to approval
or authorization. For example, any attempt to issue a check to a vendor not in the database
of approved vendors will be prevented by the accounting IS.
• Job rotation More than one person should be familiar with each transaction cycle in
the business wherever possible. Rotation of jobs helps prevent overreliance on a single
individual—and is a way to expose fraudulent activities.
• Oversight Management—whether a single owner or a team of individuals—must mon-
itor what is actually happening in the business. Auditing ISs are part of a strong oversight
function. Unannounced periodic walk-throughs of a process or review of how things are
really being done can reveal existing or potential problem areas.
• Safeguarding of assets is essential to a fraud prevention program. Access to networks,
financial systems, and databases must be controlled with strong passwords and other
security measures. Similarly, bank checks, petty cash funds, and company credit cards
need to be locked up when not in use.
• IT policies Understand your IS. Heavy reliance on IT staff can open up opportunities for
fraud. Establish a computer use policy and educate employees on the importance of securing
information. Strictly enforce the use of separate logins and keep passwords confidential.
Auditing Information Systems
Fraud can be easy to commit and hard to detect. Just ask any auditor. The problem is worse
in government and nonprofit entities that have inadequate accounting and internal control
systems. The problem is so bad at the federal level that auditors have been unable to express
an opinion on the fairness of the consolidated financial statements of the United States. For
example, space agency NASA had been unable to explain about the $565 billion in year-end
adjustments to its books. It could be bad accounting, fraud, waste, or abuse. Without ade-
quate records, no one really knows. This amount is astounding, especially when one considers
that the combined cost of fraud at Enron and WorldCom was less than $100 billion in share-
holder equity.
Because the physical possession of stolen property is no longer required and it is just as
easy to program a computer to misdirect $100,000 as it is $1,000, the size and number of frauds
have increased tremendously. Auditing ISs aid auditors in the analysis of large amounts of finan-
cial data and accounting records to uncover fraud as well as unintentional accounting errors.
Financial Planning and Budgeting
The management of financial assets is a major task in financial planning and budgeting. Finan-
cial planning, similarly to any other functional planning, is tied to the overall organizational
planning and to other functional areas. It is divided into short-, medium-, and long-term hori-
zons, much as activities planning. Accounting ISs help companies create and manage budgets,
improving the organization’s ability to monitor performance and quickly identify departures
from planned financial activity when they occur.
Knowing the availability and cost of money is a key ingredient for successful financial planning.
Especially important is projecting cash flows, which tells organizations what funds they need and
when and how they will acquire them. In today’s tough economic conditions with tight credit and
limited availability of funds, this function has become critical to most companies’ survival.
Inaccurate cash flow projection is the #1 reason why many small businesses go bankrupt.
The inability to access credit led to the bankruptcy of investment bank Lehman Brothers in
September 2008.
292 C H A P T E R 9 Functional Business Systems
Budgeting The best-known part of financial planning is the annual budget, which allo-
cates the financial resources of an organization among participants, activities, and pro-
jects. The budget is the financial expression of the enterprise’s plans. Management allocates
resources in the way that best supports the mission. IT enables the introduction of financial
logic and efficiency into the budgeting process. Several software packages, many of which are
Web-based, are available to support budget preparation and control.
Capital budgeting is the process of analyzing and selecting investments with the highest
return on investment (ROI) for the company. The process may include comparing alternative
investments, for example, evaluating private cloud vs. public cloud computing options.
The major benefits of using budgeting software are that it can reduce the time and effort
involved in the budget process, explore and analyze the implications of organizational and
environmental changes, facilitate the integration of corporate strategic objectives with opera-
tional plans, make planning an ongoing continuous process, and automatically monitor excep-
tions for patterns and trends.
Forecasting As you read, a major reason why organizations fail is their inability to forecast
and/or secure sufficient cash flow. Underestimated expenses, overspending, financial misman-
agement, and fraud can lead to disaster. Good planning is necessary, but not sufficient, and
must be supplemented by skillful control. Control activities in organizations take many forms,
including control and auditing of the ISs themselves. ISs play an extremely important role in
supporting organizational control, as we show throughout the text. Specific forms of financial
control are discussed in the next section.
Financial Ratio Analysis A major task of the accounting/finance department is to
watch the financial health of the company by monitoring and assessing a set of financial ratios.
These ratios are also used by external parties when they decide whether to invest in an organi-
zation, extend credit, or buy it.
The collection of data for ratio analysis is done by the TPS, and computation of the ratios
completed through financial analysis models. Interpretation of ratios and the ability to forecast
their future behavior require expertise, which is supported by decision support systems (DSSs).
Profitability Analysis and Cost Control Companies are concerned with the prof-
itability of individual products or services, product lines, divisions, or the financial health of the
entire organization. Profitability analysis DSS software allows accurate computation of prof-
itability and allocation of overhead costs. One way to control cost is by properly estimating
it. This is done by using special software. For example, Oracle Hyperion Profitability and Cost
Management software is a performance management app that provides insights into costs
and profitability. This app helps managers evaluate business performance by discovering the
drivers of cost and profitability and improving resource alignment. Sophisticated business
rules are stored in one place, enabling analyses and strategies to be shared easily across an
enterprise.
Questions
1. What is eXtensible Business Reporting Language (XBRL)?
2. Why does the SEC mandate data disclosure, whereby data items are tagged to make them easily
searchable?
3. What is insider fraud? What are some other terms for insider fraud?
4. What is fraud risk management?
5. What four factors increase the risk of fraud?
6. Explain how accounting ISs can help deter fraud.
Human Resource Systems, Compliance, and Ethics 293
9.5 Human Resource Systems, Compliance,
and Ethics
Companies cannot simply hire a great workforce. They have to find, recruit, motivate, and train
employees to succeed in their workplace. Retaining high-performance people requires moni-
toring how people feel about the workplace, their compensation, value to the company, and
chances for advancement—and maintaining workplace health and safety.
HR is a field that deals with employment policies, procedures, communications, and
compliance requirements. Effective HR compliance programs are a necessity for all organi-
zations in today’s legal environment. HR needs to monitor workplace and employment prac-
tices to ensure compliance with the Fair Labor Standards Act (FLSA), Occupational Health &
Safety Agencies (OSHA), and the antidiscrimination and sexual harassment laws. Seven other
employment laws to protect against discrimination are listed in Table 9.3.
HR Information Systems
Effective human resource information systems (HRISs) reduce the workload of the HR depart-
ment. PeopleSoft Human Capital Management, which is one of the market-leading HRISs, pro-
vides a global foundation for HR data and improved business processes.
HRISs have been moved to intranets and clouds—wherein HR applications are leased
in SaaS arrangements. Using intranets, HR applications have shifted many routine tasks to
TA B L E 9 . 3 HR Monitors Compliance with Antidiscrimination Employment Laws
Title VII of the Civil Rights
Act of 1964
Prohibits discrimination on the basis of race, color, religion,
national origin, and sex. It also prohibits sex discrimination on the
basis of pregnancy and sexual harassment.
Civil Rights Act of 1966 Prohibits discrimination based on race or ethnic origin.
Equal Pay Act of 1963 Prohibits employers from paying different wages to men and
women who perform essentially the same work under similar
working conditions.
Bankruptcy Act Prohibits discrimination against anyone who has declared
bankruptcy.
Americans with Disabilities Act Prohibits discrimination against persons with disabilities.
Equal Employment
Opportunity Act
Prohibits discrimination against minorities based on poor
credit ratings.
Age Discrimination in
Employment Act (ADEA)
Prohibits discrimination against individuals who are age
40 or above.
Career Insight 9.1
Compliance Is Good Business
While carrying out day-to-day operations or trying to hit targets,
managers may lose sight of the big picture. A narrow focus can
lead to serious compliance and regulatory violations, which can do
permanent damage to the brand and expose managers to criminal
charges. Crossing the line is a crime.
According to the U.S. Department of Justice (DOJ) Federal
Prosecution of Corporations (1999):
Corporations are “legal persons,” capable of suing and being
sued, and capable of committing crimes. Under the doctrine of
respondeat superior, a corporation may be held criminally liable for
the illegal acts of its employees, directors, officers, and agents.
In all cases involving wrongdoing by corporate agents, prose-
cutors should consider the corporation, as well as the responsible
individuals, as potential criminal targets.
Source: justice.gov.
294 C H A P T E R 9 Functional Business Systems
employees who log in to manage their retirement benefits, payroll deductions, direct deposits,
health-care benefits, and the like. When employees manage their own HR services, HR pro-
fessionals can focus on legal and compliance responsibilities, employee development, talent
management, hiring, and succession planning.
Benefits of SaaS for HR Three real-world examples illustrate the benefits of tying SaaS
to global HR transformation efforts:
• A global medical device manufacturer needed to create an independent HR system as it
divested from its parent company. Cloud computing was at the core of its new global HR
delivery model, which reduced the demand on internal business and IT resources. The
company was able to establish fully independent HR operations within 10 months.
• A national nonprofit foundation with a fast-growing employee population wanted to
improve the effectiveness of HR operations. The organization selected a cloud-based
solution, which dramatically improved time to value without overstretching internal
IT resources. Because little front-end investment was required, the foundation hit its
budget target.
• A global entertainment company needed a learning management system that could
deliver content varying from instructor-based training to 30-second video how-to snippets.
It chose to deploy a new learning management system in the cloud. With this approach, it
quickly got the new system up and running.
Figure 9.11 illustrates how IT facilitates the work of the HR department. The figure sum-
marizes the role HR plays in acquiring and developing talented people in organizations.
Recruitment Recruitment is the process of finding potential employees with the skills
and talent needed by the company, testing them, and deciding which ones to hire. Most com-
panies are flooded with applicants, but might still have difficulty finding the right people.
LinkedIn is a primary social media site for recruitment and headhunters. Some reports suggest
that over 90% of U.S. companies use LinkedIn as their primary source of identifying job candi-
dates. HR managers using LinkedIn must become familiar with the website’s search tools for
finding candidates that meet certain criteria for the position they are trying to fill. Using the
Assessing
Measure performance,
evaluate, assess impact
Recruiting
Attract, select,
match, advertise
Developing Human
Resources
Train, create teams;
improve skills
Deploying
Assign the right people
to jobs, schedule
Retaining
Retain people,
motivate, compensate,
engage, and satisfy
Planning
Labor needs, skills,
sources, strategy
Planning
Labor needs, skills,
sources, strategy
FIGURE 9.11 HR management activities.
Human Resource Systems, Compliance, and Ethics 295
advanced search features, HR managers can develop search queries that screen user profiles
on the basis of things such as current job title, current industry, seniority level, and years of
education. Keywords can be used to find candidates with specials, training, or experience. Job
hunters should consider the search strategies HR professionals are likely to use when searching
for candidates and include information in their profiles that will increase the chances of being
included in search results.
Management and Employee Development
Once recruited, employees become part of the corporate HR talent pool, which needs to be
maintained and developed. Several activities supported by IT include the following.
Performance Evaluation Employees are evaluated periodically by their immediate
supervisors. Peers or subordinates may also evaluate others. Evaluations are usually
recorded on paper or electronic forms. Using such information manually is a tedious and
error-prone job. Once digitized, evaluations can be used to support many decisions, rang-
ing from rewards to transfers to layoffs. For example, Cisco Systems is known for developing
an IT-based human capital strategy. Many universities evaluate professors online. The eval-
uation form appears on the screen, and the students fill it in. Results can be tabulated in
minutes. Corporate managers can analyze employees’ performances with the help of intel-
ligent systems, which provide systematic interpretation of performance over time. Several
vendors provide software for performance evaluation, such as HalogenSoftware.com and
Capterra.com.
Training and Human Resources Development Employee training and retrain-
ing are important activities of the HR department. Major issues are planning of classes and
tailoring specific training programs to meet the needs of the organization and employees.
Sophisticated HR departments build a career development plan for each employee. IT
can support the planning, monitoring, and control of these activities by using workflow
applications.
HR Planning, Control, and Management
In some industries, labor negotiation is an important aspect of HR planning, and it may be
facilitated by IT. For most companies, administering employee benefits is also a significant part
of the HR function. Here are several examples of how IT can help.
Personnel Planning and HR Strategies The HR department forecasts require-
ments for people and skills. In some geographical areas and for overseas assignments, it may
be difficult to find particular types of employees. In such cases, the HR department plans how
to locate sufficient HR or develop them from within.
Benefits Administration Employees’ contributions to their organizations are
rewarded by salary/wage, bonuses, and other benefits. Benefits include those for health and
dental care as well as contributions for pensions. Managing the benefits system can be a com-
plex task, due to its many components and the tendency of organizations to allow employees
to choose and trade off benefits. In large companies, using computers for self-benefits selection
can save a tremendous amount of labor and time for HR staff.
Providing flexibility in selecting benefits is viewed as a competitive advantage in large
organizations. It can be successfully implemented when supported by computers. Some com-
panies have automated benefits enrollments. Employees can self-register for specific benefits
using the corporate portal or voice technology. Employees self-select desired benefits from a
menu. Payroll pay cards are now in use in numerous companies, such as Payless Shoes, which
296 C H A P T E R 9 Functional Business Systems
Key Terms
ACID test 275
auditing 292
capital budgeting 292
computer-integrated manufacturing (CIM) 281
economic order quantity (EOQ) 279
eXtensible Business Reporting Language
(XBRL) 287
Financial Accounting Standards Board
(FASB) 286
financial misrepresentation 286
flexible manufacturing systems (FMSs) 281
fraud risk management 289
GA AP Financial Reporting Taxonomy 287
inbound logistics 278
income statement 286
insider fraud 289
internal employment or
occupational fraud 289
inventory control systems 279
just-in-time (JIT) 279
lean manufacturing system 280
manufacturing execution systems 281
manufacturing quality control (QC)
systems 280
mission 273
moral hazard 290
online transaction processing systems
(OTPS) 276
operations level 274
outbound logistics 278
red flag 290
safety stock 279
standard operating procedures
(SOPs) 275
stockouts 279
Strategic plans 273
strategic planning 273
tactical level 274
total quality management (TQM) 280
has 30,000 employees in 5,000 stores. The system specifies the value of each benefit and the
available benefits balance of each employee. Some companies use intelligent agents to assist
employees and monitor their actions.
Employee Relationship Management In their effort to better manage employees,
companies are developing human capital management, facilitated by the Web, to streamline
the HR process. These Web applications are more commonly referred to as employee relation-
ship management. For example, self-services such as tracking personal information and online
training are very popular in ERM. Improved relationships with employees result in better reten-
tion and higher productivity.
Ethical Challenges and Considerations HRIS applications raise ethical and legal
challenges. For example, training activities that are part of HRM may involve ethical issues
in recruiting and selecting employees and in evaluating performance. Similarly, TPS data
processing and storage deal with private information about people, their performance, and
so forth. Care should be taken to protect this information and the privacy of employees and
customers.
The federal law related to workplace substance abuse, the Drug-Free Workplace Act
of 1990, requires employers with federal government contracts or grants to ensure a drug-
free workplace by documenting and certifying that they have taken a number of steps.
Dealing with alcoholism and drugs at work entails legal risks because employees have sued
for invasion of privacy, wrongful discharge, defamation, and illegal searches. Employment
laws make securing HR information necessary for the protection of employees and the
organization.
Questions
1. What are the key HR functions?
2. What are the benefits of moving HRISs to intranets or the cloud?
3. What concerns have deterred companies from implementing SaaS HR?
4. How can companies reduce the cost of recruiting qualified employees?
5. Describe IT support for HR planning and control.
6. What are ethical issues related to HRM applications?
1. Discuss the need for sharing data among functional areas.
2. How does waste increase costs? Give three examples.
3. What is the value of lean manufacturing?
4. What is the objective of EOQ?
5. What are the risks of JIT?
6. Explain the value of being able to respond to hot data.
7. Push-through ads use data about a person to determine whether
the ad should appear. What marketing opportunities does this capabil-
ity create?
8. Explain why the SEC requires that filers use XBRL.
9. How can internal controls help to prevent fraud?
10. How do companies allow themselves to become targets for
insider fraud?
11. What are the benefits of prosecuting an employee who has com-
mitted fraud against the company?
12. Why might a company not want to prosecute a fraudster?
13. Explain moral hazard. Give a fraud-related example.
14. Fraudsters typically spend the money they steal on luxury items
and vacations. Explain why these items are red flags of fraud.
15. What are three examples of strong internal controls?
16. Discuss how IT facilitates the capital budgeting process.
17. Discuss the role IT plays in auditing.
18. Explain the role and benefits of SaaS in HR management.
19. How does digital technology improve the recruitment process?
Case 9.2 297
Assuring Your Learning
Discuss: Critical Thinking Questions
Case 9.2
Business Case: HSBC Combats Fraud in Split-second
Decisions
With billions of dollars, corporate reputations, customer loyalty, and
criminal penalties for noncompliance at stake, financial firms must
outsmart fraudsters. Detecting and preventing fraudulent transactions
across many lines of business (checking, savings, credit cards, loans, etc.)
and online channels require comprehensive real-time data analytics to
assess and score transactions. That is, each transaction has to be ana-
lyzed within a split second to calculate the probability that it is fraudulent
or legitimate.
A big part of a bank’s relationship with customers is giving them con-
fidence that they are protected against fraud and balancing that protec-
tion with their need to have access to your services.
Explore: Online and Interactive Exercises
1. Visit the Oracle website at www.oracle.com.
a. Search for “Peoplesoft.”
b. Select Human Capital Management and review the HR ap-
plications. Describe three benefits of PeopleSoft Human Capital
Management.
c. Return to the Peoplesoft site. Select Financial Management. De-
scribe how PeopleSoft Financial Management reduces costs.
2. Search for a video or demo that explains EOQ. Explain the formula.
3. Finding a job on the Internet is challenging; there are almost too
many places to look. Visit two recruiting sites, for example, career-
builder.com and LinkedIn.com. What benefits do these sites provide to
you as a job seeker?
4. Examine the capabilities of two financial software packages: Pre-
pare a table that clearly compares and contrasts their capabilities.
5. Review Salesforce.com. What functional support does the soft-
ware provide?
Analyze & Decide: Apply IT Concepts to Business Decisions
1. Research and analyze a major corporate fraud.
a. Identify the company and explain when and how the fraud
occurred, who was involved, and damages.
b. How was the fraud detected?
c. Describe any red flags associated with the fraud.
d. Visit SAS.com and search “SAS fraud management.” Explain
how SAS fraud management could have helped prevent the fraud.
298 C H A P T E R 9 Functional Business Systems
HSCB Overview
HSBC is a commercial bank known by many as the “world’s local bank.”
HSBC is a United Kingdom-based company that provides a wide range
of banking and related financial services. The bank reported a pretax
profit of $6.8 billion in the first quarter of 2014 (1Q 2014). It has 6,300
offices in 75 countries and over 54 million customers.
Fighting Fraudulent Transactions
HSBC was able to reduce the incidence of fraud across tens of millions
of debit and credit card accounts. The bank implemented the latest
Fraud Management software from SAS. The software includes an appli-
cation programming interface (API) and a real-time transaction scoring
system based on advanced data analytics. Using the Fraud Manage-
ment app, HSBC has reduced its losses from fraudulent transactions
worldwide and its exposure to increasingly aggressive threats. The
antifraud solution is live in the United States, Europe, and Asia, where
it protects 100% of credit card transactions in real time.
Scenario
Consider this scenario. A credit card transaction request comes in for
the purchase of $6,000 in home appliances. The bank has a moment to
decide to approve the transaction or reject it as potentially fraudulent.
Two outcomes are possible:
• Legitimate purchase rejected When a legitimate purchase is
rejected, the customer might pay with another card. The bank
loses the fee income from the purchase and the interest fee. Risk
of account churn increases.
• Fraudulent purchase accepted When a fraudulent purchase
is accepted, a legitimate customer becomes a victim of a crime.
The bank incurs the $6,000 loss, the cost of the fraud investiga-
tion, potential regulatory scrutiny, and bad publicity. Chances of
recovering any losses are almost zero.
With trillions of dollars in assets, HSBC Holdings plc is a prime target
for fraud. Fighting all forms of fraud—unauthorized use of cards for pay-
ment and online transactions and even customer fraud—has risen to the
top of the corporate agenda. Fraud losses are operating costs that dam-
age the bottom line.
As required by regulations, HSBC has implemented policies to seg-
regate duties, create dual controls, and establish strong audit trails to
detect anomalies. In addition, the bank has antifraud technology, which
includes SAS Fraud Management, to monitor and score the millions of
daily transactions. It is the cornerstone of these efforts.
Fraud Management
In 2007, HSBC’s first SAS implementation went live in the United
States, which was their largest portfolio with 30 million cards issued
there. All transactions were scored in real time. Detection rates on
debit ATM transactions have been very effective. HSBC has updated its
Fraud Management solution multiple times as newer technology and
threats emerged.
Of course, financial fraud morphs to avoid new detection methods,
so antifraud models have a very short shelf life. Once HSBC closes up one
loophole, thieves devise new threats to exploit other potential vulner-
abilities. To counteract threats, fraud-monitoring algorithms and scoring
models require constant refreshing.
Questions
1. Analyze the reasons to invest millions of dollars to detect and
prevent fraudulent transactions. In your evaluation, do a cost–
benefit analysis to show why the investment cost is worthwhile.
2. Review the two outcomes of the fraud scenario. Assess the
business implications of each of the following two goals. Explain
why these goals are conflicting.
a. To minimize rejecting legitimate purchases by autho-
rized customers
b. To minimize the risk of making customers victims of fraud
3. The Fraud Management solution is based on a scoring model. For
example, assume that the scores range from 1 to 10, with 10 being
the highest probability that the transaction is fraudulent. What
cutoff score would you use to decide to approve a purchase? What
cutoff score would you use to decide not to approve a purchase?
If those cutoff scores are not the same, how do you suggest those
falling between scores be treated?
4. Why are approval decisions made in a split second? Would cus-
tomers tolerate a brief delay in the approval process if it reduced
their risk of identity theft? Explain your answer.
5. Research ATM or other banking transaction fraud. How has a
financial firm been defrauded or harmed?
Case 9.3
Video Case: United Rentals Optimizes Its Workforce
with Human Capital Management
Visit Oracle.com and search “United Rentals Optimizes Workforce.”
Click on the video link to “United Rentals Optimizes Its Workforce with
Oracle HCM.” Watch the video. Describe the key benefits of its HR soft-
ware. Visit Forbes.com and search for the article “10 Trends Driving the
Mandate for Modern HCM” posted on February 7, 2014.
Questions
1. Typically, the importance of the HR function is overlooked, or at
least overshadowed by accounting and finance, which manage
cash and other financial assets. In your opinion, is HCM software
as important as accounting software? Explain your answer.
2. Briefly describe three of the key trends driving HCM and how they
relate to the HR software benefits at United Rentals.
Sources: BusinessWire (2011), SAS.com (2014), Reuters (2014), YouTube video
“HSBC Relies on SAS for Comprehensive Fraud Detection.”
References 299
References
Accenture.com. “Ducati Motor Holding S.p.A: SAP Dealer Communica-
tion System.” 2014.
Apple.com. “Ducati.” 2014.
BusinessWire. “SAS Fraud Management Speeds Real time Processing
Boosts Detection and Prevention.” June 15, 2011.
Ducati Motor Holding S.p.A. 2014. http://www.ducatiusa.com/index.do
fasb.org. “US GAAP Financial Reporting Taxonomy.” 2012.
Johnson, P., L. Volonino, and I. Redpath. “Fraud Response and
Litigation-Readiness Strategies for Small and Medium Businesses:
A Handbook on How to Prepare for Litigation, Prosecution & Loss
Recovery in Response to Insider Fraud.” IFP.org, November 2011.
Justice.com, 2014.
Oracle.com. 2014.
Reuters. “HSBC Holdings plc Company Profile.” 2014. http://www.
reuters.com
Salesforce.com. 2014.
SAP.com. 2014.
SAS.com. “Reduce Losses from Fraudulent Transactions.” http://
www.sas.com
sec.gov. 2014
Wilson, D. “Manufacturing Technology: Hard Work.” The Engineer 33,
April 25, 2011.
xbrl.sec.gov. 2014.
300
CHAPTER 10
Enterprise Systems
L E A R N I N G O B J E C T I V E S
10.1 Name the different types of enterprise systems and explain
how they differ from legacy systems.
10.2 Describe the functions of enterprise resource planning (ERP)
systems, implementation risks, and how ERP investments are
justified.
10.3 Explain the planning and forecasting, sourcing and
purchasing, and distribution support provided by supply
chain management (SCM) systems.
10.4 Describe customer relationship management (CRM) systems
and their role in customer acquisition, retention, and
customer lifetime value.
10.5 Identify the leading enterprise social platforms (ESPs) and
discuss how they impact collaboration in an organization.
C H A P T E R O U T L I N E
Case 10.1 Opening Case: 3D Printing Drives the
“Always-On” Supply Chain
10.1 Enterprise Systems
10.2 Enterprise Resource Planning
10.3 Supply Chain Management
10.4 Customer Relationship Management
10.5 Enterprise Social Platforms
Case 10.2 Business Case: Lowe’s Fresh Approach
to Supply Chain Management
Case 10.3 Video Case: Procter & Gamble: Creating
Conversations in the Cloud with 4.8 Billion
Consumers
Introduction
An important challenge for business leaders is how to seamlessly integrate their data existing in
the many different types of information systems (ISs), such as TPS, MIS, DSS, and EIS, to better
meet the needs of their customers and achieve business objectives.
Introduction 301
This dilemma is widespread in the business community since many enterprises who have
been in business for over 25 years are still using antiquated, siloed mainframe computers and
software implemented 20–30 years ago. These systems are difficult and expensive to maintain,
update, integrate, and interface securely with leading-edge business apps. When companies
decide to update their IT infrastructure, they must invest in tightly integrated enterprise
systems that offer seamless data handling between all the different types of systems and are
easier to secure. With these enterprise-level system, companies are able to operate at optimal
efficiency levels and make better informed decisions consistent with the corporate strategy.
Enterprise systems fall into three primary categories: Enterprise resource planning (ERP),
supply chain management (SCM), and customer relationship management (CRM). These
enterprise systems are integrated by their connection to central data repositories that enable
them to synchronize and share corporate data from all departments and functional areas so
that employees can view enterprisewide data. A fourth category of an enterprise level system—
enterprise social platforms(ESPs)—is a relative newcomer to the enterprise system portfolio.
ESPs are designed to facilitate collaboration and communication among employees of an
organization.
In this chapter, you will learn about the benefits, limitations, and risks of investing in and
implementing cross-functional enterprise systems and business apps that support business
strategy, managers, and employees—and how these systems affect relationships with sup-
pliers, vendors, and customers. In the opening case, you will learn how strategic technology,
such as 3D printing, can drive the changing demands of business processes that are supported
by enterprise systems.
Enterprise systems are cross-
functional and interorganizational
systems that support the
business strategy.
Supply chain management
(SCM) is the efficient
management of the flows of
material, data, and payments
among the companies in the
supply chain, from suppliers to
consumers.
3D printing Also known as
additive manufacturing, builds
objects layer-by-layer to create
real-world objects.
Case 10.1 Opening Case
3D Printing Drives the “Always-On” Supply Chain
It is widely agreed that 3D printing is destined to transform almost
every major industry and change the way we live, work, and play in the
future. When MHI and Deloitte identified eight technologies that are
driving the always-on supply chain, their list included 3D printing, and
Gartner predicts that 3D printer will necessitate a rethinking of assem-
bly line and supply chain processes as it expands to meet demand in
more industry sectors. Goldman Sachs and McKinsey made similar
predictions (see Figure 10.1).
The worldwide revenue of the 3D printing industry is expected
to reach $12.8 Billion by 2018 and exceed $21 Billion by 2020. With
3D printing, computer-created digital models are used to create real-
world objects such as cars, toys, jewelry, food, spare parts, prosthetic
devices, organ tissues, and more. Table 10.1 lists and explains the fea-
tures and benefits of 3D printing.
For several decades, 3D printing has been used by manufacturers to
reduce research and development (R&D) costs. 3D printing builds products
layer by layer, using an additive manufacturing process that has less over-
head costs and allows for more complex designs. Using this technology,
engineers rapidly created a physical prototype of a new design. The proto-
type is then used to test the quality of the design and to check for defects.
Impact on The Supply Chain
3D printing is revolutionizing how companies offer their products. The
process of creating a product in traditional manufacturing is widely
different from 3D printing. Most parts are built by removing layers of
material (cutting, drilling, sanding, etc.), which results in the part’s
final form. But with 3D printing, layers of materials are added to each
other by applying heat or chemicals to create a finished product.
Compared to traditional manufacturing and prototyping methods,
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302 C H A P T E R 1 0 Enterprise Systems
3D printing offers high levels of customization, reduced costs for
complex designs, and lower overhead costs for short-run parts and
products. Capabilities of 3D printing hardware are expanding, and
costs have dropped dramatically. They will be able to build larger
components with greater precision or resolution at higher speeds
and lower costs. Forecasts indicate that 3D printing is becoming a
viable alternative to traditional manufacturing processes in a grow-
ing number of applications. Instead of using ink cartridges that are
currently used in printer, 3D printing uses a wide range of materials,
including advanced nickel alloys, carbon fiber, glass, conductive ink,
electronics, pharmaceuticals, and biological materials.
According to McKinsey, 3D printing will have an impact on consumer
sectors that place a premium on highly customizable products, for exam-
ple, footwear, toys, and jewelry. McKinsey estimates that by 2025, sales of
3D-printed products in these three industries alone may reach $550 bil-
lion per year.
The following examples show the potential of 3D printing.
Hardware Stores
When customers shop for replacement parts, the store could use a
3D printer with all the pattern specifications to print onsite and on-
demand. Hardware stores could slash their inventory and store sizes
and improve customer service.
Defense
Troops in the field and their equipment require regular maintenance.
Having a 3D printer at small supply post in the field rather than at a
larger base far away alters the ability to complete maintenance and
repair and provide a supply chain in combat.
Health Care
Hospitals use expensive equipment, such as magnetic resonance
imaging (MRI) scanners. Downtime spent waiting for onsite repair is
According to global investment
management from GOLDMAN SACHS
3D printing is 1 of 8 technologies that are going
to creatively destroy how companies do
business
IT Research firm Gartner predicted:
3D printing of nonliving medical devices such as
prosthetic limbs, combined with past population
growth and insufficient healthcare in emerging
markets, is likely to cause an explosion in
demand for the technology
Global Research firm McKinsey
forecasted:
3D printing is 1 of 12 disruptive technologies
that could deliver major economic impact to the
global economy by 2025
Global Research firm MHI/Deloitte
forecasted:
There will be an evolution of 3D printing supply
chain applications, increasing adoption rates.
FIGURE 10.1 Strong forecasts for 3D printing made by leading research and investment
management firms—Goldman Sachs, Gartner, McKinsey, and MHI/Deloitte.
TA B L E 1 0 . 1 Overview of 3D Printing
What is 3D printing?
How does it work?
3D printing, also known as additive manufacturing, builds objects layer
by layer. Traditional manufacturing typically uses a subtractive process,
whereby materials are cut, ground, or molded to create an object.
What enterprise
systems are impacted by
3D printing?
The potential for 3D printing to revolutionize ERP (enterprise resource
planning) and SCM (supply chain management) means business and IT pro-
fessionals must develop a framework for evaluating its impact.
Where is 3D print
technology used?
3D technology is being used by consumer-product designers, automotive
manufacturing engineers, medical and dental labs for building prototypes,
replacement parts, and customized products on demand. Retailers and
manufacturers are evaluating applications of 3D printing.
What factors are limiting
widespread use?
3D printing has not yet reached the point where its cost, speed, and scal-
ability can compete with traditional manufacturing.
Enterprise Systems 303
expensive. A technician who was guided remotely by the manufacturer
could diagnose and fix the problem immediately by 3D-printing the
MRI scanner replacement part onsite.
The outlook for medical use of 3D printing is growing at an
extremely rapid pace as specialists are beginning to utilize 3D printing
of 3D-printed implants and prosthetics. For example, hip surgery done
with a 3D-printed titanium implant and bone stem cell graft has been
conducted in the United Kingdom. The hip part was designed using the
patient’s CT scan, thereby matching the patient’s exact specifications
and measurements. Even more radical is the potential for complex and
controversial 3D bioprinting of human tissue and organs. Scientists
are already 3D-printing organ tissue. Organovo, a San Diego, CA,
forward-thinking medical company, recently announced plans to
develop 3D bioprinted human liver tissues for direct transplantation
into patients, and Russian scientists have bioprinted a thyroid gland
using stems as an “ink.” Although printing whole human organs for
surgical transplants is still years away, the technology is rapidly devel-
oping. The ethical arguments and challenges of bioprinting will be
discussed in Chapter 14.
Reproduction of Vintage Car Components
In 1969, Ferrari introduced one of its most masterful race cars—the
312P. But parts for that vintage car do not exist. To rebuild an engine, a
special aluminum alloy was poured into a cast, which was created by
3D printing. The new engine block and engine rebuild were completed
in record time. 3D printing is by far the most efficient method for repro-
ducing components that are no longer available. Often, it is the only
way to reproduce certain components quickly and at reasonable cost.
Aerospace Manufacturing
GE is using additive manufacturing to make fuel nozzles for its next-
generation Leap engines that will power the new Boeing 737 and Air-
bus A320 jets. The fuel nozzles will be 25% lighter and 5 times more
durable. Since there are 20 nozzles in each engine, the weight savings
for each aircraft are significant. In addition, the FAA recently cleared
GE Aviation’s first 3D-printed jet engine part to fly! Another aerospace
application is the combustion chamber liners that are being printed
using selective laser melting by NASA.
Industrial Design
Large industrial group Siemens explains that 3D printing allows its
designers to imagine shapes that would be impossible to create
through older techniques. The use of additive manufacturing has radi-
cally speeded up prototyping of Siemens’s gas turbine blades, from
20 weeks to 48 hours. Additive manufacturing has also cut the cost of
tooling and materials. For example, a piece can have all of its holes
incorporated into it with precision because it is built up from powder
rather than being expensively drilled afterward. Siemens hopes to cut
the cost of some parts by 30%.
Manufacturing On-Demand
The ability to manufacture replacement parts on-demand using 3D
printers is expected to transform after-market services and restructure
industries. Smaller facilities with 3D printers onsite could replace
large regional warehouses. The supply of service parts might even
be outsourced: Small fabricators located, for example, at airports,
hospitals, or major manufacturing venues could make these parts for
much of the equipment used onsite, with data supplied directly by the
manufacturers.
Questions
1. Compare and contrast the predictions made by Goldman Sachs,
Gartner, MHI/Deloitte, and McKinsey on the impact of 3D printing.
2. Discuss the differences between the traditional linear supply
chain and the always-on supply chain.
3. Explain how the manufacturing supply chain will be changed by
3D printing.
4. In what situations is 3D printing most valuable?
5. Explain why medical use of 3D printing is growing at an extremely
rapid pace.
6. Name four industries in which 3D printing is changing the
supply chain.
7. Do you consider 3D printing an important technology? Explain.
Sources: Compiled from Fine (2014), Bourne (2014), The Engineer (2014), Cole
(2014), MHI and Deloitte (2016), Gartner.com (2016) and 3dprinting.com (2017).
3D bioprinting is the medical
application of 3D printing to
produce living tissue and organs.
Biotech firms are using 3D printing
for tissue engineering applications
where organs and body parts
are built using inkjet techniques.
Layers of living cells are deposited
onto a gel medium and slowly
built up to form three-dimensional
structures.
10.1 Enterprise Systems
An Enterprise system is a large-scale application software package that supports business pro-
cesses, information flows, reporting, and data analytics in complex organizations. Enterprise
systems not only integrate systems within the organization but also link organizations with
their suppliers, business partners, and customers. While enterprise systems are considered a
boon to many organizations seeking to integrate a host of disparate, siloed ISs, they can also
disrupt an organization as they change the way in which data is stored and accessed and lead
to resistance as demonstrated in Opening Case 10.1.
There are four types of enterprise systems typically implemented to improve business
processes and functions through integration (Table 10.2). These are as follows:
• Enterprise resource planning (ERP)
• Supply chain management (SCM)
• Customer relationship management (CRM)
• Enterprise Social Platforms (ESPs)
304 C H A P T E R 1 0 Enterprise Systems
TA B L E 1 0 . 2 Enterprise Systems and Their Functions
Name Acronym Function
Enterprise
resource planning
ERP Integrates an enterprise’s internal applications, supports
its external business processes, and links to its external
business partners.
Integrate business processes, including supply chains, man-
ufacturing, financial, human resources, budgeting, sales, and
customer service.
Used primarily in the manufacturing industry
Supply chain
management
SCM Supports the steps in the supply chain—procurement, sourcing,
manufacturing, storage, inventory control, scheduling, order
fulfillment, and distribution.
Improves decision making, forecasting, optimization,
and analysis.
Customer
relationship
management
CRM Helps create a total view of customers to maximize share-of-wallet
and profitability.
A business strategy to segment and manage customers to optimize
customer lifetime value (CLV).
Enterprise
Social Platforms
ESP Enhances social networks, both within the enterprise and across
key members of the enterprise’s supply and distribution chains. An
important method for enhancing communication, coordination,
and collaboration for business purposes.
Enterprise systems, such as ERP, SCM, and CSM are integrated by their connection to a
central data repository that enables them to sync and share the latest data, as illustrated in
Figure 10.2. For example, the integration of ERP and SCM improves inventory management
and supply chain performance. Another advantage of these enterprise systems is that core
business processes can be automated for consistency and efficiency.
Core business processes
include accounting, finance, sales,
marketing, human resources,
inventory, productions, and
manufacturing.
Customer Service
Sales Force Automation
Order Fulfillment
Partner Relationships
Purchasing
Accounting/Finance
Human Resources
Inventory Management
Manufacturing
Marketing and Sales
Customers
Suppliers
Vendors
Logistics
Coordination
C
Su
Ve
Lo
Co
Pu
Ac
H
In
M
M
Customer
Relationship
Management
(CRM)
Supply
Chain
Management
Single Data
Repository
Enterprise
Resource
Planning
(ERP)
FIGURE 10.2 Integration of enterprise systems is achieved via access to shared data.
Enterprise Systems 305
In contrast, ESPs focus on communication and collaboration within the company
and are a relative newcomer to the suite of enterprise systems in which companies are
investing. Each of these types of enterprise systems is discussed in greater detail later in
this chapter.
Implementation Challenges of Enterprise Systems
Implementing an enterprise system is complex, time-consuming and typically requires the help
of a consulting firm, vendor, or value-added reseller (VAR). Integrating legacy systems with
cloud-based applications is complex, as described in Tech Note 10.1. Much of the complexity is
due to getting new apps or system modules to interface with existing or legacy systems that
are several generations older.
Value-added reseller (VAR)
customizes or adds features to a
vendor’s software or equipment
and resells the enhanced product.
Tech Note 10.1
Data Transfers to Mainframes
Enterprise systems require data transfers—often to mainframes.
Designing enterprise-level systems involves a variety of compo-
nents that had been implemented on mainframes, midrange com-
puters, networks, or cloud environments. In most large enterprises,
mainframes are the workhorse systems that run the majority of
business transactions. In contrast, customer interfaces through
customer service; ERP, CRM, and SCM apps; websites; and business-
to-business (B2B) interactions are usually on distributed systems
or in the cloud. Many times seemingly well-planned projects fail
and require extensive reworking because integration issues had
not been properly planned.
Some enterprises choose to avoid the challenges of integra-
tion by creating a new system that replaces the full functionality of
the old one. This option is the most expensive, difficult, and risky.
An advantage is that this option offers a longer-term solution that is
agile to respond to changing business needs. Despite that potential
pay-off, complete replacement requires a large up-front invest-
ment for development, poses difficulties in duplicating behavior of
the legacy system, and increases the risk of complete software
project failure.
Legacy systems are older
information systems (ISs) that
have been maintained over
several decades because they
fulfill critical needs.
Interface means to connect
to and exchange data with apps
and systems.
Investing in Enterprise Systems
Companies tend to migrate to an enterprise solution when they need to consolidate their dis-
parate systems, such as when limitations caused by their existing legacy systems interfere with
performance or the ability to compete. IT at Work 10.1 is an example. Here are major reasons
why companies replace parts of their legacy systems or supplement them with enterprise sys-
tems. It is important to realize that many companies do not have the resources to replace all
their legacy systems.
• High maintenance costs Maintaining and upgrading legacy systems are some of the
most difficult challenges facing chief information officers (CIOs) and IT departments.
• Inflexibility Legacy architectures were not designed for flexibility. These huge sys-
tems cannot be easily redesigned to share data with newer systems, unlike modern
architectures.
• Integration obstacles Legacy systems execute business processes that are hardwired
by rigid, predefined process flows. Their hardwiring makes integration with other systems
such as CRM and Web-based applications difficult and sometimes impossible.
• Lack of staff IT departments find it increasingly difficult to hire staff who are qualified
to work on mainframes and applications written in languages no longer used by the latest
technologies.
• Cloud The cloud has lowered up-front costs. Cloud-based enterprise systems can be a
good fit for companies facing upgrades to their legacy ERP and other enterprise systems.
306 C H A P T E R 1 0 Enterprise Systems
Implementation of Best Practices
Best practices for implementing enterprise systems involve changes in the management of pro-
cesses, people, and existing systems. Three situations where changes are needed are as follows:
1. Redesign of business processes Processes need to be simplified and redesigned so that
they can be automated, either totally or partially. Tasks that are no longer necessary are
removed from the processes.
2. Changes in how people perform their jobs Jobs and how they are performed will
change to accommodate the new processes. Enterprise systems require retraining users
whose productivity will drop initially as they adjust to a new way of doing their jobs.
3. Integration of many types of information systems Integrating ISs is necessary so that
data can flow seamlessly among departments and business partners. Automated data
flows are essential to productivity improvements.
A best practice is to examine the inefficiencies in existing processes to find ways to improve or
significantly simplify the process. For example, manual document-intensive processes such as
order entry and billing create major headaches for workers. These processes require users to
manually review documents for approval, enter data from those documents into a back-office
system, and then make decisions. Automated order entry systems track customer orders from
the time of initial order placement through the completion of those orders and perform back-
order processing, analysis, invoicing, and billing.
Common ways to overcome implementation complexity are to lease or license enterprise
systems from vendors and to access cloud-based enterprise systems.
IT at Work 10.1
Organic Valley Does Business Better with
Enterprise System
Organic Valley Family of Farms is the largest U.S. cooperative
(co-op) of organic farmers and one of the nation’s leading organic
brands. The co-op represents over 1,300 family farms in 34 states
and Canada. Its mission is to keep small and midsized farmers
farming. Organic Valley produces over 200 organic foods, including
organic milk, soy, cheese, butter, eggs, produce, juice, and meats,
which are sold in supermarkets, natural foods stores, and food
co-ops and as ingredients for other organic food manufacturers
nationwide. One of the biggest challenges for Organic Valley had
been managing growth in the face of increasing competition from
larger companies.
Need to Consolidate Disparate Systems
Organic Valley needed to consolidate its disparate systems into one
enterprise solution to improve operating efficiencies and main-
tain the high quality of its line of perishable food products. The
company had been doing planning using spreadsheets; separately,
it completed its financials, order management, and inventory on an
enterprise system designed for discrete manufacturing. As opera-
tions expanded, it needed to make a major leap in business systems.
Organic Valley also needed a solution with enough flexibility
and versatility to manage the company’s dairy, produce, meat,
and egg lines of business, all of which have different and unique
requirements.
Use of a Consultant and Vendor
Organic Valley hired a consultant during the selection process to
help identify the most important functions and features, such as
shelf-life management and expiration date management. Based
on these requirements, three possible vendors were identified.
Organic Valley and its consultant agreed that the solutions offered
by the vendor Infor best fit its business.
Doing Business Better
The company now has one integrated system to support all business
processes across all of its lines of business. With the Infor enterprise
solution, Organic Valley is much more agile on the technical side,
and this has given it the ability to support rapid business growth.
The company projects savings of $2 million per year through
improved supply chain planning and other operational efficiencies.
IT at Work Questions
1. Why did Organic Valley need an enterprise system?
2. What factors contributed to the successful implementation
and outcomes? Explain their importance.
3. Enterprise systems are expensive. What factor helped justify
the investment?
4. Using spreadsheets for planning is rather common. Why
do you think companies use stand-alone spreadsheets
for planning?
Enterprise Resource Planning (ERP) 307
Enterprise Systems Insights
Here are three other insights related to enterprise systems to better understand the current
state of enterprise systems and their potential.
1. One of the IT department’s most important roles is to provide and support applications
that enable workers to access, use, and understand data. These applications need to be
tightly aligned with well-defined and well-designed business processes—a standard that
few enterprises are able to achieve.
2. Customer loyalty helps drive profits, but only for customers who are profitable to the
company. Many companies do not know how to recognize or encourage the kind of cus-
tomer loyalty that is worth having. Using data about buying behaviors (e.g., amount
spent per month; purchase of high-margin products; return activity; and demands for
customer service) helps a company identify its loyal customers and which ones are
profitable.
3. Companies worldwide spend billions of dollars in the design and implementation of enter-
prise systems. Huge investments are made in ERP systems from vendors such as SAP,
Oracle JD Edwards, Sage ERP, EVO~ERP, Infor, and NetSuite to create an integrated global
supply chain. Interorganizational ISs play a major role in improving communication and
integration among firms in a global supply chain.
Questions
1. Explain the purpose of an enterprise system.
2. Describe the three types of enterprise systems.
3. What is customer lifetime value (CLV)?
4. What is a value-added reseller (VAR)?
5. What are two challenges of legacy systems?
6. Why do companies migrate to enterprise systems?
7. Explain the challenges of enterprise system implementation.
8. Explain the three types of changes needed when an enterprise system is implemented.
10.2 Enterprise Resource Planning (ERP)
To understand what an ERP does, it helps to think about all of the various processes needed to
run a business. These might include inventory and order management, finance and account-
ing, human resources (HR), CRM, SCM, and e-commerce. ERP software integrates all these vari-
ous functions into one complete system to streamline processes and information across the
entire organization.
The central feature of all ERP systems is a shared database that supports multiple functions
used by different business units so that employees in different divisions, such as accounting
and sales, can rely on the same information for their different purposes.
ERP software also offers some degree of synchronized reporting and automation. Instead
of forcing employees to maintain separate databases and spreadsheets that have to be man-
ually merged to generate reports, some ERP solutions allow staff to pull reports from a single
system. For instance, with sales orders automatically flowing into the financial system without
any manual rekeying, the order management department can process orders more quickly and
accurately, and the finance department can close the books faster. Other common ERP fea-
tures include a portal or dashboard to enable employees to quickly understand metrics of the
firm’s KPIs.
308 C H A P T E R 1 0 Enterprise Systems
Brief History of ERP
ERP originated in the 1990s as a means to integrate accounting, finance, HR, marketing, and
other critical business functions. ERPs were devised to help managers run a business. Ideally,
each business function would access a centralized database instead of data silos. In many
cases, the ERP was bought, installed, and configured by a vendor who supplied the entire suite
of applications, or modules, for manufacturing, distribution, retail, and service organizations.
Early ERPs ran on client−server architectures and custom-designed apps that accessed the
shared database servers.
Then, similarly to most modern business software, ERP systems migrated to a Web-based
architecture. Users accessed the ERP via a Web browser from within the company or accessed it
externally via the Internet using a secured encrypted virtual private network (VPN).
ERP Today ERP is now a mature technology, whose core components have not changed
much. What has changed are the way ERPs are deployed—on-premises, in the cloud, or as a
managed service—and users’ expectations. The latest ERP solutions are designed with a focus
on social collaboration, deployment flexibility, faster response, and accessibility from mo-
bile devices. They have touch-enabled user interfaces designed to work with all touch-screen
devices. New apps and mobile add-ons enable the following:
• Sales associates to process orders, take payments, and collect signatures with an iPad app
• Field technicians to provide customer service from anywhere
• Marketing to manage every aspect of ongoing customer relationships using a
smartphone app
• Production to access to the real-time information needed to reduce stockouts and
excess inventory
• Customers to access, pay, and view invoices online
The worldwide ERP software market grew $82.1 billion in 2015 (Pang, 2016). SAP remained
the ERP market leader in ERP licenses, maintenance, and subscription revenues. SAP accounted
for 6% of the market share, FIS Global was next with a share of 4%, followed by Oracle and
Fiserv, which were tied for third at 3%.
Technology Perspective
From a technology perspective, ERP is the software infrastructure that links an enterprise’s
internal applications and supports its external business processes. Departments stay informed
about what is ongoing in other departments that impact its operations or performance. Know-
ing about problem situations and being able to work around them saves time and expense
and preserves good customer relations. For example, using ERP, a manufacturer shares the
database of parts, products, production capacities, schedules, backorders, and trouble spots.
Responding quickly and correctly to materials shortages, spikes in customer demand, or other
contingencies means that small initial problems are solved instead of allowing them to be
amplified down the line.
Figure 10.3 demonstrates how an ERP fits into an enterprise’s IT infrastructure. The
core ERP functions are integrated with other systems or modules, such as SCM and CRM. An
enterprise application integration (EAI) layer enables the ERP to interface with legacy apps.
EAI is middleware that connects and acts as a go-between for applications and their business
processes.
Acquiring an ERP ERPs are not built in-house or built using proprietary software
because the costs and time to do so would be staggering. Typically, ERP systems are acquired
by purchasing or leasing in a Software-as-a-Service (SaaS) arrangement. (You will read more
Enterprise Resource Planning (ERP) 309
about IS sourcing and contracts in Chapter 12.) All ERPs must be customized to the company’s
specifications. Here are two examples of how ERP acquisitions can be customized:
1. Boers & Co Fine Metalworking in the Netherlands has been manufacturing fine mechani-
cal parts, high-precision assembly, and sheet metal products for over 100 years. The com-
pany implemented Epicor ERP to access real-time data for everything from the shop floor
to finance. All business operations from the front office through production, receiving and
shipping, to order entry and cash receipts are handled by the ERP.
2. Peters Ice Cream in Australia had been under the ownership of food giant Nestlé and was
working under its ERP. That ERP was not tailored for the specific needs of an ice cream
company and did not interface well with Peters’ legacy systems. Peters’ network of freez-
ers extends throughout Australia, and to get the ice cream flavors where they were needed
when they are needed, it was essential that information on stock levels and deliveries be
accurate and in real time. Peters selected Infor’s M3 QuickStep for Food and Beverage ERP
solution because 70% of the necessary business processes were already preconfigured
within it. With preconfigured business processes, Peters was able to implement its new
ERP system in eight months.
Enlisting the help of an experienced ERP consultant can greatly increase the chances of a
successful ERP implementation (see Career Insight 10.1).
Human
Resources
Authoritative
Data Source
Core ERP
Bolt-ons
ERP in the Enterprise
Supply Chain
Management
Product Life-Cycle
Management
External
Business
Partners
Business
Intelligence
Legacy
Application
Legacy
Application
Legacy
Application
Finance
Operations
E
n
te
rp
ri
se
A
p
p
lic
a
tio
n
I
n
te
g
ra
tio
n
B
2
B
G
a
te
w
ay
FIGURE 10.3 Overview of the complexity of ERP and its interfaces with other enterprise systems (U.S. Army Business
Transformation Knowledge Center, 2009).
Career Insight 10.1
ERP Consultant: What Skills do you Need?
According to the Bureau of Labor Statistics, the role of ERP Con-
sultant is becoming a high-demand job in the U.S. economy.
ERP consultants currently earn a median pay of $80,802 and can
demand top income of $143,306 (payscale.com).
What do ERP consultants do all day? They write design
specifications ad estimates for programs, based on require-
ments; participate in decision making to optimize and improve
IT management; analyze and understand existing software,
and assist technical teams using change management and
technical skills.
What specific skills do ERP consultants need? According to
Morgan McKinley, a large online recruiting service, if you envision
becoming an ERP consultant, you will need to have the following
experience and skills:
1. Business Process Analysis experience including require-
ments gathering, ability to identify defects and stakeholder
management
2. Excellent organizational skills including ability to deal with
ambiguity, juggle multiple priorities, and meet goals and
deadlines
3. Exceptional interpersonal skills and the ability to influence
people
4. Ability and willingness to share knowledge as a trainer or men-
tor to end-users
Implementing an ERP is often a complex, long-term, and challenging project for an ERP
consultant, as described in IT at Work 10.2.
310 C H A P T E R 1 0 Enterprise Systems
Another important aspect of acquiring and successfully implementing an ERP is the vendor
selection process (Tech Note 10.2).
IT at Work 10.2
Agency Replaced 50 Legacy Systems with an ERP
A large European public sector agency processes 200 million
payments every year. Its finance and HR systems were a complex
combination of 50 legacy systems that had evolved over time
without a plan. Technical support for the outdated legacy systems
was no longer available, and the few remaining internal devel-
opers were near retirement. The agency had to replace this legacy
architecture with an ERP system that could process the hundreds of
millions of payments and support more than 70,000 users.
In the first phase of the ERP implementation project, the
scope and budget of the ERP were approved, vendor proposals
were evaluated, and a contract with the selected vendor was nego-
tiated. These activities took almost a year to complete. Then a
roll-out strategy was developed wherein the legacy systems were
replaced by ERP modules and new data stores. Replacing legacy
systems with ERP requires migrating databases and applications.
The roll-out strategy was planned to minimize risk by ensuring that
the agency met its strict legal requirements of having one leading
accounting system at all times.
Implementing the ERP system across the agency took 2.5 years
and was delivered on time and budget and at the desired quality
level. Extensive planning, executive support, experienced consul-
tants, and ERP-informed vendor selection were key success factors.
Tech Note 10.2
Selecting an ERP Vendor
The two largest vendors of ERPs are SAP and Oracle. The website
top10erp.org provides comparisons of top ERP vendor products,
provide free demos of the software, and offers prices quotes for the
different offerings.
To simplify and reduce the cost of the ERP software evalu-
ation, comparison, and selection processes, an annual event
called the ERP Vendor Shootout (erpshootout.com) is held and
geared toward ERP selection teams and decision-makers for
companies with manufacturing, distribution, or project-oriented
requirements.
TA B L E 1 0 . 3 ERP Selection Rules
Selection Rule Description
1. Select an ERP solution
that targets the company’s
requirements
ERP packages are tailored for organizations based on their size
and industry. Midmarket solutions have more sophisticated
capabilities than packages for small businesses; large enterprise
packages are the most complex. It is important to choose an ERP
that can support critical functions of the organization, such as
accounting or inventory management
2. Evaluate potential ERP
vendors’ strengths and
weaknesses
Check how many customers each vendor has; its financial health
(you do not want to select a vendor on the brink of bankruptcy);
experience in the specific industry, and how the ERP can scale as
the company grows
3. Meet with each vendor and
get a hands-on demo of its
ERP solutions
Demos allow employees to experience the usability of each ERP
module and how well the ERP would support business processes
4. Calculate ERP’s total cost of
ownership (TCO)
The cost of the ERP or the monthly SaaS fee is only the beginning
of the calculation. The TCO also includes implementation, cus-
tomization, management services, training, additional hardware
and networks, additional bandwidth for a Web-based product,
and IT staff
Four Rules for Selecting an ERP ERPs are complex, but they are becoming more
user-friendly. Other options are hosted ERP solutions, such as ERP SaaS, and cloud-based ERP.
Still, ERPs are expensive, time-consuming implementations that require a lot of planning. Four
rules to consider when selecting an ERP solution or software package are listed in Table 10.3.
Enterprise Resource Planning (ERP) 311
Achieving ERP Success
Managers and other decision makers tend to think that if an enterprise system works for lead-
ing companies, it will work for them as well. But that is not true. In fact, several of the best
companies have suffered devastating consequences that led to multimillion dollar losses,
bankruptcy, or lawsuits. Most often, the ERP is eventually fixed and remains in use, which gives
the false impression that the ERP was successful from the start.
The success of an ERP depends on organizational and technological factors that occur prior
to, during, and after its implementation. Knowing what to do and what not to do are important.
Both the successes and failures teach valuable lessons as well, as you will learn in this section.
Be aware that reading vendor white papers and viewing Webcasts or demos may give you
a biased view of the benefits of ERP software. You need to conduct your own research to learn
the full story behind an enterprise system implementation. Problems may be skipped over or
ignored. While blogs and YouTube posts may be good sources of objective data, many vendors
have blogs and YouTube videos that are designed to appear neutral, when in fact they are not.
ERP Disasters and Failures ERP implementations are complex—and risky. Planning,
deploying, or fine-tuning these complex business software systems for your company is such a
large undertaking that such projects fail more than 50% to 70% of the time. Those are not encour-
aging statistics. ERP failures have made it impossible to ship products and, at the extreme,
have led to bankruptcy. Many ERP projects have ended up in litigation, the headlines, and out-
of-court settlements. Dell canceled an ERP system after spending two years and $200 million on
its implementation. Hershey Food Corp. filed highly publicized lawsuits against its ERP vendors
for a failed implementation. The following ERP failures have led to lawsuits against vendors
or consulting firms. Unfortunately, lawsuits do not result in a successful ERP implementation.
ScanSource vs. Avanade—“bait-and-switch” A half-million lines of custom code
were not enough to produce a viable Microsoft Dynamics AX ERP system for point-of-sale and
RFID products distributor ScanSource, according to a lawsuit filed by ScanSource against Ava-
nade. AX is one of four ERP products sold under the Dynamics brand and is aimed at larger
companies. The project was estimated to cost $17 million and take 11 months, but the cost
estimate grew to a staggering $66 million, and it failed to “go live” after three years. Avanade
misrepresented the skills of its consultants in order to win the contract; then sent in a contin-
ually changing cast of consultants without the expertise to do the job or familiarity with AX—
hence, the allegation of “bait-and-switch” tactics.
ScanSource terminated the contact with Avanade and hired another company to fix the
problems at an additional cost of $58 to $72 million.
Dillard’s, Inc. vs. JDA Software Group—unmet obligations Dillard’s alleged that
i2 failed to meet obligations regarding two software-license agreements for which the
department store had paid $8 million. JDA Software Group Inc. was ordered to pay $246 mil-
lion in damages.
FoxMeyer Drugs vs. SAP and Andersen Consulting—“bankruptcy bound”
FoxMeyer Drugs was a $5B company and the nation’s largest distributor of pharmaceuticals
before its ERP failure that led to a $500M lawsuit against SAP and Andersen Consulting. Fox-
Meyer’s ERP could not process the transactions needed to supply its customers with their
orders. FoxMeyer had been processing 425,000 invoice lines per day on its legacy software.
The company’s ERP was limited to 10,000 invoice lines per day. This quickly decreased order
processing capability, sent the company into bankruptcy protection, and ultimately shut down
the business. Implementation was troubled almost from the start. Despite warnings from Woltz
Consulting, during the early stages of the project, that a schedule for the entire implementation
to be completed in 18 months was totally unrealistic, FoxMeyer went ahead with the vendor’s
planned implementation.
312 C H A P T E R 1 0 Enterprise Systems
The lesson to be learned is that when it comes to ERP selection, you either get it right or
pay the price for years to come!
ERP Success Factors In order to successfully implement an ERP, you need to know the
factors that increase the likelihood of ERP success and minimize the risk of problems. Many man-
agers assume that success or failure depends on the software and, furthermore, that a failure is
the fault of the software that is purchased or licensed. In reality, 95% of a project’s success or
failure lies in the hands of the company implementing the software, not the software vendor.
The results of a survey to identify the factors ERP experts considered most important to
successful ERP projects are shown in Figure 10.4.
Executive Support
& Buy-In, 19%
Strong Program
Management, 6%
Organizational
Change
Management and
Training, 13%
Realistic
Expectations, 8%
Interaction of all
five factors, 49%
Focus on
Business
Processes, 5%
Most Important Factors for ERP Project Success
FIGURE 10.4 Experts identify the combination of factors needed for ERP success.
Nearly half of the experts indicated that the failure of any one of the factors significantly
increases the risk of ERP failure.
The following recommendations explain why ERP success depends on several key factors
being met:
1. Focus on business processes and requirements Too often, companies get caught up in
technical capabilities or platforms on which the ERP runs. But compared to business pro-
cesses, none of this really matters. What matters is how managers want business opera-
tions to run and what the key business requirements are. Once management and IT have
defined them, they can intelligently choose the software, modules, and vendor that fit
their unique business needs.
2. Focus on achieving a measurable ROI Developing a business case to get approval from
upper management or the board of directors is essential, but not sufficient. Establish key
performance measures, set baselines and targets for those measures, and then track per-
formance after going live. The performance results are proof of how well the ERP meets the
expectations that had been listed in the business case.
