Addis Ababa University

College of Business and Economics

MBA Program

Information Systems for Management

Distance Module

Prepared by:
Salehu Anteneh

Addis Ababa, 2015

Table of Contents

Part I: FOUNDATION CONCEPTS .................................................................................. 1

Chapter 1 Foundations of Information Systems in Business ..................................... 2
1.1 Introduction to Information Systems ................................................................ 3
1.1.1 The Need for Information Systems ................................................................... 3
1.1.2 Computer and Information System Literacy .................................................... 4
1.1.3 Data vs. Information ......................................................................................... 7
1.2 Fundamentals of Information Systems ............................................................. 9
1.2.1 The System Concept and Information Systems ................................................ 9
1.2.2 Components of Information Systems ............................................................. 12
1.2.2.1 Information System Resources ................................................................... 13
1.2.2.2 Information System Activities .................................................................... 15
1.3 The Roles of Information Systems in Business .............................................. 16
1.4 Information Systems Trends in Business........................................................ 20
Summary ........................................................................................................................... 21
References ......................................................................................................................... 23
Self-Assessment Questions ............................................................................................... 23
Chapter 2 Organizations and the Need for Information Processing ........................ 29
2.1 Organizations as Information Processing Entity ............................................ 30
2.2 Information Processing as Value-Added Process ........................................... 31
2.3 The Impact of Information Systems in Organizations .................................... 34
2.3.1 Economic Impacts........................................................................................... 34
2.3.2 Organizational and Behavioral Impacts .......................................................... 36
2.4 Use of Information Systems for Strategic Advantage .................................... 38
2.4.1 Competitive Forces and Strategies ................................................................. 38
2.4.2 Strategic Uses of Information Systems ........................................................... 40
Summary ........................................................................................................................... 43
References ......................................................................................................................... 44
Self-Assessment Questions ............................................................................................... 44
Part II: INFORMATION TECHNOLOGIES ................................................................... 49
Chapter 3 An Overview of Computer Systems ........................................................ 50
3.1 Characteristics of a Computer......................................................................... 51
3.2 Components of a Computer System ............................................................... 51
3.2.1 The System Unit ............................................................................................. 52
3.2.2 Input Devices .................................................................................................. 57
3.2.3 Output Devices ............................................................................................... 59
3.2.4 Storage Devices .............................................................................................. 61
3.2.5 Classification of Computers ........................................................................... 64
3.3 Computer Software ......................................................................................... 67
3.3.1 System Software ............................................................................................. 68
3.3.2 Application Software ...................................................................................... 71
Summary ........................................................................................................................... 72
References ......................................................................................................................... 73
Self-Assessment Questions ............................................................................................... 73
Chapter 4 Communication Networks ....................................................................... 77
4.1 Overview of Communication Networks ......................................................... 78
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4.2 Network System Components ........................................................................ 80
4.2.1 Sending and Receiving Devices ..................................................................... 80
4.2.2 Communication Channels ............................................................................... 80
4.2.3 Communication Software and Protocols ........................................................ 81
4.2.4 Communication Devices ................................................................................. 83
4.3 Network Topologies ....................................................................................... 85
4.4 Types of Networks .......................................................................................... 88
Summary ........................................................................................................................... 90
References: ........................................................................................................................ 91
Self-Assessment Questions ............................................................................................... 92
Chapter 5 The Internet and the World Wide Web ................................................... 96
5.1 The Internet ..................................................................................................... 97
5.1.1 How the Internet Works .................................................................................. 97
5.1.2 Internet Addresses........................................................................................... 99
5.1.3 Internet Services ........................................................................................... 102
5.1.4 Cloud Computing.......................................................................................... 105
5.2 The World Wide Web ................................................................................... 108
5.2.1 Searching for Information on the Web ......................................................... 109
5.2.2 Web 2.0 and Social Media ............................................................................ 109
5.2.3 Social Networking Service ........................................................................... 112
Summary ......................................................................................................................... 113
References ....................................................................................................................... 115
Self-Assessment Questions ............................................................................................. 115
Chapter 6 Database Management .......................................................................... 120
6.1 Data Organization ......................................................................................... 121
6.2 Traditional File Processing versus Database Approach ............................... 123
6.2.1 Traditional File Processing Problems ........................................................... 123
6.2.2 Important Characteristics of a Database ....................................................... 124
6.3 Database Models ........................................................................................... 125
6.3.1 Relational Database Model ........................................................................... 126
6.3.2 Object-Oriented Database Model ................................................................. 127
6.4 Database Management Systems (DBMS)..................................................... 128
6.5 Maintaining a Database ................................................................................ 131
6.6 Data Warehouse, Data Mining, and Business Intelligence........................... 133
6.7 Big Data ........................................................................................................ 136
Summary ......................................................................................................................... 137
References ....................................................................................................................... 139
Self-Assessment Questions ............................................................................................. 139
Part III: BUSINESS APPLICATIONS ........................................................................... 143
Chapter 7 Information Systems in Organizations .................................................. 144
7.1 Information Systems Classification .............................................................. 145
7.2 Operations Support Systems ......................................................................... 146
7.2.1 Transaction Processing Systems ................................................................... 147
7.2.2 Office Information Systems .......................................................................... 149
7.2.3 Knowledge Work Systems............................................................................ 149
7.3 Management Support Systems...................................................................... 150
7.3.1 Management Information Systems ............................................................... 150
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7.3.2 Decision Support Systems ............................................................................ 152
7.3.3 Executive Support Systems .......................................................................... 154
7.4 Functional Area Information Systems .......................................................... 155
7.5 Enterprise-Wide and Inter-Enterprise Systems............................................. 156
7.5.1 Enterprise Resource Planning (ERP) ............................................................ 156
7.5.2 Customer Relationship Management (CRM) ............................................... 157
7.5.3 Supply Chain Management (SCM) .............................................................. 158
7.5.4 Knowledge Management System (KMS) ..................................................... 160
Summary ......................................................................................................................... 160
References ....................................................................................................................... 161
Self-Assessment Questions ............................................................................................. 162
Chapter 8 Electronic Commerce ............................................................................ 167
8.1 E-Commerce Fundamentals .......................................................................... 168
8.1.1 E-Commerce Categories ............................................................................... 168
8.1.2 Essential E-Commerce Processes ................................................................. 169
8.1.3 Electronic Payment Processes ...................................................................... 172
8.2 E-Commerce Applications and Issues .......................................................... 174
8.2.1 Business-to- Consumer e-Commerce ........................................................... 174
8.2.2 Web Store Requirements .............................................................................. 177
8.2.3 Business-to- Business e-Commerce.............................................................. 179
8.3 Mobile Commerce ........................................................................................ 181
8.3.1 Products and Services ................................................................................... 182
8.3.2 Payment Methods ......................................................................................... 184
Summary ......................................................................................................................... 185
References ....................................................................................................................... 186
Self-Assessment Questions ............................................................................................. 187
Chapter 9 Intelligent Support Systems ................................................................... 192
9.1 Artificial Intelligence .................................................................................... 193
9.2 Human Intelligence ....................................................................................... 194
9.3 Development of Artificial Intelligence ......................................................... 195
9.4 Applications of Intelligent Support Systems ................................................ 196
9.4.1 Expert Systems ............................................................................................. 196
9.4.2 Neural Computing......................................................................................... 202
9.4.3 Fuzzy logic .................................................................................................... 204
9.4.4 Robotics ........................................................................................................ 205
9.4.5 Other Intelligent Systems.............................................................................. 206
Summary ......................................................................................................................... 209
References ....................................................................................................................... 210
Self-Assessment Questions ............................................................................................. 211
Part IV: SYSTEMS DEVELOPMENT AND MANAGEMENT ................................... 215
Chapter 10 Information Systems Development ................................................... 216
10.1 Overview of Information System Development ........................................... 217
10.2 Participants in Systems Development........................................................... 218
10.3 Systems Development Life Cycle................................................................. 221
10.3.1 Planning Phase .......................................................................................... 222
10.3.2 Analysis Phase .......................................................................................... 223
10.3.3 Design Phase ............................................................................................. 225
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10.3.4 Implementation Phase ............................................................................... 228
10.3.5 Operation and Maintenance Phase ............................................................ 232
10.4 Alternative System-Building Approaches .................................................... 233
10.4.1 Prototyping ................................................................................................ 233
10.4.2 Application Software Packages................................................................. 235
10.4.3 Outsourcing ............................................................................................... 236
Summary ......................................................................................................................... 237
References ....................................................................................................................... 238
Self-Assessment Questions ............................................................................................. 239
Chapter 11 Managing Information Resources and Technologies ........................ 243
11.1 Reasons for Information Systems Management ........................................... 244
11.2 Management Involvement and Governance ................................................. 247
11.3 Information Systems Department ................................................................. 248
11.4 Major IS Management Functions ................................................................. 252
11.5 Information Resource Management (IRM) .................................................. 255
11.5.1 Strategic Management ............................................................................... 255
11.5.2 Operational Management .......................................................................... 256
11.5.3 Resource Management .............................................................................. 256
11.5.4 Technology Management .......................................................................... 256
11.5.5 Distributed Management ........................................................................... 257
Summary ......................................................................................................................... 257
References ....................................................................................................................... 258
Self-Assessment Questions ............................................................................................. 258
Chapter 12 Security, Privacy, Ethical and Societal Issues ................................... 262
12.1 Information Security Management ............................................................... 263
12.1.1 Computer Security Risks and Controls ..................................................... 263
12.1.1.1 Viruses, Worms, and Trojan Horses ..................................................... 264
12.1.1.2 Unauthorized Access and Use ............................................................... 266
12.1.1.3 Hardware, Software, and Information Theft ......................................... 268
12.1.1.4 System Failure ....................................................................................... 269
12.1.1.5 Internet Security Risks .......................................................................... 270
12.1.2 Information Security Controls .................................................................. 271
12.1.2.1 Physical Controls ................................................................................... 271
12.1.2.2 Technical Controls ................................................................................ 274
12.1.2.3 Administrative Controls ........................................................................ 276
12.2 Information Privacy, Ethics and Society ...................................................... 279
12.2.1 Computer Ethics ........................................................................................ 279
12.2.2 Information Privacy .................................................................................. 281
12.2.3 Health Concern of Computer Use ............................................................. 282
Summary ......................................................................................................................... 284
References ....................................................................................................................... 285
Self-Assessment Questions ............................................................................................. 285
Answers to Self-Assessment Questions .......................................................................... 290

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Part I: FOUNDATION CONCEPTS

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Chapter 1 Foundations of Information Systems in Business

Learning Objectives

After completing this chapter, you will be able to:

• describe the need for information and information systems
• distinguish between computer literacy and information systems literacy
• understand the relationships among data, information, knowledge and wisdom
• illustrate information processing activities and resources
• describe the generic system concept and provide examples of system components and
functions
• provide examples of the components of real world information systems
• discuss the fundamental role of information systems
• describe information systems trends

Contents

1.1 Introduction to Information Systems

1.1.1 The Need for Information Systems
1.1.2 Computer and Information System Literacy
1.1.3 Data vs. Information
1.2 Fundamentals of Information Systems
1.2.1 The System Concept and Information Systems
1.2.2 Components of Information Systems
1.2.2.1 Information System Resources
1.2.2.2 Information System Activities
1.3 The Roles of Information Systems in Business
1.4 Information Systems Trends in Business
Summary
References
Self-Assessment Questions

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1.1 Introduction to Information Systems

1.1.1 The Need for Information Systems

We are experiencing an intense period of technology-enabled innovation, creativity, and

excitement that has been spurred by the commercialization of several core technologies and
associated changes in work, life and society. We are now in the information/ knowledge age -- a
time when information and knowledge are power. Leading industrial countries are transforming
from industrial-based economies to information/knowledge-based economies. Information and
knowledge have become critical strategic assets for a firm.

Business and other organizations all over the world are focusing on information and knowledge
as their key resources. New kinds of information/knowledge-intense organizations have emerged
that are devoted entirely to the collection, processing, production, and distribution of information
and knowledge. Information/knowledge-intense products and services require a great deal of
learning and knowledge to produce or provide them. Intensification of information/knowledge
utilization in the traditional industries has increased as well. Information systems (IS) have
surfaced as a critical competitive tool for all organizations.

The growth of the Internet, the globalization of trade, and the rise of information/knowledge
economies have recast the role of IS in business. IS is supplying the foundation for new business
models, new business processes, and new ways of distributing products, services and knowledge.
Companies are relying on IS to conduct more of their work electronically, seamlessly linking
factories, offices, sales forces, managers, customers, and suppliers around the globe. Leading-
edge firms use information systems to react instantly to customer demands and market shifts.
Business executives can constantly analyze performance at all levels of the organization. This
digital integration both within the firm and outside, from the warehouse to the executive suite,
from suppliers to customers, is changing how we organize and manage a business firm.

Irrespective of the size of organizations, information is a critical resource in the operation and
management. Timely availability of relevant information is vital for effective performance of
managerial functions such as planning, organizing, leading, and controlling. An information
system in an organization is like the nervous system in the human body: it is the link that
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connects all the organization's components together and provides for better operation and survival
in a competitive environment. Indeed, today's organizations run on information.

Information systems will continue to change our business, our society and our lives. It is widely
recognized that understanding IS is essential for managers and employees because most
organizations need IS to survive and prosper. Employees will depend on IS to increase their
productivity. Management will use IS to improve the quality of their decision-making processes.

Activity A
Give examples to highlight the applications of IS in: Public relations, market research, and
strategic planning.

Activity B
Can you visualize IS without computers? Justify your answer by giving three examples.

1.1.2 Computer and Information System Literacy

Today, the advancement of computer technology impacts all individuals, families, organizations,
and schools. Computers already are an essential part of people's daily lives, as much as the
automobile, television, and telephone. Computers are taking on many new roles - providing vast
information resources, fast communications, effective learning tools, and powerful support for
activities in businesses, education, and homes. Information systems and technologies have
become a vital component of successful businesses and organizations. They thus constitute an
essential field of study in business administration and management. Almost any career in your
future will involve a computer in some way. You probably recognize that it will not be easy to
get through the rest of your life without knowing about computers and information systems.

In today's technology-rich world, a great demand for computer and information systems
professionals exists and continues to grow. The computer and information systems industries
offer many rewarding careers, but require a unique combination of hands-on computing skills,
creative problem solving ability, and an understanding of business needs. In preparing to enter
today's fast-paced, ever-changing, and information-intense business environment, you need to
understand the new thinking in business.

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The term literacy has been used to describe two types of knowledge that are key to succeed as a
knowledge worker in today's information/knowledge-based business environment. One kind of
knowledge is computer literacy; the other is information systems literacy. Are you computer and
IS literate?

What is the difference between computer literacy and information system literacy? The
knowledge and understanding of computer systems and the ways they function are called
computer literacy. Computer literacy focuses primarily on knowledge of information
technology. This knowledge includes an understanding of computer terminology, recognition of
the strengths and weaknesses of the computer, and an ability to use the computer. It also stresses
computer equipment and devices (hardware), programs and instructions (software), databases,
networking, and telecommunications. As you study about computers, you will become aware of
their importance, their versatility, and their pervasiveness in our society. There is no better way to
understand computer systems than through interacting with one. So being computer literate also
means being able to use computers for some type of applications. However, no one expects you
to become a computer expert.

Today, information systems provide the communication and analytic power that firms need for
conducting trade and managing businesses on a global scale. In addition to understanding
computers, the modern knowledge worker should have information systems literacy. From a
business perspective, an information system is an organizational and management solution, based
on information technology, to a challenge posed by today's dynamic and complex business
environment.

Knowing how computer systems work is important in designing solutions to organizational

problems, but computer systems are only part of an information system. Computers and programs
alone cannot produce the information a particular organization needs to solve its problems. To
understand information systems, you must understand the problems they are designed for, their
architectural elements, and the organizational processes that lead to these solutions. In other
words, to be information systems literate as opposed to computer literate, you must understand
the broader organization, management, and technology dimensions of information systems (See
Figure 1-1).
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Figure 1-1: Dimensions of information systems

Information systems are integral part of organizations. The key elements of an organization are
its people, structure, business processes, politics, and culture. Organizations are composed of
different levels and specialties. Different levels and specialties in an organization create different
interests and points of view. Information systems come out of this cauldron of differing
perspectives, conflicts, compromises, and agreements that are a natural part of all organizations.

Management's job is to make sense out of the many situations faced by organizations, make
decisions, and formulate action plans to solve organizational problems. Managers perceive
business challenges in the environment and set the organizational strategy for responding and
allocating the human and financial resources to achieve the strategy and coordinate the work. The
business information systems in organizations reflect the hopes, dreams, and realities of
managers.

Information technology is one of the many tools managers use to cope with change. Information
technology infrastructure provides the foundation or platform on which the firm can build its
specific information systems. Each organization must carefully design and manage its
information technology infrastructure so that it has the set of technology services it needs for the
work it wants to accomplish with information systems. The result is an information system
solution to the business challenge of providing a high level of service with low prices in the face
of mounting competition.

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Therefore, information systems literacy is knowledge of how and why data, information,
knowledge, computer, and information technology are used by organizations and individuals. It
includes not only knowledge of computer technology but also aspects of the broader range of
information technology. Information systems literacy can involve knowledge of how and why
people use information technology, knowledge of organizations, decision-making approaches,
management levels, and information needs, and knowledge of how organizations can use
information systems to achieve their goals. Thus, the key aspect of information systems literacy
is, knowing how to deploy information technology to help an organization achieve its business
goals and to gain a competitive advantage.

In general, knowing about various types of hardware and software is an example of computer
literacy. Knowing how to use hardware and software to increase profits, cut costs, improve
productivity, increase customer satisfaction, and improve management decision-making is an
example of information systems literacy. One of the main objectives of this module is to lay the
foundation for information systems literacy.

Studies have shown that the involvement of managers and decision makers in all aspects of
information systems is a major factor for organizational success and career success. Information
systems are creating many exciting opportunities for both organizations and individuals. They are
also challenges for businesses and individuals. Knowledge and skills of information systems will
help you make a significant contribution on the job. It will also help you advance in your chosen
career or field, solve problems, realize opportunities, and meet your own personal goals.

1.1.3 Data vs. Information

Can you distinguish between the terms data and information? How do you relate them? Today,
information is one of an organization's most important and valuable intangible resources.
Organizational information systems contain information about people, places, things, ideas and
events within the organization and in the environment surrounding it. By information we mean
data that have being processed into a form that is meaningful and useful to the recipient. Data are
therefore the raw facts for producing information. The relation of data to information is that of
raw material to finished product. IS processes data from unusable form into a usable form that is

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information for the intended recipient. For example, supermarket checkout counters ring up
millions of pieces of data such as product identification numbers, the amount of each item sold,
and the cost of each item. Such pieces of data can be totaled and analyzed to provide meaningful
information for inventory management, or sales promotion.

Organizational activities require information. Producing products, assigning workers, making

sales, billing amounts due, and providing customer services are examples of activities that use
information. Data represents real-world facts, such as an employee's name, weekly sales,
customer numbers, or product inventory. Data items are organized for processing purpose in
database where operational data stored and data warehouse where non-operational and historic
data stored. Data are simply raw facts and has little value beyond its existence. IS manipulates
and process data to create information. The information in an information system take a variety
of forms including text, numbers, pictures, sounds, animations and videos.

What makes information valuable? The value of information is described in most meaningful
manner in the context of a decision. In other words, the value of information is directly linked to
how it helps decision-makers achieve their organization's goals. If there were no current or future
choices or decisions affected by a piece of information, the information would be unnecessary. It
is cited frequently in explaining why information systems that collect vast amounts of data often
fail to satisfy managerial information needs. The value of information might be measured in the
following three dimensions:
Content -- information should be accurate, relevant, and complete
Time -- information should be timely and current
Form -- information should be provided at the appropriate level of detail and in the most
appropriate form.

More specifically, information should have certain characteristics to make it valuable. The
characteristics of valuable information include being accurate, verifiable, timely, organized,
meaningful, useful, and cost effective.

Accurate information is correct information that is free from errors. Inaccurate information often
is worse than no information, because inaccurate information can lead to incorrect decisions. For

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example, you assume that your transcript correctly list your grades. If your transcript incorrectly
reports low grades in your major courses, a potential employer might deny you an interview.

Verifiable information means that the information can be confirmed by the user. For example,
before relying on the cumulative GPA on your transcript, a potential employer might want to
check that the GPA is calculated correctly. The potential employer can verify the accuracy of the
accumulated GPA by calculating it from the individual semester GPA values.

Timely information has an age suited to its use. Your transcript, for example, has value for a
potential employer only if the employer receives it in time to make a hiring decision. Although
most information loses its value with time, some information, such as information on trends,
gains value as time passes and more information is obtained. Your transcript, for example, gains
value as you complete more coursework because it reflects your work ethics and dedication over
a time period.

Meaningful information is relevant to the person who receives it. Because certain information is
meaningful only to specific individuals or groups, unnecessary information should be eliminated.
Cost-effective information costs less to produce than the value of the resulting information. Most
organizations periodically review the information they produce in reports to determine if the
reports provide valuable information. Based on that review, the companies can determine
whether to continue, scale back, or even eliminate these reports.

Activity C
Give examples from day-today activities in your organization or any organization of your
choice to support the statement, “Managers need only information and not data”

1.2 Fundamentals of Information Systems

1.2.1 The System Concept and Information Systems

What is a system? The system concept underlies the field of information systems. A system is a
group of interrelated components working together toward a common goal by accepting inputs
and producing outputs in an organized transformation process. From the definition you can

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understand that a system has three basic interacting components or functions: Input, Process, and
Output.

Input involves capturing and assembling elements that enter the system to be processed. For
example, raw materials, energy, data, and human effort must be secured and organized for
processing.
Process converts inputs into outputs. Examples are a manufacturing process, the human breathing
process, or mathematical calculations.
Output is the final result that has been produced by a transformation process. For example,
finished products, human services, and management information must be transmitted to their
human users.

The system concept becomes even more useful by including two additional components:
feedback and control. A system with feedback and control components is sometimes called a
cybernetic system, that is, a self-monitoring, self-regulating system.

Feedback is a mechanism for providing comment about the performance of a system, whereas,
control involves monitoring and evaluating feedbacks to determine whether a system is moving
towards the achievement of its goal. The control function makes necessary adjustments to a
system's input and processing components to ensure that it produces proper output. For example,
data about sales performance is feedback to a sales manager. A sales manager exercises control
when reassigning salespersons to new sales territories after evaluating feedback about their sales
performance.

In addition to the components and functions, systems bear the following characteristics:
Environment: A system does not exist in a vacuum; rather, it exists and functions in an
environment containing other systems. The environment is the external conditions or
surroundings that lie outside the boundaries of the system.
Subsystem: A system that is a component of a larger system, where the larger system is its
environment.
System Boundary: A system is separated from its environment and other systems by its
system boundary.

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Interface: Several systems may share the same environment. Some of these systems may be
connected to one another by means of a shared boundary, or interface.
Open and Closed Systems: A system that interacts with other systems in its environment is
called an open system. An open system is connected to its environment by exchanging inputs
and outputs. In contrast, closed systems are unable to interact with their environment, since
they are found in controlled laboratory.
Adaptive System: A system that has the ability to learn to a change in itself or its environment
in order to survive is called an adaptive system.

An information system (IS) is a specialized type of system. It can be defined as a set of

interrelated components that collects (or captures) data, processes it, stores, and distributes
information and provides a feedback/control mechanism to meet its objectives. An information
system comprises hardware, software, and communications networks that facilitate collection,
processing and dissemination of useful data and information. IS supports managers and workers
to make decisions, control operations, analyze problems, visualize complex subjects, and create
new products and services. Figure 1-2 depicts components of an information system and its
boundary.

Figure 1-2: Information system model

In an information system, input is the activity of gathering and capturing raw data from within the
organization or from its external environment. For example, in producing paychecks, the number
of hours worked for every worker must be collected before the pay amounts can be calculated
and checks can be printed. Processing involves converting or transforming data into more
meaningful form. Processing can involve making calculations, making comparisons and taking
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alternative actions, and storing data for future use. In the payroll example, the required processing
may first involve calculating gross pay. If weekly worked hours are greater than regular working
hours, overtime pay must be determined. Then deductions are subtracted from gross pay to get
net pay. Output involves producing useful information in a proper form such as reports,
paychecks or documents, and transferring the processed information to the user. In some cases,
output from one information system may become input for another. Information systems also
provide feedback/control mechanism to allow people to evaluate the performance of the systems
and make the necessary changes to input or processing activities.

Information technologies are tools used to build information systems. Information technologies
include hardware, software, database, networks, and other related components. Information
systems use and integrate these technologies to meet the information needs of different users. The
information technology, then, must support the goal of the information system, which is to
provide accurate, timely, relevant, complete, well-formatted information that user value.

As technology advances and computers extend into every facet of daily living, computers have
become an essential part of organizational information processing because of the power of the
technology and the volume of data to be processed. When we use the term information systems,
we are referring to computer-based information systems (CBISs) -- organizational information
systems that rely on computer technology to collect, process, store and disseminate information.
Electronic computers and related software programs are the technical foundation, the tools and
materials, of modern information systems.

Activity D
Select an organization that you are familiar with:
1. Describe it using the system concept
2. Identify its components and their interaction

1.2.2 Components of Information Systems

An information system is composed of five major resources and five major activities which are
shown in Figure 1-4.

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1.2.2.1 Information System Resources

i. People Resources
People are required for the operation of information systems, and include people who develop,
program, operate, manage, use and maintain the information systems. These are end users and
specialists.
• End Users are people who use an information system or the information it produces.
• Information System Specialists are people who develop and operate information systems.
People that assume positions of the system analyst, database administrator, programmer,
network administrator, and chief information officer (CIO) are among the information
system specialists.

Figure 1-4: Components of information system

ii. Hardware Resources

Hardware resources include all physical computer equipments and associated devices used to
perform input, processing, and output activities. These resources include machines and media.

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• Machines include all physical devices such as computers, peripherals, communication
networks.
• Media comprise all tangible objects on which data are recorded. Examples: paper,
magnetic disks, optical disks.

iii. Software Resources

Software is a broad term given to the instructions that direct the operation of the hardware.
Software resources include all sets of information processing instructions. Programs and
procedures are software resources.
• Program is a set of instructions that cause a computer to perform a particular task.
Example: Operating systems, Spreadsheet, Word processors, Data base management
systems.
• Procedures are sets of instructions used by people to complete a task. Example: Data
entry procedures, error correction procedures.

iv. Data Resources

Data constitutes a valuable organizational resource. Thus, data resources must be managed
effectively to benefit all end users in an organization. Data resources are maintained in databases,
data warehouses, and knowledge bases.
• Database - is a collection of logically related operational records or files. A database
consolidates many records previously stored in separate files so that a common pool of
data records serves many current applications.
• Knowledgebase - holds knowledge in a variety of forms such as facts and rules that
depicts relations between facts.
• Data warehouse – represents a central repository of all organizational data, historic and
current data.

v. Communication Networks
Network is a technology that enables two or more computers interact for sharing information and
other hardware and software resources. Networks like the Internet, intranets, and extranets have
become essential to the successful operations of all types of organizations and their computer-
based information systems. Networks consist of computers, communication processors, and other

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devices interconnected by communication media and controlled by communication software.
Network resources include:
• Communication media such as twisted-pair wire, coaxial cable, fiber-optic cable,
microwave systems, and communication satellite systems.
• Network support such as people, hardware, software, and data resources that directly
support the operation and use of a communication network.
• Communication processors such as modems, multiplexers, PBX, Internetwork
processors.
• Network Software such as Novell, Windows NT, etc.

1.2.2.2 Information System Activities

The following are the main information processing activities that occur in information system.

i. Input of Data Resources

Data about business transactions and other events must be captured and organized for processing
by the input devices. Input typically takes the form of data entry activities such as recording and
editing. Once entered, data may be transferred and stored on a machine-readable medium such as
magnetic disk or type, until needed for processing.

ii. Processing of Data into Information

Data is typically subjected to processing activities such as calculating, comparing, sorting,
classifying, and summarizing. These activities organize, analyze, and manipulate data, thus
converting them into information for end users.

iii. Output of Information Products

Information in various forms is transmitted to end-users and made available to them in the output
activity. The goal of information systems is the production of appropriate information products
for end users. The characteristics that make information valuable and useful are attributes of its
quality. Information that is outdated, inaccurate, or hard to understand would not be very
meaningful, useful, or valuable to end users. People want information of high quality, that is,
timely, accurate, complete and relevant in the right format and detail.

iv. Storage of Data Resources

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Storage is an IS activity in which data and information are retained in an organized manner for
later use. This facilitates information processing as per the need of users of a system. These are
secondary media (like hard disk) and tertiary media (like CD, DVD, flash, etc.) used for storing
data and information.

v. Control of System Performance

An important information system activity is the control of its performance. An information
system should produce feedback about its input, processing, output, and storage activities.
Feedback must be monitored and evaluated to determine if the system is meeting established
performance standards. Feedback is used to make adjustments to system activities to correct
deficiencies.

1.3 The Roles of Information Systems in Business

What are the major roles information systems play in an organization? Businesses are processing
information to improve organizational performance and make profits. From a business
perspective, an information system is an important instrument for creating value for the
organization. There are many ways in which information systems can contribute to firm value,
including increasing the firm's return on its investments, enhancing the company's strategic
position, or increasing the market value of the firm's stock. Information processing activities
support management decision making, enhance the execution of business processes and as a
result increase business value.

Do the roles of information systems change over time? Information systems play a fundamental
and ever-expanding role in all business organizations. If you want to have a solid understanding
of how organizations operate, it is imperative that you understand the role of information systems
within these organizations. Moreover, as we enter the new century, we see trends that business
survival and prosperity will become more difficult without information as a key resource. The
most important factors include globalization, competition, organization restructuring, end-user
computing, electronic commerce, and virtual workplace. As a result, business issues and
decisions are becoming more complex.

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In today’s business an organization is most unlikely to succeed without appropriate use of
information system. An understanding of information systems will help you cope, adapt, and
prosper in this challenging environment. The strategic significance of information systems is
immense. By aligning information systems with the business strategy, an organization enhances
its efficiency and effectiveness and achieves its short and long term objectives.

There is a growing interdependence between business strategy, organizational structure,

operational rules and procedures, and production on the one hand, and information systems
hardware, software, databases, and telecommunications on the other. A change in any of these
components often requires changes in other components. Existing information systems can act as
a constraint on organizations. Often, the organization’s plan for the next five years, depends on
what its information systems will permit it to do. Developing new products and service,
increasing market share, becoming high-quality or low-cost producer, providing better customer
service, and increasing employee productivity depend more and more on the scope and quality of
information systems in the organization.

Information technology is one of the most important resources in today's business environment,
and successful businesses are investing heavily in information systems. Information systems
directly affect how top management draw up long-term planning, how managers make decisions,
and what products and services are produced and how. In general, information systems play a
strategic role in the life of the firm. The role of information system in business can be viewed in
three aspects. These are:

• Support of business operations

Information system support business process and operations. Information systems help
managers to conduct their daily activities and functions properly. In a bank different activities
like opening account, withdrawal of money, statement generation etc. take place. Information
systems help mangers to conduct such activities accurately and just in time.

• Support of managerial decision making

Information systems support decision making by managers. For example, information system
can analyze existing historical data about customers in bank and generate information like

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high risk or low risk customers etc. Managers can use this information while deciding to
provide loan for new customers.

• Support of strategic competitive advantages

Information systems support in formulating strategic planning for competitive advantages.
Information system can give information, like which items to launch in which location by
analyzing data collected from different sources such that company can have advantage by
using this information over their competitors. Information systems also can help business
houses in conducting their business process differently than their competitors.

Information systems enable businesses to extend their capacity, reorganize themselves, integrate
their functions, etc. Information systems’ contribution to organizations can be viewed as follows:

Information system helps organizations to operate globally.

The globalization trend of the world economy greatly enhances the value of information systems
to the organizations. In today's global business environment, information technology is creating
new opportunities for organizational coordination and innovation. Organizations require powerful
information and communication systems to manage business on an international scale.
Manufacturers are using information systems to order supplies and distribute goods faster than
ever before; financial institutions are employing them to transfer billions of dollars around the
world electronically; investors are using them to make multimillion-dollar decisions.

Information system helps organizational restructuring.

Today, many organizations are restructuring in a variety of ways. The explosive growth in
computing power and networks is turning organizations into networked enterprises, which allow
organizations to redesign and reshape their structures, scope of operations, control mechanisms,
work practices, work flows, products, and services. Many organizations have reduced the number
of levels in their organizational hierarchies. In these flatter organizations, employees are
empowered to make more decisions than in the past. Contemporary information technology can
make more information available to line workers so they can make decisions that previously had
been made by managers. Companies can use information and communication technologies to
organize in more flexible ways, increasing their ability to respond to changes in the marketplace,
to take advantage of new business opportunities, and to reduce the cost of obtaining products and
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services from outside the firm. Many organizations use information technology to recast the
management process, providing powerful new capabilities to help managers plan, organize, lead,
and control.

Information system helps integration of organization functions.

One important trend is using information technology for enterprise resource planning (ERP). The
ERP system is a business information system that integrates all facets of the business, including
planning, purchasing, manufacturing, sales, finance and human resources. The ERP system
creates an integrated database to coordinate business activities within and across functional areas
by sharing consistent information, and automates business processes.

Information system enables conducting business electronically.

IT is creating new ways of conducting business electronically both inside and outside the firm.
The Internet is emerging as the primary technology platform for electronic commerce. Electronic
commerce is the computerized process of buying and selling goods and services through the
Internet, networks, and other digital technologies. The Internet links millions of organizations and
individuals into a single network, creating the foundation for a vast electronic marketplace. An
electronic market is an information system that links together many buyers and sellers to
exchange information, products, services, and payments. Many organizations are increasingly
apply Internet technology to facilitate the management and coordination of other business
processes within the firm -- publishing company's policies and work procedures, scheduling work
flow, reviewing production plan, revising design documents, and so on, which is called electronic
business.

Information system enables virtual workplaces.

ICT has eliminated distance as a factor for many types of work in many situations. Many
companies are using networked information systems to coordinate their geographically
distributed capabilities. Works can be done wherever the employees are located. The term virtual
workplace describes a technology-enabled working arrangement where work can be done at
virtually any geographical location as long as the various work sites are networked with each
other. Some companies are even using their networked information systems to coordinate with
other organizations such as suppliers, distributors, or even competitors as virtual organizations to

19
create and distribute new products and services without being limited by traditional
organizational boundaries or physical location.

Activity E
Consider an information system of a given organization:
1. Describe its resources and activities
2. Justify the roles that the information system plays to the organization

1.4 Information Systems Trends in Business

What drives the expanding role of IS? The business application of information systems have
expanded significantly over the years. 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, as the concept of management information
systems (MIS) was conceived. This new role focused on developing business applications that
would provide managers the information they needed for decision-making purposes based on
predefined management reports.

By the 1970s, it was evident that the pre-specified information products produced by such
management information systems were not adequately meeting many of the decision-making
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 and interactive support
of their decision-making processes. This support would be tailored to the unique decision-making
style of managers as they confronted with specific types of problems in the real world.

In the 1980s, several new roles for information systems appeared. First, the rapid development of
microcomputer processing power, application software packages, and telecommunication
networks gave birth to the phenomenon of end user computing. Now, end users could use their
own computing resources to support their job requirements instead of waiting for the indirect
support of corporate information services unit. 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) was developed. These information systems were created to give top
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executives an easy way to get the critical information they want, when they want it, tailored to the
formats they prefer. Third, breakthroughs occurred in the development and application of
artificial intelligence (AI) techniques to business information systems. Expert systems (ES) and
other knowledge-based systems forged a new role for information systems. Today, expert
systems can serve as consultants to users by providing expert advice in limited subject areas.

An important new role for information systems appeared in the 1980s and continued through the
1990s. This is the concept of a strategic role for information systems, sometimes called strategic
information systems (SIS). In this concept, information technology becomes an integral
component of business processes, products, and services that help a company gain a competitive
advantage in the global marketplace.

Finally, the rapid growth of the Internet, intranets, extranets, and other inter-connected global
networks dramatically changed the capabilities of information systems in business at the
beginning of the twenty-first century. Internet-based and Web-enabled enterprise and global
electronic business and commerce systems are becoming commonplace in the operations and
management of today's business enterprises. Information systems support business processes for
all business functions and processes that span more than one function. Enterprise applications--
enterprise systems, supply chain management systems, customer relationship management
systems, and knowledge management systems--enable organizations to integrate information
from multiple functions and business processes across entire firms and even entire industries.

Existing business information processing systems will undergo profound changes as a result of
the development of the information technology and new concepts of business. As computers
become increasing ubiquitous and technologies converge, business will rely on IT for whole
business operations and management, and users at all levels will need to be computer literate.

Summary

In the information/knowledge age information has become critical, strategic assets for a firm.
Organizations are therefore much concerned in the collection, processing, production, and
distribution of information.

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The growth of the Internet, the globalization of trade, and the rise of information/knowledge
economies have recast the role of information systems in business and management. IT is
supplying the foundation for new business models, new business processes, and new ways of
distributing products, services and knowledge.

In today's technology-rich world, a great demand for computer and information systems
professionals exists and continues to grow. The knowledge and understanding of computer
systems and the ways they function are called computer literacy. Computer literacy focuses
primarily on knowledge of information technology. Information systems literacy is knowledge of
how and why data, information, knowledge, and IT are used by organizations and individuals. It
includes not only knowledge of IT but also aspects of the broader range of information systems.

System concepts underlie the field of information systems. A system is a group of interrelated
components working together toward a common goal by accepting inputs and producing outputs
in an organized transformation process. An information system is a specialized type of system
composed of interrelated components which is used to collect, create and distribute useful data
and information. It is an organized combination of resources and processing activities. IS
resources are: People, hardware, software, data and communication networks. Information
processing activities are: Input of data resources, processing of data into information, output of
information products, storage of data resources, and control of system performance.

IT is an important instrument for creating value for the organization. There are many ways in
which information systems can contribute to firm value, including increasing the firm's return on
its investments, enhancing the company's strategic position, or increasing the market value of the
firm's stock. Information processing activities support management decision making, enhance the
execution of business processes and, as a result increase business value. Information systems help
organizations to operate globally, to support restructuring, to integrate organization functions, to
enable conducting business electronically, and to create virtual workplaces.

By aligning information systems with the business strategy, an organization enhances its
efficiency and effectiveness and achieves its short and long term objectives. As strategic
relevance, IS can support business operations, managerial decision making, and strategic
competitive advantages.
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The rapid growth of the Internet, intranets, extranets, and other interconnected global networks
dramatically change the capabilities of information systems in business. Internet-based global
electronic business and commerce systems are becoming commonplace in the operations and
management of today’s business enterprises.

References
Anteneh, Salehu (2015). Information Systems for Business: Teaching Material, Addis Ababa
University (unpublished).
Boddy D., Boonstra A. and Kennedy G. (2002). Managing Information Systems: An
Organization Perspective. Prentice Hall.
Laudon, Kenneth C. and Laudon, Jane P. (2014). Management Information Systems: Managing
the Digital Firm (13th ed.), Pearson Education.
O'Brien, James A. and Marakas George M (2010). Introduction to Information Systems (13th ed.),
McGraw-Hill.
Post, Gerald V. and Anderson, David L. (2003). Management Information Systems: Solving
Business Problems with Information Technology (3rd ed.). McGraw-Hill.

Self-Assessment Questions

Multiple Choices
1. A system that interacts with other systems in its environment is commonly referred to as
a(n):
a. Cybernetic system d. Open system
b. Dynamic system e. None of the above
c. Closed system
2. In measuring the value of information, one of the following does not refer to the content
dimension
a. Accuracy d. Timeliness
b. Relevance e. None of the above
c. Completeness

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3. The basic interacting components or functions of a system include all, except
a. Input d. Feedback
b. Processing e. None of the above
c. Output
4. One of the following is the fundamental role of information system
a. Support business operations
b. Support managerial decision making
c. Support strategic competitive advantages
d. All of the above
e. None of the above
5. A system that has the ability to change itself or its environment in order to survive is called
a(n):
a. Open system d. Cybernetic system
b. Closed system e. None of the above
c. Adaptive system
6. Technology becomes an integral component of business processes, products, and services
that help a company gain a competitive advantage in the global marketplace. This is the
concept of
a. MIS d. All of the above
b. SIS e. None of the above
c. EIS
7. The increasing role of information systems in business and management is attributed to
a. The growth of the Internet
b. The globalization of trade
c. The rise of information/knowledge economies
d. All of the above
e. None of the above
8. Information system resource includes all, except
a. Procedures d. Storage of data
b. Database e. None of the above
c. End users

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9. The majority of organizations today would be classified as:
a. Open adaptive systems
b. Open non adaptive systems
c. Closed non adaptive systems
d. Closed adaptive systems
e. None of the above
10. Which of the following would NOT be considered a good example of information?
a. The company's machine operator's ID number is 456-38-1276.
b. The price of a kilo of coffee is Birr 20.99.
c. The company owes Birr 3,847 to vendor number 10782.
d. The numbers 12367892, 436897458, and 837621984.
e. All of the above.

True/False

T F 1. The knowledge and understanding of computer systems and the ways they
function are called information system literacy.

T F 2. Information is data or facts that have been summarized or organized into a

meaningful form.

T F 3. Computer systems and information systems are similar and used

interchangeably.

T F 4. Information systems specialists, such as systems analysts or computer

programmers, are typically thought of as the end users of an information system
and the information it produces.

T F 5. Meaningful information that is relevant to a person is also relevant for others.

T F 6. Information systems are creating many exciting opportunities for both

organizations and individuals, so that they do not impose challenges for
businesses.

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T F 7. Information systems literacy is knowing how to deploy information technology
to help an organization achieve its business goals and to gain a competitive
advantage.

Completion
1. The three main dimensions used in measuring the value of information are
______________, ___________ and ___________.

2. An information system resource called _____________ is a broad term given to the

instructions that direct the operation of the hardware.

3. ______________is the information processing activity in which data and information are
retained in an organized manner for later use.

4. _____________ stands for organizational information systems that rely on computer

technology to collect, process, store and disseminate information.

5. A _________ is one where nearly all of the organization's significant business relationships
with customers, suppliers, and employees are digitally enabled and mediated.

Discussion Questions
1. Describe the importance of information systems to organizations, their employees, and
customers?

2. Explain system concept and its relevance in the study of information systems.

3. In what major ways have information systems in business changed during the last 40 years?
What is one major change you think will happen in the next 10 years?

4. How can information technology support a company’s business processes and decision
making and give it a competitive advantage? Give examples to illustrate your answer.

5. Discuss why management needs information. Is it possible for the management of an

organization to make effective decisions without the aid of an information system? Discuss.

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Case Study
Office Products Corporation receives more than 10,000 customer orders a month, drawing on a
combined inventory of over 1,000 office products stocked at the company’s warehouse. About 60
PCs are installed at Office Products’ headquarter and connected in a local area network to several
IBM Netfinity servers. Orders are received by phone or mail and entered into the system by
customer representatives at network computers, or they are entered directly by customers who
have shopped at the electronic commerce website developed by Office Products. Formatted
screens help users follow data entry procedures. Netfinity servers store these orders on magnetic
disks.

As the order is entered, a server checks the availability of the parts, allocates the stock, and
updates customer and part databases stored on its magnetic disks. It then sends the order pick list
to the warehouse printer, where warehouse personnel use the printout to fill the order. The
company president has a networked PC workstation in her office and so do the controller, sales
manager, inventory manager, and other executives.

They use simple database management inquiry commands to get responses and reports
concerning sales orders, customers, and inventory, and to review product demand and service
trends.

Case Questions
1. Identify the people, hardware, software, data, and network resources and the information
products of this information system.

2. Identify the input, processing, output, storage, and control activities that occurred.

Case Study
Akaki Chemical uses the Internet and an electronic commerce website to connect to its customers
and suppliers, and to capture data and share information about sales orders and purchases. Sales
and order data are processed immediately, and inventory and other databases are updated.
Videoconferencing and electronic mail services are also provided. Data generated by a chemical
refinery process are captured by sensors and processed by a computer that also suggests answers
to a complex refinery problem posed by an engineer.
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Managers and business professionals access reports on a periodic, exception, and demand basis,
and use computers to interactively assess the possible results of alternative decisions. Finally, top
management can access text summaries and graphics displays that identify key elements of
organizational performance and compare them to industry and competitor performance.
Akaki Chemical Corporation has started forming business alliances and using intranets, extranets,
and the Internet to build a global electronic commerce website to offer their customers worldwide
products and services. Akaki Chemical is in the midst of making fundamental changes to their
computer-based systems to increase the efficiency of their e-business operations and their
managers’ ability to react quickly to changing business conditions.

Case Questions
1. Make an outline that identifies how information systems support (1) business operations,
(2) business decision making, and (3) strategic advantage at Akaki Chemical.

2. Akaki Chemical has many different types of information systems. Identify as many as you
can and explain the reasons for your choices.

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Chapter 2 Organizations and the Need for Information Processing

Learning Objectives

After completing this chapter, you will be able to:

• describe information processing activities in organizations
• discuss business information value chain
• explain why information systems are so important today and how they are transforming
organizations and management
• discuss the economic and behavioral impact of information systems on organizations
• understand the strategic use of information systems
• identify basic competitive strategies and explain how IT may be used to gain competitive
advantage

Contents

2.1 Organizations as Information Processing Entity

2.2 Information Processing as Value-Added Process
2.3 The Impact of Information Systems in Organizations
2.3.1 Economic Impacts
2.3.2 Organizational and Behavioral Impacts
2.4 Use of Information Systems for Strategic Advantage
2.4.1 Competitive Forces and Strategies
2.4.2 Strategic Uses of Information Systems
Summary
References
Self-Assessment Questions

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2.1 Organizations as Information Processing Entity

There is one feature that almost all organizations have in common: they must acquire and analyze
information and take action based on their interpretation of that information. Irrespective of their
type, organizations need to process information. For example, a firm needs information about the
status of inventories and orders as well as basic manufacturing data for production control.
Government agencies are also confronted with substantial information processing requirements.

The organization collects data from a number of sources, including its own internal operations
and customers. Most organizations also attempt to gather data on their competitors and other
phenomena external to the organization, such as economy. In fact, a number of firms exist to
gather and sell data such as economic forecasts. The organization must process all these data, and
frequently some type of computer-based information system is used for this purpose.

The output from processing may take many forms, such as tabular reports and graphics displays.
It is likely that the output will be interpreted and action will be taken on the basis of the
information. For example, a firm might offer a new product or enter a new market because of
information derived from a market research study. Once the decision has been made to enter a
new market, the product will be closely monitored. The firm may research how best to promote
the product through advertising or free samples. The data collected on the experiment are then
analyzed, and the product manager derives information from them to help in devising a marketing
plan.

A great deal of interpreted information is disseminated within an organization for use by its
members. Orders processed by a manufacturing firm using a computer provide important
information for several groups within the firm. For example, the file of open orders is of interest
to the sales forces because it shows which products are selling well. The production scheduling
department would like to see what goods must be shipped by certain dates in order to plan
production. Customer services would like to be able to inquire about the status of individual
orders when customers or sales representatives phone with a question.

Many organizations must also make information available to the public, for example, to
stakeholders. Many private organizations also provide information to government agencies and

30
regulatory bodies. Automobile firms must provide large amounts of data about tests conducted on
vehicle safety and pollution. Drug companies submit extensive reports to the government
concerning tests of new medicines. Most firms and individuals also furnish a large amount of
data to Internal Revenue Services.

Although the processing of information is clearly not the ultimate goal of most organizations, it is
obviously a vital component of their operations. Individuals who are, or will become, members of
organizations need to understand the role of information: How is it produced and organized, and
how is it processed to contribute to the goals of the organization? In a modern organization,
information processing contributes significantly to the success of the enterprise, and managers
should be knowledgeable about information processing tools, techniques, and concepts.

2.2 Information Processing as Value-Added Process

An organization is a formal collection of people and other resources established to accomplish a
set of goals. People, materials, machines and equipment, money, data, information, and decisions
are constantly in use in any organization. Outputs (goods or services) produced by an
organization are of higher relative value than the inputs (raw material, labor, and other resources).
It is through this difference in value or worth that organizations attempt to achieve their goals.

What is a value adding process? Within an organization, various subsystems contain

transformation processes that help turn specific inputs into goods or services of increasing values.
These value-added processes increase the relative worth of the combined inputs on their way to
becoming final outputs of the organization. A series (chain) of value-added processes that
includes inbound logistics, warehouse and storage, production, sales and marketing, outbound
logistics, and customer service is called the value chain. Each of these processes is investigated
to determine what can be done to increase the value perceived by a customer. Depending on the
customer, value may mean lower price, better service, higher quality, or uniqueness of product.
The value comes from the skill, knowledge, time, energy, and capital invested by the company.
In general, business organizations establish these value-added processes to achieve their goals by
exploiting opportunities and solving problems.

How are information systems and organizations related? The relationship between information
systems and organizations is complex. Because there are many types of organizations, it stands to
31
reason that the technology will have a different impact on different types of organizations. There
is no single effect of information systems. Even using the same type of information systems,
different organizations in different circumstances experience different effects. However in
general, what role do information systems play in these value-added processes? First,
organizations use information systems to control and monitor value-added processes to ensure
efficiency and effectiveness. An information system can turn feedback from the value-added
process subsystems into more meaningful information for employees' use within an organization.
This information might summarize the performance of the systems and be used as the basis for
changing the way the system operates. Such changes could involve using different raw materials
(inputs), designing new assembly-line procedures (product transformation process), or
developing new products and services (outputs).

Second, for most organizations, information processing is so intimately intertwined with the
underlying value-add process that it has become part of the value-added process itself. The
information systems are internal to and play an integral role in the process, whether by providing
input, aiding product transformation, or producing output. The information systems do not just
monitor the process externally but also work as part of the process to transform a product. From
this point of view, studying the potential role of information systems within the process itself
often leads to the discovery of new and better ways to accomplish the process.

Third, information systems have provided effective support of an organization's strategies for
gaining competitive advantage. This strategic role of information systems involves using
information technology to develop products, services, and capabilities that give an organization
advantages over the competitive forces it faces in the global marketplace. The extent to which
companies are using computers and information systems for competitive advantage continues to
grow. Forward-thinking companies must constantly update or acquire new systems to remain
competitive in today's dynamic marketplace.

Activity A
Consider a company of your choice and identify the value added by the information
systems the company is using.

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Intensive use of information technology in business firms, coupled with equally significant
organizational redesign, has created a new type of business: the digital firm. What is a digital
firm? The digital firm can be defined along several dimensions. A digital firm is one where
nearly all of the organization's significant business relationships with customers, suppliers, and
employees are digitally enabled and mediated. Core business processes are accomplished through
digital networks spanning the entire organization or linking multiple organizations. Key corporate
assets--intellectual property, core competencies, and financial and human assets--are managed
through digital means.

In a digital firm, any piece of information required to support key business decisions is available
at anytime and anywhere in the firm. Digital firms sense and respond to their environments far
more rapidly than traditional firms, giving them more flexibility to survive in turbulent times.
Digital firms offer extraordinary opportunities for more global organization and management. By
digitally enabling and streamlining their work, digital firms have the potential to achieve
unprecedented levels of profitability and competitiveness.

There are four major systems that help define the digital firm. Collectively, these systems
represent the areas where corporations are digitally integrating their information flows and
making major information system investments.
Supply chain management systems seek to automate the relationship between suppliers
and the firm to optimize the planning, sourcing, manufacturing, and delivery of products
and services.
Customer relationship management systems attempt to develop a coherent, integrated
view of all the relationships a firm maintains with its customers.
Enterprise systems create an integrated enterprise-wide information system to coordinate
key internal processes of the firm, integrating data from manufacturing and distribution,
sales, finance, and human resources.
Knowledge management systems seek to create, capture, represent, store, share and
disseminate firm expertise and knowledge.

The businesses information value chain for a digital firm is shown in Figure 2-1. In this value
chain raw data is systematically acquired, and then transformed through various stages that add
value to that information. From this perspective, information processing is part of a series of
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value-adding activities for acquiring, transforming, and distributing information that managers
can use to improve decision making, enhance organizational performance, and ultimately
increase firm profitability.

Figure 2-1: The business information value chain

2.3 The Impact of Information Systems in Organizations

Information systems have become integral, online, interactive tools deeply involved in the
minute-to-minute operations and decision making of large organizations. Over the last decade,
information systems have fundamentally altered the economics of organizations and greatly
increased the possibilities for organizing work. Theories and concepts from economics and
sociology help us understand the changes brought about by IT.

