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MANAGEMENT
INFORMATION
SYSTEMS
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MANAGEMENT
INFORMATION
SYSTEMS
Tenth Edition
James A. O’Brien
College of Business Administration
Northern Arizona University
George M. Marakas
KU School of Business
University of Kansas
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Management
Challenges
MODULE I
Business
Applications
@bWh_X
<
Development
Processes
Information
Technologies
Foundation
Concepts
FOUNDATION CONCEPTS
W
W
hy study information
systems? Why do businesses need information
I
technology? What do you need to know about the use and manageL technologies in business? The introductory
ment of information
chapters of Module I are designed
to answer these fundamental questions about
S
the role of information systems in business.
O
of Information Systems in Business presents an
• Chapter 1: Foundations N
•
overview of the five basic areas of information systems knowledge needed by
,
business professionals, including
the conceptual system components and major
types of information systems. In addition, trends in information systems and an
overview of the managerial challenges associated with information systems are
J
presented.
Chapter 2: Competing with
A Information Technology introduces fundamental
concepts of competitive advantage through information technology and illusM
trates major strategic applications of information systems.
I
Completing these chapters will prepare you to move on to study chapters
E(Module II), business applications (Module III),
on information technologies
systems development processes (Module IV), and the management challenges
of information systems (Module V).
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Management
Challenges
CHAPTER 1
Business
Applications
Module
I
Development
Processes
Information
Technologies
Foundation
Concepts
FOUNDATIONS OF INFORMATION
SYSTEMS IN BUSINESS
Ch apt er Highligh t s
Section I
Foundation Concepts: Information Systems
in Business
The Real World of Information Systems
Real World Case: eCourier, Cablecom, and Bryan Cave:
Delivering Value Through Business Intelligence
The Fundamental Roles of IS in Business
Trends in Information Systems
The Role of e-Business in Business
Types of Information Systems
Managerial Challenges of Information Technology
Section II
Foundation Concepts: The Components of
Information Systems
System Concepts: A Foundation
Real World Case: The New York Times and Boston
Scientific: Two Different Ways of Innovating with
Information Technology
Components of Information Systems
Information System Resources
Information System Activities
Recognizing Information Systems
Real World Case: Sew What? Inc.: The Role of
Information Technology in Small Business Success
Real World Case: JetBlue and the Veterans
Administration: The Critical Importance of IT Processes
W
I
L L ea r n i n g O bj ect i v e s
S
1. Understand the concept of a system and how it
O
relates to information systems.
N 2. Explain why knowledge of information systems is
important for business professionals, and identify
,
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3.
4.
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6.
7.
five areas of information systems knowledge that
they need.
Give examples to illustrate how the business
applications of information systems can support
a firm’s business processes, managerial decision
making, and strategies for competitive advantage.
Provide examples of several major types of information systems from your experiences with business organizations in the real world.
Identify several challenges that a business manager might face in managing the successful and
ethical development and use of information technology in a business.
Provide examples of the components of real world
information systems. Illustrate that in an information system, people use hardware, software, data,
and networks as resources to perform input, processing, output, storage, and control activities that
transform data resources into information products.
Demonstrate familiarity with the myriad of career
opportunities in information systems.
3
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Module I / Foundation Concepts
SECTION I
Foundation Concepts:
Information Systems in Business
The question of why we need to study information systems and information technology
has evolved into a moot issue. Information systems have become as integrated into our
daily business activities as accounting, finance, operations management, marketing, human resource management, or any other major business function. Information systems
and technologies are vital components of successful businesses and organizations—some
would say they are business imperatives. They thus constitute an essential field of study
in business administration and management, which is why most business majors include
a course in information systems. Since you probably intend to be a manager, entrepreneur, or business professional, it is just as important to have a basic understanding of
information systems as it is to understand any other functional area in business.
Information technologies, W
including Internet-based information systems, are playing vital and expanding roles in business. Information technology can help all kinds of
I
businesses improve the efficiency and effectiveness of their business processes, manaL
gerial decision making, and workgroup
collaboration, which strengthens their competitive positions in rapidly changing
marketplaces.
This benefit occurs irrespective of
S
whether the information technology is used to support product development teams,
O
customer support processes, e-commerce
transactions, or any other business activity.
Information technologies andNsystems are, quite simply, an essential ingredient for
business success in today’s dynamic global environment.
,
The Real
World of
Information
Systems
What Is an
Information System?
Let’s take a moment to bring the real world into our discussion of the importance of
information systems (IS) and information technology (IT). See Figure 1.1, and read
J information technology to better understand and
the Real World Case about using
satisfy customer needs.
A
If we are to understand information systems and their functions, we first need to
M In its simplest form, a system is a set of interrebe clear on the concept of a system.
lated components, with a clearly
I defined boundary, working together to achieve a
common set of objectives. Using this definition, it becomes easy to see that virtually
everything you can think of isE
a system, and one system can be made up of other systems or be part of a bigger system. We will expand on this concept later in the next
section, but for now, this definition gives us a good foundation for understanding the
5 systems.
focus of this textbook: information
0 that we can expand upon later in the chapter. An
We begin with a simple definition
information system (IS) can be5any organized combination of people, hardware, software, communications networks, data resources, and policies and procedures that
1
stores, retrieves, transforms, and disseminates information in an organization. People
B to communicate with one another using a variety
rely on modern information systems
of physical devices (hardware), information processing instructions and procedures
U
(software), communications channels (networks), and stored data (data resources). Although today’s information systems are typically thought of as having something to do
with computers, we have been using information systems since the dawn of civilization. Even today we make regular use of information systems that have nothing to do
with a computer. Consider some of the following examples of information systems:
• Smoke signals for communication were used as early as recorded history and
can account for the human discovery of fire. The pattern of smoke transmitted
valuable information to others who were too far to see or hear the sender.
• Card catalogs in a library are designed to store data about the books in an organized manner that allows readers to locate a particular book by its title, author
name, subject, or a variety of other approaches.
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Chapter 1 / Foundations of Information Systems in Business
REAL WORLD
CASE
V
1
5
eCourier, Cablecom, and Bryan Cave:
Delivering Value through Business
Intelligence
isitors to the eCourier Web site are greeted with
the words “How happy are you? Take the eCourier
happy test today!” Those words and the playful
purple Web site represent the company’s customer satisfaction focus. And the company achieves that happiness
through its focus on operational business intelligence.
Business intelligence is moving out of the ivory tower of
specialized analysts and is being brought to the front lines.
In the case of eCourier, whose couriers carry 2,000 packages
around London each day, operational business intelligence
allows the company to keep real-time tabs on customer satisfaction. “This is a crucial differentiator in London’s competitive same-day courier market, where clients are far more
likely to take their business elsewhere than they are to report
a problem to their current courier,” says the company’s chief
technology officer and cofounder Jay Bregman.
Just one online directory, London Online, shows about 350
listings for courier services.
Before implementing operational business intelligence,
eCourier sought to define IT as a crucial differentiator.
Cofounders Tom Allason, eCourier’s CEO, and Bregman
ditched the idea of phone dispatchers and instead gave their
couriers GPS-enabled handhelds so that couriers can be
tracked and orders can be communicated electronically. They
also focused on making online booking easy and rewarding,
and much was invested in user-friendly applications: Customers can track online exactly where their courier is, eliminating the package delivery guesswork.
Today, 95 percent of deliveries are booked online;
this means that eCourier needs a much smaller staff for monitoring, tracking, and placing orders, which in turn makes
the company more scalable. Bregman says this is notable in
F IGUR E 1.1
Access to quality information about customers helps
companies succeed at delivering value to shareholders.
Source: © Digital Vision/Alamy.
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a market where many courier companies use telephone dispatchers and guesswork about package whereabouts. Booking and tracking automation—although innovative—did not
complete the customer happiness puzzle. Without leadingedge business intelligence, account managers could miss
the same issues that plagued other courier services—late
deliveries, surly couriers, or even an unnoticed ramp-up in
deliveries. “We’re only one delivery away from someone
deciding to use a different delivery firm,” says Bregman.
So eCourier started to use software from a company called
SeeWhy to try to generate customer data more quickly.
“What’s unique about SeeWhy,” says Bregman, “is its ability to
report what’s happening with customers instantly.” When a
new booking enters eCourier’s database, the information is duplicated and saved into a repository within SeeWhy. The software then interprets the data by comparing it with previous
information and trends, and if it notices an anomaly, it takes
action. If a customer typically places an eCourier order every
Thursday morning between 9:30 and 10:00 and there’s been
no contact during that time, eCourier’s CRM team will receive
an alert shortly after 10:00 that includes the client’s history and
the number of bookings it typically places in a day. Bregman
says there’s a fair amount of fine-tuning to get the metrics right.
For example, the company had to tweak the system to recognize
expected shifts in activity so that it doesn’t send a slew of alerts
once the after-Christmas drop in business occurs. Getting that
perfect balance of when to send alerts and how best to optimize the system is an ongoing process, he says.