3. Use a strong project management approach and secure commitment of resources
An ERP project depends on how it is managed. Responsibility for the management of the
ERP implementation project cannot be transferred to vendors or consulting firms. Because
of the business disruption and cost involved, ERP projects require the full-time attention
and support of high-profile champions on the key functions for a long period of time, from
6 to 12 months on average. It is also known that ERP projects cannot be managed by peo-
ple who can be spared. They must be managed by people who are indispensable person-
nel. Without powerful champions and an adequate budget (discussed next), expect the
ERP to fail. Project management will be covered in Chapter 13.
Supply Chain Management Systems 313
4. Obtain strong and continuing commitment from senior executives Any project with-
out support from top management will fail. No matter how well run a project is, there will
be problems such as conflicting business needs or business disruptions that can only be
resolved by someone with the power and authority to cut through the politics and per-
sonal agendas.
5. Take sufficient time to plan and prepare before starting the project An ERP vendor’s
motive is to close the deal as fast as possible. The company needs to make sure it correctly
defines its needs and what it can afford to achieve in order to intelligently evaluate and
select the best vendor. Do not be rushed into a decision. Too often, companies jump right
into a project without validating the vendor’s understanding of business requirements or
their project plan. The principle of “measure twice, cut once” applies to vendor selection.
The more time the company spends ensuring that these things are done right at the start,
the lower the risk of failure and the less time spent fixing problems later. Filing a lawsuit
against a vendor is not a fix. Lawsuits are both expensive and risky and contribute nothing
to the company’s performance.
6. Invest in training and change management Another key principle to understand is
that when you design an ERP, you redesign the organization. ERP systems involve dra-
matic change for workers. ERPs lose value if people do not understand how to use them
effectively. Investing in training, change management, and job design are crucial to the
outcome of any large-scale IT project.
Questions
1. What are the three ways ERP can be deployed?
2. Briefly describe the latest ERP features and add-ons.
3. Describe ERP from a technology perspective.
4. What types of situations are best suited to investing in an ERP?
5. List and briefly describe three of the ERP implementation success factors.
6. Describe causes or factors that contribute to ERP failure.
10.3 Supply Chain Management Systems
The journey that a product travels, as shown in Figure 10.5, is called the supply chain. It is a
network of raw material suppliers, distributors, manufacturers or assemblers, order fulfillment
and logistic providers, and retailers that participate in the production, delivery, and sale of a
product to the customer. The supply chain is like a pipeline composed of multiple companies
that coordinate activities to differentiate themselves from their competitors.
Supply chains vary significantly depending on the type, complexity, and perishability of
the product. For example, in a simplified sense, the food supply chain begins with the livestock
or farm, moves to the manufacturer, then through the distribution centers and wholesalers to
the retailer and final customer.
Supply chain starts with the
acquisition of raw materials or
the procurement (purchase) of
products and proceeds through
manufacture, transport, and
delivery—and the disposal or
recycling of products.
Supplier focuses
on raw materials
supplied to
distributors
Manufacturer or
Assembler
converts raw
materials into
finished product
Distributor
ensures products
reach point of
sale
Retailer offers
products for sale
Customer
receives
purchased
products
Order Fulfilment
& Logistics
focuses on
delivery of
products to the
customer
FIGURE 10.5 Build a Supply Chain.
314 C H A P T E R 1 0 Enterprise Systems
Supply chain management (SCM) is the efficient management of the flows of material,
data, and payments among the companies in the supply chain, from suppliers to consumers.
SCM systems are configured to achieve the following business goals:
• To reduce uncertainty and variability to improve the accuracy of forecasting.
• To increase control over processes to achieve optimal inventory levels, cycle time, and cus-
tomer service.
An example of how supply chains are managed to achieve business goals is discussed in
IT at Work 10.3.
IT at Work 10.3
Managing the U.S. Munitions Supply Chain
Munitions Supply Chain Management
The Joint Munitions Command (JMC) is a major part of the U.S. Army
Materiel Command (AMC). Munitions are the weaponry hardware,
vehicles, and equipment and their ammunition. JMC supports
U.S. warfighters by managing the munitions supply chain to get the
right munitions at the right place at the right time. JMC manufac-
tures, procures, stores, and transports tanks, weaponry, howitzers,
and other munitions as well as bullets, artillery shells, and other
ammunition to locations worldwide. Much like a military hierarchy,
the munitions supply chain follows a predictive and linear model
of logistics to meet “readiness goals and minimize overall costs”
(Haraburda, 2016).
Supply Chain Challenges
JMC provides bombs and bullets to America’s fighting forces—all
services, all types of conventional ammunition from 500-pound
bombs to rifle rounds. JMC manages plants that produce more
than 1.6 billion rounds of ammunition annually and the depots that
store the nation’s ammunition for training and combat.
Clearly, managing the munitions supply chain is extremely
complex and critical. Similarly to other supply chains, it depends
on good relationships among suppliers in the network, the quality
of supplier information, and communication channels.
JMC Improves Battle Readiness at Reduced Cost
JMC’s project began with a focus on efficiency but has resulted in
increased warfighting readiness at reduced cost. After transform-
ing operations, integrating its supply chain, and improving data
management, JMC is now better able to rapidly supply U.S. forces
with the highest-quality munitions when they need them and to
cut transportation costs up to 50%—a significant savings per year.
These improvements were made possible as a result of greater
asset visibility (tracking and monitoring), better forecasting and
decision-making capabilities, communication, and collaboration
along the supply chain.
IT at Work Questions
1. Explain the role of the munitions supply chain.
2. Discuss how JMC ensures that soldiers receive the highest-
quality ammunition, on time, and where needed.
3. Why would improvements in munitions SCM also improve
warfighting readiness?
4. What factors impact the ability to manage the munitions
supply chain?
5. For the JMC, where does the munitions supply chain start
and where does it end?
6. Is munitions SCM unique, and if so, why? Or, is it similar to the
management of any supply chains? Explain your position.
Sources: Compiled from Butler et al. (2016) and Haraburda (2016).
SCM systems allow organizations to manage supply chains, vendor relationships, and dis-
tribution channels to better manage resources and improve efficiency. Businesses benefit from
an SCM by identifying inefficiencies in supply and distribution channels, optimizing warehouse
storage, and automating purchases. Software solutions in this category allow businesses to
integrate multiple tools into an existing system or a single software suite to manage supply
chain and logistics processes.
For example, SCM suites, such as Streamline Shipping and Supply Vision, manage the entire
SCM process, while other products focus on specific processes within the supply chain. For
example, JDA Demand Planning focuses on giving users data for inventory and revenue fore-
casts and helping decision-makers plan for the future, Dr. Dispatch manages orders, inventory
data, SCM, and customer service, and eSellerHub allows companies to manage and track
inventory, purchasing, sales, and deliveries.
Supply Chain Management Systems 315
Managing the Flow of Materials, Data, and Money
Supply chains involve the flow of materials, data, and money. Descriptions of these three main
flows are as follows:
1. Material or product flow This is the movement of materials and goods from a supplier
to its consumer. For example, Ford supplies dealerships that, in turn, sell to end-users.
Products that are returned make up what is called the reverse supply chain because
goods are moving in the reverse direction.
2. Information flow This is the movement of detailed data among members of the supply
chain, for example, order information, customer information, order fulfillment, delivery
status, and proof-of-delivery confirmation. Most information flows are done electronically,
although paper invoices or receipts are still common for noncommercial customers.
3. Financial flow This is the transfer of payments and financial arrangements, for exam-
ple, billing payment schedules, credit terms, and payment via electronic funds transfer
(EFT). EFT provides for electronic payments and collections. It is safe, secure, efficient,
and less expensive than paper check payments and collections.
Supply chain links are managed. Think of the chain in terms of its links because the entire
chain is not managed as a single unit. A company can only manage the links it actually touches.
That is, a company will manage only partners who are one-back and one-up from them in the
supply chain.
Order Fulfillment and Logistics
The order fulfillment process demonstrates how these “flows” work and link together the vari-
ous parts of the supply chain. Order fulfillment depends on the type of product/service and
purchase method (online, in-store, catalog, etc.). For example, a customer who has ordered a
new appliance via the Sears.com website needs to receive it as scheduled, with assembly and
operating instructions, and warranty and return information. The customer can receive a paper
manual with the product or download the instructions from Sears’ website.
Order fulfillment is a part of back-office operations, such as accounting, inventory
management, and shipping, and is closely related to front-office operations or customer-
facing activities. The key aspects of order fulfillment are the delivery of materials or products at
the right time, to the right place, and at the right cost.
Logistics entails all the processes and information needed to move products from origin
to destination efficiently. The order fulfillment process is part of logistics.
Steps in the Order Fulfillment Process
The order fulfillment process starts when an order is received and includes the following nine
activities that are supported by SCM software or are automated:
Step 1: Make sure that the customer will pay Depending on the payment method
and prior arrangements with the customer, verify that the customer can and will pay and
agrees to the payment terms. This activity is done by the finance department for B2B sales
or an external company such as PayPal or a credit card issuer such as Visa for business-
to- customer (B2C) sales. Any holdup in payment may cause a shipment to be delayed,
resulting in a loss of goodwill or a customer. In B2C, the customers usually pay by credit
card, but with major credit card data theft at Target and other retailers, the buyer may be
using a stolen card.
Step 2: Check in-stock availability and reorder as necessary As soon as an order is
received, the stock is checked to determine the availability of the product or materials.
If there is not enough stock, the ordering system places an order, typically automatically
Order fulfillment is the set
of complex processes involved
in providing customers with
what they ordered on time and
all customer services related to
on-time delivery of a product.
Back-office operations support
the fulfillment of orders.
Front-office operations such as
sales and advertising are visible to
customers.
316 C H A P T E R 1 0 Enterprise Systems
using electronic data interchange (EDI). To perform these operations, the ordering system
needs to interface with the inventory system.
Step 3: Arrange shipments When the product is available, shipment to the customer is
arranged (otherwise, go to Step 5). Products can be digital or physical. If the item is physical
and available, packaging and shipment arrangements are made. Both the packaging/
shipping department and internal shippers or outside transporters may be involved.
Digital items are usually available because their “inventory” is not depleted. However, a
digital product, such as software, may be under revision, and thus unavailable for delivery
at certain times. In either case, information needs to flow among several partners.
Step 4: Insurance The contents of a shipment may need to be insured. Both the finance
department and an insurance company could be involved, and again, information needs
to be exchanged with the customer and insurance agent.
Step 5: Replenishment Customized orders will always trigger a need for some
manufacturing or assembly operation. Similarly, if standard items are out of stock, they
need to be produced or procured. Production is done in-house or outsourced.
Step 6: In-house production In-house production needs to be planned, and actual
production needs to be scheduled. Production planning involves people, materials,
components, machines, financial resources, and possibly suppliers and subcontractors.
In the case of assembly and/or manufacturing, several plant services may be needed,
including collaboration with business partners. Production facilities may be located
in a different country than the company’s headquarters or retailers. This may further
complicate the flow of information.
Step 7: Use suppliers A manufacturer may opt to buy products or subassemblies from
suppliers. Similarly, if the seller is a retailer, such as in the case of Amazon.com or Walmart.
com, the retailer must purchase products from its manufacturers. In this case, appropriate
receiving and quality assurance of incoming materials and products must take place.
Once production (Step 6) or purchasing from suppliers (Step 7) is completed, ship-
ments to the customers (Step 3) are arranged.
Step 8: Contacts with customers Sales representatives keep in contact with custom-
ers, especially in B2B, starting with the notification of orders received and ending with
notification of a shipment or change in delivery date. These contacts are frequently gener-
ated automatically.
Step 9: Returns In some cases, customers want to exchange or return items. The move-
ment of returns from customers back to vendors is reverse logistics. Such returns can be a
major problem, especially when they occur in large volumes.
Innovations Driving Supply Chain Strategic Priorities
Technology is changing the traditional supply chain into a digitized, 24/7 supply chain, referred
to as “always-on” supply chain. Supply chain executives are leveraging digital technologies and
business innovations to manage the increasing complexity of today’s global always-on supply
chain. In the past, supply chains were linear and companies tackled supply chain challenges
primarily by focusing on internal cost reduction and improved operational efficiency. But tradi-
tional approaches are less effective as supply chains become longer and more interconnected,
and there are higher stakeholder expectations and more sources of risk. Always-on supply
chains are more connected, intelligent, scalable, and agile. Sensors that enable data collection
and advancements in computing power have improved predictive analytics. Supplemental
tools, such as automation and wearables, are creating digital, continuously operating supply
chains and an interconnected network of supply chain workers.
Recently, MHI, an international trade association that has influenced materials handling
and logistics within the supply chain industry and Deloitte released their 2016 MHI Annual
Industry Report focused on the significant changes occurring in SCM driven by technological
Always-on supply chain is an
integrated set of supply networks
characterized by a continuous,
high-velocity flow of information
and analytics creating predictive,
actionable decisions to better
serve the customer 24/7.
Supply Chain Management Systems 317
innovations. Based on responses from 900 respondents, in large and small companies across
a wide range of sectors, the report revealed that eight technologies are dramatically impact-
ing the supply chain and the people who run them. These eight technologies that can either
increase competitive advantage or disrupt an organization are as follows:
• Robotics and automation
• Inventory and Network Optimization Tools
• Sensors and automatic identification
• Predictive Analytics
• Wearables and mobile technology
• Driverless vehicles and drones
• Inventory and network optimization tools
• Cloud computing and storage
• 3D printing
Robotics and automation Robotics and automation are revolutionizing supply
chains across the globe. As technology becomes smarter, faster, and cheaper, it is being called
upon to do more. Robots are increasingly able to demonstrate “human” capabilities and traits
such as sensing, dexterity, memory, and trainability. They are being integrated into supply
chains, taking on more human-oriented tasks, including picking and packaging, testing or
inspecting products, and assembling electronics.
Inventory and Network Optimization Tools Route planning, product flow path
analysis, and asset optimization help companies streamline operations, improve inventory
control, gain visibility, manage risk, and reduce costs. The ability to deploy assets and position
inventory well is critical to delivering the right service at the right cost. Inventory and network
optimization are powerful decision-support tools to model end-to-end supply chain costs and
trade-offs. An equipment manufacturer who had excess inventory across its distribution net-
work, as a result of lead-time discrepancies between similar parts from the same supplier, high
variability of transportation lead times, and a highly complex product portfolio, constructed an
integrated parts management framework consisting of inventory analytics and optimization,
sales and customer insights, supply insights, and a parts business plan to reduce product and
transportation costs and improve product placement and inventory balance.
Sensors and Automatic Identification Sensors are a means of delivering
computing and communications power to everyday devices and businesses. The data they
generate can lead to better business models and increased visibility in supply chains. By col-
lecting data from objects, then communicating and aggregating that data into information
that is presented to users, sensors can help users reach decisions about how to make, move,
or change those objects. For example, by positioning a network of sensors throughout its
plants, an automobile company can measure humidity in its buildings. If readings rise about
those acceptable for paining vehicle bodies, the next car body on the line will automatically
be routed to a different step of the manufacturing process that is not adversely affected by
the humidity in the building. This process change reduces costs of repainting and downtime
on the line.
Predictive Analytics Some of the most effective applications of predictive analytics
focus on predicting patterns associated with consumer behavior. For example, retailers and
consumer goods companies with millions of customers have effectively mined big data from
social media to find and keep new customers. In the supply chain arena, predictive modeling
allows managers to manage inventory better, plan more reliable transportation networks, and
reduce variability in lead times. This can enhance service levels, lower costs, and improve the
bottom line.
318 C H A P T E R 1 0 Enterprise Systems
Wearable and Mobile Technology Wearable technologies are devices incorporated
into clothing and accessories that can be comfortably worn. These devices perform many of
the same computing tasks as mobile phones and laptop computers and frequently can out-
perform them. Enterprise wearables from smart glasses to voice-directed hands-free wearable
scanners and real-time views of every touchpoint within the supply chain are improving worker
safety and increasing transparency within the supply chain and avoid potential bottlenecks.
Increasing numbers of companies are piloting the use of smart glasses within their supply
chains. One company used them to implement “vision picking” in their warehouse where dis-
plays on the smart glasses showed the task information during the pick process, including
aisle, product location, and quantity. As a result, staff worked much faster and reduced errors,
increasing efficiency by 25%.
Driverless Vehicles and Drones Driverless vehicles and drones use a variety of tech-
nologies, including sensors, cameras, and advanced driver assistance systems, to handle some
or all functions of operating a vehicle. Drones can deliver significant value to businesses by
improving supply chain operations. Companies can transform their operations by using drones
to monitor functioning of plants, maintain security, and provide real-time data about a facil-
ity’s surroundings. One large U.S. retailer has asked for permission to test drones for making
deliveries to customers in its parking lots and at customers’ homes. The retailer also wants to
use the aerial technology enabled by drones to check on its buildings, warehouses, and distri-
bution centers. The retailer has tested drones inside its facilities but now wants to do outdoor
tests. To do that, it needs FAA permission.
Cloud Computing and Storage Cloud computing and storage plays a critical role
in the improvement of SCM by supporting an enterprise’s efforts to share data with multiple,
geographically dispersed partners. Benefits of cloud computing in the supply chain include
improved collaboration among supply chain partners, cost-effective use of staff resources, and
the ability to adapt to changing business needs quickly.
3D Printing Additive manufacturing could revolutionize production processes and have
far-reaching future implications for product supply chains. A global aerospace and defense
company deployed electronic beam melting, a 3D printing technology, and reduced production
costs for aerospace components by 50% while still maintaining functionality and performance.
The main message of the report was that business leaders embrace these new and emerg-
ing technologies that can provide improvements in supply chain visibility, reduce costs and
enhance customer service, and determine how best to apply them to their specific supply chain
requirements. MHI and Deloitte recommend using a test-and-learn approach to gain familiarity
with the new technologies before investing and to share their insights between participants
within their supply chains. The major barriers to adopting these innovative technologies in the
supply chain are lack of clear business case to justify investment, lack of talent to utilize the
technology effectively, and cultural aversion to risk.
Questions
1. What is a supply chain?
2. List four functions carried out by companies in a supply chain.
3. List and describe the three main flows being managed in a supply chain.
4. Describe SCM.
5. What are steps in the order fulfillment?
6. Explain logistics.
7. What are the top two strategic priorities of SCM executives?
8. What are the two major barriers preventing innovation in the supply chain?
9. What are the top innovative digital technologies impacting SCM?
Customer Relationship Management Systems 319
10.4 Customer Relationship
Management Systems
Similarly to ERP and SCM systems, CRM is a widely used and mature technology that can be
deployed on-premises or on-demand as a service or SaaS. The fierce competition among the
big four CRM vendors—Salesforce.com, SAP, Oracle, and Microsoft—motivates innovation.
Numerous successful CRM implementations have helped transform the business, increased
profit, and strengthened customer loyalty. CRM can provide managers with a 360-degree view
of the customer relationship, enable real-time responses, and improve sales productivity and
predictability. However, CRM technology cannot transform or improve anything on its own.
A recent survey conducted by Forrester revealed that technology and strategy are
necessary, but not sufficient to ensure CRM project success. A total of 414 business profes-
sionals thought that business performance improvement actually depends on a combination
of the right people, processes, strategy, and technology. See Figure 10.6 to see how well you
can estimate the percentage they attributed to each of these four factors.
Changes in people’s behavior, their commitment, attitude toward the mandatory change
as well as process improvements make the difference between better bottom lines or a
$100 million write-off. Buying the most suitable CRM is like buying a Ferrari or Porsche. You will
not win any races simply because you bought a sports car.
People
38%
Technology
35%
Processes
33%
Strategy
33%
FIGURE 10.6 Four CRM critical
success factors.
How are CRM Apps Different from ERP? Why are they
Different?
ERP and CRM have to interface and share data. They are similar from a technology
perspective—sold in modules, offered on site or in the cloud, and must share data. ERPs often
requires tight business rules and user practices—that those in accounting, finance, and HR
tend to be accustomed to by their professions. For example, they must comply with generally
accepted accounting principles (GAAP), the Securities Exchange Commission (SEC), labor laws,
or legal requirements. But sales and marketing are the primary users of CRM—and they tend
not to be accustomed to inflexible rules of conduct. They are accustomed to creativity and clos-
ing the deal, for instance. If the CRM does not support them their way, they can reject it—and
cause total system failure.
320 C H A P T E R 1 0 Enterprise Systems
Why Does CRM Matter? CRM systems play the major role in customer experience (CX),
and good CX helps to retain customers. However, not all customers are worth retaining. Cus-
tomers can be unprofitable. Imagine having 20,000 customers. How would you determine the
customer lifetime value (CLV) of each customer and continue to recompute their value? The
point is that data analytics, sophisticated predictive analytics, and business intelligence (BI)
are needed to determine CLV; then business rules need to specify how to treat or manage cus-
tomers based on their value score.
Intelligently managing relationships with customers can increase revenues and net profits
significantly. Similarly to managing inventory and supplier relationships, effective CRM is data-
driven, complex, and continuously changing. The growth of mobile sales channels and social
networking makes recognizing customers across multiple touchpoints complex. In addition,
many companies have customer data in multiple, disparate systems that are not integrated—
until they implement CRM systems.
CRM Technology Perspective
From a technology perspective, CRM refers to the methodologies and software tools to leverage
customer data in order to achieve the following:
• Identify the appropriate CX for customers.
• Predict and prevent attrition (loss) of a customer, unless he or she is not worth retaining.
• Acquire new customers who are most likely to become profitable.
• Up-sell (sell more profitable products/services) or cross-sell (sell additional products/ser-
vices) to unprofitable customers to move them to a profit position.
• Reduce inefficiencies that waste advertising dollars.
The top CRM vendors include: OnContact, Salesforce, SalesNexus, NetSuite TeamWox, and
worksbooks.com.
Customer Acquisition and Retention
CRM technologies help marketing managers run effective campaigns, promotions, commer-
cials, and advertisements to attract new customers, or to increase sales to existing customers,
or to do both. Attracting and acquiring new customers are expensive activities: for example, it
costs banks roughly $100 to acquire a new customer. Newly acquired customers are unprofit-
able until they have purchased enough products or services to exceed the cost to acquire and
service them. Therefore, retaining customers that generate revenues in excess of the costs (e.g.,
customer service, returns, promotional items, and the like) is critical. The purpose of loyalty or
frequent purchase programs offered by online retailers, coffee shops, airlines, supermarkets,
credit card issuers, casinos, and other companies is to track customers for CRM purposes and
build customer loyalty to improve financial performance. Loyalty programs rely on data ware-
houses and data analytics torecognize and reward customers who repeatedly use services or
products. The 1-800-Flowers loyalty program is described in IT at Work 10.4.
CRM for a Competitive Edge
According to management guru Peter Drucker, “Those companies who know their customers,
understand their needs, and communicate intelligently with them will always have a competi-
tive advantage over those that don’t” (Drucker, 1969). For most types of companies, marketing
effectiveness depends on how well they know their customers: specifically, knowing what their
customers want, how best to contact them, and what types of offers they are likely to respond
to positively. According to the loyalty effect, a 5% reduction in customer attrition can improve
profits by as much as 20%. Customer-centric business strategies strive to provide products and
services that customers want to buy. One of the best examples is the Apple iPhone and iPod—
devices that customers were willing to camp out on sidewalks to buy to guarantee getting one
Customer Relationship Management Systems 321
on the day of their release. In contrast, companies with product-centric strategies need to cre-
ate demand for their products, which is more expensive and may fail.
Common CRM Mistakes: How to Avoid Them
According to Gartner, the CRM market reached $26.3 billion in 2015 after several years of strong
growth. Given that level of investment, companies obviously want to get as much value as
possible out of their systems. It is unfortunate, then, that so many of them make mistakes in
selecting and implementing CRM software. There are a number of CRM mistakes that must
be avoided. Five of these CRM mistakes and actions that need to be taken to avoid them are
explained in Table 10.4.
IT at Work 10.4
1-800-Flowers.com Uses Data Mining for CRM
1-800-Flowers.com is an Internet pioneer. Online sales are a major
marketing channel in addition to telephone and fax orders. Com-
petition is very strong in this industry. The company’s success was
based on operational efficiency, convenience (24/7 accessibility),
and reliability. However, all major competitors provide the same
features today. To maintain its competitive edge, the company
transformed itself into a customer-centric organization, caring for
more than 15 million customers.
The company decided to cultivate brand loyalty through cus-
tomer relationships based on detailed knowledge of customers.
How is this accomplished? SAS software spans the entire decision-
support process for managing customer relationships. Collecting
data at all customer touchpoints, the company turns those data
into knowledge for understanding and anticipating customer
behavior, meeting customer needs, building more profitable cus-
tomer relationships, and gaining a holistic view of a customer’s
lifetime value. Using SAS Enterprise Miner, 1-800-Flowers.com sifts
through purchasing data to discover trends, explain outcomes, and
predict results so that the company can increase response rates and
identify profitable customers. In addition to selling and campaign
management, the ultimate goal is to make sure that when a cus-
tomer wants to buy, he or she continues to buy from 1-800-Flowers.
com and cannot be captured by a competitor’s marketing. Their
objective is not just about getting customers to buy more. It is
about making sure that when they decide to purchase a gift online
or by phone, they do not even think of going to the competition.
Data mining software helps the company identify the many
different types of customers and how each would like to be treated.
Customer retention has increased by over 15% since this approach
was adopted.
IT at Work Questions
1. Why is being number one in operation efficiency not enough
to keep 1-800-FLOWERS.COM at the top of its industry?
2. What is the role of data mining?
3. How is the one-to-one relationship achieved in such
systems?
TA B L E 1 0 . 4 CRM Mistakes and Avoiding Them
CRM Mistakes How to Avoid The Mistakes
Putting IT department in
charge of the CRM project
instead of the business users
The hands-on business users need to champion and lead the project initiative, with IT playing
a supporting role.
CRM is a software project whose success relies on users’ input, which helps ensure that they
actually will use it. Unlike other apps, salespeople do not have to use CRM. If the system is
underused, companies will see only limited improvements.
Not getting the CRM requirements right by
not involving key business stakeholders
from the outset
CRM implementations need buy-in from the users and other business stakeholders, who can
spread enthusiasm. Frequent communication about the project is important to engaging
them in a meaningful way.
Making mobile CRM strategy an
afterthought
Consider mobility a priority in the CRM project from the outset. Putting an existing CRM on
mobile devices is a bad plan.
Taking wrong approach to CRM training Make sure that the interface is intuitive enough that most users will not need hands-on
training. When people sit in a classroom for an hour, they will only retain 5 minutes of what
they hear. A learning program during lunch that focuses on one or two lessons is a much more
effective adoption strategy.
Underestimating users’ resistance to change Users will not tolerate poorly designed systems. Frustrating users is a fast track to failure, or at
a minimum, suboptimal results.
Source: All (2014).
322 C H A P T E R 1 0 Enterprise Systems
Example of a Failed CRM Citizen National Bank’s experience is an example of a failure
that then replaced its CRM vendors and became a success. The lessons learned, at a cost of
$500,000, were as follows:
• Be absolutely clear on how the CRM application will add value to the sales process.
• Determine if and why salespeople are avoiding CRM.
• Provide incentives for the sales team to adopt CRM.
• Find ways to simplify the use of the CRM application.
• Adjust the CRM system as business needs change.
Justifying CRM
One of the biggest problems in CRM implementation is the difficulty of defining and measuring
success. Many companies say that when it comes to determining value, intangible benefits are
more significant than tangible cost savings. Yet, companies often fail to establish quantitative
or even qualitative measures in order to judge these intangible benefits.
A formal business plan must be in place before the CRM project begins—one that quan-
tifies the expected costs, tangible financial benefits, and intangible strategic benefits, as well
as the risks. The plan should include an assessment of the following:
• Tangible net benefits The plan must include a clear and precise cost−benefit anal-
ysis that lists all the planned project costs and tangible benefits. This portion of the plan
should also contain a strategy for assessing key financial metrics, such as ROI, net present
value (NPV), or other justification methods.
• Intangible benefits The plan should detail the expected intangible benefits, and it
should list the measured successes and shortfalls. Often, an improvement in customer
satisfaction is the primary goal of the CRM solution, but in many cases, this key value is
not measured.
• Risk assessment The risk assessment is a list of all of the potential pitfalls related to the
people, processes, and technology that are involved in the CRM project. Having such a list
helps to lessen the probability that problems will occur. And, if they do happen, a company
may find that, by having listed and considered the problems in advance, the problems are
more manageable than they would have been otherwise.
Tangible and Intangible Benefits Benefits typically include increases in staff pro-
ductivity (e.g., more deals closed), cost avoidance, revenues, and margin increases, as well as
reductions in inventory costs (e.g., due to the elimination of errors). Other benefits include
increased customer satisfaction, loyalty, and retention.
Questions
1. Explain the four critical success factors for CRM.
2. Why does CRM matter?
3. Discuss how CRM impacts customer acquisition and retention.
4. According to Peter Drucker, what does marketing effectiveness depend on?
5. Give three reasons why CRM fails.
6. How can CRM be justified?
Enterprise Social Platforms 323
10.5 Enterprise Social Platforms
In Chapter 7, you learned how organizations use social media to connect with their custom-
ers, vendors, and partners to promote their business. Within an organization, enterprisewide
communication and collaboration are equally important to help enable business leaders
enhance productivity, teamwork, and employee satisfaction. Using an ESP by employees can
connect and collaborate, stay informed, build relationships, and share documents and data.
Collecting real-time data and closing the gap between globally distributed teams can be
critical to an organization’s performance. With quick access to corporate knowledge through
an ESP, organizations can resolve issues sooner, minimize costs, and attain a competitive
advantage. Whether its answering questions or sharing ideas, the open forum provided by
an ESP flattens corporate hierarchies and motivates employees to share their opinions and
creative thoughts.
Enterprise social platform is a private, company-owned social media software applica-
tion that promotes social connectivity and collaboration with an organization and enhances
productivity and employee satisfaction.
Growth of Enterprise Social Investments and Markets
In March 2016, the Boston Consulting Group prediction that social investment spending would
soon easily and overwhelmingly surpass its current level of $211.6 million came to fruition
when social media investment platform Big Society Capital reported that its investment value
had already reached $1.6 billion.
Greater interest in ESPs can be attributed to three factors (Figure 10.7):
• Knowledge management To capture and reuse knowledge within the enterprise
• Collaboration Maintain human connections across a disparate workforce
• Employee pressure Pressure from workers to use the social technologies they prefer
to use
Knowledge
Management
Collaboration
People
Pressure
Increased
Interest
FIGURE 10.7 Main Reasons for Greater Interest in Enterprise
Social Platforms.
324 C H A P T E R 1 0 Enterprise Systems
This increased use of ESPs reflects a trend toward more informal communication at work as
more companies seek to integrate and embed social media into primary enterprise solutions to
support business-critical decisions and create more social workflows as an alternative to exist-
ing formal communication channels.
Sharepoint
SharePoint was initially released by Microsoft in 2001, and in 2016, 78% of Fortune 500 firms
were using it. SharePoint is difficult to define because it is not a single software program, but
rather a platform for multiple kinds of programs and apps. The platform is a back-end system
that links employees’ computers and mobile devices to make it easy to communicate and to
synchronize their efforts. At companies that have their SharePoint on-premises, they are now
considered legacy systems. SharePoint in the Microsoft Cloud is the later version.
SharePoint has the following social capabilities.
Intranet and Extranet Intranets are the internal-facing sites everyone in a company
logs into to find news, announcements, scheduled tasks, and access to files and data. Dash-
boards are customized by department and role to control access. SharePoint also provides
tools for setting up employee social network platforms and company wikis. SharePoint can be
used to set up a secure, access-controlled extranet site to share with external partners in the
supply chain, contractors, and so on.
Documents SharePoint provides a shared space to store documents, so they are not
siloed on any one person’s hard drive or device. Documents stored on SharePoint can be
accessed by anyone in the company—unless the administrator has limited access. SharePoint
enables coworkers to work simultaneously on a single document, save previous versions, and
track updates.
Collaboration and Business Intelligence An ESP makes it easy for users to stay
up to date and to coordinate their efforts on projects from any desktop or mobile device and to
discover patterns and insights into enterprise data.
Yammer Smart companies connect their employees’ desire to contribute and interact
with peers with their own need to get timely feedback from the trenches. Red Robin, dis-
cussed in IT at Work 10.5, learned the benefits of Yammer for entry-level employees. Six
recommendations for realizing business value from enterprise social networking are listed in
Table 10.5.
Microsoft Cloud provides
a hybrid infrastructure and
capabilities to manage enterprise
apps and data.
Yammer is “Facebook for
business.” The platform has
features similar to Facebook
likes, newsfeeds, threaded
conversation, and direct
messaging. This private social
channel helps employees,
partners, and customers
communicate; exchange
information; and collaborate
across departments, locations,
and business apps.
TA B L E 1 0 . 5 Recommendations to Realize Business Value from Enterprise Social
1. Make sure that management is listening Leaders and decision-makers need to monitor social
chatter to keep informed and respond promptly.
2. Provide visible feedback and rewards Employee participation is largely driven by the desire to
be recognized by peers and managers.
3. Brand the social network Employees want to feel that the company is behind the initiative. At
Red Robin, for example, renaming Yammer to Yummer connected employees to the brand.
4. Identify and leverage change agents Start with those employees most eager to participate,
especially Millennials who are looking for recognition and purpose.
5. Introduce competitions and games Experience shows that people are more likely to engage
when they are having fun.
6. Make the rules of engagement simple Do not overengineer or control the social network. Make
it easy to enroll and participate.
Enterprise Social Platforms 325
IT at Work 10.5
Red Robin Transforms Its Business with Yammer
Red Robin Gourmet Burgers, Inc. is a casual dining restaurant chain
serving an innovative selection of high-quality gourmet burgers in
a family-friendly atmosphere. In 2015, revenues were $1.26 billion,
representing an increase of 9.7% over 2014. Revenue at comparable
restaurants had increased only 5.4%.
Front-Line Staff Know Customers Best
In retail and restaurants, front-line employees understand the
CX far better than managers in remote corporate offices. Yet, com-
panies often do not pay close attention to their front-line staff.
Corporate culture is part of the reason, but a lot has to do with the
absence of a channel for employees to be heard. With over 29,000
employees working in 538 restaurants in 49 states, Red Robin’s new
management team decided to give front-line employees a voice.
In 2010, the company invested in enterprise social networking, in
part, to reduce the high cost of employee turnover that is common
in the restaurant business. The premise of the project was to enable
employees to provide insight into management about consumer
preferences. In terms of food quality, employees would document
the popular menu items and any modifications made to them by
customers.
Engaging Employees with Yammer
Newly hired Senior VP of Business Transformation and CIO
Chris Laping believed that the company’s workers—87% are
Millennials—were searching for meaning. So engaging these
workers in a meaningful way would create the atmosphere that
strengthened employee loyalty.
Laping selected Yammer as the private social channel for
employees, partners, and customers. The free version of Yammer
was initially rolled out as a social experiment, to see if employees
would engage. A few employees were invited to join Yammer. After
they were urged to invite colleagues, membership spread quickly.
Eventually, two Yammer networks emerged at Red Robin: namely
Yummer, a network for restaurant managers, regional manag-
ers, and corporate office members to exchange information and
answer questions from field staff; and Yummversity, a network for
training employees. Yummer gave a voice to the silent front-line
workers at Red Robin. Prior to Yammer, these employees would
pass information up the company management chain, but they
rarely received feedback on the information or what was done in
response to it.
Better Burgers through Yummer and Yummversity In 2012, Red
Robin introduced a new menu item, the Tavern Double burger. It
did not receive customer feedback via Facebook, as expected.
However, restaurant servers and regional managers posted what
they heard from customers on Yummer. Managers at headquarters
monitor Yummer, so they immediately knew the burger recipe
needed to be adjusted.
They were able to respond with an updated menu within 4
weeks at much lower cost. Prior to Yammer, this feedback loop took
6 to 12 months and involved running expensive focus groups and
surveys, hiring outside consultants, scheduling review sessions,
and generating reports.
Mining Employees’ Ideas
“Blueprint Project” was a CEO-led initiative to uncover the best
employee idea to cut expenses and not negatively impact CX. A
$1,000 prize was announced, and thousands of employees contrib-
uted ideas. The winning entry was submitted by a Seattle location
manager who proposed replacing disposable kid beverage cups
with reusable ones. According to Laping, this minor change was “a
six figure savings for the organization.”
IT at Work Questions
1. Why are employees a source of valuable information? In your
opinion, why are employees an untapped resource at many
companies?
2. How does Yammer capture BI from employees?
3. Explain Yummer and Yummversity. Why would employees
want to use them?
4. What is the expected benefit of naming the ESP, as Red
Robin had done?
5. How did Red Robin motivate its employees to contribute to
the enterprise social net?
6. How did the restaurant reduce employee turnover?
Sources: Compiled from redrobin.com (2017), Keitt (2014), Lavenda (2014), and
MarketWatch (2016).
Millennials is the term used to
describe people born between the
early 1980s and the early 2000s.
At the first ever YamJam Conference in 2012, Yammer’s CEO and founder introduced the
new platform Enterprise Graph—calling it an enhanced way for business to be more social.
Enterprise Graph tries to show how users are related to one another. It enables developers and
customers to seamlessly connect people, conversations, and data across all their business
services. With Enterprise Graph, Yammer solves the social network sprawl problem, which is
when businesses end up interacting with multiple social networks inside their own company.
The objective is to develop a standard that brings everything together and works off the
same database.
Office Graph and Oslo App Microsoft’s newer project, code-named Oslo, builds on the
concept of the Enterprise Graph. One of the significant features of Yammer is how it maps the
relationships between people and information by simply recording likes, posts, replies, shares,
326 C H A P T E R 1 0 Enterprise Systems
and uploads. Microsoft applied these capabilities to Office with Office Graph. Office Graph uses
signals from e-mail, social conversations, documents, sites, instant messages, meetings, and
more to map the relationships between people and concepts. By tapping into Office Graph,
Oslo provides a natural way for users to navigate, discover, and search people, information, and
knowledge across the enterprise.
Oracle’s Social Network
Oracle’s social enterprise network connects processes, professionals, and enterprise apps in
one place. Users can update CRM leads, communicate in real time, and search for key experts
on the network. The social net also makes sharing files and information easy with sales teams
and company members. Employees can work on documents together in real time, while hav-
ing the option to access them anytime. Conversations and CRM data on the network can be
accessed through Microsoft Outlook and mobile devices.
Jive
Jive’s ESP provides tools for communication, sharing, and content creation to make social
media monitoring and engagement easier. The platform features activity streams that keep
employees updated and a text editor for users to create, review, and edit documents as a team.
Jive also has an enterprise search engine that offers social graph analytics and insight into
make searching easier. Users can search across their customer network and SharePoint as well.
Employees can also create blogs and custom attention streams to track specific people, pro-
jects, or groups.
Chatter
Chatter is an add-on to Saleforce.com, a CRM tool. As with all other ESPs, Chatter offers com-
panies their own private network while pushing updates and news in real time to user feeds.
The software offers smart search, which places items an employee frequently uses higher in the
search list.
Similarly to many enterprises, if someone was trying to solve a problem or get feedback
on a presentation, he or she would send out a global e-mail. Some people would reply to
everyone, some would just reply to the sender, the e-mail thread gets jumbled—and quickly
becomes a mess. With Chatter, the problem-solving process becomes a conversation rather
than a series of disjointed e-mails. People can interact and spark new ideas. There is no confu-
sion over which is the latest version of a document. Other employees can be brought into the
conversation using the @ function. The whole process is just a much smarter way of working.
Chatter customer groups let users work with external customers, vendors, and partners,
with the option of limiting what they can see and access. Private groups can also be set up
when employees need to work on sensitive projects with certain colleagues.
Business processes can be approved from within a Chatter feed along with vacation
requests or hiring decisions.
The features of ESPs will continue to evolve and disrupt existing applications and the
future of work.
Questions
1. What are the basic functions of an ESP?
2. What are the capabilities of SharePoint?
3. In what ways can enterprises realize value from Yammer or other enterprise social?
4. How do Office Graph and Enterprise Graph support collaboration?
5. How does Chatter enable workers to solve problems?
Assuring Your Learning 327
Key Terms
3D bioprinting 303
3D printing 301
additive manufacturing 301
always-on supply chain 316
back-office operations 315
core business processes 304
customer lifetime value (CLV) 320
customer relationship
management (CRM) 301
electronic funds transfer (EFT) 315
enterprise application integration (EAI) 308
enterprise graph 325
enterprise resource planning
(ERP) 301
enterprise social platform 323
enterprise systems 301
front-office operations 315
interface 301
legacy systems 305
logistics 315
Microsoft Cloud 324
millennials 325
office graph 326
order fulfillment 315
reverse supply chain 315
SharePoint 324
social network sprawl 325
supply chain 313
supply chain management 301
value-added reseller (VAR) 305
Yammer 324
Assuring Your Learning
Discuss: Critical Thinking Questions
1. Consider the following scenario: In the 1990s, hard disk drive (HDD)
makers were among the first industries to move production to lower-
cost countries. Beginning in Singapore, these companies shifted man-
ufacturing operations to China and Thailand, in search of ever-lower
labor costs. Since then, Thailand has become the second-largest mak-
er of hard drives and a major supplier of parts to the industry world-
wide. With the catastrophic Thai floods in the fall of 2011, the industry
faced shortages of over 30 million drives per quarter. Some executives
at HDD companies were forced to explain a glaring oversight: Why had
they had relied so heavily on a supplier in a country located in a high-
flood risk area?
Also consider that: By the end of the 1990s, most supply chains had
become lean by minimizing their inventories and reducing waste and
could schedule deliveries across the globe with incredible precision. Sup-
ply chain speed and flexibility were impressive. Products that should take
months to procure and manufacture were promised within days of cus-
tomer requests.
a. What SCM lessons can be learned from the experiences of
HDD makers?
b. What are the risks of highly efficient and lean supply chains?
c. Could one catastrophic supply chain event wipe out years of
profits or market share? Explain your answer.
d. In your opinion, when do cost savings outweigh the risks?
e. In your opinion, when are cost savings outweighed by the risks?
Questions for Discussion & Review
1. The vast majority of supply chain professionals agree that one of
the biggest barriers to successful collaboration is a slow issue resolu-
tion process. This has been identified as a systemic problem related
to quality of information flow, in terms of both the granularity (level
of detail) and timeliness of data shared. In addition, almost all supply
chain professionals agree that rapid problem resolution is part of good
collaboration. True collaboration can be defined in terms of speed,
both in problem-solving and in organizational learning. Many also
indicate that speed of response in truly collaborative relationships is
twice as fast or faster, with learning curve improvements more than
50% greater than in noncollaborative trading partner relationships.
a. Discuss why supply chain partners may not be able to resolve
issues quickly. Consider information flows in your discussion.
b. What impacts might slow problem (issue) resolution have on
the supply chain?
c. Based on your answer to (a), discuss which enterprise systems
could speed up problem resolution.
d. What is meant by learning curve improvements?
2. In your opinion, what might limit the growth of 3D printing?
3. Distinguish between ERP and SCM software. In what ways do they
complement each other? Why should they be integrated?
4. State the business value of enterprise systems and how they can be
used to manage the supply chain more effectively.
5. What problems are encountered in implementing ERP systems?
6. Find examples of how two of the following organizations improve
their supply chains: manufacturing, hospitals, retailing, education,
construction, agribusiness, and shipping. Discuss the benefits to the
organizations.
7. It is claimed that supply chains are essentially “a series of linked
suppliers and customers; every customer is in turn a supplier to the
next downstream organization, until the ultimate end-user.” Explain
this statement. Use a diagram.
8. Discuss why it is difficult to justify CRM.
9. A supply chain is much more powerful in the Internet market-
place. Discuss how Internet technologies can be used to manage the
supply chain.
328 C H A P T E R 1 0 Enterprise Systems
Explore: Online and Interactive Exercises
Visit each of the following enterprise vendor websites. Write a brief
report on the latest features of their enterprise systems, platforms,
apps, or solutions.
1. SharePoint
2. Yammer
3. Oracle
4. Salesforce
5. SAP
Analyze & Decide: Apply IT Concepts to Business Decisions
1. Select an enterprise system vendor. Search and read a case study
of one of the vendor’s customers. Summarize the case and identify the
benefits of the implementation.
2. Assess the costs and benefits of a cloud CRM. A large food-processing
company would like to determine the cost−benefit of installing a CRM
app in a private cloud. Create a report that contains these analyses:
a. Calculate the tangible costs and benefits in a spreadsheet
using the data provided.
b. List two intangible benefits of moving to the cloud.
c. Estimate the value of those two benefits and include them in
your spreadsheet prepared for Question 1.
d. List two risks associated with the CRM app if it were moved to
a public cloud.
Data
Tangible Costs
• CRM in private cloud: $35 per user per month
• Technical support and maintenance: $250 per month
• Total number of users: 100 (90 salespeople and 10 supervisors)
• Training of 90 salespeople for five days: productivity loss $200 per
day per person
• Training of five supervisors: productivity loss $300 per day
per person
• Additional hardware, networks, and bandwidth: $15,000 per
month
Tangible Benefits
• Increase in average sales revenues = $6,000 per month per
salesperson
• Increase in sales revenues from an improvement in customer
retention = $5,000 per month
• Gross profit from sales revenues = 20 percent
Case 10.2
Business Case: Lowe’s Fresh Approach to Supply
Chain Management
Lowe’s Inc. is a retail company based out of Mooresville, NC, special-
izing in the sale of hardware, home appliances, and building materials.
With over 285,000 employees, the company can serve nearly 15 mil-
lion customers each week from over 1,800 stores in the United States,
Canada, and Mexico. Lowe’s provides both products and services to
their customers, using the input–transformation–output (ITO) model.
The ITO model is the center function of the supply chain that successful
companies, such as Lowe’s, use. With over 7,500 suppliers, Lowe’s is
able to decrease reliance on vendors and focus on providing its own
method of customer and product relationship management.
Commitment to Customers
A large aspect of Lowe’s supply chain is its commitment to ensuring
that relationships with customers are maintained throughout the life
cycles of the products the customers purchase. The two ways Lowe’s
upholds the commitment are “installed sales” and the “extended pro-
tection plans and repair services.” Providing service for purchased
products over the lifetime of the product is called “product lifecycle
management” or PLM. PLM has become important from a supply chain
References 329
standpoint as warranties and guarantees are becoming more popular.
Lowe’s gives extended warranties and allows customers to request
repairs and replacements along with installation of the products.
A New Approach to Retailing
In addition to meeting customer needs in the store and through the
installation services it offers, Lowe’s has employed a method of reach-
ing the mobile and online customer called Omni-Channel retail-
ing: creating a consistent experience for customers on mobile apps,
websites, and in the stores, since online retailing is becoming more
effective because so many consumers “window shop” online. Omni-
Channel retailing makes every method of purchasing universal. This is
where Lowe’s sets itself apart in the hardware market with its ability to
engage technology and the internet of things in its operations. A sig-
nificant contributor to the success of this model is that Lowe’s controls
80% of its products in its own distribution channel. When coupled with
Omni-Channel, Lowe’s provides its customers products and services
at the lowest cost and the highest convenience. Customers are able
to order directly from Lowe’s distribution centers, effectively eliminat-
ing the middle man, and to order products and services from the app,
website, or physical store.
Enhancing the Customer Experience
In effort to beat out its competitors, Lowe’s rolled out Holoroom, its vir-
tual reality system that allows customers to visualize potential home
improvement projects in the kitchen and bathroom. Customers of 19
U.S. stores, mainly in the Bay Area, were able to move products around
in virtual rooms and see how they interact together. Customers wear a
virtual reality headset and select items from a library of Lowe’s prod-
ucts and place them in the virtual environment to determine if they are
desirable to place in one’s house. Beyond visualizing product place-
ment in one’s house, the customers are able to employ different design
patterns and paint colors.
To make the system personalized, customers first enter the dimen-
sions of their rooms into Lowe’s website or mobile app using the MyLowes
feature. Using the dimensions as a template, Lowe’s gives potential pro-
ject and product recommendations to customers using the feature. This
feature has proved to be extremely successful in attracting more custom-
ers to Lowes.
Questions
1. How does Lowe’s provide quality products and services through
its supply chain system?
2. What is Lowe’s approach to product lifecycle management?
3. Why does Lowe’s focus so strongly on CRM?
4. What is Lowe’s view on technology in its processes?
5. How does Omni-Channel retailing further connect Lowe’s to
the customer?
Sources: Compiled from lowes.com (2017), Soni (2016a), Soni (2016b), and
Marxentlabs (2017).
Case 10.3
Video Case: Procter & Gamble: Creating
Conversations in the Cloud with 4.8 Billion
Consumers
The decline of traditional marketing channels forced changes in CRM
transformation at Procter & Gamble (P&G). P&G’s cloud environment
allows for all consumer data to be in one location for fresh, relevant
relationships with 4.8 billion consumers as they transition from one
product to the next over the course of their lifetimes.
Visit Teradata.com and search for the video entitled “Procter &
Gamble: Creating Conversations in the Cloud with 4.8 Billion Consumers.”
Watch the video and answer the following questions:
Questions
1. How does P&G maintain an ongoing dialog with a customer?
2. What were P&G’s data challenges?
3. What is 1, Consumer Place? Where is it?
4. In your opinion, how does P&G try to maximize CLV?
References
3dprinting.com. 2017.
All, A. “8 Common CRM Mistakes, and How to Avoid Them.” Enterprise
Apps Today, February 20, 2014.
Bourne, A. “What Does 3D Printing Mean for ERP?” Manufacturing.net,
January 29, 2014.
Butler, D, et al. “Identifying Efficiencies in the Supply Chain for Train-
ing Ammunition.” Rand Corporation, 2016.
Cole, B. “Gartner Report Finds Slow Growth in Global ERP Market.”
SearchManufacturingERP.com, May 16, 2014.
Drucker, P.F. The Age of Discontinuity. New York: Harper & Row. 1969.
Fine, R. “What Role Does 3D Printing Play in an ERP-Managed Manu-
facturing Process?” Toolbox.com, May 21, 2014.
Gartner.com. “Gartner Says Uses of 3D Printing Will Ignite Major Debate
on Ethics and Regulation.” January 29, 2014. Gartner.com.
goldmansachs.com. “The Search for Creative Destruction.” March 24,
2014. goldmansachs.com.
Haraburda, S. “Transforming military support processes from logis-
tics to supply chain management.” U.S. Army, February 29, 2016.
330 C H A P T E R 1 0 Enterprise Systems
Keitt, T. “Case Study: Red Robin Builds an Agile Customer-Centric
Culture with Yammer.” Forrester, June 20, 2014.
Lavenda, D. “How Red Robin Transformed Its Business with Yammer.”
Fast Company, February 6, 2014.
lowes.com. 2017.
MarketWatch. “RRGB.” December 5, 2016.
Marxentlabs. “Lowe’s Holoroom, Virtual Reality for Retail.” http://www
.mar xentlabs .com/ar-videos/lowes-holoroom -3d-augmented-
reality-virtual-room-home-improvement/
MHI and Deloitte. “Accelerating Change: How Innovation is driving
digital, always-on supply chains – The 2016 MHI Annual Industry
Report” 2016. https://www.mhi.org/publications/report
Pang, A. “Top 10 ERP Software Vendors and Market Forecast 2015-
2020.” Apps Research & Buyer Insight, June 28, 2016.
redrobin.com. 2017.
Soni, P. “How Lowe’s is Leveraging its Omni-Channel Opportunity.”
MarketRealist, January 27, 2016a.
Soni, P. “Will Lowe’s Holoroom Virtual Reality Push Attract More
Customers?” MarketRealist, January 27, 2016b.
The Engineer. “Patient Receives 3D Printed Titanium Hip.” May 19,
2014.
U.S. Army Business Transformation Knowledge Center, 2009 army
.mil/armyBTKC.
331
CHAPTER 11
Data Visualization and
Geographic Information Systems
C H A P T E R O U T L I N E
Case 11.1 Opening Case: Safeway and PepsiCo
Apply Data Visualization to Supply Chain
11.1 Data Visualization and Learning
11.2 Enterprise Data Mashups
11.3 Digital Dashboards
11.4 Geospatial Data and Geographic
Information Systems
Case 11.2 Visualization Case: Are You Ready for
Football?
Case 11.3 Video Case: The Beauty of Data
Visualization—Data Detective
L E A R N I N G O B J E C T I V E S
11.1 Describe how data visualization applications and interactive
reports support learning and business functions.
11.2 Explain how data mashup applications streamline the
process of integrating diverse data sources and information
feeds to support data needs that cannot be anticipated.
11.3 Describe how companies optimize operations with the help
of dashboards. Explain how enterprise dashboards are built
and how they leverage real-time data and people’s natural
ability to think visually.
11.4 Assess the business applications and benefits of geospatial
data and geographic information systems.
Introduction
The concept of using pictures or graphics to understand data has been around for centuries—
from seventeenth century maps and graphs to the invention of the pie chart in the early 1800s.
In recent years, technology has brought the art and science of data visualization to forefront,
and it is changing the corporate landscape.
332 C H A P T E R 1 1 Data Visualization and Geographic Information Systems
Historically, data analytics was performed by statisticians, programmers, and data scien-
tists who rarely interact directly with the business. However, easier-to-use data visualization,
dashboard, and mashup technologies have changed this “experts-only” approach to data anal-
ysis and presentation. Data analytics are being pushed out into the business by advances that
make it possible for employees at most levels of the organization to analyze data in a mean-
ingful way. Vendors of enterprise-level analytics are also upgrading their visualization and
reporting platforms previously designed for use by the statistical experts.
In Chapter 3, you learned about big data analytics, data mining, and business intelligence
(BI) and how they are being used to enhance performance, productivity, and competitive
advantage in organizations around the globe. In this chapter, we expand on these topics to
introduce you to the latest in data visualization, visual discovery, dashboards, mashups, and
geographic information systems (GISs). We also introduce you to another important concept—
geospatial data and how companies are incorporating geospatial data and GISs into their cus-
tomer relationship management (CRM), supply chain management (SCM), BI, and other related
enterprise activities
Several tools discussed in this chapter enable you to be self-sufficient. Drag-and-drop,
automation, “show me” wizards, and easy-to-use dashboards enable you to develop your
own interactive data visualization apps and dashboards. Reducing dependency on IT staff has
a long history. For example, at one time, managers did not analyze data with spreadsheets,
but now Excel expertise is expected. Vendors offer academic alliances to enable universities to
teach their software in MBA and undergraduate business courses. Tableau Desktop, QlikView,
TIBCO Spotfire, and IBM’s SPSS Analytic Catalyst enable business users to perform the kind of
advanced analysis that could only have been performed by expert users of statistical software
a few years ago.
Geospatial data is data that
has an explicitly geographic
component, ranging from vector
and raster data to tabular data
with site locations.
Case 11.1 Opening Case
Safeway and PepsiCo Collaborate to Reduce Stock
Outages using Data Visualization
If there’s one activity that is central to retail operations, it’s inventory
management. Striking just the right balance between enough and not
too much stock puzzles even those retailers who are regarded as inven-
tory management experts. So, when PepsiCo suggested to Safeway
that they try using data visualization software to improve forecasting
and inventory management, Safeway leaders jumped at the chance!
Enhancing Supply Chain Visibility
In an effort to improve awareness and sharing of POS data and data
about product orders, inventory levels, demand forecasts, transpor-
tation, and logistics, Safeway implemented data-sharing programs
with PepsiCo and other key vendors using data visualization tech-
niques (Figure 11.1 and Table 11.1). This type of improved data vis-
ibility can result in increased sales and millions of dollars in reduced
costs along the entire supply chain—from raw material to delivery to
end customer.
Safeway’s Data Visibility program was already forward thinking,
so when they partnered with PepsiCo’s 360¤ Retail execution program,
Safeway’s teams were equipped to improve an already lean supply chain.
But to further improve their supply chain, Safeway needed an altogether
different way to view the data. So, when Deloitte Consulting offered to
partner with PepsiCo and Safeway to provide an effective way to inter-
pret massive amounts of data at its Highly Immersive Visual Environment
(HIVE), they were very interested.
Excel-based analytics
In the past, when Safeway wanted answers about stockouts, managers
used spreadsheets to gather and compile inventory data and see how
stockouts trended across the company. With spreadsheets, managers
could discover general trends over time, but they could not identify
trends across a specific brand or universal product code (UPC). Trends
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Introduction 333
PepsiCo worked with major
customers to improve demand
forecasts in order to minimize
inventory on-hand.
Deloitte Consulting partnered with
PepsiCo and Safeway to help them
visually analyze POS data at the
Deloitte Analytics HIVE, short for
Highly Immersive Visual
Environment.
PepsiCo and Safeway
The goal of Safeway’s Data
Visibility program is to improve
supply chain visibility with key
vendors, such as PepsiCo.
FIGURE 11.1 Deloitte Consulting partnered with PepsiCo and Safeway to help
them analyze massive amounts of point-of-sale (POS) data at its state-of-the-art
visualization center called HIVE.
TA B L E 1 1 . 1 Opening Case Overview
Business Safeway, headquartered in Pleasanton, CA. has 197,000 employees and
1,368 stores in the United States and Canada. Safeway, Inc., reported
revenue of $36.3 billion in 2015.
PepsiCo, Headquartered in Purchase, NY. has 263,000 employees across
operations in over 200 countries and territories in Europe, Sub-Saharan
Africa; in Asia, Middle East, and North Africa. PepsiCo reported a net
revenue of $63 billion in 2015.
Products Lines PepsiCo—food, snacks and beverages
Safeway—food and drug retailers
Business challenges Inventory management is critical in retail operations—and a challenge
throughout the supply chain.
Digital Technology HIVE—a physical environment where people can examine the latest
analytics approaches themselves using their own data offered by
Deloitte Consulting
Taglines PepsiCo—“You Got the Right One Baby”
Safeway—“Ingredients for Life”
about each brand required more data than could be represented in
rows and columns of a spreadsheet. These spreadsheet limitations ulti-
mately led the company to try data visualization. To initialize the pro-
ject, representatives from Safeway and PepsiCo traveled to Deloitte’s
HIVE in Washington, DC, for a day-long design session to analyze many
terabytes of data.
HIVE
Deloitte’s HIVE is a research lab that measures and studies the inter-
actions between business analytics technologies and real-world data.
The applications used at the HIVE to develop real-world business solu-
tions are translated into portfolios that are intuitive to understand.
Deloitte hosts business leaders who want to understand business
analytics better in sessions tailored to address their specific business
challenges (Curtis, 2013). At the HIVE, executives get help with analytics
tools using their own data.
The HIVE gathers together a wide range of the latest analytics tech-
nologies from all over the world. In a very short amount of time, execu-
tives can learn what might otherwise have taken months of meetings,
demonstrations, and business pitches. You can find out more about the
HIVE in the video “Deloitte Analytics HIVE”.
Data Visualization at the HIVE
PepsiCo and Safeway participants collaborated to understand how
to reduce the “number of days of supply” from their supply chain
while maintaining service levels—a project that would save PepsiCo
and Safeway millions of dollars each year! During their HIVE session,
they built data visualizations to explore questions about stockouts.
334 C H A P T E R 1 1 Data Visualization and Geographic Information Systems
11.1 Data Visualization and Learning
Data visualization harnesses the power of data analytics and adds a visual display to capital-
ize on the way our brains work. You’ve probably heard the saying “A picture is worth a thousand
words”—interactive displays, charts with drill down capability, and geospatial data analysis
do just that and are some of the many ways companies can present data to enhance decision-
making. For example, maps can tell a much more compelling story than words or numbers, as
shown in Figure 11.2, by effective use of visual cues. Organizational decision-makers rely on
visual cues to grasp and process huge amounts of information.
Visualizing data can save a business money, help communicate important points, and
hold customer attention. Data visualization is important because of the way the human brain
processes information. Using pie charts, histograms, or bar graphs to visualize large amounts
of complex data is much easier than poring over spreadsheets or reports. Data visualization is
a quick, easy way to convey concepts in a universal manner—and you can experiment with dif-
ferent scenarios by making slight adjustments.
Data visualization software can be extremely powerful and complex, similarly to
Deloitte’s HIVE platform. At the other continuum are tools with simple, point-and-click
interfaces that do not require any particular coding knowledge or significant training. Most
non-data-scientist-friendly tools have interactive elements and can pull data from Google
Data visualization is the
presentation of data in a graphical
format to make it easier for
decision-makers to grasp difficult
concepts or identify new patterns
in the data.
Drill down is searching for
something on a computer moving
from general information to more
detailed information by focusing
on something of interest, for
example, quarterly sales—monthly
sales—daily sales.
