Chapter 15 - Managing Global Systems

Today electronic companies are assigning the distribution and production of their products to other countries.  International information systems architecture consists of the basic information systems required by organizations to coordinate worldwide trade and other activities.  The levels for developing an international information systems architecture are the global environment, the corporate global strategies, the structure of the organization, the management and business processes, and the technology platform.  The global environment the firm is operating in is the first place to start when building an international system.  The overall market forces, or business drivers, that are pushing the industry toward global competition must be understood.  A business driver is a force in the environment that businesses must respond and that influences the direction of the business.  A corporate strategy for competing in that environment will then need to be considered.  Once a strategy is developed, how to structure the organization so it can pursue the strategy is considered.  Management issues must then be considered in implementing the strategy and making the organization design come alive.  The final issue is to consider the technology platform.

The global environment includes business drivers and challenges.  Global business drivers can be divided into two groups:  general cultural factors and specific business factors.  General cultural factors include global communication and transportation technologies, development of global culture, emergence of global social norms, political stability, and global knowledge base.  Specific business factors include global markets, global production and operations, global coordination, global workforce, and global economies of scale.  Business challenges on a global level include cultural particularism (regionalism, nationalism, language differences), social expectations (brand-name expectations, work hours), and political laws (transborder data and privacy laws, commercial regulations).  Business challenges on a specific level include standards (different Electronic Data Interchange (EDI), email, telecommunications standards), reliability (phone networks not uniformly reliable), speed (different data transfer speeds, many slower than US), and personnel (shortages of skilled consultants).

International companies often times are behind in the most up-to-date applications and systems.  Significant difficulties are faced in building appropriate international architectures.  These difficulties involve planning a system appropriate to the firm’s global strategy, structuring the organization of systems and business units, solving implementation issues, and choosing the right technical platform.

Corporations seeking a global position face three organizational issues:  choosing a strategy, organizing the business, and organizing the systems management area.  Four main global strategies form the basis for global firms’ organizational structure:  domestic exporter, multinational, franchiser, and transnational.  Each of these strategies is pursued with a specific business organizational structure.  Three kinds of organizational structure are centralized (in the home country), decentralized (to local foreign units), and coordinated (all units participate as equals).  A domestic exporter strategy is characterized by heavy centralization of corporate activities in the home country of origin.  Most international companies begin this way.  Production, finance/accounting, sales/marketing, human resources, and strategic management are set up to optimize resources in the home country.  A multinational strategy concentrates financial management and control out of a central home base while decentralizing production, sales, and marketing operations to units in other countries.  Franchisers are a mix of old and new.  The product is created, designed, financed, and initially produced in the home country, but for product-specific reasons must rely heavily on foreign personnel for further production, marketing, and human resources.  Transnational strategy is where nearly all the value-adding activities are managed from a global perspective without reference to national borders, optimizing sources of supply and demand wherever they appear, and taking advantage of any local competitive advantages.  They take the globe as their management frame of reference and there is a strong central management core of decision-making.

Configuration, management, and development of systems tend to follow the global strategy chosen.  Four types of systems configurations are considered.  Centralized systems are those in which systems development and operation occur totally at the domestic home base.  These are found in domestic exporters.  Duplicated systems are those in which development occurs at the home base but operations are handed over to autonomous units in foreign locations.  These are found in franchisers.  Decentralized systems are those in which each foreign unit designs its own unique solutions and systems.  These are found in multinationals, and somewhat in domestic exporters and franchisers.  Networked systems are those in which systems development and operations occur in an integrated and coordinated fashion across all units.  These are found in transnationals, and somewhat in multinationals.

To develop a global company and information systems support structure, firms need to follow the following principles:  (1) Organize value-adding activities along lines of comparative advantage.  (2) Develop and operate systems units at each level of corporate activity—regional, national, and international.  (3) Establish at world headquarters a single office responsible for development of international systems.  Not only does the success of companies rely on the proper organization of activities, but also a management team that can understand the risks and benefits of international systems and that can devise strategies for overcoming the risks.

Management faces problems by developing international systems.  These problems are also the main difficulties managers experience in developing ordinary domestic systems, but they are enormously complicated in the international environment.  They include agreeing on common user requirements, introducing changes in business processes, coordinating applications development, coordinating software releases, and encouraging local users to support global systems. 

Management needs to have solutions to face these challenges.  They need to realize that not all systems should be coordinated on a transnational basis, but only some core systems are truly worth sharing from a cost and feasibility point of view.  Core systems support the functions that are absolutely critical to the organization.  Step one is to define a short list of critical core business processes by conducting a business process analysis.  The second step is to conquer the core systems and define these systems as truly transnational.  The third step is to choose an approach.  The last step is to make the benefits clear.  Although each system offers unique benefits to a particular budget, the overall contribution of global systems lies in four areas:  contribution to superior management and coordination; vast improvement in production, operation, and supply and distribution; global customers and global marketing; the ability to optimize the use of corporate funds over a much larger capital base.

The problems faced by managers developing the global information systems architectures now have solutions.  Agreeing on common user requirements:  establishing a short list of the core business processes and core support systems will begin a process of rational comparison across the many divisions of the company, develop a common language for discussing the business, and naturally lead to an understanding of common elements.  Introducing changes in business processes:  success as a change agent will depend on legitimacy, authority, and ability to involve users in the change design process; involving people in change, assuring them that change is in the best interests of the company and their local units, is a key tactic.  Coordinating applications development:  choice of change strategy is critical for this problem.  Coordinating software releases:  firms can institute procedures to ensure that all operating units convert to new software updates at the same time so that everyone’s software is compatible.  Encouraging local users to support global systems:  the key is to involve users in the creation of the design without giving up control over the development of the project to parochial interests; the overall tactic for dealing with resistant local units is a transnational company is cooptation, which is bringing the opposition into the process of designing and implementing the solution without giving up control over the direction and nature of the change.  Several alternatives are possible for cooptation to proceed.  One is to permit each country unit the opportunity to develop one transnational application first in its home territory, and then throughout the world.  Another is to develop new transnational centers of excellence, or a single center of excellence.