The SeeWhy software is designed to establish a “normal”
client booking pattern from the first use, which is deepened
with each subsequent booking. A sharp drop-off in bookings,
an increase in bookings, or a change in dormant account activity generates an alert that is sent to that client’s account
manager; the manager uses the opportunity to problem-solve
or, in the case of increased activity, upsell to overnight or international services. “These capabilities have provided a big
payoff,” says Bregman. He also believes the system saves his
company the expense of having to hire people to monitor
“who’s happy and who’s not—we’re able to do a lot more on
our customer team with a lot less.”
Other approaches to judging customer dissatisfaction
exist. Cablecom, a Swiss telecom company, used SPSS’s
statistical software to mine customer data, primarily from
trouble tickets—such as the average duration of a ticket, or
how many tickets had been opened for a customer over a
specific time period—to build a model that could flag when
a customer was at a high risk of leaving. “But the model
proved to be only about 70 percent accurate,” says Federico
Cesconi, director of customer insight and retention.
So Cesconi used SPSS’s Dimensions survey research
software to create an online customer survey, and from that
he was able to determine that customer dissatisfaction usually begins around the ninth month of service, with the bulk
of the customer losses occurring between months 12 and 14.
Cesconi then created another survey that he now offers to
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Module I / Foundation Concepts
customers in the seventh month of service, which includes an
area where they can type in specific complaints and problems.
“Cablecom calls customers within 24 hours of completing
the survey,” says Cesconi. “The two approaches together
provide the best view of customers ready to bolt, and the
best chance at retaining them.”
In 2002, global law firm Bryan Cave faced the milliondollar question: How do you make the most money with
your resources while simultaneously delivering the highest
customer value? The problem was pressing. Clients of the
firm, which now has 800 lawyers in 15 offices worldwide,
were demanding alternatives to the traditional hourly fee
structure. They wanted new models, such as fixed pricing
and pricing that was adjusted during a project.
But making money from these new billing strategies
required the complicated balance of staffing and pricing.
Projects weighted too heavily with a law partner’s time
would be expensive (for the law firm) and not optimized for
profit. Devoting too little of a partner’s time would leave clients feeling undervalued. Optimizing profit and perceived
value had to be achieved by spreading partners’ time throughout a number of cases and balancing the remaining resources
needed for a case with the less-expensive fees of associates
and paralegals. “Clients are most likely to stay with you if you
deliver just the right mix,” says Bryan Cave’s CIO John Alber.
The law firm’s traditional method of analyzing collected
fees and profit used a spreadsheet that was complicated and
took too long. “Spreadsheets provide a level of detail that can
be valuable for analysts,” says Alber, “but the information in a
spreadsheet can be confusing and difficult to work with.” Alber
says he decided it was better to build an easy-to-understand interface using business intelligence tools. Although the company
will not release specific figures, both profitability and hours leveraged—the hours worked by equity partners and all other fee
earners at the firm—have increased substantially since the company implemented its first BI tool in 2004, according to Alber.
The tools also allow lawyers to track budgets in real time
so that they can make adjustments quickly. The BI tools
CASE STUDY QUESTIONS
1. How do information technologies contribute to the business success of the companies depicted in the case? Provide an example from each company explaining how the
technology implemented led to improved performance.
2. In the case of law firm Bryan Cave discussed above, the
use of BI technology to improve the availability, access,
and presentation of existing information allowed them to
provide tailored and innovative services to their customers. What other professions could benefit from a similar
use of these technologies, and how? Develop two different possibilities.
3. Cablecom developed a prediction model to better identify
those customers at risk of switching to other company in
the near future. In addition to those noted in the case,
what other actions could be taken if that information
were available? Give some examples of these. Would you
consider letting some customers leave anyway? Why?
even provide a diversity dashboard, which tracks the hourly
mix of women and minorities working on the firm’s cases, a
feature the company will license to Redwood Analytics for
sale to other law firms. The firm developed this diversity
tool to bring transparency to the diversity reporting process
required by many clients. In other words, the tools provide
Bryan Cave with a method of customizing its fees and helping clients better understand what they get for their money.
As an illustration, Alber points to the customized pricing
one lawyer gave to his real estate client. “Developers think in
terms of square feet,” says Alber, “and this client couldn’t understand why legal fees for a 400,000-square-foot building
might be the same as for a 4,000-square-foot building, though
it required the same amount of the lawyer’s time.” So the lawyer used the pricing and staffing modeling tools and historical
analysis tools to determine whether it made sense for the law
firm to charge clients based on the size of their projects.
W
He found that while there was risk of underpricing large
I buildings, the deal volume in small buildings offset that risk for
firm. The result made per-square-foot pricing possible.
Lthe law
“It may be possible that someone with enough willpower
Sor manpower could do that using traditional analysis,” says
Alber, “but this lawyer had the information right at his finOgertips.” Business intelligence enables “us to be in touch
Nwith clients and shift things around in response to what customers are asking,” says Alber. Adopting new and improved
, project management, pricing, and customer service capabilities required planning, appropriate pacing, and user buy-in.
“In today’s environment, you can’t do value innovation
without
being in touch with the economics of your business,
J
without really understanding where you make money and
Awhere you don’t, and that’s what business intelligence tools
Mdo,” says Alber. “Our goal,” he says, “is to build the best longterm relationships in the world.”
I Source: Adapted from Diann Daniel, “Delivering Customer Happiness
Operational Business Intelligence,” CIO Magazine, December 6,
EThrough
2007; Diann Daniel, “How a Global Law Firm Used Business Intelligence to
Fix Customer Billing Woes,” CIO Magazine, January 8, 2008; and Mary Weier,
“Dear Customer: Please Don’t Leave,” InformationWeek, June 18, 2007.
5
0
REAL WORLD ACTIVITIES
5
1 1. Use the Internet to research the latest offerings in
business intelligence technologies and their uses by
B companies. What differences can you find with those
in the case? Prepare a report to summarize
U reviewed
your findings and highlight new and innovative uses of
these technologies.
2. Why do some companies in a given industry, like
eCourier above, adopt and deploy innovative technologies while others in the same line of business do not?
Break into small groups with your classmates to discuss what characteristics of companies could influence
their decision to innovate with the use of information
technologies.
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Chapter 1 / Foundations of Information Systems in Business
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7
• Your book bag, day planner, notebooks, and file folders are all part of an in-
•
•
formation system designed to help you organize the inputs provided to you via
handouts, lectures, presentations, and discussions. They also help you process
these inputs into useful outputs: homework and good exam grades.
The cash register at your favorite fast-food restaurant is part of a large information system that tracks the products sold, the time of a sale, inventory levels,
and the amount of money in the cash drawer; it also contributes to the analysis
of product sales in any combination of locations anywhere in the world.
A paper-based accounting ledger as used before the advent of computer-based
accounting systems is an iconic example of an information system. Businesses
used this type of system for centuries to record the daily transactions and to keep
a record of the balances in their various business and customer accounts.
Figure 1.2 illustrates a useful conceptual framework that organizes the knowledge
presented in this text and outlines areas of knowledge you need about information
systems. It emphasizes thatW
you should concentrate your efforts in the following five
areas of IS knowledge:
I
• Foundation Concepts.LFundamental behavioral, technical, business, and mana-
•
•
•
F IGUR E 1.2
A framework that outlines
the major areas of
information systems
knowledge needed by
business professionals.
gerial concepts about the components and roles of information systems. ExamS system concepts derived from general systems
ples include basic information
theory or competitive strategy
O concepts used to develop business applications of
information technology for competitive advantage. Chapters 1 and 2 and other
N this area of IS knowledge.
chapters of the text support
, Major concepts, developments, and management issues
Information Technologies.
in information technology—that is, hardware, software, networks, data management,
and many Internet-based technologies. Chapters 3 and 4 provide an overview of
computer hardware and J
software technologies, and Chapters 5 and 6 cover key data
resource management and
A telecommunications network technologies for business.
Business Applications. The major uses of information systems for the operations,
M
management, and competitive advantage of a business. Chapters 7 and 8 cover
applications of information
I technology in functional areas of business such as
marketing, manufacturing, and accounting. Chapter 9 focuses on e-business apE
plications that most companies use to buy and sell products on the Internet, and
Chapter 10 covers the use of information systems and technologies to support
decision making in business.
5
Development Processes. How business professionals and information specialists
0 information systems to meet business opportunities.
plan, develop, and implement
Several developmental methodologies
are explored in Chapters 11 and 12, including
5
1
B
U
Business
Applications
Management
Challenges
Information
Systems
Development
Processes
Information
Technologies
Foundation
Concepts
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Module I / Foundation Concepts
F IGU RE 1.3
Information Systems
The three fundamental
roles of the business
applications of information
systems. Information
systems provide an
organization with support
for business processes and
operations, decision
making, and competitive
advantage.
Support
Strategies
for Competitive
Advantage
Support
Business
Decision Making
Support
Business Processes and Operations
•
The
Fundamental
Roles of IS in
Business
the systems development life cycle and prototyping approaches to business appliW
cation development.