The data included brands, UPC barcodes, costs, districts, store
numbers, out-of-stock scans, and out-of-stock reason codes. After
Safeway and PepsiCo decided on the visualization technique that
best represented their supply chain, they designed three processes
to operationalize it. The three processes they chose to design were
as follows:
1. How to feed the huge data sets into the visualization software
2. The best ways to display the data visually
3. How to gather feedback
Within 40 days after their session at HIVE, PepsiCo and Safeway
were able to implement their initial data visualization with dash-
boards and drill-down capabilities, then spent another 20 days refin-
ing it. Employing these data visualization techniques led to greatly
improved performance and reduced the frequency of stockouts
at Safeway. In some areas, managers were able to increase accu-
racy by 35%!
What PepsiCo and Safeway Learned from Data Visualization
and Dashboards
Safeway identified the stores experiencing the most stockouts and
their root causes. For example, it learned a disproportionate number
of stockouts were occurring at a store on Catalina Island. The store
is in a resort area where the tourist traffic causes uneven demand.
Safeway adjusted its supply chain strategy to address uneven
demand patterns.
Safeway also discovered that they were sending multiple and con-
flicting forecasts to their vendors from various departments. Safeway
changed the way the company creates and communicates forecasts with
its suppliers.
Two significant operational improvements at Safeway from discov-
eries made through data visualization are as follows:
1. Improved forecast accuracy by 35%
2. Reduced on-hand warehouse inventory, which cut inventory
carrying costs significantly
PepsiCo also benefited because now it has incredible, near real-
time access to the movement of every PepsiCo item, at every Safeway
store, every day. Moreover, Pepsi recognizes that communicating data in
an effective manner is important as Generation Z is increasingly becom-
ing a large proportion of the customer base and workforce. The new
players in the workforce need visuals that abbreviate information but
still provide thorough analysis to make quicker decisions. Pepsi’s experi-
ence at Deloitte have allowed it to develop a mobile app for cross-team
collaboration and data publication, derive consistent information from
customer surveys, and more accurately segment and attract different
consumer markets.
Questions
1. What is a potential benefit of supply chain visibility?
2. What was the limitation of Excel-based data analytics at Safeway?
3. What makes Deloitte’s HIVE unique in its approach to data analysis?
4. What steps did Safeway and PepsiCo undertake to arrive at their
data visualization solution?
5. What were the two operational improvements at Safeway?
6. Name one way in which PepsiCo benefited from the partnership
with Safeway?
Sources: Compiled from Deloitte (2016), Pathak (2015), pepsico.com (2017),
safeway.com/ShopStores/Our-Story.page (2017).
Data Visualization and Learning 335
Docs, Excel spreadsheets, Access databases, and other sources that most business people
work with already. Some useful business applications for data visualization include the
following:
• Identifying areas that need attention or improvement
• Clarifying which factors influence customer behavior
• Helping understand which products to place where
• Predicting sales volumes
First, we’ll explore different technologies that fall into the data analytics category, as
shown in Figure 11.3. Vendor packages usually offer tools in more than one category. In general,
reporting tools generate BI that shows what has already happened in a business. Analytical
tools show what might or could happen in the future. Later sections discuss information
delivery and data integration.
Gained 10 or more
Change in population
density for countries
(people per square mile)
5 to 10
2 to 5
1 to 2
Minor change
–1 to –2
–2 to –5
–5 to –10
Lost 10 or more
FIGURE 11.2 U.S. Census Bureau map shows easily identifiable changes in county population density. Different colors are used to
indicate areas that gained and lost population. Intensity of color indicates extent of gain/loss.
Information Delivery Data IntegrationData Analytics
• Data visualization
• Data discovery
• Geospatial & GIS
• Dashboards
• Interactive reports
• Data mashups
• GIS
FIGURE 11.3 Tools and technologies in this chapter fall into three related categories.
336 C H A P T E R 1 1 Data Visualization and Geographic Information Systems
Learning, Exploration, and Discovery with Visualization
Data visualization enables learning that is the basis for continuous improvement. When com-
panies, political parties, sports teams, or fund-raising agencies invest in marketing programs,
campaigns, promotions, special events, or other projects, they use visualization to learn some-
thing from them. Visualization is also used as a data explorer and data discovery tool. Com-
panies, such as Safeway and PepsiCo, are discovering new relationships and learning how to
improve performance using data visualization in all types of industries and governmental agen-
cies. Enterprise visualization apps for Androids, Apple iPads, and Surface tablets are replacing
static business reports with real-time data, analytics, and interactive reporting tools.
Examples of Visuals Examples of visualizations include dials, charts, graphs, time-
lines, geospatial maps, and heat maps. The tricolor heat map in Figure 11.4 instantly alerts
the viewer to critical areas most in need of attention. Visual displays make it easier for individ-
uals to understand data and identify patterns that offer answers to business questions such as
“Which product lines have the highest and lowest profit margins in each region?” Interactivity
and drill-down capabilities are standard features that make visualization even more valuable.
Two other types of heat maps, created in Tableau Desktop, are shown in Figure 11.5; both
heat maps are based on the same data set. Notice that the way in which the data are visually
displayed depends on what you want to learn or convey.
Human expertise is an essential component of data visualization (see Figure 11.6).
A common mistake organizations make is to invest in the analytics foundation—tools, quality
data, data integration, touch screens—but overlook the most crucial component, which is the
users’ ability to interpret the visual reports and analyze them correctly.
Data Discovery Market Separates from the BI Market
According to Gartner Research, the data analytics market has split into two segments: the tradi-
tional BI market and the newer data discovery market. Data discovery software had previously
been viewed as a supplement to traditional BI platforms. Now it is a stand-alone alternative to
BI. This split occurred because today’s data discovery technologies provide greater data explo-
ration and ease of use to help users find answers to “why” and “what if” questions through self-
service analytic apps. The split is another example of pushing analytics onto the computers of
business workers. IT at Work 11.1 describes the trend at IBM.
RISKSCountry
code
NA–1
NA–2
SA–1
SA–2
SA–3
SA–4
SA–5
AA–1
AA–2
AP–1
AP–2
Capital/Financial Inflation Economic/Social Government
FIGURE 11.4 This heat map uses three colors to convey information at a glance. The heat map is like a
spreadsheet whose cells are formatted with colors instead of numbers.
Data Visualization and Learning 337
Region
Product Cate… Product Sub-Category
Bookcases
Chairs & Chairmats
Office Furnishings
Tables
Appliances
Binders and Binder Accessories
Envelopes
Labels
Paper
Pens & Art Supplies
Rubber Bands
Scissors, Rulers and Trimmers
Storage & Organization
Computer Peripherals
Copiers and Fax
Office Machines
Telephones and Communication
(a)
(b)
Furniture
Office
Supplies
Technology
Central
73
37,920
26,293
–19,777
22,950
73,951
10,825
2,429
11,047
2,781
–174
–1,765
–68
11,971
513
38,876
79,393
–676
44,409
30,941
–16,990
31,276
92,273
11,222
3,740
10,433
518
178
–1,953
–2,018
37,280
35,997
61,377
84,860
–22,417
34,026
25,121
26,172
26,986
69,530
19,182
3,479
10,997
1,397
156
–2,903
11,836
30,475
63,598
129,060
78,985
–10,151
33,583
14,523
–50,677
16,812
71,420
7,482
4,041
13,510
2,856
–238
–1,179
–7,233
14,808
67,254
47,277
73,715
East South West
Technology
Telephones and
Communication
Technology
Copiers and Fax
Furniture
Chairs & Chairmats
Furniture
Office Furnishings
Technology
Computer
Peripherals
Office Supplies
Appliances
Office
Supplies
Paper
Office Supplies
Envelopes
Furniture
Tables
Technology
Office Machines
Office Supplies
Binders and Binder
Accessories
FIGURE 11.5 These heat maps represent the same data set using different colors (usually red and
green) and color intensity to show the profitability of three product categories and their subcategories. In
(a), data labels show detailed profit, while in (b), the area of each segment is used to make comparisons.
338 C H A P T E R 1 1 Data Visualization and Geographic Information Systems
Analytics/Visualization Vendors Respond to Demand Smaller data visu-
alization vendors are competing head-on with BI megavendors IBM, Oracle, and SAS. For
example, vendors DOMO, QlikView, Birst, Tableau, Sisense, and others are adding enterprise
features with each new release. SAS is one of the leaders in the data visualization space. SAS®
Visual Analytics uses intelligent autocharting to help business analysts and nontechnical users
create the best possible visual based on the data that is selected. The visualizations make it
easy to see patterns and trends and identify opportunities for further analysis. The SAS® LASR™
Analytic Server feature executes and accelerates analytic computations through in-memory
processing. The combination of high-performance analytics and an easy-to-use data explora-
tion interface enables different types of users to create and interact with graphs and charts to
better understand and derive more value from their data faster than ever.
Data
Visualization
TechniquesHuman
Expertise
High-Quality
Data
Patterns, trends, and relationships
Context to understand what numbers represent
& how to interpret them
Action to be taken
FIGURE 11.6 Data visualization, human expertise,
and high-quality data are needed to obtain actionable
information.
IT at Work 11.1
IBM Tackles Big Data Discovery
As one of the world’s leading technologies corporations, IBM con-
sistently takes advantage of opportunities to increase its market
share in the computing and data analytics realm. In addition to
hosting data storage platforms, IBM produces ways for customers
to analyze data more effectively. Its most recent development is
a service package of application programming interfaces (APIs)
called the Watson Discovery Service. Watson is intended to
decrease the amount of time analysts have to spend organizing
and cleaning data and allow them to focus on making data-driven
decisions.
The most prevalent issue in data analytics is the struggle to
standardize and organize data in a way that makes information
usable. Steve Lohr of the New York Times claims that analysts spend
80% of their time cleaning and organizing data for use (Lohr, 2014).
The Watson Discovery Service solves this problem by standardizing
and categorizing data and making it available for query by the user.
The most impressive aspect of the new service is its ability to accu-
rately analyze text sources on a “massive scale” (Forrest, 2016).
This allows employees of any level to gather the most important
information from numerous sources without having to manually
research each source individually.
IT at Work Questions
1. How is IBM’s approach to big data unique?
2. Why is a data organization service so vital to data analysis?
3. What makes the Watson Discovery Service attractive to
companies?
4. Do you think the service will make data analysis more
accurate?
Sources: Lohr (2014) and Forrest (2016).
Data Visualization and Learning 339
Others, such as Qlik, are integrating inference engines to replace the query-based
approach, which divorces data from its context. Using an inference engine, users can input
as much information as they have, and the software not only will search for the information
provided but also will make associations with all other data that is related to the information
provided.
These vendors continue to focus on business users of all levels and backgrounds. For
example, Jeff Strauss, BI architect at Allstate Insurance Company, explained that Allstate
invested in Tableau data discovery tools, so users throughout the organization could do their
own analysis rather than rely on the IT department. Tableau has built a large following with its
easy-to-access dashboards.
Data Discovery Offers Speed and Flexibility Data discovery is expected to take
on a greater role in corporate decision making. Companies are investing in the latest data dis-
covery solutions largely because of their speed and flexibility. Experts and novices can collect
data quickly from disparate sources and then explore the data set with easy-to-use interactive
visualizations and search interfaces (Figure 11.7). Drill-down paths are not predefined, which
gives users more flexibility in how they view detailed data.
FIGURE 11.7 Data discovery tools allow users to interact with multiple corporate data sources.
A powerful feature of data discovery systems is their ability to integrate data from multiple
data stores and identify data types and roles. See Tech Note 11.1. While data are being loaded
into the program, the software automatically extracts and organizes them by data type. Soft-
ware may also extract and organize terms from unstructured content, such as texts, e-mail, and
PDFs, and create tag clouds. Figure 11.8 shows an example of a Word cloud that give users a
quick way to evaluate the most aspects of SCM and start to make discoveries.
Big Data Visualization Challenges The speed, size, and diversity of big data brings
new challenges to visualization. One challenge is how to display the results of data discovery in
a meaningful way that is not overwhelming. For example, you may need to collapse and con-
dense the results to display graphs and charts in a way that decision makers are accustomed to
viewing. Results may also need to be available quickly on mobile devices, and users may want
to be able to easily explore the data on their own in real time.
340 C H A P T E R 1 1 Data Visualization and Geographic Information Systems
©
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FIGURE 11.8 Word clouds represent the relative frequency of words
and terms by their sizes.
Tech Note 11.1
Understanding Data Types and Roles
Data types and roles are fundamental components that affect how
visualizations behave. Each field in any data source has an associ-
ated data type. For example, a field that contains customer names
has a string (text) data type, and a field that contains price informa-
tion usually has a numeric data type. To visualize data QlikView,
Tableau—or in any analytics or BI tool, for that matter—you need to
understand dimensions and measures.
• Dimensions Dimensions contain discrete or categorical
data, such as a region (e.g., Northeast, Southwest), product
category, product subcategory, product name, supplier, size,
date, and zip code. Dimensions often become labels in the
data visualization.
• Measures A measure is a calculation based on numeric
data, such as profit, margin, quantity sold, speed, and
miles. The calculation always returns one single value that
summarizes all relevant records. The calculation is called
an aggregation. As in spreadsheets, there are several
aggregation functions: Sum(), Count(), Average(), Min(),
Max(), and so on. Key performance indicators (KPIs) of
interest might include monthly revenue, number of orders,
quantity on hand, and total cost. A measure is always based
on an aggregation.
Another issue associated with big data is the speed within which traditional architec-
tures and software can process the data. If the data are not processed in a timely manner,
the data may not be accurate or useful, for example, stock market data. For example, IBM
SPSS integrates three visualization tools to handle big data—Netezza, InfoSphere BigInsights,
and InfoSphere Streams—to provide comprehensive analytics capabilities in the big data
platform. Netezza is a high-performance data warehouse whose data can be used for model
building, scoring, and model refresh; InfoSphere BigInsights is an enterprise-ready distribution
of Hadoop.
How Is Data Visualization Used in Business?
The ultimate goal of data analytics is to drive profits, and often that depends on learning how
to manage assets, such as inventory, or engage customers in a smarter way. Collecting data is
relatively easy. Making sense of that data is not. Here are examples of how companies and/or
entire industries are using data visualization and interactivity to improve decision speed and
performance often with mobile displays.
The latest data visualization software addresses issues associated with processing big
data by speeding up data discovery and returns the visualization within an appropriate time-
frame, in an easy-to-understand format. BI and data visualization vendors are working to assist
business analysts and nontechnical users in determining how best to display these massive
amounts of data.
Data Visualization and Learning 341
Quick Detection and Decisions in Stock Markets Wall Street firms, traders,
wealth managers, risk analysts, and regulators rely on their ability to process and capitalize
on market anomalies in real time. Because of the demanding pace of their decisions, capital
market professionals use visualization for risk analysis, pretrade and posttrade checks, compli-
ance monitoring, fraud detection, client profitability analysis, research and sales, and portfolio
performance. Vendor Aqumin provides real-time visual interpretation solutions for the finan-
cial services industry. Aqumin’s OptionVision enables traders, risk managers, and market par-
ticipants to spot opportunities, risk, and market changes. AlphaVision for Excel enables visual
interpretation capabilities directly within the Microsoft Excel platform, and AlphaVision for
Bloomberg is developed for professional portfolio managers, traders, and risk analysts and is
connected directly to the Bloomberg Terminal to leverage data provided by Bloomberg.
The Chicago Board Options Exchange (CBOE), Gain Capital, JP Morgan, hedge funds, and
other asset management firms not only need data visualization but their executives and inves-
tors expect the quality and excitement of visuals to make sense of dry financial data.
Improving the HR Function ADP Corporation is one of the largest payroll service pro-
viders in the world, with data on 33 million workers. When payroll processing company ADP
rolled out data visualizations with predictive analytics to improve its human resource (HR)
function, it was surprised by what it found. After organizing the information and funneling it
through an analysis program, the HR department found that ADP would soon face a serious
retirement problem. To mitigate its foreseeable future talent gaps, ADP constructed new
training programs to prepare the next generation of workers.
Prompt Disaster Response by the Insurance Industry The effectiveness of
an insurer’s response to a devastating hurricane or other catastrophic event depends on its
ability to combine large amounts of data to fully understand the impact. Leading insurers are
using Web-based data visualization and analysis technologies to better manage their responses
to major disasters. In the days and weeks after a disaster, insurers face analysis and report-
ing bottlenecks. Analysts capable of creating maps and reports work frantically to respond to
requests for information. Because new data continue being generated even after the event, the
data have a short life span and reports need to be regenerated and redistributed.
For example, when an earthquake occurs, workers throughout an insurance company
access a Web-based (cloud) data app to visualize and analyze the impact. Users quickly deter-
mine which properties were subject to specific shake intensities and can visually build analyses
on their own, rather than waiting for a report.
Data Visualization Tools
A number of vendors offer data visualization software. The following list describes a few of
these. Many of these vendors offer a free trial of their software on the websites.
• SAS Visual Catalyst has an intelligent autocharting feature that automatically presents
the most appropriate visualization of a specified data set based on the amount and type of
data being analyzed. By building hierarchies “on the fly,” interactively exploring data, and
displaying data in different ways to answer specific questions or solve new problems, these
new data visualization products relieve the user of constantly having to rely on assistance
from the IT department when they want to change the ways in which the data is displayed.
For example, if you have a billion rows of data, it would be impossible to see so many data
points on a scatter plot. However, a box plot would convey the information that you need.
• Birst combines capability, scale, and data governance that IT needs with the agility, speed,
and usability of consumer-grade desktop tools. Birst’s adaptive user experience offers
users a wide range of self-service, data analysis, and presentation options, and its cloud
architecture allows users to instantly share findings and data across its supply chain.
342 C H A P T E R 1 1 Data Visualization and Geographic Information Systems
• QlikView distinguishes itself from other BI tools through its unique inference engine that
automatically maintains data associations. The inference engine works much the same as
the human brain, in that when it “thinks” of a data set, it is reminded of all things related
to it. Qlikview also offers a simple, Google-like search that works in an associative manner,
producing results for the phrase and also for things commonly related to the phrase. For
example, if a user wants contact information for a salesperson in an organization, and only
knows the product that the salesperson specializes in but didn’t know the person’s name
or the company, Qlikview could produce the desired results.
• IBM SPSS Analytic Catalyst has made sophisticated analytics accessible. Analytic Cat-
alyst enables business users to conduct the kind of advanced analysis that had been
designed for experts in statistical software. The software fast tracks analytics by identi-
fying key drivers, selecting an appropriate model, testing it, and then explaining the results
in plain English. See the YouTube video titled “IBM SPSS Analytic Catalyst” for an over-
view. The tool condenses the analytic process into three steps: data upload, selection of
the target variable (the dependent variable or outcome variable), and data exploration.
Once the data are uploaded, the system selects target variables and automatically cor-
relates and associates the data. Based on characteristics of the data, Analytic Catalyst
chooses the appropriate method and returns summary data rather than statistical data.
On the initial screen, it communicates the so-called top insights in plain text and presents
visuals, such as a decision tree in a churn analysis. Once the user has absorbed the top-
level information, he or she can drill down into top key drivers. This enables users to see
interactivity between attributes.
• IBM Watson Analytics is a cloud-based data visualization tool that guides data explora-
tion, automates predictive analytics, and enables effortless creation of dashboards and
infographics.
• Tableau is one of the easier data discovery tools to implement, requiring just basic database
information to connect it to the target data sources. With a new in-memory database engine,
such tools are developing the power to perform big data analytics. Despite data visualization
advancements, data integration between data sources can still be very challenging.
• Roambi Analytics is a leading mobile reporting and data visualization app designed for
iPads and iPhones. The app can take data from most sources, including Box, Google Docs,
spreadsheets, BI systems, databases, and Salesforce.com, and transform them into inter-
active data visualizations. Roambi has a worldwide customer base of Global 500 companies
and small and medium businesses across industries, including telecommunications, bio-
technology, pharmaceuticals, consumer technology, and packaged goods.
Questions
1. How does data visualization contribute to learning?
2. How do heat maps and tag clouds convey information?
3. Why are data visualization and discovery usage increasing?
4. Give two examples of data visualization for performance management.
11.2 Enterprise Data Mashups
Enterprise data mashups combine business data and applications from multiple sources—
typically a mix of internal data and applications with externally sourced data, SaaS (software
as a service) and Web content—to create an integrated experience. Mashups, in general,
became popular because of social and mobile technology. The ability of enterprise mashups
to quickly and easily consolidate data and functionality that is normally spread across several
Enterprise data mashup the
combination of data from various
business systems and external
sources without relying on the
middle step of ETL (extract,
transform, and load) into a data
warehouse or help from IT.
Enterprise Data Mashups 343
For organizations, mashup apps decrease IT implementation costs over traditional,
custom software development (discussed in Chapter 12) and significantly simplify business
workflows—both increase the ROI (return on investment) of mashup implementations.
Point-and-click dashboard building is a common feature in data mashups. These mashup
technologies provide visually rich and secure enterprise apps created from live data. They
provide the flexibility to combine data from any enterprise app and the cloud regardless of
its location. Users can build apps and dashboards that can be displayed on the Web and
mobile devices.
Mashup Architecture
Technically, a data mashup is a technique for building applications that combine data from
multiple sources to create an integrated experience. As techniques for creating mashups
became easier, companies started using them to build enterprise mashups that supported their
business models. Tech-savvy managers realize that they can use mashup apps with their exist-
ing data and external services to provide new and interesting views on the data.
Figure 11.9 shows the general architecture of an enterprise mashup app. Data from oper-
ational data stores, business systems, external data (economic data, suppliers; information,
competitors’ activities), and real-time news feeds are integrated to generate an enterprise
mashup.
applications, onto a single Web page or mobile device screen, offers real business opportuni-
ties for companies of all shapes and sizes around the world.
Enterprises use mashups as quick, cost-effective solutions to a range of issues. Because
mashups use preexisting technology, they do not require a huge investment and can be devel-
oped in hours rather than days or weeks.
Data mashups are becoming an increasingly important tool for businesses of all sizes by
allowing users to gain new insights and spot trends within data. While combining disparate
data sources is common for a data mashup, even if there is only a single data source, a
mashup can be made by combining data in a way that is not anticipated. End users and
analysts who rely on dashboards and drill-down capabilities benefit from greater access to
data, but the mashups remain behind the scene and invisible. Interactive dashboards and
drillable reports can be rapidly built based on mashed-up data. Tech Note 11.2 discusses
dashboard software. Heat maps and tree maps can be created as data visualizations
in mashups.
Tech Note 11.2
Adaptive Discovery Dashboard Software
Software vendor Adaptive Insights offers Adaptive Discovery, next-
generation finance, and operations software built for the cloud.
The software is widely used by businesses, nonprofits, government,
and universities. Several users are Boston Scientific, Goodwill,
Arizona Cardinals, Coca-Cola, Blue Cross/Blue Shield, AAA, Mayo
Clinic, and DHL.
The Adaptive Suite consists of Budgeting and Forecasting that
can increase financial planning and analysis productivity by more
than 705: faster Financial Reporting that allows management to
slice and dice financial data and drill down into details with self-
service reporting on the Web or using Microsoft Office, and dash-
boards and analysis tools that track business metrics and KPIs
faster and tell a story with the data.
Hortonworks, an open-source data company, uses Adaptive
Planning to track new hires and prospects. Dan Bradford, Hor-
tonworks’ VP of Finance, noted that when using it “The ability to
change a headcount assumption and have it globally run through
our entire business model to see the impact on payroll taxes or per-
sonnel allocations is instantaneous.”
Hortonworks built its business on innovation, so it sought a
financial management solution that shared the same mindset.
That’s why it turned to Adaptive Planning. With the click of a but-
ton, a user could drill down into KPIs and forecast the impact of
employee growth. The visibility elevated financial management
beyond just tracking labor and managing expenses. This newly
gained proficiency with data visualization gave Hortonworks a
competitive edge in a landscape of continuous innovation in the
open-source data market.
344 C H A P T E R 1 1 Data Visualization and Geographic Information Systems
Why Do Business Users Need Data Mashup Technology?
Business users have a hard enough time identifying their current data needs. It is not realistic
to expect them also to consider all the new sources of data that might be made available to
them and the analyses they might do if they had access to that data. With traditional BI and
data warehousing systems, data sources have to be identified, and some understanding of data
requirements and data models is needed.
Realizing that there will always be data needs that cannot be anticipated, the question is
whether IT should be in the middle of supporting those requests? Providing business users with
self-service enables them to meet their needs more quickly. They also have the opportunity to
explore and experiment.
Enterprise mashups improve operational efficiency, optimize the sales pipeline, enhance
customer satisfaction, and drive profitability. Within government, mashups have positively
impacted strategic areas such as citizen engagement and satisfaction, financial transparency,
project oversight, regulatory compliance, and legislated reporting. A summary of enterprise
mashup benefits is given in Table 11.2.
Enterprise
mashup app
Enterprise mashup
External
data
Data
Data
Business
systems
News
feeds
FIGURE 11.9 Architecture of enterprise mashup
application.
TA B L E 1 1 . 2 Enterprise Mashup Benefits
• Dramatically reduces time and effort needed to combine disparate data sources.
• Users can define their own data mashups by combining fields from different data sources that were
not previously modeled.
• Users can import external data sources, e.g., spreadsheets and competitor data, to create new
dashboards.
• Enables the building of complex queries by nonexperts with a drag-and-drop query building tool.
• Enables agile BI because new data sources can be added to a BI system quickly via direct links to
operational data sources, bypassing the need to load them to a data warehouse.
• Provides a mechanism to easily customize and share knowledge throughout the company.
Enterprise Mashup Technology
Mashup technology leverages investments in both BI tools and interactive technologies. BI
systems are very good at filtering and aggregating huge data volumes into information. With
mashup technology, for example, users can filter down the data based on their needs so
that only the information needed is provided by the available data services. Tech Note 11.3
describes mashup self-service.
Digital Dashboards 345
Questions
1. Sketch or describe the architecture of an enterprise mashup application.
2. What is an enterprise data mashup?
3. What are the functions and uses of enterprise mashups?
4. Explain why business workers may need data mashup technology.
5. What are the three benefits of mashup technology to the organization?
11.3 Digital Dashboards
A digital dashboard provides in-depth business analysis while providing a real-time snap-
shot of productivity. The digital dashboard emerged in the 1970s from the different report
formats produced by decision support systems. As more and more companies moved to
the Web some 20 years later, digital dashboard systems were developed to combine data
reporting and facilitate smooth business operations and decisions. When done well, a
digital dashboard is a tool that helps an organization efficiently develop analytical goals
and strategies.
Digital dashboards pull data from disparate data sources and feeds to report KPIs
and operational or strategic information on intuitive dashboards and interactive displays
(Figure 11.10).
Table 11.3 lists typical metrics displayed on dashboards by function. An executive
dashboard displays a company’s performance metrics, which are automatically updated in
real time (every 15 minutes) based on custom programming and connectivity with existing
business systems. Dashboards improve the information synthesis process by bringing in mul-
tiple, disparate data feeds and sources, extracting features of interest, and manipulating the
data, so the information is in a more accessible format. Users no longer need to log into mul-
tiple applications to see how the business is performing.
Digital dashboard is an
electronic interface used to
acquire and consolidate data
across an organization.
Tech Note 11.3
Mashup Self-Service
Many BI systems are designed by the IT department and based
on inflexible data sources. The result is a bottleneck of end-user
change requests as business needs and data sources change. The
solution is self-service mashup capabilities.
Using data mashup apps, nontechnical users can easily and
quickly access, integrate, and display BI data from a variety of
operational data sources, including those that are not integrated
into the existing data warehouse, without having to understand the
intricacies of the underlying data infrastructures or schemas.
In an enterprise environment, mashups can be used to solve
a wide variety of business problems and day-to-day situations.
Examples of these types of mashups are as follows:
1. Customer A customer data mashup that provides a quick
view of customer data for a salesperson in preparation for
a customer site visit. Data can be pulled from internal data
stores and Web sources, such as contact information, links to
related websites, recent customer orders, lists of critical situ-
ations, and more.
2. Logistics A logistics mashup that displays inventory for
a group of department stores based on specific criteria. For
example, you can mash current storm information onto a map
of store locations and then wire the map to inventory data to
show which stores located in the path of storms are low on
generators.
3. Human resource An HR mashup that provides a quick
glance at employee data such as profiles, salary, ratings, ben-
efits status, and activities. Data can be filtered to show custom
views, for example, products whose average quarterly sales
are lower than last quarter.
346 C H A P T E R 1 1 Data Visualization and Geographic Information Systems
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FIGURE 11.10 Dashboards pull data from disparate data sources and feeds, manipulate the
data, and display the metrics.
TA B L E 1 1 . 3 Metrics Displayed on Dashboards by Function
Dashboard Type Metrics
Financial performance • Net income
• Cash balance, actual vs. expected
• Profit, current month projection
• Changes in A/R and A/P
E-commerce • Daily website visitors by traffic source
• Trend of mobile vs. tablet traffic
• Location where visitors are located
• Top referring websites
• Top keywords referring traffic
• Revenue per website visitor
Revenue • Sales per day per channel
• How revenue is trending
• Days with the strongest sales, weakest sales
• Products selling the best, worst
Sales team • Sales by lead source; which leads are most and least effective
• Number of leads and proposals per salesperson
• Proposal close percentage
• Salesperson closing percentages
• Where in the conversion funnel customers are being lost. Conversion funnels are paths
that prospective customers take before they become paying clients
Advertising • Number of leads generated by advertising; which advertising is most and least effective
• Cost per lead, by advertising source
• Advertising expense, as a percent of sales
• Which advertising sources directly lead to sales
Order fulfillment • Number of products manufactured, reworked
• On-time completion percent
• Changes in inventory levels
• Percent of on-time delivery per week, month
Digital Dashboards 347
Components of dashboards are as follows:
• Design The visualization techniques and descriptive captions to convey information
so that they are correctly understood. Infographics are widely used because they convey
information in interesting and informative designs.
• Performance metrics KPIs and other real-time content displayed on the dashboard. All
dashboard data should reflect the current value of each metric.
• API APIs connect disparate data sources and feeds to display on the dashboard. The
alternative is for users or IT to manually enter data to the dashboard. Dashboards created
in this manner tend to fail because of the risk of incomplete, outdated, or wrong data,
which users learn not to trust.
• Access Preferred access is via a secure Web browser from a mobile device.
Dashboards are Real Time
Dashboards are often mistakenly thought of as reports consisting of various gauges, charts, and
dials, but the purpose of business dashboards is much more specific and directed. The purpose
of dashboards is to give users a clear view of the current state of KPIs, real-time alerts, and
other metrics about operations. Dashboard design is a critical factor because business users
need to be able to understand the significance of the dashboard information at a glance and
have the capability to drill down to one or more levels of detail. Having real time, or near real
time, data is essential to keep users aware of any meaningful changes in the metrics as they
occur and to provide information for making decisions in real time. Users can take corrective
actions promptly.
It’s easy to see in Figure 11.11 how color-coded displays can quickly inform the user of the
status of KPIs.
Region Name
ANZ
2
23
6
22
28
8
10
18
18
2
12
8
9
11
5
2
Canada
Asia Pacific HQ
Central and Southern Europ
Eastern Europe
France
Germany
Greater China
India
Japan
33.33%
36.36%
Drop Column Fields Here
Subsid Total Ev Goal Evide Evidence perce
35 125.00%
90.00%
61.11%
16.67%
27.78%
33.33 1000
Asia Pacific HQ
36.36 1000
Canada
125 1000
Central and Southern E
90 1000 61.11 1000 27.78 1000
33.33 1000
Asia Pacific HQ
36.36 1000
Canada
90 1000
France
61.11 1000
Germany
125 1000
Central and
Southern Europe
Gauge
FIGURE 11.11 Dashboards are designed to meet the information needs of their users.
348 C H A P T E R 1 1 Data Visualization and Geographic Information Systems
How Operational and Strategic Dashboards Work
Dashboards are custom programmed to automatically and securely pull, analyze, and display
data from enterprise systems, cloud apps, data feeds, and external sources. They work by con-
necting to business systems, such as accounting software, ERP, CRM, SCM, e-mail systems, web-
site analytics programs, and project management software via APIs. IT at Work 11.2 describes
dashboards in action at Hartford Hospital. Tech Note 11.4 lists vendors that offer free trials of
dashboard software.
Tech Note 11.4
Free Trial Dashboards
A few vendors that offer free trials to build your own dashboards
are as follows:
• Dundas
• GrowThink
• MicroStrategy
• SAP Crystal Dashboard Design
• Sisense
IT at Work 11.2
VA Employs Digital Data Dashboards
In December, 2016, the Department of Veterans Affairs (VA) launched
a new website to raise awareness of the Agency’s Digital Health
Platform (DHP)—a cloud-based approach to integrating veterans’
health data to produce real-time, analytics-driven personalized care.
The VA has been historically inefficient at managing the health
information and care of veterans. The new website (http://www
.oit.va.gov/specialreports/dhp/index.html) explains the purpose
of the DHP, provides a detailed overview of how the DHP works
and provides “user stories” of veterans who have benefits from the
comprehensive digital dashboard that enables customized care.
The DHP is used to gain recommendations for care and analysis on
potential or existing health issues. Instead of providers having to
respond to health issues as they arise, the DHP makes preventive
care a priority and easy to implement.
A fact sheet published by the VA says “DHP leverages a net-
work of application programming interfaces (APIs) to integrate mil-
itary and commercial health data, while unifying VA’s data stores,
connecting patient to provider in real-time, and predicting the most
successful care to provide a better experience to the veteran” (U.S.
Department of Veterans Affairs, 2016).
IT at Work Questions
1. What benefits do veterans get as a result of the digital dash-
board approach to health care?
2. Why would the VA implement a digital dashboard instead
of staying with their traditional approach to processing
electronic health records?
Benefits of Digital Dashboards
The interrelated benefits of business dashboards are as follows:
1. Visibility Blind spots are minimized or eliminated. Threats and opportunities are
detected as soon as possible.
2. Continuous improvement A famous warning from Peter Drucker was “if you can’t meas-
ure it, you can’t improve it.” Executive dashboards are custom designed to display the
user’s critical metrics and measures.
3. Single sign-on Managers can spend a lot of time logging into various business systems
and running reports. Single-sign-on dashboards save time and effort.
4. Deviations from what was budgeted or planned Any metrics, such as those listed in
Table 11.3, can be programmed to display deviations from targets, such as comparisons of
actual and planned or budgeted.
5. Accountability When employees know that their performance is tracked in near real
time and can see their results, they tend to be motivated to improve their performance.
Sources: Compiled from Verton (2016), Slabodkin (2016), and U.S. Department
of Veterans Affairs (2016).
Geographic Information Systems and Geospatial Data 349
Questions
1. Describe business dashboards and their functions.
2. Why do you think dashboards must be in real time and customized for the executive or manager?
3. How do business dashboards differ from other types of visual reports?
4. Explain the components of dashboards.
5. What are benefits of dashboards?
11.4 Geographic Information Systems and
Geospatial Data
Every day millions of decisions are made using geographic information systems (GISs). A GIS
connects data with geography to understand what belongs where. For example, it’s really diffi-
cult to visualize the locations of towns by their latitude and longitude coordinates listed in a
spreadsheet, but it’s easy to know where they are when you show these positions on a map
(Figure 11.12).
Geographic information system
(GIS) is a computer-based tool
that captures, stores, manipulates,
analyzes, and visualizes
geographic data on a map.
Seattle
New York
Miami
Dallas
Los Angeles
47.5700
40.7500
25.7876
32.8200
38.9072
33.9900
–122.3400
–73.9800
–80.2241
–96.8400
–77.0365
–118.1800
name latitude longitude
Washington DC
Seattle
New York
Miami
Washington DC
Dallas
Los Angeles
FIGURE 11.12 Longitude and Latitude Coordinates on a spreadsheet are much more difficult to
visualize than when they are displayed on a map.
GIS is not just about mapping data, government, businesses, and individuals find GIS
useful in solving everyday problems using geospatial data. For example, GIS can connect to
location-tracking devices and apps. GIS software can link geospatial data—where things or
people are and where they are going—with descriptive data—what things are like or what cus-
tomers are doing. GIS’s ability to track customers’ movement and behavior in real space enables
new strategies for marketing, retail, and entrepreneurship. Their ability to track products along
the supply chain also offers opportunities in logistics and order fulfillment.
350 C H A P T E R 1 1 Data Visualization and Geographic Information Systems
Collecting home and work addresses only paints a static picture of consumer loca-
tions. Their movements over time are not tracked. Data that are organized by zip code only
cannot reveal customers’ habits. By integrating GISs, businesses can more effectively solve
problems such as organizing sales territories, pinpointing optimal locations, finding cus-
tomers, managing campaigns, and delivering services. Geospatial data can also map compet-
itors’ actions.
Geocoding
In many cases, locations are already in existing data stores, but not in a format suitable for ana-
lytics. A simple process called geocoding can convert postal addresses to geospatial data that
can then be measured and analyzed. By tapping into this resource, decision-makers can use the
geographic or spatial context to detect and respond to opportunities.
Case in Point: GM General Motors (GM) spends a staggering $2 billion a year on market-
ing. In the past, it shotgunned its ads at the general public. Now, it maps out which types of
households will buy new cars, more accurately determines locations where people buy certain
models, and channels its ads specifically to those areas. As a result, GM spends less money to
generate higher sales.
GM managers use ESRI’s ArcGIS software to view local demographics, location character-
istics, regional differences, and the competitive brand environment to determine how a given
dealership should be performing compared to actual results. The GIS makes it possible for GM
to isolate demand, target its marketing efforts to local preferences, and position its dealerships
to improve sales. With the intelligence provided by the GIS, GM has increased sales despite
cutting the advertising budget.
GIS Is Not Your Grandfather’s Map
Unlike a traditional flat map, a GIS-generated map is made up of many layers of information
that provides users different ways to view a geographic space (Figure 11.13).
Imagine for a moment that you are a regional sales manager who needs to view sales data
for one of your 75 stores distributed throughout the State of South Carolina. On a flat map of
South Carolina, if you looked at retail store #50, you would see the name of the store and a dot
showing where it is located on the map. However, if you view a GIS map of the United States on
your computer, smartphone, or tablet, you can hover over South Carolina and when you click
on retail store #50, up pops the store’s location, store manager’s name and phone number,
weekly and monthly revenue, product categories, a photo of the storefront, and a virtual tour.
As a highly paid, busy regional sales manager, this saves you time and your company money,
increasing organizational effectiveness and efficiency.
Infrastructure and Location-Aware Collection of
Geospatial Data
The infrastructure needed to collect geospatial data continues to expand. Cellular and Internet
service providers, sensors, Google Earth, GPS, and RFID systems know the location of each con-
nected user or object. Foursquare, Google Maps, and other mobile apps rely on GPS locations.
With the Shopkick app, Macy’s can track a shopper’s every move within one of its stores and
send the shopper notifications about deals and items of interest. iBeacon is a feature available
in iOS 7 devices that uses a low-power Bluetooth transmission to broadcast a user’s location.
iBeacon allows Apple, or app developers leveraging Apple technology, to track users inside
buildings where satellite transmissions may not reach.
Geographic Information Systems and Geospatial Data 351
Similarly to Macy’s, businesses can motivate customers to download a location-tracking
app. Using GIS can help businesses target their customer markets more effectively and dynam-
ically by engaging with them in real time.
Applying GIS in Business
GIS tools have made significant contributions to decision making in finance, accounting, mar-
keting, and BI. Business applications include the following:
• Analysts can pinpoint the average income in areas where the highest performing stores are
established.
• Retailers can learn how store sales are impacted by population or the proximity to com-
petitors’ stores.
• A retail chain with plans to open a hundred new stores can use GIS to identify relevant
demographics, proximity to highways, public transportation, and competitors’ stores to
select the best location options.
• Food and consumer products companies can chart locations of complaint calls, enabling
product traceability in the event of a crisis or recall.
• Sales reps might better target their customer visits by analyzing the geography of sales
targets.
With current GIS, geospatial, and geocoding technologies and platforms, GISs can be easily
incorporated and managed within data analytics and visualization software.
With the GIS moving into the cloud, developers of enterprise applications based on SAP,
Microsoft Office, SharePoint, MicroStrategy, IBM Cognos, and Microsoft Dynamics CRM are
using it to create a wide range of mobile applications.
FIGURE 11.13 An example of a GIS-generated map. By hovering over a state, such as Texas, another
layer of sales and financial data appears.
352 C H A P T E R 1 1 Data Visualization and Geographic Information Systems
Key Terms
aggregation 340
analytical tools 335
data discovery 336
data visualization 334
digital dashboard 345
drill down 334
enterprise data mashup 342
geocoding 350
geographic information system (GIS) 349
geospatial data 332
reporting tools 335
Assuring Your Learning
Discuss: Critical Thinking Questions
1. How people use, access, and discover data in business is being
actively disrupted by tablets, which had been designed for consumers.
Users have higher expectations for data displays and capabilities. Bor-
ing, static graphs and pie charts are unacceptable. Discuss how per-
formance management—the monitoring of KPIs, for example—may be
improved by providing managers with data visualizations. Now con-
sider the opposite. In your opinion, would lack of data visualization
hurt the ability to manage performance?
2. Lots of data are available to retailers to make good decisions—
loyalty programs, Web analytics, and POS data. However, there is a big
gap between having data and being able to leverage them for real-time
decision-making. How can enterprise mashups close this gap?
3. Visit SAS.com and search for Visual Data Discovery.
a. Review the screenshots, features, and benefits.
b. In your opinion, what are the two most important benefits of
this data discovery tool?
c. Would you recommend this tool? Explain your answer.
4. Explain how executive dashboards can lead to better business in-
sights. What are the limitations of dashboards?
Explore: Online and Interactive Exercises
1. Periscopic is a socially conscious data visualization firm that
specializes in using IT to help companies and organizations facilitate
information transparency and public awareness. From endangered
species, to politics, to social justice, it is the goal of Periscopic to
engage the public and deliver a message of responsibility and action.
Its philosophy and tagline are “do good with data.”
a. Visit http://periscopic.com and explore its recent work.
b. Discuss how data are used to do good.
c. How effective is Periscopic’s approach to public awareness and
social justice?
2. Visit TIBCO Spotfire and click “Demos” and “Demo Gallery.”
a. Select and watch one of the demos.
b. Describe the data visualizations features in the demo.
c. Explain the benefits of the application or analytics.
3. Visit the Analysis Factory
a. Click Gallery and then select Custom Solutions.
b. View one demo, such as Performance Trends, Fusion Charts,
Manufacturing Performance, and Sales Map Dashboard.
c. Create a table listing all of the customer solutions for which you
tried the demo in the first column. In the second column, list the
departments or functions each customer solution supports. In the
third column, list the types of visualizations used in each solution.
d. In the team report, discuss how dashboards can impact the
quality of business decisions.
Analyze & Decide: Apply IT Concepts to Business Decisions
1. Qlik offers a complimentary e-book entitled “Turn your Excel Re-
ports into Stunning Dashboards.”Download the e-book. Write a report
about what you learned.
2. Visit IBM’s Watson Analytics Event Center any Thursday at 3 pm ET
to take a Tour of Watson Analytics. Write a report on what you learned.
3. Visit the website of software provider Microstrategy
a. Click “Explore the Product.”
b. Click “Browse Solutions.”
c. Scroll down to choose an industry that interests you. Click on
that Industry and “Learn More.”
d. Click “Watch the Video.”
e. Write a report describing what you learned.
References 353
Case 11.3
Video Case: The Beauty of Data Visualization—Data
Detective
TED stands for technology, entertainment, and design. Visit TED.com
and search “data visualization.” Select “Making Sense of Too Much
Data” and find “David McCandless: The beauty of data visualization.”
The video and transcript are available. In his TED talk, The Beauty of
Data Visualization, David McCandless says that data visualization gives
us a second language—the language of the eye.
Questions
1. Explain what McCandless means by language of the eye.
2. What are the examples of language of the mind?
3. What happens when language of the eye and language of the
mind combine?
4. What did David McCandless say about information design?
IT Toolbox
Create Your Own Digital Dashboard
Visit software provider Sisense. Sign in, start your free trial, and build
your first dashboard in minutes.
References
Curtis, K. “Deloitte Hosts PepsiCo and Safeway at the HIVE (Highly
Immersive Visual Environment).” GMAOnline.Org. 2013. gmaonline.org
Deloitte CIO Journal. “Data Visualization Helps Safeway Keep Shelves
Stocked.” The Wall Street Journal. December 3, 2013.
Deloitte. “Deloitte Analytics Labs.” 2016. Retrieved December 22, 2016
from https://www2.deloitte.com/us/en/pages/deloitte-analytics/
solutions/deloitte-analytics-labs.html.
Forrest, C. “IBM launches Watson Discovery Service for big data ana-
lytics at scale.” TechRepublic, December 16, 2016.
Lohr, S. “For Big-Data Scientists, ‘Janitor Work’ Is Key Hurdle to
Insights.” New York Times, August 17, 2014.
Pathak, S. “How PepsiCo sweetens up consumer insights.” Digiday,
June 8, 2015.
pepsi.com. 2017.
safeway.com/ShopStores/Our-Story.page. 2017.
Slabodkin, G. “VA lays out plans for cloud-based Digital Health
Platform.” HealthData Management, December 16, 2016.
U.S. Department of Veterans Affairs. “Digital Health Platform.” 2016.
Retrieved December 27, 2016 from http://www.oit.va.gov/library/
dhp/DHP_factsheet .
Verton, D. “VA Launches New Site for Digital Health Platform.”
MeriTalk, December 8, 2016.
Case 11.2
Visualization Case: Are You Ready for Football?
Nothing inspires passionate comments among sports fans like pre-
season predictions. Brett McMurphy’s data visualization looks at
how teams ranked in different polls. Visit www.tableausoftware.
com and search using “ready for football.” You will see the Preseason
Polls & Returning Starters visualization. (a) Interact with the Presea-
son Polls & Returning Starters visualization. (b) Select various filters
and observe the changes. (c) Download the workbook by clicking the
Download button at the lower right corner of the display. View and
interact with two other sports-related visualizations, for example,
CBS Sports Defensive Matchup Tracker, Fantasy Closers, and Premier
League Points Leaders. Download each. Click the Business and Real
Estate Gallery. View and interact with two data visualizations in the
gallery. Download each.
Questions
1. Which visualization was the easiest to understand at a glance?
Explain.
2. Which visualization was the most difficult or complicated to
understand easily? Explain.
3. What are the benefi ts and potential drawbacks of interactive
visualizations?
354
CHAPTER 12
IT Strategy, Sourcing, and
Strategic Technology Trends
C H A P T E R O U T L I N E
Case 12.1 Opening Case: Intel Reaps Rewards
from Its Sustainable IT Strategy
12.1 IT Strategic Planning
12.2 Aligning IT with Business Objectives for
Competitive Advantage
12.3 IT Sourcing Strategies
12.4 Balanced Scorecard
12.5 Strategic Technology Trends
Case 12.2 Business Case: Cisco IT Improves
Strategic Vendor Management
Case 12.3 Data Analysis: Third-Party versus
Company-Owned Offshoring
L E A R N I N G O B J E C T I V E S
12.1 Understand IT strategic planning and its link to competitive
advantage.
12.2 Explain the value of aligning the IT strategy with the
business strategy.
12.3 Describe the balanced scorecard methodology and how it
functions as a road map for strategic planning.
12.4 Explain how organizations identify strategic technology
trends to help achieve their strategic vision and list the five
steps to technology scanning.
Introduction
As you have learned throughout this book, organizational performance depends on the
quality and responsiveness of its IT infrastructure and information systems. IT strategy shapes
the direction of IT investments over the next one to five years to maximize business value
and shareholder wealth. As all strategies, IT strategy defines priorities, a road map, budget, and
IT strategy is a plan of action
to create an organization’s
IT capabilities for maximum
and sustainable value in the
organization.
Introduction 355
investment plan—and must align with and support the business strategy. Deciding on a
strategy entails making decisions about a future that can only be imagined. According to
Roger L. Martin’s article in Harvard Business Review: “True strategy is about placing bets
and making hard choices. The objective is not to eliminate risk but to increase the odds of
success” (Martin, 2014). Strategy making is uncomfortable because it is about taking risks and
facing the unknown. Economic and technical experts agree that the extent to which an organi-
zation can achieve business–IT alignment (BITA) heavily influences its chances of success
and sustainability.
Creating an IT strategy takes into consideration the acquisition, implementation, main-
tenance, and disposal of all IT assets needed to meet current and future organizational objec-
tives along with methods to monitor, measure, and control how well the IT plan is working.
An IT strategic plan also includes an operating plan for acquiring or providing new technology
and services. The operating plan defines how to execute the IT strategic plan: for example,
deciding on in-house development or sourcing options such as managed services, cloud
computing, or software as a service (SaaS). Strategies are measured and evaluated continu-
ously and revised annually during the strategic planning process. Some of these measures are
quantifiable, and others are not. A tool that is used to evaluate both financial and nonfinancial
metrics of an IT strategy is the balanced scorecard (BSC). The BSC provides a much more com-
prehensive assessment of a company’s performance than solely relying on numbers on a profit/
loss statement.
Another important component of the IT strategy is the acquisition of newly emerging stra-
tegic technologies. Strategic technologies can change the way that a business operates and are
important differentiators in determining future directions of a company in the digital economy.
In this chapter, we will discuss the components of an IT strategy, the benefits an IT strategy
offers, how a BSC helps evaluate the effectiveness of an IT strategy. You will also learn the
advantages of discovering and implementing strategic technologies to ensure sustainability.
But first, let’s take a look at a best-practice IT Strategic Planning Process that Intel developed.
Business strategy sets the
overall direction of a company,
defines how a business will
achieve its mission, goals, and
objectives, and specifies the
necessary financial requirements,
budgets, and resources.
Business–IT alignment refers
to applying IT in an appropriate
and timely way that is consistent
with business strategies, goals,
and needs.
Case 12.1 Opening Case
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Intel Reaps Rewards from Sustainable IT Strategy
Company Overview
Intel is the largest manufacturer of PC microprocessors and the holder
of the x86 processor architecture patent—the microprocessors used
in more than 80% of personal computers worldwide. Based in Santa
Clara, CA, Intel supplies processors to Apple, Lenovo, HP, and Dell.
Intel also manufactures communication and computing devices such
as motherboard chipsets, network interface controllers, integrate con-
trollers, flash memory, graphics chips, and embedded processors. Over
90% of all new services at Intel are deployed to the cloud.
Intel operates in 46 countries. Intel has almost 100,000 employees
at over 300 sites worldwide, including 12 manufacturing and 6 assembly/
test sites.
Intel’s Journey to Sustainable IT
Intel has a track record of taking a proactive approach to issues related
to sustainability both economically and environmentally. Reducing–
reusing–recycling is an important part of Intel’s business strategy and
long-term goal. From an economic standpoint, Intel has mitigated
risks, saved costs, protected brand recognition, and developed new
products and market opportunities. From an environmental perspec-
tive, Intel has addressed climate issues, diversity in the workforce,
employee safety, set up an ethical work environment, conducted sup-
ply chain audits, and established and supported community service
volunteer programs.
Sustainable IT is one of the main drivers of Intel’s sustainability
program. Chief information officer (CIO) Diane Bryant seized the
opportunity for IT to play a key role in enabling Intel to achieve its
356 C H A P T E R 1 2 IT Strategy, Sourcing, and Strategic Technology Trends
corporate sustainability goals when the chief executive officer (CEO)
Paul Otellini’s announced his ambitious goal to reduce environmental
impacts in key areas including energy efficiency, water conservation,
and a 20% emissions reduction, Bryant committed IT to help the
business deliver their objectives through the use of Sustainable IT to
reduce environmental impacts of IT operations and help transform the
overall Intel organization by the following:
• Aligning all IT processes and practices with the core reduce, reuse,
and recycle principles of sustainability
• Identifying innovative ways to use IT in business processes to
delivery sustainability benefits across the enterprise
To better manage sustainability initiatives and effect change
within IT and across Intel, Bryant established the IT Sustainability
Program Office (SPO). The task of the SPO was to develop a sustain-
ability strategy to educate and provide leadership to the organi-
zation on the principles and importance of sustainable business
practices. First, necessary metrics, strategies, and processes were
defined and implemented internally. To do this, they focused on the
core metric of carbon footprint (CO2) reduction, as well as reducing
water, energy, and other resource consumption, and adopted inter-
nal IT goals to manage Intel’s IT energy footprint and contribute to
energy reduction.
Moving forward, the SPO’s key challenge was to embed a sustain-
ability focus in decision-making activities and best practices throughout
Intel’s daily business activities and transform sustainability from a pro-
gram to a mind-set. The process that Intel has used to achieve its Sustain-
able IT strategy is explained next.
Intel’s Six-Step IT Strategic Planning Process
Intel used a six-step IT Strategic Planning process that closely aligns IT
investments and solutions to strategic planning at the corporate level.
This business–IT alignment was achieved by bringing together a vari-
ety of perspectives from senior management, IT, and business groups
in the planning stage as shown in steps 1 through 4 in Figure 12.1. To
minimize time demands, the strategic planning team engaged subject
matter experts at critical points instead of involving them at every step
of the process.
Strategic
directional
statements
Strategic
plan
gic
egic
2. Technology & Business Outlook. A team of
senior management, IT, and business unit
representatives develop the two-to-five-year
business outlook & technology outlook.
3. Current State Assessment & Gap Analysis.
Analysis of the current state of IT, enterprise
systems, & processes, which are compared with
results of step 2 to identify gaps and necessary
adjustments to IT investment plans.
4. Strategic Imperatives, Strategies, & Budget for
Next Year. Develop next year’s priorities, road
map, budget, & investment plan. Annual budget
approved.
5. Governance Decisions & IT Road Map. The
budget guides the governance process, including
supplier selection and sourcing.
6. Balanced Scorecard Reviews.
Performance is measured monthly.
1. Enterprise Vision. Senior management &
leaders develop & communicate the enterprise’s
two-to-five-year strategic vision & mission and
identify the direction & focus for upcoming year.
FIGURE 12.1 Model of Intel’s six-step IT strategic planning process. Planning phase: steps 1 to 4. Decision-
making phase: step 5. Measuring and evaluation phase: step 6.
IT Strategic Planning 357
The activities in the planning, decision making, measuring, and
evaluation phases flow naturally from one step to the next. The busi-
ness and IT strategic plans are evaluated and adjusted annually to keep
pace with rapid changes in the industry. Characteristics of Intel’s strategic
planning process are summarized in Table 12.1.
Benefits of Intel’s Sustainable IT Strategy
Intel has reaped many benefits from establishing a Sustainable IT
Strategy both economically and environmentally. Examples of some of
these benefits are presented in Table 12.2.
Since its inception, Intel has also earned a number of awards and
recognitions for its Sustainable IT strategy including the InfoWorld
Green 15 award and numerous recognitions for innovation. In January
2016, Corporate Knights (the magazine for Clean Capitalism) reported
the results of the 2016 Global 100 Most Sustainable Corporations in the
World index. Intel earned a spot in that prestigious list thanks to Bry-
ant’s Sustainable IT strategy that embedded sustainability within IT and
the business.
Clearly, Intel’s IT strategic planning approach has improved Intel’s
agility, performance, and sustainability. It has provided a clear and cred-
ible direction for the enterprise and supports consistent decision-making
at all levels of the business.
Intel’s experience demonstrates that an effective strategic planning
process is critical to an enterprise’s long-term success and health and
support consistent decision-making at all levels of the business. Each
enterprise has its own way of conducting the strategic planning process
and approach that fits its own culture and leadership style. For those
companies that haven’t yet established a Strategic Planning Process,
or aren’t reaping the sought after rewards from an already established
process, Intel’s IT Strategic Planning Process provides an excellent model
to follow.
Questions
1. What are the three phases in Intel’s IT strategic planning process?
Describe the steps in each phase.
2. Intel formulates a 2-to-5-year strategic plan. Given this time
frame, why is the plan reviewed and evaluated every year?
3. Given the frequency of the planning process, what is done to min-
imize demands on people’s time?
4. How is Intel’s IT strategic plan measured and evaluated?
5. What makes the process sustainable?
6. How does the IT strategy support the short-term (1-year) business
strategy?
7. In what ways does Intel’s IT strategic planning process impact the
company’s commitment to sustainability?
TA B L E 1 2 . 1
Characteristics of Intel’s Corporate and IT
Strategic Planning Process
Integrated Intel IT activities are synchronized with the com-
pany’s strategic direction. By tightly linking Intel IT
to the corporate planning process, the IT function
has strengthened its credibility throughout Intel
and earned the position of a trusted partner.
Holistic The strategic planning process aligns IT invest-
ments with Intel’s business direction and consoli-
dates expertise and ideas from across Intel IT.
Sustainable As new strategies are implemented, a common
practice is to “look up” every 2 or 3 years and ask,
“What’s next?” Instead of replacing the plan every
2 to 3 years, Intel uses a different approach. To
keep pace with changes in the environment, the
team looks at the plan every year to determine if
anything shifted in its environment. If a shift has
occurred and affected its business, the IT plan is
updated as needed.
TA B L E 1 2 . 2 Intel’s Sustainable IT Strategy Benefits
IT Initiative Benefit
Videoconferencing Reduce carbon footprint by 22,000 tons
of CO2
Save $25 million by reducing travel
hours by 57,000 hours
Reduce number of
data centers
Lower data center power consumption
Increase server
utilization
Reduced servers by 25%—save energy
and cost of equipment
Pin code on printers Reduced paper waste—save resources
and $$$
Electronic newsletter
“Digital Edge”
Raise employee awareness of sustain-
ability goals and progress being made
Power management
program
Reduce PC energy consumption
12.1 IT Strategic Planning
IT strategy focuses on the technology needs of a business. Setting an IT strategy and creating
an IT strategic plan is an important part of managing IT. Industry, sector, and specific com-
petitive environments along with prevalent technology trends all shape IT strategy. IT strategy
directs investments in social, mobile, analytics, cloud, and other digital technology resources.
To create an effective IT strategy, a CIO must have a clear understanding of the business strat-
egy and the environment in which the business exists to create, maintain, and sustain a com-
petitive advantage and business value for the organization.
Sources: Compiled from Curry and Donnellan (2014); Krishnapura et al. (2014);
Corporate Knights (2016) and intel.com (2017).
358 C H A P T E R 1 2 IT Strategy, Sourcing, and Strategic Technology Trends
Strategy addresses fundamental issues such as the company’s position in its industry, its
available resources and options, and future directions. A strategy addresses questions such as
the following:
• What is the long-term direction of the business?
• What is the overall plan for deploying resources?
• What trade-offs are necessary? What resources will need to be shared?
• What is the company’s position compared to that of its competitors?
• How does a company achieve competitive advantage over rivals in order to achieve or
maximize profitability?
It’s important to remember that IT strategic planning is not just a one-time activity. It is an
ongoing iterative process that focuses on the value drivers in core process areas in order to
make targeted improvements.
Value Drivers
Long-term strategic planning starts with a clear understanding of the factors that create sig-
nificant value and that work together with other factors to drive future revenue and profit at or
above their current rates. These factors are value drivers.
In order to create business value, you must identify value drivers and link them to daily
activities. For example, it is not enough to identify cost as a key value drive. Cost is almost
always a value driver, but for this factor to be useful, you need to drill down to the activities that
impact cost. The general types of business value drivers are explained in Table 12.3. Drivers can
have a limited life span. Their value can diminish due to chances in the economy or industry, at
which time they are replaced with relevant ones.
Value drivers are considered in the strategic planning process and the BSC methodology.
Strategic planning is a
series of processes in which an
organization selects and arranges
its businesses or services to keep
the organization healthy or able to
function even when unexpected
events disrupt one or more of its
businesses, markets, products,
or services.
Value driver enhances the
value of a product or service
to consumers, creating value
for the company. Advanced IT,
reliability, and brand reputation
are examples.
TA B L E 1 2 . 3 Three General Types of Business Value Drivers
Type of Business Value Drivers Definitions Examples
Operational—Shorter-term factors Factors that impact cash flow and the cash genera-
tion ability through increased efficiency or growth
Cost of raw materials, cost of providing service,
cost per mile, sales volume, sales revenue
Financial—Medium-term factors Factors that minimize the cost of capital incurred
by the company to finance operations
Debt level, working capital, capital expendi-
tures, day’s receivables, bad debt expense
Sustainability—Long-term factors Survival factors; factors that enable a business to
continue functioning consistently and optimally
for a long time
Government regulations, industry standards,
federal and state environmental laws, privacy
and security regulations
IT Strategic Plan Objectives
The four objectives of IT strategic plans are to:
1. Improve management’s understanding of IT opportunities and limitations
2. Assess current performance
3. Identify capacity and human resource requirements
4. Clarify the level of investment required
Various functions in the organization—such as manufacturing, R&D (research and
development), and IT—are the most successful when their strategies are forward looking. For-
ward looking means that they carry out strengths, weaknesses, opportunities, and threats
(SWOT) analysis to create their future rather than react to challenges or crises. Additionally,
IT implementations that require new infrastructure or the merging of disparate information
systems can take years. Long lead times and lack of expertise have prompted companies to
explore a variety of IT strategies.