Once a global business model and systems strategy has been defined, firms must select hardware, software, and networking standards, along with key system applications to support global business processes.  Hardware, software, and networking pose technical challenges in an international setting.  One is finding some way to standardize a global computing platform when there is so much variation from operating unit to operating unit and from country to country.  Another is finding specific software applications that are user friendly and that truly enhance the productivity of international work teams.  Overcoming these challenges requires systems integration and connectivity on a global basis.  The goal with computing platforms is to develop global, distributed, and integrated systems to support digital business processes spanning national boundaries.  Data standards and other technical standards with which sites are to comply must be established.  In addition, integrated global systems must have connectivity, which is the ability to link together the systems and people of a global firm into a single integrated network.

Challenges for application software also need to be addressed.  The old system interfacing with the new is one issue.  If new systems are to be built and tested, this could be costly and messy.  Also, it should be taken into consideration to build software that can be realistically used by multiple business units form different countries.  Problems also arise of human interface design and functionality of systems with language becoming a barrier.  

Chapter 14 - Managing Projects

It is essential to have some knowledge about managing information systems projects and the reasons why they succeed or fail.  A systems development project without proper management will most likely suffer consequences such as costs that vastly exceed budgets, unexpected time slippage, technical performance that is less than expected, and failure to obtain anticipated benefits.  The actual design of the system may fail to capture essential business requirements or improve organizations performance.  In addition, the way that nontechnical business users must interact with the system may be excessively complicated and discouraging.  Also, the data in the system may have a high level of inaccuracy or inconsistency. 

Project management is the application of knowledge, skills, tools, and techniques to achieve specific targets within specified budget and time constraints.  Activities include planning the work, assessing risk, estimating resources required to accomplish the work, organizing the work, acquiring human and material resources, assigning tasks, directing activities, controlling project execution, reporting progress, and analyzing the results.  Project management must deal with five major variables:  scope (defines what work is or is not included in a project), time (the amount of time required to complete the project), cost (based on the time to complete a project multiplied by the cost of human resources required to complete the project), quality (an indicator of how well the end result of a project satisfies the objectives specified by management), and risk (potential problems that would threaten the success of a project).

Firms are presented with many different projects for solving problems and improving performance.  The firm’s overall business strategy should drive project selection.  The management structure for information systems project helps ensure that the most important projects are given priority.  At the top of the structure is the corporate strategic planning group, which is responsible for developing the firm’s strategic plan, and the information system steering committee, which is the senior management group with responsibility for systems development and operation.  They review and approve plans for systems in all divisions, seek to coordinate and integrate systems, and occasionally become involved in selecting specific information systems projects.  The next level is the project management group, which is composed of information systems managers and end-user managers responsible for overseeing several specific information systems projects.  They supervise the project team and they are responsible for the individual systems projects. 

An information systems plan needs to be developed to identify the information systems projects that will deliver the most business value.  The plan serves as a road map indicating the direction of systems development, the rationale, the current system’s situation, new developments to consider, the management strategy, the implementation plan, and the budget.  

Critical success factors (CSFs) are used to determine the information requirements of an organization.  It relies on interviews with key mangers to identify their CSFs.  Individual CSFs are aggregated to develop CSFs for the entire firm and systems can then be built to deliver information on these CFSs.

Portfolio analysis can be used to evaluate alternative system projects once strategic analyses have determined the overall direction of systems development.  It inventories all of the organization’s information systems projects and assets, including infrastructure, outsourcing contracts, and licenses, and each information systems project carries its own set of risks and benefits.  The most desirable are systems with high benefit and low risk because they promise early returns and low risks.  Next, high-benefit, high-risk systems should be examined.  Systems that are low-benefit, high-risk should be totally avoided.  Low-benefit, low-risk systems should be reexamined for the possibility of rebuilding and replacing them with more desirable systems having higher benefits.

Scoring models are useful for selecting projects where many criteria must be considered because it assigns weights to various features of a system and then calculates the weighted totals.  This model requires experts who understand the issues and the technology.  These models are used most commonly to confirm, to rationalize, and to support decisions, rather than as the final arbiters of system selection. 

A system project needs to be a good investment for a firm, which is determined by the return on invested capital.  Costs of information systems include the hardware, telecommunications, software, services, and personnel.  Tangible benefits are cost savings and can be quantified and assigned a monetary value.  Examples include increased productivity, lower operational costs, reduced workforce, lower computer expenses, lower outside vendor costs, and reduced facility costs.  Intangible benefits cannot be immediately quantified but may lead to quantifiable gains in the long run.  Examples include improved asset utilization, improved resource control, improved organizational planning, increased organizational learning, higher client satisfaction, and better corporate image.

All costs and benefits will need to be calculated to determine if a project is feasible.  If costs outweigh benefits, of course it is not.  If benefits outweigh costs, additional financial analysis is required to determine whether the project represents a good return on the firm’s invested capital.  One way to measure this is by using capital budgeting models.  This method relies on measures of cash flows into and out of the firm; capital projects generate those cash flows. 

In some cases management may benefit from using real options pricing models (ROPMs) to evaluate information technology investments.  These models use the concept of options valuation borrowed from the financial industry.  It gives managers the flexibility to stage their IT investment or test the waters with small pilot projects or prototypes to gain more knowledge about the risks of a project before investing in the entire implementation. 

Financial models have limitations that are often overlooked.  Some companies’ information systems investment decisions do not adequately consider costs from organizational disruptions created by a new system, such as the cost to train end users, the impact that users’ learning curves for a new system have on productivity, or the time managers need to spend overseeing new system-related changes.  Benefits, such as more timely decisions from a new system or enhanced employee learning and expertise may also be overlooked.

The level of risk in information systems projects is influenced by the project size, the project structure, and the experience with technology.  Other risk factors include the complexity of information requirements, the scope of the project, and how many parts of the organization will be affected by a new information system. 