2.3.1 Economic Impacts

From the point of view of economics, IT changes both the relative costs of capital and the costs
of information. Information systems can be viewed as a factor of production that can be
substituted for traditional capital and labor. As the cost of information technology decreases, it is
substituted for labor, which historically has been a rising cost. Hence, information technology
should result in a relative decline in the number of middle managers and clerical workers as
information technology substitutes for their labor.

As the cost of information technology decreases, it also substitutes for other forms of capital such
as buildings and machinery, which remain relatively expensive. Hence, over time we should

34
expect managers to increase their investments in IT because of its declining cost relative to other
capital investments.

IT also obviously affects the cost and quality of information and changes the economics of
information. Information technology helps firms contract in size because it can reduce transaction
costs—the costs incurred when a firm buys on the marketplace what it cannot make itself.
According to transaction cost theory, firms and individuals seek to economize on transaction
costs, much as they do on production costs. Using markets is expensive because of costs such as
locating and communicating with distant suppliers, monitoring contract compliance, buying
insurance, obtaining information on products, and so forth. Traditionally, firms have tried to
reduce transaction costs through vertical integration, by getting bigger, hiring more employees,
and buying their own suppliers and distributors.

Information technology, especially the use of networks, can help firms lower the cost of market
participation (transaction costs), making it worthwhile for firms to contract with external
suppliers instead of using internal sources. For instance, by using computer links to external
suppliers, the Chrysler Corporation (www.Chrysler.com) can achieve economies by obtaining
more than 70 percent of its parts from other companies. Information systems make it possible for
companies such as Cisco Systems and Dell Computer to outsource their production to contract
manufacturers instead of making their products themselves.

Information technology also can reduce internal management costs. According to agency theory,
the firm is viewed as a “nexus of contracts” among self-interested individuals rather than as a
unified, profit-maximizing entity. A principal (owner) employs “agents” (employees) to perform
work on his or her behalf. However, agents need constant supervision and management;
otherwise, they will tend to pursue their own interests rather than those of the owners. As firms
grow in size and scope, agency costs or coordination costs rise because owners must expend
more and more effort for supervising and managing employees.

Information technology, by reducing the costs of acquiring and analyzing information, permits
organizations to reduce agency costs because it becomes easier for managers to oversee a greater
number of employees.

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2.3.2 Organizational and Behavioral Impacts

Theories based in the sociology of complex organizations also provide some understanding about
how and why firms change with the implementation of new IT applications.

IT Flattens Organizations
Large, bureaucratic organizations, which primarily developed before the computer age, are often
inefficient, slow to change, and less competitive than newly created organizations. Some of these
large organizations have downsized, reducing the number of employees and the number of levels
in their organizational hierarchies.

Behavioral researchers have theorized that information technology facilitates flattening of

hierarchies by broadening the distribution of information to empower lower-level employees and
increase management efficiency (see Figure 2-2). IT pushes decision-making rights lower in the
organization because lower-level employees receive the information they need to make decisions
without supervision. Second, because managers can now receive so much more accurate
information on time, they become much faster at making decisions, so fewer managers are
required. Management costs decline as a percentage of revenues, and the hierarchy becomes
much more efficient.

Figure 2-2: Flattening organizations

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These changes mean that the management span of control has also been broadened, enabling
high-level managers to manage and control more employees spread over greater distances. Many
companies have eliminated thousands of middle managers as a result of these changes.

IT Enables Virtual Firms

More firms may operate as virtual organizations in which work no longer is tied to geographic
location. Virtual organizations use networks to link people, assets, and ideas. They can ally with
suppliers, customers, and, sometimes, even competitors to create and distribute new products and
services without being limited by traditional organizational boundaries or physical locations. For
example, Calyx and Corolla (www.calyxflowers.com) is a networked virtual organization selling
fresh flowers directly to customers, bypassing traditional florists. The firm takes orders over the
telephone or from its Web site and transmits them to grower farms, which ship flowers using
FedEx directly to customers.

Increasing Flexibility of Organizations

Information technology helps companies organize in more flexible ways, increasing their ability
to sense and respond to changes in the marketplace and to take advantage of new opportunities.
Information systems can give both large and small organizations additional flexibility to
overcome some of the limitations posed by their size.

Small organizations can use information systems to acquire some of the muscle and reach of
larger organizations. They can perform coordinating activities, such as processing bids or keeping
track of inventory, and many manufacturing tasks with very few managers, clerks, or production
workers.

Large organizations can use information technology to achieve some of the agility and
responsiveness of small organizations. One aspect of this phenomenon is mass customization,
which is the ability to offer individually tailored products or services using the same production
resources as mass production. Information systems can make the production process more
flexible so that products can be tailored to each customer’s unique set of requirements. Software
and computer networks can be used to link the plant floor tightly with orders, design, and
purchasing and to control production machines finely so products can be produced in greater
variety and easily customized with no added cost for small production runs.
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2.4 Use of Information Systems for Strategic Advantage

Organizations may view and use information technology in many ways. For example, companies
may choose to use information systems strategically, or they may be content to use IT to support
efficient everyday operations. If a company emphasized strategic business uses of information
technology, its management would view IT as a major competitive differentiator. They would
then devise business strategies that use IT to develop products, services, and capabilities that give
the company major advantages in the markets in which it competes.

It is important to view information systems as more than a set of technologies that support
efficient business operations, workgroup and enterprise collaboration, or effective business
decision making. Information technology can change the way businesses compete. You should
also view information systems strategically, that is, as vital competitive networks, as a means of
organizational renewal, and as a necessary investment in technologies; such technologies help a
company adopt strategies and business processes that enable it to reengineer or reinvent itself to
survive and succeed in today’s dynamic business environment.

2.4.1 Competitive Forces and Strategies

Competitive Forces
How should a business professional think about competitive strategies? How can a business use
information systems to apply competitive strategies? A company can survive and succeed in the
long run only if it successfully develops strategies to confront five competitive forces that shape
the structure of competition in its industry. In Michael Porter’s classic model of competition, any
business that wants to survive and succeed must effectively develop and implement strategies to
counter the following competitive forces:

1. Rivalry of competitors within its industry

2. Threat of new entrants into an industry and its markets
3. Threat posed by substitute products that might capture market share
4. Bargaining power of customers
5. Bargaining power of suppliers

Competition is a positive characteristic in business, and competitors share a natural, and often
healthy, rivalry. This rivalry encourages and sometimes requires a constant effort to gain
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competitive advantage in the marketplace. This ever-present competitive force requires
significant resources on the part of a firm.

Guarding against the threat of new entrants also requires the expenditure of significant
organizational resources. Not only do firms need to compete with other firms in the marketplace,
but they must also work to create significant barriers to the entry of new competition. This
competitive force has always been difficult to manage, but it is even more so today. The Internet
has created many ways to enter the marketplace quickly and with relatively low cost. In the
Internet world, a firm’s biggest potential competitor may be one that is not yet in the marketplace
but could emerge almost overnight.

The threat of substitutes is another competitive force that confronts a business. The effect of
this force is apparent almost daily in a wide variety of industries, often at its strongest during
periods of rising costs or inflation. When airline prices get too high, people substitute car travel
for their vacations. When the cost of steak gets too high, people eat more hamburger and fish.
Most products or services have some sort of substitute available to the consumer.

Finally, a business must guard against the often opposing forces of customer and supplier
bargaining powers. If customers’ bargaining power gets too strong, they can drive prices to
unmanageably low levels or just refuse to buy the product or service. If a key supplier’s
bargaining power gets too strong, it can force the price of goods and services to unmanageably
high levels or just starve a business by controlling the flow of parts or raw materials essential to
the manufacture of a product.

Competitive Strategies
Businesses can respond to the threats of competitive forces that they face by implementing one or
more of the following five basic competitive strategies:
i. Cost Leadership Strategy: Becoming a low-cost producer of products and services in
the industry or finding ways to help suppliers or customers reduce their costs or increase
the costs of competitors.
ii. Differentiation Strategy: Developing ways to differentiate a firm’s products and services
from those of its competitors or reduce the differentiation advantages of competitors. This

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strategy may allow a firm to focus its products or services to give it an advantage in
particular segments or niches of a market.
iii. Innovation Strategy: Finding new ways of doing business. This strategy may involve
developing unique products and services or entering unique markets or market niches. It
may also involve making radical changes to the business processes for producing or
distributing products and services that are so different from the way a business has been
conducted that they alter the fundamental structure of an industry.
iv. Growth Strategies: Significantly expanding a company’s capacity to produce goods and
services, expanding into global markets, diversifying into new products and services, or
integrating into related products and services.
v. Alliance Strategies: Establishing new business linkages and alliances with customers,
suppliers, competitors, consultants, and other companies. These linkages may include
mergers, acquisitions, joint ventures, formation of virtual companies, or other marketing,
manufacturing, or distribution agreements between a business and its trading partners.

These strategies are not mutually exclusive. An organization may make use of one, some, or all
of the strategies in varying degrees to manage the forces of competition. Therefore, a given
activity could fall into one or more of the categories of competitive strategy. For example,
implementing a system that allows customers to track their orders or shipments online could be
considered a form of differentiation if the other competitors in the marketplace do not offer this
service. If they do offer the service, however, online order tracking would not serve to
differentiate one organization from another. If an organization offers its online package tracking
system in a manner that allows its customers to access shipment information via not only a
computer but a mobile phone as well, then such an action could fall into both the differentiation
and innovation strategy categories.

2.4.2 Strategic Uses of Information Systems

Organizations may view and use information technology in many ways. For example, companies
may choose to use information systems strategically, or they may be content to use IT to support
efficient everyday operations. If a company emphasized strategic business uses of information
technology, its management would view IT as a major competitive differentiator. They would

40
then devise business strategies that use IT to develop products, services, and capabilities that give
the company major advantages in the markets in which it competes.

How can business managers use investments in information technology to support a firm’s
competitive strategies? A summary of how information technology can be used to implement the
five basic competitive strategies is given below:

Lower Costs
Use IT to substantially reduce the cost of business processes
Use IT to lower the costs of customers or suppliers
Differentiate
Develop new IT features to differentiate products and services
Use IT features to reduce the differentiation advantages of competitors
Use IT features to focus products and services at selected market niches
Innovate
Create new products and services that include IT components
Develop unique new markets or market niches with the help of IT
Make radical changes to business processes with IT that dramatically cut costs; improve
quality, efficiency, or customer service; or shorten time to market
Promote Growth
Use IT to manage regional and global business expansion
Use IT to diversify and integrate into other products and services
Develop Alliances
Use IT to create virtual organizations of business partners
Develop inter-enterprise information systems linked by the Internet and extranets that
support strategic business relationships with customers, suppliers, subcontractors, and
others.

There are many other strategic initiatives available to a firm in addition to the five basic strategies
of cost leadership, differentiation, innovation, growth, and alliance. Let’s look at several key
strategies that can also be implemented with information technology. They include locking in
customers or suppliers, building switching costs, raising barriers to entry, and leveraging
investment in information technology.
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Lock in customers and suppliers: Investments in information technology can allow a business
to lock in customers and suppliers (and lock out competitors) by building valuable new
relationships with them. These business relationships can become so valuable to customers or
suppliers that they deter them from abandoning a company for its competitors or intimidate them
into accepting less profitable business arrangements. Early attempts to use information systems in
these relationships focused on significantly improving the quality of services to customers and
suppliers in a firm’s distribution, marketing, sales, and service activities. More recent projects
characterize a move toward more innovative uses of information technology.

Create switching costs: A major emphasis in strategic information systems has been to find
ways to create switching costs in the relationships between a firm and its customers or suppliers.
In other words, investments in information systems technology can make customers or suppliers
dependent on the continued use of innovative, mutually beneficial inter-enterprise information
systems. They then become reluctant to pay the costs in time, money, effort, and inconvenience
that it would take to switch to a company’s competitors.

Raise barriers to entry: By making investments in information technology to improve its

operations or promote innovation, a firm could also raise barriers to entry that would discourage
or delay other companies from entering a market. Typically, these barriers increase the amount of
investment or the complexity of the technology required to compete in an industry or a market
segment. Such actions tend to discourage firms already in the industry and deter external firms
from entering the industry.

Leverage investment in IT: Investing in information technology enables a firm to build strategic
IT capabilities so that they can take advantage of opportunities when they arise. In many cases,
this happens when a company invests in advanced computer-based information systems to
improve the efficiency of its own business processes. Then, armed with this strategic technology
platform, the firm can leverage investment in IT by developing new products and services that
would not be possible without a strong IT capability.

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Activity B
Use the Internet to research the latest technological developments in smart phones, and
discuss how those could be used by companies to deliver value to customers and
organizations.

Summary

Organizations must acquire and analyze information and take action based on their interpretation
of that information. Information processing contributes significantly to the success of the
organization. It is part of a series of value-adding activities for acquiring, transforming, and
distributing information that managers can use to improve decision making, enhance
organizational performance, and ultimately increase firm profitability.

Information systems have become integral, online, interactive tools deeply involved in the
operations and decision making of organizations. IT has fundamentally altered the economics of
organizations and greatly increased the possibilities for organizing work. From the point of view
of economics, IT changes both the relative costs of capital and the costs of information. IS can be
viewed as a factor of production that can be substituted for traditional capital and labor. As the
cost of IT decreases, it is substituted for labor, which historically has been a rising cost. From the
behavioral perspective, IT facilitates flattening of hierarchies by broadening the distribution of
information. It increases the speed of decision making, empowers lower-level employees to make
decisions without supervision and increase management efficiency. Management span of control
(the number of employees supervised by each manager) will also grow.

Information technologies can support many competitive strategies. They can help a business cut
costs, differentiate and innovate in its products and services, promote growth, develop alliances,
lock in customers and suppliers, create switching costs, raise barriers to entry, and leverage its
investment in IT resources. Thus, information technology can help a business gain a competitive
advantage in its relationships with customers, suppliers, competitors, new entrants, and producers
of substitute products.

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References

Anteneh, Salehu (2015). Information Systems for Business: Teaching Material, Addis Ababa
University (unpublished).
Haag, Stephen and Cummings, Maeve (2014). Information Systems Essentials (3rd Ed.),
McGraw-Hill/Irwin.
Laudon, Kenneth C. and Laudon, Jane P. (2014). Management Information Systems: Managing
the Digital Firm (13th ed.), Pearson Education.
O'Brien, James A. and Marakas George M (2010). Introduction to Information Systems (13th ed.),
McGraw-Hill.
Post, Gerald V. and Anderson, David L. (2003). Management Information Systems: Solving
Business Problems with Information Technology (3rd ed.). McGraw-Hill.
Turban, Efrain (2009). Information Technology for Management (7th Ed.), Wiley, J/UCH Press.

Self-Assessment Questions

Match the following key terms and concepts (in group A) with each of the brief examples or
definitions (in group B)
Group A
A. Behavioral impact of IT G. Interenterprise information systems
B. Business process reengineering H. Strategic information systems
C. Competitive forces I. Knowledge management system
D. Competitive strategies J. Leverage investment in IT
E. Create switching costs K. Lock in customers and suppliers
F. Digital firm L. Raise barriers to entry

Group B
1. A business must deal with customers, suppliers, competitors, new entrants, and
substitutes.
2. Cost leadership, differentiation of products, and new product innovation are examples.
3. Using investments in technology to keep firms out of an industry.
4. Making it unattractive for a firm’s customers or suppliers to switch to its competitors.

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5. Strategies designed to increase the time, money, and effort needed for customers or
suppliers to change to a firm’s competitors.
6. Information systems that reengineer business processes or promote business innovation
are examples.
7. IT facilitates flattening of hierarchies by broadening the distribution of information.
8. Nearly all of the organization's significant business relationships with customers,
suppliers, and employees are digitally enabled and mediated.
9. A business finding strategic uses for the computing and telecommunications capabilities it
has developed to run its operations.
10. Information technology helping a business make radical improvements in business
processes.
11. Information systems that manage the creation and dissemination of organizational
knowledge.
12. Using the Internet and extranets to link a company’s information systems to those of its
customers and suppliers.

Completion

1. According to _____.theory, information technology, especially the use of networks, can

help firms lower the cost of market participation.
2. ___________is a firm where nearly all of the organization's significant business
relationships with customers, suppliers, and employees are digitally enabled and
mediated.
3. ___________strategy is developing ways to differentiate a firm’s products and services
from those of its competitors or reduce the differentiation advantages of competitors
4. ___________ is a series of value-added processes that includes inbound logistics,
warehouse and storage, production, sales and marketing, outbound logistics, and
customer service.
5. A(n) ___________ is a significant and ideally long-term benefit to a company over its
competitors.

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Discussion Questions

1. How does information processing add value to organizations? Discuss.

2. Suppose you are a manager being asked to develop computer-based applications to gain a
competitive advantage in an important market for your company. What reservations might
you have about doing so? Why?

3. How can Internet technologies help a business form strategic alliances with its customers,
suppliers, and others?

4. Information technology can’t really give a company a strategic advantage because most
competitive advantages don’t last more than a few years and soon become strategic
necessities that just raise the stakes of the game. Discuss.

5. What are some of the issues to consider in determining whether the Internet would provide
your business with a competitive advantage?

Case Study

United Parcel Service (UPS), the world’s largest air and ground package distribution company,
started out in 1907 in a closet-sized basement office. Jim Casey and Claude Ryan—two teenagers
from Seattle with two bicycles and one phone— promised the “best service and lowest rates.”
UPS has used this formula successfully for more than 90 years and is now the world’s largest
ground and air package-distribution company.

Today UPS delivers more than 13.6 million parcels and documents each day in the United States
and more than 200 other countries and territories. The firm has been able to maintain leadership
in small-package delivery services despite stiff competition from FedEx and Airborne Express by
investing heavily in advanced information technology. During the past decade, UPS has poured
billions of dollars into technology and systems to boost customer service while keeping costs low
and streamlining its overall operations.

Using a handheld computer called a Delivery Information Acquisition Device (DIAD), a UPS
driver can automatically capture customers’ signatures along with pickup, delivery, and time-card

46
information. The driver then places the DIAD into the UPS truck’s vehicle adapter, an
information-transmitting device that is connected to the cellular telephone network. Package
tracking information is then transmitted to UPS’s computer network for storage and processing in
UPS’s main computers in Mahwah, New Jersey, and Alpharetta, Georgia. From there, the
information can be accessed worldwide to provide proof of delivery to customers or to respond to
customer queries.

Through its automated package tracking system, UPS can monitor packages throughout the
delivery process. At various points along the route from sender to receiver, bar-code devices scan
shipping information on the package label; the information is then fed into the central computer.
Customer service representatives can check the status of any package from desktop computers
linked to the central computers and are able to respond immediately to inquiries from customers.
UPS customers can also access this information from the company’s Web site using their own
computers or wireless devices such as pagers and cell phones.

Anyone with a package to ship can access the UPS Web site to track packages, check delivery
routes, calculate shipping rates, determine time in transit, and schedule a pickup. Businesses
anywhere can use the Web site to arrange UPS shipments and bill the shipments to the
company’s UPS account number or to a credit card. The data collected at the UPS Web site are
transmitted to the UPS central computer and then back to the customer after processing. UPS also
provides tools that enable customers such Cisco Systems to embed UPS functions, such as
tracking and cost calculations, into their own Web sites so that they can track shipments without
visiting the UPS site.

A capability called UPS Campus Ship allows employees in multiple offices of a business to
process and ship from their computers and have shipping procedures controlled by a central
administrator set up by the business. Morris, Schneider and Prior LLC, a top law firm serving the
financial services industry, uses this capability to track and control shipping costs. This firm is
constantly sending time-sensitive documents from three different locations to clients throughout
the United States. UPS tools automate the allocation and reporting of this firm’s shipping costs
and even itemize and detail shipping expenses for each client.

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Information technology helps UPS reinvent itself and keep growing. UPS is now leveraging its
decades of expertise managing its own global delivery network to manage logistics and supply
chain management for other companies. It created a UPS Supply Chain Solutions division that
provides a complete bundle of standardized services to subscribing companies at a fraction of
what it would cost to build their own systems and infrastructure. These services include supply
chain design and management, freight forwarding, customs brokerage, mail services, multimodal
transportation, and financial services, in addition to logistics services.

Birkenstock Footprint Sandals is one of many companies benefiting from these services.
Birkenstock’s German plants pack shoes in crates that are barcoded with their U.S. destination.
UPS contracts with ocean carriers in Rotterdam to transport the shoe crates across the Atlantic to
New Jersey ports instead of routing them through the Panama Canal to Birkenstock’s California
warehouses. UPS trucks whisk each incoming shipment to a UPS distribution hub and, within
hours, to 3,000 different retailers. By handing this work over to UPS, Birkenstock has cut the
time to get its shoes to stores by half. Along the way, UPS uses barcode scanning to keep track of
every shipment until the merchant signs off on it. UPS also handles Internet orders for Jockey
International, laptop repairs for Toshiba America, and X-ray machine installation in Europe for
Philips Medical Systems.

Case Questions

1. What are the inputs, processing, and outputs of UPS’s package tracking system?

2. What technologies are used?

3. How are these technologies related to UPS’s business strategy?

4. How do UPS’s systems provide value for the company and its customers?

5. What would happen if these technologies were not available?

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Part II: INFORMATION TECHNOLOGIES

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Chapter 3 An Overview of Computer Systems

Learning Objectives

After completing this chapter, you will be able to:

• describe the basic hardware and software components of a computer
• identify the major types and uses of microcomputer, midrange, and mainframe
computer systems
• identify and give examples of the components and functions of a computer system
• identify the computer systems you would acquire or recommend for a business of
your choice, and explain the reasons for your selections
• describe system and application software and their functions
• explain the purpose of several popular software packages for end-user productivity
and collaborative computing
• define and describe the functions of an operating system

Contents

3.1 Characteristics of a Computer

3.2 Components of a Computer System
3.2.1 The System Unit
3.2.2 Input Devices
3.2.3 Output Devices
3.2.4 Storage Devices
3.3 Classification of Computers
3.4 Computer Software
3.4.1 System Software
3.4.2 Application Software
Summary
References
Self-Assessment Questions

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3.1 Characteristics of a Computer

The characteristics of a computer show the capability and the potential of the computer for
processing data. This saves time, space, money, labor etc. A computer's power is derived from its
capability of processing data with amazing speed, reliability, and accuracy; its capacity to store
huge amounts of data and information; and its ability to communicate with other computers. The
following are basic characteristics of a computer:

• Speed- Most modern computers are very fast. Their speed is measured in the number of
operations per second. They can process billions of operations in a second.
• Reliability- The electronic components in modern computers are dependable because
they have very low failure rate and extremely reliable.
• Consistency- Computers always do what they are programmed to do. This ability to
produce consistent results gives us the confidence we need to allow computers to process
mission-critical information.
• Accuracy- Computers are amazingly accurate, and their accuracy reflects great precision.
Errors do occur in computer-based information systems, but few can be directly attributed
to the computer system itself. Most can be traced to a program logic error, a procedural
error, or erroneous data. These are human errors. If inaccurate data is entered, the
resulting output will be incorrect. This computing principle is known as garbage in,
garbage out (GIGO). This fact points out that the accuracy of a computer's output depends
on the accuracy of the input.
• Storage Capability- Computer systems have an almost unlimited storage capability to
store tremendous amounts of data, which can be located and retrieved efficiently at any
time when it is needed.
• Communications- Today's computers have the capability of communicating with other
computers via network and Internet technologies.

3.2 Components of a Computer System

What are the basic components of a computer system? A computer is an electronic machine,
operating under the control of instructions stored in its own memory that can be programmed to
accept data (input), process it into useful information (output), and store it for safekeeping or later
reuse. The processing of input into output is directed by the software but performed by the
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hardware. Today, almost everyone in the information societies has a basic understanding of what
a computer is and what are the basic components in computer system. A contemporary computer
system consists of a central processing unit, storage media, input devices, output devices, and
communications devices that work together with software to perform calculations, organize data,
and communicate with other computers.

3.2.1 The System Unit

What are the various system unit components of a computer? The system unit is a box-like case
that houses the processor, memory and other electronic components of the computer that are used
to process data. All other computer system devices, such as the monitor, keyboard, and mouse,
are linked either directly or indirectly into the system unit.

To conserve on space, all-in-one computer houses the system unit in the same physical case as
the monitor. On notebook computers, the keyboard and pointing device often occupy the area on
top of the system unit. The display monitor is attached to the system unit by a hinge. The system
unit on a handheld computer usually consumes the entire device. On these devices, the display is
part of the system unit too.

When the cover of a PC is removed, the motherboard, also called system board, can be seen
inside the housing. The motherboard, a single circuit board, provides the path through which the
processor communicates with memory components, other components, and peripheral devices. In
a typical personal computer, the components attached to the motherboard include processor,
memory chips, support electronic circuitry, and expansion boards. It is the processor that is the
most important component of the motherboard. Ultimately, the type of processor and the amount
of RAM placed on the motherboard define the computers speed and capacity.

The Central Processing Unit (CPU)

What do you understand under the term CPU? The central processing unit (CPU), also called
processor, interprets and carries out the basic instruction that operate a computer. The CPU
significantly impacts overall computing power and manages most of a computer's operations. On
larger computers, such as mainframes and supercomputers, the various functions performed by

52
the processor extend over many separate chips and often multiple circuit boards. On a personal
computer, all functions of the processor usually are on a single chip.

Memory

What is the difference between RAM and ROM? While performing a processing operation, a
processor needs a place to temporarily store instructions to be executed and the data to be used
with those instructions. The CPU cannot process data on an input device or disk directly; the data
must first be available in memory. A computer's memory in the system unit, located physically
close to the CPU (to decrease access time), provides the CPU with a working storage area for
program instructions, data and information. Memory is also known as primary storage or
internal storage. Memory usually consists of one or more chips on the motherboard or some
other circuit board in the computer.

The major feature of memory is that it rapidly provides the instructions and data to the CPU.
Memory performs three functions:

• It stores all or part of the program that is being executed.

• It stores the operating system programs that manage the operation of the computer.
• It stores data that are being used by the program.

To access data or instructions in memory, the computer references the addresses that contain
bytes of data. The size of memory is measured by the number of bytes available for use. A
kilobyte (KB) of memory is equal to exactly 1,024 bytes. A megabyte (MB) is equal to
approximately 1 million bytes. A gigabyte (GB) equals approximately 1 billion bytes. A
terabyte (TB) is equal to approximately 1 trillion bytes.

The system unit contains two types of memory: volatile and nonvolatile. The contents of volatile
memory are lost when the computer power is turned off. In nonvolatile memory, the combination
of circuit states is fixed, and therefore the contents of nonvolatile memory are not lost when
power is removed from the computer. Random Access Memory (RAM) is the most common type
of volatile memory. Examples of nonvolatile memory include Read-Only Memory (ROM) and
flash memory.

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RAM

Random Access Memory (RAM) is the memory chips that are mounted directly on the
motherboard or mounted on peripheral cards that plug into the motherboard. The RAM chips
consist of millions of switches that are sensitive to changes in electric current. The processor acts
upon the data while it is in RAM. During the running time, the contents of RAM may change as
the program is executed. Multiple programs can be loaded into RAM simultaneously, provided
you have enough RAM capacity to accommodate all the programs.

The amount of RAM a computer requires often depends on the types of applications you plan to
run/execute on the computer. A computer can only manipulate data that is in memory. A software
package usually indicates the minimum amount of RAM it requires. If you want the application
to perform optimally, typically you need more than the minimum specifications on the software
package. The necessary amount of RAM varies according to the type of work you do and the type
of software applications you are using. The amount of RAM on your computer determines how
many programs and how much data a computer can handle at one time and thus affects overall
performance.

RAM is volatile memory; when the power to the computer is turned off or interrupted; all items
stored in RAM are lost. For this reason, any items needed for future use must be saved to storage
device such as a hard disk before the power of the computer is turned off.

Cache

To further improve the processing time, most computers use RAM cache, or simply called
cache. A cache is a relatively small block of very fast memory designed for the specific purpose
of speeding up the internal transfer of data and software instructions.

ROM

ROM is the name given to memory chips storing data or programs that only can be read. That is,
the items stored in ROM chips cannot be modified. ROM is usually nonvolatile. In ROM, the
combination of circuit states is fixed, and therefore its contents are not lost if the power is turned
off. The data, instructions, or information stored on ROM chips often are recorded when the chip
is manufactured. ROM chips that contain permanently written data, instructions, or information
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are called firmware. Firmware can be read and used, but cannot be changed by user. For
example, ROM contains programs that direct the computer to load the operating system and other
files when the computer is turned on.

Flash Memory

Another type of nonvolatile memory is called flash memory, which is a chip that keeps its
memory when the power is shut off. Unlike a PROM chip that can be programmed only once,
flash memory can be erased electronically and reprogrammed again. Flash memory is used to
store programs on personal computers, as well as cellular telephones, printers, digital cameras,
pagers, personal digital assistants, automotive devices, music players, and digital voice recorders.
Some MP3 players store music on flash memory chips.

Memory Access Time

The speed at which the processor can access data from memory directly affects how fast the
computer processes data. This speed often is defined as access time. Access time is measured in
picoseconds or nanoseconds. Accessing data in memory can be more than 200,000 times faster
than accessing data on a hard disk because of the mechanical motion of the hard disk.

Expansion Slots and Expansion Cards

The motherboard includes several empty expansion slots that are sockets to provide direct
connections to the common electrical bus and allow you to insert a circuit board into the
motherboard. These slots let you expand the capabilities of a basic PC by plugging in a wide
variety of special function expansion card, also called adapter card. These add-on circuit
boards contain the electronic circuitry for many supplemental capabilities, such as more memory,
higher-quality sound devices (called sound cards), a modem, extra ports, or graphics capabilities
using graphics card or video card.

Buses

As previously explained computer processes and stores data as a series of electronic bits; these
bits are transferred internally within the circuitry of the computer along electrical channels. Each
channel, called a bus, allows the various devices inside and attached to the system unit to

55
communicate with each other. Just as vehicles
vehicles travel on a highway to move from one destination
to another, bits travel on a bus.

Buses are used to transfer bits from input devices to memory, from memory to the CPU, from the
CPU to memory, and from memory to output or storage devices. Considering ttheir function,
buses are either a data bus or an address bus. The data bus transfers actual data and the address
bus transfers information about where the data should go in memory.

Ports and Connectors

In a computer, external peripheral devices such as a keyboard, monitor, printer, mouse, digital
camera, and microphone, usually come with a cable and a multi pin connector. To link a device
to the system unit, you plug its connector into a socket, called a port, which provides a direct link
to the common electrical
ectrical bus on the motherboard (see Figure 3-1).
). The motherboard is designed
with several port options through which the various peripheral devices (such as keyboard, mouse,
storage media, etc.) are connected.

Figure 3-1:
1: Common ports

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3.2.2 Input Devices

What is input and input device? Input is any data or program instructions people enter into the
computer for further processing. Once input is in computer memory, the CPU can access it and
process the input to transform into output. There are two types of input: data and instructions.

Data is the raw material to be processed by a computer, such as grades of students, bar codes,
light and dark areas in a photograph, or voice that enter the computer through a microphone. It is
a collection of unorganized facts that may be text, graphics, audio, and videos.

• Text consists of characters that are used to create words, sentences, and paragraphs.
Examples are memos, letters, reports, envelopes, and e-mail messages.
• Graphics are digital representations of non-text information such as drawings, charts, and
photographs.
• Audio is music, speech, or any other sound.
• Video consists of full-motion images (with voice and sometimes text) that are played
back at various speeds.

Instructions can be in the form of programs, commands, and user responses. A program is a
series of instructions that directs a computer how to perform the tasks necessary to process data
into information. Programmers write a program and then store the program in a file that a user
can execute (run). When a user runs a program, the computer loads the program from a storage
medium into memory. Programs then respond to commands that a user issues.

A command is an instruction given to computer program to perform a specific action.

Commands can be issued by typing keywords, pressing special keys on the keyboard, selecting
menu choices, clicking the mouse on a graphical user interface, speaking into a microphone, or
touching an area of a screen. A graphical user interface (GUI) makes extensive use of icons,
buttons, bars, boxes and other graphical objects to issue commands. A GUI is the most user-
friendly way to interact with a computer.

A user response is an instruction users issue to the computer by replying to a question posed by
a computer program. User’s response to the question instructs the program to perform certain
actions/tasks.
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An input device is any hardware component that allows the user to enter data and instructions
into the computer. Input devices translate our data and communications into a form that the
computer can understand. The computer then processes these data, and an output device
translates them back into a form people can understand.

Commonly used input devices include the keyboard, pointing devices, scanners and reading
devices, digital cameras, audio and video input devices.

A keyboard is the most common input device used for data entry such as characters, text, and
basic commands. Data are entered by pressing the keys on the keyboard. A keyboard includes
keys that allow you to type letters of the alphabet, numbers, spaces, punctuation marks, basic
mathematical operators and other symbols. A keyboard also contains function keys (F1, F2,…)
and special keys (such as print screen, num,…) that allow you to enter data and instructions into
the computer.

A pointing device is an input device that allows you to control a pointer on the screen and
interact with computer via a graphical user interface (GUI). In a GUI, a pointer is a small symbol
on the display screen. A pointer often takes the shape of a block arrow, an I-beam, or a pointing
hand. Using a pointing device, you can position the pointer to move or select items on the
computer screen. Common pointing devices include the mouse, trackball, touch pad, pointing
stick, joystick, touch screen, light pen and graphics tablet.

Scanners and reading devices are used to convert information that exists in visible form into
electronic form. The electronic version of scanned material is in the form of rows and columns of
dots called a bitmap. Each dot on a bitmap consists of one or more bits of data. The more bits
used to represent a dot, the more colors and shades of gray that can be represented.
Common types of scanners and reading devices are the following:

• Optical Character Recognition (OCR) is a technology that involves reading type

written, computer-printed or handwritten characters from ordinary documents and
translating the images into a form that the computer can understand. OCR uses software,
which can read and convert text documents into electronic files. OCR scanners read the

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characters and codes on credit card receipts, utility bills, insurance premiums, airlines
tickets and other documents.
• Optical mark recognition (OMR) is devices that read hand-drawn marks such as small
circles or rectangles. A person places these marks on a form, such as a test, survey, or
questionnaire answer sheet.
• Bar code scanner uses laser beams to read bar codes. A bar code is an identification code
that consists of a set of vertical lines and spaces of different widths.
• Magnetic-ink character recognition (MICR) reader is used to read text printed with
magnetized ink. MICR is used almost exclusively by the banking industry for check
processing.

A microphone is used to input voice data. It is an alternative to using a key board to enter data
and instructions, some users talk to their computers and watch the spoken words appear on the
screen as they talk. Voice input is the process of entering input by speaking into a microphone
using voice recognition technology.

A digital camera allows you to take pictures and store the photographed images digitally instead
of on traditional film by converting analog images into digital images.

Digital Camcorder is used to enter a full-motion recording into a computer and storing the video
on a storage medium. A DV camera connects directly to a parallel port or USB port on the
computer to input video data. A PC video camera is a type of DV camera that allows the home
user to record, edit, and capture video and still images, send e-mail messages with video
attachments, add live images to instant messages, broadcast live images over the Internet, and
make video telephone calls on the Internet. A Web cam, also called a cam, is any video camera
whose output displays on a Web page.

3.2.3 Output Devices

What is output and output device? Output is data that has been processed into a useful form
called information. Computers generate several types of output, depending on the hardware and
software being used and the requirements of the user. While working with a computer, a user
encounters four basic categories of output: text, graphics, audio, and video. Computer systems

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provide output (information) to decision makers at all levels of an organization to solve business
problems or capitalize on a competitive opportunity.

An output device is any type of hardware component capable of conveying information to a

user. Commonly used output devices include display devices, printers, speakers and headsets,
data projectors, fax machines, and multifunction devices.

Display Devices: A display device is an output device that visually conveys text, graphics, and
video information. Information shown on a display device often is called softcopy, because the
information exists electronically and is displayed for a temporary period of time.

Display devices include cathode ray tube (CRT) monitors and flat panel displays. A CRT
monitor is a TV-screen-like device on which output from the computer is displayed. A flat-
panel display is a lightweight, thin screen. Types of flat-panel displays include liquid crystal
display (LCD) monitors and screens (which uses liquid crystal to create images on the screen),
plasma TV (uses gas plasma technology, which substitutes a layer of gas for the liquid crystal
material in an LCD monitor), and high-definition television (HDTV) which is a type of
television set that works with digital broadcasting signals and supports a wider screen and higher
resolution display than a standard television set.
Printers: A printer is an output device that produces text and graphics on a physical medium
such as paper or transparency film. Printed information is called hardcopy because the
information exists physically and is a more permanent form of output than that presented as a
softcopy on a display device. Printers with different speeds, features, quality, and capabilities are
available in a range of prices. Printer technology is ever changing. Generally, printers can be
grouped into two categories: impact and non impact.

An impact printer forms characters and graphics on a piece of paper by striking against an ink
ribbon that physically contacts the paper. Impact printers typically do not provide letter quality
print. Letter quality output is good/high quality printout acceptable for business letters. For
example, dot-matrix printer is an impact printer.

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A non impact printer places characters and graphics on a piece of paper without physically
touching the page. Some use spray ink, while others apply heat or pressure to create images.
Commonly used non impact printers are the following:

• An ink-jet printer forms characters and graphics by spraying tiny drops of liquid ink
onto a piece of paper. The quality of an ink-jet printer is determined by its resolution,
which is measured by the number of dots per inch (dpi) a printer can print. The higher
the dpi, the better the print quality.
• A laser printer is a high-speed, high-quality non impact printer. Operating in a manner
similar to a copy machine, a laser printer creates images using a laser beam and powdered
ink, called toner.
• A thermal printer generates images by pushing electrically heated pins against heat-
sensitive paper. Standard thermal printers are inexpensive, but the print quality is low and
the images tend to fade over time.
• A photo printer is a color printer that produces photo-lab-quality pictures as well as
everyday documents. Photo printers have a built-in card slot so the printer can print digital
photographs directly from a media card.
• A label printer is a small printer that prints on an adhesive-type material that can be
placed on a variety of items such as envelopes, packages, DVDs, photographs, file
folders, and toys.
• Plotters and large-format printers are sophisticated printers used to produce high-
quality drawings such as blueprints, maps, circuit diagrams, posters, and signs.

Audio Output Devices: An audio output device is a component of a computer system that
produces music, speech, or other sounds, such as beeps. Two commonly used audio output
devices are speakers and headsets.

3.2.4 Storage Devices

What storage devices are you familiar with? We have seen that memory is an important factor in
determining overall computer system power. However, memory provides on a small amount of
temporary storage area for the data and instructions required by the CPU for processing.
Computer systems also need to store larger amounts of data, program instruction, and information

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more permanently than allowed with memory. Storage serves this purpose. Storage holds data,
instructions, and information for future use. Every computer uses storage to hold system software
and application software. What is the difference between storage device and storage media?

Storage refers to the media, on which data, instructions, and information are kept, as well as the
devices that record and retrieve these items compared with memory. Storage offers the advantage
of nonvolatile, greater capacity, and greater economy. A storage medium is the physical material
on which a computer keeps data, instructions, and information. The most common forms of
storage media include magnetic disks and optical disks. Magnetic media are based on a
technology of representing data as magnetized spots on the tape or disk -- with a magnetized spot
representing a 1 bit and the absence of such a spot representing a 0 bit. Reading data from the
media means converting the magnetized data to electrical impulses that can be sent to the
processor. Writing data to the media is the opposite; it involves sending electrical impulses from
the processor to be converted to magnetized spots on the media.

How does an optical technology works? A laser hits a layer of metallic material spread over the
surface of a disk. When data is being entered, heat from the laser produces tiny spots on the disk
surface. To read the data the laser scans the disk, and a lens picks up different light reflections
from the various spots.

A storage device is the mechanism used to record and retrieve items to and from a storage
medium. Storage devices can function as sources of input and output. When a storage device
transfers data, instructions, and information from a storage medium into memory, a process
called reading functions as an input source. When a storage device transfers these items from
memory to a storage medium, a process called writing functions as an output source.

The size or capacity of a storage device is measured by the number of bytes (characters) it can
hold. For example, a typical compact disk (CD) can store up to 700 MB of data and a typical hard
disk stores more than 500 GB of data (where 1MB=106 bytes and 1 GB=109 bytes).

Items on a storage medium remain intact even when power is removed from the computer. Thus,
a storage medium is nonvolatile. Most memory, by contrast, holds data and instructions
temporarily and thus is volatile.

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Storage requirements among users vary greatly. Numerous types of storage media and storage
devices are available to meet a variety of users needs. The choice mainly depends on capacity,
affordability, portability, reliability, usability etc.

Magnetic Disks: A magnetic disk is magnetically coated storage medium from which data is
read and to which data is written. Magnetic disks such as hard disk are random access media.
Data can be accessed at random without passing through intervened points.

A hard disk usually consists of several inflexible, circular metal platters coated with magnetic
oxide that can be magnetized to represent data. The entire device is enclosed in an air-tight,
sealed case to protect it from contamination. Hard disks come in a variety of sizes. In most
personal computers, the hard disk is housed inside the system unit. A hard disk that is mounted
inside the system unit sometimes called a fixed disk because it is not portable.

Optical Discs: An optical disc is a flat, round, portable storage medium made of metal, plastic,
and lacquer that is written and read by a laser. Some optical disc formats are read only, meaning
users cannot write (save) on the media. Others are read/write, which allows users to save on the
disc one time or multiple times, just as they save on a hard disk. Many different formats of
optical discs exist today. Two general categories are CDs (Compact disks) and DVDs (Digital
versatile disks), with DVDs having a much greater storage capacity than CDs. The storage
capacity of CD is up to 700 MB while DVD is from 4.7 GB to 17 GB.

• A CD-ROM and DVD-ROM are types of optical disc that users can read but not write or
erase--hence, the name read-only. The contents of standard CD-ROMs/DVD-ROMs are
written by the manufacturer and only can be read and used.
• CD-R and DVD-R (R=Recordable) is a technology that allows you to write on an optical
disc using your own computer. Once you have recorded the CD-R/DVD-R, you can read
from it as many times as you desire.
• A CD-RW and DVD-RW (RW=Rewritable) are an erasable multi-session discs that you
can read and write on multiple times.

A PC Card is a thin, credit card-sized device that fits into a PC card expansion slot on a personal
computer. Different types and sizes of PC cards are used to add storage, additional memory,
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communications, and sound capabilities to a computer. Some digital cameras also use PC cards
called picture cards.

Flash memory cards are a type of solid-state media, which means they consist entirely of
electronic components and contain no moving parts. Common types of flash memory cards
include CompactFlash, SmartMedia, Secure Digital, xD Picture Card, and Memory Stick.

A USB flash drive is a flash memory storage device that plugs in a USB port on a computer or
mobile device. USB flash drives are convenient for mobile users because they are small and
lightweight enough to be transported on a keychain or in a pocket.

Activity A
You have been asked to get pricing information for a potential purchase of Laptops for the
members of your workgroup. Go to the Internet to get prices for these units from Toshiba,
Lenovo, Dell, and Hewlett-Packard. Prepare a spreadsheet summarizing this pricing
information and showing the cost from each supplier considering CPU, HD, RAM, and
Monitor.

3.2.5 Classification of Computers

What type of computers do you know? Computers represent and process data in the same way,
but they come in a variety of sizes, shapes, and computing capabilities. Rapid hardware and
software development and changing end user needs continue to drive the emergence of new
models of computers, from the smallest hand-held personal digital assistant/cell phone
combinations to the largest multiple-CPU mainframe for the enterprise. However, the most
distinguishing characteristic of any computer system is its processing power; that is the amount
of processing that can be accomplished by a computer system per unit of time. Based on size and
processing power, industry experts typically classify computers in six categories: personal
computers, mobile computers and mobile devices, midrange computers, mainframes,
supercomputers, and embedded computers.

Personal Computers: A personal computer (PC), sometimes called microcomputer, is a

computer that can perform all of its input, processing, output, and storage activities by itself. PCs

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are used for personal and business applications. A PC contains at least one input device, one
output device, one storage device, memory, and a processor.

Two major types of personal computers are desktop and portable computers. A desktop
computer is designed so the system unit, input devices, output devices and other devices fit
entirely on or under a desk or table. A workstation is a more expensive and powerful desktop
computer, which is designed for work requiring intense calculations and graphics capabilities.
Portable computers are discussed in the mobile computers section.

Mobile Computers: A mobile computer, also known as portable computer, is a personal

computer that is small enough to carry from place to place. Similarly, a mobile device is a
computing device small enough to hold in your hand.

The most popular type of mobile computer is the notebook computer. A notebook computer,
also called laptop computer, is a small, thin, lightweight computer that can be as powerful as the
average desktop computer. Notebook computers generally are more expensive than desktop
computers with equal capabilities. Most notebook computers can run either on batteries or a
standard power supply or both.

A handheld computer, sometimes called a palmtop computer, is a small computer that fits in
your hand. Because of their reduced size, the screens on handheld computers are quite small.
Some have small keyboards. Others have no keyboard at all. Handheld computers often include a
stylus for input. A stylus looks like a ballpoint pen, but uses pressure, instead of ink, to write text
and draw lines. With the stylus, you write on the screen instead of typing on a keyboard.

Tablet PC is a special type of notebook computer that allows you to write or draw on the screen
using a digital pen. With a digital pen, users write or draw by pressing the pen on the screen, and
issue instructions to the Tablet PC by tapping on the screen. Tablet PCs are useful especially for
taking notes in lectures, at meetings, conferences, and other forums where the standard notebook
computer is not practical.

Personal digital assistants (PDA) are some of the most popular hand-held computers. They
provide personal organizer functions such as a calendar, appointment book; address book,
calculator, and notepad.
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A smart phone is an Internet-enabled telephone that usually provides PDA capabilities. In
addition to basic telephone capabilities, a smart phone allows you to send and receive e-mail
messages and access the Web.

Midrange Computers: A mid-range computer, commonly called servers, is more powerful and
larger than a workstation computer. It typically supports several hundred and sometimes up to a
few thousand connected computers at the same time. Midrange computers store large amount of
data and programs. In many cases, one server access data on another server. In other cases,
people use personal computers or terminals to access programs on a server. A terminal is a device
with a monitor, keyboard and memory without processing power.

Mainframe Computers: A mainframe computer is a large, expensive, very powerful computer

that can handle hundreds or thousands of connected users simultaneously. Mainframes store
tremendous amounts of data, instructions, and information. Major corporations use mainframes
for business activities. It is used for very large business, scientific, or military applications in
which a computer must handle massive amounts of data or many complicated processes.
Mainframe computers also can act as a server in a network environment.

Supercomputer: A supercomputer is a highly sophisticated and powerful machine used for tasks
requiring extremely rapid and complex calculations with hundreds of thousands of variable
factors. It is the fastest, most powerful, and most expensive computer. Supercomputers can
process trillions of instructions per second. Applications requiring complex, sophisticated
mathematical calculations use supercomputers. Large-scale simulations and applications in
medicine, aerospace, automotive design, online banking, weather forecasting, nuclear energy
research, and petroleum exploration use a supercomputer.

Embedded Computers: An embedded computer is a special-purpose computer that functions as

a component in a larger product. Embedded computers are everywhere--at home, in your car, and
at work. Because embedded computers are components in larger products, they are small and
have limited hardware. These computers perform various functions, depending on the
requirements of the product in which they reside. Embedded computers in printers, for example,
monitor the amount of paper in the tray; check the ink or toner level, signal if a paper jam has
occurred, and so on.
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3.3 Computer Software

What is software? Software is the detailed instructions and procedures that control the operation
of a computer system. Software consists of computer programs that control the working of the
computer hardware, and documentation that describes the program functions to help the user
operate the computer system. The functions of software are to (1) manage the computer resources
of the organizations; (2) provide tools for people to take advantage of these resources; and (3) act
as an intermediary between organizations and stored data and information.

What are the different types of software? There are two major types of software: system software
and application software (see Figure 3-2). Each performs a different function. System software is
a set of generalized programs that manages the resources of the computer, such as the CPU,
communication links, and peripheral devices. Application software is a set of programs that are
written for or by users of computer systems to perform specific tasks. The process of writing
programs is termed as programming. The individuals who specialize in this task are called
programmers. Programmers who write system software are called system programmers, while
programmers who write applications software are called application programmers.

Software

System software Application software

Business application
Operating system
software

Graphics and multimedia

Development software
application software

Utility software Home/personal/educational

application software

Communications application
software

Figure 3-2: Classification of software

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3.3.1 System Software

The system software controls access to the hardware. System software serves as the interface
between the user, the application software, and the computer's hardware. The application
software must work through the system software in order to operate. Computer users work
primarily with application software. User input and output is limited to communication directly
with the application program. Application programs, in turn, communicate with system software
to request basic services (e.g. opening a file, reading data from a file, etc.).

System software is the set of programs designed to coordinate the various parts of the computer
system and control the activities and functions of the hardware and various programs throughout
the computer system. Controlling the operations of computer hardware is one of the most critical
functions of system software. System software also supports the applications programs' problem-
solving capabilities. System software serves as the interface between the hardware, application
programs, and the user. Major categories of system software are operating system, program
translator and utility programs.

Operating System

An operating system (OS) is a set of programs that coordinate all of the activities among
computer hardware resources. Operating system decides which computer resources will be used,
which programs will be run, and the order in which activities will take place.

An operating system is usually stored on the computer's hard disk. The core of an operating
system, called the kernel, is responsible for managing memory, files, and devices; maintaining
the computer's clock; starting applications; and assigning the computer's resources. Each time
you turn on the computer, the kernel and other frequently used instructions in the operating
system are copied from the hard disk to the computer's memory.

What operating system do you use usually? Many different operating systems exist. Different
sizes of computers typically use different operating systems. Even the same types of computers,
such as desktop computers, may not use the same operating system. Furthermore, these various
operating systems often are not compatible with each other. In addition, application software that
works with one operating system may not work with another. The operating system that a
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computer uses sometimes is called the software platform. The following are some of the popular
operating systems:
MS-Windows (XP/Vista/7/8)
Windows NT (Network OS)
OS/2 (Operating System/2) from IBM
UNIX originally developed by AT&T
Linux
Macintosh System

What functions are provided by an operating system? Regardless of the size of computers, most
operating systems provide similar functions that include starting a computer, providing a user
interface, managing programs, managing memory, scheduling jobs, configuring device,
establishing an Internet connection, monitoring performance, and providing file management
utilities. Some operating systems also allow users to control a network and administer security.

A user interface is the part of the software with which you interact; it controls how data and
instructions are entered and information is presented on the screen. It is through the user interface
of an operating system that you communicate with the computer. The types of user interfaces are
command-line, menu-driven, and graphical. Many operating systems use a combination of these
types of user interfaces to define how you interact with your computer.

With a command-line interface, you type commands such as COPY or DELETE, or press
special keys on the keyboard to enter data and instructions. A keyword is a special word, phrase,
or code that a program understands as an instruction. When working with a command-line
interface, the set of commands you use to interact with the computer is called the command
language.

A menu-driven interface provides menus as a means of entering commands. Menu-driven

interfaces are easier to learn than command-line interfaces because users do not have to learn the
rules of entering commands and recall commands required to request for some task.

Many of today's software programs have a graphical user interface (GUI), which allows you to
use menus and visual images such as icons, buttons, and other graphical objects to issue
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commands. A menu displays a set of available commands or options from which you choose one
or more. An icon is a small image that represents an item such as a program, an instruction, or a
file.

To communicate with each device in the computer, the operating system relies on device drives.
A device driver is a small program that accepts commands from another program and then
converts these commands into commands that the device understands. Each device on a computer
such as the keyboard, mouse and monitor has its own device driver. When you boot a computer,
the operating system loads each device's driver. These devices will not function unless the correct
device driver is installed on the computer. In Windows environments, most device drivers have a
.drv extension.

If you add a new device to your computer, such as a printer or scanner, its driver must be
installed before the device will be operational. Most devices and operating systems support Plug
and Play. Plug and Play is the computer's capability of recognizing any new device and assisting
in the installation of the device by loading the necessary drivers automatically and checking for
conflicts with other devices.

Utility Software

What is utility software? Utility software (also known as service program, service routine, tool, or
utility routine) is a type of system software. It is specifically designed to help manage and tune
the computer hardware, operating system or application software, and perform a single task or a
small range of tasks such as disk cleanup, disk defragmentation, system restore, etc.; as opposed
to application software which tend to be software suites. These programs typically offer
improvements over those features built in to the operating systems or provide features that are not
included in an operating system. Other functions provided by utilities include protecting a
computer against viruses (antivirus programs), securing it from an unauthorized access,
compressing files, and maintaining a personal computer.

Development Software

Development software is system software which is used to write programs so as to create other
software. Program is a series of statements or instructions that directs and controls the operation
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of a computer system and they are sometimes referred to as language software. Some of the
programming languages include BASIC (Beginners All-purpose Symbolic Instruction Code), C,
C++ (C plus plus), C# (C sharp), Java, Python, ASP, etc.