IT Strategic Planning 359
IT and Business Disconnects
According to a survey of business leaders by PwC Advisory, 87% of business leaders believe that
IT is critical to their companies’ strategic success, but not all of them work with IT to achieve
that success. Less than 50% of business leaders reported that the IT function was very involved
in the strategic planning process. When the IT strategy was not aligned with the business strate-
gies, there was a higher risk that the IT project would be abandoned before completion. About
75% of companies abandoned at least one IT project and 30% abandoned more than 10% of
IT projects for this reason. There are several possible reasons why a high percentage of IT pro-
jects are abandoned—the business strategy changed, technology changed, the project was not
going to be completed on time or budget, the project sponsors responsible did not work well
together, or the IT strategy was changed to cloud or SaaS.
The fundamental principle to be learned is that when enterprise strategies change, the IT
strategies need to change with them. Both strategies are dynamic—to adapt to opportunities
and threats.
Corporate and IT Governance
Business and IT strategies depend on shared IT ownership and shared IT governance among
all senior managers. When an IT or any type of failure causes harm to customers, business
partners, employees, or the environment, then regulatory agencies will hold the CEO account-
able—and the public will as well. A high-profile example is BP CEO Tony Hayward, who was held
accountable to Congress for “The Role of BP in the Deepwater Horizon Explosion and Oil Spill,”
the rig explosion that killed 11 workers and caused the subsea oil gusher that released 60,000+
barrels per day into the Gulf of Mexico. Hayward’s attempts to claim ignorance of the risks and
use the SODDI (“some other dude did it”) defense does not get him or any CEOs off the hook. A
company can outsource the work, but not the responsibility for it.
Because of the interrelationship between IT and business strategies, IT and other business
managers share responsibility in developing IT strategic plans. Therefore, a governance struc-
ture needs to be in place that crosses organizational lines and makes senior management
responsible for the success of key IT initiatives.
Reactive Approach to IT Investments Will Fail
Few companies today could realize their full potential business value without updated IT
infrastructures and services. Yet many companies still struggle to make the right IT decisions
and investments in order to leverage relatively new IT trends—cloud computing and SaaS,
big data, analytics, social, and mobile. Making IT investments on the basis of an immediate
need or threat—rather than according to IT strategy—might be necessary at times, but reactive
approaches result in incompatible, redundant, expensive to maintain, or failed systems. These
IT investments tend to be patches that rarely align with the business strategy.
Two of the biggest risks and concerns of top management are (1) failing to align IT to
real business needs and, as a result, (2) failing to deliver value to the business. Since IT has a
dramatic effect on business performance and competitiveness, the failure to manage IT effec-
tively seriously impacts the business.
IT Strategic Planning Process
IT strategic planning is a systematic process for determining what a business should become
and how it can best achieve that goal, as you read in Opening Case 12.1. Typically, an organiza-
tion will evaluate its full potential using SWOT analysis (Tech Note 12.1) and then will decide
how to allocate resources to develop critical capabilities. In practice, competing agendas, tight
budgets, poor interdepartmental communication, and politics can turn strategic planning dis-
cussions into bar room brawls—if they are not well managed.
360 C H A P T E R 1 2 IT Strategy, Sourcing, and Strategic Technology Trends
Generally speaking, during strategic analysis, an organization scans and reviews the
political, social, economic, and technical environments of an organization. For example, any
company looking to expand its business operations into a developing country has to investigate
that country’s political and economic stability and critical infrastructure. In this case, strategic
analysis would include reviewing the U.S. Central Intelligence Agency’s (CIA) World Factbook.
The World Factbook provides information on the history, people, government, economy,
geography, communications, transportation, military, and transnational issues for 266 world
entities. Then the company would need to investigate competitors and their potential reactions
to a new entrant into their market.
Equally important, the company would need to assess its ability to compete profitably in
the market and impacts of the expansion on other parts of the company. For example, having
excess production capacity would require less capital than if a new factory needed to be built.
CIOs undertake IT strategic planning on a yearly, quarterly, or monthly basis. A good IT
planning process helps ensure that IT aligns, and stays aligned, within an organization’s
business strategy. Because organizational goals change over time, it is not sufficient to develop
a long-term IT strategy and not re-examine the strategy on a regular basis. For this reason, IT
planning is an ongoing process. The IT planning process results in a formal IT strategy or a reas-
sessment each year or each quarter of the existing portfolio of IT resources.
Tech Note 12.1
SWOT Analysis
The SWOT analysis is a useful tool in developing and confirming the
goals of the corporate and IT strategies.
The SWOT analysis begins with the evaluation of inter-
nal strengths and weaknesses in your organization, followed
by an examination of the external opportunities and threats
that may affect the organization based on the market and the
overall environment of the organization. Examples of some of the
strengths, weaknesses, opportunities, and threats commonly expe-
rienced by organization are shown in Figure 12.2.
SWOT analysis is the most useful when it is completed in the
early stages of the strategic planning process. In the IT Toolbox
at the end of this chapter, you will learn how to conduct a SWOT
analysis of a business and of yourself.
STRENGTHS
Reliable processes
Agility
Motivated Workforce
Product Price and
Volume
Longstanding Reputation
WEAKNESSES
Lack of expertise
Outdated IT Infrastructure
Competitors have
lower overall costs
Brand power
OPPORTUNITIES
Develop New Markets
Ability to create new
service or product
IT-LANs,
Internet Deliver
products and
services in new ways
Improve Service
THREATS
Price wars
New products by
competitor
Obsolescence
Big Box stores
FIGURE 12.2 SWOT analysis consists of a realistic evaluation of internal
strengths and weaknesses and external opportunities and threats.
IT Strategic Planning 361
Recall that the focus of an IT strategy is on how IT creates business value. Typically, annual
planning cycles are established to identify potentially beneficial IT services, to perform cost–
benefit analyses, and to subject the list of potential projects to resource allocation. Figure 12.3
illustrates the IT strategic planning process.
The planning process begins with the creation of a strategic business plan. The long-range
IT plan, sometimes referred to as the strategic IT plan, is then based on the strategic business
plan. The IT strategic plan starts with the IT vision and strategy, which defines the future con-
cept of what IT should do to achieve the goals, objectives, and strategic position of the firm
and how this will be achieved. The overall direction, requirements, and sourcing—either out-
sourcing or insourcing—of resources, such as infrastructure, application services, data services,
security services, IT governance, and management architecture; budget; activities; and time
frames are set for three to five years into the future. The planning process continues by address-
ing lower-level activities with a shorter time frame.
The next level down is a medium-term IT plan, which identifies general project plans in
terms of the specific requirements and sourcing of resources as well as the project portfolio.
The project portfolio lists major resource projects, including infrastructure, application ser-
vices, data services, and security services, that are consistent with the long-range plan. Some
companies may define their portfolio in terms of applications. The applications portfolio is a
list of major, approved information system projects that are also consistent with the long-range
plan. Expectations for sourcing of resources in the project or applications portfolio should be
driven by the business strategy. Since some of these projects will take more than a year to
complete and others will not start in the current year, this plan extends over several years.
The third level is a tactical plan, which details budgets and schedules for current-year pro-
jects and activities. In reality, because of the rapid pace of change in technology and the envi-
ronment, short-term plans may include major items not anticipated in the other plans.
The planning process just described is currently practiced by many organizations. Spe-
cifics of the IT planning process, of course, vary among organizations. For example, not all
organizations have a high-level IT steering committee. Project priorities may be determined
by the IT director, by his or her superior, by company politics, or even on a first-come, first-
served basis.
Strategic Business Plan
Overall direction of the organization
• Goals
• Objectives
• Strategic position
IT vision and strategies
Overall directions for:
• Resource requirements
and sourcing
• Budget
• Activities
• Time frames
IT Strategic
(Long-Range) Plan
General project plans
• Resource determination
• Project portfolio
IT Medium-Term
Plan
Current year project plans
• Detailed budget
• Specific schedule of activities
IT Tactical
Plan
FIGURE 12.3 IT strategic planning process.
362 C H A P T E R 1 2 IT Strategy, Sourcing, and Strategic Technology Trends
The deliverables from the IT planning process should include the following: an evaluation
of the strategic goals and directions of the organization and how IT is aligned; a new or revised
IT vision and assessment of the state of the IT division; a statement of the strategies, objec-
tives, and policies for the IT division; and the overall direction, requirements, and sourcing of
resources. The entire strategic planning process is often conducted by an IT steering committee.
IT Steering Committees The IT Steering Committee is a team of managers and
staff that represents various business units that establish IT priorities and ensures that the IT
department is meeting the needs of the enterprise. The steering committee major tasks are
listed in Table 12.4.
TA B L E 1 2 . 4 Tasks of Steering Committee
Task Description
Set the direction In linking the corporate strategy with the IT strategy, planning is the
key activity.
Allocate scarce resources The committee approves the allocation of resources for and within the
information systems organization. This includes outsourcing policy.
Make staffing decisions Key IT personnel decisions involve a consultation-and-approval
process made by the committee, including outsourcing decisions.
Communicate and
provide feedback
Information regarding IT activities should flow freely.
Set and evaluate
performance metrics
The committee should establish performance measures for the IT
department and see that they are met. This includes the initiation
of SLAs.
The success of steering committees largely depends on the establishment of IT gover-
nance, formally established statements that direct the policies regarding IT alignment with
organizational goals and allocation of resources.
12.2 Aligning IT with Business Objectives
The goal of a good IT strategy is to achieve business–IT alignment. IT strategy should be an
integral part of business planning, otherwise strategic systems would be developed in a piece-
meal manner and wouldn’t contribute to strategic vision or enable organizations to respond to
market changes (Figure 12.4). Therefore, a primary focus of a firm’s IT strategy for its systems
or business IT applications should be to align them with the business needs and use them to
achieve strategic benefits.
Business-IT
Alignment
Business
Performance
IT Strategy
Business
Strategy
FIGURE 12.4 The role of aligning IT strategy with business strategy to achieve
organizational strategic objectives is still one of the most important challenges that
IT executives face.
Aligning IT with Business Objectives 363
Alignment allows a firm to make the most of its IT investments and increase profitability
by attaining accord between its business strategies and plans. Even though firms instinctively
expect benefits from IT alignment, many of them are resistant to achieving alignment.
Alignment is a complex management activity and calls for extensive communication and
collaboration between IT and corporate leaders. Business–IT alignment can be improved by
focusing on the following activities:
1. Commitment to IT planning by senior management Senior management commit-
ment to IT planning is essential to success.
2. CIO is a member of senior management The key to achieving business–IT alignment
is for the CIO to attain strategic influence. Rather than being narrow technologists, CIOs
must be both business and technology savvy. The skill set of CIOs is outlined in Table 12.5.
3. Understanding IT and corporate planning A prerequisite for effective business–IT
alignment for the CIO is to understand business planning and for the CEO and business
planners to understand their company’s IT planning.
4. Shared culture and good communication The CIO must understand and buy into the
corporate culture so that IS planning does not occur in isolation. Frequent, open, and
effective communication is essential to ensure a shared culture and keep everyone aware
of planning activities and business dynamics.
5. Multilevel links Links between business and IT plans should be made at the strategic,
tactical, and operational levels.
TA B L E 1 2 . 5 CIO Skills to Improve Business–IT Alignment
• Political savvy Effectively understand managers, workers, and their priorities and use that
knowledge to influence others to support organizational objectives.
• Influence, leadership, and power Inspire a shared vision and influence subordinates and
superiors.
• Relationship management Build and maintain working relationships with coworkers and those
external to the organization. Negotiate problem solutions without alienating those impacted.
Understand others and get their cooperation in nonauthoritarian relationships.
• Resourcefulness Think strategically and make good decisions under pressure. Can set up
complex work systems and engage in flexible problem resolution.
• Strategic planning Capable of developing long-term objectives and strategies and translating
vision into realistic business strategies.
• Doing what it takes Persevering in the face of obstacles.
• Leading employees Delegating work to employees effectively; broadening employee
opportunities; and interacting fairly with employees.
The first step in achieving business–IT alignment is to understand business objectives and
how IT capabilities can best support business requirements; this way strategic planning will
ensure that maximum IT dollars are spent on creating business value for the organization. It’s
important for IT to understand where the organization is headed and how technology can help it
achieve its goals. Aligning technology with business processes is becoming increasingly impor-
tant due to the pace of change in technology and the business. From business strategy planning
to execution, digital technology has become the foundation for everything enterprises do.
Questions
1. What is business–IT alignment?
2. Describe how business–IT alignment helps a company achieve its goals.
3. Name the five activities that need to be focused on to improve business–IT alignment.
364 C H A P T E R 1 2 IT Strategy, Sourcing, and Strategic Technology Trends
Achieving and Sustaining a Competitive Advantage
A well-thought-out and executed IT strategy that aligns with the business to develop, source,
and put in place technology that best supports business processes and goals can give an organ-
ization a competitive advantage in the marketplace.
In business, as in sports, companies want to win—customers, market share, position in
the industry. Basically, this requires gaining an edge over competitors by being first to take
advantage of market opportunities, providing great customer experiences, doing something
well that others cannot easily imitate, or convincing customers why it is a more valuable
alternative than the competition.
Competitiveness relies heavily on IT agility and responsiveness. The benefit of IT agility is
that it enables organizations to take advantage of opportunities faster or more effectively.
Closely related to IT agility is flexibility. For example, mobile networks are flexible—able
to be set up, moved, or removed easily, without dealing with cables and other physical
requirements of wired networks. Mass migration to mobile devices from PCs has expanded
the scope of IT beyond traditional organizational boundaries—making location practically
irrelevant.
IT agility, flexibility, and mobility are tightly interrelated and fully dependent on an organi-
zation’s IT infrastructure and architecture, as discussed in Chapter 2.
Once an enterprise has developed a competitive edge, it can only be maintained and
sustained by continually pursuing new and better ways to compete. Maintaining a compet-
itive advantage requires forecasting trends and industry changes and figuring out what the
company needs to do to stay ahead of the game. It demands continuously tracking competitors
and their future plans and promptly taking corrective action. It’s important to remember that
while IT plays a key role in competitive advantage, that advantage is short-lived if competitors
quickly duplicate it.
Two of the most widely used methodologies associated with gaining, maintaining, and
sustaining a competitive edge are the Competitive Forces Model and Value Chain Model. Both
of these are discussed next.
Porter’s Competitive Forces Model Michael Porter’s competitive forces model,
also called the five-forces model, is a simple but powerful strategic planning tool for under-
standing the strength of an organization’s competitive position in its current environment and
in the environment into which it’s considering moving. Professor Porter discusses his model in
detail in a 13-minute YouTube video from Harvard Business School.
The model assumes that there are five important forces that determine competitive power
in a business situation and influence a company’s position within a given industry and the
strategy that management chooses to pursue. Other forces, including new regulations, which
affect all companies in the industry and have a rather uniform impact on each company in an
industry, are not included in the model.
The Five Forces According to Porter, five major forces in an industry affect the degree of
competition, which impact profit margins and ultimate profitability (Figure 12.5). While each
of the five forces need to be assessed individually, it’s their overall interaction that determines
potential competitive advantage. For example, while profit margins for pizzerias may be small,
the ease of entering that industry draws many new entrants. Conversely, profit margins for
delivery services may be large, but the cost of technology needed to support the service is a
huge barrier to entry into the market.
The five industry (or market) forces are as follows:
1. Threat of entry of new competitors Industries that have large profit margins attract
entrants into the market to a greater degree than industries with small margins. The
same principle applies to jobs—people are attracted to higher-paying jobs, provided that
they can meet the criteria or acquire the skills for that job. In order to gain market share,
entrants usually need to sell at lower prices as an incentive. Their tactics can force com-
panies already in the industry to defend their market share by lowering prices—reducing
Competitive advantage is an
edge that enables a company to
outperform its average competitor
in ways that matter to its
customers.
Agility means being able to
respond quickly.
Responsiveness means that IT
capacity can be easily scaled up or
down as needed, which essentially
requires cloud computing.
Flexibility means having the
ability to quickly integrate new
business functions or to easily
reconfigure software or apps.
Aligning IT with Business Objectives 365
profit margin. Thus, this threat puts downward pressure on profit margins by driving
down prices.
This force also refers to the strength of the barriers to entry into an industry, which is
how easy it is to enter an industry. The threat of entry is lower (less powerful) when existing
companies have ITs that are difficult to duplicate or very expensive. Those ITs create barri-
ers to entry that reduce the threat of entry.
2. Bargaining power of suppliers Bargaining power is high where the supplier or brand is
powerful, such as Apple, Microsoft, and auto manufacturers. Power is determined by how
much a company purchases from a supplier. The more powerful company has the leverage
to demand better prices or terms, which increase its profit margin. Conversely, suppliers
with very little bargaining power tend to have small profit margins.
3. Bargaining power of customers or buyers This force is the reverse of the bargaining
power of suppliers. Examples are Walmart and government agencies. This force is high
when there are few large customers or buyers in a market.
4. Threat of substituting products or services Where there is product-for-product sub-
stitution, such as Kindle for Nook, there is downward pressure on prices. As the threat
of substitutes increases, the profit margin decreases because sellers need to keep prices
competitively low.
5. Competitive rivalry among existing firms in the industry Fierce competition involves
expensive advertising and promotions, intense investments in R&D, or other efforts that
cut into profit margins. This force is most likely to be high when entry barriers are low, the
threat of substitute products is high, and suppliers and buyers in the market attempt to
control it. That is why this force is placed in the center of the model.
Threat of
New Entrants
(Bargaining Power of
Suppliers and Brands)
(Bargaining Power of
Buyers and Distribution
Channels)
Rivalry
Competing
Companies
Our
Company
Threat of Substitute
Products or Services
Supplier Power Buyer Power
FIGURE 12.5 Porter’s competitive forces model.
The strength of each force is determined by the industry’s structure. Existing companies
in an industry need to protect themselves against these forces. Alternatively, they can take
advantage of the forces to improve their position or to challenge industry leaders or move into
a new industry. The relationships between the forces are shown in Figure 12.5.
Companies can identify the forces that influence competitive advantage in their market-
place and then develop their strategy. Porter (1985) proposed three types of strategies—cost
leadership, differentiation, and niche strategies. In Table 12.6, Porter’s three classical strategies
are listed first, followed by a list of nine other general strategies for dealing with competitive
advantage. Applying the right kinds of technology support can enhance each of these strategies.
366 C H A P T E R 1 2 IT Strategy, Sourcing, and Strategic Technology Trends
Porter’s Value Chain Model Another useful strategic management tool is Porter’s
Value Chain. The Value Chain Model identifies where the greatest value exists in an organiza-
tion and how that value can be increased. Understanding how your company creates value and
identifying ways to add even greater value are essential in developing a competitive strategy.
Porter proposed a general-purpose value chain that any organization can use to examine all
of its activities and their relationships to each other. These activities fall into two major cate-
gories: primary and support.
Primary activities are those business activities directly involved in the production of goods.
Primary activities relate directly to the creation, sale, maintenance, and support of a product of
services. The five primary activities are as follows:
1. Inbound logistics, or acquiring and receiving of raw materials and other inputs
2. Operations, including manufacturing and testing
3. Outbound logistics, which includes packaging, storage, delivery, and distribution
4. Marketing and sales to customers
5. Services, including customer service
Primary activities usually occur sequentially, from 1 to 5. As work progresses, value is added
to the product in each activity. To be more specific, incoming materials (1) are processed (in
receiving, storage, etc.) in activities called inbound logistics. Next, the materials are used in
operations (2), where significant value is added by the process of turning raw materials into
products. Products need to be prepared for delivery (packaging, storing, and shipping) in the
outbound logistics activities (3). Then marketing and sales (4) attempt to sell the products to
customers, increasing product value by creating demand for the company’s products. The value
of a sold item is much larger than that of an unsold one. Finally, after-sales service (5), such as
warranty service or upgrade notification, is performed for the customer, further adding value.
TA B L E 1 2 . 6 Strategies for Competitive Advantage
Strategy Description
Cost leadership Produce product/service at the lowest cost in the industry.
Differentiation Offer different products, services, or product features.
Niche Select a narrow-scope segment (market niche) and be the best in quality,
speed, or cost in that segment.
Growth Increase market share, acquire more customers, or sell more types of products.
Alliance Work with business partners in partnerships, alliances, joint ventures, or virtual
companies.
Innovation Introduce new products/services; put new features in existing products/
services; develop new ways to produce products/services.
Operational
effectiveness
Improve the manner in which internal business processes are executed so that
the firm performs similar activities better than its rivals.
Customer
orientation
Concentrate on customer satisfaction.
Time Treat time as a resource, then manage it, and use it to the firm’s advantage.
Entry barriers Create barriers to entry. By introducing innovative products or using IT to
provide exceptional service, companies can create entry barriers to discourage
new entrants.
Customer or
supplier lock-in
Encourage customers or suppliers to stay with you rather than going to
competitors. Reduce customers’ bargaining power by locking them in.
Increase
switching costs
Discourage customers or suppliers from going to competitors for
economic reasons.
IT Sourcing Strategies 367
A variety of support activities feed into one or more of the primary activities. The four
support activities are as follows:
1. The firm’s infrastructure, accounting, finance, and management
2. Human resources (HR) management
3. Technology development, and research and development (R&D)
4. Procurement, or purchasing
Each support activity can be applied to any or all of the primary activities. Support activities
may also support each other, as shown in Figure 12.6.
Accounting, legal &
finance
Human resources
management
INBOUND
LOGISTICS
Quality control,
receiving,
raw materials
control
OPERATION
Manufacturing,
packaging,
production
control, quality
control
OUTBOUND
LOGISTICS
Order handling,
delivery,
invoicing
SALES &
MARKETING
Sales
campaigns,
order taking,
social
networking,
sales analysis,
market
research
SERVICING
Warranty,
maintenance
Procurement
Product and
technology
development
Legal, accounting, financial management
Personnel, recruitment, training, staff planning, etc.
Supplier management, funding, subcontracting
Product and process design, production
engineering, market testing, R&D
S
u
p
p
o
rt
A
ct
iv
it
ie
s
P
ri
m
ar
y
A
ct
iv
it
ie
s
FIGURE 12.6 Porter’s value chain. The arrows represent the flow of goods, services,
and data in an organization.
Questions
1. What are the three categories of value drivers?
2. Why do reactive approaches to IT investments fail?
3. What is the goal of business–IT alignment?
4. Why is IT strategic planning revisited on a regular basis?
5. What are the functions of a steering committee?
6. Describe the IT strategic planning process.
7. Explain how a good IT strategy can help companies gain a competitive advantage in the marketplace.
8. What are the five competitive forces in Porter’s five forces model?
12.3 IT Sourcing Strategies
IT strategy guides the investment decisions and decisions on the development, acquisition,
and/or implementation of information systems. These strategies fall into two broad categories:
1. In-house development, in which systems are developed or other IT work is done in-house,
possibly with the help of consulting companies or vendors. Typically, ITs that provide
368 C H A P T E R 1 2 IT Strategy, Sourcing, and Strategic Technology Trends
competitive advantages or that contain proprietary or confidential data are developed and
maintained by the organization’s own in-house IT function.
2. Sourcing, in which systems are developed or IT work is done by a third party or vendor.
There are many versions of sourcing, which had been called outsourcing. Work or devel-
opment can be sourced to consulting companies or vendors that are within the same coun-
try, which is referred to as onshore sourcing. Or the work can be sourced offshore to other
countries. Sourcing that is done offshore is also called offshoring. Other options are to
lease or to purchase ITs as services. Cloud computing and SaaS have expanded sourcing
options significantly.
When legacy systems could no longer provide the functionality needed to solve the businesses’
problems, companies migrated to the cloud or SaaS to connect core systems and apps. At most
companies today, one or more types of outsourcing arrangements are part of their IT strategy,
including cloud computing, SaaS, and other types of “as services” introduced in prior chapters.
How these Xaas are sourced is a topic of high interest.
Sourcing and Cloud Services
As you have read, in its simplest form, cloud computing is a way for companies to procure tech-
nology as a service (XaaS), including infrastructure (IaaS), applications (AaaS), platforms (PaaS),
and business processes, via the Internet. IT resources no longer depend on capital investments
and IT developers to own that resource. IT capabilities can be sourced, scaled on, and delivered
on demand without physical location, labor, or capital restrictions. As a result, an enterprise’s
cloud strategy plays a role in its sourcing strategy and business growth.
Integrating Cloud with On-Premises Systems While the concept of cloud is
simple, an enterprise’s cloud strategy tends to be quite complex. Cloud is being adopted across
more of the enterprise, but mostly in addition to on-premises systems—not as full replacements
for them. Hybrid solutions create integration challenges. Cloud services—also referred to as
edge services—have to integrate back-to-core internal systems. That is, edge services have to
connect and share data with enterprise systems such as order and inventory management, ERP,
CRM, SCM, legacy financial, and HR systems and on mobile and social platforms.
Tactical Adoption versus Coordinated Cloud Strategy Deploying cloud ser-
vices incrementally results in apps and services that are patched together to create end-to-end
business processes. This is a short-sighted tactical adoption approach. While this approach
may have been sufficient in the recent past, cloud services are increasingly more sophisticated
and numerous. Tactical approaches will cause difficult integration problems—as occurred
with adoption of ERP, mobile, social, and big data systems. Cloud adoption needs to occur
according to a coordinated strategy. Given the ever-changing cloud services, it will be tough to
know how to design a sustainable cloud strategy. For example, a new class of cloud offerings
is being built around business outcomes instead of as point solutions. In effect, this would be
business outcomes as a service.
Determining cloud strategies and lease agreements that best support business needs
may require hiring cloud consultants, such as Accenture, Booz Allen, Deloitte, Gartner, HP, IBM,
or others.
Cloud Strategy Challenges From the outset, the top challenges about migrating
to the cloud revolved around cybersecurity, privacy, data availability, and the accessibility of
the service. The newer challenges relate to cloud strategy, including integration of cloud with
on-premises resources, extensibility, and reliability of the cloud service. Extensibility is the
ability to get data into and out of the cloud service. These cloud service challenges need to be
addressed before deciding on sourcing solutions.
For example, when Nestlé Nespresso S. A. transitioned from a traditional coffee shop to an
online distributor in the single-serving coffee machine category, Nespresso needed to replace
Edge service is a term that
refers to a cloud service.
IT Sourcing Strategies 369
its complex ERP. By deploying a cloud integration platform, Nespresso has integrated its ERP,
warehouse management systems, and ordering tool. Nespresso now leverages its cloud and
traditional IT solutions.
In another case, social network LinkedIn migrated to cloud services to support sales and
CRM; it began by using noncustomized, out-of-the-box capabilities (Main and Peto, 2013). As
the company grew rapidly, the standard cloud services could no longer support the lines of
business. Business processes increasingly needed to be integrated with ERP and proprietary
systems to generate sales leads. LinkedIn switched to a cloud-based integration platform that
is able to connect its lead generation, financial, and CRM systems and its proprietary apps and
data warehouse. Integrating cloud and on-premises systems gives salespeople a single view of
the data they need to do their jobs.
Outsourcing Challenges The migration was far from perfect at first, and hard lessons
learned early helped achieve impressive results eventually. Six lessons that eBay learned were
as follows:
1. Manage change by securing the commitment of senior leaders in an overt fashion and by
recognizing subtle cultural differences that can undermine initial transition efforts.
2. Assess organizational readiness for a transition from a mental and technical standpoint
and set realistic expectations and manage them actively.
3. Anticipate risks and formulate a plan for mitigating them, beginning with a strategy for
dealing with “loss-of-control” threats, both real and imagined.
4. Build project management infrastructure that recognizes the “process of transition”
needs to be managed as carefully as processes being transitioned. Mapping how the AP
process should look posttransition and how it will be managed end to end and by whom
is important.
5. Create a governance mechanism that can discreetly collect feedback from the transition
project manager and provide formal executive oversight and guidance. Form an executive
steering committee that includes two senior managers from each organization and repre-
sentation from all business units impacted by the outsourcing.
6. Properly define how success will be measured, both qualitatively and quantitatively.
Identifying the right benchmarks for success and vigilantly measuring efforts against them
over time are critical. eBay continued to outsource—transitioning its global vendor/sup-
plier maintenance and general ledger activities.
Factors Driving Outsourcing
Enterprises choose outsourcing for the reasons shown in Table 12.7.
TA B L E 1 2 . 7 Reason Why Organizations Outsource IT functions
Generate revenue
Increase efficiency
Gain agility to respond to changes in the marketplace
Allow enterprise to focus on core competencies
Cut operational costs
Greater acceptance of offshoring as an IT strategy
Cloud computer and SaaS are proven effective IT strategies
Differentiate themselves from competitors
Reduce burden on internal IT department
370 C H A P T E R 1 2 IT Strategy, Sourcing, and Strategic Technology Trends
Outsourcing Risks and Hidden Costs
As companies find that their business strategy is increasingly tied to IT solutions, the concerns
about outsourcing risks increase. Risks associated with outsourcing are as follows:
Shirking The vendor deliberately underperforms while claiming full payment, for exam-
ple, billing for more hours than were worked and/or providing excellent staff at first and
later replacing them with less qualified ones.
Poaching The vendor develops a strategic application for a client and then uses it for
other clients.
Opportunistic repricing When a client enters into a long-term contract with a ven-
dor, the vendor changes financial terms at some point or overcharges for unanticipated
enhancements and contract extensions.
Breach of contract by vendor The vendor fails to carry out the terms of the outsourcing
agreement.
Inability of vendor to deliver as promised Sometimes outsourcers represent them-
selves as being more skilled than they actually are and they are unable to deliver the prod-
ucts or services that are promised in the outsourcing agreement.
Vendor lock-in In the event that the outsourcing relationship does not go well, it can be
difficult to get out of the outsourcing agreement.
Loss of Control over data Once the data is on the outsourcers servers, the organization
has little control over how and when that data can be accessed and by whom.
Lower employee morale IT employees may feel devalued as a result of development
and services being performed by an outside source.
Depending on what is outsourced and to whom, an organization might end up spending 10%
above the budgeted amount to set up the relationship and manage it over time. The budgeted
amount may increase anywhere from 15 to 65% when outsourcing is sent offshore and the
costs of travel and cultural differences are added in.
Offshoring
Another IT strategy is to offshore IT development and services. Offshoring of software develop-
ment has become a common practice due to global markets, lower costs, and increased access
to skilled labor. About one-third of Fortune 500 companies outsource software development to
software companies in India. It is not only the cost and the technical capabilities that matter.
Several other factors to consider are the business and political climates in the selected country,
the quality of the infrastructure, and risks such as IT competency, human capital, the economy,
the legal environment, and cultural differences.
Duke University’s Center for International Business Education and Research studied actual
offshoring results. According to their study, Fortune 500 companies reduced costs by offshor-
ing—63% of the companies achieved over 30% annual savings and 14% of them achieved savings
over 50%. The respondents were overwhelmingly satisfied with their offshore operations. Three-
quarters (72%) said their offshore implementations met or exceeded their expected cost savings.
Almost one-third of the respondents (31%) achieved their service level goals within the first
five months of their contracts while 75% did so within 12 months. The study concluded that “off-
shoring delivers faster results than average domestic improvement efforts.” Even though these
are very general results, offshoring success stories ease the fears about the risks of offshoring.
Based on case studies, the types of work that are not readily offshored include the following:
• Work that has not been routinized.
• Work that if offshored would result in the client company losing too much control over
critical operations.
IT Sourcing Strategies 371
• Situations in which offshoring would place the client company at too great a risk to its data
security, data privacy, or intellectual property and proprietary information.
• Business activities that rely on an uncommon combination of specific application domain
knowledge and IT knowledge in order to do the work properly.
Outsourcing Life Cycle
Regardless of the services an organization wants to outsource, such as manufacturing,
data center, applications management, call center, business process, or supply chain,
there are multiple ways to approach outsourcing. As with any significant transformation of
an organization’s business model, it is always best to follow an organized and methodical
approach. The exact approach chosen will be determined by many things, including the
following:
• An organization’s familiarity with outsourcing in any areas other than the one being cur-
rently considered
• What currently exists in-house that can be used as a foundation for the outsourcing
process
• Level of outsourcing sophistication of the procurement and legal groups
• Whether an organization is just exploring the possibilities of outsourcing or has definite
outsourcing objectives
The Five-Phase Outsourcing Life Cycle Jeff Richards of CIO Professional Ser-
vices proposes a five-phase outsourcing life cycle, comprising a total of 12 distinct stages
(Richards, 2016).
Depending on an organization’s maturity, changing business conditions, or recogni-
tion of new information, it can choose to enter or exit the outsourcing life cycle at any
point in the process. Just be aware that each entry or exit point has associated risks, costs,
and benefits.
Here is a “top level” description of each phase of the outsourcing life cycle shown in
Figure 12.7:
• Phase 1 This is the preparatory phase, where you assess opportunities and develop
your overarching strategy and process- or geography-specific business cases for
outsourcing.
• Phase 2 In this phase, you prepare and issue the request for proposal (RFP), evaluate the
proposals that are submitted, and select a service provider.
• Phase 3 Once a service provider has been selected, the next step is to develop and nego-
tiate the contract that will serve as the framework for your relationship with your new
business partner.
• Phase 4 Once the contract is in place, it’s time to plan and execute the service
transition. This is the point at which all of your and the service provider’s efforts either
come to fruition or go off the track. Time invested in Phases 1 to 3 will mitigate that
risk.
• Phase 5 Finally, with everything in place, the last phase is all about the ongoing
management of the Service Level Agreements (SLAs) and the service provider relationship.
Using this type of phased outsourcing strategy, organization can optimize what, where, and
when they acquire IT assets and services.
Tech Note 12.2 discusses a sourcing challenge and solution.
372 C H A P T E R 1 2 IT Strategy, Sourcing, and Strategic Technology Trends
Phase 1
Assess and Document
Outsourcing Opportunity
Phase 2
Evaluate and Select
Service Provider
Phase 4
Service Transition
Phase 5
Ongoing Management
Phase 3
Contract Development
& Provider
Negotiations
FIGURE 12.7 The five-phase outsourcing life cycle.
Tech Note 12.2
Managing Sourcing Arrangements and SLAs
Sourcing creates its own set of challenges. Companies that have
multiple outsourcers face the challenge of managing all of these
relationships. As companies increase outsourcing activities, a gap
is created in their organizational structures, management meth-
ods, and software tools. At that point, companies turn for help to
an outsource relationship management (ORM) company. ORMs
provide automated tools to monitor and manage the outsourcing
relationships. ORMs monitor and manage SLAs. The SLA must be
managed because it serves as both the blueprint and warranty for
the outsourced arrangement.
This example shows the importance of managing SLAs. A U.S.
transportation company needed to make cuts immediately to its IT
operating budget to reverse cost overruns. The company had a long-
standing outsourcing agreement with a top-tier service provider, but
it had not implemented effective SLAs to control costs. As a result, it
had outsourced 750 terabytes of data at an annual cost of more than
$20,000 per terabyte, an overinvestment that contributed to runa-
way IT outsourcing expenditures of $225 million a year. A company-
wide budget shortfall forced the IT division to cut $36 million from its
2016 budget—without harming quality of service. The CIO had to re-
examine its data and infrastructure needs and take a more informed,
proactive role in managing the relationship with its service provider.
Today, the critical question is no longer whether cloud computing will be a fundamental
deployment model for enterprise systems, such as ERP and SCM. Rather, the question is “How
can companies profit from the capabilities that cloud computing offers?”
Organizations use a combinations of IT Strategies:
• in-house
• onshore or domestic sourcing
• offshoring
• cloud computing
• SaaS
IT Sourcing Strategies 373
Managing IT Vendor Relationships
When sourcing IT projects, the starting point in building a positive and strong vendor relation-
ship is vendor selection. If a company makes a bad selection or enters into a vaguely worded
service contract, most likely the software, app, or implementation will fail, and the vendor
will not be able to resolve the problems fast enough, if at all. Failures are usually followed
by lawsuits.
Finding and Selecting a Vendor To minimize interpersonal or technical conflicts
with IT vendors, businesses need to thoroughly research the vendor. It is very important to ask
questions about the services and products the vendor will provide and get as many specifics
as possible. Also take the time to verify the vendor’s claims about its products and check all
references to make sure that the vendor has a proven track record of success. When selecting a
vendor, two criteria to assess first are experience and stability:
• Experience with very similar systems of similar size, scope, and requirements. Experience
with the ITs that are needed, integrating those ITs into the existing infrastructure and the
customer’s industry.
• Financial and qualified personnel stability. A vendor’s reputation impacts its stability.
Of course, for innovative IT implementations, vendors will not have experience and one
major failure—and the lawsuit that follows—can create instability. If those criteria are not met,
there is no reason to further consider the vendor.
Research by McKinsey indicates that a majority of technology executives want to have
stronger relationships with their IT suppliers, but they often act in ways that undermine that
goal. In fact, many corporate customers lose out on the potential benefit of close relationships
by an overemphasis on costs instead of value. Ideally, a customer/vendor relationship is a
mutually beneficial partnership, and both sides are best served by treating it as such.
Vendors often buy hardware or software from other vendors. In order to avoid problems
with the primary IT vendor, check secondary suppliers as well. Ask the primary vendor how
they will deliver on their promises if the secondary vendors go out of business or otherwise end
their relationship.
Ask for “Proof of Concept” or A Trial Run A proof of concept (POC) is a vendor
demonstration of a product to see how or how well it works. Requesting a “proof of concept” of
a vendor product, puts the old adage “it worked in development” to the test in a production
environment to ensure that the product under consideration prove can deliver as promised.
The results of a POC need to be measurable for use in the decision-making process. For example,
a certain performance level may be used as a threshold for acceptance of a product.
A trial run, or pilot, is a little different. In this scenario, a vendor may offer the option to let
you test their products or services in a pilot study or a small portion of the business to verify
that it fits the company’s needs.
In either case, if the vendor demo or test adds value on a small scale, then the system can
be rolled out on a larger scale. If the vendor cannot meet the requirements, then the company
avoids a failure.
Contracts: Get Everything in Writing
SLAs are designed to protect the service provider, not the customer, unless the customer takes
an informed and active role in the provisions and parameters.
By making both parties aware of their responsibilities and when they may be held liable
for failing to live up to those responsibilities, a strong SLA can help prevent many of the disrup-
tions and dangers that can come with sourcing or migrating to the cloud. The provisions and
parameters of the contract are the only protections a company has when terms are not met or
the arrangement is terminated. No contract should be signed without a thorough legal review.
Proof of concept (POC) is
a vendor demonstration of
a product to see how or how
well it works.
Trial run is when a vendor
product or service is tested in a
pilot study or limited area of the
business to confirm its usefulness
to the company.
374 C H A P T E R 1 2 IT Strategy, Sourcing, and Strategic Technology Trends
There is no template SLA, and each cloud solution vendor is unique. Certainly, if a vendor’s
SLA is light on details, that alone may be an indicator that the vendor is light on accountability.
Additionally, if a sourcing or cloud vendor refuses to improve its SLAs or negotiate vital points,
then that vendor should not be considered.
Questions
1. What contributes to the complexity of a cloud strategy?
2. How does tactical adoption of cloud services differ from a coordinated cloud strategy?
3. What is onshore sourcing?
4. What are the major reasons for sourcing?
5. What types of work are not readily outsourced offshore?
6. When selecting a vendor, what two criteria need to be assessed?
7. What is the risk of putting too great an emphasis on cost when selecting or dealing with an IT vendor?
8. What needs to be done before signing a contract with an IT vendor?
9. Why would a company want to invest in strategic technologies?
12.4 Balanced Scorecard
Traditionally, the typical business objective could be summed up simply as to make a profit. As
a result, performance metrics have typically been based on quantitative measures such as the
following:
• P&L (profit and loss) reports: revenue, expenses, net profit
• Cash flow statements: enough cash to pay its current liabilities
• Balance sheets that reflected the overall status of finances at a certain date
These financial metrics are called lagging indicators because they quantify past
performance. As such, they represent historical information and are not ideal tools for managing
day-to-day operations and planning.
Today, many managers are frustrated by the inadequacies of traditional quantitative
performance measures and have completely abandoned financial measures. However, the
majority of managers do not want to have to choose between financial and operational mea-
sures. Instead, they want a balanced presentation of measures that allow them to view the
company from several perspectives simultaneously.
During a year-long research project with 12 companies at the leading edge of performance
measurement, Robert Kaplan and David Norton developed a “balanced scorecard,” a new
performance measurement system that gives top managers a fast but comprehensive view of
the business. The BSC includes financial measures that tell the results of actions already taken.
And it complements those financial measures with three sets of operational measures that
drive future financial performance: customer satisfaction, internal business processes, and the
organization’s ability to learn and improve. With the help of a BSC, managers can take a 360°
perspective of the performance of their organization by translating their company’s strategy
and mission statements into specific goals and measures.
The Balanced Scorecard
The balanced scorecard provides companies with a blueprint for selecting strategic measures
to improve performance and facilitate strategy implementation by enhancing strategic aware-
ness and closer business–IT alignment.
In 1992, Kaplan and Norton introduced the concept of a BSC in their Harvard Business
Review (HBR) article, “The Balanced Scorecard – Measures that Drive Performance” (Kaplan
and Norton 2008).
Lagging indicators confirm
what has happened. They evaluate
outcomes and achievements.
Balanced scorecard is
a strategic management
methodology for evaluating
performance based on both
financial and nonfinancial metrics.
Balanced Scorecard 375
Kaplan and Norton compared the BSC to the screens and indicator displays in an airplane
cockpit. They explained that during the complex task of flying an airplane, pilots need detailed
information about fuel, air speed, altitude, bearing, and other indicators that summarize the
current and predicted environment. Reliance on one instrument can be fatal. Similarly, the
complexity of managing an organization requires that managers be able to view performance
in several areas simultaneously. A BSC or a balanced set of measures provides that valuable
information. What was novel about BSC in the 1990s was that it measured a company’s
performance using a multidimensional approach of leading indicators as well as lagging
indicators.
The BSC is typically used at the end of the strategic planning process to review performance
on a regular basis. For example, in the opening case, Intel took a BSC approach to measure its
business performance in the final step of its six-step IT strategic planning process.
Using the Balance Scorecard
The BSC can be used to translate strategic plans and mission statements into a set of business
objectives and performance metrics that can be quantified and measured to evaluate how well
objectives are being achieved.
Objectives set out what the business is trying to achieve. They are action-oriented state-
ments that define the continuous improvement activities that must be done to be successful,
that is, achieve a return on investments (ROI ) of at least 10% in 2017. Well-thought-out objec-
tives should meet the five “SMART” criteria shown in Figure 12.8.
The BSC is widely accepted as one of the most influential management ideas of the past
75 years. Using the balanced scorecard methodology, performance is measured and evaluated
from four different perspectives to ensure that limited resources are invested to achieve the
highest possible ROI. These perspectives are as follows:
1. Financial To succeed financially, how should we appear to our investors and
shareholders?
2. Customer To achieve our vision, how should we provide value to our customers?
3. Business processes To satisfy our shareholders and customers, what business pro-
cesses must we focus on and excel at?
4. Innovation, learning, and growth To achieve our vision, how will we sustain our ability
to innovate, learn, change, and improve?
Leading indicators predict
future events to identify
opportunities
Business objectives are the
building blocks of strategy.
Specific
Timely Measurable
Achievable
SMART
Relevant
FIGURE 12.8 Smart criteria objectives.
376 C H A P T E R 1 2 IT Strategy, Sourcing, and Strategic Technology Trends
The BSC method is “balanced” because it does not rely solely on traditional financial measures.
Instead, it balances financial measures with three forward-looking nonfinancial measures, as
shown in Figure 12.9.
The BSC is not a template that can be applied to business in general or even to an entire
industry. Different market situations, product strategies, and competitive environments require
different scorecards. Business units need to devise customized scorecards to fit their mission,
strategy, technology, and culture. Some examples of measurement criteria that can be used
within each of these perspectives are shown in Table 12.8.
Strategy
1. Financial
2. Business
Processes
4.
Customer
3.
Innovation
Learning &
Growth
S a egy
rozdesign/iStock/
Getty Images
TommL/Getty Images
makromedya/
Getty Images
FIGURE 12.9 Balanced Scorecard (BSC) uses four metrics to measure performance—one financial
metric and three nonfinancial metrics.
TA B L E 1 2 . 8 Examples of Balanced Scorecard (BSC) Measurement Criteria
Perspective Examples of Measurement Criteria
Financial • Revenue and revenue growth rates
• Earnings and cash flow
• Asset utilization
• Project profitability
Customer • Market share
• Customer acquisition, retention, loyalty
• Customer relationships, satisfaction, likes, recommendations, loyalty
• Brand image, reputation
• Price–value relationship
Internal
business processes
• Cycle times, defect rate
• Production throughput, productivity rates
• Cost per process
• Cost per transaction
• Safety Incident Index
Innovation, learning,
and growth
• Employee skills, morale, turnover, capacity for change
• IT capabilities
• Employee motivation
• R&D
• Percentage of revenue from new products/services
Balanced Scorecard 377
Companies use BSCs to improve their strategic planning process by the following:
• Clarifying or updating a business strategy
• Linking strategic objectives to long-term targets and annual budgets
• Integrating strategic objectives into resource allocation processes
• Increasing companywide understanding of the corporate vision and strategy
Applying the BSC
BSC converts senior management priorities into visible, actionable objectives by identifying
ways to measure progress against agreed-upon targets.
Assume that a low-cost airline bases its profitability on the following interrelated factors:
lower costs, increased revenue, percent of flights departing and arriving on time, competitive
pricing, maximum fly time or minimal time jets are on the ground, and the ability of the ground
crew to learn to do their jobs faster. Objectives, measures, and targets are diagrammed and
detailed in Figure 12.10.
Using the results of the BSC methodology, management teams have an agreed-upon set
of objectives and measures that are used to identify and set targets and the actions to achieve
them that are appropriate for the company’s business model.
Net Profit
Rapid
ground
turnaround
time
Time on-ground
On-time departure
ratio
55 minutes
85%
Synchronize ground
crew activities
Ensure flight crew
availability
Low competitive
prices
Reduce costs Increase revenue
Low competitive
prices
Low competitive
prices
Percent of flights
arriving on time
Financial
Customer
Business
processes
Learning &
growth
Train employees to
board passengers
quickly
Synchronized and
efficient ground crew
Minimize turnaround
time on the ground
Objectives Measurements Targets
Action to achieve
targets
FIGURE 12.10 Overview of a low-cost airline’s BSC objectives, measures, targets,
and actions to achieve targets.
378 C H A P T E R 1 2 IT Strategy, Sourcing, and Strategic Technology Trends
Consider JetBlue and Southwest Airlines—both compete to a large extent on price. Yet
JetBlue allows one free checked bag while Southwest allows two free checked bags. Now
consider the value drivers—time the jet sits on the ground and on-time arrivals. The time it
takes to board passengers impacts the ability to take off, which in turn impacts on-ground
time and arrival time. Since JetBlue has assigned seats, the terminal crew can control
boarding starting at the back of the plane to minimize bottlenecks in the aisle. In contrast,
Southwest has open seating, which typically occurs from the front of the jet and can clog
the aisle. Now the differing free-baggage policies make sense because the more baggage
brought on board, the longer boarding tends to take. By allowing two free checked bags,
Southwest attempts to reduce carry-on bags in order to offset the extra time needed for the
open- seating boarding process.
By measuring how well targets for on-ground times and arrival times are achieved, both
airlines can determine if their actions are optimal or need to be revised. Based on these exam-
ples, it is easier to understand the processes involved in the BSC methodology, which start with
the business vision and strategy. The general steps include the following:
1. Identify performance metrics (as in Table 12.4) that link vision and strategy to results—
financial performance, operations, innovation, employee performance.
2. Select meaningful objectives (Figure 12.10).
3. Select effective measures and targets (Figure 12.10).
4. Determine the actions needed to achieve the targets (Figure 12.10).
5. Implement necessary tracking, analytics, communication, and reporting systems, includ-
ing sensors, data visualization, mashups, and dashboards via social and mobile channels.
6. Collect, analyze, and compare performance data with targets.
7. Revise actions to improve performance gaps and take advantage of new opportunities.
BSC is used to clarify and update the strategy, align the IT strategy with the business
strategy, and link strategic objectives to long-term goals and annual budgets.
Questions
1. How did the BSC approach differ from previous measurement approaches?
2. How does the BSC approach “balance” performance measurements?
3. What are the four BSC perspectives?
4. Give an example of each BSC metric.
5. How does BSC help align IT strategy with business strategy?
12.5 Strategic Technology Trends
To gain the competitive advantage they need to flourish, companies need to strategically
invest in emerging strategic technology to widen their set of core competencies and help
them differentiate themselves in the market, expand their existing market, or move into differ-
ent markets. This might include technologies with a high potential for disruption of the busi-
ness, end-users, or IT; the need for a major investment; or the risk of being a late adopter of
the technology.
Every year, Gartner, Inc. highlights top technology trends that will be strategic for most
organizations at the Gartner Symposium/ITxpo. Gartner’s top 10 strategic technology trends
for 2017 are described in Table 12.9. IT at Work 12.1 describes how ESSA Academy in England
used strategic technologies to improve the student experience.
Strategic technology has the
potential to make significant
impacts on an organization’s
long-term plans, programs, and
initiatives.
Strategic Technology Trends 379
TA B L E 1 2 . 9 Top 10 Strategic Technology Trends
Trend Strategic Technology Description/Examples
1 Artificial Intelligence and
Machine Learning
Robots, autonomous vehicles, consumer electronics
2 Intelligent Apps Virtual personal assistant (VPA), Virtual customer assistant (VCA)
3 Intelligent Things Drones, smart appliances
4 Virtual and
Augmented Reality
Immersive consumer and business content—mobile, wearables, Internet of Things, sensor-rich
environments
5 Digital Twin Dynamic software model of a physical thing of system that relies on sensor data. Used to proactively
repair and plan for equipment service, mfg. processes, operate factories, predict equipment failure
6 Blockchain and
Distributed Ledgers
Chains sequentially grouped value exchange transactions—in bitcoins or other tokens—and
records them across a peer-to-peer network. Music distribution identity identification, title registry,
supply chain.
7 Conversational System Connection points will expand and greater cooperative interaction between devices will emerge cre-
ating foundation for a new continuous and ambient digital experience
8 Mesh App and Service
Architecture (MASA)
Mobile apps, web apps, desktop apps, and IoT apps link to a broad mesh of backend services to create
what users view as one “application.”
9 Digital Technology
Platforms
Basic building blocks (IS, customer experience, analytics and intelligence, IoT, and business ecosys-
tems) for a digital business. A critical enabler to become a digital business.
10 Adaptive Security
Architecture
IoT creates new vulnerabilities that will require new remediation tools and processes.
IT at Work 12.1
Strategic Technology Changes a Failing
School to “Good”
Five years ago, ESSA Academy was a failing school. Now it is known
as the first school in Britain to buy touch-screen devices for all its
students. As a result, it has turned the fortunes of the school, its stu-
dents and teachers around and advises schools from Afghanistan to
Australia on how to teach with technology.
Situated in Bolton, Lancashire, England, ESSA Academy has
845 students aged 11–16 years. The school has designed its own
curriculum based on its own vision of learning.
As part of a whole school approach to transforming the
learning environment, school–student relationship, and relation-
ships between students, teachers, and parents, ESSA administra-
tors had a vision. Abdul Chohan, a director of the academy, wanted
to use technology to create an environment in which students
could enjoy learning and use computers for something other than
playing games. He also wanted to encourage teachers to embrace
new ways of understanding planning, classroom activities, and the
learning process.
Inspired by this vision of a modern school, the ICT coordinator
turned to strategically using consumer level technology rather than
educational solutions. The idea of giving expensive electronics to
its mostly poor, ethnic-minority students was derided when the
plans were announced in the local press. People saw it as a gim-
mick—a bribe to get students to come to the school.
From the start, ESSA’s strategy involved the parents who made
the new technology “family technology.” In this way, parents were
able to share the learning experiences with their children “anytime,
everywhere.” And, teachers developed materials from lessons
accessible from iTunesU and combined this with the use of apps
and digital tools available on the iPad.
The latest development has been for Chohan to use iTunes U
to curate content collaboratively and turn that content into
textbooks that students can reference online rather than buying
physical textbooks. This innovative approach enables ESSA students
to create, develop, and share resources in a collaborative way to
further enhance their learning.
The gamble paid off—in 2015, 54% of ESSA’s graduating stu-
dents achieved high scores on exit exams, a statistic that is above
the national average. The move toward Cloud technology, where
most of the resources and communications between students,
teachers, and parents are digital, has resulted in cost savings for
most school departments and a feeling of liberation from physical
constraints. Students are more motivated and engaged. There
is a sense of enjoyment in learning to use their own technology,
and students who have been encouraged to get involved in the
new initiative are finding new apps to use in different classes—an
activity that teachers highly value.
IT at Work Questions
1. At what point in the initiative do you think students, par-
ents, and teachers should be involved?
2. Why do you think the initiative was successful?
3. What different strategic technologies could Chohan consider?
Sources: Compiled from Lee (2015); Pipe (2016) and www.essaacademy.org (2017).
380 C H A P T E R 1 2 IT Strategy, Sourcing, and Strategic Technology Trends
Strategic Technology Scanning
To achieve their corporate vision, organizations need to have a structured process in place to
identify suitable strategic technologies. In an era of rapid technological change, technology
scanning is a critical strategic activity for any organization. To enhance their IT strategy, every
organization needs to continually scan for emerging technologies. Understanding the perfor-
mance improvements provided by new technologies, such as cost savings or service improve-
ments, can range from incremental to revolutionary. Certain strategic technologies can create
a basis for significant improvements, while other technologies may address relatively narrow
needs and opportunities.
To be most effective, it’s useful to establish a structured approach to strategic tech-
nology scanning. The five steps listed in Table 12.10 provide a framework to guide technology
scanning activities.
TA B L E 1 2 . 1 0 Five Steps to Technology Scanning
Step Activity
1. General Technology Search Conduct a very broad review of new and emerging
technologies that might be beneficial to the organization
2. Technology Mapping Conduct structured investigations into an organiza-
tion’s performance capabilities and identify the points of
leverage for technological developments related to cost,
reliability, safety, or capacity (for all competing modes)
3. Systems Modeling Develop and maintain a set of models that can be used
to evaluate technological improvements as they affect
specific aspects of the organization
4. Customer Requirements Analysis Investigate the requirements of selected groups of
customers and identify new ways of doing business;
estimate resulting customer benefits in cost, speed,
reliability, safety, and capacity
5. Analysis of Specific Technologies Examine specific technologies identified as having poten-
tial for enhancing performance
Finding Strategic Technologies
One approach to finding possible strategic technologies is to look at what is going on at
major research centers and technology industry conferences, such as COMDEX, IBM Inter-
Connect, Google Next, Adobe Summit, and HIMSS. Another approach is to look for entirely
new areas of technology that are emerging based on fundamental advances in the technol-
ogy industry, such as Internet of Things (IoT), digital mesh, artificial intelligence, and
cybersecurity.
Investing in Strategic Technologies Once appropriate new strategic technol-
ogies have been identified and assessed, companies need to strategically invest in emerging
technologies. Although this might include technologies with a high potential for disruption
of the business, end-users, or IT; the need for a major investment; or the risk of being a late
adopter of the technology, it is money well spent. Through the purchase of emerging stra-
tegic technologies, organizations can gain the competitive advantage they need to flourish,
widen their set of core competencies, expand their existing market, or move into differ-
ent markets.
Digital mesh is an expanded
set of end points used to
access applications, gather
information, or interact with
people, social communities,
government, and businesses to
ensure instant connection and
response to build experience.
Examples include smart devices,
wearables, consumer and home
electronic devices.
Key Terms
agility 364
applications portfolio 361
balanced scorecard 374
barriers to entry 365
business objectives 375
business–IT alignment 355
business strategy 355
cloud strategy 368
competitive advantage 364
competitive forces model 364
digital mesh 380
edge service 368
extensibility 368
five-forces model 364
flexibility 364
in-house development 355
IT strategic planning 359
IT strategy 354
lagging indicators 374
leading indicators 375
offshoring 368
onshore sourcing 368
operating plan 355
opportunities 360
outsourcing 368
outsource relationship management (ORM)
company 372
primary activities 366
project portfolio 361
proof of concept (POC) 373
responsiveness 364
sourcing 355
strategic planning 358
strategic technology 378
strategy 358
strengths 360
support activities 367
tactical adoption approach 368
threats 360
trail run 373
value chain model 364
value driver 358
weaknesses 360
Assuring Your Learning
Discuss: Critical Thinking Questions
1. What are the three value drivers for a major retail store, such as
Macy’s or Sears? Do any of them have a limited life span? Explain.
2. What directs investments in social, mobile, analytics, cloud, and
other digital technology resources?
3. What are the four objectives of IT strategic plans?
4. What might be some reasons why companies use sourcing instead
of in-house development?
5. In your opinion, what are the benefits of onshore sourcing?
6. What are the benefits and disadvantages of offshoring work/jobs to
other countries, for example, to China or India?
7. Describe the IT strategic planning process.
8. If there are conflicting priorities and disagreements among mem-
bers of the IT steering committee, how might they be resolved?
9. Review IT at Work 12.1. Why do you think strong collaborators
achieved better results?
10. Why is the BSC methodology “balanced”?
11. Why are financial metrics lagging indicators?
12. Why has tactical adoption of IT become a risky approach com-
pared to a coordinated cloud strategy?
13. Why are strategic technologies important to strategic planning?
14. Give three examples of strategic technologies and how they can
influence organizational performance.
Explore: Online and Interactive Exercises
1. Visit Accenture.com and search for “outsourcing.” Describe the IT
outsourcing services offered by Accenture. Do the same for Deloitte at
deloitte.com, Ernst & Young at ey.com, KPMG at kpmg.com, or Price-
waterhouseCoopers at pwc.com. Create a table that compares the out-
sourcing services of two of these consulting firms.
2. Visit the Government Technology website at govtech.com. Search
for “managing successful vendor relationships.” Prepare a list of rec-
ommendations based on what you learn.
3. Visit the IBM website and search for “balanced scorecard.” Identify
and describe its BSC software product.
4. Search for a YouTube video featuring Harvard Business School’s
Robert Kaplan and the BSC. List three lessons learned from Kaplan,
the title of the video, and its URL.
Assuring Your Learning 381
382 C H A P T E R 1 2 IT Strategy, Sourcing, and Strategic Technology Trends
Analyze & Decide: Apply IT Concepts to Business Decisions
1. Vinay Gupta, President and CEO of Janeeva, which sells software
to help companies manage outsourcing relationships, gave this advice
(Bloomberg Businessweek, 2013):
I would strongly encourage business owners to visit the
vendor’s facilities. There are a lot of fly-by-night operators, so
you want to make sure you have touched and seen the facility
before you hand them your business – I would do at least a
30-day free pilot with the provider. You want to see if it is
a good fit and find out who you will be interacting with on a
day-to-day basis.
Not all companies follow this advice.
a. Discuss why companies would take these precautions when
setting up an outsourcing relationship.
b. Discuss why companies would not take these precautions
when setting up an outsourcing relationship.
2. Research legal websites discussing SLAs. Compile a list of recom-
mendations, including what to do and what to avoid.
3. Netflix streams videos on TVs, personal computers, and smart-
phones using cloud services from Amazon Web Services (AWS). Its
model is a direct challenge to traditional content distributors, which
are limited by physical distribution and network broadcasting. In
contrast, Netflix capitalizes on low cost and virtually unlimited cloud
capacity to deliver content on demand almost anywhere. In 2011, Net-
flix’s subscriber base surpassed that of Comcast, the largest cable pro-
vider in terms of subscribers, to become one of the largest video con-
tent distributors in the nation. Research Netflix to learn more about its
position in the industry in the on-demand economy and explain how
it is currently using cloud technologies to create business value. Re-
search another company in the media and entertainment space—for
example, Roku or Hulu. Compare the cloud strategies of the competi-
tor to Netflix.
Case 12.2
Business Case: Cisco IT Improves Strategic Vendor
Management
With more than 35,000 employees and hundreds of locations, each
Cisco office has many complex requirements. Although Cisco uses its
own products whenever possible, it still has an annual spend of $500
million for IT products and services from other companies.
The Problem
Working with local suppliers, Cisco encountered a number of issues. It
was difficult to get formal contracts, support wasn’t always there when
needed, and there were often disagreements over prices and warran-
ties. Their somewhat haphazard way of soliciting bids resulted in lit-
tle or no emphasis on aligning with corporate strategy. Cisco needed
to unify its vendor management process to gain greater control and
reduce costs.