The introduction or alteration of an information system has an impact on behavioral and organizational elements.  Careful change management is needed for successful system building.  The process of implementation must be examined to manage the organizational change surrounding the introduction of a new information system effectively.  Implementation is all organizational activities working toward the adoption, management, and routinization of an innovation, such as a new information system.  In this process the systems analyst is a change agent.  System implementation generally benefits from high levels of user involvement and management support.  User participation in the design and operation of information systems has several positive results.  However, the relationship between users and information systems specialists has traditionally been a problem area for information systems implementation efforts.  Systems development projects run a high risk of failure when there is a distinct gap between users and technical specialists and when these groups continue to pursue different goals.  If an information systems project has the backing and commitment of management at various levels, it is more likely to be perceived positively by both users and the technical information services staff.  In addition, management support ensures that a systems project receives sufficient funding and resources to be successful.

It is not surprising to find a high failure rate among enterprise application and business process reengineering projects given the challenges of innovation and implementation.  These projects typically require extensive organizational change and may require replacing old technologies and legacy systems that are deeply rooted in many interrelated business processes.  Also, projects related to mergers and acquisitions have a similar failure rate.  They are deeply affected by the organizational characteristics of the merging companies as well as by their IT infrastructures.  Without a successful systems integration, the benefits anticipated from the merger cannot be realized, or the merged entity cannot execute its business processes effectively.

Not all aspects of the implementation process can be easily controlled or planned, however anticipating potential implementation problems and applying appropriate corrective strategies can increase the chances for system success.  First, the level and nature of risk must be identified.  The success of projects depends on how well their technical complexity can be managed.  Next, implementers can handle each project with the tools and risk-management approaches geared to its level of risk.  Large projects benefit from appropriate use of formal planning tools and formal control tools for documenting and monitoring project plans.  The two most commonly used methods are Gantt charts and PERT charts.  Gantt charts lists project activities and their corresponding start and completion dates.  PERT charts graphically depict project tasks and their interrelationships.  They list the specific activities that make up a project and the activities that must be completed before a specific activity can start. 

Projects with relatively little structure and many undefined requirements must involve users fully at all stages.  External integration tools links the work of the implementation team to that of users at all organizational levels.  Overcoming user resistance is another issue faced when implementing a project.  The implementation strategy must not only encourage user participation and involvement, but it must also address the issue of counterimplementation.  This is a deliberate strategy to thwart the implementation of an information system or an innovation in an organization.  Strategies to overcome user resistance include user participation, user education and training, management edicts and policies, and better incentives for users who cooperate. 

Information systems projects must explicitly address the ways in which the organization will change when the new system is installed.  Organizational factors that must be addressed when planning and implementing information systems include employee participation and involvement, job design, standards and performance monitoring, ergonomics (including equipment, user interfaces, and the work environment), employee grievance resolution procedures, health and safety, and government regulatory compliance.  System analysis and design activities should also include an organizational impact analysis.  This explains how a proposed system will affect organizational structure, attitudes, decision-making, and operations.  Sociotechnical design results in blending technical efficiency with sensitivity to organizational and human needs, leading to higher job satisfaction and productivity.

Project management software tools typically features capabilities for defining and ordering tasks, assigning resources to tasks, establishing starting and ending dates to tasks, tracking progress, and facilitating modifications to tasks and resources.  The most widely used project management software today is Microsoft Office Project 2010.  While project management software helps organizations track individual projects, the resources allocated to them, and their costs, project portfolio management software helps organizations manage portfolios of projects and dependencies among them.

Chapter 13 - Building and Managing Systems

Building a new information system is a planned organizational change.  Information technology can promote various degrees of organizational change.  Four kinds of structural organizational change that are enabled by information technology include automation, rationalization, business process redesign, and paradigm shifts.  Each of these carries different risks and rewards.  Automation is the most common form of IT-enabled organizational change.  It is using the computer to speed up the performance of different tasks.  It frequently reveals new bottlenecks in production and makes the existing arrangement of procedures and structures painfully cumbersome.  Rationalization of procedures is the streamlining of standard operating procedures.  It is often found in programs for making a series of continuous quality improvements in products, services, and operations.  Business process redesign is where business processes are analyzed, simplified, and redesigned.  It reorganizes workflows combining steps to cut waste and eliminate repetitive, paper-intensive tasks.  Paradigm shift refers to rethinking the nature of the business and the nature of the organization.

Many businesses are trying to use information technology to improve their business processes.  Organizations are turning to business process management.  This provides a variety of tools and methodologies to analyze existing processes, design new processes, and optimize those processes.  Companies practicing business process management go through several steps.  The first step is to identify processes for change. The next step is to analyze existing processes.  The third step is to design the new process.  Step four is to implement the new process.  Step five is to continuously measure the implemented process.  Tools are also provided by software firms to help businesses identify and document processes requiring improvement, create models of improved processes, capture and enforce business rules for performing processes, and integrate existing systems to support new or redesigned processes.  Some BPM tools can document and monitor business processes to help firms identify inefficiencies.  BPM tools can also automate some parts of a business process and enforce business rules so that employees perform that process more consistently and efficiently.  Another category of tools can help businesses integrate their existing systems to support process improvements.  They can automatically manage processes across the business, extract data from various sources and databases, and generate transactions in multiple related systems.

Systems development are the activities that go into producing an information system solution to an organizational problem or opportunity.  It is a structured kind of problem solved with distinct activities.  These activities consist of systems analysis, systems design, programming, testing, conversion, and production and maintenance. 

System analysis is the analysis of a problem that a firm tries to solve with an information system.  It consists of defining the problem, identifying its causes, specifying the solution, and identifying the information requirements that must be met by a system solution.  The systems analysis process identifies several alternative solutions that the organization can pursue and assess the feasibility of each.  The systems analyst must define the specific information requirements that must be met by the chosen system solution.  The information requirements of a new system involve identifying who needs what information, where, when, and how. 

Systems design shows how a system will meet the information requirements as determined by the systems analysis.  It consists of all the specifications that give the system its form and structure.  Systems designer details the system specifications that will deliver the functions identified during systems analysis.