I The challenges of effectively and ethically managing
Management Challenges.
information technology at L
the end-user, enterprise, and global levels of a business. Thus, Chapter 13 focuses on security challenges and security management
S technology, while Chapter 14 covers some of the
issues in the use of information
key methods business managers
O can use to manage the information systems function in a company with global business operations.
N
Although there are a seemingly
, endless number of software applications, there are
three fundamental reasons for all business applications of information technology.
They are found in the three vital roles that information systems can perform for a
J
business enterprise:
A and operations.
• Support of business processes
Support
of
decision
making
•
Mby employees and managers.
advantage.
• Support of strategies for competitive
I
Figure 1.3 illustrates how the fundamental roles interact in a typical organization.
E
At any moment, information systems
designed to support business processes and operations may also be providing data to, or accepting data from, systems focused on
business decision making or achieving competitive advantage. The same is true for the
5
other two fundamental roles of IS. Today’s organizations are constantly striving to
0 to allow information to flow freely through them,
achieve integration of their systems
which adds even greater flexibility and business support than any of the individual
5
system roles could provide.
1 store as a good example of how these roles of IS in
Let’s look at a typical retail
business can be implemented.B
The Fundamental
Roles of IS in
Business
U
Support of Business Processes and Operations. As a consumer, you regularly encoun-
ter information systems that support the business processes and operations at the
many retail stores where you shop. For example, most retail stores now use
computer-based information systems to help their employees record customer
purchases, keep track of inventory, pay employees, buy new merchandise, and
evaluate sales trends. Store operations would grind to a halt without the support of
such information systems.
Support of Business Decision Making. Information systems also help store managers and other business professionals make better decisions. For example, decisions
about what lines of merchandise need to be added or discontinued and what kind
of investments they require are typically made after an analysis provided by
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Chapter 1 / Foundations of Information Systems in Business
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computer-based information systems. This function not only supports the decision
making of store managers, buyers, and others, but also helps them look for ways to
gain an advantage over other retailers in the competition for customers.
Support of Strategies for Competitive Advantage. Gaining a strategic advantage
over competitors requires the innovative application of information technologies.
For example, store management might make a decision to install touch-screen kiosks
in all stores, with links to the e-commerce Web site for online shopping. This offering might attract new customers and build customer loyalty because of the ease of
shopping and buying merchandise provided by such information systems. Thus,
strategic information systems can help provide products and services that give a business a comparative advantage over its competitors.
Welch’s: Balancing
Truckloads with
Business
Intelligence
Given dramatic fluctuationsW
in gas prices, it’s no surprise that companies want to find
ways to rein in transportation costs. One company finding success in that endeavor is
I
Welch’s, a well-known purveyor
of food and packaged consumer goods. The company is tapping the power of
L business intelligence for better insight into its supplychain operations, which in turn can help keep transportation expenses lower. Welch’s,
S known for its jams, jellies, and juices, recently inthe $654 million manufacturer
stalled an on-demand BI application
from Oco.
O
One way Welch’s is leveraging the Oco BI application is to ensure that truckloads
N
delivered by its carriers go out full.
, are already paying for the full truck when it delivers
The idea is that customers
goods, even if it’s only halfway or three-quarters loaded. With the BI system, Welch’s
can tell if a buyer’s shipment is coming up short of full capacity and help them figure
Jto max it out, thus saving on future shipping costs.
out what else they can order
“Welch’s can go to the customer
and say, ‘You’re only ordering this much. Why
A
not round out the load with other things you need? It will be a lot cheaper for you,’”
M and CEO of Oco. “If you’re able to put 4,000 more
says Bill Copacino, president
pounds on the 36,000-pound
I shipment, you’re getting a 10 percent discount on
transportation costs,” he adds.
E every element—from the customer orders we re“We’re essentially capturing
ceive, to bills of lading on every shipment we make, as well as every data element on
every freight bill we pay,” says Bill Coyne, director of purchasing and logistics for
5 into one data warehouse [maintained by Oco], and we
Welch’s. “We dump them all
can mix-and-match and slice-and-dice
any way we want.” Coyne says that Welch’s
0
tries to ship its products five days a week out of its distribution center. “But we found
5
ourselves just totally overwhelmed on Fridays,” he says. “We would complain, ‘How
come there are so many orders
1 on Friday?’”
Now, the new system helps Welch’s balance its daily deliveries so that it uses about
B
the same number of trucks, rather than hiring seven trucks on a Monday, five on a
U and so forth.
Tuesday, eight on a Wednesday,
The company reaps transportation savings by using a stable number of trucks
daily—“as capacity is not jumping all over the place,” Copacino says.
“We are gaining greater visibility into cost-savings opportunities, which is especially important in light of rising fuel and transportation costs,” says Coyne. Welch’s
spends more than $50 million each year on transportation expenses, and the
Oco BI application and reporting features have become critical in a very short period of time. “We literally can’t go any amount of time without knowing this stuff,”
Coyne says.
Source: Adapted from Ted Samson, “Welch’s Leverages BI to Reduce Transport Costs,” InfoWorld, October 16, 2008;
and Thomas Wailgum, “Business Intelligence and On-Demand: The Perfect Marriage?” CIO Magazine, March 27, 2008.
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Module I / Foundation Concepts
Trends in
Information
Systems
The business applications of information systems have expanded significantly over the
years. Figure 1.4 summarizes these changes.
Until the 1960s, the role of most information systems was simple: transaction
processing, record keeping, accounting, and other electronic data processing (EDP) applications. Then another role was added, namely, the processing of all these data into
useful, informative reports. Thus, the concept of management information systems (MIS)
was born. This new role focused on developing business applications that provided
managerial end users with predefined management reports that would give managers
the information they needed for decision-making purposes.
By the 1970s, it was evident that the prespecified information products produced
by such management information systems were not adequately meeting the decisionmaking needs of management, so the concept of decision support systems (DSS) was
born. The new role for information systems was to provide managerial end users with
ad hoc, interactive support of their decision-making processes. This support would be
tailored to the unique decisions and decision-making styles of managers as they conW in the real world.
fronted specific types of problems
In the 1980s, several new roles
I for information systems appeared. First, the rapid
development of microcomputer processing power, application software packages, and
telecommunications networksLgave birth to the phenomenon of end-user computing.
S
O
N
Enterprise Resource Planning and Business Intelligence: 2000s–2010s
,
Enterprisewide common-interface
applications data mining and data
F IGU RE 1.4
visualization, customer relationship management, supply-chain management
J
Internet-based e-business
Aand e-commerce systems
Web-enabled enterprise and global e-business operations and electronic
M
commerce on the Internet, intranets, extranets, and other networks
I
Strategic and End-UserE
Support: 1980s–1990s
Electronic Business and Commerce: 1990s–2000s
The Expanding Roles of IS in Business and Management
The expanding roles of the
business applications of
information systems. Note
how the roles of computerbased information systems
have expanded over time.
Also, note the impact of
these changes on the end
users and managers of an
organization.
End-user computing systems
Direct computing support for end-user productivity and workgroup collaboration
Executive information systems
Critical information for top management
Expert systems
Knowledge-based expert advice for end users
Strategic information systems
Strategic products and services for competitive advantage
5
0
5
1
B
Decision Support: 1970s–1980s
U
Decison support systems
Interactive ad hoc support of the managerial decision-making process
Management Reporting: 1960s–1970s
Management information systems
Management reports of prespecified information to support decision making
Data Processing: 1950s–1960s
Electronic data processing systems
Transaction processing, record-keeping, and traditional accounting applications
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End users could now use their own computing resources to support their job requirements instead of waiting for the indirect support of centralized corporate information
services departments.
Second, it became evident that most top corporate executives did not directly use
either the reports of management information systems or the analytical modeling capabilities of decision support systems, so the concept of executive information systems
(EIS) developed. These information systems were created to give top executives an
easy way to get the critical information they wanted, when they wanted it, and tailored
to the formats they preferred.
Third, breakthroughs occurred in the development and application of artificial
intelligence (AI) techniques to business information systems. Today’s systems include
intelligent software agents that can be programmed and deployed inside a system to
act on behalf of their owner, system functions that can adapt themselves on the basis
of the immediate needs of the user, virtual reality applications, advanced robotics,
natural language processing, and a variety of applications for which artificial intelligence can replace the need W
for human intervention, thus freeing up knowledge workers for more complex tasks.I Expert systems (ES) and other knowledge-based systems also
forged a new role for information systems. Today, expert systems can serve as consultL advice in limited subject areas.
ants to users by providing expert
An important new role for
S information systems appeared in the 1980s and continued through the 1990s: the concept of a strategic role for information systems, someO systems (SIS). In this concept, information technology
times called strategic information
becomes an integral component
N of business processes, products, and services that help
a company gain a competitive advantage in the global marketplace.
, the revolutionary emergence of enterprise resource planThe mid- to late 1990s saw
ning (ERP) systems. This organization-specific form of a strategic information system
integrates all facets of a firm, including its planning, manufacturing, sales, resource
J inventory control, order tracking, financial managemanagement, customer relations,
ment, human resources, and
A marketing—virtually every business function. The primary advantage of these ERP systems lies in their common interface for all
M
computer-based organizational functions and their tight integration and data sharing,
I decision making. We explore ERP and its associated
necessary for flexible strategic
functions in greater detail in Chapter 8.