A programming language consists of all the symbols, characters, and usage rules that permits
people to communicate with computers. A programming language must accept certain types of
written instructions that will enable a computer system to perform a number of familiar
operations. Translators (compilers or interpreters) convert written instructions into executable
object code that will enable a computer system to perform a number of familiar operations.

3.3.2 Application Software

Application Software is a set of related programs designed to carry out certain tasks that fulfill
users’ specific needs. What application software do you know? The four major categories of
popular application software are the following:

i. Business application software: includes word processing, spreadsheet, database,

presentation, personal information manager, PDA software, software suit, project
management, accounting etc.;
ii. Graphics and multimedia application software: includes computer aided design
(CAD), desktop publishing, paint/image editing, video and audio editing, multimedia
authoring, web page authoring etc.;
iii. Home/personal/educational application software: includes integrated software (e.g.
word processing, spreadsheet, database), personal finance, legal, tax preparation,
desktop publishing, paint/image editing, clip art/image gallery, home
design/landscaping, educational, reference, entertainment;
iv. Communications application software: includes email, chat room, file transfer,
instant messaging, web browser, video conferencing/telephone calls,
newsgroup/message board, etc.

Activity B
Your company would like to acquire software to do the following tasks. Identify which
software packages they need.

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a. Surf the Web and their intranets and extranets.
b. Send messages to one another’s computer workstations.
c. Help employees work together in teams.
d. e. Help sales representatives keep track of meetings and sales calls.
f. Type correspondence and reports.
g. Analyze rows and columns of sales figures.
h. Develop a variety of graphical presentations.

Summary
A computer is an electronic device, operating under the control of instructions stored in its own
memory that can accept data, manipulate the data according to specified rules, produce results,
and store the results for future use. The components of hardware include a system unit, input
devices, output devices, and storage devices. The system unit is a box-like case that contains
electronic components of a computer that are used to process data. An input device allows you to
enter data or instructions into a computer. An output device conveys information to one or more
people. A storage device records and/or retrieves items to and from storage media. A computer is
a powerful tool because it operates with amazing speed, reliability, consistency, and accuracy.

Industry experts typically classify computers into six categories: personal computers, mobile
computers and mobile device, midrange servers, mainframes, supercomputers, and embedded
computers. A personal computer is a computer that can perform all of its input, processing,
output, and storage activities by itself. A mobile computer is a personal computer that you can
carry from place to place, and a mobile device is a computing device small enough to hold in
your hand. A midrange server is a large and powerful computer that typically supports several
hundred and sometimes up to a few thousand networked computers at the same time. A
mainframe is a large, very expensive, very powerful computer that can handle hundreds or
thousands of connected users simultaneously and can store tremendous amounts of data,
instructions, and information. A supercomputer is the fastest, most powerful, and most expensive
computer and used for applications requiring complex, sophisticated mathematical calculations.
An embedded computer is a special-purpose computer that performs various functions,
depending on the requirements of the product in which it resides.

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Software is a series of instructions that directs the computer what to do and how to do users
tasks. Software is categorized into system software and application software. System software
consists of the programs that control or maintain the operations of a computer and its devices.
System software is classified into operating systems, utility programs, and development
programs. Application software consists of programs that perform specific tasks for users.
Popular application software includes Web browser, word processing software, spreadsheet
software, database software, and presentation graphics software.

References
Anteneh, Salehu (2015). Information Systems for Business: Teaching Material, Addis Ababa
University (unpublished).
Englander, Irv (2000). Architecture of Computer Hardware and Systems Software: An
Information Technology Approach. Wiley, John & Sons, Pub.
O'Brien, James A. and Marakas, George M. (2011). Management Information Systems (10th ed.),
McGraw-Hill/ Irwin.
Shelly, G.B., Cashman, T.J., and Vermaat M.E (2012). Discovering Computers 2013: A Gateway
to Information, Thomson.
Turban, Efrain (2009). Information Technology for Management (7th Ed.), Wiley, J/UCH Press.

Self-Assessment Questions

Multiple Choices

1. The circuitry of the system unit usually is part of or is connected to a circuit board called the
_____.
a. powerhouse c. bus
b. motherboard d. port

2. On _____, the electronic components and most storage devices are part of the system unit and
other devices, such as the keyboard, mouse, and monitor, normally occupy space outside the
system unit.
a. desktop personal computers c. mobile devices
b. notebook computers d. All of the above

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3. Memory stores _____.
a. the operating system and other system software
b. application programs that carry out a specific task
c. the data being processed and the resulting information
d. all of the above

4. _____ is a volatile memory.

a. ROM c. CMOS
b. Flash memory d. RAM

5. Although a stand-alone touchpad can be attached to any computer, touchpads are found most
often on _____.
a. notebook computers c. PDAs
b. mainframe computers d. desktop computers

6. _____ is/are the steps that tell the computer how to perform a particular task.
a. Data c. Instructions
b. Information d. Documentation

7. _____ are capable of processing more than 100 trillion instructions in a single second.
a. Desktop computers c. Midrange servers
b. Notebook computers d. Supercomputers

8. _____ is a category of output that includes memorandum, letters, announcements, press

releases, and reports.

c. Text b. Audio c. Video d. Graphics

9. _____ are used in specialized fields such as engineering and drafting and usually are very
costly.
a. Plotters c. Photo printers
b. Postage printers d. Thermal printers

10. Three types of system software are _____.

a. application software, operating systems and utility programs
b. Web browsers, utility programs and application software
c. operating systems, development programs and utility programs
d. operating systems, development programs and Web browsers
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True/False
T F 1. Nonvolatile memory loses its contents when power is removed from the
computer.

T F 2. The data on most ROM chips cannot be modified — hence, the name read-
only.

T F 3. Instructions are collections of unprocessed text, numbers, audio, and video.

T F 4. On notebook and many handheld computers, the keyboard is separate from the
system unit.

T F 5. System software serves as the interface between the user, the application
software, and the computer’s hardware.

T F 6. Command-line interfaces are easy to use because they do not require exact
spelling, grammar, or punctuation.

T F 7. When purchasing application software, users must ensure that it works with the
operating system installed on their computer.

Completion
1. A(n) __________________is a hardware that records and/or retrieves items to and from
storage media.

2. A(n) _____________is a device that uses a light source to read characters, marks, and
codes and then converts them into digital data that a computer can process.

3. A(n)________________is a set of programs containing instructions that coordinate all the

activities among computer hardware resources.

4. A(n)____________is a hardware component that allows users to enter data or instructions

(programs, commands, and user responses) into a computer.

5. A(n)_______________is an input device that allows a user to control a pointer on the

screen.

6. A processor contains small high-speed storage locations, called______________, which

temporarily hold data and instructions.

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Discussion Questions
1. Distinguish computer hardware and software. With which is a manager most concerned?

2. What trends are occurring in the development and use of the major types of computer
systems?

3. How do the different roles of system software and application software affect you as a
business end user?

4. Why is an operating system necessary? Why can’t an end user just load an application
program into a computer and start computing?

5. What are the key factors to consider in purchasing a laptop and software?

Group Discussion

Most application programs are designed to be used with specific operating systems. When you
acquire software, you should read the packaging to determine its compatibility with your
computer’s operating system. Have each member of your team visit a computer software vendor
and identify four application programs of your interest. What operating system is required for
each application? What is the earliest version of the operating system that can be used? Meet with
the member of your team and compare your findings. Based on your results, what operating
system would you choose?

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Chapter 4 Communication Networks

Learning Objectives

After completing this chapter, you will be able to:

• understand the challenges of communications networks
• understand the basics of communication networks
• describe advantages of communication networks
• describe network system components
• describe network communication media
• identify network topologies
• describe types of networks

Contents

4.1 Overview of Communication Networks

4.2 Network System Components
4.2.1 Sending and Receiving Devices
4.2.2 Communication Software and Protocol
4.2.3 Communication Devices
4.3 Network Topologies
4.4 Types of Networks
Summary
References:
Self-Assessment Questions

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4.1 Overview of Communication Networks

When computers were first introduced, they were stand-alone devices. As computers became
widely used, hardware and software were designed, so computers could exchange data,
information, and instructions with other computers -- a process called communication.
Communications of all types form a major part of any business system.

What is data communication? Communication can be defined as transmission of data and

information by electronic means such as telephone, radio, television, and computer, usually over
some distance. When referring to computers, communications (also called data communications)
describe a process in which one computer transfers data, information and instructions to another
computer.

What is a communication network system? A communication network system is a collection of

computers and devices that are connected together via communication channels to facilitate
communications, and to share data, information, software, and hardware with other users. In a
networked environment, any authorized user can use a computer on a network to access data and
information stored on other computers in the network, to access hardware that shared in the
network, to use software stored on a server's hard disk, and to communicate efficiently and easily
via e-mail, telephony, and videoconferencing. A network can be internal to an organization or
span the world by connecting itself to the Internet. Networks facilitate communications among
users and allow users to share resources with other users. Network systems can transmit text,
images, audio, and video information through communications channel. The network model
consists of the following components (see also Figure 4-1):

• A sending device that initiates an instruction to transmit data, information, or instructions.

It can be a computer system, a terminal, a cellular telephone, a WebTV, a GPS receiver, an
Internet-enabled PDA, or another device that originates the message.
• A communication device that converts or formats the data, information, or instructions
from the sending device into signals that can be carried by a communication channel.
• A communication channel or path over which the signals are sent.
• A communication device that receives the signals from the communication channel and
converts or formats them into a form understood by the receiving device.

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• A receiving device that accepts the data, information, or instructions.
• Communication software that controls and manages the activities and functions of the
communication network.

Figure 4-1: An example of a communication system

To send and receive data and information over some distance, a network system must perform a
number of separate functions. A network system transmits data and information; establishes the
interface between the sender and the receiver; routes messages along the most efficient
communications paths; performs elementary processing of the information to ensure that the right
message gets to the right receiver; converts messages from one speed into the speed of a
communication line or from one format to another; control the flow of messages; and performs
some editorial tasks on the data.

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4.2 Network System Components

What are the basic components of computer networks? A network system components include a
variety of devices and software used for communication.

4.2.1 Sending and Receiving Devices

The most common type of sending and receiving device in communication is a computer. Other
devices, such as fax machine, digital cameras, cellular telephone, Internet appliances, and Web-
enabled devices, also can function as sending and/or receiving devices.

4.2.2 Communication Channels

What is the difference between a communication channel and communication media? An

important aspect of communication networks is the communication channel, which is the
communication path between two devices. Communication channel is composed of one or more
transmission media, which consists of materials or techniques capable of carrying a signal.
Although many media and devices are involved, the entire communication process could take
less than one second.

Various types of transmission media are available. Each type exhibits its own characteristics,
including transmission capacity and speed. In developing a telecommunication system, the
selection of media depends on the purpose of the overall information and organizational systems,
the purpose of the telecommunication subsystems, and characteristics of the media. The proper
media will help a company link its subsystems to maximize effectiveness and efficiency.

What is a bandwidth? The amount of signals that can travel over a communication channel
sometimes is called the Bandwidth. The higher the bandwidth, the more data and information the
channel can transmit. Baseband transmission media can transmit only one signal at a time. By
contrast, broadband media can transmit multiple signals simultaneously. Media that use
broadband transmit signals at a much faster speed than those that use baseband.

For transmission of text only, a lower bandwidth is acceptable. For transmission of multi-media
such as photographs or videos, however, you need a higher bandwidth. Latency is the time it
takes a signal to travel from one location to another on a network. Several factors that can

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negatively affect latency include the distance between the two points, the type of transmission
media, and the number of nodes through which the data must travel over the communication
channel. For best performance, bandwidth should be high and latency low.

Transmission media are one of two types: wired or wireless. Wired or physical transmission
media use wire, cable, and other tangible materials to send communication signals. Wireless
transmission media send communication signals through the air or space using radio,
microwave, and infrared signals.

Physical transmission media used in communications include twisted-pair cable, coaxial cable,
and fiber-optic cable. These cables typically are used within building or underground between
buildings. Ethernet and token ring LANs often use physical transmission media.

Wireless telecommunication technologies transport digital communication without wires between

communication devices. Wireless transmission media are used when it is inconvenient,
impractical, or impossible to install cables. Wireless transmission media used in communication
include broadcast radio, cellular radio, microwaves, communication satellites, and infrared. Each
technology utilizes specific ranges within the electromagnetic spectrum (in megahertz) of
electromagnetic frequencies that are specified by national regulatory agencies to minimize
interference and encourage telecommunications.

4.2.3 Communication Software and Protocols

What are the functions of communication software? Communication software consists of

programs that (1) help users establish a connection to another computer or network; (2) manage
the transmission of data, instructions, and information; and (3) provide an interface for users to
communicate with one another. The first two are system software and the third is application
software. The principal functions of communication software are network control, access control,
transmission control, error detection/correction, and network security.

Often, a computer has various types of communication software, each serving a different
purpose. One type of communication software, for example, helps users establish an Internet
connection using wizards, dialog boxes, and other on-screen messages. Another allows home and

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small office users to configure wired and wireless networks and connect devices to an existing
network. Software tools and utilities are available for managing networks. Network control
programs route messages, poll network terminals, determine transmission priorities, maintain a
log of network activities, and check for errors. Access control programs establish connection
between terminals and computers in the network, establishing transmission speed, mode, and
direction.

Different components in a network can communicate by adhering to a common set of rules that
enable them to communicate each other. This set of rules and procedures governing transmission
between components in a communication network is called a protocol. The principal functions of
a protocol in a communication network include:

• Identifying each device in the communication path;

• Securing the attention of the other device;
• Verifying correct receipt of the transmitted message;
• Determining that a message requires retransmission if it is incomplete or has errors;
• Performing recovery when errors occur.

Transmission Control Protocol/Internet Protocol (TCP/IP) is a network standard that defines

how messages are routed from one end of a network to the other, ensuring the data arrives
correctly. TCP/IP describes rules for dividing messages into small pieces, called packets;
providing addresses for each packet; checking for and detecting errors; sequencing packets; and
regulating the flow of messages among the network. TCP/IP has been adopted as a network
standard for Internet communications.

Ethernet is a popular communication protocol often used with local area networks (LAN). This
network standard specifies no central computer or device on the network (nodes) should control
when data can be transmitted; that is, each node attempts to transmit data when it determines the
network is available to receive communications. If two computers on an Ethernet network
attempt to send data at the same time, a collision will occur, and the computers must attempt to
send their messages again. Ethernet is based on a bus topology, but Ethernet networks can be
wired in a star pattern.

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Bluetooth is a network standard that defines how two Bluetooth devices use short-range radio
waves to transmit data. A Bluetooth device contains a small chip that allows it to communicate
with other Bluetooth devices.

802.11 is a series of specifications for wireless LAN technology. The 802.11 standard often is
called the wireless Ethernet standard because it uses techniques similar to the Ethernet standard
to specify how physically to configure a wireless network.

The Wireless Application Protocol (WAP) allows wireless mobile devices to access the Internet
and its services such as the Web, e-mail and chat rooms. WAP uses a client/server network.
IrDA (Infrared Data Association) is a standard for transmitting data wirelessly to each other via
infrared light waves. Infrared requires a line-of-sight transmission and Bluetooth does not require
line-of-sight transmission.

RFID (radio frequency identification) is a standard that defines how a network uses radio signals
to communicate with a tag placed in or attached to an object, an animal, or a person.

The Open Systems Interconnection (OSI) model serves as a standard model for network
architectures and is endorsed by the International Standards Committee. The OSI model divides
data communication functions into seven distinct layers to promote the development of modular
networks that simplify the development, operation, and maintenance of complex
telecommunication networks.

4.2.4 Communication Devices

What communication devices do you know? Many networks have hardware and software devices
that allow them to communicate with other networks that employ different transmission media
and/or protocols. Devices that handle the movement of data in a computer network are the
modem, the multiplexer, the front-end processor, the router, network interface cards, and the host
computer.

Modems: What is the use of a modem? Computers process data as digital signals. Data,
instructions, and information travel along a communication channel in either analog or digital
form, depending on the communication channel. An analog signal consists of a continuous
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electrical wave. A digital signal consists of individual electrical pulses that represent bits grouped
together into bytes. A computer's digital signals must be converted to analog signals before they
are transmitted over standard telephone lines. Converting data from digital to analog is called
modulation, and converting data from analog to digital is called demodulation. Modem is an
abbreviation for MOdulation/DEMdulation.

Network Interface Card: What is the use of NIC? A network interface card (NIC), also called a
network card, is an expansion card that you insert into an expansion slot of a personal computer
or other device, such as a printer, enabling the device to connect to a network. A NIC coordinates
the transmission and receipt of data from and to the computer or device containing the NIC. A
NIC also provides an attachment point to connect a specific type of transmission media, such as
twisted-pair, coaxial, or fiber-optic cable or infrared light. NICs are available in a variety of style.

Front-end Processors: A front-end processor is a small computer dedicated to communication

management and is attached to the main, or host, computer in a large computer system. The front-
end processor performs special processing related to communications such as error control,
formatting, editing, routing, and speed and signal conversion.

Bridge: A bridge is a device that connects two LANs using the same protocol, such as Ethernet.
Sometimes it is more efficient and economical to use a bridge to connect two separate LANs,
instead of creating one large LAN which combines the two separate LANs.

Gateway: A gateway is a communication processor that connects networks that use different
protocols by providing the translation from one set of protocols to another. Gateways also are
used between e-mail systems so that users on different e-mail systems can exchange messages.

Router: A router is an intelligent communication device that connects multiple networks and
routs communication traffic to the appropriate network using the fastest available path. Routers
direct most of the traffic on the Internet, thus ensuring that data arrive at the correct destination.

Repeater: A repeater is a device that accepts a signal from a transmission medium, amplifies it,
and retransmits it over the medium. As a signal travels over a long distance, the signal undergoes
a reduction in strength, an occurrence called attenuation. Repeaters regenerate analog or digital
signals that can be distorted by attenuation.
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Wireless Access Points: A wireless access point is a central communication device that allows
computers and devices to transfer data wirelessly among themselves or to transfer data wirelessly
to wired network. Wireless access points have high-quality antennas for optimal signals. For the
best signal, some manufactures suggest positioning the wireless access point at the highest
possible location.

Activity A
Use the Internet to discover more about the telecommunications products and services,
and the current business performance and prospects of Cisco Systems and some of their
many competitors in the telecom industry. Which telecom hardware and software
company and IT consulting firm would you recommend to a small-to-medium business
with which you are familiar? Explain your reasons.

4.3 Network Topologies

What is a network topology? A network topology is a description of the possible physical

connections within a network. In a network topology, a component is called a node, which refers
to any device connected to a network, including the server, computers, telephones, and other
devices. Commonly used network topologies are bus, ring, star and mesh. However, a pure form
of any of these basic topologies is seldom found in practice. Most computer networks are hybrids,
combinations of these topologies.

Bus Network

A bus network consists of a single central cable, to which all the network nodes are attached (see
Figure 4-2). All the signals are broadcast in both directions to the entire network, with special
software to identify which nodes receive each message. However, only one node can transfer
items at a time. There is no central host computer to control the network. Nodes can be attached
to or detached from the network without affecting the network. If one node in the network fails,
none of the other nodes in the network is affected. This topology is commonly used for local area
networks.

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Figure 4-2: Bus topology

Star Network

A star network has a hub computer that is responsible for managing the network (see Figure 4-3).
All of the nodes in the network connect to the central computer, thus forming a star. All data that
transfers from one node to another node passes through the hub. Any connection failure between
a node and the hub will not affect the overall system. However, if the hub computer fails, the
entire network fails.

Figure 4-3: Star topology

Ring Network

A ring network links all nodes together in a circular chain (see Figure 4-4). Data messages travel
in only one direction around the entire ring. The node examines any data that passes by to see if it
is the addressee; if not, the data is passed on to the next node in the ring. If a node on a ring

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network fails, all nodes before the failed node are unaffected, but those after the failed nodes
cannot function.

The token ring network is a variant of the ring network. In the token ring network all the
devices on the network communicate using a special signal called token. The token is a
predefined packet of data, which includes data indicating the sender, receiver, and whether the
packet is in use. The ring topology primarily is used for local area networks, but also to connect a
mainframe to a wide area network.

Figure 4-4: Ring topology

Mesh Topology

In a mesh topology each computer is connected to every other computer by a separate cable and
provides redundant paths through the network (see Figure 4-5). If any cable or node fails, there
are many other ways for two nodes to communicate. Mesh networks are expensive to install
because they use a lot of cabling. Often, a mesh topology will be used in conjunction with other
topologies (such as Star, Ring and Bus) to form a hybrid topology.

Figure 4-5: Mesh Topology

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4.4 Types of Networks

What are the basic types of networks? Depending on their size, function, and geographical
coverage computer networks are classified into Local Area Network (LAN), Wide Area Network
(WAN), Metropolitan Area Network (MAN), Home Network and Internet work.

A local area network (LAN) is a network that connects computers in a limited geographical
area, such as a school computer laboratory, department, or group of buildings. A LAN, the most
common network, consists of a communication channel, networked computers and devices, a
network interface card, and a network operating system. The most common use of LANs is for
linking personal computers within a building or office to share information and expensive
peripheral device. Another popular application of LANs is in factories, in which they link
computers and computer-controlled machines.

Local area networks can be built at various levels of sophistication. A local area network can be a
ring, bus, or star network. There are two popular types of LANs: peer-to-peer network and
client/server network. The major difference between these two types of LANs lines is how the
data and information is stored.

• A peer-to-peer network is a simple, inexpensive network. All computers in a peer-to-peer

network have equal status; no one computer is in control. Each computer in the network can
share the hardware, data, or programs located on any other computer in the network. Each
computer stores files on its own storage devices. Each computer in the network also must
install a network operating system and application software. However, only one computer on
the network needs to connect to peripherals; the other computers in the network share these
hardware resources. Peer-to-peer networks are typically used in very small business and
organizations.

Internet peer-to-peer (P2P) describes an Internet network on which users access each other's
hard disks and exchanges files directly over the Internet. This type of peer-to-peer network is
also called a file sharing network because users with compatible software and an Internet
connection copy files from someone else's hard disk to their hard disks.

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• A client/server network is a network in which one or more computers are designated as a
server(s) and other computers on the network, called clients, can request services from the
server, such as providing database access or queuing print jobs. A server controls access to
the hardware and software on the network and provides a centralized storage area for
programs, data, and information. Some servers are dedicated to performing a specific task.
Most client/server networks have a network administrator, who is the operations person in
charge of the network.

A wide area network (WAN) is a network that covers a large geographical area using a
communication channel that usually combines many different types of transmission media.
Common communication carriers such as AT&T typically determine transmission rates or
interconnections between lines, but customers are responsible for their telecommunication
contents and management. Individual business firms may maintain their own wide area networks.
However, private wide area networks are expensive to maintain, and firms may not have the
resources to manage their own wide area networks. In such instances, companies may choose to
use commercial network services to communicate over vast distances. Today, a WAN typically
consists of two or more LANs connected by router that ensure that data are delivered to the
correct destination. The Internet is the world's largest wide area network.

If a network is designed for a city, that is, it connects local area networks in a metropolitan area
and handles the bulk of communication activity, or traffic, across that region, this network is
called metropolitan area network (MAN). A MAN typically includes one or more LANs but
covers a smaller geographic area than a WAN. A MAN usually is managed by a consortium of
users or by a single network provider who sells the service to the users. Local and state
government, for example, regulates some MANs.

Many home users are connecting multiple computers and devices together in a home network.
Home networking saves the home user money and provides many conveniences. Each networked
computer in the house has the following capabilities:

1. Connect to the Internet at the same time

2. Share a single high-speed Internet connection
3. Access files and programs on the other computers in the house

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4. Share peripherals such as a printer, scanner, external hard disk, or DVD drive
5. Play multiplayer games with players on other computers in the house.

Many vendors offer home networking packages that include all the necessary hardware and
software to network your home using wired or wireless techniques. Some of these packages also
offer intelligent networking capabilities. An intelligent home network extends the basic home
network to include features such as lighting control, thermostat adjustment, and a security
system.

Activity B
Search the Internet for current commercial offerings of mobile broadband and compare
their features with Wi-Fi hotspots. Which one would you choose? Which factors could
affect your decision?

Summary
A network is a collection of computers and devices connected together via communication
devices and transmission media. Advantages of using a network include facilitating
communications, sharing hardware and software, as well as sharing data and information.

Network communication technologies include Ethernet, token ring, TCP/IP, 802.11, Bluetooth,
IrDA, RFID, and WAP. Communication software helps users establish a connection to another
computer or network, manages the transmission of data, and provides an interface for users to
communicate with one another.

A communication device is hardware capable of transmitting data between a sending device and
a receiving device. A modem converts a computer’s digital signals to analog signals for
transmission over standard telephone lines. A network card is an adapter card, PC Card, or
compact flash card that enables a computer or device to access a network. A wireless access point
allows computers and devices to transfer data without installing cables. A router connects
multiple computers together and transmits data to its destination on the network. A hub provides
a central point for cables in a network.

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Communication networks involve the transmission of data, information, and instructions among
computers. Any transmissions sent during these communications can be classified by a number of
characteristics including the signal type, transmission mode, transmission direction, and
transmission rate.

A network topology is an explanation of the possible physical connections (such as server,

computers, telephones, and other devices) within a network. Commonly used network topologies
are bus, ring, star and mesh.

Computer networks are classified into Local Area Network (LAN), Wide Area Network (WAN),
Metropolitan Area Network (MAN), Home Network and Internetwork based on their size,
function, and geographical coverage.

On a client/server network, one or more computers act as a server, which controls access to
network resources and provides a centralized storage area, while the other computers on the
network are clients that rely on the server for resources. A peer-to-peer network is a simple
network that typically connects few computers; each called a peer, which has equal
responsibilities and capabilities.

References:
Anteneh, Salehu (2015). Information Systems for Business: Teaching Material, Addis Ababa
University (unpublished).
Laudon, Kenneth C. and Laudon, Jane P. (2014). Management Information Systems: Managing
the Digital Firm (13th ed.), Pearson Education.
O'Brien, James A. and Marakas, George M. (2011). Management Information Systems (10th ed.),
McGraw-Hill/ Irwin.
Shelly, G.B., Cashman, T.J., and Vermaat M.E (2012). Discovering Computers 2013: A Gateway
to Information, Thomson.
Turban, Efrain (2009). Information Technology for Management (7th Ed.), Wiley, J/UCH Press.

91
Self-Assessment Questions

Multiple Choices
1. Two examples of _____ are cable television lines and telephone lines.
a. sending devices
b. communication channels
c. receiving devices
d. communication devices
2. A _____ is a network that connects computers and devices in a limited geographical area,
such as a home, school computer laboratory, or office building.
a. local area network (LAN)
b. metropolitan area network (MAN)
c. wide area network (WAN)
d. variable area network (VAN)

3. Each computer or device on a local area network, called a _____, often shares resources
such as printers, large hard disks, and programs.
a. Hub b. server c. token d. node

4. A _____ is a high-speed network that connects networks in an area such as a city or town
and handles the bulk of communication activity across that region.
a. local area network (LAN)
b. metropolitan area network (MAN)
c. wide area network (WAN)
d. variable area network (VAN)
5. The risk to a bus network is that _____.
a. devices attached or detached at any point on the bus disrupt the rest of the network
b. the failure of one device usually affects the rest of the network
c. the bus itself might become inoperable
d. All of the above

6. Communication software consists of programs that _____.

a. help users establish a connection to another computer or network
b. manage the transmission of data, instructions, and information
c. provide an interface for users to communicate with one another
d. All of the above

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7. Although _____ are not a type of standard telephone line, they are a very popular type of
dedicated line that allows a home user to connect to the Internet.
a. ISDN lines c. T-carrier lines
b. DSL d. cable television (CATV) lines

8. A _____ is a device that provides a central point for cables in a network.

a. hub b. packet c. node d. router
9. One of the following is true about a network card.
a. It enhances the audio-generating capabilities of a personal computer by allowing
sound to be input through a microphone and output through external speakers or
headset
b. It converts computer output into a signal that travels through a cable to the
monitor, which displays an image on the screen
c. It is a type of communication device that enables computers to communicate via
telephone lines, cable television lines, or other media
d. It is a communication device that allows a computer to access a network

True/False

T F 1. Today, only large computers have communication capabilities.

T F 2. Many businesses network their computers together to facilitate communications,

share hardware, share data and information, share software, and transfer funds.

T F 3. In a networked environment, each computer on the network has access to hardware

on the network.

T F 4. A MAN typically includes one or more WANs, but covers a smaller geographic area
than a LAN.

T F 5. Although it can connect a larger number of computers, a client/server network

typically provides an efficient means to connect 10 or fewer computers.

T F 6. On a peer-to-peer network, each computer, called a peer, has equal responsibilities

and capabilities, sharing hardware, data, or information with other computers on the
network.

T F 7. If a computer or device on a ring network fails, all devices before the failed device
cannot function, but those after the failed device are unaffected.

T F 8. On a star network, if the hub fails the entire network is inoperable until the hub is
repaired.

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T F 9. For two computers to communicate, they do not need compatible software.

Completion
1. A(n) ________________ is a device that initiates an instruction to transmit data,
instructions, or information.
2. A(n) _____________is a collection of computers and devices connected together via
communication devices and transmission media.

3. A(n)________________is a LAN that uses no physical wires.

4. A(n)________________is a network topology that consists of a single central cable, to

which all computers and other devices connect.
5. One of the most popular LAN technology is ______________, which controls access to the
network by requiring that devices on the network share or pass a special signal, called a
token.

6. The communication device that performs the conversion of a digital signal to an analog
signal is a(n) _____________________.

7. A(n) ________________________ is a card that enables a computer or device to access a

network.

Discussion Questions

1. Should all major retailing and manufacturing companies switch to RFID? Why or why
not?
2. Compare Wi-Fi and high-speed cellular systems for accessing the Internet. What are the
advantages and disadvantages of each?
3. Are networks of PCs and servers making mainframe computers obsolete? Explain.
4. What are some of the business benefits and management challenges of client/server
networks? Peer-to-peer networks?
5. What is the business value driving companies to install and extend intranets rapidly
throughout their organizations?
6. What strategic competitive benefits do you see in a company’s use of extranets?

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Project

Assume you are part of a group hired as consultants to recommend a network plan for a small
company of 20 employees. Using the Internet and other available resources, develop a network
plan for the company. Include the following components in your plan: (1) the type of network –
peer-to-peer or client/server, (2) the suggested topology, (3) the type and number of servers, (4)
the peripheral devices, and (5) the communication media.
Group Discussion

Many schools and offices have a local area network connecting their computers. Have each
member of your team locate a school or office that uses a network and talk to someone about how
the network works. What network architecture, topology, and communication technology are
used? Why? What communication software is used? Why? What are the advantages and
disadvantages of having a network? Is the network connected to another network? If so, how?
Meet with the members of your team to discuss the results of your interviews. Then, use
PowerPoint to create a group of presentation and share your findings with the class.

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Chapter 5 The Internet and the World Wide Web

Learning Objectives

After completing this chapter, you will be able to:

• understand the essential concepts of the Internet
• explain ways to access the Internet
• describe the scope of Internet resources and the various types of Internet applications
• understand the concept of cloud computing
• explain how to search for information on the Web
• understand the operation of the protocols that are used inside the Internet
• describe types of Web pages and the way they are published
• discuss social media and social networking services

Contents
5.1 The Internet
5.1.1 How the Internet Works
5.1.2 Internet Addresses
5.1.3 Internet Services
5.1.4 Cloud Computing
5.2 The World Wide Web
5.2.1 Searching for Information on the Web
5.2.2 Web 2.0 and Social Media
5.2.3 Social Networking Service
Summary
References
Self-Assessment Questions

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5.1 The Internet

What is Internet and how does it work? As explained in Chapter 4, a network is a collection of
computers and devices connected together via communication devices and media. The world's
largest network is the Internet, which is a worldwide collection of networks that links together
millions of businesses, government offices, educational institutions, homes and individuals. Each
of these networks provides resources that add to the abundance of goods, services, and
information accessible via the Internet.

Today, one of the major reasons business, home, and other users purchase computers is for
Internet access. The Internet has had a profound impact on our lives. What we do at work, how
we work, how we learn, and what we do during leisure time have changed dramatically during
the public Internet era. Many companies and organizations assume the public is familiar with the
Internet. Web addresses appear on television, in radio broadcasts, in printed newspapers,
magazines, and other forms of advertising.

The Internet consists of many local, regional, national, and international networks. Although each
network that constitutes the Internet is owned by a public or private organization, no single
organization owns or controls the Internet. The Internet remains a public, cooperative, and
independent network. Each organization on the Internet is responsible only for maintaining its
own network. However, some organizations, such as Internet Society, Internet Architecture
Board, Internet Engineering Task Force, and Internet Network Information Center, contribute
toward the success of the Internet by advising, defining standards, donating resources, and
addressing other issues. Especially, the World Wide Web Consortium (W3C) is the group that
oversees researches and sets standards and guidelines for many areas of the Internet. The mission
of the W3C is to contribute to the growth of the Web. These organizations are composed of
individuals, corporations, nonprofit organizations, foundations, and government agencies.

5.1.1 How the Internet Works

Data and information sent over the Internet travels via networks and communication lines owned
and operated by many companies. Individuals cannot directly connect to the Internet. An access
provider is a business that provides individuals and companies access to the Internet free of
charge or for a fee. Individuals can access the Internet through several ways of connections:
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• Connect via an Internet Service Provider. An Internet service provider (ISP) is an
organization that has a permanent Internet connection and provides temporary connections to
individuals and companies for a fee. Two types of ISPs exist: regional and national. A
regional ISP usually provides access to the Internet through one or more telephone numbers
local to a specific geographic area. A national ISP is a larger, nation-wide business that
provides local telephone numbers in most major cities; some also provide a toll-free (free of
charge) telephone number. National ISPs generally offer more services and have a larger
technical support staff than regional ISPs. Examples of national ISPs are AT&T WorldNet
Service and Earthlike. In Ethiopia, the sole ISP is Ethiopian Telecommunication Corporation.

Connection via ISP gives you direct access to the Internet through dialup connection. The
telephone number you dial to connect you to an access point on the Internet is called point of
presence (POP). The most important consideration when selecting an ISP is to be sure that it
provides a local POP. Otherwise, you must pay long-distance telephone bills for the time you
are connected to the Internet.

• Connect via an online service provider. You can also access the Internet through online
information services such as American Online (AOL), Microsoft Network (MSN), and
CompuServe. An online service provider (OSP) is a large self-contained network. It
provides an electronic gateway to the Internet; that is, you are linked to the OSP that, in turn,
links you to the Internet. An OSP also supplies members-only features that offer a variety of
special content and services such as news, weather, legal information, financial data, games,
computer guides, email, online calendars, photo communities, instant messaging, and travel
information. For this reason, the fees for using an online service usually are slightly higher
than fees for an ISP.

• Connect via network connection. Many users connect to the Internet through a business or
school network. In this instance, their computers usually are part of a local area network
(LAN) that is connected to an ISP through a high-speed connection line leased from the local
telephone company. Instead of connecting via a modem, a PC connects to the LAN using a
network interface card. This type of connection usually gives you faster interaction with the
Internet because a LAN normally has a high-speed digital link to the Internet.

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• Connect via a wireless service provider. A wireless service provider (WSP) is a company
that provides wireless Internet access to users with wireless modems or Web-enabled
handheld computers or devices such as cellular telephones, PDAs, smart phones, and smart
watches. An antenna on the wireless modem or Web-enabled device typically sends signals
through the airwaves to communicate with a WSP. Examples of WSPs include AT&T
Wireless, T-Mobile, Verizon Wireless, SprintPCS, and GoAmerica.

When connecting from home or while traveling, individuals typically use dial-up access to
connect to the Internet. With dial-up access, you might use your computer and a modem to dial
into an ISP or online service over a regular telephone line. Dial-up access provides an easy way
for mobile and home users to connect to the Internet to check e-mail, read news, access research
materials, and text books.

Computers connected to the Internet work together to transfer data and information around the
world. The inner structure of the Internet works much like a transportation system. Just as
highways connect major cities and carry the bulk of the automotive traffic across the country,
several main communication lines carry the heaviest amount of traffic on the Internet. These
communication lines are referred collectively as the Internet backbone. The high-speed
equipment in these locations functions similar to a highway interchange, transferring data from
one network to another until it reaches its final destination. National ISPs use dedicated lines to
connect directly to the Internet backbone.

5.1.2 Internet Addresses

What is IP and how are its components organized? The Internet relies on an addressing system
much like the postal service to send data to a computer at a specific destination. Each computer
location on the Internet has a numeric address called an IP (Internet protocol) address. The IP
address usually consists of four groups of numbers, each separated by a period. The number in
each group is between 0 and 255. For example, 198.112.68.223 is an IP address.

IP Classes
IP addresses are organized into classes. The address class determines the potential size of the
network. The class of an address specifies which of the numbers are used to identify the network

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ID or the host ID. It also defines the total number of host subnets per network. There are five
classes of IP addresses: classes A through E. The four groups of numbers that make up an IP
address are conventionally represented by a, b, c, and d respectively. Table 4-1 shows how the
numbers are distributed in classes A, B, and C.

Class IP Address Network ID Host ID

A a.b.c.d a b.c.d
B a.b.c.d a.b c.d
C a.b.c.d a.b.c d

Table 5-1: Group of numbers distributed in classes A, B, and C

Class A addresses are specified to networks with large number of total hosts. Class A allows for
126 networks by using the first group of number (a) for the network ID. The remaining three
groups of numbers (b, c and d) represent the host ID, allowing approximately 17 million hosts
per network. Class A network number values begin at 1 and end at 127.

Class B addresses are specified to medium to large sized of networks. Class B allows for 16,384
networks by using the first two groups of numbers (a and b) for the network ID. The third and
fourth groups of numbers (c and d) represent host ID, allowing for approximately 65,000 hosts
per network. Class B network number values begin at 128 and end at 191.

Class C addresses are used in small local area networks (LANs). Class C allows for
approximately 2 million networks by using the first three groups of numbers (a, b and c) for the
network ID. The last group of numbers (d) represents the host ID, allowing for 254 hosts per
network. Class C network number values begin at 192 and end at 223.

Classes D and E are not allocated to hosts. Class D addresses are used for multicasting (i.e. the
ability to transmit a single stream to multiple subscribers at the same time.), and class E addresses
are not available for general use: they are reserved for future purposes.

IP Versions

What is IPv6? Two versions of the Internet Protocol (IP) are in use: IP Version 4 and IP
Version 6. Each version defines an IP address differently. Because of its prevalence, the generic

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term IP address typically still refers to the addresses defined by IPv4. The gap in version
sequence between IPv4 and IPv6 resulted from the assignment of number 5 to the experimental
Internet Stream Protocol in 1979, which however was never referred to as IPv5.

In IPv4 an address consists of 32 bits which limits the address space to 4294967296 (232)
possible unique addresses. IPv4 addresses are canonically represented in dot-decimal notation,
which consists of four decimal numbers, each ranging from 0 to 255, separated by dots, e.g.,
172.16.254.1. Each part represents a group of 8 bits (octet) of the address.

The rapid exhaustion of IPv4 address space, prompted the Internet Engineering Task Force
(IETF) to explore new technologies to expand the addressing capability in the Internet. The
permanent solution was deemed to be a redesign of the Internet Protocol itself. This next
generation of the Internet Protocol, intended to replace IPv4 on the Internet, was eventually
named Internet Protocol Version 6 (IPv6) in 1995. The address size was increased from 32 to 128
bits or 16 octets. This, even with a generous assignment of network blocks, is deemed sufficient
for the foreseeable future. Mathematically, the new address space provides the potential for a
maximum of 2128, or about 3.403×1038 addresses.

Many modern desktop and enterprise server operating systems include native support for the IPv6
protocol, but it is not yet widely deployed in other devices, such as home networking routers,
voice over IP (VoIP) and multimedia equipment, and network peripherals.

Domain Name
What is a domain name? Because the numeric IP addresses are difficult to remember and use, the
Internet supports the use of a text name. The text version of an IP address is called a domain
name. Like an IP address, the components of a domain name are separated by periods. An
example of IP address and its associated domain name for Addis Ababa University Website is
given below.
IP Address ------ 213.55.95.15
Domain name-- www.aau.edu.et

As with an IP address, the components of a domain name are separated by periods.

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The www part of the address signifies that the address is associated with the World Wide Web
service. The aau.edu.et part of the address is domain name that identifies the Internet host site.
The left part of the domain name identifies the host network or host provider, which might be the
name of a university or business; the right part is a top-level domain (TLD) abbreviation that
identifies the type of organization that operates the site.

The group that assigns and controls top-level domains is the Internet Corporation for Assigned
Names and Numbers (ICANN pronounced EYE-can). Table 5-2 lists current top-level
domains. For international Websites outside the United States, the domain name also includes a
country code, which usually is placed at the end of a domain name. In these cases, the domain
name ends with the country code, such as ‘et’ for Ethiopia, ‘au’ for Australia, ‘fr’ for France or
‘ca’ for Canada.

The domain name system (DNS) is the method that the Internet uses to store domain names and
their corresponding IP addresses. When you specify a domain name, a DNS server translates the
domain name in to its associated IP addresses so data can route to the correct computer. A DNS
server is an Internet server that usually is associated with the Internet access provider.

Original Top-Level Domains Type of Domain

com Commercial organizations,
businesses, and companies
edu Educational institutions
gov Government agencies
mil Military organizations
net Network providers
org Nonprofit organizations
museum Accredited museums
biz Business of all sizes

Table 5-2: List of top level domains

5.1.3 Internet Services

What are the common services provided by the Internet? Many computer communications
require that users subscribe to an Internet access provider to get Internet services. With other

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computer communications, an organization such as a business or school provides communication
services to employees, students, or customers. In the course of a day, for example, you might use
information generated by, one or more of the following internet services: e-mail, voice mail, fax,
telecommuting, electronic conferencing, bulletin board system, digital information service,
electronic data interchange, groupware, global positioning system, instant messaging, chat rooms,
Internet telephony, FTP, and Web services.

• E-mail: The Internet has become the most important e-mail system in the world because it
connects so many people from all over the world. E-mail is no longer limited to simple text
messages. Depending on the hardware and software of both the sender and recipient, users
can embed images, sound and video in the message and attach files that contain text
documents, spreadsheets, and graphs, audio, video, or executable programs. You use an e-
mail program to create, send, receive, forward, reply, print, delete and store messages.

• Just as you address a letter when using the postal system, you must address an e-mail message
with the e-mail address of your intended recipient. An e-mail is a combination of a user name
and a domain name that identifies the user who will receive the e-mail. A user name is a
unique combination of characters that identifies you. Your user name must be different from
the other user names in the same domain. An @ symbol separates the user name from the
domain name. Example, [email protected], means that belayzeleke corresponds to
user name and yahoo.com represents the domain name.

• Voice Mail: Voice mail functions much like an answering machine, allows callers to leave a
voice message for a called party. Unlike answering machines, however, a computer in the
voice mail system converts an analog voice message into digital form. Once digitized, the
message is stored in a voice mailbox, which is a storage location on a computer in the voice
mail system. When the recipient is ready to listen, the messages are reconverted to audio
form.

• Fax: A fax (facsimile) machine is a device that sends and receives documents via telephone
lines. You can send or receive a fax using a stand-alone fax machine or a fax modem. A
stand-alone fax machine scans and digitizes the document image. The digitized document is

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then transmitted over a network and reproduced in hard copy form by a receiving fax
machine.

• Internet Telephony: Internet telephony (voice over IP) enables you to talk to other people
over the Internet using their desktop computer, mobile computer, or mobile devices.
Telephony uses the Internet to connect a calling party and one or more called parties. To
place a telephone call, you need Internet telephone software. As you speak into a computer
microphone, the Internet telephone software and your computers sound card digitize and
compress your conversation and then transmit the digitized audio over the Internet to the
called parties.

• Telecommuting: Telecommuting is a work arrangement in which employees work away

from the company's standard workplace, but communicate with the office using some
communication technology. A telecommuter often works at home and connects to the main
office's network using a PC equipped with communication software and a communication
device.
• Electronic Conferencing: Teleconferencing allows a group of people to confer
simultaneously via telephone or via electronic mail group communication software.

• Files Transfer Protocol (FTP): FTP is an Internet standard that allows you to exchange files
with other computers on the Internet. FTP is a quick and easy method if you know the remote
computer site in which the file is stored. Once you have logged on to the remote computer,
you can upload files onto the computer, or you can move around directories that have been
made accessible for FTP to search for the file you want to retrieve. Once located, FTP makes
transfer of the file very easy.

• Newsgroups and Message Boards: A newsgroup is an online area in which users conduct
written discussions about a particular subject. The entire collection of Internet newsgroups is
called Usenet, which contains tens of thousands of newsgroups on a multitude of topics.

• Mailing List: A mailing list, also called listserv, is group of e-mail names and addresses
given a single name. When a message is sent to a mailing list, every member on the list
receives a copy of the message in his/her mailbox.
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• Chat Rooms: A chat is a real-time typed conversation that takes place on a computer. Real
time means that you and the people with whom you are conversing are online at the same
time. A chat room is a facility that enables two or more people to engage in interactive
"conversation" over the Internet.

• Instant Messaging (IM): Instant messaging is a real-time Internet communication service

that notifies you when one or more people are online and then allows you to exchange
messages or files or join a private chat room with them.

• Web Services: Web services describe standardized software that enables programmers to
create applications that communicate with other remote computers over the Internet or on an
internal business network. Businesses are the primary users of Web services because this
technology provides a means for departments to communicate with each other, suppliers,
vendors, and with clients. For example, third-party vendors can use Web services to
communicate with their online retailer's Website to manage their inventory levels.

5.1.4 Cloud Computing

What is cloud computing? Network-based services, which appear to be provided by real server
hardware and are in fact served up by virtual hardware simulated by software running on one or
more real machines are often called cloud computing. Such virtual servers do not physically
exist and can therefore be moved around and scaled up or down on the fly without affecting the
end user, somewhat like a cloud becoming larger or smaller without being a physical object.

The major models of cloud computing service are known as software as a service, platform as a
service, and infrastructure as a service. These cloud services may be offered in a public, private
or hybrid network. Google, Amazon, IBM, Oracle Cloud, Salesforce, Zoho and Microsoft Azure
are some well-known cloud vendors.

Advantages

Cloud computing relies on sharing of resources to achieve coherence and economies of scale,
similar to a utility (like the electricity grid) over a network. At the foundation of cloud computing
is the broader concept of converged infrastructure and shared services.

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The cloud also focuses on maximizing the effectiveness of the shared resources. Cloud resources
are usually not only shared by multiple users but are also dynamically reallocated per demand.
This can work for allocating resources to users. For example, a cloud computer facility that
serves European users during European business hours with a specific application (e.g., email)
may reallocate the same resources to serve North American users during North America's
business hours with a different application (e.g., a web server). This approach should maximize
the use of computing power thus reducing environmental damage as well since less power, air
conditioning, rack space, etc. are required for a variety of functions. With cloud computing,
multiple users can access a single server to retrieve and update their data without purchasing
licenses for different applications.

Essential characteristics

On-demand self-service: A consumer can unilaterally provision computing capabilities, such as

server time and network storage, as needed automatically without requiring human interaction
with each service provider.

Broad network access: Capabilities are available over the network and accessed through standard
mechanisms that promote use by heterogeneous thin or thick client platforms (e.g., mobile
phones, tablets, laptops, and workstations).

Resource pooling: The provider's computing resources are pooled to serve multiple consumers
using a multi-tenant model, with different physical and virtual resources dynamically assigned
and reassigned according to consumer demand.

Rapid elasticity: Capabilities can be elastically provisioned and released, in some cases
automatically, to scale rapidly outward and inward commensurate with demand. To the
consumer, the capabilities available for provisioning often appear unlimited and can be
appropriated in any quantity at any time.

Measured service: Cloud systems automatically control and optimize resource use by leveraging
a metering capability at some level of abstraction appropriate to the type of service (e.g., storage,
processing, bandwidth, and active user accounts). Resource usage can be monitored, controlled,
and reported, providing transparency for both the provider and consumer of the utilized service.
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Service models

Infrastructure as a service (IaaS): In the most basic cloud-service model, providers of IaaS
offer computers – physical or (more often) virtual machines – and other resources. IaaS-cloud
providers supply these resources on-demand from their large pools installed in data centers.
Cloud providers typically bill IaaS services on a utility computing basis. Costs reflect the amount
of resources allocated and consumed.

Platform as a service (PaaS): In the PaaS models, cloud providers deliver a computing
platform, typically including operating system, programming language execution environment,
database, and web server. Application developers can develop and run their software solutions on
a cloud platform without the cost and complexity of buying and managing the underlying
hardware and software layers.

Software as a service (SaaS): In the business model using software as a service (SaaS), users are
provided access to application software and databases. Cloud providers manage the infrastructure
and platforms that run the applications. SaaS is sometimes referred to as "on-demand software"
and is usually priced on a pay-per-use basis. SaaS providers generally price applications using a
subscription fee. In the SaaS model, cloud providers install and operate application software in
the cloud and cloud users access the software from cloud clients. Cloud users do not manage the
cloud infrastructure and platform where the application runs. This eliminates the need to install
and run the application on the cloud user's own computers, which simplifies maintenance and
support.

Security as a service (SECaaS): Security as a service (SECaaS) is a business model in which a

large service provider integrates their security services into a corporate infrastructure on a
subscription basis more cost effectively than most individuals or corporations can provide on
their own, when total cost of ownership is considered. These security services often include
authentication, anti-virus, anti-malware/spyware, intrusion detection, and security event
management, among others.

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5.2 The World Wide Web

What is WWW? Although many people use the terms World Wide Web and Internet
interchangeably, the World Wide Web is just one of the many services available on the Internet.
The World Wide Web actually is a relatively new aspect of the Internet. While the Internet was
developed in the late 1960s, the World Wide Web came into existence in the early 1990s. Since
then, however, it has grown phenomenally to become the most widely used service on the
Internet.

The World Wide Web (WWW), or Web, consists of a worldwide collection of electronic
documents. Each document is called a Web page. Thus, the Web has become a global
information-retrieval system. The Web consists of a worldwide collection of electronic
documents that have built-in hyperlinks to other related documents. These hyperlinks, called
links, allow you to navigate quickly from one document to another, regardless of whether the
documents are located on the same computer or on different computers in different countries. A
link can be text, icon or an image. To activate a link, you click it. Clicking a link causes the Web
page associated with the link to be displayed on the screen. An electronic document on the Web
(a Web page) contains combination of text, graphics, sound, or video, as well as links to other
Web pages. A collection of related Web pages that you can access electronically is called a
Website.

What is URL? Each Web page on a Web site has a unique address, called a Uniform Resource
Locator (URL) or Web address. You access and view Web pages using software called a Web
browser. The more widely used Web browsers for personal computers are Internet Explorer,
Netscape, Mozilla, Opera, and Safari. To browse the Web, you need a computer that is connected
to the Internet and that has a web Browser. A browser retrieves a Web page by using its URL.

A Web server is a computer that stores the Web pages and delivers requested Web pages. For
example, when you enter the URL, http://www.nationalgeographic.com/travel/index.html in your
browsers address text box, your browser sends a request to the sever that stores the Website of
www.nationalgeographic.com. The server then fetches the page named index.html and sends it to
your browser.

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5.2.1 Searching for Information on the Web

How do you search information on the web? The Web is a global resource of information. One
primary use of the Web is to search for specific information. Locating information users need on
the Web is a critical function given to the hundreds of millions of Websites in existence. Since no
single organization controls additions, deletions, and changes to Websites, no comprehensive
menu or catalogue of Website content and addresses exists. The first step in successful searching
is query formulation by identifying the main idea or concept in the topic about which users are
seeking information. Determine any synonyms (word with the same meaning), alternate
spellings, or variant word forms for the topic. Then, use a search tool to locate the information.
The most commonly used search tools are search engines.

A search engine is a program that finds Websites, Web pages and Internet files. A search engine
is particularly helpful in locating Web pages about certain topics or in locating specific Web
pages for which you do not know the exact Web address. A number of search engines are in use
these days, including Google, Yahoo, AltaVista, etc. These search engines look for Web pages
containing one or more of the search terms called keywords entered by users, and then displays
matches.

Activity A
A manufacturing company wants to launch a new product. Search the web to find out the
similar products by different companies and make a comparative chart of the critical
information that will help the case of the company.

5.2.2 Web 2.0 and Social Media

What is Web 2.0? Web 2.0 describes World Wide Web sites that use technology beyond the
static pages of the earlier Web site (Web 1.0). A Web 2.0 site may allow users to interact and
collaborate with each other in a social media dialogue as creators of user-generated content in a
virtual community, in contrast to Web sites where people are limited to the passive viewing of
content. Examples of Web 2.0 include social networking sites, blogs, wikis, video sharing sites,
Web applications, and mashups.