Programming is where system specifications that were prepared during the design stage are translated into software program code.  Testing must be conducted to ascertain whether the system produces the right results.  Testing can be broken down into three types of activities:  unit testing (testing each program separately in the system), system testing (tests the functioning of the information system as a whole), and acceptance testing (provides the final certification that the system is ready to be used in a production setting).  A test plan is then developed which includes all the preparations for the series of tests.  Conversion is the process of changing from the old system to the new system.  Four main conversion strategies can be employed.  These include the parallel strategy (both the old system and its potential replacement are run together for a time until everyone is assured that the new one functions correctly; it is the safest conversion approach), the direct cutover strategy (replaces the old system entirely with the new system on tan appointed day; it is a very risky approach), the pilot study strategy (introduces the new system to only a limited area of the organization), and the phased approach strategy (introduces the new system in stages, either by functions or by organizational units).  Documentation showing how the system works from both a technical and end-user standpoint is finalized during conversion time for use in training and everyday operations.

During the production stage, the system is reviewed by both users and technical specialists to determine how well it has met its original objectives and to decide whether any revisions or modifications are in order.  Once fine-tuned, the system must be maintained while it is in production to correct errors, meet requirements, or improve processing efficiency.  Maintenance is the changes in hardware, software, documentation, or procedures to a production system to correct errors, meet new requirements, or improve processing efficiency.  Maintenance is approximately 20 percent debugging or correcting emergency production problems, 20 percent concerned with changes in data, files, reports, hardware, or system software, and 60 percent consists of making user enhancements, improving documentation, and recoding system components for greater processing efficiency.

Structured methodologies and object-oriented development are two alternative methodologies for modeling and designing systems.  Structured methodologies are used to document, analyze, and design information systems, progressing from the highest, most abstract level to the lowest level of detail.  They are process-oriented, focusing primarily on modeling the processes, or actions that capture, store, manipulate, and distribute data as the data flow through a system.  This method separates data from processes.  The primary tool for representing a system’s component process and the flow of data between them is the data flow diagram.  It offers a logical graphic model of information flow, partitioning a system into modules that show manageable levels of detail, and it specifies the processes or transformations that occur within each module and the interfaces that exist between them.  Another tool is a data dictionary.  It defines the contents of data flows and data stores so that systems builders understand exactly what pieces of data they contain.  Also, software design is modeled using hierarchical structure charts, which is a top-down chart showing each level of design, its relationship to other levels, and its place in the overall design structure.

Object-oriented development uses the object as the basic unit of systems analysis and design.  It is based on the concepts of class and inheritance.  Objects belong to a certain class, or general categories of similar objects.  These classes are grouped into hierarchies in which a subclass inherits the attributes and methods from its superclass. 

Computer-aided software engineering (CASE) is the automation of step-by-step methodologies for software and systems development to reduce the amounts of repetitive work the developer needs to do.  CASE tools facilitate the creation of clear documentation and the coordination of team development efforts.  They enforce common methods and standards, which may discourage their use in situations where organizational discipline is lacking.

Alternative systems-building approaches have been developed to deal with the fact that systems differ in terms of their size and technological complexity and in terms of the organizational problems they are meant to solve.  Such approaches include the traditional systems life cycle, prototyping, application software packages, end-user development, and outsourcing. 

The systems life cycle is a phased approach to building a system, dividing systems development into formal stages.  It maintains a formal division of labor between end users and information system specialists.  It is used for building large complex systems that require a rigorous and formal requirements analysis, predefined specifications, and tight controls over the system-building process.  However, it can be costly, time-consuming, and inflexible.

Prototyping is the building an experimental system rapidly and inexpensively for end users to evaluate.  The process of building a preliminary design, trying it out, refining it, and trying again is known as an iterative process of systems development.  Prototyping is more explicitly iterative and it actively promotes system design changes.  The four steps of prototyping are to identify the user’s basic requirements, develop an initial prototype, use the prototype, and revise and enhance the prototype.  Once no more iterations are required, the approved prototype then becomes an operational prototype that furnishes the final specifications for the application.  Prototyping encourages intense end-user involvement throughout the systems development life cycle, however it can miss essential steps in systems development and may not easily accommodate large quantities of data or a large number of users in a production environment.

End-user development are types of information systems developed by end users with little or no formal assistance from technical specialists.  Fourth-generation languages make this possible.  These are software tools that enable end users to create reports or develop software applications with minimal or no technical assistance.  They tend to be nonprocedural, or less procedural, than conventional programming languages, which means they only specify what has to be accomplished rather than provide details about how to carry out the task.  End-user developed systems can be completed more rapidly than those developed through the conventional systems life cycle.  However, is poses organizational risks because it occurs outside of traditional mechanisms for information systems management and control, and when systems are created rapidly, testing and documentation may be inadequate.

Using software packages that are common to all business organizations can save a company time and money.  If the software package does not meet all requirements for an organization, it can be customized.  This feature allows a software package to be modified to meet an organization’s unique requirements without destroying the integrity of the packaged software.  If the package cannot be customized because the organization’s requirements conflict with the way the package works, then the organization will have to adapt to the package and change its procedures.

Outsourcing is contracting the applications development to external vendors.  Firms may use this if they do to want to use their internal resources to build or operate their information systems.  A company could also hire an external vendor to design and create the software for its system, but that company would operate the system on its own computers.  Outsourcing vendors may be domestic or in another country.  Domestic outsourcing is driven by the fact that outsourcing firms possess skills, resources, and assets that their clients do not have and it is often less expensive.  Offshore outsourcing is more cost-driven and many of these firms offer world-class technology assets and skills.

In order to keep up with the digital environment and respond to new opportunities, organizations need to be able to add, change, and retire their technology capabilities quickly.  Fast-cycle techniques such as rapid application development (RAD), joint application design (JAD), agile development, and reusable standardized software components allow them to do so.  RAD is the process for developing systems in a very short time period by using prototyping, fourth generation tools, and close teamwork among users and systems specialists.  JAD is the process to accelerate the generation of information requirements by having end users and information systems specialists work together in intensive interactive design sessions.  Agile development focuses on rapid delivery of working software by breaking a large project into a series of small subprojects that are completed in short periods of time using iteration and continuous feedback.  Component-based development enables a system to be built by assembling and integrating existing software components.  Web services can be used as tools for building new information system applications or enhancing existing systems.  They can perform certain functions on their own and they can engage other Web services to complete more complex transactions.