E
We are also entering an era where a fundamental role for IS is business intelligence
(BI). BI refers to all applications and technologies in the organization that are focused on the gathering and5analysis of data and information that can be used to drive
strategic business decisions. Through the use of BI technologies and processes, or0 insight into the key elements and factors—both internal
ganizations can gain valuable
and external—that affect their
5 business and competitiveness in the marketplace. BI
relies on sophisticated metrics and analytics to “see into the data” and find relation1 can be turned into profits. We’ll look closer at BI in
ships and opportunities that
Chapter 10.
B
Finally, the rapid growth of the Internet, intranets, extranets, and other interconnected global networksU
in the 1990s dramatically changed the capabilities of information systems in business at the beginning of the 21st century. Further, a
fundamental shift in the role of information systems occurred. Internet-based and
Web-enabled enterprises and global e-business and e-commerce systems are becoming commonplace in the operations and management of today’s business enterprises.
Information systems is now solidly entrenched as a strategic resource in the modern
organization.
A closer look at Figure 1.4 suggests that though we have expanded our abilities
with regard to using information systems for conducting business, today’s information
systems are still doing the same basic things that they began doing more than 50 years
ago. We still need to process transactions, keep records, provide management with
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Module I / Foundation Concepts
useful and informative reports, and support the foundational accounting systems and
processes of the organization. What has changed, however, is that we now enjoy a
much higher level of integration of system functions across applications, greater connectivity across both similar and dissimilar system components, and the ability to
reallocate critical computing tasks such as data storage, processing, and presentation
to take maximum advantage of business and strategic opportunities. Because of these
increased capabilities, the systems of tomorrow will be focused on increasing both the
speed and reach of our systems to provide even tighter integration, combined with
greater flexibility.
The Role of
e-Business in
Business
F IGU RE 1.5
Businesses today depend on
the Internet, intranets, and
extranets to implement and
manage innovative
e-business applications.
The Internet and related technologies and applications have changed the ways businesses operate and people work, as well as how information systems support business
processes, decision making, and competitive advantage. Thus, many businesses today
are using Internet technologies to Web-enable their business processes and create
innovative e-business applications. See Figure 1.5.
W
In this text, we define e-business as the use of Internet technologies to work and
I
empower business processes, e-commerce,
and enterprise collaboration within a company and with its customers, L
suppliers, and other business stakeholders. In essence,
e-business can be more generally considered an online exchange of value. Any online exchange of information, money,S
resources, services, or any combination thereof falls under the e-business umbrella. The
O Internet and Internet-like networks—those inside the
enterprise (intranet) and between an enterprise and its trading partners (extranet)—
N
have become the primary information
technology infrastructure that supports the
e-business applications of many
companies.
These companies rely on e-business
,
applications to (1) reengineer internal business processes, (2) implement e-commerce
systems with their customers and suppliers, and (3) promote enterprise collaboration
among business teams and workgroups.
J
The Internet
Engineering and
research
A
M
I
E
Extranets
Suppliers and Other
Business Partners
Company
Boundary
5Supply chain management:
Procurement,
distribution, and logistics
0
5
Intranets
1
B Manufacturing
U and production
Intranets
Customer relationship management:
Marketing
Sales
Customer service
Extranets
Consumers and
Business Customers
Accounting
and finance
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Enterprise collaboration systems involve the use of software tools to support communication, coordination, and collaboration among the members of networked teams
and workgroups. A business may use intranets, the Internet, extranets, and other networks to implement such systems. For example, employees and external consultants
may form a virtual team that uses a corporate intranet and the Internet for e-mail,
videoconferencing, e-discussion groups, and Web pages of work-in-progress information to collaborate on business projects.
E-commerce is the buying, selling, marketing, and servicing of products, services,
and information over a variety of computer networks. Many businesses now use the
Internet, intranets, extranets, and other networks to support every step of the commercial process, including everything from advertising, sales, and customer support
on the World Wide Web to Internet security and payment mechanisms that ensure
completion of delivery and payment processes. For example, e-commerce systems include Internet Web sites for online sales, extranet access to inventory databases by
large customers, and the use of corporate intranets by sales reps to access customer
W management.
records for customer relationship
I
Types of
Information
Systems
Conceptually, the applications
L of information systems that are implemented in today’s
business world can be classified in several different ways. For example, several types of
information systems can beS
classified as either operations or management information
systems. Figure 1.6 illustrates
O this conceptual classification of information systems applications. Information systems are categorized this way to spotlight the major roles
each plays in the operationsNand management of a business. Let’s look briefly at some
examples of such information
, systems categories.
Operations Support
Systems
Information systems have always been needed to process data generated by, and used
J operations support systems produce a variety of inforin, business operations. Such
mation products for internal
A and external use; however, they do not emphasize the
M
I
F IGUR E 1.6 Operations and management classifications of information systems. Note how this conceptual overview
E business operations and managerial decision making.
emphasizes the main purposes of information systems that support
Information
Systems
Support of
Business
Operations
Specialized
Processing
Systems
5
0
5
1
B
U
Operations
Support
Systems
Management
Support
Systems
Support of
Managerial
Decision Making
Transaction
Processing
Systems
Process
Control
Systems
Enterprise
Collaboration
Systems
Management
Information
Systems
Decision
Support
Systems
Executive
Information
Systems
Processing
Business
Transactions
Control of
Industrial
Processes
Team and
Workgroup
Collaboration
Prespecified
Reporting
for Managers
Interactive
Decision
Support
Information
Tailored for
Executives
Expert
Systems
Knowledge
Management
Systems
Strategic
Information
Systems
Functional
Business
Systems
Expert
Advice to
Decision Makers
Manage
Organizational
Knowledge
Support
Competitive
Advantage
Support Basic
Business
Functions
Specialized
Processing
Systems
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Module I / Foundation Concepts
F IGU RE 1.7
A summary of operations support systems with examples.
Operations Support Systems
•
Transaction processing systems. Process data resulting from business transactions, update operational databases, and
produce business documents. Examples: sales and inventory processing and accounting systems.
•
Process control systems. Monitor and control industrial processes. Examples: petroleum refining, power generation,
and steel production systems.
•
Enterprise collaboration systems. Support team, workgroup, and enterprise communications and collaborations.
Examples: e-mail, chat, and videoconferencing groupware systems.
specific information products that can best be used by managers. Further processing
by management information systems is usually required. The role of a business firm’s
operations support systems is to process business transactions, control industrial procW
esses, support enterprise communications
and collaborations, and update corporate
databases efficiently. See Figure
1.7
.
I
Transaction processing systems are important examples of operations support
L the data resulting from business transactions. They
systems that record and process
process transactions in two basic
S ways. In batch processing, transactions data are accumulated over a period of time and processed periodically. In real-time (or online)
O
processing, data are processed immediately after a transaction occurs. For example,
Nmany retail stores use electronic cash register termipoint-of-sale (POS) systems at
nals to capture and transmit sales data electronically over telecommunications links
,
to regional computer centers for immediate (real-time) or nightly (batch) processing.
Figure 1.8 is an example of software that automates accounting transaction processing.
Process control systems monitor
and control physical processes. For example, a
J
petroleum refinery uses electronic sensors linked to computers to monitor chemical
Ainstant (real-time) adjustments that control the refinprocesses continually and make
ery process. Enterprise collaboration
M systems enhance team and workgroup communications and productivity and include applications that are sometimes called office
I knowledge workers in a project team may use e-mail
automation systems. For example,
to send and receive e-messages
Eor use videoconferencing to hold electronic meetings
to coordinate their activities.
Management
Support Systems
F IGU RE 1.8
QuickBooks is a popular
accounting package that
automates small office or
home office (SOHO)
accounting transaction
processing while providing
business owners with
management reports.
When information system applications
focus on providing information and support for
5
effective decision making by managers, they are called management support systems.
0
Providing information and support for decision making by all types of managers
5
1
B
U
Source: Courtesy of Quickbooks.
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Chapter 1 / Foundations of Information Systems in Business
F IGUR E 1.9
●
15
A summary of management support systems with examples.
Management Support Systems
•
Management information systems. Provide information in the form of prespecified reports and displays to support
business decision making. Examples: sales analysis, production performance, and cost trend reporting systems.
•
Decision support systems. Provide interactive ad hoc support for the decision-making processes of managers and other
business professionals. Examples: product pricing, profitability forecasting, and risk analysis systems.
•
Executive information systems. Provide critical information from MIS, DSS, and other sources tailored to the information needs of executives. Examples: systems for easy access to analyses of business performance, actions of competitors, and economic developments to support strategic planning.
and business professionals is a complex task. Conceptually, several major types of inforW of decision-making responsibilities: (1) management
mation systems support a variety
information systems, (2) decision support systems, and (3) executive information sysI
tems. See Figure 1.9.
L systems (MIS) provide information in the form of
Management information
reports and displays to managers
S and many business professionals. For example, sales
managers may use their networked computers and Web browsers to receive instantaO results of their products and access their corporate
neous displays about the sales
intranet for daily sales analysis
N reports that evaluate sales made by each salesperson.