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Web 2.0 sites allow users to do more than just retrieve information. Instead of merely 'reading', a
user is invited to 'write' as well, or contribute to the content available to everyone in a user
friendly way. By increasing what was already possible in "Web 1.0", they provide the user with
more user-interface, software and storage facilities, all through their browser. Users can provide
the data that is on a Web 2.0 site and exercise some control over that data. These sites may have
an architecture of participation that encourages users to add value to the application as they use it.

Web 2.0 offers all users the same freedom to contribute. While this opens the possibility for
serious debate and collaboration, it also increases the incidence of "spamming" and "trolling" by
unscrupulous or misanthropic users. The impossibility of excluding group members who don’t
contribute to the provision of goods from sharing profits gives rise to the possibility that serious
members will prefer to withhold their contribution of effort and free ride on the contribution of
others. This requires what is sometimes called radical trust by the management of the Web site.

The key features of Web 2.0 include:

1. Folksonomy - free classification of information; allows users to collectively classify and

find information (e.g. Tagging)
2. Rich User Experience - dynamic content; responsive to user input
3. User as a Contributor - information flows two ways between site owner and site user by
means of evaluation, review, and commenting
4. Long tail - services offered on demand basis; profit is realized through monthly service
subscriptions more than one-time purchases of goods over the network
5. User Participation - site users add content for others to see (e.g. Crowdsourcing)
6. Basic Trust - contributions are available for the world to use, reuse, or re-purpose
7. Dispersion - content delivery uses multiple channels (e.g. file sharing, permalinks);
digital resources and services are sought more than physical goods
8. Mass Participation - universal web access leads to differentiation of concerns from the
traditional internet user base

An important part of Web 2.0 is the Social web, which is a fundamental shift in the way people
communicate. The social Web consists of a number of online tools and platforms where people
share their perspectives, opinions, thoughts and experiences. Web 2.0 applications tend to interact

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much more with the end user. As such, the end user is not only a user of the application but also a
participant by:
• Podcasting - a podcast is a digital medium that consists of an episodic series of audio,
video, digital radio, or PDF files subscribed to and downloaded through web syndication
or streamed on-line to a computer or mobile device.
• Blogging - a blog is a discussion or informational site published on the World Wide Web
and consisting of discrete entries ("posts") typically displayed in reverse chronological
order (the most recent post appears first)

• Tagging - a tag is a non-hierarchical keyword or term assigned to a piece of information

such as an Internet bookmark, digital image, or computer file. Tagging is carried out to
perform functions such as aiding in classification, marking ownership, noting boundaries,
and indicating online identity.
• Social bookmarking - is a centralized online service which enables users to add,
annotate, edit, and share bookmarks of web documents. Tagging is a significant feature of
social bookmarking systems, enabling users to organize their bookmarks in flexible ways
and develop shared vocabularies known as folksonomies.

• Social networking - is a platform to build social networks or social relations among

people who share interests, activities, backgrounds or real-life connections
• Web content voting - a rating website designed for users to vote on or rate people,
content, or other things. Rating sites are typically organized around attributes such as
physical appearance, body parts, voice, personality, etc.

Blogs, wikis and social networking are often held up as exemplary manifestations of Web 2.0. A
reader of a blog or a wiki is provided with tools to add a comment or even, in the case of the
wiki, to edit the content. This is what we call the Read/Write web.

For marketers, Web 2.0 offers an opportunity to engage consumers. A growing number of
marketers are using Web 2.0 tools to collaborate with consumers on product development,
service enhancement and promotion. Companies can use Web 2.0 tools to improve collaboration
with both its business partners and consumers. Among other things, company employees have
created wikis—Web sites that allow users to add, delete, and edit content — to list answers to

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frequently asked questions about each product, and consumers have added significant
contributions. Another marketing Web 2.0 lure is to make sure consumers can use the online
community to network among themselves on topics of their own choosing.

Web 2.0 offers financial institutions abundant opportunities to engage with customers. Networks
such as Twitter, Yelp and Facebook are now becoming common elements of multichannel and
customer loyalty strategies, and banks are beginning to use these sites proactively to spread their
messages.

Small businesses have become more competitive by using Web 2.0 marketing strategies to
compete with larger companies. As new businesses grow and develop, new technology is used to
decrease the gap between businesses and customers. Social networks have become more intuitive
and user friendly to provide information that is easily reached by the end user. For example,
companies use Twitter to offer customers coupons and discounts for products and services.

5.2.3 Social Networking Service

What is social networking service? A social networking service is a platform to build social
networks or social relations among people who, for example, share interests, activities,
backgrounds or real-life connections. A social network service consists of a representation of
each user (often a profile), his social links, and a variety of additional services. Social networking
is web-based services that allow individuals to create a public profile, to create a list of users with
whom to share connection, and view and cross the connections within the system. Most social
network services are web-based and provide means for users to interact over the Internet, such as
e-mail and instant messaging. Social network sites are varied and they incorporate new
information and communication tools such as, mobile connectivity, photo, video, or any other
documents sharing and blogging.

The main types of social networking services are those that contain category places (such as
former school year or classmates), means to connect with friends (usually with self-description
pages), and a recommendation system linked to trust. Popular methods now combine many of
these, with American-based services such as Facebook, Google+, YouTube, LinkedIn, Instagram,
Pinterest, Tumblr and Twitter widely used worldwide; Nexopia in Canada; Badoo, Bebo,

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VKontakte (Russia), Hi5 (Europe), Hi5 and Orkut in South America and Central America; Mxit
in Africa; and Cyworld, Mixi, Orkut, renren, weibo and Wretch in Asia and the Pacific Islands.

Social networking sites share a variety of technical features that allow individuals to: construct a
public/semi-public profile, articulate a list of other users that they share a connection with, and
view their list of connections within the system. Some sites allow users to upload pictures, add
multimedia content or modify the look and feel of the profile. Others, e.g., Facebook, allow users
to enhance their profile by adding modules or applications. Many sites allow users to post blog
entries, search for others with similar interests and compile and share lists of contacts. User
profiles often have a section dedicated to comments from friends and other users. To protect user
privacy, social networks typically have controls that allow users to choose who can view their
profile, contact them, add them to their list of contacts, and so on.

Some social networks have the ability to create groups that share common interests or affiliations,
upload or stream live videos, and hold discussions in forums. Geo-social networking co-opts
Internet mapping services to organize user participation around geographic features and their
attributes.

In most mobile communities, mobile phone users can now create their own profiles, make
friends, participate in chat rooms, create chat rooms, hold private conversations, share photos and
videos, and share blogs by using their mobile phone. Some companies provide wireless services
that allow their customers to build their own mobile community and brand it; one of the most
popular wireless services for social networking is Facebook Mobile.

Summary

The Internet is a worldwide collection of networks that connects millions of businesses,

government agencies, educational institutions, and individuals. People use the Internet to
communicate with and meet other people, to access news and information, to shop for goods and
services, to bank and invest, to take classes, and to access sources of entertainment and leisure.
Many home and small businesses connect to the Internet with dial-up access, which uses a
modem in the computer and a standard telephone line. Some home and small business users opt
for higher-speed connections, such as DSL, ISDN, or cable television Internet services. DSL and

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ISDN are technologies that provide Internet connections using regular copper telephone lines. A
cable modem provides high-speed Internet connections through the cable television network. An
ISP (Internet service provider) is a business that provides access to the Internet free or for a fee.
An IP address (Internet Protocol address) is a number that uniquely identifies each computer or
device connected to the Internet. The Internet relies on IP addresses to send data to computers at
specific locations. A domain name is the text version of an IP address that is easy to remember
and use.

Cloud computing services are network-based services, which appear to be provided by real server
hardware and are in fact served up by virtual hardware simulated by software running on one or
more real machines. Such virtual servers do not physically exist and can therefore be moved
around and scaled up or down on the fly without affecting the end user, somewhat like a cloud
becoming larger or smaller without being a physical object. The major models of cloud
computing service are known as software as a service, platform as a service, and infrastructure as
a service. These cloud services may be offered in a public, private or hybrid network.

The World Wide Web (WWW), or Web, consists of a worldwide collection of electronic
documents. Each document is called Web page. A Website is a collection of related Web pages
and associated items. A Web page may contain multimedia data, which combines text with
graphics, animation, audio, video, and/or virtual reality. A Web address, or URL (Uniform
Resource Locator), is a unique address for a Web page. A Web address consists of a protocol that
defines how the page transfers on the Web, a domain name, and sometimes the path to a specific
Web page or location on a Web page and the Web page name.

A Web browser, or browser, is application software that allows users to access and view Web
pages. When you type a Web address in the address box at the top of the browser window, a
computer called a Web server delivers the requested Web page to your computer. Most contain
links. A search engine is a program that finds Web pages and Websites based on users query.

Web 2.0 describes World Wide Web sites that use technology beyond the static pages of earlier
Web sites. A Web 2.0 site may allow users to interact and collaborate with each other in a social
media dialogue as creators of user-generated content in a virtual community. An important part
of Web 2.0 is the Social web, which is a fundamental shift in the way people communicate. The
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social Web consists of a number of online tools and platforms where people share their
perspectives, opinions, thoughts and experiences.

A social networking service is a platform to build social networks or social relations among
people who, for example, share interests, activities, backgrounds or real-life connections. A
social network service consists of a representation of each user (often a profile), his social links,
and a variety of additional services.

References
Anteneh, Salehu (2015). Information Systems for Business: Teaching Material, Addis Ababa
University (unpublished).
Kamal, Raj (2002). Internet and Web Technologies. Tata McGraw-Hill.
Haag, Stephen and Cummings, Maeve (2014). Information Systems Essentials (3rd Ed.),
McGraw-Hill/Irwin.
Post, Gerald V. and Anderson, David L. (2003). Management Information Systems: Solving
Business Problems with Information Technology (3rd ed.). McGraw-Hill.
Shelly, G.B., Cashman, T.J., and Vermaat M.E (2012). Discovering Computers 2013: A Gateway
to Information, Thomson.

Self-Assessment Questions

Multiple Choices

1. _____ is any computer that directly connects to a network.

a. Client b. Guest c. Server d. Host
2. Although it is an easy and inexpensive way for users to connect to the Internet, _____ is slow-
speed technology.
a. cable modem b. DSL c. a dial-up connection d. ISDN

3. In an IP address, the number in each group is between _____.

a. 0 and 255 b. 250 and 555 c. 550 and 755 d. 750 and 955
4. When a user specifies a domain name, a _____ translates the domain name into its associated
IP address so data can route to the correct computer.
a. URL client b. DNS client c. URL server d. DNS server

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5. In a Web address, the _____, is a set of rules that defines how pages transfer on the Web.
a. html, which stands for Hypertext Markup Language
b. www, which stands for World Wide Web
c. http, which stands for Hypertext Transfer Protocol
d. url, which stands for Uniform Resource Locator

6. When viewing a Web page, pointing to, or positioning the pointer on, a link on the screen
typically changes the shape of the pointer to a small _____.
a. right-pointing arrow c. circle with a diagonal stripe
b. hand with a pointing index finger d. lightning bolt
7. Many Web pages use _____, which is the appearance of motion created by displaying a series
of still images in sequence.
a. graphics b. audio c. virtual reality d. animation

True/False

T F 1. One of the major reasons business, home, and other users purchase computers is
for Internet access.

T F 2. Access to the Internet can occur only during business hours from home
computers.

T F 3. Hosts typically use low-speed communications to transfer data and messages

over a network.

T F 4. The mission of the W3C (World Wide Web Consortium) is to contribute to the
growth of the Web.

T F 5. Dial-up access is a difficult and expensive way for users to connect to the
Internet.

T F 6. Experts predict DSL never will replace ISDN because it is much more difficult to
install and cannot provide faster data transfer speeds than ISDN.

T F 7. A DNS server is an Internet server that usually is associated with an Internet

access provider.

T F 8. A Web address consists of a protocol, domain name, and sometimes the path to a
specific Web page or location on a Webpage.

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Completion

1. The _________________________ is a worldwide collection of networks that links

millions of businesses, government agencies, educational institutions, and individuals.
2. _________________________ describes World Wide Web sites that use technology
beyond the static pages of earlier Web sites.
3. _________________________ is a technology that provides a higher-speed Internet
connection using regular copper telephone lines.
4. A(n) _________________________ provides high-speed Internet connections through
the cable television network.
5. A(n) _________________________ is a number that uniquely identifies each computer
or device connected to the Internet.
6. The group that assigns and controls top-level domains is the ______________________.
7. The _________________________ is the method that the Internet uses to store domain
names and their corresponding IP addresses.
8. Each electronic document on the Web is called a(n) _______________________, which
can contain text, graphics, audio (sound), and video.
9. _________________________ is a two-directional computing platform where users can
obtain and contribute information.
10. _________________________ is a computing environment where software and storage
are provided as an internet service and are accessed with a Web browser.

Discussion Questions
1. The Internet is the driving force behind developments in telecommunications, networks,
and other information technologies. Do you agree or disagree? Why?

2. How will wireless information appliances and services affect the business use of the
Internet and the Web? Explain.

3. What is the business value driving so many companies to install and extend intranets
rapidly throughout their organizations?

4. The insatiable demand for everything wireless, video, and Web-enabled everywhere will
be the driving force behind developments in telecommunications, networking, and
computing technologies for the foreseeable future. Do you agree or disagree? Why?

5. What is the difference between Web 1.0 and Web 2.0? Discuss.
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6. What safety features are available on social networking pages to manage your reputation
and protect yourself against things like cyberbullying?

7. How do we define the general Web 2.0 phenomenon? Blogs, social networking, user-
generated content, peer-to-peer networking, software as a service, the transformation of
video on the web, collective intelligence, wikis, podcasts?

Case Study
A web site developing company in Addis Ababa, called Micro Computer Group (MCG) has
turned to collaboration software to transform its World Wide Web site into an interactive
experience and keep its customers coming back. Along the way, it has reduced the hassles
involved in updating the ever-changing contents of the Website.

SELAM, Sport’s equipment manufacturing company recently redesigned its Website at

www.selam.com using Radnet WebShare, a Web based groupware system. MCG is using the
built-in electronic-mail hooks, discussion groups, bulletin boards, and E-mail postcards to make
the site far more interactive than when it debuted in 2005, according to Mesfin K., MCG’s
director of interactive marketing.

The goal was to create a Website that fostered a community of users, Gashaw, MCG’s
webmaster, said. "If you just try and use the Web to sell them products, something is missing,"
he said. selam.com gets about 800,000 hits per day, and the company has signed up about
25,000 site members.

MCG currently offers four micro sites, each devoted to a particular fitness category, where
customers can get profiles of athletes and training tips from coaches. But, visitors who fill out a
profile form in which they list their favorite sports will get customized workout tips, news
updates about their sport, and other information on future visits. Site members also can send e-
mail postcards to their favorite athletes. A Java-based sports ticker component that will let MCG
push game scores and sports stories to visitors is also in development.

"Delivering customized content via Websites is still pretty rare but extremely valuable to
companies like MCG that sell to a mass market," said Tamirat D., an analyst at SABA
Information Group. It is particularly key for MCG, "which is probably marketing to a younger
audience that is looking for a fair amount of glitz," Tamirat said.

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MCG chose WebShare because it provides the capability for its employees to update the contents
of a Webpage-for example, modifying the address of a distributor or adding a recent interview
with a sports figure using a Web browser. And the workflow features in WebShare help MCG
manage the contents of its site.

MCG's marketers can update information and pass those changes to the appropriate people
automatically using a workflow program. Previously, updates to the site had to be coordinated
through MCG's Internet service provider. The kind of ‘do-it-yourself’ updating that MCG now
enjoys is one of the main advantages of using a Web based collaboration development tool such
as WebShare.

Case Questions

1. Why is MCG redesigning its customers’ Website?

2. Do you agree with MCG's changes to its Website? Why or why not?
3. How does information technology help MCG's business end users make improvements to
their Websites?

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Chapter 6 Database Management

Learning Objectives
After completing this chapter, you will be able to:
• describe basic file organization concepts and the problems of the traditional file
environment
• describe how a database management system organizes data
• compare the principal types of database models
• describe how database is maintained
• identify data warehouse, data mining, and business intelligence technologies
• understand the concept of big data

Contents
6.1 Data Organization
6.2 Traditional File Processing versus Database Approach
6.2.1 Traditional File Processing Problems
6.2.2 Important Characteristics of a Database
6.3 Database Models
6.3.1 Hierarchical Database Model
6.3.2 Network Database Model
6.3.3 Relational Database Model
6.3.4 Object-Oriented Database Model
6.4 Database Management Systems
6.5 Maintaining a Database
6.6 Data Warehouse, Data Mining, and Business Intelligence
6.7 Big Data
Summary
References
Self-Assessment Questions

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6.1 Data Organization

A database is a collection of data organized in a manner that allows access, retrieval, and use of
that data. Because data is used to generate information, many companies realize that data is one
of their most valuable assets.

How is data organized? A computer system organizes data in a hierarchy that starts with bits and
bytes and progresses to fields, records, files, and database. Each higher level consists of one or
more elements from the lower level preceding it. Figure 6-1 illustrates a data hierarchy.

A bit represents the smallest unit of data (0 or 1) a computer can handle. A group of bits, called a
byte, represents a single character, which can be a letter, a number, or a symbol. A grouping of
characters into a word, a group of words, or a complete number, such as a student's name,
address, or grade, is called a field. A field describes an aspect of an object, activity, or event.

A field is identified by field name that uniquely identifies each field, field size that defines the
maximum number of characters a field can contain, and data type that specifies kind of data the
field contains. Common data types found, for example, in MS Access Database management
software are:
• Text (also called alphanumeric): letters, numbers, or special characters
• Numeric: numbers only
• AutoNumber: unique number automatically assigned to each record
• Currency: dollar and cent amounts or numbers containing decimal values
• Date: month, day, year, and sometimes time
• Memo: lengthy text entries
• Yes/No (also called Boolean): only the values Yes or No (or True or False)
• Hyperlink: Web address that links to document or Web page
• BLOB: (for binary large object)—photograph, audio, video, or document created in
other application such as word processing or spreadsheet
Activity A
Take the case of an organization of your choice and try to identify two examples of each of
these data types. Also, comment on the usefulness of analyzing these data types for the
organization.

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A group of related fields is a record. For example, a student record is a collection of fields about
one student, including the student's name, ID number, grade, address, and so forth. A collection
of related records is a file. For example, a student file is a collection of all university student
records. At the highest level of data hierarchy is a database, a collection of integrated and related
files. A university database might include student file, course file, financial file, faculty file, and
other files.

Figure 6-1: Data hierarchy

A record describes an entity. An entity is a person, place, thing, activity, or event for which data
is collected, stored, and maintained. Examples of entities include employees, inventory, and
customers. Organizations organize and store data as entities. Each characteristic describing a
particular entity is called an attribute. Attributes are usually selected to capture the relevant
characteristics of entities like name, age, or address. The specific value of an attribute, called a
data item, can be found in the fields of the record describing an entity.

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Every record in a data file should contain at least one field that uniquely identifies that record so
that the record can be retrieved, updated, or sorted. This identifier field is called a key field, or
primary key. An example of a key field is student ID number, which uniquely identifies each
student.

6.2 Traditional File Processing versus Database Approach

6.2.1 Traditional File Processing Problems

What are the problems of the traditional file processing system? In the traditional file processing
approach that was used in business data processing for many years, each business application was
designed to use one or more specialized data file containing only specific types of data records.
For example, a bank’s checking account processing application was designed to access and
update a data file containing specialized data records for the bank’s checking account customers.
Similarly, the bank’s installment loan processing application needed to access and update a
specialized data file containing data records about the bank’s installment loan customers.

The file processing approach finally became too cumbersome, costly, and inflexible to supply the
information needed to manage modern business, and as we shall soon see, was replaced by the
database management approach. File processing systems had the following major problems:

Data redundancy

Independent data files included a lot of duplicated data; the same data (such as customer’s name
and address) was recorded and stored in several files. This data redundancy caused problems
when data had to be updated, since separate file maintenance programs had to be developed and
coordinated to ensure that each file was properly updated. Of course, this proved difficult in
practice, so a lot of inconsistency occurred among data stored in separate files.

Lack of Data Integration

Having data independent files made it difficult to provide the end users with information for
adhoc requests that required accessing data stored in several different files. Special computer
programs had to be written to retrieve data from each independent file. This was so difficult,

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time-consuming, and costly for some organizations that it was impossible to provide end users or
management with such information.

Data Dependence

In file processing systems, the major components of a system—the organizations of files, their
physical locations on storage hardware, and the application software used to access those files—
depend on one another in significant ways. For example, application programs typically
contained references to the specific format of the data stored in the files they used. Thus, changes
in the format and structure of data and records in a file required that changes be made to all of the
programs that used that file. This program maintenance effect was a major burden of file
processing systems.

Other Problems

In file processing systems, it was easy for data elements such as stock numbers and customer
addresses to be defined differently by different end users and applications. This caused serious
data inconsistency problems in the development of programs to access such data. In addition, the
integrity (i.e. the accuracy and completeness) of the data was suspect because there was no
control over their use and maintenance by authorized end users. Thus, a lack of standards causes
major problems in application program development and maintenance, and in the security and
integrity of the data files needed by the organizations.

6.2.2 Important Characteristics of a Database

How is a database characterized? The term "database" is perhaps one of the most overused and
misunderstood terms in today's business environment. Many people who say they have a
database, in fact, have only file. In a file processing system, each department or area within an
organization has its own set of data files. As we discussed, file processing systems have major
weaknesses like redundant data (duplicated data) and isolated data. With a database approach,
many programs and users share the data in a database. The database approach reduces data
redundancy, removes data anomalies, improves data integrity, shares data, permits easier access,
and reduces development time.

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A database management system can be more complex than a file processing system, requiring
special training and more computer memory, storage, and processing power. Data in a database
also is more vulnerable than data in file processing systems. A database is actually composed of
two important elements: (1) the data itself and (2) the logical structure of the data.

Using a database, you organize and access data according to its logical structure, not its physical
position. The database concept distinguishes between logical and physical views of data. The
logical view presents data as they would be perceived by users, whereas the physical view shows
how data are actually organized and structured on physical storage media. A data dictionary
contains the logical structure of data in a database. When you create a database, you first create
the data dictionary.

Rather than being in separate and independent files, data in a database is considered integrated. In
a database environment, you create ties or relationships among the data files. You first specify the
primary key for each file. A primary key is a field in a data file that uniquely describes each
record. Then you create the logical relationship between two data files using a foreign key. A
foreign key is a primary key of one file that also appears in another file. In general, data in a
database should be both integrated and shared. By integrated, we mean that database can be
thought of as unification of several otherwise distinct data files, with any redundancy among
those files wholly or partly eliminated. By shared, we mean that individual pieces of data in the
database can be shared among several different users, in the sense that each of those users can
have access to the same piece of data, and different users can use it for different purpose.

By defining the logical structure of data in a database, you are developing data integrity
constraint -- the rules that help ensure the quality of the information. Data integrity is the
degree to which the data in any one file is accurate and up-to-date. Data integrity follows from
the control or elimination of data redundancy.

6.3 Database Models

What is a database model and what are the different types of database models? Every database
and database management system is based on a particular database model. A database model
consists of rules and standards that define how data is organized in a database. It is also defined
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as a conceptual description of how the database works. It describes how the data elements are
stored in the database and how the data is presented to the user and programmer for access; and
the relationship between different items in the database. Most databases can be grouped into four
types of models: hierarchical, network, relational and object oriented models. Relational and
object oriented models are discussed below.

6.3.1 Relational Database Model

The relational database model is the most widely used model for modeling data in database. A
relational database represents all data in the database as simple two-dimensional tables called
relations that are the logical equivalent of files. The tables in relational databases are organized
in rows and columns, simplifying data access and manipulation.

A relational database uses terminology different from a file processing environment to represent
data. In the relational model, each table represents a data file; each row of a table, called tuple,
represents a data entity with columns of the table representing attributes or fields. The allowable
values for these attributes are called the domain, indicating what values can be placed in each of
the columns of the relational table. A user of a relational database, however, refers to a file as a
table, a record as a row, and a field as a column. In this chapter we use the user’s terms, table,
row, and column, when discussing relational databases.

In a relational database, three basic operations are used to develop useful sets of data: selection,
projection, and join. The selection operation retrieves certain records (rows) from a table based
on the criteria you specify. In other words, selection operation creates a subset of rows that meet
certain criteria. The projection operation extracts fields (columns) from a table, permitting the
user to create new tables that contain only the information required. The join operation
combines the data from two tables based on a common column, providing the user with more
information than is available in individual tables. Together these three operations are called
relational algebra.

Relational databases use a query language called Structured Query Language (SQL) to
manage, update and retrieve data. SQL includes keywords and rules used to implement relational
algebra operations. Most relational database systems support SQL.

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The strengths of relational database systems are flexibility with regard to queries, power to
combine information from different sources, simplicity of design and maintenance, and the
ability to add new data and records without disturbing existing programs and applications.
However, these systems are somewhat slower because they typically require many accesses to the
data stored on disk to carry out the selection, projection, and joint commands.

In relational model, all data elements within the database are viewed as being stored in the form
of simple related tables. Table 6-1 illustrates the relational database model with two related tables
which are joined by their common field Deptno.
Department Table Employee Table
Empno Ename Etitle Esalary Deptno
Deptno Dname Dloc Dmgr
Emp1 Dept A
Dept A
Emp 2 Dept A
Dept B Emp 3 Dept B
Dept C Emp 4 Dept B
Emp 5 Dept C
Emp 6 Dept C

Table 6-1: Joining employee and department tables in relational database model.
One of the features in relational database design is to ensure data integrity following
normalization process. Database normalization, sometimes referred to as canonical synthesis, is
a technique for designing relational database tables to minimize duplication of information and,
in so doing, to safeguard the database against certain types of logical or structural problems,
namely data anomalies. A table that is sufficiently normalized is less vulnerable to integrity
problem, because its structure reflects the basic assumptions, when multiple instances of the same
information should be represented by a single instance only.

6.3.2 Object-Oriented Database Model

An object-oriented database stores and maintains objects. An object is an item that can contain
both data and the procedures that manipulate the data. Relative to relational databases, object-
oriented database can store more types of data and access these data faster. With an object-
oriented database, systems can store and access unstructured data such as photographs, video
clips, sounds, and documents more efficiently than in a relational database.
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Object-oriented and object-relational databases often use a query language called object query
language (OQL) to manipulate and retrieve data. OQL is similar to SQL. OQL and SQL use
many of the same rules, grammar, and keywords.

The object-oriented model also supports inheritance; that is, new objects can be automatically
created by replicating some or all of the characteristics of one or more parent objects (see Figure
6-4). As shown in the figure, checking and saving account objects can both inherit the common
attributes and operations of the parent bank account object. Such capabilities have made object
oriented database management systems (OODMS) popular in computer-aided design (CAD) and
in growing number of applications. For example, object technology allows designers to develop
product designs, store them as objects in an object oriented database, and replace and modify
them to create new product designs.

Bank Account Object

Attributes
• Customer
• Balance
• Interest
Operations
• Deposit (amount)
• Withdraw (amount)
• Get owner
Inheritance Inheritance

Checking Account Object Saving Account Object

Attributes Attributes
• Credit line • Number of withdrawals
• Monthly statement • Quarterly statement
Operations Operations
• Calculate interest owned • Calculate interest paid
• Print monthly statement • Print quarterly statement

Figure 6-4: Object oriented database model

6.4 Database Management Systems (DBMS)

What is the difference between database and DBMS? A database is a collection of related data
organized in a manner that allows access, retrieval, use, and maintenance of that data. Database

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software, called database management system (DBMS), allows you to create a computerized
database; add, change, delete, and sort data; retrieve data from the database; and create forms and
reports using the data. A DBMS consists of a group of programs that manipulate the database and
provide an interface between the database and the user or the database and other application
programs. A database, a DBMS, and the application programs that utilize the data in the database
make up a database environment. Understanding basic concepts of database management
systems can enhance your ability to use the power of a computerized database system to support
organizational IS goals.

Database management systems are available for many sizes and types of computers, and support
many types of database models. For example, Microsoft Access is a popular relational DBMS for
personal computers. Popular mainframe relational DBMSs include DB2 by IBM, Oracle, Sybase,
and Informix. All DBMSs share some common functions, such as providing a user view,
physically storing and retrieving data in a database, allowing for database modification,
manipulating data, generating reports, and providing data security.

A DBMS contains four important software components: data dictionary, data definition language,
data manipulation language, and data security facilities. A data dictionary is a file that stores
information about each file in the database and each field within those files. For each file, a data
dictionary stores information including the file name, description, and the file's relationship to
other files. For each field, a data dictionary stores information including the field name, field size,
description, type of data, default value, validation rules, and the field's relationship to other fields.
A DBMS uses the data dictionary to perform validation checks and maintain the integrity of the
data.

The data definition language (DDL) is the formal language used by programmers to specify the
content and structure of the database. It helps to create or destroy database objects (database,
tables, view, etc.). Common data definition language statements are shown in Table 6-2.

CREATE DATABASE ALTER DATABASE DROP DATABASE

CREATE TABLE ALTER TABLE DROP TABLE
CREATE VIEW DROP VIEW

Table 6-2: Data definition language statements

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A data manipulation language is used in conjunction with some conventional third- or fourth-
generation programming language to manipulate the data in the database. The data manipulation
language helps add, change, and delete data in a database and mine it for valuable information. In
most DBMS, you will find a variety of data manipulation tools, including views, data entry form,
report generators, query-by-example tools, and structured query language (SQL). A view is a tool
that allows you to see the content of a database file, make whatever changes you want, perform
simple sorting, and query to find the location of specific data. A data entry form, or simply
called form, is a window on the screen that provides areas for entering or changing data in a
database.

Report generators help you quickly define formats of reports and what information you want to
see in a report. Once you define a report, you can view it on the screen or print it.

Query-by-example (QBE) tools have a graphical user interface that assists you with retrieving
data. When you perform a QBE, you (1) identify the files in which the data is located, (2) drag
any necessary fields from the identified fields to the QBE grid, and (3) specify selection criteria.
SQL is a standardized fourth generation query language found in most database environments.
SQL performs the same function as QBE, except that you perform the query by creating a
statement instead of pointing, clicking, and dragging. In other words, SQL is command-based
rather than graphics-based.

Another feature of DBMS is security. To supply security, most DBMSs can identify different
levels of access privileges that define the actions a specific user or group of users can perform for
each field in a database. If a database is damaged or destroyed, a DBMS provides techniques to
return the database to a usable form. A backup is a copy of the database. A log is a listing of
activities that change the contents of the database. A recovery utility uses the backups and/or
logs to restore the database when it is damaged or destroyed. Rollforward also called forward
recovery is when DBMS uses log to re-enter changes made to database since last save or backup.
Rollback is recovering database where DBMS uses log to undo any changes made to database
during a certain period of time. It is also called backward recovery.

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6.5 Maintaining a Database

Data Validation

While maintaining data, data validation needs to be performed. Data validation is the process of
comparing data with a set of rules to find out if data is correct. Validation reduces data entry
errors and enhances data integrity before program writes data on disk. Some of the data
validation checks are:

• Check Digit: number(s) or character(s) appended to or inserted into a primary key value
to confirm accuracy of primary key value
• Alphabetic/Numeric Check: ensures correct type of data entered
• Range Check: determines whether number is within specified range
• Completeness Check: verifies that a required field contains data
• Consistency Check: tests for logical relationship between two or more fields

Updating a Database
When do you need to update your database? Updating a database is the process of adding,
modifying, and deleting records in a database table to keep them current and accurate.

Adding records: Add new record when you obtain new data
Changing records: Correct inaccurate data, and update part or all of old data
Deleting records: When a record no longer is needed some programs remove the record
immediately, others flag it, making it inactive

Querying a Database
Query is performed using query language. A query language consists of simple, English-like
statements that allow users to specify data to display, print, or store. SQL and QBE are examples
of query language. Query by example (QBE) program retrieves records that match criteria
entered in form fields. It has a graphical user interface that assists users in retrieving data.
Structured Query Language (SQL) allows you to manage, update, and retrieve data. It has special
keywords and rules included in SQL statements.

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Recall that a query is a question you ask for retrieving data stored in a database. When you create
a query, you are telling which fields you need and what criteria are to be used to select the
records. The powerful capabilities provided by queries include:

• sort records
• perform calculations
• update data in the tables in a database
• find and display data from two or more tables
• display selected fields and records from a table

Sorting Data in a Query

Sorting is the process of rearranging records in a specified order or sequence. When you sort data
in a database, you do not change the sequence of the records in the underlying tables. Only the
records in the query datasheet are rearranged according to your specifications. To sort records,
you must select the sort key, which is the field used to determine the order of records in the
datasheet. Access provides several methods for sorting data in a table or query datasheet and in a
form. One method is using the sort buttons on the toolbar.
The Sort Ascending and Sort Descending buttons on the toolbar allow you to sort records
immediately, based on the selected field. First you select the column on which you want to base
the sort, and then you click the appropriate sort button on the toolbar to rearrange the records in
either ascending or descending order. Unless you save the datasheet or form after you've sorted
the records, the rearrangement of records is temporary.

Sort key can be unique or non unique. A sort key is unique if the value of the sort key field for
each record is different. A sort key is non-unique if more than one record can have the same
value for the sort key field. When the sort key is non-unique, records with the same sort key
value are grouped together, but they are not in a specific order within the group. To arrange these
grouped records in a specific order, you can specify a secondary sort key, which is a second sort
key field. The first sort key field is called the primary sort key.

Filtering Data
A filter is a set of restrictions you place on the records in an open datasheet or form to
temporarily isolate a subset of the records. A filter lets you view different subsets of displayed

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records so that you can focus on only the data you need. Unless you save a query or form with a
filter applied, an applied filter is not available the next time you run the query or open the form.

Defining Selection Criteria for Queries

Just as you can display selected fields from a table in a query datasheet, you can display selected
records. To tell the DBMS which records you want to select, you must specify a condition as part
of the query. A condition is a criterion, or rule, that determines which records are selected. To
define a condition for a field, you place the condition in the field's criteria text box in the design
grid.

A condition usually consists of an operator, often a comparison operator, and value. A

comparison operator asks the DBMS to compare the values of a database field to the condition
value and to select all the records for which the relationship is true. Multiple conditions require
you to use logical operators (And, Or, Not) to combine two or more conditions.

Performing Calculations
In addition to using queries to retrieve, sort, and filter data in a database, you can use a query to
perform calculations. To perform a calculation, you define an expression containing a
combination of database fields, constants, and operators. For numeric expressions, the data types
of the database fields must be number, currency, or date/time; the constants are numbers; and the
operators can be arithmetic operators or other specialized operators.

6.6 Data Warehouse, Data Mining, and Business Intelligence

Data Warehouse

Decision makers need concise, reliable information about current operations, trends, and changes.
What has been immediately available at most firms is current data only (historical data were
available through special information system reports that took a long time to produce). Data often
are fragmented in separate operational systems, such as sales or payroll, so that different
managers make decisions from incomplete knowledge bases. Users and information systems
specialists may have to spend inordinate amounts of time locating and gathering data. Data
warehousing addresses this problem by integrating key operational data from around the
company in a form that is consistent, reliable, and easily available for reporting.

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What is data warehouse? A data warehouse is a database that stores current and historical data of
potential interest to managers throughout the company. The data originate in many core
operational systems and external sources, including Website transactions, each with different data
models. They may include legacy systems, relational or object-oriented DBMS applications, and
systems based on other applications. The data from these diverse applications are copied into the
data warehouse database as often as needed. The data are standardized into a common data model
and consolidated so that they can be used across the enterprise for management analysis and
decision making. Figure 6-5 illustrates the data warehouse concept.

Figure 6-5: Components of a data warehouse

The data warehouse extracts current and historical data from multiple operational systems inside
the organization. These data are combined with data from external sources and reorganized into a
central database designed for management reporting and analysis. The information directory
provides users with information about the data available in the warehouse.

A Data mart is a smaller version of a data warehouse. Data marts are summarized or highly
focused portion of firm’s data for use by specific population of users. They typically focus on
single subject or line of business.

Data Mining

What is data mining? Data mining, the extraction of hidden knowledge from large databases, is
a powerful technology with great potential to help companies focus on the most important
information in their data warehouses. Data mining tools predict future trends and behaviors,

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allowing businesses to make proactive, knowledge-driven decisions. The automated, prospective
analysis offered by data mining move beyond the analysis of past events provided by
retrospective tools typical of decision support systems. Data mining tools can answer business
questions that traditionally were too time consuming to resolve. They scour databases for hidden
patterns, finding predictive information that experts may miss because it lies outside their
expectations.

Data mining techniques can be implemented rapidly on existing software and hardware platforms
to enhance the value of existing information resources, and can be integrated with new products
and systems as they are brought on-line. Data mining tools can analyze massive databases to
deliver answers to questions such as, "Which clients are most likely to respond to my next
promotional mailing, and why?"

Generally, data mining (sometimes called knowledge discovery) is the process of analyzing data
from different perspectives and summarizing it into useful information - information that can be
used to increase revenue, cut costs, or both. Data mining software is one of a number of
analytical tools for analyzing data. It allows users to analyze data from many different
dimensions or angles, categorize it, and summarize the relationships identified. Technically, data
mining is the process of finding correlations or patterns among dozens of fields in large relational
databases.

Business Intelligence

What is business intelligence? Business intelligence (BI) is a set of theories, methodologies,

architectures, and technologies that transform raw data into meaningful and useful information
for business purposes. BI can handle enormous amounts of unstructured data to help identify,
develop and otherwise create new opportunities. BI, in simple words, makes interpreting
voluminous data friendly. Making use of new opportunities and implementing an effective
strategy can provide a competitive market advantage and long-term stability.
BI technologies provide historical, current and predictive views of business operations. Common
functions of business intelligence technologies are reporting, online analytical processing,
analytics, data mining, process mining, complex event processing, business performance
management, benchmarking, text mining, predictive analytics and prescriptive analytics.

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Often BI applications use data gathered from a data warehouse or a data mart. However, not all
data warehouses are used for business intelligence, nor do all business intelligence applications
require a data warehouse.

6.7 Big Data

What is big data? Big data is the term for a collection of data sets so large and complex that it
becomes difficult to process using on-hand database management tools or traditional data
processing applications. The challenges include capture, curation, storage, search, sharing,
transfer, analysis and visualization. The trend to larger data sets is due to the additional
information derivable from analysis of a single large set of related data, as compared to separate
smaller sets with the same total amount of data, allowing correlations to be found to spot business
trends, determine quality of research, prevent diseases, link legal citations, combat crime, and
determine real-time roadway traffic conditions.

Scientists regularly encounter limitations due to large data sets in many areas, including
meteorology, genomics, complex physics simulations, and biological and environmental research.
The limitations also affect Internet search, finance and business informatics. Data sets grow in
size in part because they are increasingly being gathered by ubiquitous information-sensing
mobile devices, aerial sensory technologies (remote sensing), software logs, cameras,
microphones, radio-frequency identification readers, and wireless sensor networks. The world's
technological per-capita capacity to store information has roughly doubled every 40 months since
the 1980s; as of 2012, every day 2.5 exabytes (2.5×1018) of data were created.

Big data is difficult to work with using most relational database management systems and
desktop statistics and visualization packages, requiring instead massively parallel software
running on tens, hundreds, or even thousands of servers. What is considered "big data" varies
depending on the capabilities of the organization managing the set, and on the capabilities of the
applications that are traditionally used to process and analyze the data set in its domain. For some
organizations, facing hundreds of gigabytes of data for the first time may trigger a need to
reconsider data management options. For others, it may take tens or hundreds of terabytes before
data size becomes a significant consideration.

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Big Data has increased the demand of information management specialists in that Software AG,
Oracle Corporation, IBM, Microsoft, SAP, EMC, HP and Dell have spent more than $15 billion
on software firms only specializing in data management and analytics. In 2010, this industry on
its own was worth more than $100 billion and was growing at almost 10 percent a year: about
twice as fast as the software business as a whole.

Developed economies make increasing use of data-intensive technologies. There are 4.6 billion
mobile-phone subscriptions worldwide and there are between 1 billion and 2 billion people
accessing the internet. Between 1990 and 2005, more than 1 billion people worldwide entered the
middle class which means more and more people who gain money will become more literate
which in turn leads to information growth. The world's effective capacity to exchange
information through telecommunication networks was 281 petabytes in 1986, 471 petabytes in
1993, 2.2 exabytes in 2000, 65 exabytes in 2007 and it is predicted that the amount of traffic
flowing over the internet will reach 667 exabytes annually by 2014. It is estimated that one third
of the globally stored information is in the form of alphanumeric text and still image data, which
is the format most useful for most big data applications. This also shows the potential of yet
unused data (i.e. in the form of video and audio content).

Summary
Data is classified in a hierarchy, with each level of data consisting of one or more items from the
lower level. A field is a combination of one or more related characters and is the smallest unit of
data a user can access. A record is a group of related fields. A data file is a collection of related
records. A database comprises related files.

In a file processing system, each department or area within an organization has its own set of data
files. Major weaknesses of file processing systems are data redundancy and integrity. With a
database approach, many programs and users share the data in a database. The database approach
reduces data redundancy, improves data integrity, shares data, permits easier access, and reduces
development time.

With database software, often called a database management system (DBMS), users can create
and manipulate a computerized database. A DBMS offers several methods to maintain and

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retrieve data, such as query language. A query language consists of simple, English-like
statements that allow users to specify the data to display, print, or store.
A data model consists of rules and standards that define how the database organizes data.
Commonly used data models are hierarchical, networked, relational, and object-oriented.

Maintaining a database refers to the procedures that keep data current. Database maintenance
procedures include adding records when new data is obtained, changing records to correct
inaccurate data or to update old data with new data, and deleting records when they no longer are
needed.

A process of centralized non-operational data management and retrieval for advanced data
analysis is called data warehousing. It represents an ideal vision of maintaining a central
repository of all organizational data. Data mining is a powerful technology with great potential to
help organizations focus on the most important information in their data warehouses. It is the
process of uncovering the knowledge hidden in the data which is important for planning and
decision making to gain competitive advantage.

Business intelligence is a set of theories, methodologies, architectures, and technologies that

transform raw data into meaningful and useful information for developing and creating new
business opportunities. Making use of new opportunities and implementing an effective strategy
can provide a competitive market advantage and long-term stability.

Big data is the collection of data sets so large and complex that it becomes difficult to process
using on-hand database management tools or traditional data processing applications, requiring
instead massively parallel software running on tens, hundreds, or even thousands of servers. The
trend to larger data sets is due to the additional information derivable from analysis of a single
large set of related data, as compared to separate smaller sets with the same total amount of data,
allowing correlations to be found to spot business trends, determine quality of research, prevent
diseases, link legal citations, combat crime, and determine real-time roadway traffic conditions.

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References

Anteneh, Salehu (2015). Information Systems for Business: Teaching Material, Addis Ababa
University (unpublished).
Kendall and Kendall (2010). Systems Analysis and Design (8th ed.), Prentice Hall.
O'Brien, James A. and Marakas, George M. (2011). Management Information Systems (10th ed.),
McGraw-Hill/ Irwin.
Ramez Elmasri and Shamkant B.Navathe (2005). Fundamentals of Database Systems (4th ed.).
Pearson Education (Singapore)
Shelly, G.B., Cashman, T.J., and Vermaat M.E (2012). Discovering Computers 2013: A Gateway
to Information, Thomson.

Self-Assessment Questions

Multiple Choices
1. Which one of the following is true?
a. A database contains files, a file contains characters, a character contains fields, and a
field is made up of records
b. A database contains files, a file contains fields, a field contains characters, and a
character is made up of records
c. A database contains files, a file contains records, a record contains characters, and a
character is made up of fields
d. A database contains files, a file contains records, a record contains fields, and a field
is made up of characters
2. A _____ is the smallest unit of data a computer can process.
a. bit b. character c. field d. record

3. _____ is a common data type that consists of dollar and cent amounts or numbers
containing decimal values.
a. AutoNumber b. Text c. Currency c. Object

4. A major weakness of a lot of file processing systems is that _____.

a. they have redundant data and they isolate data
b. they are much more complex than a database
c. data is more vulnerable than data in a database
d. all of the above
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5. When compared with a file processing system, a database offers all of the following except
_____.
a. reduced data redundancy c. reduced development time
b. easier access and shared data d. less required memory, storage, and processing
power

6. Commonly used methods to retrieve and maintain data include all of the following except
_____.
a. report generators and forms c. validation rules
b. query languages d. query by example
7. In a relational database, each row _____.
a. and each column has a primary key
b. has a unique name and each column has a primary key
c. has a primary key and each column has a unique name
d. and each column has a unique name

8. Compared with relational databases, object-oriented databases _____.

a. can store more types of data c. allow programmers to reuse objects
b. access data faster d. all of the above

True/False

T F 1. File maintenance procedures include adding records to, changing records in, and
deleting records from a file.

T F 2. Data redundancy can increase the chance of error.

T F 3. With the database approach, most data items are stored in multiple files, which
greatly increase duplicate data.

T F 4. The database approach allows nontechnical users to access and maintain data,
provided that they have the necessary privileges.

T F 5. Whether designed for a small or large computer, most DBMSs perform common
functions.

T F 6. A data model defines how users view the organization of data.

T F 7. In a relational database, the only data redundancy (duplication) exists in the

common columns (fields) used for relationships.

T F 8. The databases in a data warehouse usually are quite small.

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T F 9. The maintenance of a database is an ongoing task that companies measure
constantly against their overall goals.

Completion
1. With__________________, users create a computerized database; add, change, and delete
data in the database; sort and retrieve data from the database; and create forms and reports
from the data in the database.

2. _____________________identifies the quality of data in a database.

3. In a database, the _______________specifies the kind of data a field can contain and how
the field is used.

4. In a database, a(n) _________________ is a field that uniquely identifies each record in a

file.

5. ________________is the process of comparing data with a set of rules or values to find out
if the data is correct.

6. A(n) _________________ is a request for specific data from a database.

7. A(n) _________________ consists of rules and standards that define how a database
organizes data.

8. A(n)_________________ holds business information from many sources in the enterprise,

covering all aspects of the company’s processes, products, and customers.

9. _________________ is the collection of data sets so large and complex that it becomes
difficult to process using typical DBMS to capture, store and analyze.

10. The process of gathering information in a timely manner and in a usable form so that it
positively affects business strategy, tactics, and operations is called _________________.

Discussion Questions
1. What are the advantages of a database management approach to the file processing
approach? Give examples to illustrate your answer.

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2. What evaluation criteria would you recommend to a decision of what database management
system to acquire?

3. What database management software would you propose for a large manufacturing
company to have integrated financial information, employee information, stock information
and so on so as to help the company managers make decision on the data from the database

4. List and describe the components of a data warehouse.

5. Define big data and describe the technologies for managing and analyzing it

6. Define data mining and describe how it differs from OLAP and types of information it
provides.

7. What is business intelligence? Discuss.

Project

You are required to construct a small scale payroll database using Microsoft Access. Assume
you are in charge of keeping track of the payroll for at least 20 employees. The following
tables are to be included in your database:
• Award Table – Level, Job Title, Wage/Hour
You should include three awards between $5 - $10 per hour, four awards between $10 -
$15 per hour and three awards above $20 per hour.
• Employee Table – EmployeeID, Level, FirstName, LastName, Email, Address, City,
State, Postcode, Mobile Phone; Home Phone (at least 20 employees).
• Hours Worked Table – EmployeeID, Date, StartTime, FinishTime (at least one record
for each employee).

a. Query the Hours Worked Table and calculate the total number of hours and total pay for
each employee sorted highest to lowest.

b. Create a report that shows each employee and the total amount paid. Sort employees in
alphabetical order by LastName.

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Part III: BUSINESS APPLICATIONS

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Chapter 7 Information Systems in Organizations

Learning Objectives

After completing this chapter, you will be able to:

• describe the basic types of information systems supporting business and their
relationships to each other
• describe how organizations can use information systems to enhance quality in their
operations, products, and services
• explain the decision support system concept and how it differs from management
information systems
• identify the functional information systems supporting the major functional areas of
business
• identify enterprise level systems that integrate most functions in the organization

Contents
7.1 Information Systems Classification
7.2 Operations Support Systems
7.2.1 Transaction Processing Systems
7.2.2 Office Information Systems
7.2.3 Knowledge Work Systems
7.3 Management Support Systems
7.3.1 Management Information Systems
7.3.2 Decision Support Systems
7.3.3 Executive Support Systems
7.4 Functional Area Information Systems
7.5 Relationships and Integration of Systems
7.6 Enterprise-Wide and Inter-Enterprise Systems
7.6.1 Enterprise Resource Planning (ERP)
7.6.2 Customer Relationship Management (CRM)
7.6.3 Supply Chain Management (SCM)
7.6.4 Knowledge Management System (KMS)
Summary
References
Self-Assessment Questions

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7.1 Information Systems Classification

How could information systems be classified? Conceptually, information systems can be

classified in several different ways. According to organizational level, for example, information
systems can be classified as operation support systems and management support systems.
Operations support systems include office information systems (OIS), knowledge work systems
(KWS), and transaction processing systems (TPS). Management support systems include:
management information systems (MIS), decision-support systems (DSS), and executive support
systems (ESS). According to functional areas information systems are classified as sales and
marketing, manufacturing, finance, accounting and human resource information systems. Figure
7-1 shows the specific types of information systems that support data-processing, decision-
making, and communications at each of organizational level in an organization, and at each
functional area. Table 7-1 summarizes the characteristics of these information systems in terms of
input, process, output, users, and functions supported.

Figure 7-1: Information systems categories

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Type of
Input Processing Output Users Functions Supported
System

Analysis;
Internal; Projections; Budget forecasting; operation
graphics; Senior
ESS external; responses to planning; profit planning;
simulations; managers
aggregate data queries personnel planning
interactive
Special
Sales region analysis;
Analytic reports;
Interactive; production scheduling; cost
models; data decision Professionals;
DSS simulations; analysis; pricing/profitability
analysis tools; analyses; staff managers
analysis analysis; contract cost
massive data responses to
analysis
queries
Summary
Sales management; inventory
transaction data; Routing reports; Summary and
Middle control; annual budgeting;
MIS high-volume business models; exception
managers capital investment; relocation
data; analysis business analysis reports
analysis
models
Design Modeling; Engineering workstations;
Models; Professionals;
KWS specifications; simulations; graphics workstations;
graphics technical staff
knowledge base reasoning managerial workstations

Document
Documents;
Documents; management; Clerical Word processing; document
OIS schedules;
schedules scheduling; workers imaging; electronic calendars
messages
communication
Order processing; machine
control; plant scheduling;
material movement control;
Sorting; listing; Detailed Operations securities trading; cash
Transactions;
TPS merging; reports; lists; personnel; management; payroll;
events
updating summaries supervisors accounts payable; accounts
receivable; employee record
keeping; training &
development

Table 7-1: Characteristics of information systems

7.2 Operations Support Systems

Operations support systems include Transaction Processing Systems (TPS), Office Information
Systems (OIS) and Knowledge Work Systems (KWS). TPS is the basic business system that
processes day-to-day transactions. OIS enhances office workflow and facilitate communications
among employees. KWS serves the information needs at the knowledge level of the organization.

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7.2.1 Transaction Processing Systems

A transaction is any business-related exchanges such as payments to employees, sales to

customers, or payments to suppliers. Clerical staff typically performs the activities associated
with transaction processing, which include recording the transactions, processing the transactions
data, and maintaining the data. Processing business transactions was the first application of
computers for most organizations. A transaction processing system (TPS) is the basic business
system that serves the operational level of organization and captures and processes data generated
during an organization's day-to-day transactions. Usually, the TPS computerized an existing
manual system to allow for faster processing, reduced clerical costs, and improved customer
service. Examples are sales order entry, hotel reservation systems, payroll, employee record
keeping, and shipping.

The early transaction processing systems usually used batch processing. With batch processing,
transaction data is collected over a period of time and all transactions are processed later, as a
group. As computers became more powerful, system developers built online transaction
processing system. With online transaction processing (OLTP), the computer processes
transactions as they are entered. The primary advantage of transaction-oriented data entry is that
records on the database are updated immediately, as the transaction occurs. For instance, when
you register for classes, your school probably uses OLTP in order to enter your desired schedule
based on which the computer immediately processes the data and prints your statement of classes.
The invoices, however, often are printed using batch processing, meaning all student invoices are
printed and mailed at a later date. Most transaction processing systems use online transaction
processing. However, some routine processing tasks such as calculating paychecks or printing
invoices are performed more efficiently on a batch basis. For these activities, many organizations
still use batch processing techniques.