Chapter 12 - Enhancing Decision Making

Decisions are made at all levels of an organization as IS has made information available to these levels.  Decisions can be classified as structured, semistructured, and unstructured.  Structured decisions are repetitive and routine and they involve a definite procedure for handling them so that they do not have to be treated each time as if they were new. Operational management focuses these types of decisions.  Unstructured decisions are nonroutine decisions in which the decision maker must provide judgment, evaluation, and insights into the problem definition, and there is no well-understood or agreed-on procedure for making them.  Middle management focuses these types of decisions.  Semistructured decisions have elements of both structured and nonstructured decisions and are where only part of the problem has a clear-cut answer provided by an accepted procedure.  Senior management focuses these types of decisions.

The decision-making process is broken down into four stages:  intelligence design, choice, and implementation.  Intelligence is discovering, identifying, and understanding the problems occurring in the organization.  Design is identifying and exploring various solutions to the problem.  Choice is choosing among solution alternatives.  Implementation is making the chosen alternative work and continuing to monitor how well the solution is working.  If the solution does not work, return to an earlier stage in the process and repeat it.

Managers play a key role in the organization with a wide range of responsibilities.  The classical model of management describes formal managerial functions but does not address what exactly managers do when they plan, decide things, and control the work of others.  The contemporary model addresses that the actual behavior of managers appears to be less systematic, more informal, less reflective, more reactive, and less well organized than the classical model.  Managers’ day-to-day behavior can be classified into 10 managerial roles.  Managerial roles are the expectations of the activities that managers should perform in an organization.  These roles fall into three categories:  interpersonal, informational, and decisional.  Managers act as figureheads, leaders, and liaisons in their impersonal role.  Managers act as the nerve centers, disseminators, and spokes person in their informational roles.  Managers act as entrepreneurs, disturbance handlers, resource allocators, and negotiators in their decisional roles. 

Investments in information technology do not always produce positive results in managerial roles where information systems might improve decision.  Three reasons for this include information quality (high-quality decisions require high-quality information), management filters (managers absorb information through a series of filters to make sense of the world around them), and organizational culture (a firm’s decisions represent a balancing of the firm’s various interest groups rather than the best solution to the problem).

Decisions today are not always made by management, but are often made by the Internet.  The class of decisions that are highly structured and automated is growing rapidly.  Organizations are making decisions faster than what managers can monitor or control.

Business intelligence is the infrastructure for warehousing, integrating, reporting, and analyzing data that comes from the business environment.  Business intelligence and analytics are about integrating all the information streams produced by a firm into a single, coherent enterprise-wide set of data, and then, using modeling, statistical analysis tools, and data mining tools, to make sense out of all these data so managers can make better decisions and better plans, or at least know quickly when their firms are failing to meet planned targets.  A business intelligent environment consists of data from the business environment, a business intelligence infrastructure, a business analytics toolset, managerial users and methods, MIS, DSS, and ESS delivery platforms, and user interface.  Analytic functionalities that BI systems deliver to achieve these ends include production reports; parameterized reports; dashboards and scorecards; ad hoc query, search, report creation; drill down; and forecasts, scenarios, and models. 

Over 80 percent of the people who use BI consist of casual users who rely largely on production reports.  Senior executives use it to monitor firm activities using visual interfaces, such as dashboards and scorecards.  Middle managers and analysts use the data and software, entering queries and slicing and dicing the data along different dimensions.  Operational employees, customers, and suppliers are looking mostly at prepackaged reports.

Pre-packaged production reports are the most widely used output of a BI suite of tools.  Examples of BI applications include predictive analytics, data visualization and geographic IS.  Predictive analytics are being built into mainstream applications for everyday decision making by all types of employees, especially in finance and marketing.  It uses data mining techniques, historical data, and assumptions about future conditions to predict outcomes of events.  Data visualization is technology for helping users see patterns and relationships in large amounts of data by presenting the data in graphical form.  Geographic information systems (GIS) helps decision makers visualize problems requiring knowledge about the geographic distribution of people or other resources.

Two different strategies for adopting BI and BA capabilities for the organization are the one-stop integrated solution and the multiple best-of-breed vendor solution.  The one-stop integrated solution is where a single vendor provides a firm’s total hardware and software solution, making the firm dependent on its pricing power.  The multiple best-of-breed vendor solution offers greater flexibility and independence, but with the risk of potential difficulties integrating the software to the hardware platform, as well as to other software.

Many different constituencies make up a modern business firm.  Each of the management groups (operational management, middle management, and senior management) has different responsibilities and different needs for information and business intelligence, with decisions becoming less structured among higher levels of management. 

Operational and middle management are usually charged with monitoring the performance of key aspects of the business and most decisions they make are fairly structured.  MIS are typically used by middle managers to support this type of decision making, and their primary output is a set of routine production reports based on data extracted and summarized from the firm’s underlying transaction processing systems.  Decision support systems (DSS) are the BI delivery platform for the managers who consider themselves “super users.” 

Senior management uses the balanced scorecard and enterprise performance management methods.  The balanced scorecard focuses on measurable outcomes on four dimensions of a firm’s performance:  financial, business process, customer, and learning and growth.  Performance on each of these dimensions is measured using key performance indicators.  These are the measures proposed by senior management for understanding how well the firm is performing along any given dimension.  The business performance management attempts to systematically translate a firm’s strategies into operational targets.  Once identified, a set of key performance indicators are developed that measure progress towards the targets.  The firm’s performance is then measured with information drawn from the firm’s enterprise database systems. 

Group decision-support systems (GDSS) have been developed to support group and organizational decision-making.  It is an interactive computer-based system for facilitating the solution of unstructured problems by a set of decision makers working together as a group in the same location or in different locations.  GDSS provide tools and technologies geared explicitly toward group decision-making.