Decision support systems (DSS) give direct computer support to managers during
, For example, an advertising manager may use a DSS to
the decision-making process.
perform a what-if analysis as part of the decision to determine how to spend advertising dollars. A production manager may use a DSS to decide how much product to
manufacture, based on the J
expected sales associated with a future promotion and the
location and availability ofA
the raw materials necessary to manufacture the product.
Executive information systems (EIS) provide critical information from a wide variM
ety of internal and external sources in easy-to-use displays to executives and managers.
For example, top executives
I may use touch-screen terminals to view instantly text
and graphics displays that highlight key areas of organizational and competitive
E
performance. Figure 1.10 is an example of an MIS report display.
Other Classifications
of Information
Systems
Several other categories of5 information systems can support either operations or
management applications. For example, expert systems can provide expert advice for
0
operational chores like equipment
diagnostics or managerial decisions such as loan
portfolio management. Knowledge
management systems are knowledge-based in5
formation systems that support the creation, organization, and dissemination of busi1 and managers throughout a company. Information
ness knowledge to employees
systems that focus on operational
and managerial applications in support of basic
B
business functions such as accounting or marketing are known as functional business
systems. Finally, strategic U
information systems apply information technology to a
firm’s products, services, or business processes to help it gain a strategic advantage
over its competitors. See Figure 1.11.
It is also important to realize that business applications of information systems in
the real world are typically integrated combinations of the several types of information systems just mentioned. That is because conceptual classifications of information systems are designed to emphasize the many different roles of information
systems. In practice, these roles are combined into integrated or cross-functional
informational systems that provide a variety of functions. Thus, most information
systems are designed to produce information and support decision making for various levels of management and business functions, as well as perform record-keeping
and transaction-processing chores. Whenever you analyze an information system,
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Module I / Foundation Concepts
F IGU RE 1.10
Management information
systems provide information
to business professionals in
a variety of easy-to-use
formats.
Source: Courtesy of Infor.
F IGU RE 1.11
A summary of other
categories of information
systems with examples.
W
I
L
S
O
N
,
Other Categories
of Information Systems
J
•
Expert systems. Knowledge-based
systems that provide expert advice and act as
A
expert consultants to users. Examples: credit application advisor, process monitor, and
M
diagnostic maintenance systems.
•
Knowledge management Isystems. Knowledge-based systems that support the
creation, organization, and dissemination of business knowledge within the enterprise.
Examples: intranet access toE
best business practices, sales proposal strategies, and
customer problem resolution systems.
•
Strategic information systems. Support operations or management processes that
5
provide a firm with strategic products, services, and capabilities for competitive advantage.
Examples: online stock trading,
0 shipment tracking, and e-commerce Web systems.
•
Functional business systems.
5 Support a variety of operational and managerial
applications of the basic business functions of a company. Examples: information systems
that support applications in 1
accounting, finance, marketing, operations management,
and human resource management.
B
U
you probably see that it provides information for a variety of managerial levels and
business functions.
Managerial
Challenges of
Information
Technology
Figure 1.12 illustrates the scope of the challenges and opportunities facing business
managers and professionals in effectively managing information systems and technologies. Success in today’s dynamic business environment depends heavily on maximizing the use of Internet-based technologies and Web-enabled information systems to
meet the competitive requirements of customers, suppliers, and other business partners in a global marketplace. Figure 1.12 also emphasizes that information systems
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17
F IG UR E 1.12
Examples of the challenges and opportunities that business managers face in managing information
systems and technologies to meet business goals.
The Business Enterprise
Information
Technology
Strategies/Processes/Structure/Culture
Customer
Value
Business
Value
Business / IT Challenges
Business / IT Developments
Business / IT Goals
Speed and flexibility requirements of
product development, manufacturing,
and delivery cycles.
Reengineering and cross-functional
integration of business processes
using Internet technologies.
Integration of e-business and e-commerce
into the organization’s strategies,
processes, structure, and culture.
Use of the Internet, intranets,
extranets, and the Web as the
primary IT infrastructure.
Diffusion of Web technology to
internetwork employees,
customers, and suppliers.
Global networked computing,
collaboration, and decision
support systems.
Give customers what they want,
when and how they want it, at the
lowest cost.
Coordination of manufacturing and business
processes with suppliers and customers.
Marketing channel partnerships with
suppliers and distributors.
W
I
L
S
O
Nbe managed to support the business strategies, business
and their technologies must
processes, and organizational structures and culture of a business enterprise. That is
,
because computer-based information systems, though heavily dependent on information technologies, are designed, operated, and used by people in a variety of organizational settings and businessJenvironments. The goal of many companies today is to
maximize their customer and business value by using information technology to help
their employees implementA
cooperative business processes with customers, suppliers,
and others.
M
Success and
Failure with IT
I
By now you should be able to see that the success of an information system should not
E in terms of minimizing costs, time, and the use of
be measured only by its efficiency
information resources. Success should also be measured by the effectiveness of the information technology in supporting an organization’s business strategies, enabling its
5 its organizational structures and culture, and increasing
business processes, enhancing
the customer and business value
0 of the enterprise.
It is important to realize, however, that information technology and informa5
tion systems can be mismanaged and misapplied in such a way that IS perform1 technological and business failures. Let’s look at an
ance problems create both
example of what happens after these failures occur, as well as what can be done to
B
avoid them.
U
Responsibility and
Accountability for
Project Success
(and Failure)
Your department—information technology—has just played a starring role in blowing a multimillion-dollar enterprise software project. The intense glare from the
CEO, CFO and other business leaders is squarely focused on the CIO, VP of applications, project managers and business analysts charged with making sure that this
didn’t happen. Of course, IT is never 100 percent at fault for any massive project—
whether an ERP or CRM implementation, mainframe migration, or networking upgrade. The business side usually plays its part.
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But the unfortunate and unfair fact is that because these initiatives are considered
“technology projects,” the business will almost always look in IT’s direction when
there’s blame to be tossed around. “That’s just a fact of life in IT,” says Chris Curran,
who’s both a consulting partner at Diamond Management & Techonology Consultants and its Chief Technology Offer.
No sane executive would dismiss the strategic importance of IT today. And most
don’t: An IT Governance Institute study, consisting of more than 250 interviews
with executives of both large and small companies in a variety of industry sectors,
found that half of the respondents said that IT is “very important to the enterprise,”
and three-quarters stated that they align IT and business strategies.
When it came to IT project accountability, “executive management” was identified as the group held accountable for IT governance in 71 percent of the enterprises. That’s all well and good, but when it comes to walking the walk with
technology projects, non-IT executives appear to fall back on familiar rhetoric. In a
similar 2009 survey of more than
W 500 IT professionals by ISACA, a nonprofit trade
group focusing on corporate governance, almost half of respondents said “the CIO is
I
responsible for ensuring that stakeholder
returns on IT-related investments are optimized,” notes the survey report.
L
Curran takes those results a step further. “Business investments need to have
S says. “But when a project goes south, especially
business accountability,” Curran
high-profile ERP implementations,
O IT gets blamed—but it’s not an IT project.”
Curran’s advice for such massive undertakings, which CIOs and analysts talk up
N
but many don’t follow, is practical: Think bite-sized project chunks and set proper
expectations. He also advises ,his clients and their IT shops to embrace change and
transparency—even if it hurts at first. “The corporate culture—the status quo—
tends to be: ‘Everything’s good. We don’t talk about problems until they are near
J people don’t like bad news,’” Curran says.
unrecoverable, because we know
But there are always going
A to be problems. That, also, is “just a fact of life
in IT.”
M
I
E
Source: Adapted from Thomas Wailgum, “After a Massive Tech Project Failure: What IT Can Expect,” CIO.com,
August 5, 2009.
Developing
IS Solutions
5
0 and professionals today. As a business professional,
challenge for business managers
you will be responsible for proposing
or developing new or improved uses of infor5
mation technologies for your company. As a business manager, you will frequently
1 of information systems specialists and other business
manage the development efforts
end users.
B
Most computer-based information systems are conceived, designed, and impleU
mented using some form of systematic
development process. Figure 1.13 shows that
Developing successful information system solutions to business problems is a major
several major activities must be accomplished and managed in a complete IS development cycle. In this development process, end users and information specialists design
information system applications on the basis of an analysis of the business requirements of an organization. Examples of other activities include investigating the economic or technical feasibility of a proposed application, acquiring and learning how to
use any software necessary to implement the new system, and making improvements to
maintain the business value of a system.
We discuss the details of the information systems development process in Chapters 11
and 12. We will explore many of the business and managerial challenges that arise in
developing and implementing new uses of information technology in Chapters 13 and
14. Now let’s look at how a company changed its development practices to deliver the
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F IGUR E 1.13
Developing information
systems solutions to
business problems can be
implemented and managed
as a multistep process or
cycle.
Investigate
Analyze
Maintain
Developing
Information
System
Solutions
Design
Implement
Agile Systems
Development at
Con-Way, Inc.