At the operational level, tasks, resources, and goals are predefined and highly structured. The
decision to grant credit to a customer, for instance, is made by a lower-level supervisor according
to predefined criteria. All that must be determined is whether the customer meets the criteria.
Transaction processing systems are often so central to a business that TPS failure for a few hours
can spell a firm's demise and perhaps other firms linked to it. Imagine what would happen to the
airlines if their computerized reservation systems were not working!
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Some of the functions commonly performed by transaction processing systems include:

• Order-Entry Systems: Many organizations handle some type of order processing on a

daily basis. Customers submit orders by phone, by mail, via the Internet, or in person.
Order-entry systems record the data generated from these transactions, and help staff
members manage them. Two specific types of order-entry systems are e-commerce
systems (used for transactions performed over the Internet) and point-of-sale systems
(used to record purchases at the point where the customer physically purchases the
product or service, such as at a checkout counter).
• Inventory Control Systems: The units of product that a company has in stock to use or
sell at a given moment make up its inventory. An inventory control system keeps track of
the number of units of each product in inventory and ensures that reasonable quantities
are on hand.
• Payroll Systems: Payroll systems accept input about employee pay rates or salaries,
hours worked, and deduction amounts, and then compute deductions, subtract them from
gross earnings, and issue paychecks to employees for their net pay. These systems also
contain programs that prepare reports for management and for tax purposes for federal
and local governments.
• Accounting Systems: Accounting systems refer to the variety of systems in place to
record the details of financial transactions, such as payments and purchases. A few
specific types of accounting systems include accounts receivable systems which keep
track of customers' purchases, payments, and account balances; accounts payable systems
which keep track of bills to be paid and generate checks to pay them; and general ledger
systems which keep track of all financial summaries. A general ledger system typically
produces income statements, balance sheets, and other accounting documents.

E-commerce involves any business transaction executed electronically between parties such as
business to business, business to consumer, and business to the public sector. The growth of E-
commerce is being stimulated by increased Internet access, user confidence, better payment
systems, and rapidly improving Internet and Web security. E-commerce can simplify the
transaction process and automate that entire process. As the use of E-commerce systems grows,
companies will reduce the use of more traditional transaction processing systems. The system

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becomes part of the work flow and transactions handled where capturing and analyzing data is
the day-to-day task.

7.2.2 Office Information Systems

An office information system (OIS) is an information system that uses hardware, software, and
networks to enhance workflow and facilitate communications among employees. With an office
information system, also described as office automation, employees perform tasks electronically
using computers and other electronic devices, instead of manually.

An office information system supports a range of business office activities such as creating and
distributing graphics and documents, sending messages, scheduling, and accounting. In fact, all
levels of users from executive management to non-management employees utilize and benefit
from the features of an OIS. The software an office information system uses to support these
activities include word processing, desktop publishing, document imaging, spreadsheets, database
management systems, presentation graphics, electronic calendars, e-mail, Web browsers, Web
page authoring, personal information management, and groupware. Office information systems
use communications technology such as voice mail, fax, videoconferencing, and electronic data
interchange for the electronic exchange of text, graphics, audio, and video.

Office information systems contain document-processing systems that enhance productivity and
facilitate communications. The cornerstone of most organizations is the document--memos,
letters, reports, manuals, forms, invoices, and so on. Consequently, a major focus of office
automation relates to the creation, distribution, and storage of documents. The various types of
communication systems in place in many organizations include email, instant messaging, video
conferencing, collaborative computing, and telecommuting, that allow employees to
communicate with each other, as well as with business partners and customers.

7.2.3 Knowledge Work Systems

Knowledge work systems (KWS) serve the information needs at the knowledge level of the
organization. In general, knowledge workers are people who hold formal university degrees and
who are often members of a recognized profession, like engineers, doctors, lawyers, and
scientists. Their jobs consist primarily of creating new information and knowledge. KWS, such as
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scientific or engineering design workstations, are intended to aid knowledge workers in the
creation and integration of new knowledge in the organization. For example, computer-aided
design (CAD) systems automate the creation and revision of designs using sophisticated graphics
software.

Knowledge workers and managers also use the enterprise collaboration systems to enhance team
and workgroup communications and productivity. For example, knowledge workers in a project
team may use e-mail to send and receive electronic messages, and videoconferencing to hold
electronic meetings to coordinate their activities.

7.3 Management Support Systems

Management Support Systems include Management Information Systems (MIS), Decision

Support Systems (DSS) and Executive Support Systems (ESS). MIS supports structured types of
decision-making processes. DSS is designed to help users reach a decision when semi-structured
and unstructured decision-making situation arises. ESS is a highly interactive information system
that is designed to support the information needs of executive management.

7.3.1 Management Information Systems

While computers were ideal for routine transaction processing, managers soon realized that the
computers' capability of performing rapid calculations and data comparisons could produce
meaningful information for management. The data stored in the accounting and financial
transaction processing systems can be used to help managers make better decisions in their
respective business areas. Management information system thus evolved out of transaction
processing systems. In general, management information systems are considered as the study of
information systems in business and management. The term management information system
also designates a specific category of information systems serving management-level functions.
A management information system (MIS) is thus an information system that generates
accurate, timely, and organized information so managers and other users can make decisions,
control process, solve problems, supervise activities, and track progress.

Management information systems often are integrated with transaction processing systems and
other information systems. Management information systems typically provide standard reports

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generated with data and information from the transaction processing system. For example, to
process a sales order, the transaction processing system records the sale, updates the customer's
account balance, and makes a deduction from inventory. Using this information, the related
management information system can produce reports that recap daily sales activities; summarize
weekly and monthly sales activities; list customers with past due account balances; graph slow or
fast selling products; and highlight inventory items that need reordering.

A management information system focuses on generating information that management and other
users need to perform their jobs. An MIS generates three basic types of information: detailed,
summary, and exception. Detailed information typically records and confirms transaction
processing activities. A Detailed Order Report is an example of a detail report. Summary
information consolidates data into a format that an individual can review quickly and easily. To
help synopsize information, a summary report typically contains totals, tables, or graphs. An
Inventory Summary Report is an example of a summary report. Exception information filters
data to report information that is outside of a normal condition. These conditions, called the
exception criteria, define the range of what is considered normal activity or status. An example of
an exception report is an Inventory Exception Report that notifies the purchasing department of
items it needs to reorder. Exception reports help managers save time because they do not have to
search through a detailed report for exceptions. Instead, an exception report brings exceptions to
the manager's attention in an easily identifiable form. Exception reports thus help them focus on
situations that require immediate decisions or actions.

The information generated from an MIS is most frequently used to make structured and semi-
structured, middle-management-type decisions. These systems are generally not flexible and have
little analytical capability. Most MIS use simple routines such as summaries and comparisons, as
opposed to sophisticated mathematical models or statistical techniques.

All major airlines rely on MIS to assist in day-to-day operations and provide valuable
information for short-and long-term planning. At the core of such an MIS is the airline
reservation subsystem. Airline reservation agents interact with the MIS’s integrated database via
remote PCs and terminals to update the database the moment a seat on any flight is filled or
becomes available.

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An airline MIS does much more than keep track of flight reservations. It also closely monitors
departure and arrival times so that ground crew activities can be coordinated. The MIS system
even complies and produces many kinds of information needed by management: the number of
passenger miles has flown, profit per passenger on a particular flight, percent of arrivals on time,
average number of empty seats on each flight for each day of the week, and so on.

The influence of the MIS is just as pervasive in hospitals (patient accounting, point-of-care
processing, and so on), insurance (claims-processing systems, policy administration, actuarial
statistics, and so on), universities (student registration, placement, and so on), and other
organizations that use computers both for information processing and to gather information for
decision making.

7.3.2 Decision Support Systems

Transaction processing and management information systems provide information on a regular

basis. Frequently, however, users need information not provided in these reports to help them
make decisions. A sales manager, for example, might need to determine how high to set yearly
sales quotas based on increased sales and lowered product costs. Decision support systems
provide information to support such decisions.

A decision support system (DSS) is an information system designed to help users reach a
decision when a decision-making situation arises. DSS help managers make decisions that are
unique, rapidly changing, and not easily specified in advance. They address problems where the
procedure for arriving at a solution may not be fully predefined in advance. Although DSS use
internal information from TPS and MIS, they often bring in information from external sources,
such as current stock prices or product prices of competitors. A variety of DSS exist to support
people at all levels of organization with a range of decisions. The focus of a DSS is on decision-
making effectiveness.

A DSS supports and assists all aspects of problem-specific decision making. A DSS goes beyond
a traditional management information system. A traditional MIS is best at supporting decisions
that involve structured problems, such as when to replenish raw materials inventory and how
much of an inventory item to order. In contrast to the MIS, decision support systems are designed
to support decision-making processes involving semi-structured and unstructured problems. A
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DSS can provide immediate assistance in solving complex problems that were not supported by a
traditional MIS. Many of these problems are unique and not straightforward. For instance, an
auto manufacturer might try to determine the best location to build a new manufacturing facility,
or an oil company might want to discover the best place to drill for oil. Traditional MIS systems
are seldom used to solve these types of problems; a DSS can help by suggesting alternatives and
assisting final decision making. Thus, whereas an MIS helps an organization "do things right", a
DSS helps a manager "do the right thing".

The essential elements of a DSS include a collection of models (model base) used to support a
decision maker or user, a collection of data (database) to assist in decision making, and
procedures (user interface) that help decision makers and other users interact with the DSS (see
Figure 7-2).

Figure 7-2: Main components of DSS

A DSS uses data from internal and/or external sources. Internal sources of data might include
sales, manufacturing, inventory, or financial data from an organization's database. Data from
external sources could include interest rates, population trends, costs of new housing
construction, or raw material pricing. A DSS include capabilities that allow you to create a model
of the factors affecting a decision. A simple model for determining the best product price, for
example, would include factors for the expected sales volume at each price level. With the model,
you can ask what-if questions by changing one or more of the factors and viewing the projected
results. Many people use application software packages to perform DSS functions. Using
spreadsheet software, for example, you can complete simple modeling tasks or what-if scenarios.

Clearly, by design, DSS have more analytical power than other systems. They are built explicitly
with a variety of models to analyze data, or they condense large amounts of data into a form in

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which they can be analyzed by decision makers. DSS are designed so that users can work with
them directly; these systems explicitly include user-friendly software. DSS are interactive; the
user can change assumptions, ask new questions, and include new data.

DSSs are usually tailored around the needs of an individual or group; are designed to help with
specific types of decisions. For instance, a Sales Support DSS is aimed at the special decision-
making needs of sales or marketing personnel, and a Transportation DSS provides the
information needed to route trucks, planes, and other transportation vehicles. DSSs are typically
used by middle and upper managers for unstructured, on-demand information needed for
decisions.

DSS based on the Web and the Internet support decision making by providing on-line access to
various databases and information pools along with software for data analysis. Some of these
DSS are targeted toward management, but some have been developed to attract customers by
providing information and tools to assist their decision making as they select products and
services.
Activity A
Take an example of a travel agent selecting destinations for clients based on the clients’
expressed interest in vacation activities and agent’s knowledge of what is available in
various locations. Do you think that a computerized DSS will help in decision-making? If
not, why? If yes, how?

7.3.3 Executive Support Systems

As many executives see it, the business world today is so competitive and fast paced that they
need instant access to the freshest information. An executive support system (ESS) is a highly
interactive information system that is designed to support the information needs of executive
management. It is a special type of DSS specifically targeted to upper management. An ESS
provides managers and executives flexible access to information for monitoring operation results
and general business conditions, and helps them identify and address problems and opportunities.

ESS serves the strategic level of the organization. They address non-routine, unstructured
decisions requiring judgment, evaluation, and insight because there is no agreed-on procedure for

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arriving at a solution. An ESS creates a generalized computing and communications environment
rather than providing any fixed application or specific capability. An ESS is designed to
incorporate data from external sources such as the Internet. These external data sources can
provide current information on interest rates, commodity prices, new tax laws, competitors, and
other leading economic indicators. ESS also draws summarized information from internal MIS
and DSS. These systems filter, compress, and track critical data, emphasizing the reduction of
time and effort required to obtain information useful to executives. An ESS usually employs
powerful graphics software that presents information in charts and tables to show trends, ratios,
and other managerial statistics.

To store all the necessary decision-making data, ESS often use extremely large database called
data warehouses. A data warehouse stores and manages the data required to analyze historical
and current business circumstances. ESS typically demands powerful computers to run the
appropriate software and handle the extremely large databases that must be accessed. In fact, a
growing trend is the use of supercomputers to support executive decision making.

7.4 Functional Area Information Systems

What do we mean by functional area systems? Business firms traditionally have been organized
in terms of the functions they are performing. All types of business organizations have
accounting, marketing, finance, and human resources functions. The organizations that produce
products also have manufacturing function. Information systems can also be classified from a
functional perspective. Functional information systems are information systems that are
tailored to meet the information needs of the major functional areas of the organization. In other
words, information systems can be organized functionally based on the functional physical
systems of the organization.

Functional area information systems include accounting information system that performs the
organization's accounting applications; manufacturing information system that provides
information concerning the production operations; sales and marketing information system that
supports the firm's management in solving problems that relate to the marketing mix; financial
information system that provide information to people both inside and outside the organization

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concerning the financial matters of the organization; and human resources information system
helps managers perform human resource activities.

Activity B
List the major business activities in your organization. Describe what kind of information
systems are already being used for these activities. Also suggest some applications of
information systems in the activities that are still done manually.

7.5 Enterprise-Wide and Inter-Enterprise Systems

A system that integrates an entire enterprise is referred to as an enterprise-wide system. Systems

that link multiple enterprises, such as a business, and its customers, suppliers, and partners can be
called inter-enterprise systems. Enterprise-wide systems are typically implemented via a
corporate network; many components can take place via the Internet, as well. Increasingly, inter-
enterprise systems are also being implemented via the Internet on an ad-hoc basis, supported by
technologies such as Web services and XML. Some specific types of enterprise-wide and inter-
enterprise systems are discussed in the following sections.

7.5.1 Enterprise Resource Planning (ERP)

Enterprise resource planning (ERP) is a special type of large, integrated system that ties
together all types of a business's activities, such as planning, manufacturing, sales, marketing,
distribution, customer service, and finance. Instead of each department having its own computer
system, as in the past, an ERP system combines them into a single, integrated application so the
various departments can more easily share information and communicate with each other. The
ERP systems incorporate data from financial accounting, logistics, human resource management,
and other functional units. For example, when an order is placed, the employee who takes the
order from a customer has all the information necessary to complete the order (such as the
customer's credit information and history, the company's inventory levels, and the shipping
schedule). Throughout the order fulfillment and billing process, everyone in the company who
deals with the order in some manner has access to the same information regarding the customer's
order, without having to reenter the necessary data. At any point in the process, the order status
can be determined by anyone in the company.

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The ERP field is currently dominated by large, expensive software packages from companies
such as SAP, Oracle, Lawson, and J.D. Edwards. The systems use databases, processes, and
rules to provide up-to-the-minute data on the major financial issues in a firm. One of the key
points of ERP systems is that they run on top of a database management system, hence all of the
data is centralized and accessible via the system queries and reports.

ERP systems handle all of the financial and accounting systems. They also emphasize
purchasing, human resource management, and investment management. The systems are tailored
for specific businesses and can focus on areas such as manufacturing, research and development,
and retail sales. One of the primary strengths of the ERP systems is that they were designed to
handle data for large companies operating in an international environment. More and more
companies chose to install commercial ERP systems to be survived in an international
environment. One important catch with an ERP system is that it requires changes to the way the
company operates. In many cases, these changes can be good -- for example, it forces everyone to
follow the standard accounting procedures. In other cases, the ERP is too inflexible and interferes
with the way the company operates. Managers have to carefully evaluate the tradeoffs of
integration and flexibility.

Today's ERP applications are commonly put on the Web so users inside and outside of the
company can get easy access to ERP-generated data. When information from an ERP or other
type of internal system is exchanged between different applications and between organizations, it
is called enterprise application integration (EAI). EAI tools can respond to and initiate events
from multiple third-party applications and act as a common integration point for all of an
organization's critical business processes. EAI is beginning to be viewed as a critical e-business
tool, because it allows an organization to quickly extend any and all of its administrative systems
to customers, suppliers, and other business partners over the Internet.

7.5.2 Customer Relationship Management (CRM)

Instead of treating customers as exploitable sources of income, businesses are now viewing them
as long-term assets to be nurtured through customer relationship management. All of a company's
customer service programs together make up its customer relationship management system.
CRM focuses on managing all of the ways a firm deals with its existing and potential new

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customers. The goal of CRM system is to build relationships with customers to increase customer
satisfaction and loyalty, which, in turn, will lead to increased profits.

CRM is both a business and technology discipline that uses information systems to integrate all
of the business processes surrounding the firm's interactions with its customers in sales,
marketing, and service. CRM is an essential component of most businesses today and is
frequently delivered, at least in part, via the Web. Common Web-based CRM--sometimes
referred to as eCRM--activities include data mining based on data collected from Web site
visitors, tracking Web site activity to identify customers and their needs, providing product
information and technical assistance via a Web site, providing order tracking, and notifying
customers by e-mail about product upgrades, specials, service reminders, and so forth. New
online CRM tools such as those that add an e-community to the firm Web site for customers to
use are becoming more widely prevalent. These CRM tools allow customers to exchange ideas,
ask questions, and provide feedback on products, as well as chat online live with technical
support who provide instant answers to questions.

Investing in CRM software alone won't automatically produce better information about
customers, and many customer relationship management systems fall short of their objectives.
These systems require changes in sales, marketing, and customer service processes to encourage
sharing of customer information; support from top management; and a very clear idea of the
benefits that could be obtained from consolidating customer data.

7.5.3 Supply Chain Management (SCM)

The supply chain is a network of organizations and business processes for procuring materials,
transforming raw materials into intermediate and finished products, and distributing the finished
products to customers. It links suppliers, manufacturing plants, distribution centers, conveyances,
retail outlets, people, and information through processes such as procurement, inventory control,
distribution, and delivery to supply goods and services from source through consumption. Supply
chain management is the oversight of materials, information, and finances as they move from
the original supplier to the consumer. The goal of SCM is to deliver the right product, to the right
place, at the right time, and at the right price. An effective supply chain management system

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shares information upstream to the organization's suppliers and downstream to the organization's
customers, reduces inventory, and increases profits.

Three items typically flow through an organization's supply chain management system. The
product flow includes the movement of goods from the supplier to the customer, or from the
customer back to the supplier in the form of returned items. The information flow involves
processing orders and updating the order/delivery status. The financial flow consists of credit and
payment information. Most SCM software ties in with a firm's ERP system. SCM systems can be
built using intranets, extranets, or special SCM software. Companies that skillfully manage their
supply chains get the right amount of their products from their source to their point of
consumption with the least amount of time and the lowest cost.

Supply chain management uses systems for supply chain planning and supply chain execution.
Supply chain planning systems enable the firm to generate demand forecasts for a product and to
develop sourcing and manufacturing plans for that product. Supply chain execution systems
manage the flow of products through distribution centers and warehouses to ensure that products
are delivered to the right locations in the most efficient manner.

One of the most difficult aspects of supply chain management is accurately forecasting demand.
If the information going into a demand forecasting system is flawed, or if the forecasters do not
properly interpret the data, demand forecasts will be off target. Companies are trying to address
this problem by working together with their business partners on collaborative planning,
forecasting, and replenishment. Companies can collaborate with suppliers and buyers to
formulate demand forecasts, develop production plans, and coordinate shipping, warehousing,
and stocking activities to ensure that retail and wholesale shelf space is replenished with the right
quantities of the right goods.

Internet technology is making this level of collaboration possible by providing a platform where
systems from different companies can seamlessly exchange information. Web enabled networks
for the coordination of trans-organizational business processes provide an infrastructure for
collaborative commerce activities. Such networks can be termed private industrial networks, and
they permit firms and their business partners to share product design and development,
marketing, inventory, production scheduling, and unstructured communications such as
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transmission of graphics, email, and CAD drawings. These networks are "owned" and managed
by large companies who use them to coordinate purchases, orders, and other activities with their
suppliers, distributors, and selected business partners.

7.5.4 Knowledge Management System (KMS)

The value of a firm's products and services is based not only on its physical resources but also on
intangible knowledge assets. Some companies can perform better than others because they have
better knowledge about how to create, produce, and deliver products and services. This firm
knowledge is difficult to imitate, unique, and can be leveraged into long-term strategic benefit.
Knowledge management systems collect all relevant knowledge and experience in the company
and make it available wherever and whenever it is needed to support business processes and
management decisions. They also link the company to external sources of knowledge.

KMS support processes for discovering and codifying knowledge, sharing knowledge, and
distributing knowledge, as well as processes for creating new knowledge and integrating it into
the organization. Knowledge management applications help companies map sources of
knowledge, create corporate knowledge directories of employees with special areas of expertise,
identify and share best practices, and codify the knowledge of experts so that it can be embedded
in information systems and used by other members of the organization. KMS also include tools,
like data mining, for knowledge discovery that enable the organization to recognize patterns and
important relationships in large pools of data and information.
Activity C
Go to the websites of Oracle (www.oracle.com) and SAP (www.SAP.com), list down five
business advantages or competitive edge that their customers achieved after the
implementation of their business solution.

Summary

Information systems can be classified as operation support systems and management support
systems. Operations support systems include office information systems (OIS), knowledge work
systems (KWS), and transaction processing systems (TPS). Management support systems
include: management information systems (MIS), decision-support systems (DSS), and executive

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support systems (ESS). According to functional areas information systems are classified as sales
and marketing, manufacturing, finance, accounting and human resource information systems.

TPS is the basic business system that processes day-to-day transactions. OIS enhances office
workflow and facilitate communications among employees. KWS serves the information needs at
the knowledge level of the organization. MIS supports structured types of decision-making
processes. DSS is designed to help users reach a decision when semi-structured and unstructured
decision-making situation arises. ESS is a highly interactive information system that is designed
to support the information needs of executive management.

Functional area information systems include accounting information system, manufacturing

information system, sales and marketing information system, financial information system, and
human resources information system.

Enterprise-wide systems include ERP that ties together all types of a business's activities, such as
planning, manufacturing, sales, marketing, distribution, customer service, and finance; CRM that
uses information systems to integrate all of the business processes surrounding the firm's
interactions with its customers; SCM that supports the oversight of materials, information, and
finances as they move from the original supplier to the consumer; and KMS that supports
processes for discovering and codifying knowledge, sharing knowledge, and distributing
knowledge.

References

Anteneh, Salehu (2015). Information Systems for Business: Teaching Material, Addis Ababa
University (unpublished).
Applegate, Lynda M., Austin, Robert D., and McFarlan, F. Warren (2003). Corporate
Information Strategy and Management (6th ed). McGraw-Hill.
Haag, Stephen and Cummings, Maeve (2014). Information Systems Essentials (3rd Ed.),
McGraw-Hill/Irwin.
Laudon, Kenneth C. and Laudon, Jane P. (2014). Management Information Systems: Managing
the Digital Firm (13th ed.), Pearson Education.
O'Brien, James A. and Marakas, George M. (2011). Management Information Systems (10th ed.),
McGraw-Hill/ Irwin.
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Self-Assessment Questions

1. Information systems that monitor the elementary activities and transactions of the
organizations are:

a. Management-level systems d. Strategic-level systems

b. Operational-level systems e. None of the above
c. Knowledge-level systems

2. Typical office systems

a. handle and manage documents
b. manage electronic calendars
c. manage e-mail, video conferencing and voice mail
d. a and c
e. a, b, and c

3. An example of an operational-level system is

a. one to record the number of hours worked each day by employees on the factory floor
b. CAD
c. decisions about the design of future products
d. reports where sales fall below anticipated levels
e. All of the above
4. An advantage of ERP is _____.

a. better project management

b. complete integration of information systems across departments
c. better customer service
d. All of the above
e. None of the above

5. An automatic inventory reorder decision would be considered a good example of one of the
following systems?
a. Process control system d. Office automation system
b. Enterprise collaboration system e. None of the above
c. Transaction processing system

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6. One difficulty that arises when you are trying to integrate information is
a. diversity in hardware and software
b. when there are people from many nations
c. if programming is done in different languages
d. if various communication software is employed
e. None of the above
7. Management information systems usually

a. serve managers interested in weekly, monthly, and yearly results, not day-to-day
activities
b. help managers make decisions that are unique, rapidly changing, and not easily
specified in advance
c. provide managers with a generalized computing and telecommunications capacity that
can be applied to a changing array of problems
d. perform and record the daily routine transactions necessary to the conduct of business
e. All of the above
8. Decision support systems usually

a. serve managers interested in weekly, monthly, and yearly results, not day-to-day
activities
b. help managers make decisions that are unique, rapidly changing, and not easily
specified in advance
c. provide managers with a generalized computing and telecommunications capacity that
can be applied to a changing array of problems
d. perform and record the daily routine transactions necessary to the conduct of business
e. All of the above
9. Identifying customers and markets using data on demographics, markets, consumer
behavior, and trends is an example of a(n):

a. Operational-level sales and marketing information system

b. Knowledge-level sales and marketing information system
c. Management-level sales and marketing information system
d. Strategic-level sales and marketing information system
e. None of the above

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True/False
T F 1. At the operational level of an organization, tasks, resources, and goals are
predefined and highly structured.
T F 2. Routine reports, simple models, and low-level analysis are processing
characteristics of a DSS.
T F 3. TPS are so central to a business that the business could die if they suddenly
become unavailable.
T F 4. DSS have less analytical power than other systems and are created primarily to
gather data to be analyzed by decision makers.
T F 5. Information systems can be classified both by specific organizational function
and the organizational level at which they are used.
T F 6. Pricing analysis, a type of sales and marketing system, is located at the
operational organizational level.
T F 7. Long-term investment goals for the company are established through strategic-
level systems for the finance and accounting functions.
T F 8. The goal of an enterprise system is to integrate key business processes so that
information can flow freely between different parts of the firm.

Completion

1. A(n) _______ is the oversight of materials, information, and finances as they move
from the original supplier to the consumer.

2. Operational personnel and supervisors are characteristically users of a(n) _____ .

3. A(n) ___________ serves the functions of planning, controlling, and decision making
by providing routine summary and exception reports.

4. A(n) ___________ combines data and sophisticated analytical models or data analysis
tools to support semi-structured and unstructured decisions.

5. ___________ are systems that support the creation, capture, storage, and dissemination
of firm expertise and knowledge.

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Discussion Questions
1. Why is there a trend toward cross-functional integrated enterprise systems in business?
What factors hinder the effort of systems integration in organizations?
2. How dose computerized personnel information systems help in managing human resource
more efficiently?
3. “Internal information is used for day to day decision marking whereas external
information is crucial for long-term planning” comment.
4. What is the purpose of a TPS? How does it compliment MIS in an organization?
5. How could sales force automation affect salesperson productivity, marketing
management, and competitive advantage?
6. What challenges do you see for a company that wants to implement collaborative SCM
systems? How would you meet such challenges?
7. What is the difference between the ability of a manager to retrieve information instantly
on demand using an MIS and the capabilities provided by a DSS?

Case Study

Ato Belay Ayalew, the general manager of a small electric utility company in Gondar, was
concerned about large number of customer complaints. Complaints was received by the
customer relations department and distributed to the appropriate departments for
consideration. Each complaint was investigated, and a response was provided either orally or
in writing.

Ato Belay completed a course in decision support systems and learned to program with Excel.
As a part of the course, he constructed and installed a customers’ complaint DSS. Its database
includes each complaint, information about it, who is handling it, when it was assigned to an
individual department, when it was resolved (a copy of the letter of the customer or a copy of
the telephone conversation with the customer).

Ato Belay was very proud of the system. He felt that it increased his control and, because
everything is documented, people would handle complaints more effectively. One morning,

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he had the following conversation with his assistant, Aster Kebede, who also completed a
DSS course.

Belay: What do you think about the success of my DSS?

Aster: The system works fine, but I am not sure that this is a DSS.

Belay: You know that I designed it myself. The system is user friendly. I can find the status
of any complaint and compute, if necessary, how long it took to solve the complaint.

Aster: This is all great, but what specific decisions do you support?

Belay: Well, I can use this information to decide, for example, on rewards for those who
handle the complaints most effectively.

Aster: How?

Belay: I am not sure. I may conduct comparisons.

Case Questions

1. Is Belay’s system a DSS? Why or why not?

2. If it is not a DSS, what is necessary to make it a DSS?

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Chapter 8 Electronic Commerce

Learning Objectives

After completing this chapter, you will be able to:

• explain the major categories and trends of e-commerce applications
• discuss the essential processes of an e-commerce system
• identify and give examples of several key factors and Web store requirements needed
to succeed in e-commerce
• identify and explain the business value of several types of e-commerce marketplaces
• distinguish between m-commerce and e-commerce
• identify m-commerce services
• identify m-commerce payment methods

Contents

8.1 E-Commerce Fundamentals

8.1.1 E-Commerce Categories
8.1.2 Essential E-Commerce Processes
8.1.3 Electronic Payment Processes
8.2 E-Commerce Applications and Issues
8.2.1 Business-to- Consumer e-Commerce
8.2.2 Web Store Requirements
8.2.3 Business-to- Business e-Commerce
8.3 Mobile Commerce
8.3.1 Products and Services
8.3.2 Payment Methods
Summary
References
Self-Assessment Questions

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8.1 E-Commerce Fundamentals

What is E-commerce? E-commerce is changing the shape of competition, the speed of action, and
the streamlining of interactions, products, and payments from customers to companies and from
companies to suppliers. For most companies today, electronic commerce is more than just buying
and selling products online. Instead, it encompasses the entire online process of developing,
marketing, selling, delivering, servicing, and paying for products and services transacted on inter-
networked, global marketplaces of customers, with the support of a worldwide network of
business partners. E-commerce systems rely on the resources of the Internet and many other
information technologies to support every step of this process. Most companies, large and small,
are engaged in some form of e-commerce activities. Therefore, developing an e-commerce
capability has become a competitive necessity for most businesses in today’s marketplace.

8.1.1 E-Commerce Categories

Considering the nature of the participants in the electronic commerce transaction, E-commerce
can be classified in to three major categories: business-to-consumer (B2C), business-to-business
(B2B), and consumer-to-consumer (C2C).

Business-to-Consumer (B2C) E-Commerce: In this form of e-commerce, businesses must

develop attractive electronic marketplaces to sell products and services to consumers. For
example, many companies offer e-commerce Web sites that provide virtual storefronts and
multimedia catalogs, interactive order processing, secure electronic payment systems, and online
customer support. The B2C marketplace is growing like a wildfire but still remains the tip of the
iceberg when compared with all online commerce.

Consumer-to-Consumer (C2C) E-Commerce: The huge success of online auctions like eBay,
where consumers (as well as businesses) can buy from and sell to one another in an auction
process at an auction Web site, makes this e-commerce model an important e-commerce business
strategy. Thus, participating in or sponsoring consumer or business auctions is an important e-
commerce alternative for B2C, C2B (consumer-to-business), or B2B e-commerce. Electronic
personal advertising of products or services to buy or sell by consumers at electronic newspaper
sites, consumer e-commerce portals, or personal Web sites is also an important form of C2C e-
commerce.
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Business-to-Business (B2B) E-Commerce: If B2C activities are the tip of the iceberg, B2B
represents the part of the iceberg that is under the water—the biggest part. This category of e-
commerce involves both e-business marketplaces and direct market links between businesses. For
example, many companies offer secure Internet or extranet e-commerce catalog Web sites for
their business customers and suppliers. Also very important are B2B e-commerce portals that
provide auction and exchange marketplaces for businesses. Others may rely on electronic data
interchange (EDI) via the Internet or extranets for computer-to-computer exchange of e-
commerce documents with their larger business customers and suppliers.

8.1.2 Essential E-Commerce Processes

What are the key components of an e-commerce process? The following nine essential
components of an e-commerce process are required for the successful operation and management
of e-commerce activities: Access control and security, profiling and personalizing, search
management, content management, catalog management, payment, workflow management, event
notification, and collaboration and trading.

Access Control and Security

E-commerce processes must establish mutual trust and secure access between the parties in an e-
commerce transaction by authenticating users, authorizing access, and enforcing security
features. For example, these processes establish that a customer and e-commerce site are who
they say they are through user names and passwords, encryption keys, or digital certificates and
signatures. The e-commerce site must then authorize access to only those parts of the site that an
individual user needs to accomplish his or her particular transactions. Thus, you usually will be
given access to all resources of an e-commerce site except for other people’s accounts, restricted
company data, and Web master administration areas. Companies engaged in B2B e-commerce
may rely on secure industry exchanges for procuring goods and services or Web trading portals
that allow only registered customers to access trading information and applications. Other
security processes protect the resources of e-commerce sites from threats such as hacker attacks,
theft of passwords or credit card numbers, and system failures.

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Profiling and Personalizing
Once you have gained access to an e-commerce site, profiling processes can occur that gather
data on you and your Web site behavior and choices, as well as build electronic profiles of your
characteristics and preferences. User profiles are developed using profiling tools such as user
registration, cookie files, Web site behavior tracking software, and user feedback. These profiles
are then used to recognize an individual user and provide with a personalized view of the
contents of the site, as well as product recommendations and personalized Web advertising as
part of a one-to-one marketing strategy. Profiling processes are also used to help authenticate user
identity for account management and payment purposes and gather data for customer relationship
management, marketing planning, and Web site management.

Search Management
Efficient and effective search processes provide a top e-commerce Web site capability that helps
customers find the specific product or service they want to evaluate or buy. E-commerce software
packages can include a Web site search engine component, or a company may acquire a
customized e-commerce search engine from search technology companies like Google and
Requisite Technology. Search engines may use a combination of search techniques, including
searches based on content (e.g., a product description) or parameters (e.g., above, below, or
between a range of values for multiple properties of a product).

Content and Catalog Management

Content management software helps e-commerce companies develop, generate, deliver, update,
and archive text data and multimedia information at e-commerce Web sites. E-commerce content
frequently takes the form of multimedia catalogs of product information. As such, generating and
managing catalog content is a major subset of content management, or catalog management.
Content and catalog management software works with the profiling tools we mentioned
previously to personalize the content of Web pages seen by individual users. Content and catalog
management may be expanded to include product configuration processes that support Web-
based customer self-service and the mass customization of a company’s products. Configuration
software helps online customers select the optimum feasible set of product features that can be
included in a finished product. For example, both Dell Computer and Cisco Systems use

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configuration software to sell built-to-order computers and network processors to their online
customers.

Workflow Management
Many of the business processes in e-commerce applications can be managed and partially
automated with the help of workflow management software. E-business workflow systems for
enterprise collaboration help employees electronically collaborate to accomplish structured work
tasks within knowledge-based business processes. Workflow management in both e-business and
e-commerce depends on a workflow software engine containing software models of the business
processes to be accomplished. The workflow models express the predefined sets of business
rules, roles of stakeholders, authorization requirements, routing alternatives, databases used, and
sequence of tasks required for each e-commerce process. Thus, workflow systems ensure that the
proper transactions, decisions, and work activities are performed, and the correct data and
documents are routed to the right employees, customers, suppliers, and other business
stakeholders.

Event Notification
Most e-commerce applications are event-driven systems that respond to a multitude of events—
from a new customer’s first Web site access, to payment and delivery processes, to innumerable
customer relationship and supply chain management activities. That is why event notification
processes play an important role in e-commerce systems; customers, suppliers, employees, and
other stakeholders must be notified of all events that might affect their status in a transaction.
Event notification software works with workflow management software to monitor all e-
commerce processes and record all relevant events, including unexpected changes or problem
situations. Then it works with user-profiling software to notify all involved stakeholders
automatically of important transaction events using appropriate user-preferred methods of
electronic messaging, such as e-mail, newsgroup, pager, and fax communications. This
notification includes a company’s management, who then can monitor their employees’
responsiveness to e-commerce events and customer and supplier feedback. For example, when
you purchase a product at a retail e-commerce Web site like Amazon.com, you automatically
receive an e-mail record of your order. Then you may receive e-mail notifications of any change

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in product availability or shipment status and, finally, an e-mail message notifying you that your
order has been shipped and is complete.

Collaboration and Trading

This major category of e-commerce processes consists of those that support the vital
collaboration arrangements and trading services needed by customers, suppliers, and other
stakeholders to accomplish e-commerce transactions. The essential collaboration among business
trading partners in e-commerce may also be provided by Internet-based trading services. For
example, B2B e-commerce Web portals provided by companies like Ariba and Commerce One
support matchmaking, negotiation, and mediation processes among business buyers and sellers.
In addition, B2B e-commerce is heavily dependent on Internet-based trading platforms and
portals that provide online exchange and auctions for e-business enterprises.

8.1.3 Electronic Payment Processes

Payment for the products and services purchased is an obvious and vital set of processes in e-
commerce transactions. Payment processes, however, are not simple because of the nearly
anonymous electronic nature of transactions taking place between the networked computer
systems of buyers and sellers and the many security issues involved. E-commerce payment
processes are also complex because of the wide variety of debit and credit alternatives, as well as
the financial institutions and intermediaries that may be part of the process. Therefore, a variety
of electronic payment systems have evolved over time. In addition, new payment systems are
being developed and tested to meet the security and technical challenges of e-commerce over the
Internet.

Web Payment Processes

Most e-commerce systems on the Web involving businesses and consumers (B2C) depend on
credit card payment processes, but many B2B e-commerce systems rely on more complex
payment processes based on the use of purchase orders. However, both types of e-commerce
typically use an electronic shopping cart process, which enables customers to select products
from Web site catalog displays and put them temporarily in a virtual shopping basket for later
checkout and processing.

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Electronic Funds Transfer
Electronic funds transfer (EFT) systems are a major form of electronic payment systems in
banking and retailing industries. EFT systems use a variety of information technologies to
capture and process money and credit transfers between banks and businesses and their
customers. For example, banking networks support teller terminals at all bank offices and
automated teller machines (ATMs) at locations throughout the world. Banks, credit card
companies, and other businesses may support pay-by-phone services. Very popular also are
Web-based payment services, such as PayPal and BillPoint for cash transfers, and CheckFree
and Paytrust for automatic bill payment, that enable the customers of banks and other bill
payment services to use the Internet to pay bills electronically. In addition, most point-of-sale
terminals in retail stores are networked to bank EFT systems, which make it possible for you to
use a credit card or debit card to pay instantly for gas, groceries, or other purchases at
participating retail outlets.

Secure Electronic Payments

When you make an online purchase on the Internet, your credit card information is vulnerable to
interception by network sniffers, software that easily recognizes credit card number formats.
Several basic security measures are being used to solve this security problem: (1) encrypt (code
and scramble) the data passing between the customer and merchant, (2) encrypt the data passing
between the customer and the company authorizing the credit card transaction, or (3) take
sensitive information offline. For example, many companies use the Secure Socket Layer (SSL)
security method developed by Netscape Communications that automatically encrypts data
passing between your Web browser and a merchant’s server. However, sensitive information is
still vulnerable to misuse once it’s decrypted (decoded and unscrambled) and stored on a
merchant’s server, so a digital wallet payment system was developed. In this method, you add
security software add-on modules to your Web browser. That enables your browser to encrypt
your credit card data in such a way that only the bank that authorizes credit card transactions for
the merchant gets to see it. All the merchant is told is whether your credit card transaction is
approved or not. The Secure Electronic Transaction (SET) standard for electronic payment
security extends this digital wallet approach. In this method, software encrypts a digital envelope
of digital certificates specifying the payment details for each transaction. VISA, MasterCard,

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IBM, Microsoft, Netscape, and most other industry players have agreed to SET. Therefore, a
system like SET may become the standard for secure electronic payments on the Internet.

8.2 E-Commerce Applications and Issues

The Web and e-commerce are key industry drivers. It’s changed how many companies do
business. It’s created new channels for our customers. Companies are at the e-commerce
crossroads, and there are many ways to go. Thus, e-commerce is changing how companies do
business both internally and externally with their customers, suppliers, and other business
partners. As managers are confronted with a variety of e-commerce alternatives, the way
companies apply e-commerce to their businesses is also subject to change. The applications of e-
commerce by many companies have gone through several major stages as e-commerce matures in
the world of business. For example, e-commerce between businesses and consumers (B2C)
moved from merely offering multimedia company information at corporate Web sites (brochure
ware) to offering products and services at Web storefront sites via electronic catalogs and online
sales transactions. B2B e-commerce, in contrast, started with Web site support to help business
customers serve themselves, and then moved toward automating intranet and extranet
procurement systems. One of the most important things to understand about e-commerce is that
by converting a business model from bricks and mortar to an e-commerce approach, the
transaction costs (i.e., the costs of doing business with a customer or supplier) drop dramatically.
Thus, anything that can be digital will be digital.

8.2.1 Business-to- Consumer e-Commerce

Customer-Centered Retailing
Despite the many failures of early dot-com retail companies, online retailing continues to grow at
a brisk pace. The Internet provides companies with new channels of communication and
interaction that can create closer yet more cost effective relationships with customers in sales,
marketing, and customer support. Companies can use the Web to provide ongoing information,
service, and support, creating positive interactions with customers that can serve as the
foundations for long-term relationships and repeat purchases.

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Manufacturers can sell their products and services directly to retail customers, bypassing
intermediaries such as distributors or retail outlets. Eliminating intermediaries in the distribution
channel can significantly lower purchase transaction costs. Operators of virtual storefronts, such
as Amazon.com or EPM.com, do not have large expenditures for rent, sales staff, and the other
operations associated with a traditional retail store. Airlines can sell tickets directly to passengers
through their own Web sites or through travel sites such as Travelocity without paying
commissions to travel agents. Figure 8-1 illustrates how much savings can result from
eliminating each of these layers in the distribution process. By selling directly to consumers or
reducing the number of intermediaries, companies can achieve higher profits while charging
lower prices. The removal of organizations or business process layers responsible for
intermediary steps in a value chain is called disintermediation.

Figure 8-1: The benefits of disintermediation to the consumer

The Internet is accelerating disintermediation in some industries and creating opportunities for
new types of intermediaries in others. In certain industries, distributors with warehouses of
goods, or intermediaries such as real estate agents may be replaced by new intermediary services
that specialize in helping Internet business and retail users reduce search costs, tailor offerings
more precisely to their needs, obtain assurances about quality and reliability, handle product
complexity, or preserve anonymity while conducting online transactions. The process of shifting
the intermediary function in a value chain to a new source is called reintermediation.

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E-Commerce Success Factors
E-commerce applications that focus on the consumer share an important goal: to attract potential
buyers, transact goods and services, and build customer loyalty through individual courteous
treatment and engaging community features. What does it take to create a successful B2C e-
commerce business venture? That’s the question that many are asking in the wake of the failures
of many pure B2C dot-com companies. One obvious answer would be to create a Web business
initiative that offers attractive products or services of great customer value, with a business plan
based on realistic forecasts of profitability within the first year or two of operation—a condition
that was lacking in many failed dot-coms. Such failures, however, have not stemmed the tide of
millions of businesses, both large and small, that are moving at least part of their business to the
Web.

On the Internet, the barriers of time, distance, and form are broken down, and businesses are able
to transact the sale of goods and services 24 hours a day, 7 days a week, 365 days a year with
consumers all over the world. In certain cases, it is even possible to convert a physical good
(CDs, packaged software, a newspaper) to a virtual good (MP3 audio, downloadable software,
information in HTML format). A basic fact of Internet retailing is that all retail Web sites are
created equal as far as the location imperative of success in retailing is concerned. No site is any
closer to its Web customers, and competitors offering similar goods and services may be only a
mouse click away. This scenario makes it vital that businesses find ways to build customer
satisfaction, loyalty, and relationships so that customers keep coming back to their Web stores.
Thus, the key to e-tail (retail business conducted online) success is to optimize several key
factors, such as the following:

• Selection and Value: Attractive product selections, competitive prices, satisfaction

guarantees, and customer support after the sale.
• Performance and Service: Fast and easy navigation, shopping, and purchasing, and
prompt shipping and delivery.
• Look and Feel: Attractive Web storefront, Web site shopping areas, multimedia product
catalog pages, and shopping features.
• Advertising and Incentives: Targeted Web page advertising and e-mail promotions,
discounts, and special offers, including advertising at affiliate sites.

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• Personal Attention: Personal Web pages, personalized product recommendations, Web
advertising and e-mail notices, and interactive support for all customers.

• Community Relationships: Virtual communities of customers, suppliers, company

representatives, and others via newsgroups, chat rooms, and links to related sites.
• Security and Reliability: Security of customer information and Web site transactions,
trustworthy product information, and reliable order fulfillment.
• Great Customer Communication: Easy-to-find contact information, online order status,
product support specialists.

Activity A
Experiment with electronic shopping and compare alternative e-commerce sites. First, select
a category of a product widely available on the Web, such as books, CDs, or toys. Second,
select five specific products to price on the Internet. Third, search three prominent e-
commerce sites selling this type of product and record the price charged for each product by
each site. For each product, rank each company on the basis of the price charged. Give a
rating of 1 for the lowest price and 3 for the highest, and split the ratings for ties—two sites
tying for the lowest price would each receive a 1.5. If a site does not have one of the
products available for sale, give that site a rating of 4 for that product. Add the ratings
across your products to produce an overall price/availability rating for each site.

8.2.2 Web Store Requirements

Most business-to-consumer e-commerce ventures take the form of retail business sites on the
World Wide Web. Whether a huge retail Web portal like Amazon.com or a small specialty Web
retailer, the primary focus of such e-tailers is to develop, operate, and manage their Web sites so
they become high-priority destinations for consumers who will repeatedly choose to go there to
buy products and services. Thus, these Web sites must be able to demonstrate the key factors for
e-commerce success that we have just covered. In this section, let’s discuss the essential Web
store requirements that you would have to implement to support a successful retail business on
the Web.

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Developing a Web Store
Before you can launch your own retail store on the Internet, you must build an e-commerce Web
site. Many companies use simple Web site design software tools and predesigned templates
provided by their Web site hosting service to construct their Web retail store. That includes
building your Web storefront and product catalog Web pages, as well as tools to provide
shopping cart features, process orders, handle credit card payments, and so forth. Of course,
larger companies can use their own software developers or hire an outside Web site development
contractor to build a custom-designed e-commerce site. Also, like most companies, you can
contract with your ISP (Internet service provider) or a specialized Web hosting company to
operate and maintain your B2C Web site.

Once you build your Web site, it must be developed as a retail Web business by marketing it in a
variety of ways that attract visitors to your site and transform them into loyal Web customers. So,
your Web site should include Web page and e-mail advertising and promotions for Web visitors
and customers, as well as Web advertising exchange programs with other Web stores. Also, you
can register your Web business with its own domain name (e.g., yourstore.com ), as well as
registering your Web site with the major Web search engines and directories to help Web surfers
find your site more easily. In addition, you might consider affiliating as a small business partner
with large Web portals like Yahoo! and Netscape, large e-tailers and auction sites like Amazon
and eBay, and small business e-commerce portals like Microsoft’s Small Business Center.

Getting Customers to Find You

Your Web store needs to be discovered by your customers, and this means getting listed in the
popular search engines. You can submit your Web site to search engines such as Yahoo, Google,
Live, and others, and each will begin looking at your Web pages and listing you when
appropriate search terms are entered. Waiting for your site to show up competitively ranked with
all the other similar sites could take weeks and even months.

Serving Your Customers

Once your retail store is on the Web and receiving visitors, the Web site must help you welcome
and serve them personally and efficiently so that they become loyal customers. So most e-tailers
use several Web site tools to create user profiles, customer files, and personal Web pages and
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promotions that help them develop a one-to-one relationship with their customers. This effort
includes creating incentives to encourage visitors to register, developing Web cookie files to
identify returning visitors automatically. Of course, your Web site should have the look and feel
of an attractive, friendly, and efficient Web store. That means having e-commerce features like a
dynamically changing and updated multimedia catalog, a fast catalog search engine, and a
convenient shopping cart system that is integrated with Web shopping, promotions, payment,
shipping, and customer account information. Your e-commerce order processing software should
be fast and able to adjust to personalized promotions and customer options like gift handling,
special discounts, credit card or other payments, and shipping and tax alternatives. Also,
automatically sending your customers e-mail notices to document when orders are processed and
shipped is a top customer service feature of e-tail transaction processing.

Managing a Web Store

A Web retail store must be managed as both a business and a Web site, and most e-commerce
hosting companies offer software and services to help you do just that. For example, companies
like FreeMerchant, Prodigy Biz, and Verio provide their hosting clients with a variety of
management reports that record and analyze Web store traffic, inventory, and sales results. Other
services build customer lists for e-mail and Web page promotions or provide customer
relationship management features to help retain Web customers. Also, some e-commerce
software includes links to download inventory and sales data into accounting packages like
QuickBooks for bookkeeping and preparation of financial statements and reports.

Of course, Web-hosting companies must enable their Web store clients to be available online 24
hours a day and seven days a week all year. This availability requires them to build or contract
for sufficient network capacity to handle peak Web traffic loads and redundant network servers
and power sources to respond to system or power failures. Most hosting companies provide e-
commerce software that uses passwords and encryption to protect Web store transactions and
customer records, as well as to employ network firewalls and security monitors to repel hacker
attacks and other security threats.

8.2.3 Business-to- Business e-Commerce

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Business-to-business (B2B) e-commerce is the wholesale and supply side of the commercial
process, where businesses buy, sell, or trade with other businesses. B2B e-commerce relies on
many different information technologies, most of which are implemented at e-commerce Web
sites on the World Wide Web and corporate intranets and extranets. B2B applications include
electronic catalog systems, electronic trading systems such as exchange and auction portals,
electronic data interchange, electronic funds transfers, and so on. All of the factors for building a
successful retail Web site that we discussed previously also apply to wholesale Web sites for
business-to-business e-commerce.

In addition, many businesses are integrating their Web-based e-commerce systems with their e-
business systems for supply chain management, customer relationship management, and online
transaction processing, as well as with their traditional, or legacy, computer-based accounting and
business information systems. This integration ensures that all e-commerce activities are
integrated with e-business processes and supported by up-to-date corporate inventory and other
databases, which in turn are automatically updated by Web sales activities.

Electronic Data Interchange (EDI)

Most of the B2B e-commerce processes depend on electronic data interchange (EDI). Electronic
data interchange (EDI) enables the computer-to-computer exchange between two organizations
of standard transactions, such as invoices, bill of lading, shipment schedules, or purchase orders
(See Figure 8-2). Transactions are automatically transmitted from one information system to
another through a network, eliminating the printing and handling of paper at one end and the
inputting of data at the other. Many companies today order sizable percentages of their supplies
or raw materials through EDI.

Figure 8-2: Electronic Data Interchange (EDI)

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Some firms like General Motors (www.gm.com) and DuPont (www.dupont.com) take EDI a step
further. Large suppliers of key items no longer have to wait for purchase orders; instead, they are
authorized to continually replenish these items as needed using selected real-time inventory
information made available through General Motors's or DuPont's computers. When the suppliers
see that stocks of certain materials have reached the designated reorder point, they automatically
ship the goods and send corresponding electronic invoices.

E-Commerce Marketplaces
What is an e-commerce marketplace? Businesses of any size can now buy everything from
chemicals to electronic components, excess electrical energy, construction materials, or paper
products at business-to-business e-commerce marketplaces. The five major types of e-
commerce marketplaces used by businesses today are the following:

One to Many: Sell-side marketplaces. Host one major supplier, who dictates product catalog
offerings and prices. Examples: Cisco (www.cisco.com) and Dell (www.dell.com).

Many to One: Buy-side marketplaces. Attract many suppliers that flock to these exchanges to
bid on the business of a major buyer like GE (www.ge.com) or AT&T (www.att.com).

Some to Many: Distribution marketplaces. Unite major suppliers who combine their product
catalogs to attract a larger audience of buyers. Examples: Bravo Solutions
(www.bravosolution.com) and Works (www.works.com).

Many to Some: Procurement marketplaces. Unite major buyers who combine their purchasing
catalogs to attract more suppliers and thus more competition and lower prices. Examples: the auto
industry.
Many to Many: Auction marketplaces used by many buyers and sellers that can create a variety
of buyers. Examples: eBay (www.ebay.com) and FreeMarkets (www.freemarketinc.com).

8.3 Mobile Commerce

Mobile commerce is the delivery of electronic commerce capabilities directly into the consumer’s
hand, anywhere, via wireless technology. Mobile commerce transactions continue to grow, and
the term includes the purchase and sale of a wide range of goods and services, online banking,
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bill payment, information delivery and so on. It is also known as m-commerce. The range of
devices that are enabled for mobile commerce is growing, having expanded in recent years to
include smart phones and tablet computers. The increasing adoption of electronic commerce
provided a strong foundation for mobile commerce, which is on a very strong growth trajectory
for years to come.