The Solution
Cisco created the Cisco Vendor Management Organization (VMO)—
a new global IT group within Cisco—to manage strategic vendors
to supply hardware infrastructure, software, storage, telecom
services, and outsourced services. The VMO was also tasked with
providing expertise in process and business development, asset
management, and vendor engagement in keeping with Cisco’s cor-
porate strategy.
The Outcome
With standard contracts in place worldwide, Cisco could now man-
age existing contracts and negotiate new ones more easily. Thanks
to the efforts of the VMO, Cisco saved $33 million through the first
three quarters after its inception and $64 million over the life of the
contracts put in place during that time! Cisco has also reduced its
number of vendors and has consolidated contracts with a small num-
ber of strategic vendors to give them more business and reduce Cisco’s
paperwork. Cisco also works with its strategic vendors to help them
develop skills and relationships to increase their value and position
in the market, and Cisco is receiving the same type of support from its
strategic vendors.
By centralizing its outsourcing contracts, Cisco saves $11 million
per quarter.
Lesson Learned
When it comes to vendors, less is more: working with a few number
of strategic vendors that help a company fulfill its business strategy.
This, in turn, creates a tighter connection between the business and
IT and results in closer alignment between the two strategies, saving
time and money.
Questions
1. What mistakes did AstraZeneca make?
2. What mistakes did IBM make?
3. Why are outsourcing contracts for 5 or more years?
4. Why do you think two major corporations could make such
mistakes?
5. Do you think the initial SLA was doomed to fail? Explain your
answer.
6. What provisions in the new SLAs protect AstraZeneca and the
vendors?
7. Why would parties prefer to use an arbitrator instead of filing a
lawsuit in court?
Sources: Compiled from Cisco on Cisco (2017) and Gruman (2007).
Turban11e_c12.indd 382 12/4/2017 12:52:51 PM
Case 12.3 383
Case 12.3
Data Analysis: Third-Party versus Company-Owned
Offshoring
Major companies, such as Citigroup, had wholly owned offshore service
centers. Those types of company-owned offshore centers are called
captive models. Captive offshoring models reduce the risk of offshor-
ing. A recent study from the Everest Research Institute estimated the
costs of third-party offshoring and captive offshoring. The estimates
are as follows.
Create a spreadsheet that totals the average cost of each model
for each cost item. For example, average the annual salary based on the
range for third parties and also the captives. Then calculate the total cost
of ownership (TCO) of each model. The difference is the cost of risk.
Full-time equivalents (FTEs) are used to standardize labor costs
since workers may be part time or full time. For example, two part-time
workers equal one FTE. The estimates are given in terms of FTEs, so the
conversion is already done.
Question
1. Based on your results, how much does the captive offshoring
model allow for risk? The answer is the difference between the
TCOs of the two models.
Third-Party Offshoring Model Captive Offshoring Model
Office space: annual rental cost per square foot (assume 10,000
square feet of office space)
$11 to $13 $14 to $16
Base salary costs of workers (assume 1,000 FTEs) $7,770 to $8,200 $9,500 to $10,300
General management staff for every 1,000 FTEs 12 to 14 16 to 18
General management salary $55,000 to $65,000 $70,000 to $90,000
Travel and housing costs per FTE $280 to $320 $900 to $1,060
IT Toolbox
SWOT Analysis
As discussed in the chapter, the primary purpose of the SWOT anal-
ysis is to identify and assign significant factors that affect the busi-
ness to one of the four categories to analyze where it stands in the
market and help guide an organization’s strategic planning process.
Don’t worry about elaborating on the nature of the strengths,
weaknesses, opportunities, and threats; bullet points are sufficient at
this stage of the analysis. Just capture the factors that are relevant
in each of the four areas using two or three words to describe them.
After listing factors in all four areas, compare your lists side by
side to get an overall picture of how the businesses is performing and
what issues need to be addressed. Create four prioritized lists by pri-
oritizing the issues by importance and ease of implementation by ask-
ing yourself “What needs to and can be addressed now?” and “What
can and will have to wait until later?”
Finally, review the prioritized lists by asking:
1. How can we use our strengths to take advantage of the oppor-
tunities identified?
2. How can we use these strengths to overcome the threats
identified?
3. What do we need to do to overcome the identified weaknesses
to take advantage of the listed opportunities?
4. How can we minimize our weaknesses to overcome the iden-
tified threats?
When you have your finalized lists, the SWOT analysis is ready to
guide the process of developing corporate and IT strategies. The value
of a SWOT analysis depends on how well the analysis is performed.
To gain the greatest value from performing a SWOT, carrying out the
SWOT early on in the strategic planning process and following these
rules helps:
• Be realistic about the strengths and weaknesses of your
organization.
• Be realistic about the size of the opportunities and threats.
• Be specific and keep the analysis simple or as simple as
possible.
• Evaluate your company’s strengths and weaknesses in rela-
tion to those of competitors (better than or worse than
competitors).
• Expect conflicting views because SWOT is subjective, forward-
looking, and based on assumptions.
Have fun with a Personal SWOT
To identify the actions you can take to best meet the requirements
of the job or promotion you are seeking, conduct a personal SWOT
analysis. To help you understand yourself, picture yourself as a
competitive product in the marketplace and list your strengths,
weaknesses, opportunities, or threats from the perspective of
a prospective “customer,” that is, employer. Comparing your
strengths and weaknesses to job requirements will help you iden-
tify gaps, prepare you to be the best candidate for the position you
are seeking, and alert you to issues that could arise in the inter-
view process.
384 C H A P T E R 1 2 IT Strategy, Sourcing, and Strategic Technology Trends
References
Bloomberg Businessweek. “Outsourcing Advice from the Pros.”
September 2, 2013. images.businessweek.com/ss/09/02/0213_
outsourcing/10.htm
Cisco on Cisco. “Business Management Case Study: How Cisco IT
Improved Strategic Vendor Management,” http://www.cisco.com/
en/US/about/ciscoitatwork/case_studies/business_management_
dl1.html, accessed on July 17, 2017.
Corporate Knights. “2016 Global 100 Results.” Corporate Knights, The
Magazine for Clean Capitalism, Winter 2016 Issue, p. 1.
Curry, E. and B. Donnellan. “Implementing Sustainable IT Strategy:
The Case of Intel,” Journal of Information Technology Teaching
Cases, v. 4, pp. 41–48. 2014.
essaacademy.org. 2017.
Gruman, G. “Why you should create a vendor management office.”
CIO from IDG 2007.
intel.com. 2017.
Kaplan, R. S. and D. P. Norton, “Mastering the Management System.”
Harvard Business Review 86, no. 1, January 2008.
Krishnapura, S., S. Achuthan, B. Barnard, L. Vipul, R. Nallapa, S.
Rungta, and T. Tang. “Intel’s Data Center Strategy for Business
Transformation.” Intel White Paper. January 2014.
Lee, J. “This Bolton School was Failing – until it gave each pupil an
iPod.” The Telegraph, January 2015.
Main, A. and J. Peto. “Cloud Orchestration.” Tech Trends 2014. Deloitte
University Press (http://dupress.com/). 2013.
Martin, R. L. “The Big Lie of Strategic Planning.” Harvard Business
Review, January–February 2014.
Pipe, M. “Seven Ideas for Using Education Technology,” SecEd, July
2016. Accessed from: http://www.sec-ed.co.uk/best-practice/seven-
ideas-for-using-educational-technology/
Richards, J. “Introduction to the Outsourcing Lifecycle.” CIO
Professional Services, July 2016. Accessed from: http://ciops
. c o m / b l o g /16 3 – i n t r o d u c t i o n – t o – t h e – o u t s o u r c i n g – l i f e c y c l e #
.WMAzMVwsBVo
385
CHAPTER 13
Systems Development and
Project Management
C H A P T E R O U T L I N E
Case 13.1 Opening Case: Denver International
Airport Learns from Mistakes Made in Baggage-
Handling System Project
13.1 The Systems Development
Life Cycle (SDLC)
13.2 Software Development Methodologies
13.3 Project Management Fundamentals
13.4 Initiating, Planning, and Executing
Projects
13.5 Monitoring, Controlling, and Closing
Projects
Case 13.2 Business Case: Steve Jobs’ Shared
Vision Project Management Style
Case 13.3 Demo Case: Mavenlink Project
Management and Planning Software
L E A R N I N G O B J E C T I V E S
13.1 Describe the activities that occur in each of the phases of the
systems development life cycle (SDLC) and identify the four
types of system conversion strategies.
13.2 Describe and compare the different systems development
methodologies.
13.3 Understand the five phases of the project management life
cycle, and explain the role of the triple constraint in project
management.
13.4 Describe the activities of the initiating and planning phases
of the project management life cycle and the tools and
techniques used.
13.5 Describe the activities of the monitoring/controlling and
closing phases of the project management life cycle and the
tools and techniques used. Explain why projects fail, and
describe the conditions under which an ongoing project
should be cancelled.
386 C H A P T E R 1 3 Systems Development and Project Management
Introduction
As an informed user of IT, it’s important to know how organizations develop information sys-
tems (ISs) and manage IT projects. A basic understanding of the principles of systems develop-
ment will enable you to spot mistakes and make suggestions during the development process
to increase the success of the project. As you learned in Chapter 12, systems can be acquired
in a number of different ways. The way a system is sourced often depends on the number and
skill level of IT professionals who are employed in an organization. Regardless of the manner in
which systems are acquired, most companies use the systems development life cycle (SDLC)
to guide them through the process.
And, all systems development projects have to be managed. When companies develop
or build new products, services, markets, enterprise systems, or apps, they typically use a
project management approach. Project management is a structured methodology to plan,
manage, and control the completion of a project throughout its life cycle. The project life
cycle starts with an idea or concept and project plan. If the project is approved, then the
project team proceeds to perform the tasks and deliver the project. As part of closing the
project, participants conduct a post mortem to document lessons learned in order to
improve future projects.
Project management and an appropriate system development process help to get the IT
project delivered on time, within budget, and according to specifications. But, IT projects are
inherently risky. In a recent survey, PricewaterhouseCoopers reported that only 55% of digital
projects were completed according to specifications, that is, set out to do what they said they
would do (Konrad, 2017). To minimize risk of failure, the project needs to be rigorously planned,
evaluated, and monitored. Weekly status meetings, communication, and reporting are critical
to find out about potential problems as far in advance as possible and fix them to avert a crisis.
Project management is gaining in importance for all types of projects because of technology
complexity, tighter budgets, tougher competition, and shorter time-to-delivery requirements.
In short, companies cannot afford project failures or delays.
Case 13.1 Opening Case
Concourse B
(UAL)
Concourse C
(AA, DL, FL, MA, NW, TWA, US)
Concourse A
(CO, Intl)
NORTH
KEY
AA American Airlines-
CO Continental Airlines-
DL Delta Airlines-
FL Frontier Airlines-
INTL International Carriers-
MA Markair-
NW Northwest Airlines-
UAL United Airlines-
US US Air-
Telecar tracks-
Conveyor Belts-
Terminal
Telecarts
Crossover LinesDENVER INTERNATIONAL AIRPORT
H
el
en
H
. R
ic
ha
rd
so
n/
C
on
tr
ib
ut
or
/G
et
ty
Im
ag
es
Denver International Airport Learns from Mistakes
Made in Failed Baggage-Handling System Project
This classic project management case illustrates almost every possible
project management mistake and the lessons that were learned from
it. It documents a project disaster that occurred in the development
of the baggage-handling system at Denver International Airport (DIA)
in the late 1980s and early 1990s. The failure of the baggage-handling
system propelled DIA into newspaper headlines across the country,
and people joked that if you were flying to Denver, you had to go to Chi-
cago to pick up your luggage! To this day, it remains the classic exam-
ple of how not to conduct a project.
The purpose of the DIA project was to create the most advanced
automated handling of baggage in the world by integrating baggage
handling at all three concourses into a single system. The terms “most
advanced, automated, and integrated” clearly indicate that the system
Introduction 387
was going to be extremely complex, risky, and subject to delays.
Unfortunately, an unrealistic schedule was planned and the project
approved despite the fact that experts warned that the project was
infeasible and that any delay would postpone the opening of Denver’s
new state-of-the-art international airport.
As a result of the project’s failure, the newly completed interna-
tional airport designed to service multiple major airlines remained
idle for 16 months while engineers dealt with the complexities of the
baggage-handling system. During that time, the project had to be
scaled down from the original project plan to servicing all concourses
to servicing only one concourse. The system was working, but only in
segments. Only baggage handling on outbound flights for one con-
course was automated. Instead, baggage to/from other concourses
had to be handled using a manual tug-and-trolley system that was
quickly built when key players finally acknowledged that the auto-
mated system would never meet its goals. The problem appeared
to be with the software required to get different systems to talk to
each other.
The delay resulted in an additional $560 million to build DIA
and a U.S. Securities and Exchange Commission probe into whether
Denver officials had deliberately deceived bondholders about how
equipment malfunctions would affect the opening of DIA. In addition,
at least one major airline that was scheduled to occupy DIA pulled
out, resulting in one entire concourse remaining unused for several
years. The cost of maintaining the empty airport and interest charges
on construction loans also cost the city of Denver $1.1 million per day
throughout the delay. Ten years after its implementation, the auto-
mated baggage-handling system was scrapped because it still did not
work correctly.
The System
DIA’s $200 million baggage-handling system was designed to be state
of the art. Conventional baggage-handling systems are manual, and
each airline operates its own system. DIA wanted an automated one-
baggage-system-fits-all configuration that it could lease back to mul-
tiple airlines.
The system would consist of 100 computers, 56 laser scanners,
conveyor belts, and thousands of motors. The system would contain
400 fiberglass carts, each carrying a single suitcase through 22 miles
of steel track. Operating at 20 miles per hour, the system would deliver
60,000 bags per hours from dozens of gates. The system was designed
to carry luggage from airplane to baggage carousel in less than 10 min-
utes. The goal was that the luggage would be waiting at the carousel
for deplaning passengers. No more waiting for baggage at the end of a
long trip—so customer satisfaction would soar.
The baggage-handling system would be centered on track-
mounted cars that slow down, but don’t stop, as a conveyor ejects
bags onto their platform. A scanner reads the bar-coded label and
transmits the data through a programmable logic controller to an RFID
tag on a passing car. In this way, the car knows the destination of the
bag it’s carrying, as does the computer software that routes the car to
its destination. Imagine thousands of driverless taxi cabs in New York
City being controlled by a computer as they pick up and dispatch pas-
sengers throughout the streets.
The Team
The city of Denver selected two companies to assist in the project
management process. Greiner Engineering—an engineering, archi-
tecture, and airport planning company—and Morrison-Knudsen
Engineering—a design-construction organization. The City of Denver,
Greiner, and MKE made up the project management team that coordi-
nated schedules, controlled costs, managed information, and admin-
istered approximately 100 design contract, 160 general contractors,
and more than 2,000 subcontractors.
What Went Wrong
DIA’s baggage-handling system was a critical component in the city of
Denver’s plan to construct a new state-of-the-art airport that would
position Denver as an air transportation hub. By automating bag-
gage handling, aircraft turnaround time was to be cut to as little as 30
minutes. Faster turnaround meant airlines could minimize on-ground
time, which would be DIA’s competitive advantage.
Following is the timeline of the major events and project manage-
ment mistakes:
• November 1989: DIA construction work starts.
• Ignored experts In 1990, the City of Denver hired Breier Neidle
Patrone Associates to do a feasibility analysis to build a fully
integrated baggage system. Reports advised that complexity
made the project unfeasible. Experts from Munich airport advised
that the much simpler Munich system had taken two full years to
build and that it had run 24/7 for 6 months prior to opening to
allow bugs to be ironed out.
• Summer 1991: A decision is made to go ahead with the DIA
project and the DIA project management team asked for bids for
the automated baggage-handling system.
• Underestimated complexity Fall 1991: Of the 16 companies
included in the bidding process, only 3 responded. None could
complete the project in time for the October 1993 opening. All
three bids were rejected, and the urgent search for a company
that would meet the deadline continued.
• Poor planning and impossible expectations In April 1992,
DIA went to contract with BAE Systems to complete the project in
time for the October 1993 opening—ignoring expert evidence that
the timeline was impossible to achieve.
• Lack of due diligence Contract terms between DIA and BAE
and project specifications were hammered out in only three
meetings. The rush to contract ignored the feasibility analysis.
The pressure to move quickly drove them to skip critical due-
diligence steps.
• Excluded key stakeholders BAE and the airport project
management team excluded key stakeholders—the airlines that
had contracted with DIA—during the negotiations. Excluding
stakeholders from discussions in which key project decisions are
made is always a losing strategy.
• Scope creep 1992–1993: Numerous changes in the scope of the
project are made. For instance, Continental Airlines requested
ski equipment handling facilities be added to its concourse,
and the scope of the baggage-handling system expanded from
handling only Concourse “B” baggage to handling baggage for
the entire airport.
• Ignored interface design The baggage-handling system had
to interface with the airport. That is, because the design of the
building was started before the baggage system design was
known, the designers of the physical building only made gen-
eral allowances for where they thought the baggage system
388 C H A P T E R 1 3 Systems Development and Project Management
13.1 System Development Life Cycle
ISs are driven by a number of factors including the need for improved services, reduced costs,
stronger controls, better performance, more and better information, and support for new prod-
ucts and services. They are developed by people who are technically qualified, business ori-
ented, and highly motivated. Systems developers must be good communicators with strong
analytical and critical thinking skills.
The SDLC is a multiple-stage approach used by IT professionals to develop high-quality ISs
from planning and analysis through support and maintenance. The SDLC provides a framework
for a number of different systems development methodologies (discussed later in the chapter).
Typical SDLC activities include gathering the user requirements, determining budgets, cre-
ating a logical systems design, creating a physical systems system, building and testing the
system, writing detailed user and developer documentation, training users, and maintaining
the system. The activities performed during systems development vary depending on the size
and complexity of the system.
Stages of the SDLC
The SDLC consists of five stages, shown in Figure 13.1. The SDLC stages are planning, analy-
sis, design, implementation/testing, and support/maintenance. Each stage consists of well-
defined tasks based on the scope of the project. The SDLC is an iterative process, not a linear
one. This means that when results from one stage are assessed, they can be revised, if needed,
and a previous stage can be revisited before continuing on to the next stage.
Systems Planning To begin the SDLC, a business unit submits a systems request based
on a business need and systems planning begins (Figure 13.1). The systems request begins the
planning process by describing the problem or desired changes. The purpose of the planning
stage is to perform a preliminary investigation and to find out if the request is feasible.
would go. The allowance of spaces in which the baggage system
would operate represented the interface between the design of
DIA and the baggage system. To make effective decisions about
how to design DIA, the DIA designers should have worked with
experts in designing the baggage system. DIA had sharp corners
that required turns that baggage carts cannot navigate. To keep
carts from falling off the rails, the speed of the system had to
be decreased to 30 cars per minute. This change frustrated pas-
sengers who had to wait inordinately long times to pick up their
baggage, thus eliminating DIA’s competitive advantage of fast
baggage turnaround time.
Lessons Learned
Despite the fact that they are 6 months into formal negotiations for
the project, as of March 7, 2017, DIA officials are still not ready to
ink the deal with the bid team for a massive planned renovation of
Jeppesen Terminal. Although 6 months was the length of time allot-
ted for negotiations as part of a “predevelopment agreement,” DIA
spokesman Heath Montgomery said airport officials are still working
out project details and design that could be worth hundreds of mil-
lions of dollars. When asked how much longer it would take to com-
plete the deal, Montgomery declined to estimate how soon the two
sides would propose a full development agreement for public scrutiny
and said “We have the ability to stretch it out as long as we need to.”
Under the council-approved predevelopment contract, DIA CEO Kim
Day can extend the negotiations period by up to six additional months
without council approval.
Conclusion
From a project management perspective, the baggage-handling sys-
tem was doomed from the start. Nobody knew how to design the
baggage-handling system or realized the complexity of the software
requirements. The decision to proceed with a single integrated system
at DIA knowing that the deadline could not be met, not considering
possible risks and making other irrational decisions, contributed heav-
ily to project failure.
As a result, the DIA baggage-handling project was a spectacular
failure that teaches us a lot about project communication and scope
creep and has become the classic example of how not to manage a pro-
ject. And, at DIA, the massive project failure has led to better project
management practices.
Questions
1. In what ways did the baggage-handling project fail?
2. What red flags indicated that the baggage-handling project was
likely to be a failure?
3. Which red flags were ignored in the DIA automated luggage-
handling project?
4. Why do you think each of these best practice and red flags
were ignored?
5. In your opinion, who are the ones responsible for the failure of this
important project?
Sources: Calleam.com (2008), Grimes (2013), Coolman (2014), Perkins (2014),
and Murray (2017).
System Development Life Cycle 389
A feasibility study determines the probability of success of a proposed system and provides
a rough assessment of its technical, economic, organizational, and behavioral feasibility. The
feasibility study is critical to the system development process because, when done properly,
the study can prevent companies from making expensive mistakes, such as those experienced
at DIA in the opening case, where systems are created that will not work, that will not work
efficiently, or that people cannot or will not use. The Census Bureau case in IT at Work 13.1 is
another useful example. The various feasibility analyses also give the stakeholders an opportu-
nity to decide what metrics to use to measure how a proposed system meets their objectives.
• Technical feasibility Technical feasibility determines if the required technology, IT infra-
structure, data structures, analytics, and resources can be developed and/or acquired to
solve the business problem. Technical feasibility also determines if the organization’s
existing technology can be used to achieve the project’s performance objectives.
• Economic feasibility Economic feasibility determines if the project is an acceptable
financial risk and if the company can afford the expense and time needed to complete the
project. Economic feasibility addresses two primary questions: Do the benefits outweigh
the costs of the project? Can the project be completed as scheduled?
Management can assess economic feasibility by using cost–benefit analysis and financial
techniques such as time value of money, return on investment (ROI), net present value (NPV),
and breakeven analysis. ROI is the ratio of the net income attributable to a project divided by
the average cost of resources invested in the project. NPV is the net amount by which project
benefits exceed project costs, after allowing for the cost of capital and the time value of money.
Breakeven analysis calculates the point at which the cumulative cash flow from a project equals
the investment made in the project.
Calculating economic feasibility in IT projects is rarely straightforward. Part of the difficulty
is that some benefits are intangible. For a proposed system that involves big data, real-time
analytics, or 3D printing, there may be no previous evidence of what sort of financial payback
can be expected.
• Legal and organizational feasibility Are there legal, regulatory, or environmental rea-
sons why the project cannot or should not be implemented? This analysis looks at the
company’s policies and politics, including impacts on power distribution and business
relationships.
System
Request
Project Plan
Systems
Proposal
Systems
Design
Specification
Working
System
Service Level
Agreement
Planning
Analysis
Design
Implementation
&
Testing
Systems
Development
Support &
Maintenance
FIGURE 13.1 Systems development life cycle.
390 C H A P T E R 1 3 Systems Development and Project Management
• Behavioral feasibility Behavioral feasibility considers human issues. All system
development projects introduce change, and people generally resist change. Overt resis-
tance from employees may take the form of sabotaging the new system (e.g., entering data
incorrectly) or deriding the new system to anyone who will listen. Covert resistance typi-
cally occurs when employees simply do their jobs using their old methods.
Behavioral feasibility is concerned with assessing the skills and the training needed to use the
new IS. In some organizations, a proposed system may require mathematical or linguistic skills
beyond what the workforce currently possesses. In others, a workforce may simply need to improve
their skills. Behavioral feasibility is as much about “can they use it” as it is about “will they use it.”
After the initial feasibility analysis has been completed, a go/no-go decision is reached.
If it is a no-go decision, the project can be revised. put on the shelf until conditions are more
favorable, or discarded. If the decision is “go,” then the system development project proceeds.
The deliverable from the planning stage is a Project Plan.
Systems Analysis Requirements analysis is critical to the success of the project. The
purpose of systems analysis is to analyze and understand the problem identified in the planning
stage by gathering user requirements. This can be accomplished by observing how the business
process that the system will support is carried out, interviewing users, sending out a question-
naire, or applying knowledge gleaned in developing similar systems. During this stage, process
models are created to establish the logical design of the system and explore alternative solutions
to create the system. The deliverable from the systems analysis stage is the Systems Proposal.
System development practitioners agree that the more time invested in planning and analyzing
the current system, business problem, or opportunity and understanding problems that are likely to
occur during development, the greater the probability that the new system will be a success.
Systems Design In the systems design stage, system developers utilize the design spec-
ifications to create the user interface and establish data requirements. They also develop
the physical design of the system by determining and acquiring the hardware and software
needed to carry out the logical design of the system. Next, they create user and system doc-
umentation. During the design stage, management and user involvement is critical to ensure
that business requirements are being met. The deliverable from the design stage is the System
Design Specification.
Implementation and Testing Implementation, or deployment, is the process of
converting from the old system to the new system. During this stage of the SDLC, the system is
actually put in place and tested. There are four ways that the new system can be installed. We
call these the four “Ps” of systems conversion: plunge, parallel, pilot, and phased.
In the plunge, or direct, conversion, the old system is cut off and the new system is turned
on at a specified time. This type of conversion is the least expensive, but it is the riskiest if the
new system does not work as planned.
In a parallel conversion, the old system and the new system operate concurrently for a
specified period of time. That is, both systems process the same data at the same time, and the
outputs are compared. This type of conversion is the most expensive but least risky.
A pilot conversion introduces the new system in one location, or with one group of people,
to test it out. After the new system works properly, it is rolled out to the entire organization.
A phased conversion introduces components of the new system, such as individual mod-
ules, in stages. Each module is assessed, and, when it works properly, other modules are intro-
duced until the entire new system is operational.
One the system is up and running, testing verifies that apps, interfaces, data transfers, and
so on work correctly under all possible conditions. Testing requires a lot of time, effort, and
expense to do properly. However, the costs and consequences of improper testing, which could
possibly lead to a system that does not meet its objectives, are enormous.
Finally, users are trained in the use of the system and provided with the user documen-
tation created during the design stage. The deliverable from the implementation and testing
stage is the new working system.
Go/no-go Decision A determina-
tion to proceed with or abandon a
plan or project.
Logical design lists and
describes all the information
resources (data and processes)
and the scope of duties and
responsibilities of consumers of
the information involved in the
operation of the new system. It
is business focused and always
precedes physical design.
Physical design transforms
business requirements into a
specific technological solution by
identifying all physical servers and
major technical components that
will be used to support the desired
business outcome.
Systems Development Methodologies 391
Support and Maintenance Once the new system’s operations are stabilized, audits
are performed during operation to assess the system’s capabilities and determine if it is being
used correctly. Maintenance must be kept up rigorously at all times. Users of the system should
be kept up to date concerning the latest modifications and procedures.
This phase also involves supporting users in their use of the system according to any ser-
vice level agreements (SLAs) that may be in place. The deliverable from the support and main-
tenance stage is the SLA.
Since most ISs need to be updated significantly or replaced after several years of opera-
tion, systems development is a repetitive process as maintenance turns into the development
of a new system.
Questions
1. What are the five stages of the SDLC?
2. Name the deliverables from three of the five SDLC stages.
3. Explain the purpose of feasibility tests and why they are important in developing ISs.
4. Is the systems development process a linear or a cyclical process? Explain.
5. Name the four system conversion methods.
13.2 Systems Development Methodologies
While there is only one SDLC, there are many different methods associated with creating ISs.
The major systems development methodologies are waterfall, object-oriented, and agile. Each
of these are explained next.
Waterfall Model
The Waterfall Model was the first SDLC model to be used widely in systems development
(Figure 13.2). Sometimes known as “structured analysis,” the Waterfall Model is a sequential,
predictive approach. It is very simple to use and understand, but is quite inflexible. Using the
Waterfall Model, each phase of the SDLC must be completed before the next phase can begin.
Waterfall Model is a sequential,
predictive systems development
methodology that is simple to use
and understand, but inflexible.
Business need
Planning
Analysis
Design
Implementation
& Testing
Support &
Maintenance
FIGURE 13.2 Waterfall Method.
392 C H A P T E R 1 3 Systems Development and Project Management
There is no opportunity to go back to a previous stage and no overlapping in the phases.
Recordkeeping is extremely important in the Waterfall method to keep everything on track
within each clearly defined stage according to the project plan.
The Waterfall Model is particularly useful for small systems, short-term projects, when it is
very unlikely that requirements will change and when there are no ambiguous requirements. A
disadvantage of developing a system using the Waterfall Model is that it doesn’t allow for much
reflection or revision. This can be problematic since users are notorious for seeing opportu-
nities for changing or adding features during development.
Object-Oriented Analysis and Design
Unlike the sequential predictive Waterfall Model, object-oriented (O-O) is an iterative, adaptive
systems analysis and design method. O-O analysis and design is a popular approach for sys-
tems development that emphasizes modularity and reusability and encourages better commu-
nication between analysts, developers, and users. The introduction of the O-O approach in the
1970s marked a radical change in systems development. In O-O analysis, entities that interact
with each other are grouped together to create a model that accurately represents the purpose
of the new system using terminology that is close to that used in the users’ every day work.
O-O views a system as a collection of modular objects that encapsulate data and processes.
Objects are such things as people, things, transactions, and events. For example, in a college
admissions system, objects of interest might include student, course, and major. By keeping
data and processes together, developers save time and avoid errors by using reusable program
modules that have been tested and verified. And, the iterative nature of O-O allows changes to
be made along the way.
A large part of O-O analysis is the unified modeling language (UML) and use cases. UML uses a
set of symbols to graphically represent the various components and relationships within a system
and is used primarily to support O-O analysis and develop object models. Use cases are a simple
to construct and easy to understand graphical representation of the existing system early on in the
systems development process and reflect user requirements for the new system in later models.
Use-Case Model Use cases show business events, who or what objects initiated
the events, and how the system responds to the events. A use case has two parts: use-case
diagram, which is a visual summary of several related use cases within a system; and a use-
case description, which is a text-based description of the business event and how users will
interact with the system to accomplish the task (Figure 13.3).
Using O-O analysis and design methods to develop systems can potentially produce more
reliable and useable systems. The O-O approach promotes a better understanding of a system,
making information easier to use and reuse throughout a system, and developing a system that
can be easily modified or changed to make maintenance easier. It also helps reduce the com-
plexity of the systems development process.
Agile Methodology
The Agile methodology is the most flexible of all systems development methodologies. Agile
uses an iterative, incremental approach to overcome the disadvantages of the sequential Water-
fall Model. The goal of Agile is to deliver software components early and often through a highly
iterative process. Developers begin with a simplistic project design and begin to work on small
modules. The Agile methodology addresses the problems of rapid change occurring in the on-
demand economy, such as changes in market forces, system requirements, and project staff.
Agile methodologies minimize risk by breaking down the project into small manageable chunks
called iterations and puts a strong emphasis on real-time communication and teamwork.
In doing so, Agile focuses on the collaboration and communication skills of its participants.
For example, instead of Agile managers creating a structured contract with the project sponsor,
they focus on creating a collaborative relationship. Using Agile, the emphasis is on competency
Object-oriented (O-O) is
an iterative systems analysis
and design methodology that
emphasizes modularity and
reusability.
Use-case diagram is a graphic
depiction of the major elements
(use cases) within a system and it
environment.
Use-case description is a text-
based list of actions or steps that
detail the interactions between
users and the system needed to
achieve the goal of the system.
Agile is a very flexible iterative,
incremental systems development
methodology that overcomes
the disadvantages of the
Waterfall model.
Systems Development Methodologies 393
rather than process where reaching the goal is more important than how you get there. As a
result, teams in rigid organizations find it difficult to adjust to the fluidity of the Agile method.
The Agile process has four stages, sometimes called tracks, shown in Figure 13.4. These
stages (warmup, construction, release, and production) have many simultaneously occurring
activities that cause them to be much less structured than activities in other types of systems
development methodologies. So much so that some feel that a method as flexible as Agile
shouldn’t even have stages.
Advantages of using Agile include ease of making changes, adding features, and incor-
porating client feedback and early identification of glitches in the system. Disadvantages
include requirement of a good project manager and the absence of a definitive plan at the
beginning of the SDLC that can cause the final product to be significantly different from that
originally intended.
Use case name States the use case name. Typically, the name expresses the objective or
observable result of the use case, such as “Withdraw Cash” in the case of
an ATM machine.
Brief description Describes the role and purpose of the use case. i.e., Make Deposit
Actor(s) Names of actor(s) involved in the use case. i.e., Account holder, banking
system
Typical flow Describes the ideal, primary steps involved in this use case.
Alternative flows Describe exceptions or deviations from the basic flow, such as how the
process works when the actor enters an incorrect user ID and the user
authentication fails.
Special requirements Specify any nonfunctional requirement that is specific to a use case but is
not specified in the text of the use case flow of events. Examples of special
requirements include: legal and regulatory requirements; application
standards; quality attributes of the system, including usability, reliability,
performance, and supportability; operating systems and environments;
compatibility requirements; and design constraints.
Preconditions A state of the system that must be present before a use case is performed,
i.e., what triggers the use case?
Post conditions A list of possible states for the system immediately after a use case is
finished.
Assumptions List the gaps in your information for this use case. What (if anything) did
you have to assume when completing the description?
Make
Deposit
Withdraw
Funds
Transfer
Funds
Actor: Banking system
Actor: Account Holder
Actor: Account Holder
FIGURE 13.3 An object-oriented use-case model has two parts: the use-case diagram and the use-
case description. Here’s a simple example of an account holder interacting with a banking ATM.
394 C H A P T E R 1 3 Systems Development and Project Management
Created by the Agile Alliance, Agile systems development is the umbrella term used for a
number of different software development methods including scrum and extreme program-
ming. These are discussed next.
Scrum Scrum is a framework that consists of small self-organizing, cross-functional Scrum
Teams who work together to produce small pieces of a system iteratively and incrementally in
sprints to maximize opportunities for feedback. At the end of each sprint, project priorities are
evaluated, and acceptance tests are run and evaluated. These short sprints allow for errors to
be found and customer feedback that can be incorporated into the design before the next
sprint is run. Every day, a 15-minute Daily Scrum is held to synchronize activities and create a
plan for the next 24 hours.
The Scrum approach is centered around three tenets: transparency (sharing a common
understanding of the work), inspection (users must be able to frequently inspect Scrum output
and progress), and adaptation (if an inspection reveals one or more deviation outside of accept-
able limits, it must be adjusted as quickly as possible to minimize further deviation).
Extreme Programming Using Extreme programming, software is developed in
small pieces that make little sense on their own, but when put together, they form a system—
somewhat like putting jigsaw pieces together to complete a jigsaw puzzle. The first step in
developing a system using extreme programming is to create user stories in which use require-
ments are documented to understand what the user wants the system to do. Next, acceptance
tests are conducted to make sure that the system produces the results that the user wants.
Gaining verification of the functionality by the user in this way shifts the responsibility to the
user. Finally, after user approval, small releases are delivered. Extreme programming works
because it creates good communication between developers and users, designs are simple
and efficient, feedback is obtained at every step of the project, and the methodology adapts
well to changes.
The DevOps Approach to Systems Development
The latest development methodology to emerge is DevOps—short for software DEVelopment
and IT OPerations. DevOps is a set of processes that emphasize collaboration between software
developers, operators, and testers involved in the development and operations of ISs. The pop-
ularity of Agile and its increased number of releases led to the creation of a DevOps way of
thinking. When a system is delivered that doesn’t work the way user wants it to, there is a say-
ing that the system “worked in development.”
Gaps in communication and understanding between development, operations, and test-
ing personnel can lead to this type of situation. DevOps was developed to address this gap in
communication and collaboration and create a culture where building, testing, and delivery of
a system can happen quickly, frequently, and reliably (Figure 13.5). The goal of DevOps is to
lower the failure rate of new releases, shorten lead time between fixes, enable shorter time to
market and mean time to recovery.
Sprints is a set period of time
during which specific work has
to be completed and made ready
for review. Traditionally, a sprint
lasts 30 days.
Extreme programming is a
pragmatic systems development
to Agile development that
emphasizes business results
first and takes an incremental
approach to building software,
using continual testing
and revision.
DevOps is a set of processes that
encourages collaboration between
system developers, operators
and testers.
Iteration 0
(Warm up)
• Initiate the
project
Construction
• Deliver working
system to meet
changing needs
of stakeholders
Release
(End Game)
Production
• Operate and
Support Release
N
Start work on Release N-1
• Deploy Release
N into production
FIGURE 13.4 Stages in the Agile Methodology.
Project Management Fundamentals 395
Organizations that use DevOps have reported significant benefits such as shorter time
to market, improved customer satisfaction, better product quality, more reliable release,
improved productivity and efficiency, and the ability to build the right product.
Unlike other systems development methodologies, DevOps requires a change in organi-
zational culture to bring together somewhat incompatible departments such as IT operators,
developers, and testers who have different motivations. To build this type of culture, orga-
nizations are using team-building and engagement activities such as games, trust activities,
and seminars.
DevOps
Development
Operations
Quality
Assurance
FIGURE 13.5 DevOps
Questions
1. Name the different types of systems development methodologies.
2. What the is the main difference between the Waterfall method and the Agile method?
3. Why is it important for an organization to be flexible when developing ISs?
4. Why is the concept of DevOps appealing to organizations?
13.3 Project Management Fundamentals
Many organizations today have a new or renewed interest in projects and project management.
The world as a whole spends nearly 25% of its gross product on projects of all kinds, and more
than 16 million people view project management as their profession. Organizations can benefit
from using a formal project management approach to carry out their IT projects in the fol-
lowing ways:
• Better control of financial, physical, and human resources (HR)
• Improved customer relations
• Short development times
• Lower costs
• High quality and increased reliability
• High profit margins
• Improved productivity
• Better internal coordination
• Higher worker morale
Projects is a temporary
endeavor undertaken to create a
unique product, service, or result.
Project management is
the application of knowledge,
skills, tools, and techniques to
project activities to meet project
requirements.
396 C H A P T E R 1 3 Systems Development and Project Management
What Is a Project?
Unlike day-to-day operations, that is, work performed to sustain business, projects end when
their objectives have been reached or the project has been terminated. Projects can range from
small to large and can take anywhere from a few hours to many years to complete. For example,
a small software development team may add a new feature to an in-house software application
for the marketing department, or a college decides to upgrade its technology infrastructure to
provide wireless Internet access across the whole campus.
Regardless of size or length of time they take to complete, all projects require a variety of
resources and have a primary sponsor who usually provides the direction and funding for the
project. And, every project involves certain elements of risk. The typical characteristics associ-
ated with a project are shown in Table 13.1.
TA B L E 1 3 . 1 Distinguishing Characteristics of Projects
A project has these characteristics.
• Clearly defined scope, deliverables, and results
• An estimated time frame or schedule that is subject to a high degree of uncertainty
• An estimated budget that is subject to a high degree of uncertainty
• The requirement of extensive interaction among participants
• Tasks that may compete or conflict with other business activities, which makes planning and sched-
uling difficult
• Risky but with a high profit potential or benefits
While many business managers do not manage projects, almost everyone will be a member
of a project team at some time during their career. As such, you’ll need to understand the basics
of project management. Project management has evolved from being project-centric to three
distinct management levels: project, program and portfolio management. Although the terms
project management and program management are sometimes used synonymously unlike
projects, programs don’t always have a single, clearly defined deliverable or a finite time horizon.
A fundamental difference between programs and projects is the pattern of activities over
time requiring programs be managed differently, typically demanding more than planning,
tracking, and controlling projects. Similarly, for projects to drive business goals, portfolio
managers require a holistic view of programs and projects to improve ROI and attain strategic
alignment.
Choosing Projects
Enterprises face the challenge of choosing which investments will add most value in a business
and how to allocate scarce resources to competing projects. Typically, a senior manager com-
poses a business case that identifies an opportunity, problem, or need and the desired busi-
ness outcomes of the project. Since not all projects are viable and not all viable projects can be
funded, the business cases are reviewed. In the review process, projects compete for approval
and funding.
Project analysis methods are used to prioritize proposed projects and allocate the
budget for maximum return. Budgeting decisions apply to all business investments, such as
construction to increase manufacturing capacity, entering new markets, modernizing retail
stores, R&D, and acquiring IT, apps, and enterprise systems. Investments in IT for marketing
or manufacturing innovations compete head-on with investments needed to comply with new
laws and regulations in finance, accounting, HR, and cybersecurity.
When companies are evaluating projects they need to examine them holistically to see
how they will help the company achieve its mission—that is, all projects currently proposed
or running should be assessed to identify investment synergies. This approach is known as
project portfolio management (PPM). PPM is a set of business practices to manage projects
Program is a set of
related projects.
Portfolio is the entire set of
projects within a department or
organization.
Business case is a presentation
or document that outlines the
justification for the start-up and
funding of a project.
Project Management Fundamentals 397
as a strategic portfolio. PPM ensures the alignment of programs and projects with organiza-
tional objectives. Executive management needs to review portfolios and programs, determine
why projects are or are not necessary, see where money is spent, prioritize projects, stage the
start of new projects, spread resources appropriately, and then keep tabs on progress.
PPM establishes a path from the concept through successful project completion. Without
the necessary data, management is incapable of making informed decisions to approve the
“right” new projects and to shut down projects with no hope for success:
• Map proposed projects to organizational strategies.
• Assess the value that a proposed project brings to the company.
• Assess the complexity of proposed projects.
• Prioritize project proposals for project selection.
The Triple Constraint
There are three aspects of a project that must always be carefully managed by the project manager
as he/she works with project sponsors, the project team, and other stakeholders to meet the pro-
ject objectives and produce the project deliverables. This is called the triple constraint.
The triple constraint (Figure 13.6) refers to three core knowledge areas that must be
managed effectively for successful completion and closure of any project.
1. Scope The project scope is the specification of what the project is supposed to accom-
plish—its outcomes or deliverables. Scope is measured in terms of the project size, goals,
and requirements.
2. Time A project is made up of tasks. Each task has a start date and an end date. The dura-
tion of a project extends from the start date of the first task to the finish date of the last
task. Time needed to produce the deliverables is naturally related to the scope and avail-
ability of resources allocated to the project.
3. Cost This is the estimation of the amount of money that will be required to complete
the project. Cost itself encompasses various things, such as resources, labor rates for con-
tractors, risk estimates, and bills of materials, and so on. All aspects of the project that
have a monetary component are made part of the overall cost structure. Projects are often
approved based on cost.
These three constraints are closely interrelated so that a change in any one of the three
constraints manifests a change in the other two. Ignoring the potential repercussions of adjust-
ing the scope, time, or cost of a project will lead to problems and may cause the project to fail.
The Project Management Framework
Not using a best-practice project management approach within the systems development life
cycle is the biggest IT project mistake a business can make. Tech Note 13.1 provides good
advice on this topic. Project management helps keep projects on schedule and on budget.
Deliverable is any measurable,
tangible, verifiable outcome,
result, or item that is produced
to complete a project or part of
a project. Examples might be
hardware, software, planning
documents, or meeting minutes.
Triple constraint is the
combination of the three most
significant elements of any
project: scope, time and cost. It is
also known as the iron triangle.
Scope
TimeCost
FIGURE 13.6 Triple constraint.
398 C H A P T E R 1 3 Systems Development and Project Management
A good project management plan identifies anticipated costs early on to develop a realistic
budget. Using resource conflict solutions, project managers can minimize the effect of funding
a new project on operating capital by optimizing the allocation of workers. Coordinating tasks
and clearly identifying goals or deliverables within phases reduce inefficiencies in time man-
agement that can result in being over budget.
Initiating
Planning
Executing
Monitoring/
Controlling
Closing
FIGURE 13.7 The five phases of the project management life cycle. All
projects, IT or otherwise, move through five phases of the project management
life cycle.
The PMI® Project Management Body of Knowledge (PMBOK 5e) is the definitive guide
for managing projects of all types. Developed by the Project Management Institute, a highly
regarded international project management association, the PMBOK is a framework that
guides project managers through the five phases that they refer to as process groups, while
addressing 10 areas involved in best-practice project management.
Five Phases of the Project Management Life Cycle The five phases of
project management are: Initiating, Planning, Executing, Monitoring/Controlling, and Closing
(Figure 13.7). Each of these five phases consists of a number of procedures that need to be
completed to achieve a successful project outcome and produce a number of documents to
pass on to the next stage. There are a total of 47 procedures that may be performed during the
project management life cycle, depending on the scope and complexity of the project. These
procedures, inputs, outputs, and tools and techniques used to produce them are discussed in
detail in Sections 13.4 and 13.5 of this chapter.
Tech Note 13.1
Six Basic Systems Development Guidelines
1. Always develop a project plan.
2. Involve all stakeholders and listen carefully to them at all
stages of the project.
3. Encourage teamwork and commitment to the project.
4. Use project management tools to identify tasks and
milestones.
5. Perform accurate cost/benefit analysis.
6. Remain flexible.
Initiating, Planning, and Executing Projects 399
Ten Knowledge Areas of Project Management To efficiently and effectively
move through each phase of the project management life cycles, project managers must man-
age 10 knowledge areas that impact the completion of any project. Four of these knowledge
areas are referred to as “core” areas, one is referred to as “integrating,” and five are “support”
areas (Figure 13.8).
The knowledge areas that a project manager has to manage, monitor, and control make
sense when you think about what you need to pay attention to when completing a project. Let’s
take a simple example of organizing a tailgating party. Before you start, you have to know the
scope of the tailgating event you want to organize, how much time you have before the event
needs to begin, and how much it will cost to achieve the desired outcome. Now, you’ll want to
make sure that everyone has a good time, so you’ll want to make sure that you understand
what’s involved in creating and delivering a quality product. Once these areas of the project
are understood, you’ll need some support—communication will tell you how, when, and with
whom to communicate, human resources will help you focus on who should be involved in the
planning, execution, and monitoring of the event, a knowledge of HR will help you find the
people that you need to organize the event, and procurement will help you find suppliers for
items that you haven’t already got, and you’ll have to consider risk, just in case it rains or the
game is cancelled. Lastly, but certainly not least, you’ll need to make sure that you understand
how to handle all the people interested in the tailgating event, that is, your stakeholders.
Successful project managers consistently apply the PMBOK framework to bring in high-
quality results and bring projects in on time and on budget. In the next section, you will learn
how to apply the project management framework in managing projects.
Questions
1. What distinguishes a project from day-to-day operations?
2. What are the three components of the triple constraint?
3. What are the five process groups in the project management life cycle?
4. Why is it important to use a structured project management approach to IT projects?
13.4 Initiating, Planning, and
Executing Projects
While all phases of the project management life cycle need to be carefully planned and exe-
cuted, the first two phases of the project management life cycle are particularly important.
If the existing business environment and needs of project stakeholders are not considered and
Scope is the body of work
that needs to be completed
within a project to achieve a
desired outcome.
COST
STAKEHOLDERS
SCOPE TIME QUALITY
INTEGRATION
RISKPROCUREMENT
HUMAN
RESOURCES
COMMUNICATION
CORE AREAS
SUPPORT AREAS
FIGURE 13.8 Ten Knowledge Areas of Project Management.
400 C H A P T E R 1 3 Systems Development and Project Management
the project is not planned well, it is very unlikely that it will achieve its objectives. Walking
through the project management life cycle stage by stage and learning about the tools and
techniques that project managers use in each stage is a good way to understand the mechanics
of project management.
Project Initiation
Initiating involves deciding on what the project will produce and what work tasks need to be
performed in order to achieve the desired outcome. To do this, you must understand the busi-
ness environment and the way it works. Some of the key activities in the initiating stage include
the following:
• Analyzing business requirements
• Identifying stakeholders and their roles
• Identifying stakeholder needs
• Evaluating business processes
• Reviewing financial reports and budgets
• Conducting a feasibility analysis
• Choosing a project manager
• Setting up the project team
During the initiating stage, you will create a number of documents to define the new
project. Often a feasibility study (similar to the one described in the earlier part of this chapter)
is performed and/or a business case is developed.
Preparing a Business Case Projects start with an idea that is explained in a business
case. To justify a project, a project manager, senior executive, or sponsor prepares a convincing
business case for consideration.
Statement of Work (SOW) If the business case is accepted, a statement of work
(SOW) is prepared. The SOW is written as a definitive statement, which means that it defines
the project plan but does not offer any options or alternatives in the scope. The project plan
in the SOW is reviewed; a go or no-go decision is made; if a go decision is made, the project is
initiated.
Templates are often used to create many of the project management documents, including
the business case and the SOW. The IT Toolbox at the end of this chapter contains a Business
Case and SOW Template representative of those typically used in the Initiating stage.
Project Charter An essential part of the initiating stage is the preparation of a project
charter (Figure 13.9).
The project charter specifies the scope of the project, gives the project manager authority
over the project, provides summary milestones, specifies the project budget, and identifies the
source of project funding. Most importantly, the project charter formally approves the project
so that it can progress to the Planning stage.
Once the business case has been reviewed and the project has received initial approval to
proceed, it’s time to move on to the next and much more complex phase of the project.
Project Planning
The Planning stage further clarifies the project objectives and plans all of the necessary activi-
ties to complete the project. The Planning stages focuses on time, schedule, costs, and alloca-
tion of resources. A project plan will be developed that addresses each of these items along
Templates is a sample
document that already has some
details in place.
Initiating, Planning, and Executing Projects 401
with any associated risks that might occur during the execution and implementation of the
project. Planning activities include following:
• Identifying project deliverables
• Identifying tasks that need to be performed to complete the project
Project Charter
ABC COMPANY
ACCOUNTS PAYABLE PROJECT
This Charter formally authorizes the Accounting Project Team to develop and implement a new
accounts payment system for use in ABC Company’s accounting group. A project plan will be
developed and submitted to the Project Sponsor for approval. The project plan will include: scope
statement; schedule; cost estimate; budget; and provisions for scope, resource, schedule, commu-
nications, quality, risk, procurement, and stakeholder management as well as project control. All
resources will be assigned by the Project Sponsor, Tony Golembesky, National Accounts Director.
Project Scope
The purpose of the Accounts Payable project is to improve the timeliness and accuracy of accounts
payable. This project meets ABC’s need for improved efficiencies across all departments by reduc-
ing accounts payable cycle time and minimizing staffing required for accounts payable operations.
The project deliverables shall include accounting system design, all coding, testing, implementa-
tion of an integrated system for use with existing IT infrastructure, and a user’s guide. The objec-
tives of the Accounts Payable project are to reduce accounts payable cycle time by 20% and reduce
accounts payable staffing by 15%. High level risks for this project include ensuring implementation
is completed without impacting ongoing accounts payable operations and ensuring there are no
issues with migrating accounts from the legacy system to the new system. Success will be deter-
mined by the Project Sponsor once the system is implemented and one full accounts payable cycle
has been completed that meets the objectives with no variances.
Milestone Schedule
The project plan will be submitted and approved in accordance with the milestone schedule below.
Upon approval of the project plan resources will be assigned to the project and work will com-
mence within five business days. The Project Sponsor must approve any schedule changes which
may impact milestones. A detailed schedule will be included in the project plan.
The high level milestone schedule is:
Feb 1, 2017 – Project Plan Complete and Approved
Mar 31, 2017 – Accounts Payable Design Completed
May 31, 2017 – Coding Completed
June 30, 2017 – Testing Completed
July 31, 2017 – Beta Testing Completed
Sept 30, 2017 – Implementation Completed
Oct 15, 2017 – One Accounts Payable Cycle Complete and Project Completion
Project Budget
The budget for the Accounts Payable project is $730,000. The project is to be funded through the
Accounting Technology Budget.
Sponsor Acceptance
Approved by the Project Sponsor
_______________________________________ Date: ________________________
Tony Golembesky, National Accounts Director
FIGURE 13.9 A Sample Project Charter.
402 C H A P T E R 1 3 Systems Development and Project Management
• Developing a list of tasks, called a Work Breakdown Structure (WBS) to show the depen-
dencies between the tasks
• Creating a schedule to carry out the task listed on the WBS
• Determining resources need to complete the project tasks
• Obtaining cost estimates for resources such as materials, equipment, and people
• Preparing a project budget
• Identifying potential risks and formulating appropriate responses to problems that could
occur during the project
The WBS and Risk Register are two important documents that are prepared during the
Planning stage along with plans that consider how to manage each of the 10 knowledge areas.
Work Breakdown Structure (WBS) The work breakdown structure (WBS) is a list
of tasks that identify all work or activities that need to be performed, the order in which the
work will be performed. An example of a WBS is shown in Figure 13.10. Figure 13.11 shows a
screenshot of a WBS (left side) developed using Microsoft Project. All project resources—people,
equipment, facilities—are managed according to the tasks listed in the WBS.
Milestones The WBS breaks a project down into the tasks or activities that must be per-
formed and defines the order in which they will be performed, to produce the deliverable or
part of a deliverable at each milestone. Project milestones are very important scheduling and
status devices because they enable the project manager to measure progress as the project
proceeds through its planned life cycle. Lack of milestones has been a contributing factor in
many project failures. Each milestone typically represents a deliverable (100% complete), but it
may also signify the percent complete, such as 50% complete.
• Milestone Example Assume that you are the project manager of a project for a client
who wants to post a creative project on Kickstarter.com to raise funds using crowdfund-
ing. You visit Kickstarter.com and do requirements analysis. You determine that you need
to produce five deliverables: (1) a video, (2) a set of photos and illustrations, (3) a script that
Milestones are used to manage
the project work effort, monitor
results, and report meaningful
status to project stakeholders.
Crowdfunding is raising funds
for a project from the public, or
crowd, via the Web.
1.2 Implementation
1.2.1 Develop the
Architecture
1.2.2 Develop
Site
1.2.2.1 Develop
Product Database
1.2.2.2 Develop
Website
1.2.2.3 Test the
Site
1.3 Monitoring and
Control
1.3.1 Perform Risk
Management
1.3.2 Perform
Quality Assurance
1.3.3 Perform Issue
Management
1.4 Deployment
1.4.1 Perform
Deployment
1.1.1 Develop
Requirements
1.1.2 Research
Hosting Options
1.1.3 Design Site
User Interface
1.1 Planning
1.0
Develop Mobile Commerce Site
FIGURE 13.10 One segment of the WBS for a mobile commerce site project.
Initiating, Planning, and Executing Projects 403
explains why the creative project deserves funding, (4) a set of pledge categories and
rewards to backers, and (5) the final site with all deliverables uploaded to Kickstarter.com
and tested. Each deliverable represents a milestone in your project plan. You then rely on
your milestone schedule to verify that the project is on track or to warn of the need for cor-
rective action. Milestones should be natural, important control points in the project and
easy for everyone to recognize.
Risk Register During a project, many known and unknown risks can occur. Considera-
tion of these risks needs to occur early in the project life cycle, during the Planning stage.
The Risk register also lists the source of each risk, how you will respond to each risk, and the
name of the person responsible for addressing the risk.
When the planning stage has been successfully completed, the project may be approved,
sent back to the drawing board to be revised, or may be thrown on the rubbish heap and
rejected. If it’s approved, the real work of the project can begin.
Project Execution
It’s during the executing phase of project management that the project team starts work on the
actual project deliverable. Key activities listed on the WBS are carried out and the project plan
produced in the planning stage is put into action. Activities performed in the Executing stage
include the following:
• Allocating resources to tasks listed on the WBS
• Communicating and coordinating with key stakeholders
• Performing the tasks listed on the WBS
• Reporting progress that has been made in regular meetings
Gantt Chart A Gantt chart is a bar chart that is used to show the timeline of the project
schedule, as shown on the right side of Figure 13.10. On a Gantt chart, the start and finish dates
of all tasks and milestones appear as bars whose length represents its duration. Gantt charts
Risk register lists all known
risks and their source, an
estimation of unknown risks
and the response to be taken to
each risk.
Gantt chart is a horizontal bar
chart that graphically displays the
project schedule.
FIGURE 13.11 Microsoft Project screenshot of WBS (left side) and Gantt chart (right side).
404 C H A P T E R 1 3 Systems Development and Project Management
are multipurpose visualization tools that are used in planning, executing, and monitoring
phases and enable the project manager to prepare at-a-glance status reports.
Cost Estimation While costs are not technically part of the WBS, the projects’ estimated
cost can be calculated from the WBS. Each task or activity has a start date and duration, which
determine its finish date. For example, if a task starts on Monday, November 2, and takes eight
work days (excluding weekend days) to complete, the finish date is Wednesday, November 11.
Assume that the resources—people, equipment, and materials—needed to complete the task
and their costs are known. Project management software computes the cost of the project
based on labor time (duration) of each task in the WBS and the cost of labor or other resource.
Responsibility Matrix If a resource is listed on the WBS, that means they are respon-
sible for at least one project task. A responsibility matrix shows who has primary responsi-
bility and who has support responsibility for each activity listed on the WBS. Table 13.2 is an
example of a responsibility matrix.
Responsibility matrix lets
everyone know who is responsible
for completion of tasks.
TA B L E 1 3 . 2 Responsibility Matrix Showing Primary and Support Responsibilities
for WBS Tasks
WBS ID Activity
Level of Responsibility
Anna Bart Beth Fred Don
1.1 Storyboard video S P
1.2 Recruit volunteers to act in video S P
1.3 Record video segments P S
2.1 Select five photographs and images P S
2.2 Crop and edit photos S P
P = primary responsibility, S = support responsibility
13.5 Monitoring/Controlling
and Closing Projects
Once the project work has begun, it’s time to start monitoring performance, collecting feed-
back, and putting controls in place to correct any variances from the original project plan and
eventually formally closing out the project.
Project Monitoring and Controlling
Project Monitoring and Controlling include tracking, reviewing, and managing the progress and
performance of the project along with managing any necessary changes.
Monitoring and controlling occur continuously while the project work is being executed,
so it overlaps with Project Execution. These processes, described in Figure 13.11, depend on
the baseline, milestones, responsibility matrix, and other elements from the planning stage.
They keep the project team informed of project status and help them cope with challenges they
encounter. Except for short, simple projects, there are going to be risks and changes that need
to be kept under control and documented.
Monitoring depends on prompt and candid feedback from the project team, as you read in
the opening case. In-person visits, reports, and records are also monitoring methods. Project
control depends on systems and decision rules for managing variances between the project’s
scope, cost, schedule, and quality and the realities of project implementation.
Monitoring/Controlling and Closing Projects 405
Throughout the project, the work must be tracked against the schedule to ensure that
the project is on track. Doing this helps identify variances from the baseline target early so
they can be addressed before the gap between actual and expected performance becomes
too great. In this way, cost overruns and risk can be minimized and the probability of com-
pleting the project on time and on budget is maximized. Feedback is very important in this
stage. While monitoring identifies problems, feedback enables controls to be put in place to
“stop the bleeding.” Activities during the Monitoring /Controlling stage include the following:
• Measuring extent and timing of task completion
• Comparing actual versus expected performance on all tasks
• Collecting feedback
• Taking appropriate action to correct problems and address issues
• Making report reports to appropriate stakeholders
• Documenting progress and updating the project plan, as needed
Project Status Report To monitor the progress of a project, project status reports will
be prepared and reviewed to check on the progress of the project. Status reports are typically
prepared once a week. Status reports include a summary of the project status vis-à-vis planned
performance; work planned; work completed; work planned; open issues; open risks; status of
project milestones and deliverables; open change requests; project key performance indicators
(KPIs); schedule status and cost status.
Scope Creep During the project, it is almost guaranteed that requests will be made that
change the scope of the work required to produce the project deliverable. Scope creep refers
to the growth of the project, which might seem inconsequential—at least to the person who is
requesting that change. It is absolutely imperative that any change to the scope of the project
explicitly include compensating changes in the budget, the deadline, and/or resources. Con-
sider the following scenario.
The project scope is to build a new online accounting application capable of processing at
least 1000 expense reports (in multiple currencies) per day, which has a budget of $200,000, and is
expected to last three months. After the project is started, the scope expands to include processing
of thousands of sales commissions per day. The project manager needs to renegotiate the proj-
ect’s duration and budget for the added functionality, testing, and user training, making sure that
any requested change, no matter how small, is documented and accompanied by approval.
IS design is highly susceptible to scope creep for many reasons. Intended users ask for addi-
tional features. People who were not intended users ask to be included. Technology changed from
the time the business case was written and system development began. The actions of a compet-
itor, supplier, or regulatory agency triggered additional requests for functionality. Because scope
creep is expensive, project managers impose controls on changes requested by users. These con-
trols help to prevent runaway projects—system development projects that are so far over budget
and past deadline that they must be abandoned, typically with large monetary loss.
Integrated Change Control Quite often, changes occur as the project proceeds.
Changes tend to have a trickle-down effect because of task dependencies and shared resources.
For example, consider the following three activities from Table 13.2:
1.1 Storyboard a video.
1.2 Recruit volunteers to act in the video.
1.3 Record video segments.
Activity 1.3 is dependent on the completion of activities 1.1 and 1.2. Video recording cannot
start until after the video has been storyboarded and actors are available.