W
I
right functionality to users and become more responsive to their needs. This example
emphasizes the importanceL
of tailoring systems development practices to the needs of
a business.
S
O
N
In the old days, companies could spend months planning a technology project and
,
then months or even years implementing it. Not anymore. Strategies are far more
dynamic these days, especially as companies respond to challenging economic
times.
J
When someone has a good idea, it’s nice to see it come to fruition right away.
At transportation company A
Con-Way—founded in 1929, with more than 26,000 employees and 2008 revenue M
of more than $5 billion—almost all good ideas require
technology to implement. Yet historically, ideas became cold by the time they
I committees, project planning, and design reviews.
made it through IT steering
Then, Con-Way became agile—that
is, it adopted Agile development practices.
E
Using Agile, software development is no longer accomplished through lengthy
projects.
Instead, the overall concept
5 of the desired system is defined at a high level up
front and then developed in short iterations. An iteration is typically no longer than
0is released for use after each iteration. As people use the
one month, and the software
software, they determine which
5 features should be built next, providing a feedback
loop that results in building the highest priority functionality. One big change for
1
IT is that with Agile, an implementation date is always impending; team members
B on a project. Meanwhile, developers, used to having
never feel they are able to relax
private space, can feel that space is violated resulting from “pair programming,”
U
which has two developers constructing the same piece of code at the same time, and
colocation, which has team members sitting as close together as humanly possible.
As for the business users, Agile requires them to take a much more active role
throughout the entire process. They must work jointly with IT to determine the
priorities for each iteration, and they must provide daily direction to IT on the
needs for the functionality being built.
“I made the case for change in IT by explaining how the business would benefit
if we delivered the highest priority functionality faster. I also kept reiterating what
was in it for them—and there was a lot,” says Jackie Barretta, vice president and CIO
of Con-Way, Inc. “At the same time, I made the case for change to the business by
preparing a solid ROI that quantified the benefits of increasing the efficiency of
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Module I / Foundation Concepts
development processes, delivering the right functionality more quickly and reducing
the overall amount of work in progress.”
The change effort has been worth it: After nine months, Agile is delivering on its
promises. The iterative approach to software development is providing a feedback
loop that results in building the right functionality. “We no longer have the waste
problem that was inherent in the old waterfall method. Agile is creating greater
alignment between IT and the business because of the constant, daily interaction and
because Agile techniques help IT personnel understand the business better,” says
Barretta. “However, like anything that’s really going to pay off, Agile is a huge change
for IT and the user community.”
Source: Adapted from Jackie Barretta, “How to Instill Agile Development Practices Among Your IT Team,” CIO Magazine,
January 14, 2009.
W
Challenges and
Ethics of IT
Hannaford Bros.:
The Importance
of Securing
Customer Data
As a prospective manager, business professional, or knowledge worker, you will be
I
challenged by the ethical responsibilities generated by the use of information techL of information technology might be considered imnology. For example, what uses
proper, irresponsible, or harmful
S to other people or to society? What is the proper
business use of the Internet and an organization’s IT resources? What does it take to
be a responsible end user of O
information technology? How can you protect yourself
from computer crime and other
N risks of information technology? These are some of
the questions that outline the ethical dimensions of information systems that we will
discuss and illustrate with real, world cases throughout this text. Figure 1.14 outlines
some of the ethical risks that may arise in the use of several major applications of information technology. The following example illustrates some of the security chalJ business over the Internet.
lenges associated with conducting
A
M
I as a fruit and vegetable stand in 1883, but it has
Hannaford Bros. may have started
expanded from its Maine roots to become an upscale grocer with more than 160
E
stores throughout Maine, Massachusetts, New Hampshire, upstate New York, and
Vermont. In March 2008, the supermarket chain disclosed a data security breach;
Hannaford said in a notice to customers
posted on its Web site that unknown intrud5
ers had accessed its systems and stolen about 4.2 million credit and debit card numbers
0
between December 7 and March
10. The breach affected all of Hannaford’s
5
1
B must be faced by business managers who implement major
F IGU RE 1.14 Examples of some of the ethical challenges that
applications of information technology.
U
Applications of IT
■
Potential Risks
Customer
Relationship
Management
Potential Harms
■
■
■
Human
Resources
Management
Business
Intelligence
Systems
■
Infringements on privacy
■
Inaccurate information
■
Collusion
Consumer
boycotts
■
Work
stoppages
■
Government
intervention
Possible Responses
■
Codes of ethics
■
Incentives
■
Certification
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165 supermarkets in New England and New York, as well as 106 stores operated
under the Sweetbay name in Florida and 23 independently owned markets that sell
Hannaford products.
In a likely precursor of what was yet to come, two class-action lawsuits were
filed against the company within the week. The filers argued that inadequate data
security at Hannaford had resulted in the compromise of the personal financial data
of consumers, thereby exposing them to the risk of fraud. They also claimed the
grocer also appeared not to have disclosed the breach to the public quickly enough
after discovering it.
Even though the Hannaford breach is relatively small compared with some other
corporate security problems, it is likely to result in renewed calls for stricter regulations to be imposed on companies that fail to protect consumer data. In addition to
facing the likelihood of consumer lawsuits, retailers who suffer breaches have to deal
with banks and credit unions, which are getting increasingly anxious about having to
shell out tens of thousands W
of dollars to pay for the cost of notifying their customers
and reissuing credit and debit cards.
I
Retailers, on the other hand,
have argued that the commissions they pay to card
companies on each transaction
L are supposed to cover fraud-related costs, making any
additional payments a double penalty. They also have said that the only reason they
S
store payment card data is because of requirements imposed on them by the major
credit card companies.
O
While the ultimate impact of these and other security breaches may be hard to
N
quantify, it represents one of the most important challenges resulting from the ubiq,
uitous use of electronic transaction
processing and telecommunication networks in
the modern networked enterprise, and one that is likely to keep growing every day.
The security of customer and other sensitive data also represents one of the primary
J
concerns of IT professionals.
A
M
I
E
Source: Adapted from Jaikumar Vijayan, “Hannaford Hit by Class-Action Lawsuits in Wake of Data-Breach Disclosure,”
Computerworld, March 20, 2008.
Challenges of
IT Careers
Both information technology and the myriad of information systems it supports have
created interesting, challenging,
5 and lucrative career opportunities for millions of men
and women all over the globe. At this point in your life you may still be uncertain
0 to follow, so learning more about information technolabout the career path you wish
ogy may help you decide if5you want to pursue an IT-related career. In recent years,
economic downturns have affected all job sectors, including IT. Further, rising labor
1 and Europe have resulted in a large-scale movement
costs in North America, Canada,
to outsource basic softwareBprogramming functions to India, the Middle East, and
Asia-Pacific countries. Despite this move, employment opportunities in the informaU with more new and exciting jobs emerging each day as
tion systems field are strong,
organizations continue to expand their use of information technology. In addition,
these new jobs pose constant human resource management challenges to all organizations because shortages of qualified information systems personnel frequently occur.
Dynamic developments in business and information technologies cause constantly
changing job requirements in information systems, which will ensure that the long-term
job outlook in IT remains both positive and exciting.
Along with the myth that there are no jobs for IS professionals (we will dispel
this one below!), another common myth is that IS professionals are computer geeks
who live in a cubicle. Once again, nothing could be further from the truth! Today’s IS
professional must be highly skilled in communication, dealing with people, and, most
of all, articulate in the fundamentals of business. The marketplace is demanding a
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business technologist with a big “B” and a big “T.” The world of the IS professional is
filled with constant challenge, variety, social interaction, and cutting-edge decision
making. No desks and cubicles here. If action is what you are after, then you have
found it here.
One major recruiter of IS professionals is the IT industry itself. Thousands of companies develop, manufacture, market, and service computer hardware, software, data,
and network products and services. The industry can also provide e-business and
e-commerce applications and services, end-user training, or business systems consulting.
The biggest need for qualified people, however, comes from the millions of businesses,
government agencies, and other organizations that use information technology. They
need many types of IS professionals, such as systems analysts, software developers, and
network managers to help them plan, develop, implement, and manage today’s Internetbased and Web-enabled business/IT applications.
The accounting industry is a more recent major recruiter of IS professionals.
Recent legislation, entitled the Sarbanes-Oxley Act of 2002, required major changes
W by public accounting firms and internal control
with regard to auditing practices
processes within publicly held
I organizations of all sizes and industries. Many of
these changes directly affect the IT/IS practices of all parties involved. To facilitate
L of Sarbanes-Oxley, the accounting industry is acthe execution of the covenants
tively recruiting graduates S
from accounting programs that have a significant
emphasis on IS education. In addition, they are spending equal energy to recruit
O the accounting industry. In either case, the result
IS/IT professionals to work within
is a significant increase in demand
N for graduates with an IS/IT background or emphasis. Figure 1.15 lists just a few of the many career roles available to the modern
,
IT professional.