Chapter 11 - Managing Knowledge

Communicating and sharing knowledge have become increasingly important in today’s businesses.  Knowledge is most useful and actionable when it is shared throughout the firm.  Knowledge has several dimensions that must be understood.

Knowledge is a firm asset.  It is an intangible asset and is not subject to the law of diminishing returns as are physical assets, but it experiences network effects as its value increases as more people share it.  The transformation of data into useful information and knowledge requires organizational resources.  Knowledge also has different forms.  It can be either tacit or explicit and it involves know-how, craft, and skill.  It involves knowing how to follow procedures and knowing why, not simply when, things happen.  Knowledge has location.  It is a cognitive event involving mental models and maps of individuals, having both a social and an individual basis of it.  It is “sticky” (hard to move), situated, and contextual.  Lastly, knowledge is situational.  It is conditional, knowing when to apply a procedure is just as important as knowing the procedure.  It is related to context, meaning it must be known how to use a certain tool and under what circumstances.

Organizations create and gather knowledge using a variety of organizational learning mechanisms.  Organizational learning is the process of learning to adjust the organization’s behavior to reflect learning by creating new business processes and by changing patterns of management decision making.  Organizations that can sense and respond to their environments rapidly will survive longer than organizations that have poor learning mechanisms.

Knowledge management is the set of processes developed in an organization to create, gather, store, maintain, and disseminate the firm’s knowledge.  It increases the ability of the organization to learn from its environment and to incorporate knowledge into its business processes.  To maximize the return on investment in knowledge management projects, supportive values, structures, and behavior patterns must be built.  Knowledge management involves both information systems activities and a host of enabling management and organizational activities.  Information system activities include knowledge acquisition (knowledge discovery, data mining, neural networks, genetic algorithms, knowledge workstations, expert knowledge networks), knowledge storage (document management systems, knowledge databases, expert systems), knowledge dissemination (Intranet portals, push email reports, search engines, collaboration), and knowledge application (decision support systems, enterprise applications).

Essentially there are three major types of knowledge management systems.  Enterprise-wide knowledge management systems are general-purpose firmwide efforts to collect, store, distribute, and apply digital content and knowledge.  Knowledge work systems (KWS) refer to specialized systems built for engineers, scientists, and other knowledge workers charged with discovering and creating new knowledge for a company.  Intelligent techniques have different objectives from a focus on discovering knowledge (data mining and neural networks) to distilling knowledge in the form of rules for a computer program (expert systems and fuzzy logic) to discovering optimal solutions for problems (genetic algorithms).

Enterprise-wide knowledge management systems deal with three types of knowledge:  the knowledge that exists within the firm in the form of structured text documents; the knowledge that is semistructured; and the knowledge that resides in the heads of employees where there is no formal or digital information of any kind. 

Enterprise content management systems help organizations manage structured and semistructured knowledge, providing corporate repositories of documents, reports, presentations, and best practices and capabilities for collecting and organizing email and graphic objects.  One main issue in managing knowledge is the creation of an appropriate classification scheme (known as taxonomy) to organize information into meaningful categories so that it can be easily accessed.  Once created each knowledge object needs to be “tagged” so that it can be easily retrieved.  Enterprise content management systems have this capability.  These systems also include powerful portal and collaboration technologies.  The portals can provide access to external sources of information as well as to internal knowledge resources.  Social bookmarking makes it easier to search for and share information by allowing users to save their bookmarks to Web pages on a public Web site and tag these bookmarks with keywords.  A learning management system provides tools for the management, delivery, tracking, and assessment of various types of employee learning and training.

Knowledge network systems are also known as expertise location and management systems.  They address the problem that arises when the appropriate knowledge is not in the form of a digital document but instead resides in the memory of expert individuals in the firm.  These systems provide an online directory of corporate experts in well-defined knowledge domains and use communication technologies to make it easy for employees to find the appropriate expert in a company. 

Knowledge workers include researchers, designers, architects, scientists, and engineers who primarily create knowledge and information for the organization.  They perform three key roles that are critical to the organization and to the managers who work within the organization:  they keep the organization current in knowledge as it develops in the external world; they serve as internal consultants regarding the areas of their knowledge, the changes taking place, and opportunities; and they act as change agents, evaluating, initiating, and promoting change projects.  They require highly specialized knowledge work systems with powerful graphics, analytical tools, and communications and document management capabilities. 

Knowledge work applications include CAD systems, virtual reality systems for simulation and modeling, and financial workstations.  CAD (computer-aided design) automates the creation and revision of designs, using computers and sophisticated graphics software.  Virtual reality systems use interactive graphics software to create computer-generated simulations that are so close to reality that users almost believe they are participating in a real-world situation.  Virtual Reality Modeling Language (VRML) is a standard used by these applications and is a set of specifications for interactive, 3-D modeling on the World Wide Web that can organize multiple media types to put users in a simulated real-world environment.  Augmented reality (AR) provides a live direct or indirect view of a physical real-world environment whose elements are augmented by virtual computer-generated imagery. 

Artificial intelligence (AI) technology consists of computer-based systems (both hardware and software) that attempt to emulate human behavior.  This along with database technology provides a number of intelligent techniques that organizations can use to capture individual and collective knowledge and to extend their knowledge base.  These techniques include expert systems, case-based reasoning, fuzzy logic, neural networks and data mining, genetic algorithms, and intelligent agents. 

Expert systems are used for capturing tacit knowledge and capturing the knowledge of skilled employees in the form of a set of rules in a software system that can se used by others in the organization.  However, they lack the breadth of knowledge and the understanding of fundamental principles of a human expert and they typically perform very limited tasks that can be performed by professionals in a few minutes or hours.  Yet, by capturing human expertise in limited areas, expert systems can provide benefits, helping organizations make high-quality decisions with fewer people.  These systems model human knowledge as a set of rules that collectively are called the knowledge base.  Inference engine is the strategy used to search through the knowledge base.  Two strategies commonly used are forward chaining and backward chaining.  Forward chaining begins with the information entered by the user and searches the rule base to arrive at a conclusion.  Backward chaining acts like a problem solver by beginning with a hypothesis and seeking out more information until the hypothesis is either proved or disproved.  Benefits of expert systems include improved decisions, reduced errors, reduced costs, reduced training time, and higher levels of quality and service.  But, they require large, lengthy, and expensive development efforts and the environment in which it operates is continually changing so that the expert system must also continually change.  Also, some of these systems are so complex that in a few years the maintenance costs equal the development costs.