Integrated change control processes help to manage the disruption resulting from
requested changes and corrective actions across the project life cycle (Figure 13.12). Integrated
Scope creep is the piling up of
small changes that by themselves
are manageable but in aggregate
are significant.
406 C H A P T E R 1 3 Systems Development and Project Management
change control processes are always documented and saved in the event of project failure or
lawsuits related to the failure. These documents are needed to defend decisions—what did and
did not happen, such as the following:
• Approved change requests
• Rejected change requests
• Updates to the project plan
• Updates to the scope
• Approved corrective and preventive actions
• Approved defect repair
• Validated defect repair
Critical Path Analysis All projects have a critical path that extends the length of the
project and determines the shortest path along which all projects tasks must be completed in
order to finish the project. Project management software shows the critical path on the Gantt
chart, as in Figure 13.13. Each task or activity on the critical path is called a critical task or
Critical path is the shortest
time possible to complete all tasks
required to finish the project. A
delay of any task on the critical
path will delay the project.
Managing and negotiating
changes in response
to scope creep
Scope Control
Recommending corrective
actions
Monitoring project
deliverables to verify that
quality standards and
specifications are not
being compromised
Quality Control
Managing factors that can
cause changes to the cost
baseline
Cost Control
Managing factors that can
cause time delays or
schedule changes
Schedule Control
FIGURE 13.12 Project controls.
FIGURE 13.13 The critical path is shown as red bars. The critical path consists of all tasks from project start to finish that must be
completed on time in order for the project to finish on time.
Monitoring/Controlling and Closing Projects 407
activity. Critical tasks must finish on schedule because delays will delay the project unless
something is done to compensate. While it may seem that adding new people to a project is an
obvious solution, in fact, it may initially slow it down. If any noncritical tasks get delayed
enough, they could go critical, so both critical and noncritical paths need to be monitored.
Project Baseline Plan When the project plan is finalized and accepted, the accepted
plan becomes the baseline or master plan. The baseline is used for monitoring and controlling.
Any change to the baseline is a deviation, or variance, to the plan—and it needs to be docu-
mented. Using project management software, you can save the WBS as the baseline. From then
on, deviations will automatically be documented as variances from the baseline, as shown in
Figure 13.14.
Once all work has been monitored and controlled and the project deliverable has been
completed, it’s time to move on to the final phase of the project management life cycle and
formally close the project.
Baseline is a specification of
the project plan that has been
formally reviewed and agreed
upon. It should be changed
only through a formal change
control process.
Work
Scheduled: 680 hrs
Baseline: 528 hrs
Variance: 152 hrs
Scheduled:
Baseline:
Variance:
Tasks not yet started:
Tasks in progress:
Tasks completed:
Total tasks:
$14,104.00
$10,624.00
$3,480.00
7
9
0
16
Work resources:
Overallocated work resources:
Material resources:
Total resources:
4
4
0
8
Remaining:
Actual:
$11,751.60
$2,352.40
Remaining: 581.2 hrs
Actual: 98.8 hrs
Percent complete: 15%
Costs
Task Status Resource status
FIGURE 13.14 Work and cost variances from the agreed-upon project baseline are
documented by project management software.
Project Closing or Post Mortem
At closing, the project manage declares the project complete. In keeping with the saying,
“It ain’t over until the fat lady sings,” project closing can’t occur until the stakeholders are
satisfied with the final project deliverable and have formally accepted the project. Closure
of the project also requires that the project manager, with the help of the project team,
conducts a Post mortem of the project to identify the things that went right and the things
went wrong.
Activities that occur during closing include the following:
• Delivering the final project deliverable
• Obtaining and documenting formal stakeholder acceptance of the project deliverable
• Documenting and archiving all project documents
Post mortem is a method for
evaluating project performance,
identifying lessons learned, and
making recommendations for
future projects.
408 C H A P T E R 1 3 Systems Development and Project Management
• Documenting “Lessons Learned” to inform upcoming projects
• Formally releasing all resources
Lessons Learned Report An important document that is created during Project
Closing is the Lessons Learned report. The Lessons Learned enables future project teams
to learn from the project team’s positive and negatives experiences. The Lessons Learned
identify the reasons the project was successful or not, strengths and weaknesses of the
project plan, how problems were detected and resolved, and how the project was success-
ful in spite of them.
Here are three common lessons learned that are frequently documented during the project
closing phase.
• Communication is King
The most important skill that a project manager can learn is good communication. Timely,
frequent, and targeted communication to all key stakeholders is paramount to keeping a
project on track. Make sure that you communicate early and often to the right people in
the right way!
• Set Realistic and Detailed Project Plans with Adequate Time and Resources
Projects are subject to unanticipated and uncontrollable events, so they need to have
slack time built into the schedule and budget. However, project teams can be pressured
to cut project costs. In response, they might reduce the time and budget allocated to
training, testing, and change management. These cuts result in poor quality and low user
acceptance.
• Encourage Timely Feedback and Be Willing to Listen
All projects encounter difficulties. Make sure that employees know they will not be pun-
ished for raising concerns, even if other project members deny that problems exist. Fear
blocks the flow of useful information.
• Manage Risk with Regular Project Status Reviews
For the most part, no one likes formal project reviews, but they are necessary to identify
and address current and potential problems.
Why Projects Fail
An important part of project management is knowing when to declare an ongoing project a
failure. Take for example, the case of a Fortune 500 company that learned that six of its major
projects were in trouble two months into a new project. In each case, it seemed as though the
project failed overnight without warning. The CIO felt blindsided and executive management
wanted to know who and what was to blame. The company’s project management office (PMO)
was asked to explain.
During the investigation, the PMO learned that the project staff felt strong but subtle
pressure to keep problems to themselves. The six failing projects had executive sponsors who
were politically powerful and known to attack people who delivered bad news. So, rather than
report that their project was in trouble, staff worked harder, hoping to recover from missed
deadlines, but deadlines were still missed.
Sometimes, the only right way to fix a project is to cancel it. If a project suffers from one or
more of conditions listed in the following scenario, it has reached a point where its feasibility
must be critically re-examined. It is very difficult to kill any project when millions of dollars have
been spent to date—even when it is clearly the right decision.
The project is behind schedule. The scope changes almost daily. There were too few
milestones identified during the planning stage to be able to monitor progress. Too
many, or the wrong, resources were allocated. Because of the lack of regularly sched-
uled meetings, the project manager has no information on what the team mem-
bers are working on at any given time. The team members are not communicating
Project management office
(PMO) is an organizational
group responsible for coordinating
the project management function
throughout an organization.
Monitoring/Controlling and Closing Projects 409
IT at Work 13.1
U.S. Census Project Out of Control
U.S. Secretary of Commerce Carlos M. Gutierrez issued the following
official statement explaining (in an obscure way) why the Census
Bureau was scrapping its $600 million project. The project plan was
to develop a system for collecting census data using 500,000 hand-
held devices. The Census Bureau had contracted to use handheld
devices from Harris Corp., but mismanagement, cost overruns, and
poor planning caused the project to be cancelled.
According to a U.S. Census Press Release:
Multiple internal and external reviews have identified
continuing Census challenges across a number of areas,
including adequate planning over key systems require-
ments, key technology requirements, specification of oper-
ational control system characteristics and functions and
regional center technology infrastructure. . . . Gutierrez
said that the Census Bureau will need an additional $2.2 to
$3.0 billion in funding over the next five years to meet the
replan needs. . . . The life cycle cost for the Reengineered
2010 Census was estimated at $11.8 billion in the FY 2009
Budget Request, including $1.8 billion for the American
Community Survey which replaced the long-form. The new
estimated life cycle cost for the 2010 Census is $13.7 to
$14.5 billion.
In summary, the Census Bureau had planned to issue more than
500,000 handhelds to temporary employees to collect personal data
on Americans who do not return census forms in the mail. The hand-
helds were being developed under a $600 million contract awarded
to Harris Corp., in 2006. Stumbling over this multibillion-dollar
plan for a high-tech census, the government reverted to counting
the nation’s 300 million people the old- fashioned way: with paper
and pencil. Poor management—not poor technology—caused the
government to spend an additional $3 billion for the next census.
Was the Failure a Surprise?
Senator Susan Collins, ranking member of the Committee on Home-
land Security and Governmental Affairs, was not surprised by the
failure. “This committee is unfortunately no stranger to tales of fed-
eral projects and contracts that have gone awry, often at a heavy cost
in taxpayer funds,” she said. Collins listed the usual failure reasons:
• poorly defined initial requirements and
• inability or unwillingness of management to control “require-
ments creep” and cost overruns.
Something larger than poor project management was at work.
It was the failure of top management in the Bureau to assess and
mitigate the risks inherent in such a major project. “It should be
noted that the problems with this contract seemed apparent to
everyone except the Census Bureau,” said Senator Tom Coburn
(D-Oklahoma).
Analysis of the Handheld Project Failure
The 2010 census was to have been the first true high-tech count in
the nation’s history. The Census Bureau had awarded a contract to
purchase 500,000 of the computers, plus the computer operating
system, at a cost of more than $600 million. The contract ballooned
to $1.3 billion, even though the Bureau scaled back its purchase to
only 151,000 handheld computers. The higher expenditure was due
to cost overruns and new features ordered by the Census Bureau on
the computers and the operating system. Gutierrez blamed many
of the problems on “a lack of effective communication with one of
our key contractors.”
Census officials were being blamed for doing a poor job of
spelling out technical requirements to the contractor, Harris. In
addition, the handhelds proved too complex for some temporary
workers who tried to use them in a test in North Carolina, and
the devices were not initially programmed to transmit the large
amounts of data necessary.
Harris spokesman Marc Raimondi said the cost of the contract
increased as the project requirements increased: “The increased
funding is required to cover additional sites, equipment, software
and functions added by the bureau to the program.”
Representative Alan Mollohan, chairman of the appropri-
ations subcommittee, said the Census Bureau and Harris “con-
tributed to today’s crisis.” The Census Bureau’s failure to address
problems with the computers early on has “turned the crisis into
the emergency that we now face.”
IT at Work Questions
1. What went wrong?
2. What should have been done that was not done?
3. Where any problems unforeseeable?
4. Consider the statement: “hope is not a plan.” Does the state-
ment apply to this project failure? Explain why or why not.
5. What are the similarities between the U.S. Census proj ect
failure and the DIA automated baggage-handling proj-
ect failure?
because they know that the project is on its deathbed and are afraid to say so. Many
people in the company also know that the project is in trouble, except for senior
management.
The money already spent on the project, or sunk costs, should not be considered in the
decision to cancel. The only relevant cost, from a financial point of view, is whether the total
value from continuing is greater than the total cost of doing so. IT at Work 13.1 describes a
real-world case of a project out of control.
Sunk cost is a cost that has
already been incurred and cannot
be recovered.
410 C H A P T E R 1 3 Systems Development and Project Management
IT Project Management Mistakes
Managing IT projects to ensure a successful outcome has become more important than ever
in the on-demand economy (Stackpole, 2013). In closing, it’s useful to understand the factors
that appear to consistently contribute to project failure. The Center for Project Management
that helps IT organizations implement effective project management came up with a list of
the seven most common IT project management mistakes that can cause a project to fail.
Unfortunately despite all the available project management education, the “Seven Deadly Sins
of Project Management” are still being made (Symonds, 2014). They are the following:
1. Failing to stick to a project process architecture
2. Treating half-baked ideas as projects
3. Missing or ineffective leadership
4. Employing underskilled project managers
5. Inadequately tracking the project’s tasks, milestones, and resource usage
6. Failing to fix problems as soon as they are detected
7. Failing to engage in PPM
Career Insight 13.1
IT Project Management Jobs
Project management is a high-level skill and a demanding career
choice. The most successful upper-level project managers typi-
cally have an MBA or other business degree, a recognized project
management certification, and financial background to plan and
manage the project budget.
A sample job description for an IT project manager is as follows:
Responsible for the coordination and completion of
projects within the information technology department.
Oversees all aspects of projects and project budgets. Sets
deadlines, assigns responsibilities, and monitors and
summarizes progress of project. Builds and maintains
working relationships with team members, vendors,
and other departments involved in the projects. Pre-
pares reports for upper management regarding status
of project. Requires a bachelor’s degree, 2 to 4 years
of experience, and knowledge of project management
software. MBA is preferred. Leads and directs the work
of others. A wide degree of creativity and latitude is
expected. Typically reports to a senior manager or head
of a unit/department.
Questions
1. What processes help to ensure that the impacts resulting
from requested changes and corrective actions are managed
across the project life cycle?
2. What happens when a task on the critical path is delayed?
3. What are the three attributes that must be managed
effectively for successful completion and closure of any
project?
4. Why are lessons learned from a completed project identified?
5. Why is the evaluation of a project’s success or failure some-
what subjective?
6. What are three best practices to keep projects on track?
7. Why are IT projects high susceptible to scope creep?
Key Terms
agile 392
baseline 407
business case 396
communication 399
cost 399
critical path 406
critical task 406
crowdfunding 402
deliverable 397
DevOps 394
extreme programming 394
Gantt chart 403
go/no-go decision 390
human resources 399
integrated change control 405
lessons learned report 408
logical design 390
milestones 402
object-oriented (O-O) 392
people 399
physical design 390
portfolio 396
post mortem 407
procurement 399
program 396
projects 395
project charter 400
Assuring Your Learning 411
Assuring Your Learning
Discuss: Critical Thinking Questions
1. Business cases take a long time to research and write. As a result,
they are also time-consuming to review. Explain why business cases
require so much effort and detail.
2. What risks might the use of project portfolio management (PPM)
minimize? Do you think PPM can guarantee honest and unbiased pro-
ject approvals or not? Explain your position.
3. Do you think that projects that are needed to comply with regula-
tions, such as the international anti-money-laundering (AML) laws that
require firms to know your customer (KYC), should undergo the same
approval requirements as discretionary projects, such as in manufac-
turing or marketing? Explain your reasons.
4. Why should each deliverable be made a milestone?
5. Why is the critical path an important monitoring tool?
6. How does diagramming the triple constraint as a triangle clearly
demonstrate how time, scope, and cost are interrelated?
7. Refer to the Center for Project Management’s list of seven IT project
management mistakes. Select two of these mistakes and explain how
they contribute to project failure.
8. Why should the go/no-go decision be made more than once in a
project’s life cycle?
9. If a project is started without a documented baseline, what risks
might the project and project team face?
10. Explain how control activities are, in effect, risk management
activities.
11. Why is it tough to ignore sunk costs when evaluating a failing project?
12. Why are IT projects so susceptible to scope creep?
13. What leads to a runaway project?
14. What feasibilities are needed prior to IT project approval?
15. Explain the stages of the SDLC.
project management 395
project management office (PMO) 408
project portfolio management (PPM) 396
quality 399
responsibility matrix 404
risk 399
risk register 403
scope 399
scope creep 405
sprints 394
stakeholders 399
statement of work (SOW) 400
sunk cost 409
systems development life cycle (SDLC) 386
time 399
templates 400
triple constraint 397
use-case description 392
use-case diagram 392
variance 407
Waterfall Model 391
work breakdown structure (WBS) 402
Explore: Online and Interactive Exercises
1. ProjectLibre is the open-source replacement of Microsoft Project.
Visit the ProjectLibre website at www.ProjectLibre.org.
a. Download the free software.
b. Assume that you are the project manager on a project of your
choice that you are able to manage. Several project examples are
delivering a tailgate party for 50 people, remodeling a kitchen,
creating a YouTube video for advertising a new product, or
implementing a new cloud accounting IS.
c. Use the software to plan a project of your choice. Create a WBS
and Gantt chart.
2. Research and compare the current top three open-source project
management tools. What are their limitations?
3. Research the three project management vendors’ software
packages and find a review of each one. Write a report that compares
the features of the packages, including prices, and that summarizes
the reviews.
4. Assume that you are a member of a project team working on a
project with a six-month timeline. The materials your team needs to
complete their first set of tasks will arrive three days later than their
promised delivery date. The delay has a 10% chance of delaying
completion of the project. You know that no one will tell the project
manager of the delayed delivery because it is the first month of the
project so it does not seem important enough to report. Would you
inform the project manager of the delay? Explain your decision. Now
assume that you did not report the delay and such delays happened
in each month afterward. What would you do and when? In your
opinion, should the entire team present these problems? Explain
your decisions.
412 C H A P T E R 1 3 Systems Development and Project Management
Analyze & Decide: Apply IT Concepts to Business Decisions
1. You are the project manager and need to compose a SOW for clients
who want you to develop a Kickstarter.com site for their project, as
discussed in the chapter.
a. Start off by composing a SOW using a standard SOW template
that you found and downloaded from the Internet.
b. Use Tom’s Planner or other free Gantt chart software to create
a Gantt chart for your project.
c. Assume that after your clients review your SOW and Gantt
chart, they request that you discount the price 20%. Based on the
triple constraints, how would you respond?
2. Explore project management software on vendors’ websites.
Select a single project management package, download the demo,
and try it. Make a list of the important features of the package. Be
sure to investigate its cloud and collaboration features. Report your
findings.
3. Managing a project with Microsoft Project is often the approach
to IT project management, but many users prefer to use Microsoft
Excel instead. The main reasons are that MS Project is too expensive,
wastes too much time to set up and keep updated, and is tough to
use. The debate between Excel and Project has valid arguments
for either approach. Research the reviews of Excel and MS Project
as project management tools. When is each software appropriate
for use?
Case 13.2
Business Case: Steve Jobs’ Shared Vision Project
Management Style
Steve Jobs (1955–2011) cofounded Apple Inc. and reinvented
the PC, music players, phones, tablets, and digital publishing
(Figure 13.15). He is regarded as technology industry’s most nota-
ble luminary. He continuously managed remarkably innovative pro-
jects—extremely successful ones as well as many failures. Although
widely recognized as a marketing and technology guru, Jobs was
largely successful because of his project-based approach for man-
aging his business and producing new products. His approach to
executing projects ultimately changed the business world. Jobs’s
shared vision project management style offers lessons to help
managers focus and motivate their team to get projects completed
on schedule.
Shared Vision and Accountability
A significant part of what made Jobs successful was his persis-
tent push to keep projects moving while communicating with his
team to ensure that they were working toward the shared vision.
He stressed accountability and did not let anyone slide on that
principle. He got to know everyone on the team and actively inspired
them.
Guy Kawasaki, Apple’s chief evangelist and liaison to the Mac
developer community, said Jobs appreciated great work. He was well
known for giving employees feedback—publicly telling them if they
were great or lousy. His bluntness infuriated some people but also
motivated them to either do their best or leave.
Communication
Structure, understanding, and inspiration depend on the one irre-
placeable management skill: communication. Part of what made
Jobs so successful was his constant push to keep projects moving
while communicating with his team to ensure that they were work-
ing toward a shared vision. He held regular meetings to avoid wasting
time with long e-mail chains and having to address the same concerns
multiple times.
E
d
S
to
ck
/iS
to
ck
p
ho
to
FIGURE 13.15 Steve Jobs, CEO and founder of Apple
Computers and Pixar boss, was one of the greatest project
managers.
Case 13.3 413
Sources: Darton Group (2012), Isaacson (2012), and Kimbrell (2014).
Case 13.3
Demo Case: Mavenlink Project Management
and Planning Software
Although some organizations still use Excel to manage their projects,
Excel is not an ideal tool in larger projects. Instead, organizations achieve
far greater project management productivity and efficiency using one
or more of the hundreds of different products designed specifically to
assist in project management. These project management software
packages fall into the three main categories shown in Table 13.3.
Project management software and apps continue to be
improved with advanced features and integration with other tech-
nology. The decision on which project management software to use
depends on the company’s needs, size of business, and industry.
Cloud-based or online project management applications are popu-
lar choices.
Mavenlink is a vendor that provides easy-to-follow video tutori-
als and online project management resources through the World’s First
Unified Project Delivery Cloud. With Mavenlink, you can track project
timelines, collaborate on tasks, manage team activities, and integrate
with Google Apps, QuickBooks, and Salesforce from a single workplace
environment.
Visit Mavenlink’s website http://Mavenlink.com. Read about the
company and its project management products. Search for the Maven-
link Tutorial by Michelle on YouTube and watch the video. (The video
runs for 12:54 minutes.)
Questions
1. What Mavenlink features support project planning?
2. What Mavenlink features support project monitoring and control?
3. How does Mavenlink support change management supported?
4. If you were a project manager, would you choose Mavenlink to
manage your projects? Explain.
TA B L E 1 3 . 3 Project Management Software
Category Application Cost
Example
Products
Low-end
tools
Single or small
project well
$200 per user
Mid-range
Tools
Multiple projects
and users
$200–$1,000
per user
High-end
tools
Large projects Typically
licensed on
a per-user
basis
Microsoft
Enterprise
Project
Management
Do Not Just Listen—Understand
There is a big difference between listening and understanding. Jobs
made sure that he understood everyone on his team and that they
understood him. This is done by making people demonstrate that they
understand and not simply asking them if they understand. When eve-
ryone confirms that they are on the same page, they will keep mov-
ing forward.
Questions
1. Steve Jobs shows the importance of people skills. Explain
Jobs’ way of motivating people. For example, did he try to get
everyone to like him? Did he try to get everyone to get along with
each other?
2. Why did Jobs’ approach to project management work so well for
him?
3. What lessons can project managers learn from Jobs?
4. Research Steve Jobs’ management style from reputable sources.
What did you learn about how people reacted to Jobs’ style?
5. Create a checklist of effective project management practices.
IT Toolbox
Project Management Templates
One of the tools typically used by project managers is a set of tem-
plates. Templates, or standardized forms, are usually created by
an organization’s PMO in larger firms or senior project manager in
a small firm. Templates serve two main purposes. (1) Templates
standardize the content of documents across all projects. (2) Tem-
plates minimize time and effort required of project managers and
portfolio managers in creating and reviewing the multitude of doc-
uments used in project management.
A full set of project management templates organized by
stages of project management life cycle are available online
from Project Management Docs. Go to their website and check
them out.
Following are two templates for documents prepared dur-
ing Project Initiation. These easy-to-use Business Case and SOW
templates will help get you started on your project manage-
ment journey.
414 C H A P T E R 1 3 Systems Development and Project Management
Business Case Template
Project Overview Statement
Executive Summary
Project Name:
Department:
Date:
Author(s):
Project Manager(s):
Executive Sponsor(s):
Describe the pertinent facts of the project in a clear and concise way.
PROJECT BUSINESS CASE
Project Overview
Describe what is involved in executing the project.
Business Issue/Opportunity
Describe expected benefits and how the project fits within the company’s business strategy and contributes toward its goals and objectives.
Project Business Goal
Clearly identify the opportunity, need, or problem facing the company and why the project is necessary. Discuss the drivers that have trig-
gered the project proposal and link them to the business need.
Primary Project Objectives
List and describe the objectives of the project.
1. Objective 1
2. Objective 2 . . .
3. Objective n . . .
Project Benefits and Cost–Benefit Analysis
Describe the key benefits from implementing this project.
1. Benefit 1
2. Benefit 2 . . .
3. Benefit n . . .
Based on the costs established for each option, describe how those costs are weighed against the benefits. Conduct the cost–benefit anal-
ysis for each option taking into account costs, benefits, and risks.
PRIMARY PROJECT DELIVERABLES
Milestone 1
1. Deliverable name: Description of the deliverable
2. Deliverable name: Description of the deliverable
n. . . .
Milestone n
1. Deliverable name: Description of the deliverable
2. Deliverable name: Description of the deliverable
n. . . .
Project Interdependencies and Inputs
Explain other projects in process or planned that have a relationship to this proposed project. List inputs that other projects may have to
this project development.
• [input]
• [input]
• [input]
Project Assumptions and Constraints
List and describe all underlying technical, environmental, and resource availability assumptions upon which the project and benefits are
based. List and describe constraints that can come from external or internal factors.
Project Risks
Describe known risks that apply to this project.
PROJECT KEY PERFORMANCE INDICATORS
List and describe project KPIs or critical success factors.
Case 13.3 415
Project Duration Estimates and Deliverables
Project Milestone Date Estimate Confidence Level
Project Start Date [High/Medium/Low]
Milestone 1 [High/Medium/Low]
Milestone n [High/Medium/Low]
Project Completion Date [High/Medium/Low]
APPROVALS
Prepared by ______________________________________
Project Manager
Approved by ______________________________________
Project Sponsor
______________________________________
Executive Sponsor
______________________________________
Client Sponsor
Statement of Work Template
Date [Insert date]
Client [Insert client’s name]
Job Name [Insert project name]
Requested by [Insert client sponsor’s name]
From [Insert project manager’s name]
Summary and Objectives A high-level description of the project and objectives
Project Scope Description of the project scope, deliverables, and the process for how it will be performed
Schedule and Work Breakdown
Structure (WBS)
List of tasks in sequential order, resources allocated to each task, and schedule
Cost or Pricing Description of the cost (pricing) for all types of resources—labor costs, materials, equipment,
overhead expenses; discussion of payment terms, including a payment schedule and if payments
are based on a milestone/deliverable or a schedule, if appropriate
Key Assumptions A crucial part of an SOW—any assumptions made when scoping and estimating the project need
to be documented
Acceptance
The client named below verifies that the terms of this statement of work are acceptable. The parties hereto are each acting with proper
authority of their respective companies.
_________________ _________________
Company name Company name
_________________ _________________
Full name Full name
_________________ _________________
Title Title
_________________ _________________
Signature Signature
_________________ _________________
Date Date
416 C H A P T E R 1 3 Systems Development and Project Management
References
Calleam Consulting Ltd. “Case Study – Denver International Airport
Baggage Handling System – An Illustration of Ineffectual Decision
Making.” www.Calleam.com. 2008.
Coolman, A. “Lessons Learned from Project Failure at Denver Interna-
tional Airport: Why Checking Bags is still a Pain.” Wrike, https://www.
wrike.com/blog/lessons-learned-from-project-failure-at-denver-
international-airport-why-checking-bags-is-still-a-pain/ 2014.
Darton Group. “Steve Jobs and Lessons for Project Managers.”
DartonGroup.com, January 2, 2012.
Grimes, R. A. “11 Signs Your IT Project Is Doomed.” Computerworld.
com, May 6, 2013.
Isaacson, W. Steve Jobs. New York: Simon & Schuster, September
2012.
Kimbrell, G. “Four Project Management Lessons You Can Learn from
Software Engineers.” Forbes, January 31, 2014.
Konrad, A. “Business Leaders Are Losing Ground in ‘Digital IQ’ New
PwC Study Finds.” Tech in the Cloud, February 28, 2017.
Murray, J. “DIA and Bid Team are Closer to Reaching Deal on Massive
Terminal Project, Spokesman says.” The Denver Post, June 20, 2017.
Perkins, B. “Bart Perkins: How to Keep Projects on Track.” Computer-
world.com, April 21, 2014.
Stackpole, B. “Why Project Management in IT Is More Important Than
Ever.” State Tech Magazine, September 25, 2013.
Symonds, M. “The Seven Deadly Sins of Project Management.” The
Project Management Hut, January 17, 2014.
U.S. Census, 2008. census.gov
417
CHAPTER 14
IT Ethics, Privacy, and
Sustainability
C H A P T E R O U T L I N E
Case 14.1 Opening Case: Lessons Learned: How
Google Glass Raised Risk and Privacy Challenges
14.1 IT Ethics
14.2 Privacy and Civil Rights
14.3 Technology Addictions and Focus
Management
14.4 ICT and Sustainable Development
Case 14.2 Business Case: Android Auto and
CarPlay Keep Drivers Safe, Legal, and Productive
Case 14.3 Video Case: IT Ethics in the Workplace
L E A R N I N G O B J E C T I V E S
14.1 Discuss the importance of IT ethics and issues related to
technology-related unethical behavior.
14.2 Understand privacy issues associated with organizational
use of personal information.
14.3 Describe how technology use can lead to obsessive behavior
and impact the ability to focus.
14.4 Understand how the increasing use of IT and social media
dependence affect global warming and other sustainable
development issues.
Introduction
Several of today’s toughest ethical and social challenges did not even exist at the start of this
decade. The latest social, mobile, cloud, and information management technologies are pow-
erful forces. While businesses, governments, and users greatly benefit from their use, they may
have harmful effects—not all of which are obvious yet. For example, what is the effect of people
spending their personal and professional lives in a state of continuous disruption or partial
(distracted) attention?
Are you prepared to deal effectively with ethical challenges and corporate responsibilities
that social, mobile, big data, and analytics technology create in business? Anecdotal research
418 C H A P T E R 1 4 IT Ethics, Privacy, and Sustainability
suggests that individuals often do not even recognize when ethical issues are present. If people
cannot recognize them, then it is hard to imagine how they could act responsibly.
This chapter will make you aware of IT ethics, risks, legal responsibilities, and sustainability
controversies. These issues are examined within the context of civil rights, employment laws,
regulations, research findings, and case examples. Of course, even those guidelines cannot pro-
vide easy answers to social discrimination, the demise of privacy, distractions, piracy, and theft
of intellectual property, and what the latest digital devices are doing to quality of life. There are
no easy fixes, clear-cut judgments, answers, or solutions. As managers, you need to be able to
recognize ethical issues and tip the balance toward better responsible conduct in the workplace.
Case 14.1 Opening Case
Lessons Learned: How Google Glass Raised Risk and
Privacy Challenges
Although Google Glass is now “broke” (Bilton, 2015), some interesting
privacy and ethical issues are worth remembering about this
revolutionary technology. When Google Glass was unveiled, it was
considered the gadget most sought out by everyone, from nerds and chief
executives to chefs and fashionistas. It was the must-have toy that was
going to set the gold standard for a new class of wearable computers.
Time Magazine named it one of the best inventions of 2012, and
Google Glass got its own 12-page spread in Vogue magazine. There was
even an episode of “The Simpsons” TV show that was devoted to Google
Glass in which Homer called them “Oogle Goggles” (Bilton, 2015). But,
there were some serious risk and privacy issues associated with Google
Glass use that Google had not foreseen.
For example, when California Highway Patrol (CHP) officer Keith
Odle pulled over Cecilia Abadie for speeding along Interstate 15 in San
Diego, Odle noticed that Abadie was wearing Google Glass. He ticketed
her for speeding and for being in violation of the distracted-driving law.
California Vehicle Code Section 27602 bans people from driving while
video screens are operating in the front of the vehicle, except for mapping
displays such as GPS and other built-in screens. Abadie, a software
developer, was one of the explorers who were pilot testing Google Glass
before its later release to the public.
The CNET website reported that Abadie’s alleged violation “does
pose a thorny legal question that police, judges and drivers will have to
face as these wearable devices become more prevalent” (Whitney, 2013).
Distracted Drivers or Informed Drivers?
Wearing computer-in-eyewear could be a distracted-driving violation
according to the traffic code if the eyewear was on while Abadie was
driving. The CHP officer had seen the light from Abadie’s Glass screen.
However, her defense attorney claimed that the Glass activated when
she looked up at the officer during the stop but was not on when she was
driving. The California judge dismissed her ticket saying that the CHP
officer failed to prove that the Glass was in operation when the driver
was stopped.
One side argues that driving with a wearable computer is as
risky as texting or watching TV while driving. The opposing side
claims that the advantages of Glass outweigh any risks. They cite the
DriveSafe app that detects when drivers are falling asleep and wakes
them up—making driving safer. Figure 14.1 shows a number of views
and opinions surrounding Google Glass. When the case came up for
hearing, Commissioner John Blair threw out both charges against
Abadie, stating there was insufficient evidence to prove beyond a
If Glass distracts drivers
and causes traffic
accidents, then Google
has a responsibility to
address this issue.
A Glass wearer in a movie
theater was detained by a
U.S. Immigration and
Homeland Security
Investigations unit, which
targets piracy.
The DriveSafe app detects
when drivers are falling
asleep and wakes them
up—making driving safer.
Technology is inherently
neutral. Misuse by users
creates social risk so users
bear the responsibility.
Violation of distracted
driving traffic codes
Glass violates the right to
be left alone. The facial
recognition app, NameTag,
allows Glass wearers
to scan faces of strangers
against known face
databases.
FIGURE 14.1 Diverse views and arguments about the
consequences of wearing Google Glass.
FI
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P
S
IN
G
E
R
/E
PA
/N
ew
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om
Li
sa
W
er
ne
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A
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m
y
S
to
ck
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to
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ax
ka
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ak
ov
/G
et
ty
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es
Introduction 419
reasonable doubt that the Google Glass was turned on at the time that
Abadie was driving.
Product Liability, Risk, And Responsibility Controversy
This case triggered many debates over the responsibility and business
risk of digital technology products hitting the market. Here are several
debated issues:
• Google Glass may redefine the boundaries of companies’ product
liability. Certainly, individuals have the responsibility to drive
safely at all times. Does Google also bear responsibility for poten-
tial harm caused by Glass users?
• The United Nations (U.N.) Guiding Principles on Business and
Human Rights was unanimously endorsed by the Human Rights
Council in 2011. It states that companies must “avoid causing
or contributing to adverse human rights impacts through their
own activities, and address such impacts when they occur.” Glass
constitutes Google’s “own activities”; therefore, according to the
United Nations, if Glass distracts drivers and causes traffic acci-
dents, then Google has a responsibility to address this issue. The
possible legal and ethical question is whether or not technology
companies are obligated to inform users that there may be social
risks (risks to others) from using their products in plain language—
similar to warnings of side effects of medications.
• Do technology companies bear any responsibility for the social risks
of how consumers or buyers use their products? Lawmakers are wor-
ried about what drivers will do with the Internet at their eyeballs.
• A common argument is that technology is inherently neutral.
Misuse by users creates social risk, so users bear the responsi-
bility. Opponents argue that technology companies must manage
the social risks that they contribute to or cause.
Driving violations are only one example of the effects of Glass on the
legal system. Additionally, Glass is only one example of intersection of
new devices and ethical, legal, and social responsibility. Similarly to
other new digital technologies, the device is influencing a wide range
of legal issues, including copyright infringement, privacy, and piracy.
The legal system is reactive and slower moving than IT—and may not
be prepared for upcoming challenges.
Copyright, Piracy, and Privacy Infringement
Since it is worn instead of held, Glass can record events less obtrusively
than smartphones do. Wearers who want to take photos simply wink
with their right eye. Google Glass also can be outfitted to prescription
lenses, which introduces another issue since when the Glass is needed
for correct vision.
Example 1: Piracy and Theft of Intellectual Property
In January 2014, a man in Columbus, Ohio, who was wearing prescrip-
tion Google Glass was pulled out of an AMC theater about an hour into
watching the movie Jack Ryan: Shadow Recruit. He was detained by
agents from the U.S. Immigration and Customs Enforcement’s Home-
land Security Investigations unit, which targets piracy. After the inter-
rogation, the agents hooked the Glass up to a computer and saw that
all it was storing were personal family photos. Why and how did agents
show up so quickly? AMC issued the following statement to address
why it called the agency (Taylor, 2014):
[M]ovie theft is something we take very seriously, and our
theater managers contact the Motion Picture Association
of America anytime it’s suspected. . . . At AMC Easton 30 last
weekend, a guest was questioned for possible movie theft after
he was identified wearing a recording device during a film. The
presence of this recording device prompted an investigation by
the MPAA, which was on site. The MPAA then contacted Home-
land Security, which oversees movie theft. The investigation
determined the guest was not recording content.
An AMC representative explained that wearing a device that was
capable of recording video, which could then be used to pirate movies,
was not allowed at movies. Certainly the motion picture industry has
the right to protect its products against piracy via wearable devices that
can record movies in stealth. Do owners of wearables have comparable
rights? Which of these conflicting rights should override the other? Now
consider a similar example.
Example 2: Privacy Invasions
Privacy invasions by people wearing Google Glass who take photos or
shoot video instantaneously are another violation. Some entertain-
ment and dining places, including a restaurant in Seattle, have banned
people who wear the devices. In some states, wearers who give Glass
the command to record could potentially violate wiretapping laws.
Should people who are out relaxing and enjoying themselves be sub-
ject to being recorded without their consent or knowledge? Whose
rights should override in these cases?
Purpose of Google Glass Conflicts with Privacy of Others
In Google’s view, the whole purpose of Glass is to have it on all the time.
That is the Glass business model. The more the devices are worn, the
more profitable they are. Google’s response to privacy and piracy viola-
tions is that Glass is designed with explicit signals, such as the screen
lighting up, to alert others when someone is taking a picture or record-
ing video. In your opinion, is a lit screen sufficient protection?
The devices make it harder for nonwearers to remain anonymous.
A facial recognition app, NameTag, allows Glass wearers to scan faces of
strangers against known databases of faces. Google officially bans facial
recognition apps on Google Glass. Does that ban have any meaning? Will
people figure out how to get around it?
This opening case introduces current ethical challenges and com-
peting rights decisions. Your answers to the questions within the case
may change once you start to wear technology—or suffer because of
others who do.
Questions
1. Imagine you had an app that monitors your surroundings and tells
you when you are about to crash into something. In your opinion,
should the use of that app while driving be legal or illegal? Explain
your reasoning.
2. Individuals who become accustomed to capturing their lives with
wearable devices could end up violating privacy, copyright, or
piracy laws without realizing it. Research each of these laws and
give a description of each.
3. Use what you learned in Question #2 to give three examples of
how such a violation could occur. Why might these violations be
practically impossible to prevent or prove?
4. Do you think that wearables similar to Google Glass should be
illegal? Explain your answer.
5. Do you agree with the United Nation’s position on corporate
responsibility? Explain your answer.
6. Visit the SearchEngineWatch.com site. Search for “6 Funny Google
Project Glass Parody Videos.” Watch the original video named
“Project Glass: One day. . .” Imagine how human interaction
might change if a majority of people spent the day wearing Glass.
Describe how you see interaction changing.
Sources: Compiled from Bader (2014), Perry (2014), Davis (2014), Taylor (2014),
and Bilton (2015).
420 C H A P T E R 1 4 IT Ethics, Privacy, and Sustainability
14.1 IT Ethics
We are in an age where technology is capturing and processing the details of everything we do
through our interconnected devices in real time. Organizations view this as the ultimate way to
predict who, where, and when customers will buy their products and what their future products
should look like to be attractive. In the case of employees, organizations can predict how they
will behave in different situations. On the one hand, this can lead to responsible conduct that
benefits both organizations and their customers or employees, and on the other hand, it can
lead to irresponsible conduct on the part of organizations who are eager to garner as much
information as they possibly can, regardless of its negative impact.
Ethical versus Unethical Behavior
Any discussion about ethical behavior related to data and digital devices raises more ques-
tions than answers. Does the availability of data justify their use? Should shoppers be able to
keep their buying habits private? Can people keep their entertainment, online gaming, and
other legal activities confidential? Do media have the right to publish or post highly private
text messages of politicians and celebrities? Questions about data access, collection, mining,
tracking, monitoring, privacy, and profiling are examples of IT capabilities that have ethical
considerations.
IT services and products are integral to the working of essentially every organization.
Unethical and risky behavior by IT personnel can have far-reaching and negative impacts on
organizations, industries, and society. As you read in Chapter 5, security breaches occur not only
because of cyberattacks by hackers or APTs, but also by unethical or negligent IT employees
who can bring entire industries to a halt by delaying or shutting down operations. Consider
the situation where a database of health-care electronic records (first introduced in Chapter 3)
is compromised. If vital medical data disappear or are unavailable when and where needed,
patient care can be adversely affected.
From a societal perspective, people are naturally hesitant about using an organization’s
Internet-based and e-commerce services if they have concerns about the integrity of these sys-
tems. And, students graduating from college may be affected by IT hiring freezes imposed by
companies who have encountered unethical employees in their IT departments.
And, in the development of software, some risky behaviors can be intentionally or inadver-
tently introduced by their developers.
Sometimes, the power of information and analytics is taken too far. This widely cited case
of Target’s questionable practice of predicting people’s behavior using data analytics discussed
in IT at Work 14.1 is just one example.
Mobile Apps and Risky Behavior According to app security analytics firm Appthor-
ity’s App Reputation Report (2014), 93% of the top 200 free apps for iOS and Androids exhibited
at least one risky behavior. However, so did 89% of the top 200 paid apps. Just about every app
requires that you click “yes” on the user agreement, which gives your consent to use your data.
Types of risky behaviors are shown in Table 14.1.
TA B L E 1 4 . 1 Mobile App Risky Behaviors
Location Tracking
Accessing device’s address book or contact list
Identifying user or phone unique identifier (UDID)
Recording in-app purchases
Sharing data with ad networks and analytics companies
IT Ethics 421
Mobile apps, such as Twitter, Foursquare, and Instagram, routinely gather information
from personal address books and other places on your phone. Apple admits that any app that
gathers a user’s information without its permission is a violation of the law. Fortunately, Apple
and Androids can only monitor apps available through the Apple Store and Google Play. How-
ever, there are countless third-party apps that are unregulated. If a user has an app that allows
a company to access data on his or her phone and that phone is linked to the company’s net-
work, then privacy violations will happen.
Google’s Street View Wi-Spy Snooping Scandal Google’s Street View cars
drove along U.S. streets—and later in Europe, Canada, Mexico, and everywhere else—collect-
ing a stream of images to feed into Google Maps. Google’s engineers realized that the cars could
be used for wardriving—driving around sniffing out and mapping the physical location of the
world’s Wi-Fi routers. Wardriving is also a hacking technique, an invasion of privacy, and an
information security risk.
Creating a database of Wi-Fi hotspot locations would make Google Maps more useful
on mobile devices. Mobiles without GPS chips could use the database to approximate their
physical location, and GPS-enabled devices could use the system to speed up their location-
monitoring systems. When Google was building its system, a few start-ups had already created
their own Wi-Fi mapping databases. However, Google was not only recording the location of
people’s Wi-Fi routers. When a Street View car encountered an open Wi-Fi network—a non-
password-protected router—it recorded all the digital traffic traveling across that router. That
is, when the car was within range of someone’s open router, Google captured personal data,
including login names and passwords, the full text of e-mails, Internet histories, people’s med-
ical conditions, online dating searches, streaming movies, and all other traffic.
Wardriving the act of searching
for Wi-Fi wireless networks by a
person in a moving vehicle using
a laptop or smartphone.
Open Wi-Fi network an
unprotected Wi-Fi network found
particularly in public places where
you don’t know who else could
be on the network.
IT at Work 14.1
Predicting People’s Behavior: Were Target’s Big
Data Analytics Tactics Too Invasive?
An angry man went into a Target store near Minneapolis insisting
on talking to a manager. He handed a Target promotion that had
been mailed to his teenage daughter to the manager, saying: “My
daughter got this in the mail. She’s still in high school, and you’re
sending her coupons for baby clothes and cribs? Are you trying to
encourage her to get pregnant?” The confused manager had no
idea what was going on. The mailer had been sent by Target and
addressed to the man’s daughter, and it contained specials for
maternity clothing and nursery furniture. A few days later, he called
the father to apologize again. Instead, the father apologized to the
manager, explaining that he had since learned that his daughter
was pregnant.
Inferences Based on Purchasing Data
How did Target know? Target knew by recognizing changes in the
daughter’s buying habits caused by a significant life event.
Using big data, models of buying habits, predictive analyt-
ics, and her purchase history, Target had figured out, with about
87% certainty, that she was pregnant. Target informed her fam-
ily before she did. A lesson that Target discovered fairly quickly
is that knowing about pregnancies in advance upsets people and
can be a public relations disaster (Ellenberg, 2014). While Target
assures compliance with all privacy laws, not breaking the law
does not mean it is in the company’s best interest to invade cus-
tomers’ privacy.
How Does Target Make Such Accurate Predictions?
Target assigns all customers a guest ID number that is linked to their
credit card, name, e-mail address, and social media profile. The guest
IDs become a bucket to store everything they have bought as well
as demographic data. The demographic data linked to the guest ID
include age, marital status, number of kids, address, how long it takes
to drive to the store, estimated salary, whether the person moved
recently, other credit cards, and visited websites. Using its own pre-
dictive models, Target identifies customers who are pregnant.
Why Does Target Invest in Predictive Analytics?
Target’s strategy is to capture a greater share of spending on baby
items by being first to reach and promote to prospective parents.
Waiting for public birth records is too late because by then,
parents are bombarded with offers and incentives from competing
companies. Not everyone appreciates Target’s strategy.
IT at Work Questions
1. Is Target’s data mining and predictive analytics a success, a
failure, or both? Explain your answer.
2. How does Target create profiles of customers?
3. Is Target’s “pregnancy predictor” a long-term competitive
advantage? Explain.
4. How can this predictor upset families who receive the
promotions?
5. How does Target make such accurate predictions?
6. Why does Target invest in predictive analytics?
422 C H A P T E R 1 4 IT Ethics, Privacy, and Sustainability
According to the FCC (Federal Communications Commission) report, French investiga-
tors reviewed the data Google collected and found “an exchange of emails between a mar-
ried woman and man, both seeking an extra-marital relationship” and “Web addresses that
revealed the sexual preferences of consumers at specific residences.” The sniffing stopped only
when regulators discovered the practice. Google denied any wrongdoing.
The FCC posted the following on its website: “Google’s behavior also raises important
concerns. Whether intentional or not, collecting information sent over Wi-Fi networks clearly
infringes on consumer privacy.”
The FCC determined that Google’s actions were not technically illegal because snooping
on unencrypted wireless data is not prohibited by the Wiretap Act. Given that Google manages
so much of our personal data, this privacy invasion is an example of irresponsible conduct.
The story did not end with the FCC’s decision. The FCC’s investigation into Google’s map-
ping project was itself investigated. The renewed attention followed release of a mostly unre-
dacted version of the FCC’s findings in the case. The unredacted findings appear to contradict
Google’s claim that it inadvertently intercepted “payload data,” or the content of individuals’
Internet communications, in the process of gathering information from Wi-Fi networks across
the globe for the Street View project. The document shows that, during preparations for the
Street View effort, a Google engineer shared e-mails with colleagues at the firm revealing that
he designed software for the project that was capable of collecting payload data. The new rev-
elations have prompted Consumer Watchdog, a Washington-based advocacy group, to call for
a hearing by the Senate Judiciary Subcommittee on Privacy, Technology, and the Law.
Tech-Savvy Individuals and Scalpers Exploit Artificial Intelligence
Artificial intelligence (AI) was designed to make our lives better and more efficient, but that is
not always the case. For example, buying event tickets online is more stressful and near impos-
sible in some instances than ever before due to AI.
Tech-savvy individuals create macros, which are computing apps that allow users to input
one instruction that coincides with a long list of instructions to be completed automatically by
the program, to instantly and automatically buy as many tickets to popular events and shows
as possible. Acting alone or in collaboration with “scalpers,” they resell the tickets at immensely
inflated prices since the original tickets are sold out (Heritage, 2016).
One example of this type of unethical behavior was evident in tickets sales for Canadian
hip-hop star Drake’s February 5, 2017 concert in Greenwich, United Kingdom. To the conster-
nation of many Drake fans who had roused themselves from sleep to have a chance to buy a
ticket, the concert sold out online almost immediately. With original ticket prices ranging from
55 to 132 euros, the scalpers sold tickets for up to 800 Euros. It is estimated that one macro
developer profited more than 25 million euros using this method.
Texting While Driving Texting while driving is comparable to driving under the influ ence
(DUI), according to safety experts. Several studies indicate that the use of mobile devices is a
leading cause of car crashes. At any given moment, more than 10 million U.S. drivers are talking
on handheld cell phones, according to the National Highway Traffic Safety Administration
(NHTSA). Why is this a problem? Mobiles are a known distraction, and the NHTSA has deter-
mined that driver inattention is a primary or contributing factor in as many as 16% of all police-
reported traffic accidents, and teen drivers are distracted by a mobile device while driving 25%
of the time (Scopatz and Zhou, 2016). This does not include the thousands of accidents not
reported to the authorities.
In most or all states, distracted driving carries mandatory fines. For example, in California
and New York State, drivers charged with this crime face fines and have their driving license
suspended. If driving while distracted causes injury or death to others, violators face jail time.
3D Printing and Bioprinting—Additive Manufacturing Dilemmas
Another trendy technology that has sparked ethical and other debates is the 3D printer and
3D bioprinting. Actual and planned applications include heart valves and other human organs
(Martin, 2014). In 2014, surgeons used a 3D-printed model of a baby’s skull in an intricate
IT Ethics 423
surgery to correct a serious birth defect. Bioprinting of aortic valves and 3D bioprinting tech-
nology have been used by researchers at Cornell University to fabricate living heart valves that
possess the same anatomical architecture as the original valve.
In 2015, 3D-printed airway splints for babies with tracheobronchomalacia, which makes
the tiny airways around the lungs prone to collapsing, were successfully tested in three children
between the ages of 3 months and 16 months (Hendricks, 2016). 3D technology may seem like a
win-win with no dark side or ethical challenges. Unfortunately, that is not true.
Despite benefits, the medical application of bioprinting to produce living tissue and organs
is expected to spark major ethical debates about whether lives are being saved or redefined
(McRae, 2016). 3D-bioprinted human organs may be subject to conflicting religious, political,
moral, and financial interests. The 3D printing of nonliving medical devices, such as prosthetic
limbs, is expected to be in high demand because of longer life spans and insufficient levels of
health care in various countries. A major hurdle is determining who is legally responsible for
ensuring the quality of the resulting organs and devices? Without medical malpractice insur-
ance covering these new applications, they cannot proceed.
According to a study by sustainable design strategist and Berkeley mechanical engineering
expert Jeremy Faludi, 3D printers can exert impacts on the environment worse than those of
standard manufacturing (Martin, 2014). The carbon footprint depends on what is being made
and the type of printer used to make it. 3D printers use a lot more energy than conventional
milling machines. 3D printers can use 100 times more electricity to produce a part than would
have been used to produce the same part by nonadditive manufacturing.
Gartner (2016) predicts very strong growth in the 3D printer market with Greater China,
emerging Asia/Pacific, and mature Asia/Pacific regions experiencing a combination of high 3D
printer shipments and high growth rates through 2020. The growth will be driven by private-
sector and public-sector organizations who recognize the threat that 3D printing poses to indus-
tries that don’t get onboard and continue to rely on conventional manufacturing technologies.
As the use of 3D printing accelerates, so will the debates about the ethical challenges it poses.
Competing Responsibilities
Most major retailers, from supermarket and drug store chains to major investment banks, rely
on predictive analytics to understand consumer shopping habits and their personal habits to
market more efficiently (IT at Work 14.1). In these cases, there are competing interests and
trade-offs relating to privacy. There is also no clear-cut framework for deciding what is ethical
and what is not. The personal privacy–public security debate is a prime example. Typically,
privacy invasion is considered unethical. An ethically conscious corporate attitude sounds
politically correct, but managers also have a responsibility to stakeholders. Monitoring may be
(or seem to be) the responsible thing to do, and with intense competition, marketers naturally
want to use every tool or technique to gain an edge or nullify a risk.
Globalization, the Internet, and connectivity have the power to undermine moral respon-
sibility because it becomes relatively easy to ignore harm. Despite the challenges and lack of
clear answers, ethics is important because relying on the law alone to safeguard civil rights and
society is insufficient. The law has its limits in large part because it changes so slowly.
Questions
1. By avoiding illegal conduct, do companies also act responsibly? Explain your answer.
2. What types of companies can benefit from predicting people’s behavior?
3. When is predicting people’s behavior a violation of privacy? Give an example.
4. When is predicting people’s behavior not a violation of privacy? Give an example.
5. What are the ethical challenges attached to 3D printing and 3D bioprinting?
6. Research the current debate about 3D printing and 3D bioprinting.
424 C H A P T E R 1 4 IT Ethics, Privacy, and Sustainability
14.2 Privacy and Civil Rights
We do not live in a world without consequences and boundaries. Yet many people act as though
they do, as the privacy paradox points out.
Privacy and the New Privacy Paradox
Privacy is the right to self-determine what information about you is made accessible, to whom,
when, and for what use or purpose. Privacy means we have freedom of choice and control
over our personal information, including what we do not want shared with or used by others.
Unauthorized disclosure of personal information is normally considered a breach of privacy,
although what is unauthorized and what is personal information are matters of dispute, particu-
larly when it is online.
While privacy is still the social norm, a person’s privacy is based to a large extent on what
choices that person has made. The amount of shared personal information is a decision that
individuals make over their lifetime. This is a critical concept because online content can per-
sist for an entire lifetime. Private content that uninhibited teenagers with bad judgment posted
or sent cannot be made to disappear when they apply for jobs requiring security clearance or
intense background checks—or run for public office.
Users of social sites often claim that they are concerned about their privacy. At the
same time, they disclose their highly personal lives, even content that is incriminating or
illegal, in their profiles or posts. The privacy paradox refers to this phenomenon where
social users are concerned about privacy, but their behaviors contradict these concerns to
an extreme degree.
Facebook membership has increased despite Facebook founder Mark Zuckerberg’s fre-
quent changes to default privacy settings to allow everyone to see and search for names,
gender, city, and other information. Zuckerberg’s position is that people “have really gotten
comfortable not only sharing more information and different kinds, but more openly and with
more people.” It is well known that Zuckerberg has a multibillion-dollar commercial interest
in the elimination of online privacy, so trusting Facebook’s privacy policies exemplifies the pri-
vacy paradox.
In a 2016 national privacy and security survey, Pew Research found that 64% of Americans
have personally experienced a major data breach (Figure 14.2) and approximately 50% do not
Breach of privacy is the
loss of, unauthorized access
to, or disclosure of, personal
information.
64%
41%
35%
16%
13%
15%
14%
6%
Major Data Breach
Encountered Fraudulent CC charges
Compromised sensitive info
Hacked email acct.
ID theft on tax returns
Fraudulent attempts to get loan
Comprised SSN
Hacked social media acct.
FIGURE 14.2 Major data breaches reported by 1,040 adult Americans in 2016 Pew Research
privacy and security study.
Privacy paradox refers to
the competing demands of
social media where users are
concerned about privacy, but their
willingness to disclose personal
information does not mirror
these concerns.
Privacy and Civil Rights 425
trust the federal government or social media sites to protect their personal data even though
they frequently neglect cybersecurity bet practices in their own personal lives (Olmstead and
Smith, 2017). Unfortunately, 49% of the 1,040 adult Americans who took the study said that
they feel their personal information is less secure than it was 5 years ago, and Americans aged
50+ were especially likely to feel that the privacy of their personal information was at risk.
Fifty-eight percent in this older age group expressed this opinion compared with 41% of those
in the 18–49 year age group.
This may be accounted for by the fact that social sites have become so embedded in the
social lives of younger users that they disclose information about themselves even though
these sites do not provide adequate privacy controls. The consequences of the privacy paradox
are far reaching.
Social Media Recruiting
The use of social media is pervasive in today’s workplace. Employers use social media for multi-
ple reasons: to engage employees, to share knowledge among employees, and for recruitment
and hiring of new employees. When the Society for Human Resource Management (SHRM) sur-
veyed its members, they found that 84% of organizations are currently recruiting new talent
via social media and another 9% are planning to use it in the near future (SHRM, 2016). They
also reported that over one-third of the organizations represented have taken steps to leverage
mobile recruiting to target smartphone users.
Social Tools for Recruiting and Background Checks In order to cast a wide
net for potential candidates, social media are used in social recruitment. However, improper
use of information scraped from these sites may be discriminatory and illegal. The problem
starts with members who post age, race, gender, and ethnicity information—or enable it to be
learned from content on their sites. To the extent that employers conduct a social media
background check on job candidates, these are three best practices. Figure 14.3 shows the job
levels that are typically recruited through social media (SHRM, 2016).
Social recruitment refers to use
of social media to find, screen, and
select job candidates.
87%
• Nonmanagement,
salaried
employees
85%
• Management
55%
• Nonmanagement,
hourly employees
45%
• Executive/Upper
Management
FIGURE 14.3 Job levels recruited through social media.
Recruiting through social media often involves searching information the job candidate
did not want considered or that is illegal to use in the hiring process. To guard against this, it’s
advisable for companies to carry out the following steps:
1. Have either a third party or a designated person within the company who does not make
hiring decisions do the background check.
2. Use only publicly available information. Do not friend someone to get access to private
information.
3. Do not request username or passwords for social media accounts.
The National Conference of State Legislatures has passed summary legislation preventing
employers from requesting passwords to personal Internet accounts to get or keep a job. To
date, 25 states have enacted such laws. Other states have such laws pending, and there are
several proposals before Congress to do the same on a federal level.
426 C H A P T E R 1 4 IT Ethics, Privacy, and Sustainability
Social Recruiting and Social Stalking Recruiters see LinkedIn as the world’s
largest resume database. Depending on how job candidates control their privacy and how
much they reveal through check-ins and posts, recruiters learn a great deal of information
that should not be used in their decision to interview, recommend, or hire someone. A 2016
Jobvite survey reported that 92% of all participating recruiters used social media in their
outreach and that 87% said that they found LinkedIn to be the most effective way to vet can-
didates during the hiring process. Facebook, Twitter, blogs, and other forms of social media
are also used.
Recruiters are also social stalkers! Almost half of the recruiters in the Jobvite survey said
that they regarded photos of alcohol consumption and marijuana use on social networks
negatively. And, interestingly were also negatively influenced by bad spelling in social media
posts! Facebook members who expose too much information about themselves through social
posts are vulnerable to employers and recruiters who use social content in the hiring process.
Although laws forbid the use of certain types of social media information, it’s hard to monitor
its effect on hiring practices.
And job seekers fight back in response to these somewhat questionable recruiting prac-
tices. Jobvite reported that 23% of job seekers have modified their privacy settings on their
Facebook pages and 10% on LinkedIn. In addition, 13% of job seekers have deleted some
content on their Facebook pages and 10% said they’d changed content on their LinkedIn page
(Jobvite, 2016).
Protected Classes and Information According to the Equal Employment Oppor-
tunity Commission (EEOC, 2014), discriminatory practices are prohibited. Title VII of the Civil
Rights Act of 1964, the Age Discrimination in Employment Act of 1967 (ADEA), the Americans
with Disabilities Act of 1990 (ADA), and Genetic Information Nondiscrimination Act of 2008
(GINA) make it illegal to discriminate in any aspect of employment, including recruitment,
hiring, and firing. GINA, the latest of these laws, was passed when results from the Human
Genome Project started raising ethical dilemmas. Protected classes is a term used in these
laws to describe characteristics that cannot be targeted for discrimination and harassment.
Protected classes include age, disability, gender, religion, genetic information, race, national
origin, and pregnancy.
If information about protected classes is used to weed out candidates, it can lead to
corporate social media discrimination. Discrimination is not always black and white because
it is prejudicial treatment that may be tough to prove. Although job applicants might not know
whether or not their social media profiles had been screened, they have several ways of finding
out. For instance, an applicant might be tipped off after receiving a suspicious friend request or
by talking with current employees and hiring managers who disclose the information—either
purposely or accidentally—during the interview.
Enterprises that have not implemented formal processes for the use of social media in
recruiting and selection may put themselves at risk of legal complaints because of inconsistent
practices.
Legal Note: Civil Rights
Civil rights are protected by federal law. If a person’s civil rights are interfered with by
another, the person can seek legal action for the injury. Examples of civil rights are free-
dom of speech, press, and assembly; the right to vote; and the right to equality in public
places. Discrimination occurs when the civil rights of an individual are denied or interfered
with because of their membership in a particular group or class. Various jurisdictions have
enacted statutes to prevent discrimination based on a person’s race, sex, religion, age, pre-
vious condition of servitude, physical limitation, national origin, and, in some instances,
sexual orientation.
EEOC (Equal Employment
Opportunity Commission)
enforces federal laws prohibiting
discrimination in employment.
Protected classes are
characteristics identified by
law that cannot be used in the
hiring process.
Discrimination is biased
or prejudicial treatment
in recruitment, hiring, or
employment based on certain
characteristics, such as age,
gender, and genetic information,
and is illegal in the United States.
Privacy and Civil Rights 427
Competing Legal Concerns
Two competing legal concerns are discrimination and negligent hiring (discussed briefly
earlier).
• Discrimination Most employers have stringent employment policies that prevent their
recruiters and hiring managers from learning potentially discriminatory information
about candidates. Visiting a person’s social media sites, however, clearly creates the
opportunity to view large amounts of information going against these nondiscriminatory
practices.
• Negligent hiring Employers must consider the potential risk of a negligent hiring or
negligent retention lawsuit related to social networking profile information. It is possible
that if a workplace violence incident occurred and the attacker’s public social networking
profile contained information that could have predicted that behavior, the employer
may be held liable for negligence in not using readily available information during the
hiring decision.
Examples and a discussion of these issues follow.
Discrimination via Social Media Scenario Imagine that an employer reviews
a candidate’s activity on social media platforms and discovers the following information
about him.