According to recent reports by the U.S. Department of Labor, computer systems
analysts, database administrators, and other managerial-level IS positions are expected
J occupations through 2012. Employment of IS proto be among the fastest-growing
fessionals is expected to grow more
A than 36 percent (much higher than average) for all
occupations as organizations continue to adopt and integrate increasingly sophistiM
cated technologies. Job increases will be driven by very rapid growth in computer
I which is projected to be one of the fastest-growing
system design and related services,
E
F IGU RE 1.15
Careers in IS are as diverse
and exciting as the
technologies used in them;
IS professionals have career
opportunities in every
business environment and
activity throughout the
world.
Systems Analyst
Chief Information Officer
Network Administrator
Database Administrator
IS Auditor
PC Sales Representative
System Consultant
5
0Computer Operator
Dictionary
5 DataSpecialist
1 Database Analyst
BEnd-User Computer
U Manager
Business Applications
Consultant
Computer Serviceperson
Network Manager
Documentation Specialist
Equipment Manufacturer
Representative
Programmer
Program Librarian
Project Manager
Records Manager
Hardware Sales Representative
Scheduling and Control
Person
Security Officer
Office Automation Specialist
Senior Project Leader
Service Sales
Representative
Software Sales Representative
Technical Analyst
Software Quality
Evaluator
Technical Writer
Telecommunications
Specialist
Training & Standards
Manager
User Interface Specialist
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industries in the U.S. economy. In addition, many job openings will arise annually
from the need to replace workers who move into managerial positions or other occupations or who leave the labor force. Most important to you, IS/IT graduates generally
receive one of the highest starting salaries in the school.
Despite the recent economic downturn among information technology firms, IS
professionals still enjoy favorable job prospects. The demand for networking to facilitate sharing information, expanding client/server environments, and the need for
specialists to use their knowledge and skills in a problem-solving capacity will be
major factors in the rising demand for computer systems analysts, database administrators, and other IS professionals. Moreover, falling prices of computer hardware
and software should continue to induce more businesses to expand their computerized operations and integrate new technologies. To maintain a competitive edge and
operate more efficiently, firms will keep demanding the services of professionals who
are knowledgeable about the latest technologies and can apply them to meet the
needs of businesses.
W to put a sharper edge on this message: The field of inPerhaps the time has come
formation systems is growing
I at an increasingly rapid pace, and there is no risk of being
unemployed upon graduation! I believe that the concern over a lack of IT/IS-related
L media and is now, quite simply, unfounded. Headlines
jobs was fueled by the news
proclaimed the death of ISSand the lack of jobs in the United States due to massive
outsourcing and offshoring. The jobs that were being sent overseas were real ones, to
O not the jobs that you or your fellow students were ever
be sure. They were, however,
going to train for during your
N stay in college—unless, of course, you aspire to being
a faceless voice in a call center. These jobs are service-related jobs that, while vital to
the big picture, are not the, management level, creative business technologist positions that colleges and universities typically train their students to obtain. The real
problem facing the IS field today is the lack of graduates! Students are choosing other
J low pay and unemployment, whereas recruiters are
professions because they fear
simultaneously begging forA
more graduates to feed their voracious appetites for more
IS professionals. If you choose to avoid a career in information systems, it should not
M
be because you think there are no jobs, that it does not have to do with people, or
I
that it is no fun. Over the course
of this book, we will dispel, with strong evidence, all
of these rumors and myths. Let’s start with some facts related to the first one.
E
The Bureau of Labor Statistics has some compelling evidence in favor of a career
in information systems:
5 and information systems managers should be excellent.
Prospects for qualified computer
Fast-paced occupational
0growth and the limited supply of technical workers
will lead to a wealth of opportunities for qualified individuals. While technical
5 scarce in the United States, the demand for them
workers remain relatively
continues to rise. This 1
situation was exacerbated by the economic downturn in
the early 2000s, when many technical professionals lost their jobs. Since then,
B to avoid this work since it is perceived to have
many workers have chosen
poor prospects.
U
People with management skills and an understanding of business practices and principles will have excellent opportunities, as companies are increasingly looking to technology
to drive their revenue. (Bureau of Labor Statistics Occupational Outlook Handbook,
2008–2009)
Increasingly, more sophisticated and complex technology is being implemented
across all organizations, which will continue to fuel the demand for these computer
occupations. The demand for systems analysts continues to grow to help firms maximize their efficiency with available technology. Expansion of e-commerce—doing business on the Internet—and the continuing need to build and maintain databases that
store critical information about customers, inventory, and projects are fueling demand
for database administrators familiar with the latest technology. Finally, the increasing
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importance placed on “cybersecurity”—the protection of electronic information—will
result in a need for workers skilled in information security. Let’s take a look at the
emerging role of business analysts as liaisons between IT specialists and their business
customers.
The Critical Role
of Business
Analysts
For two decades, the CIO has been viewed as the ultimate broker between the
business and technology functions. But while that may be an accurate perception
in the executive boardroom, down in the trenches, business analysts (BA) have
been the ones tasked with developing business cases for IT application development, in the process smoothing relations among competing parties and moving
projects along.
The 21st century business analyst is a liaison, bridge, and diplomat who balances
the oftentimes incongruous supply of IT resources and demands of the business. A
recent Forrester Research report
W found that those business analysts who were most
successful were the ones who could “communicate, facilitate and analyze.” The busiI right now due to business reliance on technology,
ness analyst is a hot commodity
according to Jim McAssey, a L
principal at The W Group, a consulting firm. “The
global delivery capabilities of technology today make the challenges of successfully
S and IT even harder,” he says.
bridging the gap between business
“Companies typically don’tO
invest in an IT project without a solid business case,”
says Jeff Miller, senior vice president of Aetea, an IT staffing and consulting firm.
A good business analyst is N
able to create a solution to a particular business problem and act as a bridge to the,technologists who can make it happen. “Without the
BA role, CIOs are at significant risk that their projects will not solve the business
problem for which they were intended,” says Miller.
The ideal candidate will have
J 5 to 10 or more years of experience (preferably
in a specific industry), a technical undergraduate degree, and an MBA.
A
Strong risk assessment, negotiation, and problem resolution skills are key, and
hands-on experience is critical.MBusiness analysts must be process-driven and able to
see a project through conflict and change, from start to finish. “The BA also must
I
have the ability to learn new processes,” says Miller. “A good BA learns business
Ethem to the specific needs of the project.”
concepts and can quickly relate
In the end, the more business technology analysts that are working in the business, the better off the CIO and IT function will be—no matter if the business technology analysts are reporting5into IT or the business side. That’s because those
IT-savvy analysts, who will have
0 a more in-depth understanding of and more expertise in technologies, will “ultimately help the business make better decisions when it
comes to its interactions with 5
IT,” contend the Forrester analysts. And “CIOs have
new allies in the business.” Salaries
range from $45,000 (entry level) to $100,000
1
(senior business analyst) per year.
B
U
Source: Adapted from Thomas Wailgum, “Why Business Analysts Are So Important for IT and CIOs,” CIO Magazine,
April 16, 2008; and Katherine Walsh, “Hot Jobs: Business Analyst,” CIO Magazine, June 19, 2007.
The IS Function
The successful management of information systems and technologies presents major
challenges to business managers and professionals. Thus, the information systems
function represents:
• A major functional area of business equally as important to business success as the
•
functions of accounting, finance, operations management, marketing, and human
resource management.
An important contributor to operational efficiency, employee productivity and
morale, and customer service and satisfaction.
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• A recognized source of value to the firm.
• A major source of information and support needed to promote effective decision
•
•
•
•
making by managers and business professionals.
A vital ingredient in developing competitive products and services that give an
organization a strategic advantage in the global marketplace.
A dynamic, rewarding, and challenging career opportunity for millions of men
and women.
A key component of the resources, infrastructure, and capabilities of today’s networked business enterprises.
A strategic resource.
W
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SECTION II
System
Concepts:
A Foundation
Foundation Concepts:
The Components of
Information Systems
System concepts underlie all business processes, as well as our understanding of information systems and technologies. That’s why we need to discuss how generic system
concepts apply to business firms and the components and activities of information
systems. Understanding system concepts will help you understand many other concepts in the technology, applications, development, and management of information
systems that we cover in this text. For example, system concepts help us understand:
• Technology. Computer networks are systems of information processing compo•
•
•
nents that use a variety of hardware, software, data management, and telecommuW
nications network technologies.
I e-commerce applications involve interconnected
Applications. E-business and
business information systems.
L
Development. Developing
Sways to use information technology in business includes designing the basic components of information systems.
O
Management. Managing information
technology emphasizes the quality, strategic business value, and security
N of an organization’s information systems.
Read the Real World Case about
, how some companies are turning to IT to help them
develop new products and services. We can learn a lot from this case regarding the
various ways in which IT can be used to foster innovation. See Figure 1.16.
J
What Is a System?
We have used the term system more
A than 100 times already and will use it thousands more
before we are done. It therefore seems reasonable that we focus our attention on exactly what a system is. As weM
discussed at the beginning of the chapter, a system is
defined as a set of interrelated components,
with a clearly defined boundary, working together
I
to achieve a common set of objectives by accepting inputs and producing outputs in an organized
E
transformation process. Many examples
of systems can be found in the physical and biological sciences, in modern technology, and in human society. Thus, we can talk of the
physical system of the sun and its planets, the biological system of the human body,
the technological system of an5
oil refinery, and the socioeconomic system of a business
organization.