Case-based reasoning is also used for capturing tacit knowledge.  It represents knowledge as a series of cases, and this knowledge base is continuously expanded and refined by users.  It is found in diagnostic systems in medicine or customer support where users can retrieve past cases whose characteristics are similar to the new case.  It suggests a solution or diagnosis based on the best-matching retrieved case.

Fuzzy logic is rule-based AI that tolerates imprecision by using nonspecific terms called membership functions to solve problems.  Organizations can use this logic to create software systems that capture tacit knowledge where there is linguistic ambiguity.  It also provides solutions to problems requiring expertise that is difficult to represent in the form of crisp IF-THEN rules.  Management also has found it useful for decision-making and organizational control.

Neural networks are used for knowledge discovery; solving complex, poorly understood problems for which large amounts of data have been collected.  These networks “learn” patterns from large quantities of data by sifting through data, searching for relationships, building models, and correcting over and over again the model’s own mistakes.  Neural network designers seek to put intelligence into the hardware in the form of a generalized capability to learn.  The applications are used in medicine, science, and businesses to address problems in pattern classification, prediction, financial analysis, and control and optimization.  However, neural networks cannot always explain why they arrived at a particular solution and they cannot always guarantee a completely certain solution, arrive at the same solution again with the same input data, or always guarantee the best solution.  Also, they are very sensitive and may not perform well if their training covers too little or too much data.

Genetic algorithms are useful for finding the optimal solution for a specific problem by examining a very large number of possible solutions for that problem.  They are based on techniques inspired by evolutionary biology.  They are used to solve problems that are very dynamic and complex, involving hundreds or thousands of variables or formulas. 

Intelligent agents can automate routine tasks to help firms search for and filter information for use in electronic commerce, supply chain management, and other activities.  It is software programs that work in the background without direct human intervention to carry out specific, repetitive, and predictable tasks for an individual user, business process, or software application.  These applications can be found in operating systems, application software, email systems, mobile computing software, and network tools.

Chapter 10 - E-Commerce: Digital Markets, Digital Goods

E-commerce is defined as the process of buying and selling goods and services electronically using the Internet, networks, and other digital technologies.  It involves transactions between and among organizations and individuals.  It began in 1995 and showed exponential growth in retail sales until the recession of 2008-2009.  In 2010 it began growing again at an estimated 12 percent annually. 

E-commerce has grown so rapidly because the Internet and e-commerce technologies are much more rich and powerful than previous technology revolutions.  Unique features of e-commerce include ubiquity, global reach, universal standards, richness, interactivity, information density, personalization/customization, and social technology.  Ubiquity is having Internet/Web technology available everywhere, such as at work, at home, and elsewhere via mobile devices.  Global reach is having technology reach across national boundaries, around the Earth.  Universal standards allow sharing by all nations around the world and enable any computer to link with other computer regardless of the technology platform each is using.  Richness refers to the complexity and content of a message.  Interactivity is where the technology works through interaction with the user.  Information density is how the technology reduces information costs and raises quality.  Personalization/customization is where the technology allows personalized messages to be delivered to individuals as well as groups.  Social technology allows users to create and share with their personal friends and others content in the form of text, videos, music, or photos.

The Internet has created a digital marketplace and as a result it has changed the way companies conduct business and increased their global reach.  Digital markets are said to be more “transparent” than traditional markets.  One feature that makes digital markets transparent is the reduction of information asymmetry.  Information asymmetry exists when one party in a transaction has more information that is important for the transaction than the other party.  Also, digital marketplaces are very flexible and efficient because they operate with reduced search and transaction costs, lower menu costs, greater price discrimination, and the ability to change prices dynamically based on market conditions.  Menu costs are the merchants’ costs of changing prices.  These markets also provide many opportunities to sell directly to the consumer, bypassing intermediaries.  By eliminating the middleman in the distribution channel, purchase transaction costs can be significantly lowered.  This removal of organizations or business process layers responsible for intermediary steps in a value chain is known as disintermediation.  The digital marketplace has expanded sales of digital goods.  These are goods that can be delivered over a digital network. 

One was to classify e-commerce is by the nature of participants in the e-commerce transaction.  Business-to-consumer (B2C) e-commerce involves retailing products and services to individual shoppers.  Business-to-business (B2B) e-commerce is the sales of goods and services amoung businesses.  Consumer-to-consumer (C2C) e-commerce involves consumers selling directly to consumers.  Another way to classify e-commerce is by the platforms used by participants in a transaction.  Mobile commerce is using handheld wireless devices for purchasing goods and services from any location.  Two types of m-commerce are smart phones and e-readers.

E-commerce business models have emerged to add extra value to existing products and services or to provide the foundation for new products and services.  Types of e-commerce business models include portals, e-tailers, content provider, transaction brokers, market creators, service providers, and community providers.  Portals such as Google and Bing offer powerful Web search tools as well as an integrated package of content and services all in one place.  E-tailers are online retail stores, such as Amazon.  Here customers only need to connect to the Internet to check their inventory and place an order.  A content provider creates revenue by providing digital content, over the Web.  The ITunes Store and Apple’s Internet-connected devices such as the iPhone, iPod, and iPad are examples.  They have enabled new forms of digital content delivery from podcasting to mobile streaming.  Podcasting is a method of publishing audio or video broadcast via the Internet.  Streaming is a method of publishing music and video files that flows a continuous stream of content to a user’s device without being stored locally on the device.  Transaction brokers are sites that process transactions for consumers normally handled in person, by phone, or by mail.  Market creators provide a digital environment where buyers and sellers can meet, search for products, display products, and establish prices for those products.  Service providers offer services online, such as photo sharing, video sharing, and online sites for data backup and storage.  Community providers are sites that create a digital online environment where people with similar interests can buy and sell goods, share interests, communicate with like-minded people, and receive interest-related information.