1. The candidate checks in via Foursquare at Woodsman Gym once or twice a day usually
around 7 a.m., noon, or 6 p.m.
2. His Facebook album is filled with party photos, showing what might be considered exces-
sive drinking.
3. His resume suggests that he is in his early 30s, but his social profile about high school indi-
cates that his real age is late 40s.
4. His posts describe his religious beliefs and customs, family’s serious medical conditions,
financial stress, and desire to spend as much time as possible snowboarding.
5. He makes fun of and posts insulting cartoons of people who follow a dress code at work.
The Federal Trade Commission (FTC) has ruled that companies that research how you
spend your personal time, hobbies, and so on, do not violate your privacy. Party photos might
not show illegal behavior, but when posted on a social network, they could influence a poten-
tial employer’s evaluation of a job applicant as well as disclose information about race, gender,
age, and other protected characteristics.
As many other job seekers, this candidate is posting, tweeting, and blogging information he
would not want a recruiter or prospective employer to know about. If he is rejected because of
his age, religion, or genetic condition, the company has committed social media discrimination
and is very likely in violation of other laws.
Reducing the Risk of Negligent Hiring In the past, employment law attorneys
dealt with this risk by advising companies to avoid using social media in their hiring and recruit-
ment process to avoid legal risk. However, that proposal is not realistic. By opting out of social
media, recruiting firms lose a productive way to find candidates, which could cost them millions
of dollars. Additionally, background checks must be conducted. Almost all employers do some
form of background screening in order to avoid the risk of negligent hiring. Negligent hiring is
a claim made by an injured party against an employer who knew or should have known about
an employee’s background that indicates a dangerous or untrustworthy character. Employers
have a legal obligation to make the best effort to protect their employees and customers when
Negligent hiring is the hiring of
an employee when the employer
knew or should have known
about the employee’s background
which, if known, indicates a
dangerous or untrustworthy
character.
428 C H A P T E R 1 4 IT Ethics, Privacy, and Sustainability
they hire. Steps companies can take to balance the competing risks of negligent hiring and
social discrimination are as follows:
1. Ask candidates to sign a disclosure statement Let candidates themselves disclose
information found on social media. Explain to them the reason for the disclosure statement.
2. Create a standard process and document it A consistent and well-documented process
is needed to ensure and show compliance if there is an EEOC employment investigation.
3. Avoid coercive practices Make sure that recruiters do not pressure applicants to dis-
close protected information via social media by requiring them to disclose passwords or
relax privacy settings for purposes of review by the employer.
4. Training This may sound like a no-brainer, but training and repeated reminders are
important to emphasize that management intends to be in compliance with laws and reg-
ulations related to social recruiting.
Financial Organizations Must Comply with Social Media
Guidelines
The Federal Financial Institutions Examination Council (FFIEC) released guidelines entitled
Social Media: Consumer Compliance Risk Management Guidance to help financial institutions
effectively manage the current risks caused by the use of social media. The activities of finan-
cial institutions are regulated by consumer protection and compliance laws. These institutions
must take steps to protect their reputations and their clients—very similar to the steps that HR
departments must take to comply with EEOC guidelines (EEOC, 2014). Key social media guide-
lines for financial institutions are listed in Table 14.2.
TA B L E 1 4 . 2 Key Social Media Guidelines for Financial Institutions
Guidelines Issue Solution
Institute policies to
comply with advertising,
communications, and
other consumer pro-
tection laws
No policies in place;
need a social media risk
assessment tool.
Implement social policies to prevent
issues such as spam. For example,
staff should know how to react
when a customer posts confidential
information such as a bank number
on their social profiles.
Use monitoring tools Financial institutions have
added social channels that can
expose their brand to addi-
tional feedback.
Use social monitoring tools to iden-
tify issues that may cause a nega-
tive reaction and respond quickly.
The use of social monitoring tools
also helps banks refute inaccurate
statements, protecting their brand
reputation.
Train employees Whether or not employees
represent your brand on social
media, their public social com-
ments may be seen to reflect
the financial institution.
The best way to reduce risk is to train
employees on how to use social net-
works professionally.
Companies expose themselves to harsh sanctions by federal agencies when they vio-
late the privacy policies that their customers rely upon. Unlike social discrimination, these
cases are rather easy to detect and prosecute. For example, the FTC charged SnapChat for, in
effect, deceiving its customers with its bogus disappearing messages services. The FTC scruti-
nizes business practices to regulate “unfair and deceptive trade practices.” The FTC has been
focused on curtailing deceptive practices, even if unintentional, by businesses engaged in
online commerce. While businesses should always ensure that their online advertisements are
Privacy and Civil Rights 429
IT at Work 14.2
SnapChat Lied about Disappearing Messages
and Privacy
FTC Chairwoman Edith Ramirez stated, “If a company markets
privacy and security as key selling points in pitching its service to
consumers, it is critical that it keep those promises” (Fitzpatrick
and Kibel, 2014).
SnapChat Fined for Violating Its Own Privacy Policies
and Misleading Users
The FTC charged SnapChat with violating its promises of “disap-
pearing messages.” According to the FTC’s complaint:
1. SnapChat’s mobile app allows consumers to send and receive
photo and video messages known as snaps. SnapChat falsely
marketed its app as a service for sending disappearing photo
and video messages. Before sending a snap, the sender has to
designate a period of time that the recipient will be allowed
to view the snap.
2. Despite SnapChat’s claims, the FTC contended that several
methods exist by which a recipient can use tools outside of
the app to save both photo and video messages, allowing the
recipient to access and view the photos or videos indefinitely.
For example, when a person receives a video message, the app
stores the video file in a location outside of the app’s sandbox.
Sandbox is the app’s private storage area on the device that
other apps cannot access.
3. Until October 2013, a recipient could connect his or her mo-
bile device to a computer and use simple file browsing tools to
locate and save the video file. Although this method for saving
video files was widely publicized as early as December 2012,
the FTC contended that SnapChat did not mitigate this flaw
until October 2013.
4. SnapChat misrepresented its data collection practices by trans-
mitting geolocation data from users of its Android app despite
its privacy policy saying that it did not track or access these data.
5. SnapChat collected contact data from users’ address books
without notice or consent and continued to do so without
notifying users or obtaining their consent until Apple modi-
fied its operating system to provide notice with the introduc-
tion of iOS 6.
6. SnapChat’s failure to secure its “Find Friends” feature resulted
in a security breach that enabled attackers to compile a data-
base of 4.6 million SnapChat usernames and phone numbers.
Settlement
SnapChat settled FTC charges alleging false promises of disap-
pearing messages and failure to protect consumer data. Under the
terms of its agreement with the FTC, SnapChat is prohibited from
misrepresenting the extent to which it maintains the privacy, secu-
rity, or confidentiality of users’ data. SnapChat must implement a
comprehensive privacy program that will be monitored by an inde-
pendent privacy professional for the next 20 years.
IT at Work Questions
1. Which SnapChat claims of privacy protection were false?
2. Assume that users relied on SnapChat’s state privacy pol-
icies and claims about how the app worked. What potential
risks did SnapChat users face?
3. If you had used the SnapChat app to send disappearing mes-
sages, what would you do when you learned of SnapChat’s
false claims?
4. Do you think the consequences SnapChat faced as part of
its settlement with the FT are harsh enough to deter false
claims? Explain.
truthfully conveyed, a business with a social media presence should take particular note of
the FTC’s recent efforts concerning online privacy, security, and advertising. IT at Work 14.2
describes such a case.
Questions
1. What is privacy of information?
2. What is the phenomenon where social users are concerned about privacy but their behaviors contra-
dict these concerns?
3. What is the use of social media to find, screen, and select job candidates?
4. Rejecting a job candidate because of concerns about the person’s health from information on his or
her Facebook page is an example of what?
5. Age, disability, gender, religion, and race are examples of what?
6. Why are the legal concepts of discrimination and negligent hiring competing demands on a business?
430 C H A P T E R 1 4 IT Ethics, Privacy, and Sustainability
14.3 Technology Addictions and Focus
Management
Technologies in the digital age blur work, social, and personal time. IT keeps people connected
with no real off switch. Tools that are meant to improve the productivity and quality of life in
general can also intrude on personal time.
The complexity of a connected life will increase as we move to the new era of nanosen-
sors and devices, virtual spaces, and 3D social networks exchanging zillions of bytes of data.
Managers and workers need to consider ethical and social issues, such as quality of life and
working conditions. Individuals will experience both positive and negative impacts from being
linked to a 24/7 workplace, working in virtual teams, and being connected to handhelds whose
impact on health can be damaging. A 2016 study by nonprofit organization Common Sense
Media found that always being connected is a borderline obsession for many people. According
to the study, 50% of American teens may suffer from FOMO, or the fear of missing out, and
disconnect anxiety—feelings of disorientation and nervousness when deprived of Internet or
wireless access for a period of time (Wallace, 2016).
Many people live and work in a state of continuous partial attention as they move through
their day—loosely connected to friends and family through various apps on mobile and wear-
able devices. Consider what devices you use to stay informed and how often you glance at
them. You might not have noticed the gradual increase in the amount of data and information
that you receive or check routinely until one day they seem to overwhelm your time. How
many more things do you check today compared to a year ago? How long can you go without
checking your devices without experiencing anxiety? When do you put down your mobiles and
concentrate on one thing at a time? Your answers may indicate digital or connectivity overload
and your tolerance for distractions.
The time between a new device or app going from must have to cannot function without is
rather short. This situation is not limited to only digital natives. Studies show that adults are
just as distracted as teenagers, which can also be confirmed with a casual glance at offices, air-
ports, cafes, and other public gathering places.
Digital Distractions and Loss of Focus
People do not need to be reminded how their lives are being taken over by tweets, texts, e-mail,
social media, and annoying electronic static. Business users are more likely to suffer from too
much data, rather than from data scarcity. This condition, known as cognitive overload, inter-
feres with our ability to focus and be productive.
How big is this problem and how much does it cost? Some researchers estimate that dis-
traction costs hundreds of billions of dollars a year in lost productivity. Gloria Mark, a professor
of informatics at the University of California, Irvine, says a worker distracted by a Web search
that goes rogue or a new text or tweet can take about 25 minutes to return to the task at hand
and get focused again (Dumaine, 2014). Digital distraction and lack of focus in the workplace
are getting the attention of senior management. When Inc. called the CEOs of technology com-
panies Instagram, Box, and Zumba, they confirmed that the lack of focus on the job is a big
concern for them.
Focus Management
Senior management at Google, SAP, Instagram, Box, and Zumba are experimenting with new
ways to diminish cognitive overload in order to help their employees stay focused. For example,
at Google, employees take courses that help to sharpen their attention skills. The founders of
Zumba and Box have developed their own methods to carve out focus time, such as putting
aside large blocks of time to think undisturbed.
Technology Addictions and Focus Management 431
The Importance of Being Able to Focus Nobel Prize-winning neuroscientist
Eric Kandel wrote in his book In Search of Memory that only by intensely concentrating can
a person link new ideas and facts “meaningfully and systematically with knowledge already
well-established in memory” (Kandel, 2006). He explained the importance of mental discipline
to successful performance. If your mind is free of distraction, your mind is better able to absorb
data, interactions, and trends and synthesize the new information with what you already know.
As a result, you are more likely to come up with innovative ideas. If you are multitasking or are
trying to function with only partial attention, your ability to synthesize information may be
compromised.
Researchers at the Communication Between Humans and Interactive Media Lab at
Stanford University studied digital distraction and focus. Researchers gave the same three
cognitive tests to two different groups of test subjects:
1. Media (high) multitaskers Forty-nine subjects who spent a lot of time searching the
Internet, gaming online, watching TV, and hanging out on social media sites.
2. Low multitaskers Fifty-two subjects who spent less time online and multitasked signifi-
cantly less often.
Ten years ago, many believed that the Internet sharpened cognitive skills. Gaming required
fast thinking and good motor skills. In contrast to widely held assumptions, the subjects who
were heavy online users scored poorly on the cognitive test. One explanation for their poor
performance was that they had attention deficits—less control over their attention. Because of
their inability to concentrate for long, they were not able to distinguish important information
from trivia. Researchers continue to study whether chronic media multitaskers are born with an
inability to concentrate or are damaging their cognitive control by willingly taking in so much at
once. Science also shows that the best strategy to improve focus is to practice doing it.
Michael Merzenich, a neuroscientist, gave a biological explanation of the impacts of mul-
titasking on focus ability. He explained that the more you focus, the more your brain releases a
chemical called noradrenaline, which helps you concentrate on the task at hand.
The American Psychological Association disagrees saying that “Although switch costs may
be relatively small, sometimes just a few tenths of a second per switch, they can add up to large
amount when people switch repeatedly back and both between tasks. Thus, multi-tasking may
see efficient on the surface, but may actually take more time in the end and involve more error”
(Wrike, 2015). Even brief mental blocks created by shifting between tasks can cost as much as
40% of someone’s productive time—that’s 16 hours out of every work week!
In our hyperconnected world, people are always on—collaborating, communicating, and
creating—and not always aware of how technology impacts them or the environment. Today’s
connected lifestyles will further harm the environment unless corrective actions are taken such
as those listed in Figure 14.4.
Reducing barriers to the use
of public transport and
improving people’s experience
of the journey. For example,
smart ticketing and free Wi-Fi.
Facilitating car sharing and
eco-driving.
Encouraging and enforcing
speed limits by using average
speed cameras and intelligent
speed adaptation, which help
drivers to avoid fines and
stay safe.
Enabling home working and
using video conferencing and
e-commerce to reduce travel.
FIGURE 14.4 Eco-friendly recommendations for applying ICT.
432 C H A P T E R 1 4 IT Ethics, Privacy, and Sustainability
Learning how to harness ICT to develop the next generation of critical, thoughtful thinkers
who are respectful of the environment is the challenge we need to meet.
Questions
1. What are the several potential causes of cognitive overload?
2. What are the consequences of constant distractions?
3. When a person is distracted, how long does it take to return to the task at hand and get focused again?
4. Why are senior managers interested in focus management?
5. What is the difference between the performance of high and low multitaskers on cognitive tests?
6. How can multitaskers improve their ability to focus?
14.4 ICT and Sustainable Development
Sustainability grows more urgent every year as carbon emissions contribute to climate changes
that are threatening quality of life—and possibly life itself. For example, every day people
watch hundreds of millions of hours on YouTube and generate billions of views. Statistics about
LinkedIn, Twitter, and other social media services also show phenomenal growth. Almost all of
these network activities are powered by the burning of fossil fuels.
Being profit-motivated without concern for damage to the environment is unacceptable.
Society expects companies to generate a profit and to conduct themselves in an ethical, socially
responsible, and environmentally sustainable manner. Four factors essential to preserving the
environment are shown in Figure 14.5.
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FIGURE 14.5 The four “Rs” of environmental sustainability.
Global Temperature Rising Too Much Too Fast
At the United Nations’ 2009 climate conference in Copenhagen, climatologists estimated
that countries must keep the global mean temperature (GMT) from rising by more than 2°C
(3.6°F) above the preindustrial GMT in order to avoid profound damage to life on the earth
ICT and Sustainable Development 433
(Tech Note 14.1). Damage includes water and food scarcity, rising sea levels, and greater
incidence and severity of disease. Only three years later, GMT had already increased by 0.7°C
or 1.3°F. In 2012, IEA chief economist Faith Birol warned that this trend is perfectly in line
with a temperature increase of 6°C by 2050, which would have devastating impacts on the
planet. Since 2005, the Prince of Wales’ Corporate Leaders Group on Climate Change has
lobbied for more aggressive climate legislation within the United Kingdom, the European
Union, and internationally. It holds that carbon emission reductions between 50% and
85% are necessary by 2050 to prevent the global temperature from rising too much too fast
because of the greenhouse effect.
Tech Note 14.1
NASA’s Greenhouse Gas Emission Warnings
According to NASA, carbon dioxide (CO2) and other greenhouse gases
(GHGs) trap the sun’s heat within the earth’s atmosphere, warming it
and keeping it at habitable temperatures. Scientists have concluded
that increases in CO2 resulting from human activities have thrown the
earth’s natural carbon cycle off balance, increasing global tempera-
tures and changing the planet’s climate.
The main international treaty on climate change is the United
Nations Framework Convention on Climate Change (UNFCCC). The
UNFCCC has proposed that future global warming should be lim-
ited to below 2°C (3.6°F) relative to the preindustrial level. Analysis
suggests that meeting the 2°C target would require annual global
emissions of GHG to peak before the year 2020 and decline signifi-
cantly thereafter, with emissions in 2050 reduced by to 50% com-
pared to 1990 levels.
Analyses by the United Nations Environment Programme and
International Energy Agency warn that current policies are too
weak to achieve the 2°C target.
IT and Global Warming
Global warming refers to the upward trend in GMT. It is one of the most complicated issues
facing world leaders. Figure 14.6 shows the relationship of fossil fuel, soil, water, atmosphere,
and other elements in the carbon cycle. Even though the global carbon cycle plays a central
role in regulating CO2 in the atmosphere and thus the earth’s climate, scientists’ understanding
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FIGURE 14.6 Greenhouse gases absorb infrared radiation (IR)
emitted from the earth and reradiate it back, thus contributing to the
greenhouse effect.
434 C H A P T E R 1 4 IT Ethics, Privacy, and Sustainability
of the interlinked biological processes that drive this cycle is limited. They know that whether
an ecosystem will capture, store, or release carbon depends on climate changes and organisms
in the earth’s biosphere. The biosphere refers to any place that life of any kind can exist on the
earth and contains several ecosystems. An ecosystem is a self-sustaining functional unit of the
biosphere; it exchanges material and energy between adjoining ecosystems. Global warming
occurs because of the greenhouse effect, which is the holding of heat within the earth’s atmos-
phere. GHGs such as CO2, methane (CH4), and nitrous oxide (N2O) absorb infrared radiation (IR),
as diagrammed in Figure 14.7.
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FIGURE 14.7 Carbon cycle. The Orbiting Carbon Observatory-2 was launched in July 2014. The
observatory is NASA’s first satellite mission dedicated to studying CO2, which is a critical component of
the earth’s carbon cycle driving changes in the earth’s climate. CO2 is also the largest human-produced
GHG. Courtesy of genomicscience.energy.gov.
The IT industry sector is called the information and communications technology, or ICT,
in emission reports. ICT has certainly supported economic growth in developed and devel-
oping countries and transformed societies, businesses, and people’s lives. But what impacts
do our expanding IT and social media dependence have on global warming? How can business
processes change or reduce GHGs? And what alternative energy sources can be used to power
the increasing demands for connectivity? Listed next are several reports and initiatives to help
answer these questions.
Global e-Sustainability Initiative and the SMART 2020 Report The Cli-
mate Group’s SMART 2020 Report is the world’s first comprehensive global study of the IT
sector’s growing significance for the world’s climate. On behalf of the Global e-Sustainability
Initiative (GeSI), Climate Group found that ICT plays a key role in reducing global warming.
Transforming the way people and businesses use IT could reduce annual human-generated
global emissions by 15% by 2020 and deliver energy efficiency savings to global businesses
of over 500 billion euros or $800 billion. And using social media, for example, to inform con-
sumers of the grams (g) of carbon emissions associated with the products they buy could
ICT and Sustainable Development 435
change buyer behavior and ultimately have a positive eco-effect. Similarly to food items that
display calories and grams of fat to help consumers make healthier food choices, product
labels display the CO2 emissions generated in the production of an item. By 2020, not only will
people become more connected, but things will as well—an estimated 50 billion machine-to-
machine connections in 2020. A benefit of machine-to-machine connections is that they can
relay data about climate changes that make it possible to monitor our emissions.
Recommended Actions for the IT Sector Analysis conducted by management
consultants McKinsey & Company concludes the following:
• The IT sector’s own footprint of 2% of global emissions could double by 2020 because of
increased use of tablets, smartphones, apps, and services. To help, rather than worsen,
the fight against climate change, the IT sector must manage its own growing impact and
continue to reduce emissions from data centers, telecom networks, and the manufacture
and use of its products.
• IT has the unique ability to monitor and maximize energy efficiency both within and
outside of its own industry sector to cut CO2 emissions by up to 5 times this amount.
This represents a savings of 7.8 Gt of CO2 per year by 2020, which is greater than the 2010
annual emissions of either the United States or China.
The SMART 2020 Report gives a picture of the IT industry’s role in addressing global climate
change and facilitating efficient and low-carbon development. The role of IT includes emission
reduction and energy savings not only in the sector itself, but also by transforming how and
where people work. The most obvious ways are by substituting digital formats—telework,
videoconferencing, e-paper, and mobile and e-commerce—for physical formats. Researchers
estimate that replacing physical products/services with their digital equivalents would pro-
vide 6% of the total benefits the IT sector can deliver. Greater benefits are achieved when IT
is applied to other industries. Examples of those industries are smart building design and use,
smart logistics, smart electricity grids, and smart industrial motor systems.
Global Warming: A Hot Debate Does our society have the capacity to endure in such
a way that the 9 billion people expected on the earth by 2050 will all be able to achieve a basic
quality of life? The answer is uncertain—and hotly debated. As you read, many scientists and
experts are extremely alarmed by global warming and climate change, but other experts out-
right deny that they are occurring.
This debate may be resolved to some degree by NASA. A NASA spacecraft was designed
to make precise measurements of CO2 in the earth’s atmosphere. The Orbiting Carbon
Observatory-2 (OCO-2) was launched in July 2014. The observatory is NASA’s first satellite
mission dedicated to studying CO2, a critical component of the earth’s carbon cycle that is the
most prevalent human-produced GHG driving changes in the earth’s climate (Figure 14.7).
OCO-2 is a new tool for understanding both the sources of CO2 emissions and the natural
processes that remove CO2 from the atmosphere and how they are changing over time. The
mission’s data will help scientists reduce uncertainties in forecasts of how much CO2 is in the
atmosphere and improve the accuracy of global climate change predictions.
According to NASA, since the start of the Industrial Revolution more than 200 years ago,
the burning of fossil fuels and other human activities have led to an unprecedented buildup
in GHGs. Human activities have increased the level of CO2 by more than 25% in just the past
half century.
It is possible that we are living far beyond the earth’s capacity to support human life.
While sustainability is about the future of our society, for businesses, it is also about return
on investment (ROI). Businesses need to respect environmental limits, but also need to
show an ROI.
Sustainability Through Climate Change Mitigation There are no easy or con-
venient solutions to carbon emissions from the fossil fuels burned to power today’s tech depen-
dencies. But there are pathways to solutions, and every IT user, enterprise, and nation plays a role
436 C H A P T E R 1 4 IT Ethics, Privacy, and Sustainability
in climate change mitigation. Climate change mitigation is any action to limit the magnitude
of long-term climate change. Examples of mitigation include switching to low-carbon renewable
energy sources and reducing the amount of energy consumed by power stations by increasing
their efficiency. There have been encouraging successes. For example, investments in research
and development (R&D) to reduce the amount of carbon emitted by power stations for mobile
networks are paying off. A breakthrough in the design of signal amplifiers for mobile technology
will cut 200 megawatts (MW) from the load of power stations, which will reduce CO2 emissions by
0.5 million tonnes a year (Engineering and Physical Sciences Research Council, 2014).
Mobile, Cloud, and Social Carbon Footprint No one sees CO2 being emitted
from their Androids or iPhones. But wired and mobile networks enable limitless data creation
and consumption—and these activities increase energy consumption. Quite simply, the surge
in energy used to power data centers, cell towers, base stations, and recharge devices is dam-
aging the environment and depleting natural resources. It is critical to develop energy systems
that power our economy without increasing global temperatures beyond 2°C. To do their part
to reduce damaging carbon emissions, some companies have implemented effective sustain-
ability initiatives.
Sustainability Initiatives Communications technology accounts for approximately
2% of global carbon emissions; it is predicted that this figure will double by 2020 as end-user
demand for high-bandwidth services with enhanced quality of experience explodes world-
wide. Innovative solutions hold the key to curbing these emissions and reducing environ-
mental impact.
Network service providers as well as organizations face the challenges of energy efficiency,
a smaller carbon footprint, and eco-sustainability. To deal with these challenges, wired and
wireless service providers and companies need to upgrade their networks to next- generation,
all-IP infrastructures that are optimized and scalable. The network must provide eco-
sustainability in traffic transport and deliver services more intelligently, reliably, securely, effi-
ciently, and at the lowest cost.
For example, Alcatel-Lucent’s High Leverage Network (HLN) can reduce total cost of own-
ership (TCO) by using fewer devices, creating an eco-sustainable choice for service providers.
Fewer devices mean less power and cooling, which reduces the carbon footprint. HLN can also
handle large amounts of traffic more efficiently because the networks are intelligent, sending
packets at the highest speed and most efficiently.
Technology to Transform Business and Society
People hold the power to shape and apply technology to create positive change, improve lives,
and transform business and society. According to Paul Daugherty, Accenture’s Chief Technol-
ogy and Innovation Officer, “The pace of technology change is breathtaking, bringing about the
biggest advancements since the dawn of the Information Age. As technology transforms the
way we work and live, it raises important societal challenges and creates new opportunities.
Ultimately, people are in control of creating the changes that will affect our lives, and we’re
optimistic that responsive and responsible leaders will ensure the positive impact of new tech-
nologies.” (Accenture, 2017).
IoT in Developing Nations An important technology that is helping developing
nations harness the power of data to make crucial decisions about agriculture, health care,
education, and infrastructure is the Internet of things (IoT).
Although data is sparse in some developing nations, big data can be gathered from sur-
rounding nations to find correlations in the information. Joseph Alhadeff, Chair of the ICC
Commission on the Digital Economy, says “For sustainable development, the reason why this
technology has application in developing countries is that it can be used for any problem that
requires data to help solve it. Internet of Things is really an enabling technology in terms of
usability. Even basic deployments can be transformative for populations” (ICC, 2016).
ICT and Sustainable Development 437
People-First Approach to Technology Each year, Accenture publishes its Tech-
nology Vision (Accenture, 2017), an analysis of key IT trends that are expected to disrupt
business and society over the next 3 years. According to Vision 2017, taking a people-first
approach by empowering people with more human technology will allow organizations to
improve performance by redefining their relationship with customers and employees from pro-
vider to partner. This will require organizations to change the way they develop their business
models and provide technology that support them to promote social responsibility.
A comparison of the disruptive technologies highlighted by Accenture’s Technology Visions
2015, 2016, and 2017, listed in Table 14.3, illustrates the trend toward a people-first approach
to technology.
People-first approach ensures
that technology meets the needs
of the users by involving the
users at every stage of systems
development.
TA B L E 1 4 . 3 Comparison of Accenture’s Top Five Disruptive Technologies 2015–2017
Vision 2015 Vision 2016 Vision 2017
Internet of Me Intelligent Automation Artificial Intelligence as the new User Interface
Outcome Economy Liquid Workforce Design for Humans
Platform Evolution Platform Economy Ecosystems as Macrocosms
Intelligent Enterprise Predictable Disruption Workforce Marketplace
Workforce Reimagined Digital Trust The Unchartered
An explanation of Vision 2017’s five IT trends that have the most potential to transform
business and society over the next three years follows:
TREND 1: AI is the new UI AI is coming of age, tackling problems both big and small
by making interactions simple and smart. AI is becoming the new user interface (UI),
underpinning the way we transact and interact with systems. Seventy-nine percent of
survey respondents agree that AI will revolutionize the way they gain information from
and interact with customers.
TREND 2: Design for Humans Technology design decisions are being made by humans,
for humans. Technology adapts to how we behave and learns from us to enhance our lives,
making them richer and more fulfilling. Eighty percent of executives surveyed agree that
organizations need to understand not only where people are today, but also where they
want to be—and shape technology to act as their guide to realize desired outcomes.
TREND 3: Ecosystems as Macrocosms Platform companies that provide a single point
of access to multiple services have completely broken the rules for how companies operate
and compete. Companies don’t just need a platform strategy, they need a rich and robust
ecosystem approach to lead in this new era of intelligence. Already, more than one-quarter
(27%) of executives surveyed reported that digital ecosystems are transforming the way
their organizations deliver value.
TREND 4: Workforce Marketplace The number of on-demand labor platforms
and online work-management solutions is surging. As a result, leading companies are
dissolving traditional hierarchies and replacing them with talent marketplaces, which in
turn is driving the most profound economic transformation since the Industrial Revolution.
Case in point: Eighty-five percent of executives surveyed said they plan to increase their
organization’s use of independent freelance workers over the next year.
TREND 5: The Uncharted To succeed in today’s ecosystem-driven digital economy,
businesses must delve into uncharted territory. Instead of focusing solely on introducing
new products and services, they should think much bigger—seizing opportunities to
establish rules and standards for entirely new industries. In fact, 74% of the executives
surveyed said that their organization is entering entirely new digital industries that are
yet to be defined.
438 C H A P T E R 1 4 IT Ethics, Privacy, and Sustainability
Next Wave of Disruption Will Be More Disruptive
High-performing business leaders now accept that their organizations’ future success is tied
to their ability to keep pace with technology. Accenture reports that its clients tell them that
technology is more important than ever to their business success. But today, the biggest IT
innovations will not be in the technology tools themselves, but in how they are designed with
people in mind. It is widely agreed that a people-first approach is the key to any organization’s
digital success.
Questions
1. Why do some experts warn that carbon emission reductions between 50% and 85% are necessary
by 2050?
2. What contributes to the rise of global mean temperature?
3. What is the greenhouse effect?
4. How does the use of mobile devices contribute to the level of greenhouse gases?
5. What is ICT’s role in global warming?
6. Why is global warming hotly debated?
7. What is the role of IT in sustainable development?
8. Why is it important for organizations to take a people-first approach to IT?
Key Terms
breach of privacy 424
carbon footprint 436
civil rights 426
climate change mitigation 436
cognitive overload 430
corporate social media discrimination 426
discrimination 426
Equal Employment Opportunity
Commission 426
greenhouse gases (GHGs) 433
negligent hiring 427
open Wi-Fi network 421
people-first approach 437
privacy 424
privacy paradox 424
protected class 426
social recruitment 425
wardriving 421
Assuring Your Learning
Discuss: Critical Thinking Questions
1. Why will companies and recruiters continue to engage in social
recruiting?
2. Visit two or more social media sites and review information that
people have posted about themselves—or their friends have posted
about them. What types of protected class information did you find?
Give examples.
3. When organizations source their hiring to recruiting firms, how
might that increase or decrease the risk of social media discrimination?
4. How has IT changed the way you communicate in the last two years?
5. What changes do you predict in the way we communicate with each
other in future?
6. In your opinion, how does multitasking impact your performance?
7. How does the use of mobile devices contribute to the level of green-
house gases?
8. What is ICT’s role in global warming?
9. How do mobile devices contribute to carbon emissions?
10. Discuss the ethical issues of anytime–anywhere accessibility.
11. What health and quality-of-life issues are associated with social
networks and a 24/7 connected lifestyle?
12. Is distracted driving an unsolvable problem? Explain.
Case 14.2 439
Explore: Online and Interactive Exercises
1. Social media discrimination is now a serious consideration for
employers.
a. Research recruiting service providers and vendors. Select
two of them.
b. Review the website of each service or vendor.
c. Describe the features they provide to defend against negli-
gent hiring.
d. Do each of them protect against social discrimination? Explain
your answer and give examples.
2. Visit the Nokia website https://networks.nokia.com/blog/2015/
new-digital-deal-earths-climate
a. Read about Alcatel-Lucent’s “New Digital Deal for the
Earth’s Climate.”
b. Describe how the company has made major investment to ad-
dress the issue of network power consumption.
c. Explain how the company is enabling a low-carbon economy.
What is its most significant contribution to sustainability?
Analyze & Decide: Apply IT Concepts to Business Decisions
1. Refer to the discrimination scenarios in this chapter. For each sce-
nario, explain whether or not it should be used in the hiring decision.
2. In your opinion, what is the meaning of responsible conduct with
respect to the use of social media for screening purposes?
3. Do you agree with the FTC’s 2011 rule that states that searches by
hiring companies into how you spend your personal time, hobbies,
and the like do not violate your privacy? Explain.
4. Clerks at 7-Eleven stores enter data regarding customers’ gender,
approximate age, and so on, into a computer system. However, names
are not keyed in. These data are then aggregated and analyzed to
improve corporate decision-making. Customers are not informed
about this, nor are they asked for permission. What problems do you
see with this practice?
5. Discuss whether cognitive overload is a problem in your work or ed-
ucation. Based on your experience, what personal and organizational
solutions can you recommend for this problem?
6. The State of California maintains a database of people who alleg-
edly abuse children. (The database also includes names of the alleged
victims.) The list is made available to dozens of public agencies, and
it is considered in cases of child adoption and employment decisions.
Because so many people have access to the list, its content is easily
disclosed to outsiders. An alleged abuser and her child, whose case
was dropped because there was insufficient evidence to warrant fur-
ther investigation or prosecution, but whose names remained on the
list, sued the State of California for invasion of privacy. Debate the is-
sues involved. Specifically:
a. Who should make the decision or what criteria should guide
the decision about what names should be included and what the
criteria should be?
b. What is the potential damage to the abusers (if any)?
c. Should the State of California abolish the list? Why or why not?
Case 14.2
Business Case: Android Auto and CarPlay Keep
Drivers Safe, Legal, and Productive
We’ve all done it—driving while talking on our smartphone and per-
haps texting. But, in more and more states across the United States, it
is becoming illegal to do one or both. While one technology can tempt
us to break the law, new mobile apps, such as Google’s Android Auto
and Apple’s CarPlay, can help us stay on the right side of the law. And,
these new apps are a boon to business. For example, salespeople,
project managers, insurance adjusters, and tradespeople who spend
much of their time driving between customer locations can now safely
make the most of their driving time and increase their productivity.
If you buy a car today, it will probably come with some kind of
touch-screen computer onboard: basically, an embedded table com-
puter that runs some kind of operating system, with software provided
by the car manufacturer and their suppliers. Unfortunately, since car
manufacturers are not in the software business, these onboard comput-
ers aren’t designed very well and don’t have the user-friendly interface
that smartphones do. As a result, many people still resort to using their
handheld mobile devices (Amadeo, 2015). Android Auto and CarPlay
have easy-to-use, safety-focused user interfaces with a heavy emphasis
on voice commands and the look and feel of the mobile devices that are
already familiar to you.
Android Auto
Android Auto is a projected interface that runs on an Android phone
and is beamed to the car screen when it’s hardwired through a USB
connection. Google worked with the NHTSA and other government
agencies to design an interface that follows best safety practices for
computing while driving. The result is larger touch targets, bigger text
that can been seen “at a glance,” a focus on voice commands, and an
overall greatly simplified interface (Amadeo, 2015).
440 C H A P T E R 1 4 IT Ethics, Privacy, and Sustainability
Third-party apps on Android Auto are limited to Media and Mes-
saging apps—nothing else is allowed. Developers can’t make an app
interface. Third-party apps can only plug into Google’s UI template. This
means there are only a few apps that currently work with Android Auto.
These include Spotify, Skype, and WhatsApp. The reason for the third-
party limitations is compliance with the hundreds of car infotainment
safety regulations worldwide to ensure user safety.
At Google, every Android app get heavily reviewed by Google’s new
Play Store moderation team and inspected by “real, living humans” to
ensure that even the limited amount of customizations don’t break any
safety guidelines. This includes making to ensure that the app isn’t dis-
tracting and making sure that everything has good contrast to make it
easily read. At Google, safety is paramount and Android Auto even has a
“parked mode” interface. For example, Google Maps has a keyboard that
can only be activated when the care is in park.
Android Auto is currently available on selected models of cars
manufactured by Buick, Cadillac, Chevrolet, GMC, Honda, Hyundai, Kia,
Mercedes-Benz, Volkswagen, and Volvo (Popely, 2016).
CarPlay
CarPlay is the Apple iPhone version of an in-car integration system. It
lets drivers perform voice-enabled and touch-screen control of mak-
ing and answering calls, text messaging, and playing music. Plug your
iPhone in via a lightning cable, and you can control everything through
Siri natural voice language assistant, capacitive or resistive touch
and knobs, dials and buttons that work the built-in display. Originally
named “iOS in the Car,” the service supports third-party music apps
such as Pandora, Spotify, and iHeartRadio.
A fascinating aspect of CarPlay is its AI capabilities. The software
works with Maps and scans through user data, such as calendar, contacts,
texts, or e-mails, to anticipate destinations to pull up driving directions,
traffic conditions, and ETA. CarPlay also anticipates drivers’ needs by
plotting driving routes based on their schedule and normal routine. With
this feature, Apple has made its biggest push into predictive services.
CarPlay debuted on the $302,450 Ferrari FF and has since trick-
led down to lower-priced cars. Currently, it is offered by numerous
car manufacturers. A list of automobile manufacturers that offer
CarPlay can be found on Apple’s website www.apple.com/ios/carplay/
available-models
Questions
1. Using privacy concepts introduced in this chapter, identify
the ways in which Android Auto and CarPlay can violate a
user’s privacy.
2. Consider the privacy paradox. How does that principle relate to
users’ reactions to Android Auto CarPlay?
3. Getting a customer hooked on Android Auto or CarPlay tech-
nology means that the company is positioned to expand on
it out of the vehicle, especially in the areas of wearables and
home appliances. How might the integration of data from your
car, smartphone, wearables, and home appliances impact
your privacy?
4. If you were thinking of buying a car that had CarPlay, would you
have any concerns about CarPlay’s predictive analytics capabil-
ities? Explain.
Case 14.3
Video Case: IT Ethics in the Workplace
In the digital age, most organizations are tracking employee activity in
all kinds of ways in an effort to become more productive.
Some are measuring keystrokes or using programs that can tell
supervisors when a keyboard has been idle for 15 minutes. Others use
keywords to flag which websites employees visit—and block ones that
aren’t related to work—or are checking employees’ e-mails and instant
messages to make sure that they don’t contain inappropriate or propri-
etary material.
Indeed, nearly every aspect of work is now measurable in some way:
Hours are tracked via security badges and fingerprint scanners, locations
are monitored using GPS, and certain employee activities are captured by
digital camera and video.
While it’s clear that employers can measure nearly everything
employees do, the question for many is whether they should. To find out,
it’s important for companies to have a clear sense of what they hope to
accomplish—and to be forthcoming and transparent in their commu-
nication with employees. When employee monitoring is done poorly,
businesses may find that what they hoped to gain in productivity is
undermined by what they lose in engagement and trust.
Visit YouTube and search for the video “Ethics in the Workplace to
IT – Team 8.” Answer the following questions.
Questions
1. Why do you think employers monitor their online behavior at
work?
2. Name the policies the company has put in place in regard to ethics
in the workplace.
3. What monitoring technologies does the company use to keep
track of sites employees access.
4. Do you think it’s ethical for employers to monitor sites that
employees access?
5. Which is more expensive—firing an employee or putting policies
in place for employees to follow?
Source: Katz (2015).
References 441
References
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Amadeo, R. “Android Auto Review: A Beautiful, but Beta Alternative
to Awful OEM Solutions.” Cars Technica, June 23, 2015. https://
arstechnica.com/cars/2015/07/android-auto-review-a-beautiful-
but-beta-alternative-to-awful-oem-solutions/
Appthority. App Reputation Report. Summer 2014. appthority.com/
resources/app-reputation-report
Bader, C. “The Risks and Responsibilities of Tech Innovation.” MIT
Sloan Management Review, June 10, 2014.
Bilton, N. “Why Google Glass Broke.” The New York Times, February
4, 2015.
Davis, W. N. “Google Glass is already causing legal experts to see
problems.” ABA Journal Law News. April 1, 2014.
Dumaine, B. “The Kings of Concentration.” Inc. Magazine, May 2014.
EEOC. “Social Media Is Part of Today’s Workplace but Its Use May
Raise Employment Discrimination Concerns.” Press release, EEOC.
gov, March 12, 2014.
Ellenberg, J. “What’s even creepier than Target guessing that you’re
pregnant?”. Slate. 2014. http://www.slate.com/blogs/how_not_to_
be_wrong /2014/06/09/big _data_what _ s _even_creepier_than_
target_guessing_that_you_re_pregnant.html
Engineering and Physical Sciences Research Council. “New Design
for Mobile Phone Masts Could Cut Carbon Emissions.” April 22,
2014.
Fitzpatrick, A. and G. Kibel. “Technology, Digital Media and Privacy
Alert.” Inside Counsel, June 17, 2014. insidecounsel.com/2014/06/17/
technology-digital-media-and-privacy-alert
Gartner. “Gartner Says Worldwide Shipments of 3D Printers to Grow
108 Percent in 2016.” Gartner Newsroom, October 13, 2016. http://
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Heritage, Stuart. “How bots ruined everything: from Drake to diets.”
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IT Toolbox
The Ten Commandments of Computer Ethics
Commitment to ethical conduct is expected of everyone who inter-
acts with IT, whether they are IT professionals or users. The Com-
puter Ethics Institutes Institute offers the Ten Commandments of
Computer Ethics to help reinforce ethical behavior. The command-
ments were created as a set of standards to guide and instruct peo-
ple in the ethical use of computers. The International Information
System Security Certification Consortium (ISC) uses the command-
ments as a foundation for its own ethics rules. They are an excellent
foundation upon which to model your technology-related ethi-
cal behavior.
1. Thou shalt not use a computer to harm other people.
2. Thou shalt not interfere with other people’s computer work.
3. Thou shalt not snoop around in other people’s computer files.
4. Thou shalt not use a computer to steal.
5. Thou shalt not use a computer to bear false witness.
6. Thou shalt not copy or use proprietary software for which
you have not paid.
7. Thou shalt not use other people’s computer resources
without authorization or proper compensation.
8. Thou shalt not appropriate other people’s intellectual output.
9. Thou shalt think about the social consequences of the
program you are writing or the system you are designing.
10. Thou shalt always use a computer in ways that ensure
consideration and respect for your fellow humans.
Print this out, post it somewhere you can see it every day, and let it
serve as a tool to guide your online behavior to enhance your work
and social interactions.
442 C H A P T E R 1 4 IT Ethics, Privacy, and Sustainability
Perry, T. “Woman wearing Google Glass found not guilty of distracted
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trian safety: A literature review.” National Highway Traffic Safety
Administration, April 6, 2016.
SHRM. “Using Social Media for Talent Acquisition – Recruitment
and Screening” 2016. https://www.shrm.org/hr-today/trends-and-
forecasting/research-and-surveys/Pages/Social-Media-Recruiting-
Screening-2015.aspx
Taylor, J. “Feds Interrogate Man Wearing Google Glass in Movie
Theater.” BetaBeat.com, January 21, 2014.
Wallace, Kelly. “Half of teens think they’re addicted to their smart-
phones.” CNN, July 29, 2016.
Whitney, L. “Google Glass Wearer Challenges Distracted Driving
Charge.” CNET.com, December 4, 2013.
Wrike. “The High Cost of Multi-tasking: 40% or Productivity Lost by
Task Switching.” September 2015.
443
Glossary
3D bioprinting It is the medical applica-
tion of 3D printing to produce living tissue and
organs. Biotech firms are using 3D printing for
tissue engineering applications where organs
and body parts are built using inkjet tech-
niques. Layers of living cells are deposited onto
a gel medium and slowly built up to form three-
dimensional structures.
3D printing Also known as additive manufac-
turing, builds objects layer-by-layer to create
real-world objects.
Adware A software that embeds advertise-
ments in the application. It is considered a legit-
imate alternative offered to consumers who do
not wish to pay for software.
Agile A very flexible iterative, incremental
systems development methodology that over-
comes the disadvantages of the Waterfall model.
Agility Being able to respond quickly.
Always-on supply chain An integrated set of
supply networks characterized by a continuous,
high-velocity flow of information and analytics
creating predictive, actionable decisions to
better serve the customer 24/7.
Application program interface (API) An inter-
face is the boundary where two separate systems
meet. An API provides a standard way for differ-
ent things, such as software, content, or web-
sites, to talk to each other in a way that they both
understand without extensive programming.
Attack vector A path or means by which a
hacker can gain access to a computer or network
server in order to deliver a malicious outcome.
Augmented reality A technology that super-
imposes a computer-generated image onto an
image of the real world to provide information
or entertainment.
Avatars An icon, figure or visual representa-
tion of a person in computer games, simula-
tions, virtual worlds or online discussion forms.
Back-office operations They support the
fulfillment of orders.
Balanced scorecard A strategic management
methodology for evaluating performance based
on both financial and nonfinancial metrics.
Barcode A machine-readable code consisting
of numbers and a pattern of thick and thin lines
that can be scanned to identify the object on
which the code appears.
Baseline A specification of the project plan
that has been formally reviewed and agreed
upon. It should be changed only through a
formal change control process.
Big data An extremely large data set that is
too large or complex to be analyzed using tradi-
tional data processing techniques.
Big data analytics Process of examining large
and varied data sets to identify hidden patterns
and correlations, market trends, customer pref-
erences and other useful information to enable
better business decisions.
Blogging platform A software application
used to create, edit, and add features to a blog.
WordPress and Blogger are two of the most
popular blogging platforms.
Bluetooth A short-range wireless communi-
cations technology.
Breach of privacy The loss of, unauthorized
access to, or disclosure of, personal information.
Broadband Wide bandwidth technologies
that create fast, high-volume connections to
the Internet and World Wide Web.
Business case A presentation or document
that outlines the justification for the start-up
and funding of a project.
Business intelligence (BI) A set of tools and
techniques for acquiring and transforming raw
data into meaningful and useful information
for business analysis purposes in the forms
of reports, dashboards, or interactive visu-
alizations.
Business objectives The building blocks
of strategy.
Business process management It consists of
methods, tools, and technology to support and
continuously improve business processes.
Business strategy Sets the overall direc-
tion of a company, defines how a business will
achieve its mission, goals, and objectives, and
specifies the necessary financial requirements,
budgets, and resources.
Business–IT alignment Refers to applying IT
in an appropriate and timely way that is consist-
ent with business strategies, goals, and needs.
Centralized database Stores all data in a
single central compute such as a mainframe
or server.
Channel conflict Competition between a
manufacturer’s distribution partners who sell
through different channels. Channel conflict
can occur at the wholesale, retail, or internal
sales department level.
Click-through rates (CTRs) Percentage of
people who click on a hyperlinked area of a
SERP or Web page.
Cloud service Any computing resource that is
provided over the Internet on demand.
Competitive advantage Edge that enables a
company to outperform its average competitor
in ways that matter to its customers.
Computer networks Set of computers con-
nected together for the purpose of sharing
resources.
Core business processes They include
accounting, finance, sales, marketing, human
resources, inventory, productions, and man-
ufacturing.
Crawler control module A software program
that controls a number of “spiders” responsible
for scanning or crawling through information
on the Web.
Critical infrastructure Systems and assets,
whether physical or virtual, so vital to the a
country that the incapacity or destruction of
such systems and assets would have a debili-
tating impact on security, national economic
security, national public health or safety, or any
combination of those matters.
Critical path The shortest time possible to
complete all tasks required to finish the project.
A delay of any task on the critical path will delay
the project.
Crowdfunding Raising funds for a project
from the public, or crowd, via the Web.
Cyberthreat A threat posed by means of the
Internet (a.k.a. cyberspace) and the poten-
tial source of malicious attempts to damage
or disrupt a computer network, system, or
application.
Data analytics Technique of qualitatively
or quantitatively analyzing a data set to reveal
patterns, trends, and associations that often
relate to human behavior and interactions, to
enhance productivity and business gain.
Database Collection of data sets or records
stored in a systematic way.
Database management system (DBMS) Soft-
ware used to manage the additions, updates,
and deletions of data as transactions occur, and
to support data queries and reporting. They are
online transaction-processing (OLTP) systems.
Data breach The successful retrieval of sensi-
tive information by an individual, group, or soft-
ware system.
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444 G L O S S A R Y
Data Describe products, customers, events,
activities, and transactions that are recorded,
classified, and stored.
Data governance The control of enterprise
data through formal policies and procedures
to help ensure data can be trusted and are
accessible.
Data incident An attempted or successful
unauthorized access to a network, system, or
application; unwanted disruption or denial
of service; unauthorized use of a system for
processing or storage of data; changes to
system without the owners knowledge, instruc-
tion, or consent.
Data management The management of the
flow of data from creation and initial storage to
the time when the data become obsolete and
are deleted.
Data silo Stand-alone data stores. Their data
are not accessible by other ISs that need it or
outside that department.
Data visualization Presentation of data in a
graphical format to make it easier for decision-
makers to grasp difficult concepts or identify
new patterns in the data.
Deliverables Any measurable, tangible,
verifiable outcome, result, or item that is pro-
duced to complete a project or part of a project.
Examples might be hardware, software, plan-
ning documents, or meeting minutes.
DevOps A set of processes that encourages
collaboration between system developers,
operators and testers.
Digital dashboard An electronic interface
used to acquire and consolidate data across an
organization.
Digital mesh An expanded set of end points
used to access applications, gather information,
or interact with people, social communities,
government, and businesses to ensure instant
connection and response to build experience.
Examples include smart devices, wearables,
consumer and home electronic devices.
Digitization The process of transforming any
kind of activity or information into a digital
format that can be collected, stored, searched,
and analyzed electronically—and efficiently.
Dirty data Poor-quality data that lacks integ-
rity and cannot be trusted.
Discrimination A biased or prejudicial
treatment in recruitment, hiring, or employment
based on certain characteristics, such as age,
gender, and genetic information, and is illegal
in the United States.
Distributed database Stores portions of the
database on multiple computers within a
network.
Drill down Searching for something on a
computer moving from general information
to more detailed information by focusing on
something of interest, for example, quarterly
sales—monthly sales—daily sales.
Edge service A term that refers to a cloud
service.
EEOC (Equal Employment Opportunity Com-
mission) It enforces federal laws prohibiting
discrimination in employment.
Electronic fund transfer (EFT) A transfer of
funds from one bank account to another over a
computerized network.
Electronic records management system
(ERMS) This system consists of hardware and
software that manage and archive electronic
documents and image paper documents;
then index and store them according to
company policy.
Electronic wallet (e-wallet) A software
application that can store encrypted informa-
tion about a user’s credit cards, bank accounts,
and other information necessary to com-
plete electronic transactions, eliminating the
need to re-enter the information during the
transaction.
Enterprise data mashup Combination of
data from various business systems and exter-
nal sources without relying on the middle step
of ETL (extract, transform, and load) into a data
warehouse or help from IT.
Enterprise data warehouses (EDWs) Data
warehouse that integrates data from databases
across an entire enterprise.
Enterprise systems Cross-functional and
inter organizational systems that support the
business strategy.
Exabyte One quintillion bytes (1,000,000,
000,000,000,000 Bytes) which is the equivalent
of 1,000 petabytes of data or 7 trillion online
video clips. Five Exabytes is equal to all words
ever spoken by human beings.
Extreme programming A pragmatic systems
development to Agile development that empha-
sizes business results first and takes an incre-
mental approach to building software, using
continual testing and revision.
Financial Accounting Standards Board (FASB)
It establishes financial accounting and reporting
standards for public and private companies and
not-for-profit organizations.
Financial misrepresentation It occurs when
a company has intentionally deceived one or
more other parties.
Flexibility Means having the ability to quickly
integrate new business functions or to easily
reconfigure software or applications.
Folksonomy A system of classifying and
organizing online content into categories by
the use of user-generated metadata such as
keywords.
Fraud A nonviolent crime in which fraudsters
use deception, confidence, and trickery for their
personal gain.
Front-office operations Operations such as
sales and advertising that are visible to customers.
Gantt chart A horizontal bar chart that
graphically displays the project schedule.
Geographic information system (GIS) A
computer-based tool that captures, stores,
manipulates, analyzes, and visualizes geo-
graphic data on a map.
Geospatial data Data that has an explicitly
geographic component, ranging from vector and
raster data to tabular data with site locations.
Go/no-go Decision A determination to pro-
ceed with or abandon a plan or project.
Hacking Broadly defined as intentionally
accessing a computer without authorization or
exceeding authorized access. Various state and
federal laws govern computer hacking.
Hacktivist Short for hacker-activist or some-
one who performs hacking to promote aware-
ness for or otherwise support a social, political,
economic, or other cause. Hacking an applica-
tion, system, or network without authorization,
regardless of motive, is a crime.
Inbound logistics Refers to receiving inventory.
Income statement Summarizes a company’s
revenue and expenses for one quarter of a fiscal
year or the entire fiscal year. It is also known
as a P&L (profit and loss) or earnings statement.
Information Data that have been processed,
organized, or put into context so that they have
meaning and value to the person receiving them.
Information management The use of IT tools
and methods to collect, process, consolidate,
store, and secure data from sources that are
often fragmented and inconsistent.
Information Systems (ISs) A combination of
information technology and people’s activities
using the technology to support business pro-
cesses, operations, management, and decision-
making at different levels of the organization.
Informed user A person knowledgeable
about information systems and IT.
Intellectual property A work or invention
that is the result of creativity that has com-
mercial value, including copyrighted property
such as a blueprint, manuscript, or a design,
and is protected by law from unauthorized use
by others.
Interface To connect to and exchange data
with apps and systems.
G L O S S A R Y 445
Internet of Things (IoT) Network of physical
objects or “things” embedded with electron-
ics, software, sensors, and network connectiv-
ity, that enables these objects to collect and
exchange data.
Internet Protocol (IP) Method by which
data are sent from one device to another over
a network.
Inventory control systems Stock control or
inventory management systems.
IP address A unique identifier for each device
that communicates with a network that identi-
fies and locates each device. An IP address is
comparable to a telephone number or home
address.
IPOS The cycle of inputting, processing, out-
putting, and storing information in an informa-
tion system.
IP Version 4 (IPv4) Has been Internet proto-
col for over three decades, but has reached the
limits of its 32-bit address design. It is difficult to
configure, it is running out of addressing space,
and it provides no features for site renumbering
to allow for an easy change of Internet Service
Provider (ISP), among other limitations.
IP Version 6 (IPv6) The most recent version
of the Internet Protocol. IPv6 is replacing IPv4.
IPv6 has a 128-bit address and allows 7.9 × 1028
times as many addresses as IPv4, which pro-
vides about 4.3 billion addresses.
IT strategy A plan of action to create an
organization’s IT capabilities for maximum and
sustainable value in the organization.
Knowledge Adds understanding, experience,
accumulated learning, and expertise as they
apply to a current problem or activity, to
information.
Lagging indicators They confirm what
has happened. They evaluate outcomes and
achievements.
Leading indicators They predict future events
to identify opportunities
Legacy systems They are older information
systems (ISs) that have been maintained over
several decades because they fulfill critical
needs.
Logical design It lists and describes all the
information resources (data and processes) and
the scope of duties and responsibilities of con-
sumers of the information involved in the oper-
ation of the new system. It is business focused
and always precedes physical design.
Malware Refers to hostile or intrusive
software, including computer viruses, rootkits,
worms, trojan horses, ransomware, and other
malicious programs used to disrupt computer or
mobile operations, gather sensitive information,
gain access to private computer systems.
Mashup A general term referring to the inte-
gration of two or more technologies.
Mega trends Forces that shape or create the
future of business, the economy, and society.
Microblog A blog that consists of frequent,
but very brief posts containing text, pictures, or
videos. Twitter is perhaps the most well-known
example of a microblog.
Microsoft Cloud Provides a hybrid infrastruc-
ture and capabilities to manage enterprise
apps and data.
Milestones They are used to manage the
project work effort, monitor results, and report
meaningful status to project stakeholders.
Millennials Term used to describe people born
between the early 1980s and the early 2000s.
Mission Defines the organization’s purpose
and what it hopes to achieve.
Mobile browser A Web browser that is opti-
mized to display Web content effectively on a
small mobile device such as a smartphone.
Mobile location-based marketing A market-
ing strategy that uses information from a mobile
device’s GPS or customer’s mobile check-in on
a social network to determine the content of
marketing communications they receive on
the device (e.g., advertisements, coupons,
special offers).
Mobile visual search engine A search engine
that uses an image instead of a text-based query
to search for information on the Web.
Near-field communication (NFC) Enables
two devices within close proximity to establish
a communication channel and transfer data
through radio waves.
Negligent hiring The hiring of an employee
when the employer knew or should have known
about the employee’s background which, if
known, indicates a dangerous or untrustworthy
character.
Network effect From the field of economics,
the network effect explains how the perceived
value of a product or service is affected by the
number of people using the product or service.
Object-oriented (O-O) An iterative systems
analysis and design methodology that
emphasizes modularity and reusability.
On-demand economy The economic activ-
ity created by technology companies that fulfill
consumer demand through the immediate pro-
visioning of products and services.
Online transaction processing (OLTP) sys-
tems Designed to manage transaction data,
which are volatile.
Open Wi-Fi network An unprotected Wi-Fi
network found particularly in public places
where you don’t know who else could be on
the network.
Order fulfillment Set of complex processes
involved in providing customers with what
they ordered on time and all customer services
related to on-time delivery of a product.
Outbound logistics Refers to shipping
inventory.
Packet A piece of a message that is
collected and re-assembled with the other
pieces of the same message at their destination.
To improve communication performance and
reliability, each larger message sent between
two network devices is often subdivided into
packets.
Page repository A data structure that stores
and manages information from a large num-
ber of Web pages, providing a fast and efficient
means for accessing and analyzing the informa-
tion at a later time.
People-first approach It ensures that technol-
ogy meets the needs of the users by involving the
users at every stage of systems development.
Petabyte A unit of measurement for digital
data storage. A petabyte is equal to one million
gigabytes.
Physical design It transforms business
requirements into a specific technological
solution by identifying all physical servers
and major technical components that will be
used to support the desired business outcome.
Portfolio The entire set of projects within a
department or organization.
Post mortem A method for evaluating project
performance, identifying lessons learned, and
making recommendations for future projects.
Privacy paradox Refers to the competing
demands of social media where users are con-
cerned about privacy, but their willingness to
disclose personal information does not mirror
these concerns.
Program A set of related projects.
Project It is a well-planned sequential series
of tasks to achieve a result. Projects have a
defined beginning and end, a scope, resources,
and a budget. Projects are approved before they
are funded and allocated resources.
Project management Application of knowl-
edge, skills, tools, and techniques to project
activities to meet project requirements.
Project management office (PMO) An organ-
izational group responsible for coordinating the
project management function throughout an
organization.
Projects Temporary endeavors undertaken to
create a unique product, service, or result.
446 G L O S S A R Y
Proof of concept (POC) A vendor demon-
stration of a product to see how or how well it
works.
Protected classes Characteristics identified
by law that cannot be used in the hiring process.
Query Ad hoc (unplanned) user request for
specific data.
Quick response (QR) code A machine- readable
code typically used to store a link to a URL or
Web address that can be read by a mobile
device.
Ransomware A type of malware that is
designed to block access to a computer system
until a sum of money has been paid.
Responsibility matrix Lets everyone know
who is responsible for completion of tasks.
Responsiveness Means that IT capacity can
be easily scaled up or down as needed, which
essentially requires cloud computing.
Risk Probability of a threat successfully
exploiting a vulnerability and the estimated cost
of the loss or damage.
Risk register Lists all known risks and their
source, an estimation of unknown risks and the
response to be taken to each risk.
Safety stock Extra inventory used as a buffer
to reduce the risk of stockouts. It is also called
buffer stock.
Scope The body of work that needs to
be completed within a project to achieve a
desired outcome.
Search engine An application for locating
Web pages or other content (e.g., documents,
media files) on a computer network. Popular
Web-based search engines include Google,
Bing, and Yahoo.
Search engine marketing (SEM) A collection
of online marketing strategies and tactics that
promote brands by increasing their visibility in
SERPs through optimization and advertising.
Semantic Web An extension of the World
Wide Web that utilizes a variety of conventions
and technologies that allow machines to under-
stand the meaning of Web content.
Short message service (SMS) A technology
used to send and receive text messages on mobile
devices via a telecommunications network.
Showrooming The practice of examining
products in a traditional retail store, sometimes
with the help of a salesperson, and then pur-
chasing the product online.
Social media A collection of Web applications
based on Web 2.0 technology and culture that
allows people to connect and collaborate with
others by creating and sharing digital content.
Social networking service (SNS) An online
platform or website that allows subscribers
to interact and form communities or networks
based on real-life relationships, shared inter-
ests, activities and so on.
Social recruitment Refers to use of social
media to find, screen, and select job candidates.
Spiders Also known as crawlers, Web bots,
or simply “bots,” spiders are small computer
programs designed to perform automated,
repetitive tasks over the Internet. They are used
by search engines for scanning Web pages and
returning information to be stored in a page
repository.
Sprints A set period of time during which
specific work has to be completed and made
ready for review. Traditionally, a sprint lasts
30 days.
Spyware A tracking software that is not
designed to intentionally damage or disable a
system. For example, an employer may install
spyware on corporate laptops to monitor
employee browsing activities, or an advertiser
might use cookies to track what Web pages
a user visit in order to target advertising in a
marketing campaign.