The rapid growth of mobile commerce is being driven by a number of positive factors - the
demand for applications from an increasingly mobile customer and consumer base; the rapid
adoption of online commerce thanks to the resolution of security issues; and technological
advances that have given wireless handheld devices advanced capabilities and substantial
computing power.

8.3.1 Products and Services

Mobile Money Transfer: In Kenya money transfer is mainly done through the use of mobile
phones. This was an initiative of a multimillion shillings company in Kenya. Mobile money
transfer services in Kenya are now provided by M-Pesa (M for mobile, pesa is Swahili for
money) is a mobile-phone based money transfer and microfinancing service for Safaricom and
Vodacom. Currently the most developed mobile payment system in the world, M-Pesa allows
users with a national ID card or passport to deposit, withdraw, and transfer money easily with a
mobile device.

Mobile ATM: With the introduction of mobile money services for the unbanked, operators are
now looking for efficient ways to roll out and manage distribution networks that can support
cash-in and cash-out. Unlike traditional ATM, mobile ATM have been specially engineered to
connect to mobile money platforms and provide bank grade ATM quality.

Mobile ticketing: Tickets can be sent to mobile phones using a variety of technologies. Users are
then able to use their tickets immediately, by presenting their mobile phone at the ticket check.
Most number of users are now moving towards this technology.

Mobile vouchers, coupons and loyalty cards: Mobile ticketing technology can also be used for
the distribution of vouchers, coupons, and loyalty cards. These items are represented by a virtual
token that is sent to the mobile phone. A customer presenting a mobile phone with one of these
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tokens at the point of sale receives the same benefits as if they had the traditional token. Stores
may send coupons to customers using location-based services to determine when the customer is
nearby.

Content purchase and delivery: Currently, mobile content purchase and delivery mainly
consists of the sale of ring-tones, wallpapers, and games for mobile phones. The convergence of
mobile phones, portable audio players, and video players into a single device is increasing the
purchase and delivery of full-length music tracks and video. The download speeds available with
4G networks make it possible to buy a movie on a mobile device in a couple of seconds.

Location-based services: The location of the mobile phone user is an important piece of
information used during mobile commerce or m-commerce transactions. Knowing the location of
the user allows for location-based services such as local discount offers, local weather, and
tracking and monitoring of people.

Information services: A wide variety of information services can be delivered to mobile phone
users in much the same way as it is delivered to PCs. These services include: News, stock quotes,
sports scores, financial records, and traffic reporting. Customized traffic information, based on a
user's actual travel patterns, can be sent to a mobile device. This customized data is more useful
than a generic traffic-report broadcast, but was impractical before the invention of modern mobile
devices due to the bandwidth requirements.

Mobile banking: Banks and other financial institutions use mobile commerce to allow their
customers to access account information and make transactions, such as purchasing stocks,
remitting money. This service is often referred to as Mobile Banking, or M-Banking.

Mobile brokerage: Stock market services offered via mobile devices have also become more
popular and are known as Mobile Brokerage. They allow the subscriber to react to market
developments in a timely fashion and irrespective of their physical location.

Mobile purchase: Catalog merchants can accept orders from customers electronically, via the
customer's mobile device. In some cases, the merchant may even deliver the catalog
electronically, rather than mailing a paper catalog to the customer. Some merchants provide

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mobile websites that are customized for the smaller screen and limited user interface of a mobile
device.

Mobile marketing and advertising: In the context of mobile commerce, mobile marketing
refers to marketing sent to mobile devices. Companies have reported that they see better response
from mobile marketing campaigns than from traditional campaigns. The primary reason for this
is the instant nature of customer decision-making that mobile apps and websites enable. The
consumer can receive a marketing message or discount coupon and, within a few seconds, make a
decision to buy and go on to complete the sale - without disrupting their current real-world
activity.

8.3.2 Payment Methods

Consumers can use many forms of payment in mobile commerce, including the following
methods:

Premium-rate telephone numbers: Premium-rate telephone numbers are telephone numbers for
telephone calls during which certain services are provided, and for which prices higher than
normal are charged. Unlike a normal call, part of the call charge is paid to the service provider,
thus enabling businesses to be funded via the calls. While the billing is different, calls are usually
routed the same way they are for a toll-free telephone number, being anywhere despite the area
code used. These telephone numbers are usually allocated from a national telephone numbering
plan in such a way that they are easily distinguished from other numbers. Telephone companies
typically offer blocking services to allow telephone customers to prevent access to these number
ranges from their telephones.

Credit cards: Some providers allow credit cards to be linked to a phone's SIM card. A credit
card is a payment card issued to users as a system of payment. It allows the cardholder to pay for
goods and services based on the holder's promise to pay for them. The issuer of the card creates a
revolving account and grants a line of credit to the consumer (or the user) from which the user
can borrow money for payment to a merchant or as a cash advance to the user.

Micropayment services: A micropayment is a financial transaction involving a very small sum

of money and usually one that occurs online. While micropayments were originally envisioned to

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involve much smaller sums of money, practical systems to allow transactions of less than 1 USD
have seen little success. One problem that has prevented the emergence of micropayment systems
is a need to keep costs for individual transactions low, which is impractical when transacting such
small sums even if the transaction fee is just a few cents.

Stored-value cards: Stored-value cards are often used with mobile-device application stores or
music stores. A stored-value card refers to monetary value on a card not in an externally recorded
account and differs from prepaid cards where money is on deposit with the issuer similar to a
debit card. One major difference between stored value cards and prepaid debit cards is that
prepaid debit cards are usually issued in the name of individual account holders, while stored
value cards are usually anonymous.

Activity B
Check out some Ethiopian business e-commerce portals. Identify several benefits and
limitations for a business using these Web sites.

Summary

E-commerce encompasses the entire online process of developing, marketing, selling, delivering,
servicing, and paying for products and services. The Internet and related technologies and e-
commerce Web sites on the World Wide Web and corporate intranets and extranets serve as the
business and technology platforms for e-commerce marketplaces for consumers and businesses in
the basic categories of business-to-consumer (B2C), business-to-business (B2B), and consumer-
to-consumer (C2C) e-commerce. The essential processes that should be implemented in all e-
commerce applications are: Access control and security, personalizing and profiling, search
management, content management, catalog management, payment systems, workflow
management, event notification, and collaboration and trading.

Businesses typically sell products and services to consumers at e-commerce Web sites that
provide attractive Web pages, multimedia catalogs, interactive order processing, secure electronic
payment systems, and online customer support. However, successful e-tailers build customer
satisfaction and loyalty by optimizing factors such as selection and value, performance and

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service efficiency, the look and feel of the site, advertising and incentives to purchase, personal
attention, community relationships, and security and reliability.

A Web store has several key business requirements, including building and marketing a Web
business, serving and supporting customers, and managing a Web store.

Business-to-business applications of e-commerce involve electronic catalog, exchange, and

auction marketplaces that use Internet, intranet, and extranet Web sites and portals to unite buyers
and sellers.

Mobile commerce is the delivery of electronic commerce capabilities directly into the consumer’s
hand, anywhere, via wireless technology. Mobile commerce transactions include the purchase
and sale of a wide range of goods and services, mobile banking, bill payment, information
delivery, mobile money transfer, mobile ATM, mobile ticketing, and mobile marketing and
advertising. Payment methods include premium-rate telephone numbers, credit cards to be linked
to a phone's SIM card, micropayment services, and stored-value cards.

References

Anteneh, Salehu (2015). Information Systems for Business: Teaching Material, Addis Ababa
University (unpublished).
Haag, Stephen and Cummings, Maeve (2014). Information Systems Essentials (3rd ed.),
McGraw-Hill/Irwin.
Laudon, Kenneth C. and Laudon, Jane P. (2014). Management Information Systems: Managing
the Digital Firm (13th ed.), Pearson Education.
Laudon, Kenneth C.; Guercio Traver, Carol (2014). E-commerce Business Technology Society (
10th ed.), Pearson Education.
O'Brien, James A. and Marakas, George M. (2011). Management Information Systems (10th ed.),
McGraw-Hill/ Irwin.

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Self-Assessment Questions

Match the following e-commerce terms and concepts (in group A) with each of the brief
examples or definitions (in group B)
Group A
A. Workflow management G. Access control and security
B. E-commerce marketplace H. Collaboration and trading
C. Electronic commerce I. Consumer-to-Consumer
D. Business-to-Consumer J. Event notification
E. Content management K. Profiling and personalizing
F. Electronic funds transfer L. Business-to-Business

Group B
1. The online process of developing, marketing, selling, delivering, and paying for
production.
2. Business selling to consumers at retail Web stores is an example.
3. Develops, generates, delivers, and updates information to you at a website.
4. The processing of money and credit transfers between business and financial institutions.
5. Helps to establish mutual trust between you and an e-tailer at an e-commerce site.
6. Tracks your website behavior to provide you with an individualized Web store
experience.
7. Ensures that proper e-commerce transactions, decision, and activities are performed to
better serve you.
8. Sends to you e-mail when what you ordered at an e-commerce site has been shipped.
9. Using an e-commerce portal for auctions by business customers and their suppliers is an
example.
10. Includes matchmaking, negotiation, and mediation processes among buyers and sellers.
11. A website for e- commerce transactions.
12. Using an e-commerce website for auctions among consumers is an example.
Summary

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Completion

1. A(n) _______ is the delivery of electronic commerce capabilities directly into the
consumer’s hand, anywhere, via wireless technology.
2. Stock market services offered via mobile devices have also become more popular and
are known as _____.
3. ___________ are telephone numbers for telephone calls during which certain services
are provided, and for which prices higher than normal are charged.
4. A(n) ___________ refers to marketing sent to mobile devices.
5. ___________ marketplaces unite major buyers who combine their purchasing catalogs
to attract more suppliers and thus more competition and lower prices.

Discussion Questions
1. Most businesses should engage in e-commerce on the Internet. Do you agree or disagree
with this statement? Explain your position.

2. Are you interested in investing in, owning, managing, or working for a business that is
primarily engaged in e-commerce on the Internet? Explain your position.

3. If personalizing a customer’s Web site experience is a key success factor, then electronic
profiling processes to track visitor Web site behavior are necessary. Do you agree or
disagree with this statement? Explain your position.

4. All corporate procurement should be accomplished in e-commerce auction marketplaces,

instead of using B2B Web sites that feature fixed-price catalogs or negotiated prices.
Explain your position on this proposal.

Case Study
To most people, Facebook and Twitter are ways to keep in touch with friends and to let them
know what they are doing. For companies of all shapes and sizes, however, Facebook and Twitter
have become powerful tools for engaging customers. Location based businesses like gourmet
food trucks can tweet their current location to loyal followers and fans. Appointment-based
businesses can easily tweet or post cancellations and unexpected openings. Larger companies run

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sweepstakes and promotions. And companies of all sizes have an opportunity to shape the
perception of their brands and to solidify relationships with their customers.

Companies are rolling out ads that capitalize on the social media features of Facebook to achieve
greater visibility. For example, many Facebook ads feature the ability to 'Like' a brand, send a
virtual gift, answer a poll question, or instantly stream information to your news feed. Twitter has
developed many new offerings to interested advertisers, like 'Promoted Tweets' and 'Promoted
Tends'. These features give advertisers the ability to have their tweets displayed more
prominently when Twitter users search for certain keywords.

Levi's was one of the first national brands to use Facebook and Twitter to allow consumers to
socialize and share their purchases with friends. The Levi's Facebook page has posted 500,000
Like messages posted by friends sharing their favorite jeans. Within the first week of its share
campaign, Levis received 4,000 Likes. The company began using Twitter in 2010 by creating a
"Levi's Guy," 23-year-old USC graduate Gareth, to interest customers. He has over 6,000
followers and is responsible for responding to queries and engaging in conversations about the
Levi's brand on Twitter. In 2011, the company created a personalized Friends Store where
shoppers can see what their fiends Liked and bought.

The all-purpose electronics retailer Best Buy has 4.6 million fans on Facebook and 200,000
followers on Twitter. Best Buy uses a dedicated team of 'Twitter responders, called the "Twelp
Force," to answer user questions and respond to complaints. Because Best Buy has so many
social media followers who are generating feedback on social networks and related sites, the
company uses text mining to gather these data and convert them to useful information. Best Buy
has a central analytical platform that can analyze any kind of unstructured data it supplies. The
company uses that information to gauge the success of promotions, which products are hot and
which are duds, and the impact of advertising campaigns.

Wrigleyville Sports is a small business with three retail stores and e-commerce sites selling sports
related clothing and novelties like a panini maker that puts the Chicago Cubs logo on your
sandwich. The company has been building a Facebook following for over three years. Facebook
page posts use much of the same content as its e-mail campaigns, but the company's Twitter
campaigns have to be condensed to 140 characters. Some Wrigleyville promotions use all of
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these channels while others are more social-specific. For example, in 2011, the company ran a
Mother's Day contest on its Facebook page exhorting visitors to post a picture of Mom
demonstrating why she's the biggest Chicago Cubs fan. Wrigleyville tracks purchases related to
its promotions with its NetSuite customer relationship management system and is able to tell
which promotions yield the most profitable new customers. Wrigleyville knows which customers
responded, how much they spent, and what they purchased, so it can measure conversion rates,
the value of keyword buys, and the ultimate return on campaigns.

Many companies are running online ads that focus less on pitching their products than on
promoting their Facebook pages and Twitter accounts. The ads feature menu tabs and allow users
to click within the ad to see a brand's Twitter messages or Facebook Wall posts in real time, or to
watch a brand's video content from YouTube-all within the Web page where the ad appears.
Incorporating live content from Facebook and Twitter makes online ads appear less "static" and
more current than other content.

For example, a recent online ad for the Mrs. Meyers cleaning brand stating "Clean should smell
better" instructed users to "hover to expand." When a cursor was placed over the ad, it exposed an
area that displayed Facebook Wall posts, Twitter postings about Mrs. Meyers, or a company
video, all without leaving the Webpage being visited. Consumers spent an average of 30 seconds
interacting with the ad, compared to 11seconds for other types of online ads, according to
Google. Consumers were also more likely to click on a “Learn More” button to go to Mrs.
Meyers’ own web site, with 35 of every 1,000 users clicking through, compared with an average
of just one in 1,000 for traditional online ads.

Even if the Facebook or Twitter postings in ads show brands apologizing about missteps or
customer complaints, advertisers may still benefit. Today, the more honest and human companies
appear, the more likely consumers are to like them and stick with them. For example, JCD
Repair, a six-year-old iPhone, iPad, and Android repair business based in Chicago, found that
encouraging customers to post reviews of its service on Facebook, Yelp, and Google+ Local
helped generate more business. Although the vast majority of the reviews are overwhelmingly
positive, Matt McCormick, JCD's owner, believes that even the bad reviews can be useful. Abad
review here and there not only helps you look more credible, it can also give you very valuable
feedback on what you're doing wrong, McCormick believes. It also gives you a chance to set the
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situation right with the customer. If you deal with problems swiftly and set things right, people
are impressed.

Still, the results can be unpredictable, and not always beneficial, as Starbucks learned. Starbucks
runs contests on Twitter regularly and uses the service to spread free product samples. In 2009,
Starbucks launched a social media contest that was essentially a scavenger hunt for advertising
posters. Users who found the posters and posted photos of them on Twitter would win a prize.
The campaign backfired. At the urging of anti-Starbucks protesters, users flooded Starbucks'
Twitter feed with pictures of employees and protesters holding signs criticizing Starbucks' labor
practices.

Case Questions
1. Assess the management, organization, and technology issues for using social media to
engage with customers.

2. What are the advantages and disadvantages of using social media for advertising, brand
building, market research, and customer service?

3. Give some examples of management decisions that were facilitated by using social media
to interact with customers.

4. Should all companies use Facebook and Twitter for customer service and advertising?
Why or why not? What kinds of companies are best suited to use these platforms?

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Chapter 9 Intelligent Support Systems

Learning Objectives

After completing this chapter, you will be able to:

• define artificial intelligence

• relate artificial intelligence to human intelligence
• identify different intelligent support systems
• understand the development of artificial intelligence
• identify application areas of artificial intelligence
• define an expert system and explain how it works

Contents

9.1 Artificial Intelligence

9.2 Human Intelligence
9.3 Development of Artificial Intelligence
9.4 Applications of Intelligent Support Systems
9.4.1 Expert Systems
9.4.2 Neural Computing
9.4.3 Fuzzy logic
9.4.4 Robotics
9.4.5 Other Intelligent Systems
Summary
References
Self-Assessment Questions

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9.1 Artificial Intelligence

What makes systems intelligent? Why are they relevant on top of previously discussed systems?
Management is often able to pinpoint the underlying relationships in two or more decision
variables. However, most relations exist in data are impossible for human beings to discern.
Intelligent support systems use the techniques of artificial intelligence (AI) that are able to
develop sophisticated and complex methods to find cause-and–effect relationships in data.
Artificial intelligence applications include pattern discovery, and capture the knowledge of
experts. AI techniques can create information systems that capture knowledge and intelligence
for organizations. Organizations can benefit from a variety of software and hardware techniques
for acquiring, retaining, and leveraging knowledge.

AI is the effort to develop computer-based systems that can behave as humans. Such systems are
able to learn natural languages, to accomplish physical tasks (robotics), to utilize a perceptual
apparatus that informs their physical behavior and language (visual and oral perception systems),
and emulate human expertise and decision making (expert systems). AI would also exhibit logic,
reasoning, intuition, and common-sense qualities that we associate with human beings. In
addition to these areas, intelligent machines, the physical hardware that performs these tasks is
another important aspect of AI.

The intent in AI is that, computers can be programmed to perform some of the same logical
reasoning tasks as a human. Artificial intelligence is concerned with two basic ideas. First, it
involves studying the thought processes of humans; second, it deals with representing those
processes via machines (computers, robots, etc.). AI objectives are to make machines smarter,
understand what intelligence is, and to make machines more useful.

Successful AI systems are based on human experts, knowledge, and selected reasoning patterns.
Existing, practical AI systems that try to reproduce the expertise of humans do not behave like
human experts at all, but rather are limited to mundane (albeit important) tasks. These systems
extend the power of human experts, but in no way substitute for them or capture much of their
intelligence. Briefly, existing systems lack the common sense and generality of naturally
intelligent machines like human beings.

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9.2 Human Intelligence

Can human intelligence be imitated by machines? Why? Human intelligence (HI) is vastly
complex and much broader than computer or information systems. Scientists of human cognition
have recognized that key aspects of human intelligence are beyond description and therefore are
not easily imitated by consciously designed machine. The reason is that, if a problem cannot be
described, it cannot be programmed.

At least four important capabilities are involved in HI. These are reasoning, behavior, the use of
metaphor and analogy, and the creation and use of concepts.

Human intelligence is a way of reasoning. HI can be described as the application of rules

based on human experience and genetics. Rules are part of the knowledge carried by
humans; whether all the rules take the form “if x, then y” is not known.

HI is a way of behaving. Humans are obliged to act in the realm of cultural and social
restrictions (values). Human intelligence, at very least, consists of acting in a way that can
be described as intelligent.

HI includes the development and use of metaphors and analogies. What distinguishes
human beings from other animals is their ability to develop associations and to use
metaphors and analogies such as “like” and “as”. “Common sense” or “generality” in
humans resides in the ability to create metaphor and analogy.

HI includes the creation and use of concepts. This is the unique ability humans have to
impose a conceptual apparatus on the world around us. Meta-concepts such as cause and
effect are central characteristics of intelligent human behavior.

What is then artificial intelligence with respect to these intelligent behavior characteristics? AI
refers to an effort to develop machines that can reason, behave, compare, and conceptualize. It is
found to be a controversial subject in computer science throughout the years since the effort
began in the 1950s. Critics argue that it is impossible to imitate or to program HI (because it is
beyond description). What you cannot describe, you cannot program. Supporters point to the goal
of using AI as a way of understanding HI. Improvements in AI research and development have
been made since the effort began in the 1950s.
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9.3 Development of Artificial Intelligence

What are the characteristics of machine intelligence? Intelligent behavior constitutes the
following characteristics:

Learning or understanding from experience

Making sense of ambiguous or contradictory messages
Responding quickly and successfully to new situations
Using reason to solve problems and direct actions effectively
Dealing with complex situations
Applying knowledge to manipulate the environment
Recognizing the relative importance of different elements in a situation

The development in AI is approached in two ways. One is the history of efforts to develop
physical machines that mimic what people think or how human physical brain works. This is
called the bottom-up approach, the effort to build a physical analog to the human brain. In this
approach, contemporary AI started in World War II with the concept of feedback. Feedback is
proposed to explain how human thinks. The early period of artillery machine started by a method
of radar control of anti-aircraft guns that calculates the expected location of an aircraft based on
new information (feedback) from radar.

The second approach is a top-down approach. The focus is on the effort to develop a logical
analog to how the brain works. In the earliest stage, the goal was to develop a general model of
human intelligence. This followed by a period in which the extraordinary power of third-
generation computers applied to more limited problems such as playing chess and machine tool
control. Last, beginning in the 1970s, expert systems emerged in which the goal of AI were more
limited to understanding knowledge in specific and highly limited areas.

These days, many Commercial AI fields are flourishing. These include: expert systems, natural
language processing, robotics and sensory systems, computer vision and scene recognition,
intelligent computer-aided instruction (ICAI), machine learning, and handwriting recognizers.

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9.4 Applications of Intelligent Support Systems

The major application areas of intelligent support systems are cognitive science, neural networks,
robotics, and natural interface.

Cognitive science is based on research in biology, neurology, psychology, mathematics and other
disciplines. It focuses on how the human brain works and how humans think and learn; and tries
to imitate the results in AI systems. Cognitive science includes applications of expert systems,
learning systems, and fuzzy logic.

Neural networks are neuro-computer systems whose architecture is based on the human brain’s
mesh-like neuron structure. It is the attempt to emulate the processing patterns of the biological
brain by computers. Computers are used to simulate the way neurons interact to process data and
learn from the experience. Neural networks can learn by being shown sample problems and their
solutions.

Robotics is the science and technology of robots, their design, manufacture, and application.
Robots are designed to have the power of sight or visual perception, touch or tactile capabilities,
dexterity of skill in handling and manipulation, locomotion or the physical ability to move over
any terrain, and navigation or the ability to properly find one’s way to a destination.

Natural Interface is being able to talk to computers in conversational human language and to
“understand” human being as easily as we understand each other. It involves research and
development in linguistics, psychology, computer science and other disciplines. The application
of natural interface include: human language understanding, speech recognition, and virtual
reality (computer–simulated reality).

9.4.1 Expert Systems

An expert system is an area of AI that explores how to computerize the expertise of a human
expert. It is a knowledge intensive program that solves a problem by capturing the expertise of a
human in limited domain of knowledge and expertise. An expert system can assist decision
making by asking relevant questions and explaining the reasons for adopting certain actions. The
most common characteristics of expert systems are:
Perform most of the problem solving work of human.
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Represent knowledge in forms such as rules or frames.
Interact with human.
Can consider multiple hypotheses simultaneously.

An expert system is decision support software that can reach a level of performance comparable
to - or even exceeding that of - a human expert in some specialized problem area. Expert systems
are not a generalized expert or problem solver. It is very important to understand the narrow
specialization of the typical expert system. An expert system designed to determine whether a
person applying for a loan is a good loan risk cannot diagnose infectious diseases, and vice versa.
An expert system designed to help a lawyer deal with case law cannot help a literature professor
analyze poetry.

Expert system is widely implemented application of AI that uses its knowledge about a specific,
complex application area to act as an expert consultant to end users. The advice can be to
operational process or decision-making process. The experimental nature and high costs of AI
systems are among the limitations that businesses may not be interested in them. In spite of this,
the most important reasons businesses want to use AI applications are:
To capture and preserve expertise that might be lost through the retirement, resignation, or
death of an acknowledged expert.
To enhance the distribution of knowledge in an organization. Storing information in an
active form creates an organizational knowledge base that many employees can examine,
much like an electronic textbook or manual, so that others may learn rules of thumb not
found in the textbooks.
To create a mechanism that is not subject to human feelings like fatigue and worry. This
may be especially useful when jobs may be environmentally, physically, or mentally
dangerous to humans. These systems may be useful advisers in times of crises.
To eliminate routine and unsatisfying jobs.
To provide solutions to problems that are too complex to be handled by human.
To maintain the strategic position of a company in industry. Expert systems, like other
systems, can be used as a marketing advice, to reduce the cost of production or to improve
the existing product lines.

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More specifically, the benefits and uses of expert systems are:
Increased output and productivity
Increase quality
Capture of scarce expertise and its dissemination
Accessibility to knowledge
Reliability
Increased capabilities of other computerized systems
Ability to work with incomplete or uncertain information
Enhancement of problem solving capabilities
Decreased decision making time.

Components of Expert Systems

What are the major components of expert systems? Expert systems have the following
components (see Figure 9-1):

The Knowledge Base

Knowledge base is about: how can human knowledge be modeled or represented in a way that a
computer can deal with it? The model of the human knowledge used by expert systems is called
the knowledge base. It contains facts about a specific subject area. Three ways have been devised
to represent human knowledge and expertise: rules, semantic nets, and frames.
Rule-based expert systems are an AI programs that has a large number of interconnected and
nested IF-THEN statements or rules that are the basis for the knowledge in the system.
Example: IF income > 150 Birr THEN deduct income tax.
Semantic nets are expert systems that use the property of inheritance to organize and classify
knowledge when the knowledge base is composed of easily identifiable chunks or objects of
interrelated characteristics. A condition like “Is-A” is a pointer to all objects of a specific
class and ties objects together. Example: Sports car is-a(n) automobile.
Frames also organize knowledge into chunks, but the relationships are based on shared
characteristics determined by the user rather than a hierarchy. Frames are a more complex
way of storing objects and their attribute-values. Frames add intelligence to the knowledge
representation, and allow objects to inherit values from other objects.

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Figure 9-1: Components of expert system

The Development Team

An AI team is composed of one or several experts who have a thorough command over the
knowledge base and one or more knowledge engineers who can translate the knowledge (as
described by the expert) into a set of rules, frames, or semantic nets. A knowledge engineer is
similar to system analyst but has special expertise in eliciting information and expertise from
other professionals.

The Shell (inference engine)

The AI shell is the programming environment of an expert system. In the early years of expert
systems, specialized programming languages such as LISP or Prolog that could process lists of
rules efficiently were used. Today expert systems use C high level language based AI shells that
are user friendly and easy to use development environments.

The Shell or inference engine is the program that locates the appropriate knowledge in the
knowledge base, and infers new knowledge by applying logical processing and problem-solving
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strategies. One of the most interesting parts of expert systems is the inference engine, which is
simply the strategy used to search through the rule base. Two strategies are commonly used:

Backward checking strategy: an expert system acts more like a problem solver who begins
with a conclusion and seeks out more information (facts) to evaluate the conclusion. The
strategy for searching the rule base starts with a hypothesis and proceeds by asking the user
questions about selected facts until the hypothesis is either confirmed or disproved. Backward
strategy also called goal-driven reasoning is an efficient way to solve problems that can be
modeled as "structured selection" problems. That is, the aim of the system is to pick the best
choice from many enumerated possibilities. For example, diagnostic systems fit this model,
since the aim of the system is to pick the correct diagnosis.

For many problems it is not possible to enumerate all of the possible answers before hand and
have the system select the correct one. For example, configuration problems fall in this
category. These systems might put components in a computer, design circuit boards, or layout
office space. Since the inputs vary and can be combined in an almost infinite number of ways,
the backward strategy will not work; instead forward strategy is more appropriate.

Forward checking strategy: the inference engine begins with the information entered by the
user and searches the rule base to arrive at a conclusion. Forward strategy also called data
driven approach, uses rules similar to those used for backward strategy, however, the
inference process is different. The system keeps track of the current state of problem solution
and looks for rules which will move that state closer to a final solution.

The User
The role of the user is both to pose questions to the system and to enter relevant data to guide the
system along. The user may employ the expert system as a source of advice or perform tedious
and routine analysis tasks.

Explanation facility
One of the more interesting features of expert systems is their ability to explain themselves.
Given that the system knows which rules were used during the inference process, it is possible for
the system to provide those rules to the user as a means for explaining the results. The

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explanation can range from how the final or intermediate solutions were arrived at to justifying
the need for additional data.

Explanations are always of extreme value to the knowledge engineer. They are the program
traces for knowledge bases. By looking at explanations the knowledge engineer can see how the
system is behaving, and how the rules and data are interacting. This is an invaluable diagnostic
tool during development.

The User Interface

The user interface is the means of communication between a user and the expert system duping
problem-solving processes. A good expert system is not very useful unless it has an effective
interface. It has to be able to accept the queries or instructions in a form that the user enters and
translate them into working instructions for the rest of the system. It also has to be able to
translate the answers, produced by the system, into a form that the user can understand. Careful
attention should be given to the screen design in order to make the expert system appear friendly
to the user.

b) Blackboard (Workplace)
The blackboard is a working memory assigned to handle the problem and store decisions inside
the expert system. It exists in only few research base expert systems. It is used to store three main
types of decisions: strategy to search the knowledgebase, problem to search the knowledgebase,
and solution.

c) Knowledge Refining Sub System

Knowledge refining subsystem of an expert system is used to refine the knowledge in the
knowledgebase after working every time over a problem. It works exactly like human beings who
analyze their actions, learn from their mistakes to perform better in the future. Knowledge
refining system is also not available in commercial expert systems. It is categorized under neural
network information system.

Activity A
Search via the Internet for three examples of the use of expert systems. Which one has the
greatest potential to increase profits for a medium-sized firm? Explain your choice.

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9.4.2 Neural Computing

Neural networks originated in the resurgence of interest in the bottom-up approach to AI in which
machines are designed to imitate the physical thought process of the biological brain. The
biological model is electrically wired neurons that are an active link to other neurons. Neural
networks consist of hardware and software that attempts to emulate the processing power patterns
of the biological brain.

The human brain consists of about 100 billion neurons each having about 1000 hertz which can
fire off a pulse 100 times per second. This is a low standard to computer. Intel Core i5 chip for
example operates at more than 3 gigahertz, or 3 billions of cycles per second. But the brain
neurons operate in parallel, and the human brain can accomplish about 10 million billion
interconnections per second. This far exceeds the capacity of any known machine or ever likely
to be built with current technology. Elementary neuron circuits can be built and studied, and far
more complex networks of neurons have been simulated on computers.

Perhaps the most significant difference between artificial and biological neural nets is their
organization. While many types of artificial neural nets exist, most are organized according to the
same basic structure as shown in Figure 9-2.

Figure 9-2: Basic structure of artificial neural network

There are three components to this organization: a set of input nodes, one or more layers of
'hidden' nodes, and a set of output nodes. The input nodes take in information, and are akin to
sensory organs. Whether the information is in the form of a digitized picture, or a series of stock
values, or just about any other form that can be numerically expressed, this is where the net gets
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its initial data. The information is supplied as activation values, that is, each node is given a
number, higher numbers representing greater activation. This is just like human neurons except
that rather than conveying their activation level by firing more frequently, as biological neurons
do, artificial neurons indicate activation by passing this activation value to connected nodes.
After receiving this initial activation, information is then passed through the network. Connection
strengths, inhibition/excitation conditions, and transfer functions determine how much of the
activation value is passed on to the next node. Each node sums the activation values it receives,
generates its own activation value, and then passes that along to the next nodes in the network
(after modifying its activation level according to its transfer function). Thus the activation flows
through the net in one direction, from input nodes, through the hidden layers, until eventually the
output nodes are activated. If a network is properly trained, this output should reflect the input in
some meaningful way. For instance, gender recognition net might be presented with a picture of a
man or woman at its input nodes and must set an output node to 0.0 if the picture depicts a man,
or 1.0 for a woman. In this way, the network communicates its knowledge to the outside world.

Assume artificial neural networks with two neurons. The resisters in the circuits are variable and
can be used to teach the network. When the network makes mistake (i.e. chooses the wrong
pathway through the network and arrives at a false conclusion), resistance can be raised on some
circuits, forcing other neurons to fire. If this learning process continues for thousands of circuits,
the machine learns the correct response. Neural networks can be thought by finding a pattern of
connections which allows the network to carry out the correct computation.

One feature that distinguishes neural networks from digital computers is the inherent parallelism.
The simple neurons or switches are highly interconnected and operate in parallel. Instead of a
single personal computer executing a single instruction at a time, imagine several personal
computers all connected to one another and all working simultaneously on parts of the same
problem. A neural network computer can be defined as an interconnected set of parallel switches
or processors for which the network can be controlled by intervention.

Today powerful neural network machines are developed. Because of the way neural nets learn,
they can identify complex relationships and patterns, and are appropriate for making
classifications, generalizations, or decisions in cases where less than 100 percent accuracy can be
tolerated. Neural network applications are emerging in medicine, science, and business to address
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problems in pattern classification, prediction, financial analysis, control and optimization.
Artificial Neural Networks (ANN) applications in business include: tax fraud, financial
services, loan applications evaluation, solvency prediction, new product analysis, an airline fare
management and prediction, evaluation of personnel and job candidates, resource allocation, data
mining, foreign exchange rate, stock, bond, and commodities selection and trading, and signature
validation.

9.4.3 Fuzzy logic

Traditional computers require precision – on/off, yes/no, and right/wrong. However, human
beings do not experience the world this way. Fuzzy logic is a technique that deals with
uncertainties by simulating the process of human reasoning, allowing the computer to behave less
precisely and logically than conventional computers do. Fuzzy logic, a rule-based development in
AI, tolerates impression and even uses it to solve problems we could not have solved before.

Fuzzy logic consists of a variety of concepts and techniques for representing and inferring
knowledge that is imprecise, uncertain or unreliable. It can create rules that use approximate or
subjective values and incomplete or ambiguous data. By expressing logic with some carefully
defined imprecision, fuzzy logic is closer to the way people actually think than rational IF-THEN
rules. Look at the following fuzzy logic example:
Increase interest rates slightly IF unemployment is low AND inflation is moderate;
Increase interest rates sharply IF unemployment is low AND inflation is moderate BUT
rising sharply;
Decrease interest rates slightly IF unemployment is low BUT increasing AND inflation is
low and stable;

This logic makes sense to use as human beings for it represents how we think. The computer
make sense of this programming in which the terms (known as membership functions) are
imprecisely defined so that the logic define similar imprecise term definitions.

To more clearly show how fuzzy logic works: assume cool is between 50 and 60 degrees, cold
between 0 and 60, normal between 60 and 80. Note that cool is overlapped by cold and warm. To
control the room environment, the programmer would develop similarly imprecise definition for
humidity and other factors like outdoor wind. The rules might include one that says: if the
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temperature is cool or cold and the humidity is low while the outdoor wind is high, raise the heat
and humidity in the room.

Fuzzy logic is especially suitable for complex problems or applications that involve descriptive or
intuitive thinking. Management has also found fuzzy logic useful for decision making and
organizational control. According to financial analysts, the rules for trading are fuzzy. Fuzzy
logic technology is making important contributions in AI applications. However, fuzzy logics
have their own limitations. They cannot learn. It is not always easy to define good membership
functions and fuzzy rules.

9.4.4 Robotics

Robotics requires a working knowledge of electronics, mechanics and software, and is usually
accompanied by a large working knowledge of many subjects. A person working in the field is a
roboticist. Robotics is producing robot machines with computer-controlled humanlike physical
capabilities.

A robot is a mechanical or virtual artificial agent. In practice, it is usually an electro-mechanical

system which, by its appearance or movements, conveys a sense that it has intent or agency of its
own. The word robot can refer to both physical robots and virtual software agents, but the latter
are usually referred to as bots to differentiate.

While there is still discussion about which machines qualify as robots, a typical robot will have
several, though not necessarily all of the following properties:
is not 'natural', i.e. it is artificially created
can sense (see, hear, … ) its environment, and manipulate or interact with things in it
has some ability to make choices based on the environment, often using automatic control
or a preprogrammed sequence
moves with one or more axes of rotation or translation
makes dexterous coordinated movements
moves with minimum human intervention within the predefined area
appears to have intent or agency

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Most contemporary robots use open serial chains in which each link connects the one before to
the one after it. These robots are called serial robots and often resemble the human arm. Other
structures such as those that mimic the mechanical structure of humans, various animals and
insects, are comparatively rare. However, the development and use of such structures in robots is
an active area of research (e.g. biomechanics).

Routine and repetitive jobs which require speed, accuracy, reliability or endurance can be
performed far better by a robot than a human. Hence many jobs in factories which were
traditionally performed by people are now robotized. This has led to cheaper mass-produced
goods, including automobiles and electronics.

9.4.5 Other Intelligent Systems

There are a number of works that attempts to mimic human way of doing assigned tasks.

Automatic Speech Recognition (ASR)

This technology takes the sound waves produced by our speech and converts them into text
content. The process, made possible by lots of computer memory and fast processors, works like
this:
First your continuous voice sound waves, captured by a microphone, are fed into a digital
converter.
This converter takes many samples (like capturing a snapshot) at a very high rate, e.g.
20,000 times per second.
These samples are compared against a large stored template of sounds which match
specific text. The computer then outputs the text which most closely matches the
template.

For this process to work, the system must first be trained to recognize your specific voice. It does
this by asking you to speak a series of simple phonemes, or parts of speech. After about 30
minutes of training, the system can then begin to derive complex speech patterns from the simple
ones you have provided. The methods used to derive and select from the large numbers of
patterns are quite sophisticated. They borrow from techniques such as Markov Processes, which
used probabilities to determine what the most likely next syllable or word may be, or from Neural
Networks. The ASR technology would likely be of use to anyone who needs to utilize a
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computer. However it is most beneficial to those who find it difficult to use a keyboard, such as
people suffering from Carpal Tunnel Syndrome or those who need hands free access on a
manufacturing line.

Genetic Algorithms
To evaluate and locate the best candidates for a task, the Genetic Algorithm (GA) has been found
to be a very effective method. GA's borrow from scientific discovery about the evolutionary
nature of our genes. They utilize fitness functions, which are relationships among criteria, to
grade candidates. They also use evolutionary methods such as crossover and mutation on
chromosomes, or strands of information, to find the best examples from a very large field of
possibilities. This amazing technology provides the capability to find a needle in a haystack. GAs
use a method known as adductive reasoning. This method boils down to sophisticated trial and
error.

Genetic Algorithms have been used to help police work with witnesses to quickly narrow down
the possible perpetrators of a crime. They use a system known as FACEPRINTS. Manufacturers,
such as Deere and Company, utilize GAs to help them set up schedules that combine a large and
complex set of constraints. And General Electric has used a GA approach to help them tune
aircraft engines, which can lead to a significant increase in efficiency.

Intelligent Agents
Intelligent agents (IA), now often known as "bots", are software technology that performs
difficult or repetitive tasks for a user. Using direct commands or on a scheduled timetable, the
IAs execute a provided list of instructions known as a script. The intelligent agent technology
typically “borrows” from capability inherent in other AI techniques, especially in the area of
search. The IA capability can then add the “ever diligent” capability provided to us by computer
processors that can stay awake and work 24 hours a day 7 days a week. A simple script follows
that checks for stories about the stock market and then notifies the user via e-mail when one of
interest appears.

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Natural Language Processing
Natural Language Processing (NLP) is a subfield of artificial intelligence and computational
linguistics. It studies the problems of automated generation and understanding of natural human
languages.

Natural-language-generation systems convert information from computer databases into normal-

sounding human language. Natural-language-understanding systems convert samples of human
language into more formal representations that are easier for computer programs to manipulate.

Virtual Reality
Virtual reality (VR) is a technology which allows a user to interact with a computer-simulated
environment, be it a real or imagined one. Virtual Reality is often used to describe a wide variety
of applications, commonly associated with its immersive, highly visual, 3D environments. The
goal is often to create an interaction medium with a high degree of naturalness. Most current
virtual reality environments are primarily visual experiences, displayed either on a computer
screen or through special or stereoscopic displays, but some simulations include additional
sensory information, such as sound through speakers or headphones. Some advanced systems
now include tactile information, generally known as force feedback, in medical and gaming
applications. Users can interact with a virtual environment or a virtual artifact (VA) either
through the use of standard input devices such as a keyboard and mouse, or through multimodal
devices such as a wired glove, a polhemus boom arm, and omnidirectional treadmill. The
simulated environment can be similar to the real world, for example, simulations for pilot or
combat training, or it can differ significantly from reality, as in VR games. In practice, it is very
difficult to create a high-fidelity virtual reality experience, due largely to technical limitations on
processing power, image resolution and communication bandwidth. However, those limitations
are expected to eventually be overcome as processor, imaging and data communication
technologies become more powerful and cost-effective over time.

VR relies on multi-sensory input/output device such as headset with video goggles, Stereo
earphones, and jumpsuits with fiber–optic sensors that track the body movements. The
development of CAD software, graphics hardware acceleration, head mounted displays; database
gloves and miniaturization have helped popularize the notion. There are many ways that VR is
used today. Application of VR includes:
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• CAD to examine 3-D models of products
• Tele presence such that users can manipulate equipment with sight and touch from remote
area. This enables virtual surgery where surgery can be performed while surgeon and patient
are on either side of the globe; remote use of equipment in hazardous environment such as
chemical plants or nuclear reactors.
• Weather forecasting using visualization weather simulation system
• 3-D video games and entertainment.

Activity C
As AI technologies go beyond the capacity and abilities of human beings, what is the role
of people in the processes they affect? Do you think these technologies empower us by
allowing us to overcome our limitations and expand our range of possibilities? Instead, do
they relegate people to the role of uncritically accepting the outcomes of these processes?
Break into small groups to discuss these issues, and note which arguments that support one
or the other position arise as a result.

Summary

Intelligent support systems are category of information systems that use the techniques of AI. AI
is the effort to develop computer-based systems that can behave as humans. The development in
AI is approached in two ways. One is the bottom-up approach, in which the effort is to build a
physical analog to the human brain. The second approach is a top-down approach where the
focus is on the effort to develop a logical analog to how the brain works. Intelligent systems are
able to learn natural languages, accomplish physical tasks, and emulate human expertise and
decision making. The intent in AI is that, computers can be programmed to perform some of the
same logical reasoning tasks as a human. These systems extend the power of human experts, but
in no way substitute for them or capture much of their intelligence.

The experimental nature and high costs of AI systems are among the limitations that businesses
may not be interested in them. In spite of this, there are important reasons businesses want to use
AI applications such as expert system, which is widely implemented application of AI that uses
its knowledge about a specific, complex application area to act as an expert consultant to end

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users. The benefits and uses of expert systems are: Increased output and productivity; capture
scarce expertise and its dissemination; enhancement of problem solving capabilities, decreased
decision making time etc.

Neural computing is a biological model which is electrically wired neurons that are an active link
to other neurons. Neural networks consist of hardware and software that attempts to emulate the
processing power patterns of the biological brain. Neural networks can be thought by finding a
pattern of connections which allows the network to carry out the correct computation. A neural
network computer can be defined as an interconnected set of parallel switches or processors for
which the network can be controlled by intervention.

Fuzzy logic is a technique that deals with uncertainties by simulating the process of human
reasoning, allowing the computer to behave less precisely and logically than conventional
computers do. Fuzzy logic consists of a variety of concepts and techniques for representing and
inferring knowledge that is imprecise, uncertain or unreliable. It can create rules that use
approximate or subjective values and incomplete or ambiguous data. Fuzzy logic tolerates
impression and even uses it to solve problems we could not have solved before.

Robotics is the science and technology of designing, manufacturing, and application of robots.
Robotics requires a working knowledge of electronics, mechanics and software, and is usually
accompanied by a large working knowledge of many subjects. A robot is a mechanical or virtual
artificial agent.

Other intelligent systems include: Automatic speech recognition, genetic algorithms, natural
language processing, and virtual reality.

References

Anteneh, Salehu (2015). Information Systems for Business: Teaching Material, Addis Ababa
University (unpublished).
Applegate, Lynda M., Austin, Robert D., and McFarlan, F. Warren (2003). Corporate
Information Strategy and Management (6th ed). McGraw-Hill.

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Laudon, Kenneth C. and Laudon, Jane P. (2014). Management Information Systems: Managing
the Digital Firm (13th ed.), Pearson Education.
Luger, George; Stubblefield, William (2004). Artificial Intelligence: Structures and Strategies for
Complex Problem Solving (5th ed.). The Benjamin/Cummings Publishing Company, Inc.
O'Brien, James A. and Marakas, George M. (2011). Management Information Systems (10th ed.),
McGraw-Hill/ Irwin.

Self-Assessment Questions

Match items in group A to items in group B.

Group A
A. Genetic algorithms F. Virtual reality
B. Intelligent agents G. Robotics
C. Fuzzy logic H. Neural network
D. Expert system shell I. Knowledge base
E. Inference engine

Group B
1. AI systems that use neuron structures to recognize patterns in data.
2. A software package that manipulates a knowledge base and makes associations and
inferences leading to a recommended course of action.
3. Computers that can provide you with computer simulated experiences.
4. Software that uses mathematical functions to simulate an evolutionary process.
5. A set of logical judgments that are applied to the inference rules each time a user
describes a situation to the expert system.
6. Knowledge-based software surrogates that do things for you.
7. Development of computer-based machines that possess capabilities such as sight, hearing,
dexterity, and movement.
8. AI systems that use approximate reasoning to processing ambiguous data.
9. A software package consisting of an inference engine and user interface programs used as
an expert system development tool.

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True/False

T F 1. Artificial intelligence (AI) is the sciences of making humans imitate computer

thinking and behavior.

T F 2. Expert systems are adaptive systems that work independently, carrying out
specific, repetitive, or predicable tasks.

T F 3. A neural network is an artificial intelligence system that is capable of finding

and differentiating patterns.

T F 4. A buyer agent is an intelligent agent on a Web site that helps the customer find
products and services.

T F 5. An expert system can be used for medical diagnosis by giving symptoms and
trying to determine what is wrong.

T F 6. A genetic algorithm follows a trial and error approach.

Discussion Questions
1. Can computers think? Will they ever be able to? Explain why or why not.

2. What is an ANN and what are the major benefits and limitations of neural computing?

3. Which applications of AI have the most potential value for use in the operations and
management of a business? Defend your choices.

4. Briefly explain the attributes of intelligent support systems. Are these systems intended to
support operation or management, or both? Why?

5. What are the limitations or dangers you see in the use of AI technologies such as expert
systems, virtual reality, and intelligent agents? What could be done to minimize such
effects?

6. A major difference between a conventional decision support system and an expert system
is that the former can explain a “how” question whereas the latter can also explain a
“why” question. Discuss.

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Case Study

Over 15000 employees work for the UN in more than 100 countries and need to be paid in
different currencies. The pay for each employee includes a base pay for the job and entitlements
based on location, seniority, and special terms agreed on. The rules and regulations of these
entitlements occupied about 1000 pages in manuals and gave rise to complex, lengthy and error-
prone salary calculations that had resisted automation for decades.

Then the UN transferred the rules into an online knowledge base. An expert system was
developed to determine which entitlements are relevant for each employee. A formula-base DSS
calculate the salaries. Since the system is online, the ES reassesses the entitlements whenever a
change to an employee’s status gains approval.

The entitlement system maintains data on all UN employees and their dependents. It also
monitors events such as promotions, relocations, and changes in dependents. The system contains
an explanation mechanism that clarifies how it determines eligibility, and what the values of the
related entitlements are. Explanations are also provided for why some employees are not eligible
for certain entitlements.

The UN information system was recently converted from a legacy mainframe to a Unix-based
client-server architecture. The entitlement application is only one of about 2000 applications that
run on the new $70 million Integrated Management Information System (IMIS). In addition to
the entitlement applications, there are financial, accounting, procurement, payroll, and travel
applications. The expert system was developed with an object-oriented software. It includes an
easy-to-use graphical front end and links to databases as well as other applications. The system
includes 20 LANs, and communication between locations is done via secured VANs.

The most difficult part of implementation was building the knowledge base. About 2000 users at
different locations worldwide applied the information requirements in different ways. The
maintenance of the rules is now fairly simple since the rules are encapsulated in to objects. All
that needs to be done is to change the rule and check its consistency with other rules. The object-
oriented programs also made it easy to compute back pay, a result of retroactive changes.

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Several other ES applications were introduced in the UN financial area. For example, ES
analyses financial data and determines which are debts and credits and which accounts should be
consolidated into other accounts. Finally, the system recommends how to close out books at the
end of designated financial periods.

The IMIS not only increases the productivity and accuracy of accounts, but it also facilitates
planning. Management can make better decisions regarding the deployment of people and other
resources. The determination of entitlements is consistent and therefore more equitable. Finally,
the expertise of the UN experts in New York is now available online, all over the world.

Case Questions
1. Why do employment rules and regulations fit an expert systems approach?

2. Why did the manual process defy automation until the ES approach was used?

3. Why are there links from the ES to data bases and IT applications?

4. What are the benefits of consistent handling of equitable entitlements?

5. Today, the IMIS is praised by its users, those who are responsible for the payroll in all
locations. Can you ascertain ways to make this system even better?

6. Management said the use of an ES forced them to make objectives, rigorous definitions of
the regulations. Why?

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Part IV: SYSTEMS DEVELOPMENT AND
MANAGEMENT

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Chapter 10 Information Systems Development

Learning Objectives

After completing this chapter, you will be able to:

• understand how organizations develop their information systems
• identify the key participants in the systems development process and discuss their roles
• explain the phases in the systems development life cycle
• identify the core activities in the information systems development process
• describe the guidelines for systems development
• appraise various system-building alternatives

Contents
10.1 Overview of Information System Development
10.2 Participants in Systems Development
10.3 Systems Development Life Cycle
10.3.1 Planning Phase
10.3.2 Analysis Phase
10.3.3 Design Phase
10.3.4 Implementation Phase
10.3.5 Operation and Maintenance Phase
10.4 Alternative System-Building Approaches
10.4.1 Prototyping
10.4.2 Application Software Packages
10.4.3 Outsourcing
Summary
References
Self-Assessment Questions

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10.1 Overview of Information System Development

Systems development is the activity of creating a new business system or modifying an existing
business system. It refers to all aspects of the process -- from identifying problems to be solved or
opportunities to be exploited to the implementation and refinement of the chosen solution.
Whatever its scope and objectives, a new information system is an outgrowth of a process of
organizational problem solving. A new information system is developed as a solution to some
type of problem or set of problems the organization perceives it is facing. The problem may be
one where managers and employees realize that the organization is not performing as much as
expected, or it may come from the realization that the organization should take advantage of new
opportunities to perform more successfully.

Understanding information systems development is important to all professionals, not just those
in the field of information systems. In today's organizations, managers and employees in all
levels and functional areas work together and use business information systems. As a result, users
of all types are helping with systems development and, in many cases, leading the way. At some
point a user will likely be involved in a systems development project -- as a user, as a manager of
a business area or project team, as a member of the information systems department, or even as a
CIO (Chief Information Officer) or CEO. Understanding and being able to apply systems
development life cycle concepts, tools and techniques will help ensure the success of the
development projects on which you participate.

Why should system development efforts be considered in line with the organization’s
perspectives? One important thing to know about information systems development is that an
information system is a socio-technical entity, an arrangement of both technical and social
elements. The development of a new information system not only involves hardware, software,
data, programmers and communications, but also includes changes in jobs, knowledge, skills,
management, policies, processes, and organizations. Often new systems mean new ways of doing
business and working together. Building a new information system will affect the organization as
a whole and change the decision-making process. When we develop a new information system,
we are actually changing the organization and business processes. System builders must
understand how a system will affect the organization as a whole, focusing particularly on

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organizational conflict and changes in the focus of decision making. Builders must also consider
how the nature of work groups will change under the new system. Systems can be technically
successful but may fail from organizational point of view because of a failure in the social and
political process of building the system. Therefore, information systems development has become
an essential component of the organizational planning process.

10.2 Participants in Systems Development

Who are participants in a system development project? Effective system development requires a
team effort. For each system development project, the organization usually establishes a project
team to work on the project from beginning to end. The team usually consists of stakeholders,
users, managers, systems development specialists and various support personnel. The
development team is responsible for determining the objectives of the information system and
delivering a system that meets these objectives to the organization. System development should
involve representatives from each department in which the proposed system will be used. This
includes both non technical users and IT professionals. Although the roles and responsibilities of
members of the system development team may change from company to company, this section
presents general descriptions of tasks for various team members.

During the course of the system development project, the system analyst meets and works with a
variety of people. A system analyst is a professional who specializes in analyzing and designing
business systems and is responsible for analyzing, designing and developing an information
system for the organization. The system analyst is the users' primary contact person. What are the
roles and responsibilities of the system analyst?