0
Systems have three basic functions:
5
• Input involves capturing and
1 assembling elements that enter the system to be
•
•
processed. For example, raw materials, energy, data, and human effort must be
secured and organized for B
processing.
Processing involves transformation
processes that convert input into output. ExU
amples are manufacturing processes, the human breathing process, or mathematical calculations.
Output involves transferring elements that have been produced by a transformation process to their ultimate destination. For example, finished products, human
services, and management information must be transmitted to their human users.
Example. A manufacturing system accepts raw materials as input and produces finished goods as output. An information system is a system that accepts resources (data)
as input and processes them into products (information) as output. A business organization is a system in which human and economic resources are transformed by various
business processes into goods and services.
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Chapter 1 / Foundations of Information Systems in Business
REAL WORLD
CASE
A
2
27
The New York Times and
Boston Scientific: Two Different
Ways of Innovating with
Information Technology
lmost everybody has a theory about how to save the
U.S. newspaper industry. The only consensus, it
seems, is that it needs to change fundamentally or it
could all but disappear. At The New York Times, tough times
have elevated IT-enabled innovation to the top of the agenda.
A research and development group, created in 2006, operates as a shared service across nearly two dozen newspapers, a radio station, and more than 50 Web sites.
“Our role is to accelerate our entry onto new platforms
by identifying opportunities, conceptualizing, and prototyping ideas,” explains Michael Zimbalist, the company’s vice
president of R&D.
Zimbalist’s staff of 12 includes experts in rapid prototyping, specialists in areas like mobile or cloud computing and
data miners who probe Web site data for insight into what
visitors do. They work within a common framework based
on idea generation, development, and diffusion throughout
the business. Recent projects included prototypes for new
display ad concepts, as well as BlackBerry applications for
Boston.com and the expert site About.com. The team’s work
is intended to supplement and support innovation taking
place within the business units. For example, the team is
prototyping E-Ink, an emerging display technology; some
business units can’t spare the resources to investigate it.
At NYTimes.com, the design and product development
group of Marc Frons, CTO of Digital Operations, worked with
Zimbalist’s team and Adobe developers on the Times Reader
2.0 application, the next generation, on-screen reading system it
developed on the Adobe AIR platform. Frons further encourages forward thinking among his 120-person team with twiceannual innovation contests. Winners receive cash, recognition
F IGUR E 1.16
IT can enable innovation initiatives as companies seek
to develop new products and services.
Source: © Stockbyte/Getty Images.
●
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5
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5
1
B
U
and the resources to turn their ideas into reality. Typical projects
are measured against criteria like revenue potential or journalistic value. R&D projects aren’t. “Since we build software, there’s
no huge capital investment up front,” Frons says, “which allows
us to experiment. The emphasis is on rapid development.”
Times Widgets, a widget-making platform, was a contest winner, as was the recently launched Times Wire, a near
real-time customizable interface for online content. “We’re
trying to solve specific problems and think about where the
business is going,” Frons says. Frons is focused on enhancing revenue, cutting costs, and increasing efficiency through
process improvements and automation.
The New York Times has launched a cool interactive
map that shows the most popular Netflix rentals across 12
U.S. metropolitan areas: New York, San Francisco/Bay Area,
Boston, Chicago, Washington, Los Angeles, Seattle, Minneapolis, Denver, Atlanta, Dallas, and Miami. If you’re a Netflix
junkie and a closet Twilight fan (and you live in a major U.S.
city), your rental habits are now on display. To create the
map, The New York Times partnered with Netflix. The map
is a graphical database of the top 100 most-rented Netflix
films of 2009 laid on top of maps. With it you can graphically
explore top 2009 Netflix movies based on three criteria: films
that were hated or loved by critics, an alphabetical list, and
most rented. For example, select most rented, and when you
place the mouse over a zip code, a window pops up showing
you what the top Netflix rentals are for that specific region.
Some trends are not surprising: The most popular Netflix movie of 2009 was The Curious Case of Benjamin Button,
although Slumdog Millionaire and Twilight were both in the
top 10. Milk, the story of San Franciscan activist Harvey
Milk, was popular in San Francisco and other city centers,
but not so much in the suburbs of southern cities (such as
Dallas and Atlanta). Mad Men, the 1960s-set drama about
advertising execs, was hot in parts of Manhattan and Brooklyn, but not in any other major cities. It barely got mention
in Denver and Dallas, and not at all in Miami.
The map does show some interesting trends: Big blockbusters were not as popular in city centers (Wanted and Transformers: Revenge of the Fallen, barely made a splash in the city
centers of Manhattan and San Francisco), although this could
be due to the fact that a lot of people see blockbusters in
movie theaters. Last Chance Harvey, a romantic comedy starring Dustin Hoffman and Emma Thompson, was enjoyed in
wealthier suburbs (such as Scarsdale), but not in city centers
(such as Manhattan). Tyler Perry’s movies (Tyler Perry’s
Madea Goes to Jail and Tyler Perry’s The Family That Preys)
were popular in predominantly black neighborhoods.
Much of what has been innovative thus far at The New
York Times can be classified as process or product innovation.
Typically, a healthy and growing company should be content with focusing 90 to 95 percent of its innovation dollars
on such core business innovation and 5 percent or 10 percent on new business models, says Mark Johnson, chairman
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of strategic innovation consultancy Innosight. However, he
adds, “The newspaper industry is in so much trouble that
business model innovation is more important than ever.”
Now is a good—and bad—time for fostering such innovation. “You’ve got the leadership’s attention you need,” says
Johnson. “But it’s harder in the sense that there’s an urgency to
fix the financials, and being patient in the way you need to be for
a new business model to unfold is a very difficult thing to do.”
The New York Times is focused on experimenting with
a number of different initiatives, but Boston Scientific faces
a much different challenge: how to foster innovation without
risking the disclosure and leakage of very valuable intellectual property. And the company has turned to technology to
help find the right mix of access and security.
Boston Scientific wants to tear down barriers that prevent
product developers from accessing the research that went into
its successful medical devices so that they can create new products faster. But making data too easily accessible could open
the way to theft of information potentially worth millions or
billions of dollars. It’s a classic corporate data privacy problem.
“The more info you give knowledge workers, the more
effective they can be in creating a lot of value for the company,” says Boris Evelson, a principal analyst at Forrester.
“This creates disclosure risks—that someone’s going to walk
away with the data and give it to a competitor.”
This tension compels the $8 billion company to seek out
software that allows the broader engineering community to share
knowledge while managing access to product development
data, says Jude Currier, cardiovascular knowledge management and innovation practices lead at Boston Scientific. “Active security is the way to address this problem,” Currier says.
That is, regularly monitor who’s accessing what, and adjust permissions as business conditions change.
Keeping the pipeline of new stents, pacemakers, and
catheters fresh is especially important because heart-related
items account for 80 percent of Boston Scientific’s sales.
Over the past few years, engineers have been focused on
CASE STUDY QUESTIONS
1. As stated in the case, The New York Times chose to deploy their innovation support group as a shared service
across business units. What do you think this means?
What are the advantages of choosing this approach?
Are there any disadvantages?
2. Boston Scientific faced the challenge of balancing openness and sharing with security and the need for restricting access to information. How did the use of technology
allow the company to achieve both objectives at the
same time? What kind of cultural changes were required
for this to be possible? Are these more important than
the technology-related issues? Develop a few examples
to justify your answer.
3. The video rental map developed by The New York Times
and Netflix graphically displays movie popularity across
neighborhoods from major U.S. cities. How would Netflix
use this information to improve their business? Could
other companies also take advantage of these data? How?
Provide some examples.
quality system improvements, Currier says. Boston Scientific
had inherited regulatory problems from acquisitions it made
during that time. Now that those situations are addressed,
the company is ready to reinvigorate internal innovation.
Boston Scientific is piloting Invention Machine’s Goldfire software, which, Currier says, provides the right mix of
openness and security for data. Before, Boston Scientific’s
product developers worked in silos with limited access to research by colleagues on different product lines. Information
was so locked down that even if scientists found something
useful from a past project, they often didn’t have access to it.
“We’re changing that,” Currier says.
Goldfire makes an automated workflow out of such tasks
as analyzing markets and milking a company’s intellectual
property. It combines internal company data with information
from public sources, such as federal government databases.
Researchers can use the software to find connections
W
among different sources, for instance by highlighting similar
I ideas. Engineers can use such analysis to get ideas for new
and begin to study their feasibility. The goal is to have
Lproducts
any engineer be able to access any other engineer’s research.
S “The people in the trenches can’t wait for that day to
arrive,” he says.
O Although the goal is more openness, not all data stay
Nopen forever. For example, as a project gets closer to the
patent application stage, access to the data about it is clipped
, to fewer people, Currier says.
He adds that since installing Goldfire, patent applications are up compared to similar engineering groups that do
Jnot use the Goldfire tool. “We have had to educate people
that we aren’t throwing security out the window bu...
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