Standard operating procedures (SOPs) A
set of written instructions on how to perform
a function or activity. SOPs provide the frame-
work for complex processes to be managed
more effectively.
Stockouts Inventory shortage arising from
unexpected demand, delays in scheduled
delivery, production delays, or poor inventory
management.
Strategic plan A document used to com-
municate the company’s goals and the actions
needed to achieve them.
Strategic planning A series of processes in
which an organization selects and arranges its
businesses or services to keep the organization
healthy or able to function even when unex-
pected events disrupt one or more of its busi-
nesses, markets, products, or services.
Strategic technology The potential to make
significant impacts on an organization’s long-
term plans, programs, and initiatives.
Structured query language (SQL) A stand-
ardized query language for accessing databases.
Sunk cost A cost that has already been
incurred and cannot be recovered.
Supply chain management (SCM) Efficient
management of the flows of material, data, and
payments among the companies in the supply
chain, from suppliers to consumers.
Supply chain Starts with the acquisition of
raw materials or the procurement (purchase) of
products and proceeds through manufacture,
transport, and delivery—and the disposal or
recycling of products.
Synchronous communication Dialogue or
conversation that takes place in real time,
without the long delays between exchanges
that occur, for instance, in e-mail or discussion
board conversations.
Templates A sample document that already
has some details in place.
Terms of service (TOS) agreement A formal
listing of the policies, liability limits, fees, user
rights and responsibilities associated with using
a particular service. Users are typically required
to acknowledge they have read, understand,
and agree to the TOS before they are allowed
the service to use.
Trial run When a vendor product or service
is tested in a pilot study or limited area of
the business to confirm its usefulness to the
company.
Triple constraint The combination of the
three most significant elements of any project:
scope, time and cost. It is also known as the
iron triangle.
Trojan horse A program that appears harm-
less, but is, in fact, malicious.
Tweet A brief 140-character message or post
broadcast on Twitter, a microblogging service.
Twittersphere Universe of people who use
Twitter, a microblogging service.
Use-case diagram A graphic depiction of the
major elements (use cases) within a system and
it environment.
Use-case description A text-based list of
actions or steps that detail the interactions
between users and the system needed to
achieve the goal of the system.
Value-added reseller (VAR) Customizes
or adds features to a vendor’s software or
equipment and resells the enhanced product.
Value driver It enhances the value of a prod-
uct or service to consumers, creating value for
the company. Advanced IT, reliability, and brand
reputation are examples.
Wardriving The act of searching for Wi-Fi
wireless networks by a person in a moving
vehicle using a laptop or smartphone.
Waterfall Model A sequential, predictive
systems development methodology that is
simple to use and understand, but inflexible.
Web 2.0 A term used to describe a phase of
World Wide Web evolution characterized by
dynamic Web pages, social media, mashup
applications, broadband connectivity, and user-
generated content.
G L O S S A R Y 447
Wi-Fi The standard way computers connect
to wireless networks.
Wisdom A collection of values, ethics, moral
codes, and prior experiences that form an
evaluated understanding or common-sense
judgment.
World Wide Web (WWW) A network of docu-
ments on the Internet, called Web pages,
constructed with HTML markup language that
supports links to other documents and media
(e.g., graphics, video, audio, etc.).
Yammer It is “Facebook for business.” The
platform has features similar to Facebook
likes, newsfeeds, threaded conversation, and
direct messaging. This private social channel
helps employees, partners, and customers
communicate; exchange information; and
collaborate across departments, locations, and
business apps.
Zettabytes One sextillion bytes (1,000,000,
000,000,000,000,000 Bytes) which is approxi-
mately equal to 1,000 Exabytes.
448
Organization Index
A
AAA, 259
ABC Company, 401
Accelerating Medicines Partnership, 86
Accenture, 6, 437–438
ACCOR Hotels, 27
Accuweather, 112
Adaptive Insights, 343
Adidas, 218
ADP Corporation, 341
Adweek, 283
Aflac Cancer Center, 242
Airbus A320 jets, 303
Air New Zealand, 27
Airbnb, 2–4, 5
Alcatel-Lucent, 436
Alibaba, 251
Ally Bank, 248–249
Amazon, 5, 112, 113, 131, 175, 189, 192,
203, 247, 258
Amazon Web Services (AWS), 14, 57
AMC (U.S. Army Materiel Command), 419
American Apparel, 218
American Express (AMEX), 12, 96
American Marketing Association, 231
American Nazi groups, 140
Andersen Consulting, 311
Anonymous (hacktivist group), 139, 140
Anthem Insurance, 131
Apple, 49, 148, 175, 192, 365
Apple Watch, 14
Appthority, 420
Aqumin, 341
Argo Corporation, 89
Arthur Andersen, 153
Asia–Pacific bank, 77
Association for Information and Image
Management (AIIM), 94
Association of Records Managers and
Administrators (ARMA), 94
AT&T, 108, 110
AV firm Symantec, 140
Avanade, 311
B
BAE Systems, 281
Banamex, 263
Bank of America, 263
BB&T, 263
Bernard L. Madoff Investment
Securities, 286, 287
Bing, 168
Bitcoin, 129, 137, 177
Blogger platform, 222
Blood Disorders Service of Children’s
Healthcare of Atlanta, 242
Bloomberg, 341
BMW, 212
Boers & Co Fine Metalworking, 309
Booz Allen, 368
Bolsa de Comercio de Santiago, 31
Boston Consulting Group, 323
Box, 233, 430
BP, 359
Breier Neidle Patrone Associates, 387
C
CA, 280, 303
California Highway Patrol (CHP), 418
California Pizza Kitchen (CPK), 35
Capital One, 81
Careerbuilder.com, 214
Carlsberg, 27
CarMax, Inc., 93–94
Caterpillar, Inc., 120
Center for International Business Education
and Research (Duke University), 370
Center for Project Management, 410
Central Intelligence Agency (CIA), 140
Centre for Therapeutic Target Validation
(CTTV), 86
Chase, 263
Chase Pay, 261
Chegg.com, 266
Chicago Board Options Exchange (CBOE), 341
Chinese electronics manufacturer
Foxconn, 140
Cisco, 144
Citibank, 27, 262
Citizen National Bank, 322
Climate Group, 434
Clipix, 232
Cloud Standards Customer Council, 53
CNN, 192
Coca-Cola, 66–68, 253
Combined Systems, Inc., 139
Comcast, 108
Common Short Code Association (CSCA), 263
Consumer Watchdog, 422
Cornell University, 423
Craigslist, 202
D
Delicious, 232
Dell, 10, 244
Deloitte, 316
Denver International Airport (DIA), 386–388
Diigo, 232
Dillard’s, Inc., 311
Disney, 257
Dow Chemical, 21
Dropbox, 143, 233
Ducati, 271–272
E
Eastern Bank, 263
eBay, 5, 131, 202, 203, 252
Eli Lilly & Co., 86
Enron, 286, 287
Epicor, 309
Epinions, 210
ESPN, 258
ESSA Academy, 379
E*Trade, 112
European Bioinformatics Institute (EBI), 86
Experian, 131
Exxon Mobil, 284
F
Facebook, 112, 144, 192, 200, 207
Fast Company, 192
Federal Communications Commission
(FCC), 108
Federal Deposit Insurance Corporation
(FDIC), 288
Federal Trade Commission (FTC), 150
Ferrari, 303
Fiat, 212
Fifth Third Bank, 263
First Wind, 88
FitBit, 12, 14
Ford Motor Company, 119
FoxMeyer Drugs, 311
G
Gain Capital, 341
Gartner, Inc., 378
GlaxoSmithKline, 86
Global Payments, Inc., 128
Goldman Sachs, 89, 301
Goodreads, 192
Google, 112, 145, 168, 175, 183, 187,
203, 419, 421
Google Analytics, 143
Greiner Engineering, 387
Grubhub, 5, 12
H
Harris Corp., 409
HDFC Bank in India, 262
Heinz, 27
Hershey Food Corp, 311
Home Depot, 284
Honda, 27
Hong Kong and Shanghai Bank (HSBC), 246
HP, 280
Hulu, 258
I
IBM, 31, 72, 218, 280, 285, 336, 338
IKEA, 261
Infinity Insurance, 89
InnoCentive, 21
Intel, 355–357
InnoCentive, 21
Instagram, 42
International Accounting Standards Board
(IASB), 288
J
JDA Software Group, 311
JD Edwards, 307
JetBlue Airlines, 378
Jive, 326
Johnson & Johnson, 86
Joint Munitions Command (JMC), 314
JP Morgan, 27
K
KIA Motors, 280
Kickstarter, 212
KLM Royal Dutch Airlines, 200
Kohls, 261
O R G A N I Z AT I O N I N D E X 449
Konica Minolta, 27
Korean Pharmaceutical Information Center, 131
Kraft, 212
L
Lee, 212
Lehman Brothers, 286, 287
LG, 27
Liberty Wines, 60
Linden Labs, 219
LinkedIn, 20, 131, 192, 200, 207
L’Oreal, 218
LulzSec, 139
Lyle and Scott, 260
M
McDonald’s, 89
McKinsey, 301, 302, 373
Mercedes-Benz, 219
Merita Bank, 263
Microsoft, 72, 175, 365
Microsoft Xbox 360, 192
Microstrategy, 285
Mint.com, 166–167
Morrison-Knudsen Engineering, 387
Myntra, 205
N
National Aeronautics and Space Administration
(NASA), 291, 435
National Archives and Records Administration
(NARA), 94
National Climatic Data Center, 49
National Security Agency’s (NSA) data
center, 49
NBCNews.com, 192
Netflix, 192, 258
Nintendo, 254
Northeast Bank, 263
O
obopay.com, 261
Office Depot, 252
Office of Syria’s president, 140
1-800-Flowers, 219, 320, 321
Optus, 27
Oracle, 72, 285, 338
Organic Valley Family of Farms, 306
Organovo, 303
Overstock, 252
Oxford University, 86
P
P. F. Chang’s China Bistro,
Pandora, 189, 192
Payless Shoes, 295
PayPal, 134
paypal.com, 261
Pebble, 14
PepsiCo, 332–334, 336
Peters Ice Cream, 309
Pfizer Inc., 86
Philippine Commission on Elections, 139
Procter & Gamble (P&G), 120, 212
Prykarpattyaoblenergo Control Center
(PCC), 141
Q
Qantas, 27
R
Rackspace, 57
Red Robin Gourmet Burgers, Inc., 325
Reebok, 218
Reliance, 375
Reuters, 192
Rolling Stone, 192
Royal Bank of Scotland, 263
S
Safeway, 332–334, 336
Salesforce.com, 54, 57, 143, 270, 285, 319,
342
Samsung, 192, 260
San Diego, 303
SAP, 311
Sara, 212
SAS, 285, 338
ScanSource, 311
Schurman Fine Papers, 280
Seamless, 12
Sears, 112
Second Life, 218–219
Selinko,
Shyp, 2, 18
Siri, Inc., 148
Skyhook, 27–28
SnapChat, 208, 217–218
Sony, 102–103, 131, 254
Southwest Airlines, 378
Starbucks, 212
Starwood Hotels, 218
Steven Engineering, 280
Stitch Fix, 192
Surgery Center of Baltimore, 96
T
Target, 202, 241, 244,
Target Discovery Institute, 86
TaskRabbit, 2
Teamgum, 232
Teradata, 72
Time, 192
Tin Eye, 176
Toyota, 280
TradeCard, 246
Travelocity, 82
Tripadvisor, 192
Trulia, 203–204
Tumblr, 222, 223, 225
Turkish General Directorate of Population and
Citizenship Affairs, 131
Twitter, 4, 112, 143, 200, 207, 223–225
U
Uber, 2–4, 5, 18, 49
Unilever, 112, 120
University of Cincinnati, 96
U.S. Army Materiel Command (AMC), 314
U.S. Census Bureau, 335
U.S. Chamber of Commerce, 148
U.S. Department of Justice (DOJ), 129
U.S. Office of Personnel Management,
131
U.S. Immigration and Customs
Enforcement, 419
U.S. National Institutes of Health (NIH), 86
U.S. National Security Agency (NSA), 171
Us Weekly, 192
USAA, 263
V
Vanderbilt University Medical Center
(VUMC), 62
Verizon, 108, 129
Virgin Money, 27
VUMC (Vanderbilt University Medical Center), 62
W
Walmart, 89, 120, 261
Warner Music, 118
WebEx, 143
Wellcome Trust Sanger Institute, 86
Wells Fargo, 263
Western Union, 262
WhatsApp, 49
Wikis, 233
The Wild Feathers, 118
Woolworths, 27
WordPress, 222, 223
World Wide Web Consortium (W3C), 185
Y
Yahoo, 129, 131, 168
Yellow Pages, 256
YouTube, 192, 200, 207
Z
Zappos, 254
zong.com, 260
Zumba, 430
450
A
Alhadeff, Joseph, 436
Alspach, Loddie, 45
B
Baratov, Karim, 129
Belan, Alexsey, 129
Belsky, Scott, 12
Berners-Lee, Tim, 185, 202
Bernoff, Josh, 209, 222
Bezos, Jeff, 247
Bhargava, Hemant, 129
Bippert, Doug, 68
Birol, Faith, 433
Blair, John, 418
Boland, Michael, 3
Bradford, Dan, 343
Bryant, Diane, 355
C
Cerf, Vinton, 111
Cheah, Michael, 108
Chenault, Ken, 12
Chohan, Abdul, 379
Coburn, Tom, 409
Columbus, Louis, 84
D
Daugherty, Paul, 436
F
Faludi, Jeremy, 423
Friedman, Eric, 12
G
Gibbon, Kevin, 18
Goldman, Jonathan, 20
Gonzalez, Joaquin, 122
Gordon, Gregg, 20
Gutierrez, Carlos M., 409
H
Hansen, Eric, 89
Hayward, Tony, 359
Heathfield, Susan, 214
Hinssen, Peter, 2
Hoffman, Reid, 20
I
Ingham, Francis, 162
Iñigo de la Serna, 122
J
Jobs, Steve, 412
K
Kandel, Eric, 431
Kaplan, Robert, 374
Klappich, Dwight, 278
Kremez, Vitali, 129
L
Laping, Chris, 325
Lay, Ken, 287
Li, Charlene, 209, 222
Lieberthal, Kenneth G., 149
Lohr, Steve, 338
M
Madoff, Bernard L., 286, 287
Madoff, Bernie, 290
Madrigal, Alexis, 190
Mark, Gloria, 430
Martin, Roger L., 355
McClelland, Matt, 31
Merzenich, Michael, 431
Mitnick, Kevin, 134
Mollohan, Alan, 409
N
Norton, David, 374
O
Obama, Barack, 230
Odle, Keith, 418
Otellini, Paul, 356
Owyang, Jeremiah, 225
P
Park, James, 12
Patzer, Aaron, 167
Porter, Michael, 364
R
Raimondi, Marc, 409
Ramirez, Edith, 429
Reardon, Martine, 241
Richards, Jeff, 371
Rogers, Mike, 149
Rosedale, Philip, 219
S
Silei, Christiano, 272
Silliman, Craig, 129
Skilling, Jeffrey, 287
Solis, Brian, 225
Strauss, Jeff, 339
Sumlin, Carrie, 249
T
Tomlinson, Ray, 111
V
Vogel-Meijer, Karlijn, 201
W
Warburton, Jon, 281
Wheeler, Tom, 108
Z
Zuckerberg, Mark, 205, 214–215, 424
Zulpo, Scott, 19
Name Index
451
3G, 110
4G, 110
5G, 110
802.11a, 115
802.11ac, 115
802.11b, 115
802.11g, 115
802.11n, 115
A
Acceptable use policy (AUP), 158
Access control, 148, 152, 172
Accounting cycle fraud, 151
Accounting, finance, and regulatory systems
auditing information systems, 291
financial disclosure, 286–288
financial planning and budgeting, 291–292
financial ratio analysis, 292
fraud prevention and detection, 289–291
profitability analysis and cost control, 292
ACID test, 275
Active data warehouse (ADW), 81–82
Additive manufacturing process, 301
Ad hoc report, 34
Administrative controls, 152
Advanced persistent threat (APT), 139
Advanced search, 176
ADW (active data warehouse), 81
Adware, 135
Age Discrimination in Employment Act
(ADEA), 293
Aggregation, 340
Agile methodology, 392–394
Agility, 11, 364
AJAX (asynchronous JavaScript and XML), 204
Always-on supply chain, 316
American Idol, 263
Americans with Disabilities Act, 293
Analytical tools, 335
Android Auto, 439–440
Anonymous, 139
Anti-money laundering (AML), 158
Antivirus software, 146
Anything as a service (XAAS), 55–58
API, See Application program interface (API)
Application architecture, 41
Application controls, 154
Application program interface (API)
for Alexa, 113
defined, 111, 112
Google Maps, 125
value chain, in business, 112
Web 1.0 and Web 2.0, 203, 205
Application service provider (ASP), 105
Applications portfolio, 361
Application virtualization, 59
App Reputation Report, 420
APT (advanced persistent threat), 139
Artificial intelligence (AI), 422
ASP (application service provider), 105
Assets, 139
Asynchronous JavaScript and XML (AJAX), 204
Atomicity, 275
Attack, 135
Attack vector, 138
Auditing, 148, 292
Auditing information systems, 155
Augmented reality (AR), 242, 256
AUP (acceptable use policy), 158
Authentication, 148
Automated API, 112
Avatars, 218
B
Backdoors, 134
Backlinks, 180
Back-office operations, 315
Balanced scorecard (BSC)
defined, 374
examples of measurement criteria, 376
IT strategy, 355
JetBlue and Southwest Airlines, 378
leading indicators, 375
low-cost airline, 377
metrics, 376
perspectives, 375
smart criteria objectives, 375
Bandwidth
broad, 203
capacity, 106, 107
digital, 106
media, 106
Bankruptcy Act, 293
Barcode, 241
Barriers to entry, 23, 365
Baseline, 407
Batch processing, 33
Behavioral feasibility, 390
Big data, See also data analytics
and decision models, 68
defined, 15, 83
as a service, 58
Big data analytics
defined, 84
industrial project relies on, 88
for revitalizing McDonald’s, 98–99
Biometric control, 148
BITA, See Business–IT alignment (BITA)
Bitcoin payments, 177
Black Book model, 68
Black hat
defined, 133
vs. white hat, 181
Blogging
platform, 222
and public relations, 222
Tumblr, 225
Twitter, 223–225
Blogosphere, 221
Blogs, 220
Bluetooth, 115
Bot herder, 136
Botnets, 136
Bots, 168
Breach of privacy, 424
Bribery, 151
Bring your own apps (BYOA), 143
Bring your own device (BYOD), 142–143
Broadband, 202
Broad bandwidth, 203
BSC, See Balanced scorecard (BSC)
Business analytics, 68
Business architecture, 41
Business case, 396, 412–413
Business continuity
ERM for, 95
planning, 149
Business-driven development approach, 92
Business impact analysis (BIA), 163
Business intelligence (BI)
architecture and analytics, 93–94
business benefits of, 92
with business strategy, 92–93
competitive analytics practice, 93–94
data selection and quality, 92
defined, 20, 69, 91
electronic records management system
(ERMS), 94
legal duty to retain business records, 94
Business–IT alignment (BITA)
CIO skills, 363
competitive advantage (See Competitive
advantage)
defined, 355
organizational strategic, 362
Business management systems (BMSs), 273
Business model, 3
Business objectives, 375
Business process
automation, 10
defined, 9
gaining competitive advantage, 11–12
improving business processes, 9–10
software support for, 13
Business process management (BPM)
defined, 10, 13
software support for, 13
Business process reengineering (BPR)
defined, 10
eight phases of, 11
Business record, 94
Business strategy, 355
Business success
company growth and valuation, 4
search technology for, 168–177
Business-to-business (B2B)
defined, 15, 251
electronic data interchange (EDI)
systems, 253
e-procurement, 251–253
e-sourcing, 252
public and private exchanges, 253
sell-side marketplaces, 251–252
Business-to-consumer (B2C)
international and multiple-currency
banking, 246
Subject Index
452 S U B J E C T I N D E X
Business-to-consumer (B2C) (Continued)
marketing planning, 250–251
online banking, 246
online business, 250–251
online recruiting, 246–247
online retailing, issues in, 250
Business value, creation, 88–89
C
Campus area network (CAN), 104
Capacity bandwidth, 106
Capital budgeting, 292
Carbon footprint, 436
CarPlay, 440
Cascading style sheets (CSS), 204
Centralized database
defined, 67, 73
vs. distributed, 74
Change data capture (CDC), 80
Channel conflict, 250
Channel hopping, 244
Channel service unit/data service units
(CSU/DSU), 105
Chatter, 326
Chicago Board Options Exchange (CBOE), 341
Chief information officer (CIO), 355,
357, 360, 363
Chief technology officers (CTOs), 19
Ciphertext, 148
Circuit switching, 111
Cisco, 382
Civil rights, 426
Civil Rights Act of 1966, 293
Click-through rates (CTRs), 174
Climate change mitigation, 435–436
Cloaked pages, 181
Cloud computing
cloud infrastructure, 54
defined, 14, 52
infrastructure issues, 55
selecting cloud vendor, 52–54
Cloud service agreements (CSAs), 53
Cloud services
anything as a service (XaaS) models, 55–58
and cloud service agreements (CSAs), 53–54
data as a service (DaaS), 57
defined, 17, 55
infrastructure as a service (IaaS), 57
platform as a service (PaaS), 57
service models, 58
software as a service (SaaS), 56–57
vendor management, 53–54
virtualization, 58–60
and virtual machines (VMs), 58–60
Cloud storage service, 233
Cloud vendors, 52–54
Cluster area network (CAN), 104
Clustered search, 187
COBIT (Control Objectives for Information and
Related Technology), 155
COBIT 5, 156–157
CoCA (cost of customer acquisition), 184
Cognitive overload, 430
COIT (consumerization of information
technology), 143
Collaborative filtering, 190
Collection analysis module, 169
Command and control (C&C) channel, 144
Communication, 399
Competing legal concerns, 427
Competitive advantage
business process (See business process)
competitive forces model, 364–366
defined, 364
gaining, 11–12
IT agility and responsiveness, 364
mobile commerce, 255–258
in mobile commerce, 255–258
value chain model, 367–368
Competitive forces model, 364–366
Computer Fraud and Abuse Act (CFAA), 43
Computer-integrated manufacturing (CIM)
BAE Systems uses in, 281–282
defined, 281
reasons why companies invest in, 282
Computer networks, 104
Concept search, 187
Confidentiality, integrity, or availability
(CIA), 130
Conflict of interest, 151
Consistency, of data, 276
Consumer banking, 248
Consumer behavior
mobile impact, 241
on-demand economy, 4
predictive analytics, 317
retailing technology, 243–244
Consumer demands, 243–244
Consumerization of information technology
(COIT), 143
Consumer watchdog, 422
Content-based filtering, 189
Content control, 208
Content creation, 232–234
Content sharing, 232–234
Contract hackers, 134
Control Objectives for Information and Related
Technology (COBIT), 155
Core business processes, 304
Corporate culture, 36–37
Corporate governance, 151
Corporate IT infrastructures, 51
Corporate procurement, 252
Corporate purchasing, 252
Corporate social media discrimination, 426
Cost, 398
Cost–benefit analysis, 163, 389
Cost control, 292
Cost efficiencies, 8
Cost estimations, 404
Cost leadership strategy, 366
Cost of customer acquisition (CoCA), 184
Covert resistance, 390
Crawler control module, 169
Crawler search engines, 168, 169–170
Credit card 1 Webform, 261
Crimeware, 132
Critical infrastructure, 140
Critical path, 406
Critical success factor (CSF), 10
Critical task, 406
CRM, See Customer relationship
management (CRM)
Cross-functional business process, 9, 274–275
Cross-functional coordination and
integration, 274–275
Crowdfunding, 212, 403
Crowdsourcing, 212
Customer-centric business models, 47
Customer experience (CX), 7, 270, 320
Customer lifetime value (CLV), 320
Customer relationship management (CRM)
competitive edge, 320–321
critical success factors, 319
customer acquisition and retention, 320, 321
customer experience, 320
defined, 301
vs. ERP, 319
failure, 322
functions, 303, 304
mistakes, 321
risk assessment, 322
tangible net benefits, 322
technology perspective, 320
Customer satisfaction, 26
Customer value analytics (CVA), 84
Cyberattack
BYOD, 142–143
critical infrastructure attacks, 140–141
“high-profile” and “under-the-radar”
attacks, 139–140
identity theft, 142
IP theft, 141
social media attacks, 144
Cyber defense
do-not-carry rules, 148–149
fraud, strategies for, 153–154
industry standards, 157
IT governance frameworks, 155–157
IT security defense-in-depth model, 157–159
mobiles, minimum security defenses for, 148
risk management, 155–157
Cyber risk management
business continuity planning, 149
government regulations, 149–150
IT defenses, 146–149
Cybersecurity program, 147
Cyberthreats
attack vectors, 138
defined, 131
denial-of-service (DoS), 137
face and future of, 130–138
hacking, 133–134
insider and privilege misuse, 137
intentional threats, 132
miscellaneous errors, 138
physical theft/loss, 138
social engineering, 134–137
sources of, 132
unintentional threats, 132–133
web-based threats, 134–137
Cycle time, 22
D
DaaS (data as a service), 56, 57
Dashboards
defined, 12
FitBit’s competitive strengths, 12
Data, 30
Data analytics
analytics vendor rankings, 90–91
creation business value, 88–89
data and text mining, 88
defined, 3, 83, 84
human expertise and judgment are
needed, 85–88
people’s behavior, 420, 421
text analytics procedure, 90
Data as a service (DaaS), 56, 57
Database, 33, 69
S U B J E C T I N D E X 453
Database management system (DBMS)
and data warehousing vendors, 72–73
defined, 70
functions, 71
trend toward NoSQL systems, 72
vendor rankings, 72–73
Data breach
defined, 62, 130
impact of, 129
type of, 131
Data centers
data virtualization, 50
defined, 38, 48–50
evolution of, 52
integrating data to combat data, 50–52
software-defined data center (SDDC), 50–52
Data consistency, 70
Data deduplication, 80
Data discovery, 83–91, See also Data analytics
market, 336
tool, 336, 339
Data entity, 79
Data errors, 79
Data failure, costs of, 63
Data governance
characteristics of, 47
and cost control, 46–47
defined, 46
enterprisewide, 46
implementation, 63
maintaining data quality, 46–47
master data, 46–47
and master data management (MDM), 46–47
Data incident, 130
Data integrity, 275
Data latency, 70
Data life cycle, 77–78
Data management
Coca-Cola strategically to retain customers
and reduce costs, 66–67
database management systems and
SQL, 69–72
data breaches, 62
DBMS and data warehousing vendors, 72–73
and decision models, 68
defined, 69
enterprise, 67–68
faulty data, 62
sustaining business performance, 68
Data marts, 80
Data mining, 88
Data ownership and organizational
politics, 76–77
Data principles, 77–78
Data quality, control of, 73
Data science, 20
Data security, 275
Data silo, 43
Data silos, 43
Data tampering, 137
Data validity, 275
Data virtualization, 50, 59
Data visualization
analytical tools, 335
apps, 332, 335
Birst, 341
in business, 340–341
challenges, 339–340
data analytics, 332
data discovery tools, 339, 340
defined, 334
drill down capability, 334
Google Maps API, 125
heat map, 336, 337
human expertise, 336, 338
IBM SPSS analytic catalyst, 342
IBM tackles big data discovery, 336, 338
IBM Watson analytics, 342
learning, 336
maps, 334, 335
QlikView, 342
reporting tools, 335
Roambi analytics, 342
Safeway and PepsiCo, 332–334
SAS Visual Catalyst, 341
Tableau, 342
vendors, 338–339
Data warehouses
building, 80–81
defined, 67, 80
industrial applications, 82
prepare EDW data analytics, 80
real-time support from ADW, 81–82
Data warehousing vendors, 72–73
DBMS (database management system), 70
Decision model, 68
Decision support systems (DSS)
defined, 32
structured decisions, 34–35
Declarative language, 70
Defend Trade Secrets Act (DTSA), 141
Deliverables, 9, 397
Deloitte Analytics HIVE, 333
Demand management, 253
Demodulator, 105
Denial-of-service (DoS), 137
Denver International Airport (DIA)
project, 386–388
Desktop virtualization, 59
Detached search vendors, 173
DevOps, 394–395
Digital bandwidth, 106
Digital business models, 6–7
Digital dashboards
benefits of, 348
components of, 347
defined, 345
disparate data sources, 345, 346
free trial dashboards, 348
at Hartford Hospital, 348
metrics, 345, 346
PepsiCo and Safeway, 334
real time, 347
Digital dependents, 244
Digital immigrants, 244
Digital mesh, 380
Digital natives, 244
Digital technology, impacts of, 2
Digitization, 15
Direct procurement, 252
Dirty data
costs and consequences, 75–76
defined, 26, 75
Discrimination, 426, 427
Disruptive innovation, 266
Distributed database, 73
Distributed denial-of-service (DDoS),
132, 135, 137
Dlvr.it, 225
Document object model (DOM), 204
Dodd–Frank Wall Street Reform and Consumer
Protection Act of 2010, 46
Do-not-carry rules, 148–149
DSS (decision support systems), 32
Durability, of data, 276
Dwell time, 180
E
EA, See Enterprise architecture (EA)
EAI (enterprise application integration), 308
E-commerce, 244
Economic feasibility, 389
Economic order quantity (EOQ), 279
Edge service, 368
EDI (electronic data interchange), 120
EFT (electronic funds transfer), 246, 315
EISs (executive information systems), 32, 39
Electronic data interchange (EDI), 120, 253
Electronic funds transfer (EFT), 246, 315
Electronic records management system (ERMS)
benefits, 95
for business continuity, and compliance, 95
defined, 94
for disaster recovery, 95
practices, 94–95
Electronic wallet (e-wallet), 247
Embezzlement, 151
Empowered price sensitivity, 243–244
Encryption, 148
Enterprise 2.0
content creation and sharing, 232–234
for information retrieval, 230–231
knowledge sharing, 230–234
meetings and discussions, tools for, 230
social bookmarking tools, 231–232
workplace collaboration, 230–234
Enterprise application integration (EAI), 308
Enterprise architects, 42
Enterprise architecture (EA)
components of, 41
defined, 26
developing enterprise architecture
(EA), 41–42
IT infrastructure vs. architecture, 38
maintain sustainability, 38–40
Enterprise data management, 67–68
Enterprise data mashups
Adaptive Discovery Dashboard Software, 343
architecture, 343, 344
business users, 344
defined, 226
self-service, 344, 345
Enterprise data warehouses (EDWs), 80
Enterprise Graph, 325
Enterprise resource planning (ERP)
Boers & Co Fine Metalworking,
Netherlands, 309
consultant, 309, 310
vs. CRM, 319
defined, 301
disasters and failures, 311–312
functions, 303, 304
history of, 308
overview of, 308, 309
Peters Ice Cream, Australia, 309
selection rules, 310
success factors, 312–313
vendor selection process, 310
Enterprise resource planning (ERP)
systems, 251
454 S U B J E C T I N D E X
Enterprise risk management (ERM), 155
Enterprise search
defined, 172
security issues in, 172
structured vs. unstructured data, 172
vendors, 173
Enterprise social platforms (ESPs)
Chatter, 326
defined, 301
functions, 303, 304
growth of, 323–324
Jive, 326
Oracle’s social network, 326
SharePoint, 324–326
Enterprise systems
core business processes, 304
CRM, 303, 304, 319–322
ERP, 303, 304, 307–313
ESPs, 303, 304, 323–326
implementation of, 306
insights, 307
interface, 305
legacy systems, 305, 306
SCM (See Supply chain management (SCM))
value-added reseller (VAR), 305
Enterprisewide IT architecture, 26
E-procurement, 252
Equal Employment Opportunity Act, 293
Equal Employment Opportunity Commission
(EEOC), 426
Equal Pay Act of 1963, 293
ERP, See Enterprise resource planning (ERP)
E-sourcing, 252
ESPs, See Enterprise social platforms (ESPs)
ETL (extract, transform and load), 80
Eventual consistency, 70
Exabyte, 114
Exception report, 34
Executive information systems (EISs), 32, 39
Extendable markup language (XML), 204
Extensibility, 368
EXtensible Business Reporting
Language (XBRL)
defined, 287
reporting compliance, 288
tagging, 287–288
External transactions, TPS, 32
Extract, transform and load (ETL), 80
Extranet, 105
Extreme programming, 394
F
Faceted search, 187
Fault tolerance, 72, 148
Faulty data, 62
Feature convergence, 207
Federal Communications Commission
(FCC), 422
Federal Financial Institutions Examination
Council (FFIEC), 428
Federal Trade Commission (FTC), 427, 429
Feedback, 28
Filetype, 176
Financial Accounting Standards Board
(FASB), 286
Financial disclosure
accounting software packages, 286
defined, 287
XBRL reporting compliance, 288
XBRL tagging, 287–288
Financial misrepresentation, 286
Financial ratio analysis, 292
Firewall, 148
Five-forces model, 364
Fixed-line broadband, 108
Flexibility, 11
Flexible manufacturing systems (FMSs), 281
Focused search, 176
Focus management, 430–432
Folksonomy, 232
Formal processes, 9
Fraud
accounting cycle, 151
auditing information systems, 155
cyber defense strategies, 153–154
defending against, 150–155
defined, 150
financial meltdowns triggered by, 290
general controls, 152–153
internal controls, 153, 290–291
occupational fraud, 151–152
occurs, 289
prevention and detection, 289–291
risk factors, 289–290
risk management, 289
senior management financial reporting, 151
Free monitoring services
Google alerts, 229
Hootsuite, 229
social mention, 228
Twitter search, 229
Front-office operations, 315
Full-text similarity search, 187
Functional business systems (FBSs)
business management systems (BMSs), 273
vs. cross-functional business
processes, 274–275
management levels, 273–274
transaction processing systems
(TPSs), 275–276
G
GAAP (generally accepted accounting
principles), 152
GAAP Financial Reporting Taxonomy, 287
Gantt chart, 403–404
Garbage in, garbage out (GIGO), 75–76
Generally accepted accounting principles
(GAAP), 152, 286
General Motors (GM)
Ally Bank, Overview of, 248
geocoding, 350
resolving channel conflict, 250
Geocoding, 350
Geographic information systems (GISs)
in business, 351
defined, 349
geocoding, 350
geospatial data, 349
GIS-generated map, 350, 351
infrastructure, 350
location-tracking app, 350
longitude and latitude, 349
Geospatial data, 332, 349
Ghost pages, 181
Ghost text, 181
Giant global graph, 211
GISs, See Geographic information
systems (GISs)
Global e-Sustainability Initiative (GeSI), 434
Globalization, 8
Global mean temperature (GMT), 432–433
Global warming
carbon cycle, 433–434
climate change mitigation, 435–436
Climate Group’s SMART 2020 Report, 434–435
GeSI, 434–435
IT sector, 435
mobile, cloud, and social carbon
footprint, 436
OCO-2, 435
sustainability initiatives, 436
GMT (global mean temperature), 432–433
Goal seeking, 35
Go/no-go decision, 390
Google Glass, 418–419
Google’s Street View, 421–422
Gray hat, 133
Groundswell, 209
Group dynamics
defined, 120
online brainstorming, in Cloud, 121
Group work, 120–121
H
Hackers
classes of, 123
defined, 127
Hacking
defined, 132, 133
industry operates, 133–134
Hacktivists, 133
Hadoop, 85–87
Hardware virtualization, 59
Hashtag(s), 223
Hashtag activism, 224
Health Insurance Portability and Accountability
Act (HIPAA), 43
High fidelity, 219
Horizontal exchanges, 253
Hortonworks, 343
HTML (hypertext markup language), 204
Human resources (HR)
benefits administration, 295–296
compliance and ethics, 292–296
defined, 399
employee relationship management, 296
ethical challenges and considerations, 296
information systems, 292–295
management and employee
development, 295
monitors compliance with antidiscrimination
employment laws, 293
performance evaluation, 295
personnel planning and HR strategies, 295
recruitment, 294–295
SaaS, benefits of, 294
training and development, 295
Hybrid recommendation engines, 191
Hybrid search engines, 168
Hypertext markup language (HTML), 204
I
IaaS (infrastructure as a service), 56, 57
IBM DB2, 73
ICT, See Information and communications
technology (ICT)
Identity theft, cyberattack, 142
IDS (intrusion detection system), 137, 146, 148
Immediate consistency, 70
Inbound logistics, 278
S U B J E C T I N D E X 455
Inbound marketing, 180
Incident response team (IRT), 158
Income statement, 286
Indexer module, 169
Indirect procurement, 252
Informal processes, 9
Information, 30
Informational search, 173
Information and communications
technology (ICT)
defined, 102
environment, 432
GMT, 432–433
IT and global warming, 433–436
people-first approach, 438
and sustainable development, 432–438
transform business and society
technology, 436–437
Information architecture, 41
Information flows, 276
Information governance, See Data governance
Information management
business benefits of, 45–46
defined, 26, 42
information deficiencies, reasons for, 43–45
scattered data, 43
sharing and collaboration, 45
Information overload, 92
Information retrieval (IR)
services, 168
social media, 230–231
Information sharing, 120
Information silos, 43, 44, See also Data silos
Information systems (ISs)
characteristics of, 36
components of, 29–30
concepts and classification, 28–37
data, information, knowledge, and
wisdom, 30–31
data properties in, 275
decision support system (DSS), 34–35
defined, 28
executive information system (EIS), 35–36
exist within corporate culture, 36–37
management information system
(MIS), 33–34
security, 130
support enterprise applications, 270
transaction processing system (TPS), 32–33
types of, 31–32, 272
Informed user, 2, 21
Infrastructure as a service (IaaS), 56, 57
In-house development, 367–368
Insider fraud, 289
In-store tracking, 256
Integrated change control, 405–406
Integrated search vendors, 173
Intellectual property (IP)
defined, 141
finding, 176
theft of, 94
Internal control (IC), 153
Internal employment, 289
Internal threats, 137
Internal transactions, TPS, 32
Internet of Things (IoT)
advantages and disadvantages of, 123
defined, 16, 121
in developing nations, 436
group work and decision processes, 120–121
security and privacy in, 123
sensors, smart meters, and the smart
grid, 121–123
virtual collaboration, 120
Internet Protocol (IP), 109
Internet service providers (ISPs), 108
Intranet, 105, 230
Intrusion detection system (IDS), 137, 146, 148
Intrusion prevention system (IPS), 146
Inventory control systems
defined, 279
just-in-time inventory management
systems, 279–280
lean manufacturing systems, 280
production/operations technologies, 280
quality control (QC) systems, 280
IoT, See Internet of Things (IoT)
IP (Internet Protocol), 109
IP address, 109
IPOS (input, process, output, and store), 28
IPS (intrusion prevention system), 146
IP Version 4 (IPv4), 109
IP Version 6 (IPv6)
defined, 102, 109
Sony builds, 102–103
Isolation, of data, 276
ISs, See Information systems (ISs)
IT career, 19–20
adds value to your performance, 19–21
IT consumerization, 11
IT ethics
competing responsibilities, 423
computer ethics, 441
ethical vs. unethical behavior, 420–423
in workplace, 440
IT governance, 156
frameworks, cyber defense, 155–157
IT infrastructure, 38, 48
IT innovation and disruption
social–mobile–analytics–cloud (SMAC)
model, 13–14
technology mega trends, 14–16
using disruptive technologies, 16–17
IT management priorities, 7
IT project management mistakes, 410
IT security, 73
defense-in-depth model, 157–159
terminology, 148
IT strategic planning
and business disconnects, 359
business value drivers, 358
corporate and IT governance, 359
defined, 358
investments, 359
IT Steering Committee, 362
medium-term IT plan, 361
objectives of, 358
process, 361–362
SWOT analysis, 359, 360, 383
IT strategy
BIT (See Business–IT alignment (BITA))
BSC, 355, 377
defined, 354–355
in-house development, 367–368
Intel Reaps rewards, 355–357
sourcing (See Sourcing and Cloud services)
J
JavaScript, 204
Jive, 326
Job prospects, IT, 21
Joint Munitions Command (JMC), 314
Just-in-time (JIT)
defined, 279
inventory management systems, 279–280
K
Key performance indicators (KPIs), 40
BI strategy with business strategy, 92
BMSs, 273
data ownership and organizational
politics, 76
data types and roles, 340
EIS, 39
project status report, 405
retailing technology, 243
Keyword(s), 169
Keyword conversion, 184
Keyword tricks, 181
Knowledge, 30
Knowledge sharing, 230–234
L
Lagging indicators, 374
LAN (local area network), 104, 116
Latency, 70
Latency-sensitive apps, 107
Leading indicators, 375
Lean manufacturing system, 280
Legal and organizational feasibility, 389
Lessons learned report, 408
Link spamming, 181
Local area network (LAN), 104, 116
Location-based advertising, 27, 28
Location-based marketing, 256
Logical design, 390
Long-term evolution (LTE), 110
Lost data, 44
LTE (long-term evolution), 110
LulzSec, 139
M
Machine-to-machine (M2M)
communications, 435
technology, 16
Maintenance, repair, and operations
(MRO), 253
Malicious (rogue) mobile applications, 138
Malware, 135
MAN (metropolitan area network), 104, 116
Management information systems (MIS), 33–34
Management levels, FBSs, 273–274
Manufacturing execution systems, 281
Manufacturing quality control (MQ)
systems, 280
MapReduce, 85–87
Marketing management
pricing of products/services, 285
profitability analysis, 285
salesperson productivity, 285
Mashup, 117, 226
Mashup social
RSS technology, 227
social monitoring services, 227–229
Master data
and data entities, 79
defined, 46
master reference file, 79
Master data management (MDM), 47, 78–79
Master file, 47
Master reference file, 79
456 S U B J E C T I N D E X
M-commerce, 244
Media bandwidth, 106
MEDIATA, 27–28
Mega trends
big data, 15
connectivity, 14
data analytics, 15
defined, 14
digitization, 15
machine-to-machine technology, 15–16
Metadata, 185
Meta-search engines, 168
Metropolitan area network (MAN), 104, 116
Microblog, 223
Micropayments, 261
Microsoft Cloud, 324
Microsoft SQL server, 73
Milestones, 403
Millennials, 325
MIS (management information systems), 33–34
Miscellaneous errors, 132, 138
Mission, 273
Mobile app risky behaviors, 420–421
Mobile banking security risks, 263
Mobile bill payments, 261
Mobile biometrics, 148
Mobile browser, 256
Mobile check-in strategy, 241, 242
Mobile commerce
competitive advantage, 255–258
defined, 244
hotel services and travel go wireless, 259
mobile entertainment, 258–259
mobile social networking, 259
Mobile communications, 4
Mobile display strategy, 241
Mobile entertainment, 258–259
Mobile infrastructure
Wi-Fi and Bluetooth, 115
Wi-Fi networking standards, 115–116
Mobile kill switch, 148
Mobile location-based marketing, 256, 259
Mobile marketing, 255
Mobile networks
choosing solutions, 118–119
circuit vs. packet switching, 111
higher demand for high-capacity, 115
increases in traffic and users, 114
3G, 4G, 4G LTE, and 5G network
standards, 110–111
mobile infrastructure, 115–116
wireless infrastructure, two components
of, 116–117
Mobile payment, 242
Mobile phone card reader, 261
Mobile retailing, 255
Mobile search, 175, 256
Mobile SEO, 175
Mobile social networking, 259
Mobile transactions and financial services
mobile banking, 262–263
mobile payment systems, 260–262
security issues, 263
short codes, 263
Mobile visual search engine, 267
Mobility as a service, 58
Model, 26, See also specific models
Modem, 105
Modulation and coding, 105
Modulator, 105
Moral hazard, 290
MRO supplies, 253
N
National Highway Traffic Safety Administration
(NHTSA), 422
Natural language processing, 185
Natural language search, 187
Navigational search, 173
Near-field communication (NFC), See also
Mobile networks
business use of, 117–118
defined, 117
mobile payment systems, 261
Negligent hiring, 427–428
Net neutrality, 108
Net semi-neutrality, 108
Network effect, 215
Network fundamentals
functions supported by business
networks, 106–107
intranets, extranets, and virtual private
networks, 105
quality of service (QoS), 107–108
terminology, 105–106
types, 104
Network interface card (NIC), 59
Network servers, 48
Network virtualization, 59
Newsgroups, 210
NFC, See Near-field communication (NFC)
NIC (network interface card), 59
Nonlinear search and influence patterns, 244
Nonstandardized data formats, 44
NoSQL systems, 72
O
Objectives, 8
Object-oriented (O-O), 392
Occupational fraud
access controls, 152
administrative controls, 152
business reporting and disclosure of
violations, 152–153
corporate governance, 151
defined, 150, 289
intelligent analysis and anomaly
detections, 151–152
physical controls, 152
prevention and detection, 151–152
Sarbanes–Oxley Act (SOX), 152–153
Office Graph, 326
Off-page SEO, 179–180
Offshoring, 370–371
OLAP (online analytical processing)
systems, 72
OLTP (online transaction processing), 33, 71
Omni-channel retailing, 245
On-demand economy
Airbnb Business Model, 3
business models in, 3–4
change in consumer behavior, 4
defined, 4
growth of, 5–6
IT business objectives, 8
IT’s role in, 7
low cost of entry, 6
tech platforms enabled on-demand
services, 3
Uber Business Model, 3
On-demand services, 3
On-demand workers
changes in work status, 18
profile of U.S., 18
Online analytical processing (OLAP)
systems, 72
Online banking, B2C, 246
Online communities, 210
Online transaction processing (OLTP), 33, 71
Online transaction processing systems
(OTPS), 276
On-page SEO, 179–180
Onshore sourcing, 368
Ontology-based search, 187
Open graph, 215–216
Open Wi-Fi network, 421
Operating management corruption, 151
Operating systems, 111–112
Operations level, 274
Oracle 12c database, 72
Oracle’s social network, 326
Orbiting Carbon Observatory-2 (OCO-2), 435
Order fulfillment process, 315–316
Organic search, 174, 178–181
Organic Valley, 306
OTPS (online transaction processing
systems), 276
Outbound logistics, 278
Outsource relationship management (ORM)
company, 372
Outsourcing
challenges, 369
five-phase outsourcing life cycle, 371, 372
managing sourcing arrangements
and SLA, 372
risks and hidden costs, 370
OWL, See Web ontology language (OWL)
P
PaaS (platform as a service), 56, 57
Packet(s), 109
Packet switching, 111
PageRank, 180
Page repository, 169
Paid search
advertising, metrics for, 184
listings, 174
PAN (personal area network), 104
Patches, 144
Payload, 136
Payment Card Industry Data Security Standard
(PCI DSS), 157
Pay-per-click (PPC)
creating advertising campaign, 182–183
defined, 174
PDoS (permanent denial-of-service), 137
People, 399
People-first approach, 437
Permanent denial-of-service (PDoS), 137
Personal area network (PAN), 104
Personal assistants and voice search, 175–176
Personal health information (PHI), 128
Personalized search, SEO, 180
Personally identifiable information (PII), 128
Petabyte, 66, 170
PHI (personal health information), 128
Phishing, 132, 134–135
Physical controls, 152
Physical design, 390
Physical theft/loss, cyberthreats, 138
Plaintext/clear text, 148
S U B J E C T I N D E X 457
Platform as a service (PaaS), 56, 57
PMI® Project Management Body of Knowledge
(PMBOK 5e), 398
Point of sale (POS), 37, 68
Portfolio management, 396
PostgreSQL, 73
Post mortem, 386
activities, 407–408
defined, 407
lessons learned report, 408
PPM (project portfolio management),
396–397
Prioritize traffic, 107
Privacy
addressing social media, 216
civil rights, 424–429
privacy paradox, 424–425
recruiting, social media, 425–426
Private cloud, 52
Private social networks (SNSs), 219
Process improvement, 8
Procter & Gamble (P&G), 329
Procurement, 399
Product development, 8
Production and operations
management systems
CIM and MES, 281–282
inventory control systems, 279–280
logistics management, 278–279
transportation management systems
(TMSs), 278
Productivity, 7
Program management, 396
Project charter, 400, 401
Project Closing, See Post mortem
Project management
benefit, 395
business case, 396, 412–413
characteristics of projects, 396
defined, 395
failure, 408–409
IT jobs, 410
IT project management mistakes, 410
life cycle (See Project management
life cycle)
PMBOK, 398
PPM, 396–397
software, 413
ten knowledge areas of, 398
triple constraint, 397
Project management life cycle, 398
execution, 403–404
initiation, 400
planning stage, 400–403
Project management office (PMO), 408
Project monitoring and controlling
activities, 405
baseline, 407
critical path analysis, 406–407
integrated change control, 405–406
project status report, 405
scope creep, 405
Project portfolio, 361
Project portfolio management (PPM), 396–397
Projects, 395
Promoted tweets, 224
Proof of concept (POC), 373
Protected classes, 426
Protocol, 109
Public cloud, 52
Q
Quality control (QC) systems
inventory control systems, 280
Quality of service (QoS), 107–108
Quality score, 183
Query, 70
Query interface, 170
Query predictability, 70
Query processing capabilities, 70
Quick response (QR)
codes, 241, 261
time, 70
R
RAM (random access memory), 59
Ransomware, 135, 136–137
RAT (remote access trojan), 136
RDBMSs (relational management systems), 70
RDF (resource description framework), 185
Really simple syndication (RSS), 227
Real-time processing, 33
Real-time search, 177
Recommendation engines
applications, 192
collaborative filtering, 190–191
content-based filtering, 189
defined, 173
filters, 189–192
hybrid, 191–192
limitations of, 191
Red flag, 290
Related searches/queries, 186
Relational database, 70
Relational management systems
(RDBMSs), 70
Remote access trojan (RAT), 136
Remote wipe capability, 148
Reporting tools, 335
Responsibility matrix, 404
Responsiveness, 11, 364
Retailing technology
consumer demands and behavior, 243–244
omni-channel retailing concept, 244–245
Retrieval/ranking module, 169
Return on advertising spend (ROAS), 184
Retweet, 225
Reverse supply chain, 315
Rich snippets, 188
Risk, 146
Risk management, 289
Risk register, 404
ROAS (return on advertising spend), 184
Rogue app monitoring, 148
Rootkits, 135
Route data over third-party, 120
Routers, 106
RSS (really simple syndication), 227
S
SaaS (Software as a service), 54, 56–57
Safety stock, 279
Sales and marketing systems
data-driven marketing, 284
marketing management, 285
sales and distribution channels, 284
social media customer service, 284–285
SAN (server area network), 104
SAN (storage area network), 104
SAP Sybase ASE, 73
Sarbanes–Oxley Act (SOX), 43, 152–153, 155
SCADA (supervisory control and data
acquisition) system, 141
Scalability, 72
SCM, See Supply chain management (SCM)
Scope creep, 405
Scrum, 394
SDDC (software-defined data center), 50–52
SDK (software development kits), 203
SDLC, See Systems development life
cycle (SDLC)
Search engine(s), 168
Search engine marketing (SEM)
defined, 172, 173
growth of, 174
Search engine optimization (SEO)
black hat vs. white hat, 181
click-through rates (CTR), 179
content and inbound marketing, 180–181
defined, 166, 174
functionality and programming, 179
on-page and off-page, 179–180
personalized search, 180
relevance and credibility, 180
strategies for, 178–180
strategies of, 174
Search engine results page (SERP), 166
Search history, 176
Search on semantic/syntactic annotations, 187
Search technology
for business success, 168–177
search engines work, 168
web directories, 168–169
why search important for business, 172–177
Search tools button, 176
Semantic search engines, 168
Semantic web
for business, 187–188
defined, 185, 211
search, 186–187
Senior management financial reporting
fraud, 151
Sensors, 122
Sentiment analysis, 88
SEO, See Search engine optimization (SEO)
Server area network (SAN), 104
Server virtualization, 59
Service level agreement (SLA), 61
Service packs, 145
Service providers, 53
“Seven Deadly Sins of Project
Management,” 410
Shadow pages, 181
SharePoint, ESP
collaboration and business intelligence, 324
documents, 324
intranet and extranet, 324
Microsoft Cloud, 324
Office Graph, 326
Oslo App, 325–326
Yammer, 324, 325
Sharing sites, 208
Short code, 263
Short message service (SMS), 241
Showrooming, 175, 241
Signal frequency spectrum, 106
Signatures, 136
Silo effect, 45
SLA (service level agreement), 61
Smart city, 122
Smart grid, 123
458 S U B J E C T I N D E X
Smart meters, 121–123
SMS database strategy, 241
SNA (social network analysis), 211
SNS, See Social networking service (SNS)
SNSs (private social networks), 219
Social bookmarking, 177, 232
Social commerce, 244
Social engineering
cyberthreats, 134–137
defined, 133
Social graph, 211
Social logins, 216
Social media
applications and services, 207–209
attacks, 144
bookmarking tools, 231–232
defined, 202
elements of, 208–209
guidelines, financial institutions, 428–429
information retrieval, tools for, 230–231
more than Facebook, YouTube, and
Twitter, 207–209
optimization, 174
privacy, 216
Social Media: Consumer Compliance Risk
Management Guidance, 428
Social–mobile–analytics–cloud (SMAC), 13
Social monitoring services, 227
Social network analysis (SNA), 211
Social networking service (SNS)
and communities, 210–220
crowdfunding, 212–213
defined, 207, 213–214
discussion groups on, 231
Facebook dominates, 214–216
future of, 220
Google takes on Facebook with G+, 216–217
open graph initiative, 215–216
power of crowd, 212
private social networks, 219
Second Life, 218–219
with Snapchat, 217–218
social logins, 216
Social network sprawl, 325
Social plug-ins, 205, 206
Social recruitment, 425
Social search, 175
Social stalkers, 426
Social VR, 219
Social web, 202
Software as a service (SaaS), 54, 56–57, 246
Software-defined data center (SDDC), 50–52
Software development kits (SDK), 203
SOPs (Standard operating procedures), 9
Sourcing and Cloud services
cloud strategy challenges, 368–369
managing IT vendor relationships, 373
offshoring, 370–371
on-premises systems, 368
outsourcing, 369–372
SLAs, 373–374
tactical adoption vs. coordinated cloud
strategy, 368
SOW (statement of work), 400
SOX (Sarbanes-Oxley Act), 43
Spam, 136
SPARQL protocol and RDF query language
(SPARQL), 185
Spear phishing, 135
Specialized search vendors, 173
Spiders, 168
Sprints, 394
Spyware, 135
SQL (structured query language), 70
Stack, 56
Stakeholder(s), 399
Stakeholder integration, 8
Standard operating procedures (SOPs), 9, 275
Statement of work (SOW), 400
Stockouts, 279
Storage area network (SAN), 104
Storage virtualization, 59
Strategic planning, 273, 358
Strategic plans, 273
Strategic technology trends
defined, 378
description/examples, 378, 379
ESSA Academy, 378, 379
invest, 380
scanning, 380
Structured data, 172
Structured decisions, 35
Structured query language (SQL), 70
Subscription monitoring services, 227–228
Sunk costs, 409
Supervisory control and data acquisition
(SCADA) system, 141
Supply chain management (SCM)
always-on supply chain, 316
business goals, 314
cloud computing and storage, 318
defined, 301, 313, 314
driverless vehicles and drones, 318
flow of materials, data, and money, 315
functions, 303, 304
inventory and network optimization
tools, 317
logistics, 315
Lowe’s fresh approach, 328–329
order fulfillment, 315–316
predictive analytics, 317
robotics and automation, 317
sensors and automatic identification, 317
3D printing, 318
wearable and mobile technology, 318
Switches, 106
SWOT analysis, 19
Synchronous communication, 230
Systems development life cycle (SDLC)
defined, 386
implementation and testing, 390
methodology (See Systems development
methodology)
support and maintenance, 391
systems analysis, 390
systems design, 390
systems planning, 388–390
Systems development methodology
agile methodology, 392–394
DevOps, 394–395
object-oriented analysis and design, 392
Waterfall Model, 391–392
T
Tableau Desktop, 336
Tactical level, 274
Tactical plan, 361
Tangam’s Yield Management Solution (TYM), 7
TCO, See Total cost of ownership (TCO)
TDoS, See Telephony denial-of-service (TDoS)
Technical feasibility, 389
Technology architecture, 41
Technology, entertainment, and design
(TED), 353
Technology platform, 3
Technology stack, 3
Technology Vision report 2013, 6
TED, See Technology, entertainment, and
design (TED)
Telephony denial-of-service (TDoS), 137
Templates, 400
Terms of service (TOS) agreement, 213, 216
Texting while driving, 422
Text mining, 88
Third-party vs. company-owned offshoring, 383
Threat
actions, 138
defined, 130
intelligence, 89
3D bioprinting, 303, 423
3D printing, 318, 422–423
additive manufacturing process, 301
aerospace manufacturing, 303
defense, 302
defined, 301
features and benefits of, 301, 302
hardware stores, 302
health care, 302–303
industrial design, 303
manufacturing on-demand, 303
predictions, 301
reproducing vintage car components, 303
supply chain impact, 301–302
worldwide revenue of, 301
Throttle traffic, 108
Time, 398
Time-to-exploitation, 145
Title VII of the Civil Rights Act of 1964, 293
TOS, See Terms of service (TOS) agreement
Total cost of ownership (TCO), 60
Total quality management (TQM), 280
TQM, see Total quality management (TQM)
Trade secrets, 141
Traditional BI market, 336
Traffic shaping, 108
Trail run, 373
Transactional search, 173
Transaction processing systems (TPS)
batch vs. online real-time processing, 33
defined, 32
OTPS, 276
processing impacts data quality, 33
real time and batch processing, 276
Transmission control protocol/Internet
protocols (TCP/IPs), 111
Transportation management systems
(TMSs), 278
Triple constraint, 397
Trojan, 135
Trojan horse, 136
Tumblr blogs, 225
Tweet, 223
TweetDeck, 224
Twitterholic, 225
Twittersphere, 224
TYM (Tangam’s Yield Management Solution), 7
U
UGC (user-generated content), 208
Uniform resource identifiers (URIs), 185
S U B J E C T I N D E X 459
Unintentional threats
computer systems failures, 133
environmental hazards, 133
human error, 132–133
social engineering, 133
Unstructured data, 15, 172
Unstructured decisions, 35
URIs (Uniform resource identifiers), 185
USA PATRIOT Act, 43
Use-case
description, 392
diagram, 392
Usenet, 210
User-generated content (UGC), 208
Users categorization (tagging), 208
V
Valuation, 4
Value-added networks (VANs), 120
Value-added reseller (VAR), 305
Value chain model, 367–368
Value drivers, 358
Variance, 407
Vector, 136
Vendor management, 53–54
Vertical exchanges, 253
Vertical search engines, 177
Video blogs (vlogs), 206
Virtual communities, 210
Virtualization
business continuity with, 60
characteristics and benefits, 59–60
defined, 59
layer, 59
Virtual machines (VMs), 58–60
Virtual private networks (VPNs), 105
Virtual reality (VR), 59, 219
Virus, 135
VMs, see Virtual machines (VMs)
Voice biometrics, 148
Voice over IP (VoIP), 115
Vulnerability, 130
W
WAN, see Wide area network (WAN)
Wardriving, 421
Waterfall Model, 391–392
WBS, see Work breakdown structure (WBS)
Wearable technology, 12
Web 2.0
AJAX Technologies for, 204
constantly changing web, 201–202
defined, 202
markets, 209–210
platform for services and social
interaction, 202–203
of social applications, networks, and
services, 203–205
social media applications and
services, 207–209
vs. Web 1.0, 203
web technology, 205–206
Web 3.0 language(s), 185–186
Web directories, 168
Web ontology language (OWL), 185
Web search, for business, 176
Web technology, 205–206
What-if analysis, 35
White hat
vs. black hat, 181
defined, 133
Wide area network (WAN), 104, 116
Wi-Fi
defined, 115
networks, 421–422
standards, 115–116
Wiki, 208
WiMAX, 110, 116
Wireless infrastructure
GPS and Bluetooth, mashup of, 117
WiMAX, 116
WLANs, 116
Wireless local area network (WLAN), 104
Wireless marketing and advertising, 256
Wisdom, 31
WLAN, see Wireless local area network
(WLAN)
Work breakdown structure (WBS), 402–403
World wide web (WWW)
communicating on, 206
defined, 202
invention of, 202–203
Worm, 135
X
XaaS (anything as a service), 55–58
XBRL, See EXtensible Business Reporting
Language (XBRL)
XML (extendable markup language), 204
XMLHttpRequest, 204
Y
Yammer, 324, 325
Z
Zero-day exploits, 136
Zettabyte, 114
Zombies, 136
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