Depending on the size of the organization, the tasks performed by the system analyst may vary.
Smaller companies may have one system analyst. Larger companies often have multiple system
analysts. System analysts play various roles while interacting with the stakeholders, users,
management, vendors and suppliers, software programmers, and other information systems
support personnel. They are responsible for designing the detailed plans for the new system and
developing the information system. They act as the liaison between the users and the
programmers; that is, they convert user requests into technical specifications. Throughout the
entire development process, system analysts prepare many reports, drawings, and diagrams. They

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also meet with users, management, data and database administrators, network administrators,
programmers, Webmasters and vendors to discuss various aspects of the system development
project. Thus, system analysts must have superior technical skills. System analysts also must be
familiar with business operations, be able to solve problems, have the ability to introduce and
support change, and possess excellent communication and interpersonal skills.

Typically, system analysts are more involved in design issues than in day-to-day programming. A
successful system analyst is willing to embrace new technologies and is open to continued
learning. Growing in demand are skills for the system analyst that include e-business and
enterprise-wide networking.

Stakeholders are individuals who, either themselves or through the area of the organization they
represent, ultimately benefit from the systems development project. Managers who have high
visibility roles as system sponsors or champions are key stakeholders in many strategically
important systems because they work toward the system’s success and ultimately receive some of
the credit or blame. Other stakeholders may be affected less directly if a system shifts the balance
of power in an organization or works contrary to their personal goals. Information systems that
create new communication patterns are likely to have a wide range of stakeholders. Information
system staff members are important stakeholders of most information systems because they are
responsible for system operation and enhancement. As professionals in the field, they have a
deeper understanding than most business professionals about what it takes to build and maintain
solid information systems. They also have a clearer view of technical relationships between
different systems and policies and practices related to systems.

A steering committee is a decision-making body in an organization. The goal of a steering

committee is to get an organization’s leaders, who have different interests and agendas, to share
the responsibilities and risks that come with aligning information systems initiatives with broader
business aims. Many organizations utilize a steering committee for some aspect of their
information systems project management.

Users are individuals who will interact with the system regularly. They can be employees,
managers, customers, or suppliers. For large-scale systems development projects, where the
investment in and value of a system can be quite high, it is common to have senior-level
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managers, including the company president and functional vice presidents, be part of the
development team. Since user information requirements drive the entire system development
effort, users must have sufficient control over the design process to ensure that the system reflects
their business priorities and information needs. The nature and level of user participation in
systems development vary from system to system. There is more need for user involvement in
systems with requirements that elaborate, complex, or vaguely defined than in those with simple
or straightforward requirements.

A software programmer is a professional who uses a computer programming language to write

the instructions necessary to direct the computer to process data into information. Programmers
are responsible for developing computer programs to satisfy user requirements. They take the
plans from the system analyst and build the necessary software.

The other support personnel on the development team are mostly technical specialists. The
network engineers are responsible for installing and maintaining local area networks; the
database analysts assist system analysts and programmers in developing or modifying
applications that use the company’s database; the database administrators administer and control
an organization’s data and information resources; the data warehousing specialists develop and
design enterprise-wide applications for data mining; the data communications specialists
evaluate, install, and monitor data communications equipment and software and is responsible for
connections to the Internet and other wide area networks; and the Webmasters create and
maintain an organization’s Web site.

One or more of these roles may be outsourced to other companies or consultants. Depending on
the magnitude of the systems development project and the number of information systems
development specialists on the team, the team may also include one or more IT managers. The
composition of a development team may vary over time and from project to project. For small
businesses, the development team may consist of a system analyst and the business owner as the
primary stakeholder. For large organizations, formal information systems development team can
include hundreds of people involved in a variety of systems development activities. Every
development team should have a team leader, who is responsible for managing and controlling

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the budget and schedule of the project. The system analyst may or may not be selected as the
leader of the project.

10.3 Systems Development Life Cycle

Information systems development consists of phases, referred to collectively as the systems

development life cycle. The system development life cycle (SDLC) is a very formal approach to
building information systems and refers to all the activities that go into producing an information
systems solution to an organizational problem or opportunity. This methodology assumes that an
information system has a life cycle similar to that of any living organism, with a beginning, a
working period, and an end. SDLC partitions the systems development process into distinct
phases and has an organized set of activities that guide people through the development of an
information system. Some activities in the SDLC may be performed at the same time, while other
activities are performed sequentially. Each activity involves interaction with the organization.
Depending on the type and complexity of the information systems being developed, the nature
and duration of the specific activities vary from one system to the next.

What are the phases in SDLC? The activities of the SDLC can be grouped into the following
major phases: Planning, Analysis, Design, Implementation, Operation and Maintenance.

Phase 2. Analysis
Define problem
Investigate feasibility
Determine user requirements
Recommend solution

Phase 1. Planning
Review project Phase 3. Design
requests Produce logical
Identify objectives design
Develop a plan Produce physical
design
Form a project team

Phase 5. Operation and Phase 4. Implementation

Maintenance Acquire hardware and software
Conduct post-implementation Develop programs, if necessary
system review Install and test new system
Identify errors and enhancements Train and educate users
Monitor system performance Convert to new system

Figure 10-1: The System Development Life Cycle

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As shown in Figure 10-1, each phase in the system development cycle consists of a series of
activities, and the phases form a loop. Information systems development is an ongoing process
for an organization. The phases in the SDLC form a loop, because when the information system
requires changing, which may happen for a variety of reasons such as information requirements
of users has changed or hardware and software become obsolete, the planning phases for a new or
modified system begins and the system development life cycle starts again. The goal of the
SDLC is to keep the project under control and assure that the information system developed
satisfies the requirements.

The five phases in the system development life cycle often appear sequentially. In reality,
activities within adjacent phases often interact with one another--making the system development
cycle a dynamic iterative process. Members of the system development team follow established
guidelines during the entire system development cycle. They also interact with a variety of IT
professionals and other stakeholders during the system development cycle. The following
sections discuss each of these phases.

10.3.1 Planning Phase

The initiation of a system development project may begin in many different ways. A system user
requests a new or modified information system for a variety of reasons, some may be external
and others internal. An external reason could be competition. For example, once one bank offers
Internet access to account information, others will have to follow suit, or run the risk of losing
customers. The most obvious internal reason for changing an information system is to correct a
business problem. For example, the stock-on-hand listed on a report may not match the actual
stock-on-hand in the warehouse.

What are the activities of the planning phase? The planning phase for a project begins when the
management receives a project request. If a system project is called for, this phase identifies its
general objectives, specifies the project’s scope, and develops a project plan that can be shown to
management. During the planning phase, five major activities are performed: (1) review and
approve the project request, (2) identify the problem and objectives, (3) develop the project plan,
(4) form a project team, and (5) allocate resources such as budget, people, and equipment to the
approved project.

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If the management receives several projects requests at the same time, the project requests should
be prioritized. The projects that receive the highest priority are those mandated by management
or some other governing bodies, for example a steering committee. These requests are given
immediate attention. The steering committee evaluates the remaining project requests based on
their value to the company. The steering committee approves some projects and rejects others. Of
the approved projects, it is likely that only a few will begin their system development cycle
immediately. Others will have to wait for additional funds or resources to become available.

10.3.2 Analysis Phase

What are the deliverables of the analysis phase? Systems analysis is the analysis of the problem
that the organization will try to solve with an information system. The analysis phase consists of
two major tasks: (1) conducting a preliminary investigation and (2) performing detailed analysis.
The detailed analysis further contains three activities: (a) study how the current system works; (b)
determine the user's wants, needs and requirements, and (c) recommend a solution.

The preliminary investigation, also called the feasibility study, is a user-oriented overview of
the proposed information system's purpose and feasibility. The purpose of the preliminary
investigation is to define the problem or enhancement, identify its causes or sources, determine
whether or not the problem or enhancement identified is worth pursuing, and determine whether
that project is feasible, or achievable, given the organization's resources and constraints. Should
the company continue to assign resources to this project? To answer this question, the system
analyst conducts a general study of the project and presents his or her findings in a report.

The most important aspect of the preliminary investigation is to define accurately the problem or
enhancement. The perceived problem or enhancement identified in the project request may or
may not be the actual problem. In other words, the actual problem may be different from the one
suggested in the project request. For example, suppose the shipping department complains that
the marketing department takes too long to send customer names and addresses. An investigation
might reveal the marketing department is not the problem. The problem exists because the
marketing department does not have instant access to the customer names and addresses.

The preliminary investigation begins with an interview of the user who submitted the project
request, and other users who will be affected by the project. In addition to interviewing, members
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of the project team may use other data gathering techniques. During the preliminary
investigation, through examining documents and procedures, observing system operations, and
interviewing key users, the development team can identify the problem area and objectives to be
achieved by the solution.

Upon completion of the preliminary investigation, the system analyst writes the feasibility report
that presents his/her findings and a recommendation to the steering committee. The feasibility
report should contain: introduction, review of existing system, benefits of a new system,
feasibility of a new system, and the recommendation. The following major areas of feasibility
must be addressed in the report:

i. Technical Feasibility: Whether the proposed information system can be implemented

with the available hardware, software, technical resources, and human resource.
ii. Economic Feasibility: Whether the benefits of the proposed information system
outweigh the costs.
iii. Operational Feasibility: Whether the proposed solution is desirable within the existing
managerial and organizational framework and culture.
iv. Schedule Feasibility: Whether the schedule for developing and installing the proposed
system is realistic and reasonable in light of the business requirements.

Normally the feasibility study will identify several alternative solutions that can be pursued by
the organization. The written feasibility report will assess the feasibility of each alternative,
describe the costs and benefits, advantages and disadvantages of each alternative, and give a
recommendation. However, it is up to the steering committee to determine which mix of costs,
benefits, technical features, and organizational impacts represents the most desirable alternative.

In some cases, the project team may recommend not to continue the project. In other words, the
team considers the project infeasible. If the steering committee agrees, the project ends at this
point. If the project team recommends continuing and the steering committee approves this
recommendation, however, then detailed analysis begins.

Activity A
Pick an information system that you have used and do a cost-benefit analysis. Make
educated guess for cost and benefit figures.

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What does a detailed analysis involve? The detailed analysis defines the specific information
requirements that must be met by the system solution selected and develops a detailed description
of the functions that the new system must perform. This analysis involves three major activities:
(1) study the existing system in depth so you thoroughly understand the current operations,
uncover all possible problems and enhancements, and determine the causes and effects of these
problems or enhancements; (2) determine the user's requirements for the proposed system, which
includes who needs what information, and when, where, and how the information is needed; and
(3) present alternative solutions to the problem or enhancement and then recommend a proposed
solution. Perhaps the most difficult task of the detailed analysis is to define the specific
information requirements that must be met by the system. Faulty requirement analysis is a
leading cause of system failure and high system development costs. An important benefit from
studying the existing system and determining user requirements is that these activities build
valuable relationships among the system analyst and users. The system analyst has much more
credibility with users if he/she understands how the users currently perform their job
responsibilities and respects their concerns.

Note that, defining information requirements requires close cooperation among system analyst,
users, and other specialists throughout the system analysis phase. While studying the current
system and identifying user requirements, the system analyst collects a great deal of data and
information. A major task for the system analyst is to document these findings in a way that can
be understood by everyone. Both users and IT professionals refer to this documentation.

10.3.3 Design Phase

What is expected out of the design phase? Systems analysis describes what an information
system should do to meet information requirements, while information systems design shows
how the system will fulfill this objective. The design of an information system is the overall plan
or model for the proposed system, which consists of all the specifications that give the system its
form and structure. These specifications should address all of the managerial, organizational, and
technological components of the system solution.

The design phase consists of two major activities: logical design and physical design. Logical
design lays out the logical model that describes the components of the system and their
relationship to each other as they would appear to the users. It describes inputs and outputs,
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processing functions to be performed, business procedures, data models and controls. Controls
specify standards for acceptable performance and methods for measuring actual performance in
relation to these standards.

After the system analyst identifies the data and process requirements, the next step is to develop
detailed specifications for the components in the proposed solutions. A detailed design sometimes
is called a physical design. Physical design is the process of translating the abstract logical
model into the specific technical design for the new system. Physical design develops all of the
details of the information system to be implemented with respect to functionality, features, and
performance. It produces the specifications for physical databases, input/output media and
format, manual procedures, and specific controls. It also generates specifications for hardware,
software, and networking. To obtain these specifications, the system analyst researches using a
variety of techniques such as talking with other analysts, visiting vendor's stores, surfing the
Web, and reviewing written technical materials. Many trade journals, newspapers, and magazines
provide some or all of their printed content as e-zines. An e-zine, or electronic magazine, is a
publication available on the Web.

During database design, the system analyst builds upon the data dictionary developed during the
analysis phase. The system analyst works closely with the database analysts and database
administrators to identify those data elements that currently exist within the company and those
that are new. With relational database systems, the system analyst defines the structure of each
table in the system, as well as relationships among the tables. The system analyst also addresses
user access privileges. That is, the system analyst defines which data elements each user can
access, when they can access the data elements, what actions they can perform on the data
elements, and under what circumstances they can access the elements.

During the input and output design, the system analyst carefully designs every menu, screen,
and report specified in the requirements. The outputs often are designed first because they help
define the requirements for the inputs. Thus, it is very important that outputs are identified
correctly and that users agree to them. The system analyst typically develops two types of designs
for each input and output: a mockup and a layout chart. A mockup is a sample of the input or
output that contains actual data (see Figure 10-2). The system analyst shows mockups to users for

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their approval. Because users will work with the inputs and outputs of the system, it is crucial to
involve users during input and output design.

Figure 10-2: Input screen mockup

After users approve

ove the mockup, the system analyst develops a layout chart for the programmer.
A layout chart is more technical and contains programming-like
programming like notations for the data items (see
Figure 10-3).. Other issues that must be addressed during input and output design include the
types of media to use (paper, video, audio); formats (graphical or narrative); and data entry
validation techniques, which make sure that
th entered data is correct.

Figure 10-3: Layout chart for the mockup in Figure 10-3.

During program design,, the systems analyst prepares the program specification package, which
identifies the required programs and the relationship among each program, as well as the input,
output, and database specifications.
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The detailed design specifications are reviewed before they are given to the programming team.
Reviewers should include users, systems analysts, managers, IT staff, and members of the system
development team. One popular review technique is an inspection. An inspection is a formal
review of any system development cycle deliverable. A team of four or five people examines the
deliverables, such as reports, diagrams, mockups, layout charts, and dictionary entries. The
purpose of an inspection is to identify errors in the item being inspected. Any identified errors are
summarized in a report so they can be addressed and corrected.

Once again, the system analyst reevaluates feasibility to determine if it is still beneficial to
proceed with the proposed solution. If the steering committee decides the project still is feasible,
which usually is the case, the project enters the implementation phase.

10.3.4 Implementation Phase

The implementation phase converts the system specifications established during systems analysis
and design phases into a fully operational information system. The purpose of this phase is to
construct the new or enhanced system and then deliver it to the users. Five major activities are
performed in this phase: (1) acquire necessary hardware and software; (2) develop computer
programs if necessary; (3) install and test the new system; (4) train and educate users; and (5)
convert to the new system.

According to the specifications in the system design, the system analyst sends either a request for
quotation or a request for proposal to prospective hardware and software vendors. A request for
quotation (RFQ) is used when you know which products you want. The vendor quotes prices for
the specified products. A request for proposal (RFP) is used when you want the vendor to select
the products that meet your requirements and quote the prices. System analysts have a variety of
ways to locate vendors. Many publish their product catalogs on the Web. These online catalogs
provide up-to-date information on and easy access to products, prices, technical specifications,
and ordering information. Another source for hardware and software products is a value-added
reseller. A value-added reseller (VAR) is a company that purchases products from manufacturers
and then resells these products to the public--offering additional services with the product.
Examples of additional services include user support, equipment maintenance, training,
installation, and warranties. Instead of using vendors, some companies hire IT consultants; that is,

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they outsource this task. An IT consultant is a professional who is hired based on computer
expertise, including service and advice. IT consultants often specialize in configuring hardware
and software for businesses of all sizes.

After you receive completed quotations and proposals from the potential vendors, you must
evaluate vendor proposals and then select the best one. It is important to be as objective as
possible while evaluating each proposal. A popular technique is to establish a scoring system that
you can use to rate each proposal. System analysts use many techniques to test the various
software products from vendors. They obtain a list of user references from the software vendors.
They also talk to current users of the software to solicit their opinions. Some vendors will give a
demonstration of the product specified. Other vendors provide demonstration copies to test the
software themselves. Demonstration copies usually are free and have limited functionality. Trial
versions are free or have minimal fees and provide full functionality for a set time. In some cases,
the demonstration copies and trial versions are available to download from the Web.

Sometimes it is important to know whether the software can process a certain volume of
transactions efficiently. In this case, the system analyst conducts a benchmark test. A benchmark
test measures the performance of hardware or software. For example, a benchmark test could
measure the time it takes a billing program to print 50 billing statements. Some computer
magazines conduct benchmark tests while evaluating hardware and software and then publish
these results for consumers to review.

Having rated the proposals, the system analyst presents a recommendation to the steering
committee. The recommendation could be to award a contract to a vendor or to not make any
purchases at this time.

If the project development team decides to write custom software, instead of purchasing
packaged software, then the programmers will develop programs from the program specification
package created during analysis and design. It is here, called programming, that system
specifications are translated into program code, the actual instructions for the machine. Like the
system development life cycle, program development also follows an organized set of activities,
called program development life cycle (PDLC). The PDLC is an important part of the
implementation phase.
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If new hardware was acquired, the hardware must be installed and tested at this point. Both
packaged software and custom software programs have to be installed on the hardware. It is
extremely important that the hardware and software be tested thoroughly. Inadequate system
testing will lead to serious problems or even disaster to the organization. Just as you test
individual programs, which is called unit test, you must test the entire information system to
ensure that the programs and hardware operate together to accomplish the desired functions.
System tests frequently uncover inconsistencies among programs as well as inconsistencies in
the original hardware or software specification. It is better to find errors so you can correct them
before putting the system into production; that is delivering it to the users. Testing an information
system can be broken down into four types of activities:

1. Unit Testing: Test each module of the system separately. The purpose of such testing is
to guarantee that modules are error-free and work correctly.
2. System Testing: Test the functioning of the information system as a whole and verify that
all programs in the system work together properly as per the requirements of the users.
3. Integration Testing: Verify that the information system works smoothly with other
systems.
4. Acceptance Testing: Provide the final certification that the system is ready to be used in
a production setting. System acceptance tests are evaluated by users and reviewed by
management. When all parties are satisfied that the new system meets their standards, the
system is formally accepted for the conversion.

For information system to be effective, users must be trained properly on its functionality. They
must be trained on how to use both the hardware and the software. Poor user training is one of the
major reasons why system development projects fail. Users must be trained properly on a
system's functionality. Users training is the process of ensuring that system users know what
they need to know about both the work system and the information system. Training shows the
users exactly how they will use the new hardware and software in the system. Training may take
place as classroom-style lectures or Web-based training that is a self-directed, self-paced online
instruction method. The training format depends on user backgrounds and the purpose and
features of both work system and the information system.

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The final implementation activity is to change from the old system to the new system. This
process is called conversion. This conversion can take place using one or more of the following
conversion strategies (see Figure 10-4):

• Direct cutover strategy: With direct cutover strategy, users stop using the old system and
begin using the new system on a certain date. The advantage of this strategy is that it
requires no transition costs and is a quick implementation technique. The disadvantage is
that it is extremely risky and can disrupt operations seriously if the new system does not
work correctly, since there is no other system to fall back on.
• Parallel strategy: Both the old system and its potential replacement are running together
for a specified time period until it is assured that the new one functions correctly. The
advantage of this strategy is that any problems with the new system can be solved before
the old system is terminated. The disadvantage is that it is very expensive since additional
staff or resources may be required to run both systems.
• Phased strategy: This strategy introduces the new system in stages by functions. Each
function is converted separately at different times using either a direct cutover or parallel
conversion. This strategy is often used with larger systems that are split into individual
functions or sites.
• Pilot strategy: This strategy introduces the new system to only a limited area of the
organization, such as a single department or operating unit. When this pilot version is
complete and working smoothly and correctly, it is installed throughout the rest of the
organization, using one of the aforementioned conversion strategies.

Figure 10-4: System conversion strategies

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10.3.5 Operation and Maintenance Phase

After the new system is installed and conversion is complete, the system is said to be in
operation. The information systems specialists maintain the information system and provide its
users with ongoing assistance during its operation period. This phase consists of four major
activities: (1) conducting a post-implementation system review; (2) correcting errors; (3)
identifying enhancements; and (4) monitoring system performance.

One of the first activities the company performs is to meet with users. The purpose of this
meeting, called the post-implementation system review, is to discover whether the information
system is performing according to the users' expectations. Both users and technical specialists
will review the information system to determine how well it has met its original objectives and to
decide whether any revisions or modifications are in order. If the system is not meeting the users'
expectations, the system analyst must determine what must be done to satisfy the users.

Sometimes users identify errors in the system when the program does not produce correct results.
Problems with design (logic) usually are the cause of these errors. For example, the total of a
column might be incorrect on a daily order summary. These types of errors require investigation.

If the users would like the system to do more, that is they have additional requirements, the
system analyst must decide how to enhance the existing system to satisfy the users. System
enhancement involves modifying or expanding an existing information system--back to the
planning phase.

The system analyst monitors the system to determine if the system is inefficient at any point and
if the inefficiency is causing a problem. Changes in hardware, software, documentation, or
procedures to an existing system to correct errors, meet new requirements, or improve processing
efficiency means that we begin planning all over again. Thus, the loop forms in the system
development life cycle.

Activity B
Take a business problem concerning your top manager and the IS department. Propose a
system, which can be put on in such cases. Analyze the scope and feasibility of the proposed
system and develop a project plan.

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10.4 Alternative System-Building Approaches

What alternative approaches exist, other than SDLC? What are their differences? Systems differ
in terms of their size and technological complexity, as well as organizational problems they are
meant to solve. Because there are different kinds of systems, a number of methods have been
developed to build systems. Alternative system building methods include: prototyping,
application software packages, and outsourcing.

10.4.1 Prototyping

A major problem with the traditional SDLC is that the user does not use the solution until the
system is nearly complete. The traditional approach is also inflexible -- changes in user
requirements cannot be accommodated during development. One of alternative approaches to
system development is the prototyping. Prototyping takes an iterative approach to the systems
development process. During each iteration, requirements and alternative solutions to the
problem are identified and analyzed, new solutions are designed, and a portion of the system is
implemented. Users are then encouraged to try the prototype and provide feedback.

The prototype is a working version of an information system or part of the system, but it meant
to be only a preliminary model. During the development process, the prototype will be further
refined until it conforms precisely to users' requirements. For many applications, a prototype will
be extended and enhanced many times before a final design is accepted. Once the design has been
finalized, the prototype can be converted to a polished working system.

Prototyping is less formal than the development life cycle method. Instead of generating detailed
specifications and sign-off documents, prototyping quickly generates a working model of a
system. Requirements are determined dynamically as the prototype is constructed. Systems
analysis, design, and implementation all take place at the same time. The process of building a
preliminary design, trying it out, refining it, and trying again has been called an iterative process
of systems development because the steps required to build a system can be repeated over and
over again. Prototyping process consists of the following steps (see Figure 10-5):

1. Determine requirements: The system developer works with users to identify the users'
basic information needs.

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2. Develop a working prototype: The system developer creates a preliminary model of a
major subsystem or a scaled-down version of the entire system.
3. Use the prototype: The developer let users work with the working prototype to determine
how well the prototype meets their needs and to make suggestions for improving the
prototype.
4. Revise and enhance the prototype: The developer refines the prototype according to the
users' requests. After the prototype has been revised, the cycle returns to step 3. The steps
3 and 4 are repeated until the user is satisfied. When no more iteration is required, the
approved prototype then becomes an operational system.

Figure 10-5: The prototyping process

Prototyping is most useful when there is some uncertainty about requirements or design
solutions. Requirements may be difficult to specify in advance or they may change substantially
as implementation progresses. This is particularly true of decision-oriented applications, where
requirements tend to be very vague. Prototyping is also valuable for the design of the end-user
interface of an information system (the part of the system that end users interact with, such as
online display and data entry screens, reports, or Web pages). User needs and behaviors are not
entirely predictable and are strongly dependent on the context of the situation. Because

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prototyping encourages intense end-user involvement throughout the systems development
process, it is more likely to produce systems that fulfill user requirements.

However, rapid prototyping can gleam over essential steps in systems development. If the
completed prototype works reasonably well, management may not see the need for
reprogramming, redesign, or full documentation and testing to build a polished production
system. Some of these hastily constructed systems may not easily accommodate large quantities
of data or a large number of users in a production environment.

10.4.2 Application Software Packages

Information systems can be built using application software packages, also called off-the-shelf
software. There are many applications that are common to all business organizations--for
example, payroll, accounts receivable, general ledger, or inventory control. For such universal
functions with standard processes that do not change a great deal over time, a generalized system
will fulfill the requirements of many organizations.

If a software package can fulfill an organization's requirements, the company does not have to
write its own software. The company can save time and money by using the prewritten, pre-
designed, pre-tested software programs from the package. Package vendors supply much of the
ongoing maintenance and support for the system, including enhancements to keep the system in
line with ongoing technical and business developments.

If an organization has unique requirements that the package does not address, many packages
include capabilities for customization. Customization features allow a software package to be
modified to meet an organization's unique requirements without destroying the integrity of the
package software. If a great deal of customization is required, additional programming and
customization work may become so expensive and time consuming that they eliminate many of
the advantages of software packages.

When a system is developed using an application software package, system analysts will include
a package evaluation effort. The most important evaluation criteria are the functions provided by
the package, flexibility, user-friendliness, hardware and software resources, database

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requirements, installation and maintenance effort, documentation, vendor quality, and cost. The
package evaluation process often is based on a Request for Proposal (REP).

When a software package solution is selected, the organization no longer has total control over
the system design process. Instead of tailoring the system design specifications directly to user
requirements, the design effort will consist of trying to mold user requirements to conform to the
features of the package. If the organization's requirements conflict with the way the package
works and the package cannot be customized, the organization will have to adapt to the package
and change its procedures. Even if the organization's business processes seem compatible with
those supported by a software package, the package may be too constraining if these business
processes are continually changing. A new company that was just being set up could adopt the
business processes and information flows provided by the package as its own business processes.
But organizations that have been in existence for some time may not be able to easily change the
way they work to conform to the package.

10.4.3 Outsourcing

If a firm does not want to use its internal resources to build or operate information systems, it can
hire an external organization that specializes in providing these services to do the work. The
process of turning over an organization's computer center operations, telecommunications
networks, or applications development to external vendors is called outsourcing. The application
service providers (ASPs) are one form of outsourcing. Subscribing companies would use the
software and computer hardware provided by the ASP as the technical platform for their system.
In another form of outsourcing, a company would hire an external vendor to design and create the
software for its system, but that company would operate the system on its own computer.

What are the advantages and disadvantages of outsourcing? Outsourcing has become popular
because some organizations perceive it as more cost effective than maintaining their own
computer center or information systems staff. The provider of outsourcing services benefits from
economies of scale (the same knowledge, skills, and capacity can be shared with many different
customers) and is likely to charge competitive prices for information systems services.
Outsourcing allows a company with fluctuating needs for computer processing to pay for only
what it uses rather than to build its own computer center, which would be underutilized when

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there is no peak load. Some firms outsource because their internal information systems staff
cannot keep pace with technological change or innovative business practices or because they
want to free up scarce and costly talent for activities with higher payback.

Not all organizations benefit from outsourcing, and the disadvantages of outsourcing can create
serious problems for organizations if they are not well understood and managed. Many firms
underestimate costs for identifying and evaluating vendors of information technology services,
for transitioning to a new vendor, and for monitoring vendors to make sure they are fulfilling
their contractual obligations. These "hidden costs" can easily undercut anticipated benefits from
outsourcing. When a firm allocates the responsibility for developing and operating its information
systems to another organization, it can lose control over its information systems function. If the
organization lacks the expertise to negotiate a sound contract, the firm's dependency on the
vendor could result in high costs or loss of control over technological direction. Firms should be
especially cautious when using an outsourcer to develop or to operate applications that give it
some type of competitive advantage.

Activity C
Consider an ERP system for a manufacturing organization.
1. What are the various subsystems to be included?
2. Do you think outsourcing is a good option to adopt the system?

Summary
The system development cycle is a set of activities developers use to build an information
system. Most system development cycles contain five phases: planning, analysis, design,
implementation, and support. A system analyst is responsible for designing and developing an
information system.

Systems analysis is the analysis of the problem that the organization will try to solve with an
information system. The analysis phase consists of two major tasks: (1) conducting a preliminary
investigation and (2) performing detailed analysis. The detailed analysis further contains three
activities: (a) study how the current system works; (b) determine the user's wants, needs and
requirements, and (c) recommend a solution.

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The design of an information system is the overall plan or model for that system, which consists
of all the specifications that give the system its form and structure. Logical design lays out the
logical model that describes the components of the system and their relationship to each other as
they would appear to the users. Physical design develops the details of the information system to
be implemented, and produces the specifications for hardware, software, networking, physical
databases, input/output media and format, manual procedures, and specific controls.

The implementation phase converts the system specifications established during systems analysis
and design phases into a fully operational information system. Activities of this phase are:
acquire necessary hardware and software; develop computer programs if necessary; install and
test the new system; train and educate users; and convert to the new system. Operations and
maintenance phase consists of four major activities: (1) conducting a post-implementation system
review; (2) correcting errors; (3) identifying enhancements; and (4) monitoring system
performance.

Alternative system-building approaches are: prototyping, application software packages, and

outsourcing. Prototyping develops a working version of the system (prototype). The prototype is
used, revised, and enhanced until the final version is produced. Information systems can also be
built using software from application software packages. Outsourcing has become popular
because some organizations perceive it as more cost effective.

References

Anteneh, Salehu (2015). Information Systems for Business: Teaching Material, Addis Ababa
University (unpublished).
Kendall and Kendall (2010). Systems Analysis and Design (8th ed.), Prentice Hall.
Maciaszek, Leszek A. (2005). Requirements Analysis and Systems Design (2nd ed).
Harlow,England: Pearson Educational Limited.
O'Brien, James A. and Marakas, George M. (2011). Management Information Systems (10th ed.),
McGraw-Hill/ Irwin.
Shelly, G.B., Cashman, T.J., and Vermaat M.E (2012). Discovering Computers 2013: A Gateway
to Information, Thomson.

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Self-Assessment Questions

Multiple Choices

1. System maintenance is performed in response to:

a. business changes d. all of the above
b. hardware and software changes e. a and c only
c. users' requests for additional features

2. _____feasibility measures whether a company has or can obtain the hardware, software,
and people needed to deliver and then support a proposed information system.
a. Operational d. Economic
b. Technical e. a and b
c. Schedule

3. The _____ becomes the first item in the project notebook.

a. request for quotation
b. request for system services
c. request for information
d. request for proposal
e. None of the above

4. The advantage of a prototype is that _____.

a. users always view the prototype as an initial system, which is the result of an
extensive analysis
b. users can work with the system before it is completed — to make sure it meets
their needs
c. it always has adequate documentation
d. All of the above
e. None of the above

5. With a _____, each location converts to a new system at a separate time.

a. phased conversion d. pilot conversion
b. direct conversion e. None of the above
c. parallel conversion

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6. The purpose of the _____ is to provide ongoing assistance for an information system and
its users after the system is implemented.
a. analysis d. design phase
b. planning e. None of the above
c. support

7. The main disadvantage of using the waterfall model in managing the Systems
Development Life Cycle (SDLC) is that
a. it is difficult for software engineers to manage.
b. no testing occurs until after analysis and design are complete.
c. it is impossible to get one phase perfected before moving on to the next.
d. it takes so long that the new system is out of date by the time it is complete.
e. b and c.
True/False
T F 1. Prototyping develops a working version of a system.

T F 2. Program development is an inevitable activity in SDLC

T F 3. The goal of project management is to deliver an acceptable system to the user in

an agreed-upon time frame, while maintaining costs.
T F 4. Maintaining up-to-date documentation is a one-time activity of the system
development cycle.
T F 5. In the preliminary investigation, the system analyst defines the problem or
improvement accurately.
T F 6. The UML is a graphical tool that enables analysts to document a system.
T F 7. The advantage of the parallel conversion strategy is that it is inexpensive to
operate the systems.
T F 8. During the support phase, the system analyst monitors performance of the new or
modified system.

Discussion Questions
1. Discuss the importance of outsourcing, and indicate situation where outsourcing is
preferable to in-house software development.

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2. Why has prototyping become a popular way to develop business applications? What are
advantages and disadvantages?
3. Assume that in your first week on a new job you are asked to use a type of business
software that you have never used before. What kind of user training should your
company provide to you before you start?
4. What is the difference between the parallel, direct, phased, and pilot forms of IS
conversion? Which conversion strategy is best? Explain why.
5. Pick a business task you would like to computerize. How could you use the steps of the
information systems development life cycle? Use examples to illustrate your answer.

Case Study

Getaneh International Ltd. has turned to collaboration software to transform its World Wide Web
site into an interactive experience and keep its customers coming back. Along the way, it has
reduced the hassles involved in updating the ever-changing contents of the Web site.

Jamaika, sport shoe and sports apparel manufacturer, recently redesigned their Web site at
www.getaneh.com using Radnet WebShare, a Web-based groupware system. Getaneh is using
the built-in electronic-mail hooks, discussion groups, bulletin boards, and E-mail postcards to
make the site far more interactive than when it debuted in 2000, according to Bekele, Getaneh's
director of interactive marketing.

The goal was to create a Web site that fostered a community of users, Bekele said. "If you just try
and use the Web to sell them products, something is missing," he said. getaneh.com gets about
800,000 hits per day, and the company has signed up about 25,000 site members.

Getaneh currently offers four micro-sites, each devoted to a particular fitness category, where
customers can get profiles of athletes and training tips from coaches. But visitors who fill out a
profile form in which they list their favorite sports will get customized workout tips, news
updates about their sport, and other information on future visits. Site members also can send E-
mail postcards to their favorite athletes. A Java-based sports ticker component that will let
Getaneh push game scores and sports stories to visitors is also in development.

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"Delivering customized content via Web sites is still pretty rare but extremely valuable to
companies like Getaneh that sell to a mass market," said Habtie, an analyst at Giga Information
Group. It is particularly key for Getaneh, "which is probably marketing to a younger audience
that is looking for a fair amount of glitz," Habtie said.

Getaneh chose WebShare because it provides the capability for Getaneh employees to update the
contents of a Web page-for example, modifying the address of a distributor or adding a recent
interview with a sports figure using a Web browser. And the workflow features in WebShare help
Getaneh manage the contents of its site.

Getaneh's marketers can update information and pass those changes to the appropriate people
automatically using a workflow program. Previously, updates to the site had to be coordinated
through Getaneh's Internet service provider. The kind of do-it-yourself updating that Getaneh
now enjoys is one of the main advantages of using a Web-based collaboration development tool
such as WebShare.

1. Why is Getaneh International Ltd. redesigning its Web site?

2. Do you agree with Getaneh's changes to its Web site? Why or why not?
3. How does information technology help Getaneh's business end users make improvements
to their Web sites?

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Chapter 11 Managing Information Resources and Technologies

Learning Objectives
After completing this chapter, you will be able to:
• describe how vital is information systems management
• identify functional areas of information systems management
• identify a structure how an information systems department (ISD) assumes information
management responsibilities
• distinguish between centralized and decentralized organization of ISD
• understand the information resource management (IRM) approach in organizations

Contents
12.1 Reasons for Information Systems Management
12.2 Management Involvement and Governance
12.3 Information Systems Department
12.4 Major IS Management Functions
12.5 Information Resource Management (IRM)
12.5.1 Strategic Management
12.5.2 Operational Management
12.5.3 Resource Management
12.5.4 Technology Management
12.5.5 Distributed Management
Summary
References
Self-Assessment Questions

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11.1 Reasons for Information Systems Management

We have said that information systems play great role in today’s business operation. Business
firms, other organizations, and individuals in contemporary society rely on information systems
to manage their operations, compete in the marketplace, provide services, and augment personal
lives. Information system performance greatly depends on extensive and meaningful management
and end user involvement in planning, developing and implementation of the information system.
Managing information systems involves the analysis, design, development, implementation, and
management of computer-based systems. The objective is to combine technical computer
competencies and knowledge of business operations to achieve a systematic perspective for the
successful integration of information technologies into an organization.

Information systems are increasingly vital in the work of organizations. So an understanding of

how to manage this important and potentially vital resource needs to be developed. Hence, it is
essential for organizations to focus on what they want to gain using their IS and then put in place
systems to help them achieve this. Careful management of IS will not only help organizations
meet their aims and objectives; it will also prevent organizations making possibly expensive
mistakes. Managing information systems is vital due to the following reasons: Rapid changes in
IT, inefficient use of IS, and the need for competitive advantage.

Rapid Changes in IT
Information processing technology and its applications for users’ needs are growing and
changing rapidly. Technical change moves much faster than humans and organizations are
changing. The power of computer hardware and software has grown much more rapidly than the
ability of organizations to apply and use this technology.

Information systems play a critical role in organizations. The role played by early systems
addressed largely technical and operational issues; managers could afford to delegate authority
and concern to lower-level technical workers. But because today’s systems directly affect how
managers decide, plan, and in many cases what products and services are produced, responsibility
for information systems cannot be delegated to technical decision makers.

One reason why systems play a larger role in organizations, and why they affect more people, is
the growing power and decline cost of information technology. Improved hardware capacity and
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availability of easy to use software do not require extensive training for a novice. The skills such
as word processing, project scheduling, spreadsheet preparation, and telecommunication
applications on a microcomputer once belonged exclusively to employees who had been thought
extensive specialized training, now it is conceivable that everyone in an organization may be
using a computer simultaneously in some way during the work day.

Both the changing role of systems and the new technology have brought about new kind of
systems and applications that are much more deeply embedded in the fundamental activity of the
firm.

Managing information technologies will enable organizations to get more out of their current
equipment and also to make better decisions on acquisitions of new equipment and ICT
developments. Information systems management is needed to successfully participate in and
support the increasingly visible role of information systems in corporate decision making.

Inefficient Use of IS
Inadequate performance and unsatisfactory use of information systems and resources is a major
problem in many organizations. Too often, organizations achieve unsatisfactory results from
major information system investments. Information systems functions have performance
problems in many organizations. The promised benefits of information technology have not
occurred as expected. Poor results may be attributable to inadequate systems training and
implementation, misunderstood system capabilities, system weaknesses, poor set-up and
configuration, or other problems.

Information technology is not being used efficiently by information services groups that provide
poor response times, frequent downtimes, incompatible systems, un-integrated data, and
applications development backlogs.

Business is increasing its dependence on information technology to lower its costs and improve
financial and operating efficiencies. Information technologies are not being used economically in
many cases. IT costs have risen faster than other costs in many businesses, even though the cost
of processing each unit of data is decreasing due to dramatic price reductions and improvements
in hardware and software technology.

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Unsatisfactory system performance also can be frustrating to staff, undermining morale and
reducing productivity. Automated or semi-automated systems that malfunction or are poorly
operated can have extremely harmful consequences. A firm invites disaster if it uses systems that
do not work as intended.

It is essential that managing IS is recognized as fundamental to the development of organizations.

IS is too important to be ignored. No matter how important and difficult IS can be, managers
must not lose sight of the fact that it is only a means to an end; it isn't an end in itself. To realize
benefits and achieve the best value from IS, organizations need to devote time and energy to
managing IS.

The Need for Competitive Advantage

An efficient and effective information system enables a business a major competitive advantage
over its competitors. The biggest asset of companies today is their information--represented by
people, experience, know-how, and innovations. For a company to be able to compete, it must
have a strong information infrastructure, at the heart of which lies the IT infrastructure. Thus the
management of information systems focuses on why and how technology can be put into best use
to serve the information flow within an organization. Information system management focuses on
developing and managing information system that significantly improves operational efficiency,
promotes innovative product and services, and builds a strategic information resource base.

In order to use information systems as competitive weapons, one must first understand where
strategic opportunities for business are likely to be found. Competitive advantage can be achieved
by enhancing the firm’s ability to deal with customers, suppliers, substitute products and services,
and new entrants to its market, which in turn may change the balance of power between a firm
and other competitors in the industry in the firm’s favor.

With a product differentiation strategy, firms can develop brand loyalty by creating unique
products and services. When business use information systems to provide products or services
that cannot be easily duplicated or that serves specialized markets, they can raise the market entry
costs for competitors.

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Increasingly, information systems are bringing about changes in business goals, relationships
with customers and suppliers, and internal operations. Nowadays, in the age of information
technology and the Internet, the creation and maintenance of business models has to consider the
latest developments in information technology to ensure competitiveness and long-term success
of the enterprise. The aim of information system management is to integrate information
technology into business models and business processes to explore its potential to meet the
business goals.

11.2 Management Involvement and Governance

What is the solution to problems of poor performance in the information systems function? There
are no quick and easy answers. However, the experiences of successful organizations reveal that
extensive and meaningful managerial and end user involvement is the key ingredient of high-
quality information systems performance. Involving business managers in the governance of the
IS function and end users in the development of IS applications should thus shape the response of
management to the challenge of improving the business value of information technology.

Involving managers in the management of IS (from CEO to the managers of business units)
requires the development of governance structures that encourage their active participation in
planning and controlling the business uses of IS. Thus, many organizations have developed
policies and procedures that require managers to be involved in IS decisions that affect their
business units. This helps managers avoid IS performance problems. Without this high degree of
involvement, managers cannot hope to improve the strategic business value of information
technology.

Successful information systems performance requires the involvement of business managers in IS

governance. Management involvement and governance of information technology at several
major levels includes:

• Executive IT Committee: Many organizations use an executive information technology

committee of top executives to do strategic information system planning and to coordinate the
development of major information systems projects. This committee includes senior
management of the major divisions of the firm, as well as the chief information officer (CIO)
of the organization, who is the senior executive responsible for governance of the IS

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functions.

• IT Steering Committee: A steering committee of business unit managers, operating

managers, and management personnel from the information services department may be
created to oversee the progress of critical systems development projects. The committee meets
on a regular basis to review progress made, to settle disputes, and to change priorities, if
necessary.
• End User Management: End user managers must also accept their responsibility for
managing the resources and quality of information systems and services within their business
units and workgroups. This includes involvement in IS development projects that affect their
business units, as well as managing the IS people, hardware, software, network, and data
resources within their units.

11.3 Information Systems Department

Companies use a variety of organizational arrangements for the delivery of information services.
In the early years of computing, when computers could barely handle a single department's
workload, decentralization was the only option. Subsequently, the development of large
mainframe computers and telecommunications networks and terminals caused a centralization of
computer hardware and software, databases, and information specialists at the corporate level of
organizations. Next, the development of minicomputers and microcomputers accelerated a down-
sizing trend, which prompted a move back toward decentralization by many business firms:
Distributed client/server networks at the corporate, department, workgroup, and team levels came
into being. This promoted a shift of databases and information specialists to some departments,
and the creation of information centers to support end user and workgroup computing.

Thus, the trend is now to establish tighter control over the management of the IS resources of an
organization, while still serving the strategic needs of its business units. This has resulted in a
centralizing trend at some organizations and the development of hybrid structures with both
centralized and decentralized components at others. Some companies have even shifted their
information systems function into IS subsidiaries that offer information processing services to
external organizations as well as to their parent company. Other corporations have outsourced,
that is, turned over all or part of their information systems operations to outside contractors
known as systems integrators or facilities management companies.
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Where information services are centralized, this unit is responsible for planning, acquiring,
operating, and maintaining information systems for the entire organization. In decentralized
structures the central unit is responsible only for planning and maintaining the infrastructure,
while business and administrative specialists provide systems and services for their own units.

Information technology can encourage either the centralization or decentralization of information

systems, business operations, and management. The philosophy of top management, the culture
of the organization, the need to reengineer its operations, and its use of aggressive or conservative
competitive strategies all play major roles with information technology in shaping the firm's
organizational structure and information systems architecture.

In many organizations, the information system's function is organized into a departmental or

divisional unit. We will use the name Information System Department (ISD) for this unit, though
other names such as MIS (Management Information Services), IRM (Information Resource
Management) or IT department are also used.

In most medium- and large-sized organizations, information resources are typically managed
through an IS department that employs systems analysts, computer programmers, computer
operators, database developers, network administrators, telecommunication specialists, and a
number of other information systems personnel. In smaller businesses, one or more people may
manage information resources with support from outside services.

Successful information systems management in business demands for business-knowledgeable IS

professional and an IS-knowledgeable manager. In addition to technical skills, information
systems personnel also need skills in written and verbal communication, an understanding of
organizations and the way they operate, and the ability to work with other people.

Some of the job titles associated with information systems management are the chief information
officer (CIO), vice president of information systems, and manager of information systems. The
central role of all these managers is to employ an IS department's equipment and personnel in a
manner that will help the organization attain its goals. The CIO usually works with other high-
level officers of the organization, including the chief financial officer (CFO) and the chief
executive officer (CEO), in managing and controlling total corporate resources.

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The organization chart shown in Figure 12-1 is a simplified model of an IS department in a
typical medium- or large-sized organization. What functions are entrusted to an IS department?
The functions of information system department are organized into three sections: systems
development, operations, and support.

Figure 12-1: Typical ISD organization chart

Systems development
The systems development function of a typical IS department focuses on specific system
development projects and ongoing maintenance and review. Systems analysts and programmers
focus on these concerns. The role of a systems analyst is multifaceted. Systems analysts help
users determine what outputs they need from the system and construct the plans needed to
develop the necessary programs that produce these outputs. Systems analysts then work with
programmers to make sure that the appropriate programs are developed, modified from existing
programs, or purchased. The major responsibility of a computer programmer is to use the plans
developed by the systems analyst to develop or adapt computer programs that produce the desired
outputs. This function of an IS department is a major managerial responsibility for:

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• Investigating, analysis, design, implementation, and maintenance of information systems
within an organization.
• Planning, organizing, and controlling the systems development.

Operations
The operations function of a typical IS department focuses on the day-to-day use of information
systems in computer facilities. Specialists required in this unit are: system operators, data-entry
operators, LAN administrators, and, webmaster. The primary function of a system operator is to
run and maintain IS equipment and devices. data-entry operators are responsible for inputting
data into a form the computer system can process. LAN administrators are responsible for setting
up and managing the Local Area Network (LAN) hardware, software, and security processes.
They manage the addition of new users, software, and devices to the network. There is also an
increasing need for trained personnel to set up and manage an organization's Internet site, a role
called webmaster. The managerial responsibilities are concerned with the use of hardware,
software, and personnel resources. Operational activities that must be managed include date
entry, equipment operation, production control and production support.

Support
The support function of a typical IS department focuses on providing user assistance in the areas
of hardware and software acquisition and use, data administration, and user training and
assistance. Because information system hardware and software is costly, a specialized
information technology group within the support function often manages standards for the
acquisition of computer hardware and software. This IT group sets guidelines and standards for
the rest of the organization to follow in making its purchases. Gaining and maintaining an
understanding of available information technology is an important part of the acquisition of
information systems. Data administration is another area of support, where the database
administrator is responsible for planning, formulating policies, and designing procedures
regarding the use of corporate data and information. In addition, the database administrator is
also charged with monitoring and controlling database use. Some organizations use information
centers to support end user and workgroup computing. Information centers are special facilities
housing hardware, software, and technical specialists to supply end users and workgroups with

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tools, training, and expert advice so they can create information system applications that increase
their productivity.

11.4 Major IS Management Functions

IS management assumes the following major managerial functions and responsibilities: Data
management, network management, technology management, capacity management, human
resource management, and security management.
Data Management: Enterprise data are critical resource and vital to the day to day operations at
all levels of the organization. Database need to be centrally coordinated and controlled by a data
resource management philosophy and a data administration function. A data administration
function involves the establishment and enforcement of policies and procedures for managing
data as a strategic corporate resource. The major responsibilities are: data planning, data standard,
database design, and database operation.

Network Management: Networks have enormous potential for enhancing a firm’s strategic
position. Network management is to determine exactly how the firm’s competitive position could
be enhanced by communication technology. This function involves the management of the wide
area network – used for applications such as online transaction processing, inquiry/response, and
electronic mail; and managing local area networks for work group and end user computing. These
networks require a major commitment of hardware (terminals, communication channels, and
communication processors) and telecommunication software resources. Dealing with these
resources requires the creation of managerial and staff positions to manage their use. Network
managers develop and implement firm’s network plans to ensure that network systems serve
business objectives and operations. Important factors to consider are distance, range of services,
security, access, utilization, cost, installation, and connectivity.
Technology Management: The function of information technology management is the provision
and operation of the technical infrastructure and the planning of the technical orientation of
information systems in an enterprise. An important aspect is the impact of changing information
systems on organizational structures and processes – and vice versa.

Changes in information technology have come swiftly and dramatically and are expected to
continue in the future. The management of rapidly changing technology is important to any

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organization. Many organizations have established separate groups to identify, introduce and
monitor the assimilation of new technology in to their organization.

Capacity Management: This function is meant to identify and analyze computing capacity
utilization in order to help maintain an adequate level service at the organization. It also refers to
plans for future acquisition of hardware and software resources. Capacity planning methods result
in forecasts of information processing job loads, hardware and software usage, and resource
requirements.

The aim of capacity management is to match the supply of IT resources to customer demands. It
is concerned with having the appropriate IT capacity and with making the best use of it. The
capacity plan is beneficial to both systems management and purchasing in order to gain visibility
of the schedule and likely infrastructure changes necessary to maintain service at the required
levels.

Human Resource Management (HRM): The success or failure in information services of an

organization rests primarily on the quality of its people. Many computer-using firms consider
recruiting, training, and retaining qualified IS personnel as one of their greatest challenges.
Managing information services functions involves the management of managerial, technical, and
clerical personnel. One of the most important jobs of information services managers is to recruit
qualified personnel and to develop, organize, and direct the capabilities of existing personnel.

Employees must be continually trained to keep up with the latest developments in a fast-moving
and highly technical field. Employee job performance must be continually evaluated and
outstanding performances rewarded with salary increases or promotions. Salary and wage levels
must be set, and career paths must be designed so individuals can move to new jobs through
promotion and transfer as they gain in seniority and expertise.

IS Security Management: Another most important function of IS department is managing

information system security. Most organizations must deal with complex system security issues.
All elements of an information system--hardware, software, data, people, communication
networks, and procedure--must be secured from threats both inside and outside the enterprise. For
example, users should be allowed access only to the data and information for which they are

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authorized, which typically is limited to the amount necessary to do their job. Data should be
secured so intruders cannot alter, damage, or steal data. Networks need safeguards to prevent
them from being compromised. The details of IS security issues will be discussed in Chapter 13.

Companies today often have a chief security officer (CSO) who is responsible for physical
security of a company's property and people and also is in charge of securing computing
resources. It is critical that the CSO is included in all system development projects to ensure that
all projects adequately address information security. The CSO uses many techniques to maintain
confidentiality or limited access to information, ensure integrity and reliability of systems, ensure
uninterrupted availability of systems, ensure compliance with laws, and cooperate with law
enforcement agencies.

An important responsibility of the CSO is to develop a system security plan. A system security
plan summarizes all of the safeguards that are in place to protect a company's information assets.
A system security plan should do the following:

Identify all information assets of an organization, including hardware, software,

documentation, procedures, people, data, facilities, and supplies.
Identify all security risks that may cause an information asset loss. Rank risks from most
likely to occur to least likely to occur. Place an estimated value on each risk, including the
value of lost business.
For each risk, identify the safeguards that exist to detect, prevent, and recover from a loss.

The CSO should evaluate the system security plan annually or more frequently for major
changes in information assets, such as the addition of a new computer or the implementation
of a new application. In developing the plan, the CSO should recognize that some degree of
risk is unavoidable; further, the more secure a system is, the more difficult it is for everyone
to use. The goal of a system security plan is to match an appropriate level of safeguards
against the identified risks.

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Activity A
Visit an organization with information management functional unit that you are familiar with.
1. Describe the structure of the ISD.
2. What are the basic functions of the department?
3. Identify the professionals who deliver the services by the department.

11.5 Information Resource Management (IRM)

What is the importance of IRM? Information is regarded as a valuable resource which should be
managed like other resources, and should contribute directly to accomplishing organizational
goals and objectives. IRM provides an integrated view for managing the entire life-cycle of
information, from generation, and processing to dissemination, to archiving and/or destruction,
for maximizing the overall usefulness of information. IRM views information and IT as
integrating factors improving service delivery and program management in the organization, that
is, the various organizational positions that manage information are coordinated and work
together towards common goals. Further, IRM looks for ways in which the management of
information and the management of IT are interrelated, and fosters that interrelationship and
organizational integration.

IRM includes the management of the broad range of information resources, the various
technologies and equipment that manipulate these resources, and the people who generate,
organize, and disseminate those resources. Overall, the intent of IRM is to increase the
usefulness of information both to the organization and to its customers.