A revenue model shows how a firm will earn revenue, generate profits, and produce a superior return on investment.  Most firms rely on one, or some combination, of the following e-commerce revenue models:  advertising, sales, subscription, free/freemuin, transaction fee, and affiliate.  The advertising revenue model is the most widely used revenue model in e-commerce.  In this model a Web site generates revenue by attracting a large audience of visitors who can then be exposed to advertisements.  In a sales revenue model a company derives revenue by selling goods, information, or services to customers.  The subscription revenue model is where a Web site offering content or services charges a subscription fee for access to some or all of its offerings on an ongoing basis.  The free/freemuim revenue model is how firms offer basic services or content for free, while charging a premium for advanced or special features.  In the transaction fee revenue model a company receives a fee for enabling or executing a transaction.  An affiliate revenue model is where Web sites (called “affiliate Web sites”) send visitors to other Web sites in return for a referral fee or percentage of the revenue from any resulting sales.

Web 2.0 online services are one of the fastest growing areas of e-commerce revenues, with the most popular social networking.  This links people through their mutual business or personal connections, enabling them to mine their friends for sales leads, job-hunting tips, or new friends.  Examples include Facebook, MySpace, Friendster, and LinkedIn.  These sites offer new possibilities for e-commerce.  Networking sites sell banner, video, and text ads; sell user preference information to marketers; and sell products, such as music, videos, and e-books.  At social shopping sites, such as Kaboodle and ThisNext, one can swap shopping ideas with friends.

Wisdom of crowds is the belief that large numbers of people can make better decisions about a wide range of topics or products than a single person or small committee of experts.  This concept suggests that firms should consult with thousands of their customers first as a way of establishing a relationship with them, and then better understand how their products and services are used and appreciated (or rejected).  This allows firms to help in solving some business problems using crowdsourcing.  Firms can also use this concept in the form of prediction markets, which are established peer-to-peer betting markets where participants make bets on specific outcomes of business decisions. 

E-commerce has affected marketing and marketing communications more than any other industry.  The Internet provides marketers with new ways of identifying and communicating with millions of potential customers at costs far lower than traditional media.  The Internet enables long tail marketing, which is the ability for firms to profitably market goods to very small online audiences, largely because of the lower costs of reaching very small market segments.  The Internet also provides new ways to gather information from customers, adjust product offerings, and increase customer value.  Behavioral targeting techniques are used to increase the effectiveness of banner, rich media, and video ads.  This technique refers to tracking the click-streams (history of clicking behavior) of individuals on thousands of Web sties for the purpose of understanding their interests and intentions, and exposing them to advertisements that are uniquely suited to their behavior.  Many believe this technique leads to more efficient marketing and larger sales and revenues.  However, it also leads to the invasion of personal privacy without user consent.  This technique takes place at the individual Web site level and on various advertising networks that track users across thousands of Web sites.  It enables firms to understand how well their Web site is working, create unique personalized Web pages that display content or ads for products or services of special interest to each user, improve the customer’s experience, and create additional value through a better understanding of the shopper. 

B2B e-commerce refers to the commercial transactions that occur among business firms.  Most of these transactions are still based on proprietary systems for electronic data interchange (EDI), which is the direct C2C exchange between two organizations of standard business transactions, such as orders, shipment instructions, or payments.  Private industrial networks (private exchanges) consist of a large firm using an extranet to link to its suppliers and other key business partners for efficient supply chain management and other collaborative commerce activities.  Net marketplaces (e-hubs) provide a single, digital marketplace based on Internet technology for many different buyers and sellers.  Exchanges are independently owned third-party Net marketplaces that connect thousands of suppliers and buyers for spot purchasing. 

M-commerce is the use of wireless devices, such as cell phones or handheld digital devices, to conduct both B2C and B2B e-commerce transactions over the Internet and is the fastest growing of e-commerce.  The main areas of growth are location-based services; software application sales at stores such as iTunes; entertainment downloads of ring tones, music, video, and TV shows; mobile display advertising; direct shopping services; and e-book sales.  M-commerce applications have taken off for services that are time-critical, that appeal to people on the move, or that accomplish a task more efficiently than other methods.  Types of applications include location-bases services, banking and financial services, wireless advertising and retailing, and games and entertainment. 

In order to build a successful e-commerce site, a strong understanding of business, technology, and social issues, as well as a systematic approach is needed.  The two most important challenges management faces are developing a clear understanding of their business objectives and knowing how to choose the right technology to achieve those objectives.  The first step in the building process is to be aware of the main areas where decisions need to be made, i.e., bringing in the best individuals who possess the skill sets needed to build and manage a successful e-commerce site.  Next decisions will need to be made about the site’s hardware, software, and telecommunications infrastructure.  Customers’ demands will drive these decisions.  Once these decisions are made, the next step is planning the Web site to identify the specific business objectives for the site, and then developing a list of system functionalities and information requirements.  Business objectives are the capabilities the site needs to have.  System functionalities are the types of information system capabilities needed to achieve the business objectives.  The information requirements are the information elements that the system must produce in order to achieve the business objectives. 

Choices from building and maintaining the Web site range from outsourcing the entire Web site development to an external vendor to building everything in-house and deciding whether to host the site on the firm’s own servers or outsource the hosting to a Web host provider.  The building decision has pros and cons for whichever choice is made.  If building in-house a pre-built template should be used to create the Website.  This is the least expensive and simplest way to go.  However, the risk of high development costs and doing a poor job come with not using the pre-built template.  External vendors are relied heavily on to provide sophisticated Web site capabilities, while also maintaining a substantial internal staff.  Most companies choose to outsource hosting and pay a company to host their Website.  This means that the hosting company is responsible for making sure the site is “live” or accessible, 24 hours a day.  With this businesses need not concern themselves with technical aspects of setting up and maintaining a Web server, telecommunications links, or specialized staffing.

System maintenance is the biggest component of a Web site budget.  This is followed by system development, content design and development, telecommunications and hardware, and software.  A simple Web site can be built and hosted with a first-year cost of $5,000 or less.