IRM is an IS management concept that organizes the management and mission of the
information system functions into the following five major dimensions: Strategic management,
operational management, resource management, technology management, and distributed
management.

11.5.1 Strategic Management

The IRM concept emphasizes a strategic management view that IT must be managed not only
for operational efficiency or decision support but also to contribute to a firm's strategic
objectives and competitive advantages. Thus, the information systems function must change
from an information services utility focused only on serving a firm’s transaction processing or
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decision support needs. It must become a producer or packager of information products or an
enabler of organizational structures and business that can give a firm a competitive advantage
over its competitors. IRM strategic management focuses on developing and managing
information systems that significantly improve operational efficiency, promote innovative
products and services, and build strategic business alliances and information resources that can
enhance the competitiveness of an organization.

11.5.2 Operational Management

The IRM concept stresses that managerial functions and techniques and organizational
structures common to most businesses can be used to manage information technology.
Business and IS managers can use managerial techniques (such as planning models, financial
budgets, and project management), and a mix of functional and process-based work groups
and business units, just as they do in other major areas of the business.

11.5.3 Resource Management

From an IRM point of view, data and information, hardware and software, communications
networks, and IS personnel are valuable resources that should be managed for the benefit of
the entire organization. If plant and equipment, money, and people are considered vital
organizational resources, so should its data, information, and other information system
resources. This is especially true if the organization is committed to building a strategic
information resource base to be used for strategic IT applications, and if it wants to develop
innovative products and services that incorporate information processing technology.

11.5.4 Technology Management

An IRM philosophy emphasizes that all technologies that process, store, and deliver data and
information must be managed as integrated systems of organizational resources. Such
technologies include the Internet, intranets, and electronic commerce and collaboration
systems, as well as traditional computer based information processing. These “islands of
technology” are bridged by IRM and become a primary responsibility of the CIO, since he or
she is in charge of all information technology service. Thus, the information systems function
can become “a business within a business”, whose chief executive is charged with strategic
planning, research and development, and coordination of information technologies for
strategic benefit of the organization.
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11.5.5 Distributed Management

Responsibility for managing information technology is increasingly being distributed to the

managers of an organization at all levels and in all functions. IRM is not just the responsibility
of an organization’s chief information officer. If you’re a manager, IRM is one of your
responsibilities, whether you are a manager of a company, a department, a workgroup, or a
functional area. This is especially true as the Internet, intranets, and client/server networks
drive the responsibility for managing information systems out to all of an organization’s
functional and workgroup managers.

Summary

Information system performance greatly depends on extensive and meaningful management and
end user involvement in planning, developing and implementation of the information system.
Managing information system involves the analysis, design, development, implementation, and
management of the systems.

Managing information resources and technologies is vital because: Information systems

technology and its applications for users’ needs are growing and changing rapidly; inadequate
performance and unsatisfactory use of information systems and resources is a major problem in
many organizations; and an efficient information system enables a business a major competitive
advantage over its competitors.

In most medium- and large-sized organizations, information resources are typically managed
through an IS department that employs systems analysts, computer programmers, computer
operators, network administrators, telecommunication specialists, and a number of other
information systems personnel.

The information systems department, led by the CIO, performs three primary functions: systems
development, operations, and support. The department is responsible for managing data, network
administration, technology, capacity, human resource and information system security.

IRM is an IS management concept that organizes the management and mission of the
information systems function into five major dimensions: Strategic management, operational
management, resource management, technology management, and distributed management. The
fundamental objective of IRM is to ensure that an organization's information systems support its

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strategic direction and business plans and enhance the quality, applicability, accessibility and
value of the information resources of the enterprise.

References

Anteneh, Salehu (2015). Information Systems for Business: Teaching Material, Addis Ababa
University (unpublished).
Applegate, Lynda M., Austin, Robert D., and McFarlan, F. Warren (2003). Corporate
Information Strategy and Management (6th ed). McGraw-Hill.
Boddy D., Boonstra A., and Kennedy G. (2002). Managing Information Systems: An
Organization Perspective. Prentice Hall:
Laudon, Kenneth C. and Laudon, Jane P. (2014). Management Information Systems: Managing
the Digital Firm (13th ed.), Pearson Education.
Osterle, H. et al (1993). Total Information Systems Management: A European Approach.
Chichester: John Wiley & Sons.

Self-Assessment Questions

Match items in group A to items in group B

Group A

A. Human resource management E. Support function

B. Information resource management F. Operations Functions
C. Capacity management G. Network management
D. Data management
Group B
___ 1. Focuses on providing user assistance in the areas of hardware and software acquisition
and use, data administration, and user training and assistance.
___ 2. Concerned with making the best use of IT and matching the supply of IT resources to
customer demands.
___ 3. Its focus is on the day-to-day use of information systems in computer facilities.
___ 4. Involves the function for establishment and enforcement of policies and procedures for
managing data as a strategic corporate resource.

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___ 5. A systematic perspective for the successful integration of information technologies into an
organization.

True/False

T F 1. In a centralized IS structure the central unit is responsible only for planning

and maintaining the infrastructure.

T F 2. The business value of IT can hardly be achieved without meaningful

managerial involvement in IS governance and end user involvement in IS
development.

T F 3. The use of information systems as competitive weapons requires

understanding strategic opportunities for business.

T F 4. Unlike the changing role of information systems, the responsibility for

managing them rests on technical professionals.

T F 5. The choice between centralized and decentralized IS structure depends on the

organization’s IT infrastructure.

T F 6. For successful information systems management, managers and IS

professionals are required to be business-knowledgeable and IS-
knowledgeable.

T F 7. IRM is the responsibility of managers at all levels in the organization.

Discussion Questions

1. What are some of the toughest management challenges in developing IT solutions to solve
business problems and meet new business opportunities?
2. Why do you think organizations have established the CIO position? What kind of
individual should fill it?
3. Compare and contrast the advantages and disadvantages of centralized and decentralized
structure of an ISD?
4. What can managers do about performance problems in the use of information technology
and the development and operation of information systems in a business?

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5. How is information technology affecting the structure and work roles of modern
organization?
6. If you became the CEO of a firm, how would you evaluate its information systems effort?

Case Study

Xerox corp., the “king” of copying, has been fighting for its life, facing challenges from new
technologies, and strong competitors that are constantly transforming the markets where Xerox
does business. Electronics, which count for only ten percent of the business in 2008, are expected
to capture 70% of the market by 2015.

Xerox had to reengineer itself. 2000 Xerox made history when it outsourced its IT operations, in
the largest ever and first global deal of a $3.2 billion, 13 year contract. Despite the outsourcing,
Xerox kept its CIO at a very high corporate position. As a matter of fact she is a member of the
top management team. She engineered the outsourcing, and so far she has kept her job for 6
years. The average job tenure in her profession lasts less than 3 years. The CEO places lots of
importance on the CIO’s job, even though the IS area is small. The CEO said that Xerox gave her
long term projects with long term payoff. Her job is to get Xerox ready for 21st century.

The CIO developed strategic plan called Information Management 2015 (IM 2015). The plan
includes three key strategies: outsourcing, replacing propriety infrastructure with a standard one,
and creating an investment fund to support the reengineering of IT. Xerox reengineered four key
areas: customer service, sale cycle (time to market), integrated supply chain, and superb
employee relations.

The key to CIO’s success is considered to be her ability to create a road map for others to follow.
She had a vision and knew how to implement it through special teams, like the one that put
together the outsourcing deal.

People say that CIO’s success is also due to her ability in painting an accurate and compelling
vision. It may cause some controversy but she is able to sustain the vision and sustain executive
management support for it. As it continues to play an increasingly important role enabling
companies to become more competitive, CIOs and other IT executives must think beyond glass-

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house borders but perhaps most important is the ability to find the right people both in the IS
organization and among the end users to implement visions.

CIO works with an IS steering committee (IM council) which includes IS experts for each
business unit. One of the major tasks of the committee is to review the IT project requests of the
units, which are submitted annually. The IM council meets once a month to discuss IT strategy
and implementation.

In addition, CIO created its office, consisting of herself and her two assistants, the director of IT
operations, and the directors of IT finance. This committee meets almost daily to run the IM
project.

Case Questions

1. Why is a CIO needed if the IS function basically outsourced?

2. The CIO’s is basically a man’s job with tenure of only three years. Find some research on
why this is so, and why CIO is lasting on the job much longer in a major corporation.

3. It is said that the CIO/CEO relations of are critical, and that CIO had the backing of CEO
to make bold decisions. Comment.

4. CIO was extensively using “IS by committee” approach. What are the major benefits of
it?

5. Comment on the relationships between CIO’s strategy and Xerox’s need for BPR.

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Chapter 12 Security, Privacy, Ethical and Societal Issues

Learning Objectives
After completing this chapter, students will be able to:
• identify ways to safeguard against computer viruses, worms, and Trojan horses
• discuss techniques to prevent unauthorized computer access and use
• explain the ways software manufacturers protect against software piracy
• discuss the types of devices available that protect from system failure
• identify safeguards that protect against Internet security risks
• describe types of security control and their importance
• discuss issues surrounding information privacy
• discuss ways to prevent health-related disorders and injuries to computer users
Contents
13.1 Information Security Management
13.1.1 Computer Security Risks and Controls
13.1.1.1 Viruses, Worms, and Trojan Horses
13.1.1.2 Unauthorized Access and Use
13.1.1.3 Hardware, Software, and Information Theft
13.1.1.4 System Failure
13.1.1.5 Internet Security Risks
13.1.2 Information Security Controls
13.1.2.1 Physical Controls
13.1.2.2 Technical Controls
13.1.2.3 Administrative Controls
13.2 Information Privacy, Ethics and Society
13.2.1 Computer Ethics
13.2.2 Information Privacy
13.2.3 Health Concern of Computer Use
Summary
References
Self-Assessment Questions

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12.1 Information Security Management

What do you understand under computer security? Security is generally defined as the freedom
from danger or the condition for safety. Computer security, specifically, is the protection of data
in a system against unauthorized disclosure, modification, or destruction and protection of the
computer system itself against unauthorized use, modification, or denial of service. Because
certain computer security controls inhibit productivity, security is typically a compromise toward
which security practitioners, system users, and system operations and administrative personnel
work to achieve a satisfactory balance between security and productivity.

Why is managing security essential? The goal of security management is the accuracy, integrity,
and safety of all information processing activities and resources. Effective security management
can minimize errors, fraud, and losses in the information systems that interconnect today’s
companies and their customers, suppliers and other stakeholders. Security managers must acquire
and integrate a variety of security tools and methods to protect a company’s information system
resources.

12.1.1 Computer Security Risks and Controls

What are computer security risks? With computers being so important to our everyday lives, we
are concerned about anything that could cause the loss or damage of our computers, a computer
security risk. We are also concerned about illegal uses of computers, computer crimes. When
these crimes occur over networks they are sometimes called cybercrime. The nature of computer
crime has changed over the years as the technology has changed and the opportunities for crime
have changed. Although thrill-seeking adolescent hackers are still common, the field is
increasingly dominated by professionals who steal information for sale and disgruntled
employees who damage systems or steal information for revenge or profit.

Computer systems are vulnerable to many threats that can inflict various types of damage
resulting in significant losses. This damage can range from errors harming database integrity to
fires destroying entire computer centers. Losses can stem, for example, from the actions of
supposedly trusted employees defrauding a system, from outside hackers, or from careless data
entry clerks. The effects of various threats vary considerably. Some affect the confidentiality or
integrity of data while others affect the availability of a system.
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A common view of computer security is that the threat comes from a vast group of malicious
hackers out there. Security is the protection of hardware, software and data from unauthorized
access. The focus of many computer security efforts is on keeping the outsiders out -- through
physical and technical measures such as gates, guards, locks, firewalls, passwords, etc. Yet, while
the threat from outsiders is indeed as great as generally believed, the malicious insider with
approved access to the system is an even greater threat! Common security methods include:
restricted physical access to computers, password protection, limiting user privileges and data
encryption. Anti-virus monitoring programs to defend against computer viruses are also a
security measure.

The major causes to security risk are:

Viruses, worms, and Trojan horses
Unauthorized access and use
Software, hardware, and information theft
System failure

12.1.1.1 Viruses, Worms, and Trojan Horses

a) Viruses

What is your experience with viruses? One way that software can damage the way our computers
work is through viruses. These are typically segments of malicious code that are implanted in
other programs. They can be executed by opening an infected file with macros or running an
infected program in some way. Once a computer is infected, it can cause damage including the
operating system, making it hard or impossible to run the computer. What is a computer virus? A
computer virus is a small program written to alter the way a computer operates, without the
permission or knowledge of the user. A virus meets two criteria that distinguish it from other
malicious treats:

• It executes itself. It often places its own code in the path of execution of another program.
• It replicates itself. For example, it may replace other executable files with a copy of the
virus infected file. Viruses can infect desktop computers and network servers alike.

Some viruses are programmed to damage the computer by damaging programs, deleting files, or
reformatting the hard disk. Others are not designed to do any damage, but simply to replicate

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themselves and make their presence known by presenting text, video, and audio messages. Even
these benign viruses can create problems for the computer user. They typically take up computer
memory used by legitimate programs. As a result, they often cause erratic behavior and can result
in system crashes.

There are thousands of viruses that exist today. You should always be careful when downloading
files or opening e-mail with attachments. Make sure that the files come from a trusted source;
someone that you trust will not knowingly send you a virus.

The main types of viruses are boot sector viruses that execute when you start your computer, file
or program viruses that load when you run a program, and hidden in macros of documents or
templates. Most activate when the infected file is run. A logic bomb activates when a certain
condition is met. A time bomb activates on a set date and time.

b) Worms

How do you distinguish among virus, worms, and Trojan horse? Another type of computer risks
is worms. They copy themselves until space on a computer is taken up. Worms are programs that
replicate themselves from system to system without the use of a host file. This is in contrast to
viruses, which require the spreading of an infected host file. Although worms generally exist
inside of other files, often Word or Excel documents, there is a difference between how worms
and viruses use the host file. Usually the worm will release a document that already has the
"worm" macro inside the document, hence the entire document should be considered as a worm.

c) Trojan horse

Trojan horse that looks like a valid program holds malicious program logic. Some viruses are
simply an annoyance while others may delete or modify files on your computer system and
perhaps e-mail themselves to everyone in your e-mail address book. Trojan horses are
impostors—files that claim to be something desirable but, in fact, are malicious. A very important
distinction between Trojan horse programs and true viruses is that they do not replicate
themselves. Trojan horses contain malicious code that when triggered cause loss, or even theft, of
data. For a Trojan horse to spread, you must invite these programs onto your computers; for
example, by opening an email attachment or downloading and running a file from the Internet.

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Virus Prevention Mechanisms
What do you do to prevent viruses? You should suspect that you have a virus when strange things
start happening on your system. If you do determine that your system has a virus, you should take
steps to remove it. If you have been sharing files with others, you should inform them that they
should check out their system for viruses.

There are e-mails that make the rounds that are called a virus hoax. These e-mails are like chain
letters. Beware, some ask you to delete a system file that is necessary for your system. To protect
your system from a virus:
(1) Set the security for applications that support macros so that you will be warned when
their files contain macros, instructions that are saved with the application document.
(2) Use an antivirus program that will
(a) protect your system from becoming infected and
(b) identify and remove viruses called inoculating or put them in quarantine until
they can be uninfected or deleted.

How does an anti virus program work? Antivirus programs have virus definition files that allow
them to identify the virus signature, a pattern in the infecting virus code. When you keep your
virus program up to date, you download the latest virus definition files.

Popular antivirus programs include: Kasperisky, AVG AntiVirus, Avast AntiVirus, Avira, F-
Secure Anti-Virus, McAfee VirusScan, Norton AntiVirus, RAV AntiVirus, and Trend Micro PC-
cillin. There are Web sites (such as: www.symantec.com) that have lists of known viruses and
can keep you up to date on new ones.

12.1.1.2 Unauthorized Access and Use

What do you know about hackers? Using a computer or network without authorization is just
called unauthorized access. Crackers or hackers try to gain unauthorized access. Sometimes it
is just for the challenge. Other times it is to take data, use resources, or modify files. The
following are some examples of unauthorized access to computer systems:
• Unauthorized entry into any compartmented computer system.
• Unauthorized searching/browsing through classified computer libraries.

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• Unauthorized modification, destruction, manipulation, or denial of access to information
residing on a computer system.
• Storing or processing classified information on any system not explicitly approved for
classified processing.
• Attempting to circumvent or defeat security or auditing systems, without prior
authorization from the system administrator, other than as part of a legitimate system
testing or security research.
• Any other willful violation of rules for the secure operation of your computer network.

If you wish to protect your computer when it is attached to a network such as the Internet, you
might wish to use a firewall. A firewall is a hardware and/or software that protects against
unauthorized access. If you are using DSL (Digital Subscriber Line) or a cable modem where you
are constantly connected to the Internet, you should definitely consider a personal firewall. A
personal firewall is only software. Some of the personal firewalls are: BlackICE PC Protection,
McAfee Firewall, Norton Personal Firewall, Sygate Personal Firewall, Tiny Personal Firewall,
and ZoneAlarm.

To protect yourself, you can turn off file and printer sharing. You can also subscribe to an online
security service that checks computers to see where they might have exposures to attack. Some
companies run intrusion detection software that tries to identify patterns of attack and report
any suspicious behavior. Some companies even have a special computer called a honeypot which
attracts hackers with honey. The honey is the computer which is open to attack. They can then
watch the attack, look at audit trails, and see how hackers are trying to hack into the system.

Most computer systems limit what a user can do on the system with different types of access
control. For example, you can only access your user space through your U drive, not the space for
other users.

To help prevent access, secure systems require some type of identification and authorization. A
user name or user-id identifies an individual on a computer system. It is protected by a
password. The password should be constructed so that an unauthorized person cannot discover it.
It is highly recommended to follow some guidelines for constructing and protecting your
password. The longer a password the longer it takes to try all possible combinations of numbers
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and letters that make up the password. That is why a password of at least 8 characters (with all
possible character types) is recommended. Naturally, you do not want to share your password
with anyone.

Hardware can also be used to limit access. A possessed object is some object that you must have
to gain access. An example is your ATM card which further limits access through the use of a
personal identification number (PIN) which is a numeric password.

Some systems can be protected by a biometric security device, a device that measures some
unique biological characteristic (fingerprint, hand shape, face features, voice, signature, or the
patters in the retina of the eye) about a user.

With a callback system, a user logs in and then the computer calls back the user at an authorized
number. This prevents someone from remote access even if they have somehow gained a user-
id/password.
Activity A
What are some of the benefits of using a firewall for an organization LAN?

12.1.1.3 Hardware, Software, and Information Theft

a) Hardware Theft and Vandalism

Computer security risks include physical theft and vandalism. Theft of actual computer
equipment is hardware theft. Damaging computer equipment is hardware vandalism.

There are many things that you can do to make equipment more secure including cables and
locks, making sure that rooms with computer equipment have limited access, and never leaving
your mobile computer lying around.

b) Software Theft

Computer theft also involves software. For software, the most common type of theft is software
piracy, the unauthorized and illegal duplication of copyrighted software. When you buy software,
you are really just buying a license to use the software. You do not actually own it.

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The software license agreement spells out the conditions for use. PC software is generally
licensed for single-user use or single-computer use. You can also buy additional licenses with the
media to install on additional computers. Some organizations buy a site license that allows the
software to be run on all the computers at a specified site.

Software publishers are doing more and more to try to prevent software theft. Many times, during
installation you must go through product activation, where you input a code from the product
packaging or media. Some software requires you to have Internet access and register the product.
Sometimes a special code is sent which ties the product code to the computer that it is being
installed on so that the publisher can limit installations.

c) Information Theft

With all of the data stored and communicated on computers, we would like to protect the data.
Industrial espionage is the act of gathering proprietary data from private companies or the
government for the purpose of aiding other companies. Industrial espionage can be perpetrated
either by companies seeking to improve their competitive advantage or by governments seeking
to aid their domestic industries. Foreign industrial espionage carried out by a government is often
referred to as economic espionage. Since information is processed and stored on computer
systems, computer security can help protect against such threats; it can do little, however, to
reduce the threat of authorized employees selling that information.

One way to protect data and information is by encryption. What is encryption? There are many
encryption techniques but they all take readable data and scramble it in some way so that it is not
readable. For the data to be used it must be unencrypted (deciphered). If you wish to encrypt a
message or a file, you might consider using Pretty Good Privacy (PGP) which you can download
free.

12.1.1.4 System Failure

Another risk is system failure, the prolonged malfunction of a computer. It can be caused by
many reasons including hardware failure from aging and electrical supply problems. We would
like to protect our data against some type of event that causes us to lose access to our data

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through some type of electrical system failure. This could be hardware or software malfunctions,
a natural disaster, electrical problems, or destruction by an individual.

How do you protect your system from over-voltage? To protect against an electrical spike or
over-voltage, we might wish to use a surge protector. To protect against actual power loss, we
might want to purchase an uninterruptible power supply (UPS) that continues to provide power
if outside electrical power is lost. A UPS contains surge protection circuits and one or more
batteries. A standby UPS switches to running off the battery when the power fails. An online
UPS, a more expensive UPS, always runs off the battery with the incoming power charging the
battery.

To protect your data, you should perform periodic backups (copies) which should preferably be
kept separate from your computer (offsite). There are different types of backups. The two
supported by most backup programs are full and incremental. With a full backup, all files are
copied. With an incremental backup, only those files that have been modified or created since the
last backup are copied. If some type of failure occurs, you can restore your files from your
backups.

12.1.1.5 Internet Security Risks

What are Internet security concerns? The Internet has become a benefit to intelligence collectors
worldwide. Break-ins occur at an alarming rate because the Internet provides an especially
comfortable and interesting place for hackers. The Internet was not designed with security in
mind. It is a large, intricate network with many software flaws. It is easy to remain anonymous on
the net. Because everything is interconnected, everything is vulnerable, and an expert intruder
can cover his or her tracks by weaving a trail through a dozen systems in several different
countries. Many hacker tools that required in-depth knowledge a few years ago have been
automated and have become easier to use.

As a result, the Internet is subject to certain risks. Many sites depend on the operation of the
Internet for their business. A denial of service (DoS) attack is an attack on a computer system
with the main intent of disrupting the Web. The idea is to generate so much traffic to a site that
legitimate visitors will not be able to gain access. Sometimes attacks are mounted from multiple

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computers called a distributed DoS attack. They even sometimes use viruses that utilize
unsuspecting computers called zombies to mount the attack.

To provide secure data transmission on the Web, today’s browsers support the use of encryption.
A sight that uses encryption is known as a secure site. These sites use digital certificates along
with a security protocol. A digital certificate guarantees that a user or Web site is legitimate and
it is issued by and verified by a certificate authority.

On the Web you can make your transmissions more secure through the use of the Secure Sockets
Layer (SSL) or secure HTTP (S-HTTP) which provide for the encryption of data. Web
addresses that use SSL generally start with https rather than http. Your browser will also
generally indicate an SSL page or a page using secure HTTP (S-HTTP) with an icon such as a
closed lock.
Activity B
Write down from your experience or from your imagination the different ways in which a
computer in an organization can be misused.

12.1.2 Information Security Controls

How do you minimize security risks? Controls for providing information security can be
physical, technical, or administrative. These three categories of controls can be further
classified as either preventive or detective. Preventive controls attempt to avoid the occurrence
of unwanted events, whereas detective controls attempt to identify unwanted events after they
have occurred. Preventive controls inhibit the free use of computing resources and therefore can
be applied only to the degree that the users are willing to accept. Effective security awareness
programs can help increase users’ level of tolerance for preventive controls by helping them
understand how such controls enable them to trust their computing systems. Common detective
controls include audit trails, intrusion detection methods, and checksums.

12.1.2.1 Physical Controls

What physical security measures are required to protect your computers? Physical security is the
use of locks, security guards, badges, alarms, and similar measures to control access to
computers, related equipment (including utilities), and the processing facility itself. In addition,
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measures are required for protecting computers and their contents from espionage, theft, and
destruction or damage by accident, fire, or natural disaster (e.g., floods and earthquakes).

a) Preventive Physical Controls

Preventive physical controls are employed to prevent unauthorized personnel from entering
computing facilities (i.e., locations housing computing resources, supporting utilities, computer
hard copy, and input data media) and to help protect against natural disasters. Examples of these
controls are discussed below.

• Backup Files and Documentation: Should an accident or intruder destroy active data files
or documentation, it is essential that backup copies be readily available. Backup files should
be stored far enough away from the active data or documentation to avoid destruction by the
same incident that destroyed the original. Backup material should be stored in a secure
location constructed of noncombustible materials. Backups of sensitive information should
have the same level of protection as the active files of this information; it is senseless to
provide tight security for data on the system but lenient security for the same data in a backup
location.

• Badge Systems: Physical access to computing areas can be effectively controlled using a
badge system. With this method of control, employees and visitors must wear appropriate
badges whenever they are in access-controlled areas. Badge-reading systems programmed to
allow entrance only to authorized persons can then easily identify intruders.

• Locks and Keys: Locks and keys are commonly used for controlling access to restricted
areas. Because it is difficult to control copying of keys, many installations use cipher locks
(i.e., combination locks containing buttons that open the lock when pushed in the proper
sequence). With cipher locks, care must be taken to conceal which buttons are being pushed
to avoid a compromise of the combination.

• Backup Power: Backup power is necessary to ensure that computer services are in a constant
state of readiness and to help avoid damage to equipment if normal power is lost. For short
periods of power loss, backup power is usually provided by batteries. In areas susceptible to
outages of more than 15–30 min., diesel generators are usually recommended.

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• Biometric Access Controls: Biometric identification is a more sophisticated method of
controlling access to computing facilities than badge readers, but the two methods operate in
much the same way. Biometrics used for identification including fingerprints, handprints,
voice patterns, signature samples, and retinal scans. Because biometrics cannot be lost, stolen,
or shared, they provide a higher level of security than badges. Biometric identification is
recommended for high-security, low-traffic entrance control.

• Site Selection: The site for the building that houses the computing facilities should be
carefully chosen to avoid obvious risks. For example, wooded areas can pose a fire hazard,
areas on or adjacent to an earthquake fault can be dangerous and sites located in a flood plain
are susceptible to water damage. In addition, locations under an aircraft approach or departure
route are risky, and locations adjacent to railroad tracks can be susceptible to vibrations that
can precipitate equipment problems.

b) Detective Physical Controls

Detective physical controls warn protective services personnel that physical security measures are
being violated. Examples of these controls include: Motion detectors, smoke and fire detectors,
closed-circuit television monitors, and sensors and alarms.

• Motion Detectors: In computing facilities that usually do not have people in them, motion
detectors are useful for calling attention to potential intrusions. Motion detectors must be
constantly monitored by guards.

• Fire and Smoke Detectors: Fire and smoke detectors should be strategically located to
provide early warning of a fire. All fire detection equipment should be tested periodically to
ensure that it is in working condition.

• Closed-Circuit Television Monitors: Closed-circuit televisions can be used to monitor the

activities in computing areas where users or operators are frequently absent. This method
helps detect individuals behaving suspiciously.

• Sensors and Alarms: Sensors and alarms monitor the environment surrounding the
equipment to ensure that air and cooling water temperatures remain within the levels
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specified by equipment design. If proper conditions are not maintained, the alarms summon
operations and maintenance personnel to correct the situation before a business interruption
occurs.

12.1.2.2 Technical Controls

What do technical controls involve? Technical security involves the use of safeguards
incorporated in computer hardware, operations or applications software, communications
hardware and software, and related devices. Technical controls are sometimes referred to as
logical controls.

a) Preventive Technical Controls

Preventive technical controls are used to prevent unauthorized personnel or programs from
gaining remote access to computing resources. Examples of these controls include: Access
control software, antivirus software, passwords, smart cards, encryption, and dial-up access
control and callback systems.

• Access Control Software: The purpose of access control software is to control sharing of
data and programs between users. In many computer systems, access to data and programs is
implemented by access control lists that designate which users are allowed access. Access
control software provides the ability to control access to the system by establishing that only
registered users with an authorized log-on ID and password can gain access to the computer
system.

After access to the system has been granted, the next step is to control access to the data and
programs residing in the system. The data or program owner can establish rules that
designate, who is authorized to use the data or program.

• Antivirus Software: Viruses have reached epidemic proportions throughout the micro-
computing world and can cause processing disruptions and loss of data as well as significant
loss of productivity while cleanup is conducted. In addition, new viruses are emerging at an
ever-increasing rate. It is recommended that antivirus software be installed on all
microcomputers to detect, identify, isolate, and eradicate viruses. This software must be
updated frequently to help fight new viruses. In addition, to help ensure that viruses are
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intercepted as early as possible, antivirus software should be kept active and up to date on a
system, not used intermittently at the discretion of users.

• Passwords: Passwords are used to verify that the user of an ID is the owner of the ID. The
ID-password combination is unique to each user and therefore provides a means of holding
users accountable for their activity on the system. For better security unpredictable password
need to be supplied and provided for the system. Especially common names (personal name,
object name, etc.) related to the owners of the user ID are easily breakable and hence needs to
be avoided. It is also recommended to update the password used at most bi-annually.

• Smart Cards: Smart cards are usually about the size of a credit card and contain a chip with
logic functions and information that can be read at a remote terminal to identify a specific
user’s privileges. Smart cards carry prerecorded, usually encrypted access control information
that is compared with data that the user provides (e.g., a personal ID number or biometric
data) to verify authorization to access the computer or network.

• Encryption: Encryption is defined as the transformation of plain text (i.e., readable data) into
cipher-text (i.e., unreadable data) by cryptographic techniques. Encryption is currently
considered to be the only sure way of protecting data from disclosure during network
transmissions.

• Dial-Up Access Control and Callback Systems: Dial-up access to a computer system
increases the risk of intrusion by hackers. In networks that contain personal computers or are
connected to other networks, it is difficult to determine whether dial-up access is available or
not because of the ease with which a modem can be added to a personal computer to turn it
into a dial-up access point. Known dial-up access points should be controlled so that only
authorized dial-up users can get through.

Currently, the best dial-up access controls use a microcomputer to intercept calls, verify the
identity of the caller, and switch the user to authorized computing resources as requested.
Previously, call-back systems intercepted dial-up callers, verified their authorization and
called them back at their registered number, which at first proved effective; however,

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sophisticated hackers have learned how to defeat this control using call-forwarding
techniques.

b) Detective Technical Controls

Detective technical controls warn personnel of violations or attempted violations of preventive
technical controls. Examples of these include audit trails and intrusion detection expert systems.

• Audit Trails: An audit trail is a record of system activities that enables the reconstruction and
examination of the sequence of events of a transaction, from its inception to output of final
results. Violation reports present significant, security-oriented events that may indicate either
actual or attempted policy transgressions reflected in the audit trail. Violation reports should
be frequently and regularly reviewed by security officers and database owners to identify and
investigate successful or unsuccessful unauthorized accesses.

• Intrusion Detection Systems: These systems track users (on the basis of their personal
profiles) while they are using the system to determine whether their current activities are
consistent with an established norm. If not, the user’s session can be terminated or a security
officer can be called to investigate. Intrusion detection can be especially effective in cases in
which intruders are pretending to be authorized users or when authorized users are involved
in unauthorized activities.

12.1.2.3 Administrative Controls

What are the administrative measures to be taken to safeguard your IS? Administrative security
consists of management constraints, operational procedures, accountability procedures, and
supplemental administrative controls established to provide an acceptable level of protection for
computing resources. In addition, administrative controls include procedures established to
ensure that all personnel who have access to computing resources have the required
authorizations and appropriate security clearances.

a) Preventive Administrative Controls

Preventive administrative controls are personnel-oriented techniques for controlling people’s
behavior to ensure the confidentiality, integrity, and availability of computing data and programs.
The main preventive administrative controls include the following:
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• Security Awareness and Technical Training: Security awareness training is a preventive
measure that helps users to understand the benefits of security practices. If employees do not
understand the need for the controls being imposed, they may eventually circumvent them
and thereby weaken the security program or render it ineffective.

Technical training can help users prevent the most common security problem — errors and
omissions — as well as ensure that they understand how to make appropriate backup files and
detect and control viruses. Technical training in the form of emergency and fire drills for
operations personnel can ensure that proper action will be taken to prevent such events from
escalating into disasters.

• Separation of Duties: This administrative control separates a process into component parts,
with different users responsible for different parts of the process. Judicious separation of
duties prevents one individual from obtaining control of an entire process and forces collusion
with others in order to manipulate the process for personal gain.

• Recruitment and Termination Procedures: Appropriate recruitment procedures can

prevent the hiring of people who are likely to violate security policies. A thorough
background investigation should be conducted, including checking on the applicant’s criminal
history and references. Although this does not necessarily screen individuals for honesty and
integrity, it can help identify areas that should be investigated further.

• Security Policies and Procedures: Appropriate policies and procedures are key to the
establishment of an effective information security program. Policies and procedures should
reflect the general policies of the organization as regards the protection of information and
computing resources. Policies should cover the use of computing resources, marking of
sensitive information, movement of computing resources outside the facility, introduction of
personal computing equipment and media into the facility, disposal of sensitive waste, and
computer and data security incident reporting. Enforcement of these policies is essential to
their effectiveness.

• Supervision: Supervisors must be thoroughly familiar with the policies and procedures
related to the responsibilities of their department. Supervisors should require that their staff

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members comply with pertinent policies and procedures and should observe the effectiveness
of these guidelines. If the objectives of the policies and procedures can be accomplished more
effectively, the supervisor should recommend appropriate improvements. Job assignments
should be reviewed regularly to ensure that an appropriate separation of duties is maintained,
that employees in sensitive positions are occasionally removed from a complete processing
cycle without prior announcement, and that critical or sensitive jobs are rotated periodically
among qualified personnel.

• Disaster Recovery, Contingency, and Emergency Plans: The disaster recovery plan is a
document containing procedures for emergency response, extended backup operations, and
recovery. The primary objective of this plan, used in conjunction with the contingency plans,
is to provide reasonable assurance that a computing installation can recover from disasters,
continue to process critical applications in a degraded mode, and return to a normal mode of
operation within a reasonable time. A key part of disaster recovery planning is to provide for
processing at an alternative site during the time that the original facility is unavailable.

Contingency and emergency plans establish recovery procedures that address specific
threats. These plans help prevent minor incidents from escalating into disasters. For example,
a contingency plan might provide a set of procedures that defines the condition and response
required to return a computing capability to nominal operation; an emergency plan might be a
specific procedure for shutting down equipment in the event of a fire or for evacuating a
facility in the event of an earthquake.

• User Registration for Computer Access: Formal user registration ensures that all users are
properly authorized for system and service access. In addition, it provides the opportunity to
acquaint users with their responsibilities for the security of computing resources and to obtain
their agreement to comply with related policies and procedures.

b) Detective Administrative Controls

Detective administrative controls are used to determine how well security policies and procedures
are complied with, to detect fraud, and to avoid employing persons that represent an unacceptable
security risk. This type of control includes: Security reviews and audits, performance evaluations,
and background investigations.
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• Security Reviews and Audits: Reviews and audits can identify instances in which policies
and procedures are not being followed satisfactorily. Management involvement in correcting
deficiencies can be a significant factor in obtaining user support for the computer security
program.

• Performance Evaluations: Regularly conducted performance evaluations are an important

element in encouraging quality performance. In addition, they can be an effective forum for
reinforcing management’s support of information security principles.

• Background Investigations: Background investigations may disclose past performances that

might indicate the potential risks of future performance. Background investigations should be
conducted on all employees being considered for promotion or transfer into a position of
trust; such investigations should be completed before the employee is actually placed in a
sensitive position. Job applicants being considered for sensitive positions should also be
investigated for potential problems. Companies involved in government-classified projects
should conduct these investigations while obtaining the required security clearance for the
employee.

12.2 Information Privacy, Ethics and Society

12.2.1 Computer Ethics

What do you mean by computer ethics? Computer ethics is a branch of ethics that is growing and
changing rapidly as computer technology also grows and develops. The term "computer ethics"
is open to interpretations both broad and narrow. On the one hand, for example, computer ethics
might be understood very narrowly as the efforts of professional philosophers to apply traditional
ethical theories like Utilitarianism, Kantianism, or virtue ethics to issues regarding the use of
computer technology. On the other hand, it is possible to understand computer ethics in a very
broad way to include, as well, standards of professional practice, codes of conduct, aspects of
computer law, public policy, corporate ethics--even certain topics in the sociology and
psychology of computing.

Computer ethics are concerned about how users use of a computer may affect others. The moral
guidelines that govern the non-harmful use of computers are known as computer ethics. Ethics
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are a code of moral conduct that are guided by personal or company values. They make moral
judgments about the way that computers are used. Today anyone can make post information on a
Web site, bulletin board, or newsgroup. How do we know that an ethical person posted the
information and that it is true? How do we know that the work was/wasn’t copied from someone
else? Under what conditions can we copy from other Web sites?

Rather than rely on the values of each individual with a company, many companies have an IT
code of conduct. It will spell out what they consider to be unethical uses of their computers and
the information that is stored and communicated by computers. A code of conduct is a set of rules
outlining the responsibilities of or proper practices for an individual or organization. These rules
help to ensure acceptable use of computers, networks, and other resources. An example of IT
code of conduct for employees is as follows:

1. Computers may not to harm other people.

2. Employees may not interfere with others’ computer work.
3. Employees may not meddle in others’ computer files.
4. Computers may not be used to steal.
5. Computers may not be used to bear false witness.
6. Employees may not copy or use software illegally.
7. Employees may not use others’ computer resources without authorization.
8. Employees may not use others’ intellectual property as their own.

A written acceptable use policy (AUP) outlines the activities for which the computer and
network may or may not be used. An acceptable use policy (AUP; also sometimes acceptable
usage policy) is a set of rules applied by network and Web site owners which restrict the ways in
which the network or site may be used. AUP documents are written for corporations, businesses,
universities, schools, and Web site owners often to reduce the potential for legal action that may
be taken by a user, and often with little prospect of enforcement.

Acceptable use policies are also integral to the framework of information security policies; it is
often common practice to ask new members of an organization to sign an AUP before they are
given access to its information systems. For this reason, an AUP must be concise and clear, while
at the same time covering the most important points about what users are, and are not, allowed to
do with the IT systems of an organization. It should refer users to the more comprehensive

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security policy where relevant. It should also, and very notably, define what sanctions will be
applied if a user breaks the AUP.

12.2.2 Information Privacy

Do you feel your information privacy is maintained? The accumulation of vast amounts of
electronic information about individuals by governments, credit bureaus, and private companies,
combined with the ability of computers to monitor, process, and aggregate large amounts of
information about individuals have created a threat to individual privacy. The possibility that all
of this information and technology may be able to be linked together has arisen as a specter of the
modern information age.

You would like to keep information on your computer or your information stored on other
computers private. The computer makes the communication of information easier and much
quicker which makes maintaining our privacy harder.

When you send to a company information about you, the company stores this information in a
database. You need to feel secure that this information is not being shared with anyone and there
are laws in this area. Some companies keep your profile and then sell this profile to other
companies. You have the right to opt out of this information sharing.
Information privacy is the right of an individual or company to specify how information about
them is being used. This may involve the use of computers to observe how a company’s
employees are using their computers, employee monitoring. It is legal for a company to do this
without an employee knowing about it.

Often when you fill out information on the Web, it is used to create an electronic profile about
you which is kept in a marketing database. Some companies sell or rent information from their
databases to other companies. You should be sure to find out what their policies are and let them
know if you don’t want your information distributed. Some information about yourself that you
enter over the Web is kept in a cookie, a small file on your computer. This cookie can then be
accessed when you visit the site again. Supposedly, a Web site can only read data from its own
cookie but that does not stop a company from sharing the information that it has collected in the
cookie.

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You can set your cookie privacy level with your browser or you can purchase a software
program, a cookie manager, to selectively block cookies. Some sites will not work if you disable
their cookies.

Another way your own computer can be used to collect information about you is with spyware, a
program placed on your computer that collects information about you such as how you are using
the computer and what Web sites you visit. This is being used by business for employee
monitoring when they suspect that an employee is misusing their computer. Sometimes you
install spyware from a virus or by installing a program. When spyware is used to collect
information for advertising purposes, it is called adware.

Everyone with an e-mail address generally receives spam, unsolicited e-mail messages. You can
control this with filtering and anti-spam programs. There is also Web filtering software for
filtering Web sites so that objectionable material cannot be viewed. This is especially helpful for
children although it is far from perfect, blocking some good sites and not blocking some bad
ones.
12.2.3 Health Concern of Computer Use

What health concerns are associated with computer usage? With all of the advantages of
computers also come some concerns about computer usage such as health concerns in the home
and workplace and especially with children. Recently there has been considerable controversy
surrounding the potential health risks associated with video display screens. Some studies suggest
that prolonged exposure to the radiation that leaks from these devices can be dangerous
particularly to pregnant women. Other problems associated with video display screens and
keyboards include eyestrain from inadequate lighting muscle strain and fatigue caused by poorly
designed work spaces, and repetitive stress injuries to the wrists and hands.

Injuries to or disorders of muscles, nerves, tendons, ligaments, or joints account for about a third
of job-related injuries and illness. These are called musculoskeletal disorders (MSD) or
repetitive stress injuries (RSI). One injury that overuse of the keyboard and mouse can cause is
tendonitis of the tendons that go through the wrist. Another is called carpal tunnel syndrome
(CTS) where the nerves going to the hand are compressed from the tendon inflammation.

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There is much concern about prolonged computer usage by children. Problems are already being
discovered. Staring at a monitor for long periods can cause computer vision syndrome (CVS).
(CVS) It
can temporary cause uncomfortable eyes, vision problems, and headaches or a sore neck.
Workspaces that are correctly designed can help in the onset of some of these problems. This
falls under the field of ergonomics,
ergonomics, the science devoted to studying your relationship to your
workspace.

Is your workplace designed ergonomically? Ergonomics is concerned with designing healthy

work environment. Ergonomic studies have given us guidelines for making a safer computer
workspace and have led to new products being designed such as ergonomic keyboard
keyboards. Figure
13-1
1 below indicates ergonomically designed workplace.

Figure 13-1:
1: Ergonomically designed workplace

Green computing is also concerned about environment related issues such as reducing electricity
and environmental waste while using co
computers.. Green computing encompasses hazard free and
waste avoidance in computing, and recommends the following practice:
Use computers and devices that comply with the ENERGY STAR program. Energy Star
is an international standard for energy efficient consumer
consumer products.
products

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Do not let the computer running overnight
Turn off the monitor, printer, and other devices when not in use
Use paperless methods to communicate
Recycle paper, toner cartridges, old computers and printers
Telecommute (saves gas)

Summary

A computer security risk is any event or action that could cause a loss of or damage to computer
hardware, software, data, information, or processing capability. Common computer security risks
include computer viruses that affect, or infect, a computer negatively by altering the way the
computer works, a worm that copies itself repeatedly using up resources and possibly shutting
down the computer or network, a Trojan horse that hides within or looks like a legitimate
program. Users should take precautions to guard against these malicious-logic programs.

Security risks also include hardware theft which is the act of stealing computer equipment,
hardware vandalism which is the act of defacing or destroying computer equipment, software
piracy which is the unauthorized and illegal duplication of copyrighted software, information
theft when someone steals personal or confidential information, and system failure which is the
prolonged malfunction of a computer commonly caused by an electrical disturbance such as
noise, an over-voltage, or an under voltage. Internet security risks include denial of service
attacks, unsecured business transactions, and unsecured e-mail messages.

Controls for providing information system security can be physical, technical, or administrative.
Security measures include backup files and documentation, backup power, biometric access
controls, closed-circuit television monitors, antivirus software, access control software,
passwords, encryption, intrusion detection systems, security awareness and technical training,
security policies and procedures, disaster recovery, contingency and emergency plans.

Computer ethics govern the use of computers and information systems. Issues in computer ethics
include the responsibility for information accuracy and the intellectual property rights to which
creators are entitled for works that are available digitally. Information privacy is the right of
individuals and companies to restrict the collection and use of information about them. Issues
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surrounding information privacy include electronic profiles, cookies, spyware, and employee
monitoring.

With all of the advantages of computers also come some concerns about computer usage such as
health concerns in the home and workplace. To prevent some of health-related disorders, take
frequent breaks, use precautionary exercises and techniques, and use ergonomics when planning
the workplace.

References

Anteneh, Salehu (2015). Information Systems for Business: Teaching Material, Addis Ababa
University (unpublished).
Haag, Stephen and Cummings, Maeve (2014). Information Systems Essentials (3rd Ed.),
McGraw-Hill/Irwin.
Laudon, Kenneth C. and Laudon, Jane P. (2014). Management Information Systems: Managing
the Digital Firm (13th ed.), Pearson Education.
O'Brien, James A. and Marakas, George M. (2011). Management Information Systems (10th ed.),
McGraw-Hill/ Irwin.
Pieprzky, Josef et al (2003). Fundamentals of Computer Security, Springer-Verlag.
Shelly, G.B., Cashman, T.J., and Vermaat M.E (2012). Discovering Computers 2013: A Gateway
to Information, Thomson.

Self-Assessment Questions

Multiple Choice

1. The term _____refers to online or Internet-based illegal acts.

a. malicious-logic program
b. computer crime
c. cybercrime
d. system failure
e. None of the above

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2. A _____ is a malicious-logic program that hides within or looks like a legitimate program
and usually is triggered by a certain condition or action.
a. computer virus
b. worm
c. Trojan horse
d. All of the above
e. None of the above

3. To help reduce the chance of _____, physical controls such as locked doors and cables
usually are adequate to protect equipment.
a. software piracy
b. hardware theft
c. system failure
d. unauthorized access
e. None of the above

4. When users purchase software, a single-user license agreement does not permit users to
do any of the following except _____.
a. install the software on a network
b. give copies to friends and colleagues
c. make one copy of the software as backup
d. export the software
e. None of the above
5. One of the more common causes of _____ is an electrical power variation
a. hardware vandalism
b. system failure
c. unauthorized access
d. software theft
e. None of the above
6. The _____ uses encryption to secure financial transactions on the Internet.
a. Secure Sockets Layer (SSL)
b. Secure HTTP (S-HTTP)
c. Secure Electronics Transactions (SET) Specifications
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d. Pretty Good Privacy (PGP)
e. None of the above
7. Web sites use cookies for all of the following purposes except _____.
a. to conceal how regularly users visit a site
b. to track user preferences
c. to store users’ passwords
d. to target advertisements
e. None of the above
8. Which of the following are commonly used security measures?
a. data encryption
b. logging of all accesses to an information system and recording changes made (if
any)
c. data compression
d. a and b above
e. All of the above

9. Personal computers, display devices, and printers should comply with guidelines of the
_____ program.
a. Energy Star
b. Secure Electronics
c. Acceptable use
d. Green Computing
e. All of the above

True/False
T F 1. Any illegal act involving a computer generally is referred to as a computer crime.
T F 2. Like a virus or worm, a Trojan horse replicates itself to other computers.
T F 3. An antivirus program scans for programs that attempt to modify the boot
program, the operating system, and other programs that normally are read from
but not modified.
T F 4. Computer users do not need to update their antivirus program’s virus signature
files.

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T F 5. Hackers typically break into a computer by connecting to it and then logging in
as a legitimate user.
T F 6. To protect a personal computer from unauthorized intrusions, users should
disable file and printer sharing on their Internet connections.
T F 7. In the encryption process, the encrypted data is called plaintext.
T F 8. A firewall is used in a system connected to a wide area network to prevent
unauthorized access by hackers.

Discussion Questions

1. What does computer ethics refer to, and how organizations ensure ethical use of their
information systems?
2. What are the ethical issues an organization has to take into account during collection and
sharing information?
3. What is disaster recovery? How could it be implemented at your university or work?
4. What can be done to improve the security of business uses of the Internet? Give three
examples of security measures and technologies you would use.
5. What are your major concerns about computer crime and privacy on the Internet? What
can you do about it? Explain.
6. Is there an ethical crisis in business today? What role does information technology play in
unethical business practices?
7. What are main business decisions that you have to make as a manager that have both
ethical and IT dimensions? Give examples to illustrate your answer.

Case Study

Selam Trading is a large corporation that regularly performs projects for the military and other
government organizations. A virus attack that caused significant damage resulted in an
investigation. The investigation revealed the following:

While there are clear instructions not to use common names (such as Abebe, Kebede, Meron,
Tigist, etc) as passwords, these names are in use.

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While there are clear instructions to change passwords once a month, many people neglect to
do so. In fact, some employees have not changed their password for more than a year.
Violations are especially prevalent among top managers and top scientists. The higher the
individuals are in the organizational hierarchy, the more likely it is that they will ignore the
instructions.
In the past, notices were mailed to violators, but most of the notices were ignored.
The responsibility for security issues is decentralized.

The database administrator is responsible for security in the IS department and for the LAN.
Various individuals were assigned responsibility in users departments, mainly for
microcomputers. However, some departments do not have anyone formally assigned for
computer security, while others do not have any formal procedures regarding security
management.

Case Questions
1. What do you suggest should be done about the violators?

2. Would you change the responsibility scheme (structure)? How?

3. The actual loss to the corporation from the virus attack is estimated at Birr 600,000.
Should somebody be punished? Justify your answer, if punishment is recommended.

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Answers to Self-Assessment Questions

Chapter 1:
Multiple Choice: 1. d 2. d 3. d 4. d 5. c 6. b 7. d 8. d 9. a 10. d
True/False: 1. F 2. T 3. F 4. F 5. F 6. F 7. T
Completion: 1. Content, time and form 2. software resources 3. storage of data
4. CBIS 5. digital firm

Chapter 2:
Matching: 1. C 2. D 3. L 4. K 5. E 6. H 7. A 8. F 9. J 10. B
11. I 12. G
Completion: 1. transaction cost theory 2. Digital firm
3. Differentiation 4. Value chain
5. Competitive advantage

Chapter 3:
Multiple Choice: 1. b 2. a 3. d 4. d 5. a 6. c 7. d 8. a 9. a 10. c
True/False: 1. F 2. T 3. F 4. F 5. T 6. F 7. T
Completion: 1. storage device 2. optical reader 3. operating system
4. input device 5. pointing device 6. register

Chapter 4:
Multiple Choice: 1. b 2. a 3. d 4.b 5. c 6. d 7. d 8. a 9. d
True/False: 1. F 2. T 3. T 4. F 5. F 6. T 7. F 8. T 9. F
Completion: 1. sending devices 2. network 3. wireless LAN 4. bus network
5. token ring 6. modem 7. network card

Chapter 5:
Multiple Choice: 1. d 2. c 3. a 4. d 5. c 6. b 7. d
True/False: 1. T 2. F 3. F 4. T 5. F 6. F 7. T 8. T
Completion: 1. Internet 2. World Wide Web Consortium (W3C)
3. DSL or ISDN 4. cable modem 5. IP address
6. Internet corporation for Assigned Names and Numbers (ICANN)
7. DNS 8. web page 9. Web 2.0 10. cloud computing

Chapter 6:
Multiple Choice: 1. d 2. a 3. c 4. d 5. d 6. c 7. c 8. d
True/False: 1. T 2.T 3.F 4.T 5. T 6. T 7. T 8. F 9. T
Completion: 1. DBMS 2. data integrity 3. data type 4. key field
5. validation 6. query 7. data model 8. data warehouse
9. big data 10. business intelligence

Chapter 7:
Multiple Choice: 1. b 2. e 3. a 4. d 5. c 6. a 7. a 8. b 9. b
True/False: 1. T 2. F 3. T 4. F 5. T 6. F 7. T 8. T
Completion: 1. supply chain management 2. transaction processing systems
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3. management information systems 4. decision support systems
5. knowledge management systems

Chapter 8:
Matching: 1. C 2. D 3. E 4. F 5. G 6. K 7. A 8. J 9. L
10. H 11. B 12. D
Completion: 1. mobile commerce 2. mobile brokerage
3. premium-rate telephone numbers 4. mobile marketing 5. many to some

Chapter 9:
Matching: 1. H 2. E 3. F 4. A 5. I 6. B 7. G 8. C 9. D
True/False: 1. F 2. T 3. T 4. T 5. T 6. T

Chapter 10:
Multiple Choice: 1.d 2. b 3. b 4. b 5. d 6. c 7. d
True/False: 1. T 2. F 3. T 4. F 5. T 6. T 7. F 8. T

Chapter 11:
Matching: 1. E 2. C 3. F 4. D 5. B
True/False: 1. F 2. T 3. T 4. F 5. F 6. T 7. T

Chapter 12:
Multiple Choice: 1. c 2. c 3. b 4. c 5. b 6. c 7. a 8. a 9. a
True/False: 1. T 2. F 3. T 4. F 5. T 6. F 7. F 8. T

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