INTRODUCTION TO

INFORMATION
SYSTEMS
Sixteenth Edition

GEORGE M. MARAKAS
KU School of Business
University ofKansas

JAMES A. O'BRIEN
College of Business Administration
Northern Arizona University

I McGraw-Hill
I irwin

Information System Resources

Foundations of Information Systems

in Business
FOUNDATION CONCEPTS:
INFORMATION SYSTEMS IN
BUSINESS
The Real World of Information Systems
REAL WORLD CHALLENGE: Modernizing
Legacy Systems at Crescent Healthcare Inc.
What Is an Information System?

Hardware Resources

30

Software Resources

31

Data Resources

31

Network Resources

33

Information System Activities

33

Input of Data Resources

33
33

Output of Information Products

34

Storage of Data Resources

34

Control of System Performance

34

Recognizing Information Systems

REAL WORLD SOLUTION: Crescent Healthcare

Inc.: From Green Screens to Online Access
35

Trends in Information Systems

The Role of e-Business in Business

11

Types of Information Systems

12

Operations Support Systems

12

Management Support Systerfts

14

Other Classifications of Information Systems

15

17

Developing IS Solutions

18

Challenges and Ethics of IT

19

Challenges of IT and IS Careers

20

The IS Function

23

42

REAL WORLD CASE 2: The New York Times

and Boston Scientific: Two Different Ways of
Innovating with Information Technology

45

D
Competing with Information Technology
FUNDAMENTALS OF STRATEGIC
ADVANTAGE

48

Strategic I T

49

Competitive Strategy Concepts

49

Competitive Forces and Strategies

25

System Concepts: T h e Foundation for

25

34

REAL WORLD CASE 1: eCourier, Cablecom,

and Bryan Cave: Delivering Value through
Business Intelligence

16

Success and Failure with IT

Business Processes

29

Processing of Data into Information

FOUNDATION C O N C E P T S : T H E
C O M P O N E N T S O F INFORMATION
SYSTEMS

People Resources

The Fundamental Roles of IS in Business

Managerial Challenges of Information Technology

29

49

49

REAL WORLD CHALLENGE: CenterPoint

PropertiesCreating a New Company for a
New Business

50

Strategic Uses of Information Technology

53

Other Strategic Initiatives

53

What Is a System?

25

Feedback and Control

26

Building a Customer-Focused Business

57

26

The Value Chain and Strategic IS

59

Other System Characteristics

Components of Information Systems

28

Value Chain Examples

60
ix

Contents

USING INFORMATION
TECHNOLOGY FOR STRATEGIC
ADVANTAGE

61

Strategic Uses of I T

61

Reengineering Business Processes

61

The Role of Information Technology

62

Becoming an Agile Company

64

Creating a Virtual Company

65

Virtual, Company Strategies

65

COMPUTER PERIPHERALS:
INPUT, OUTPUT, AND STORAGE
TECHNOLOGIES

RFID Privacy Issues

Predictions for the Future
REAL WORLD SOLUTION: Budway
Enterprises Inc.Custom Technology with
Standard Components

122

Speech Recognition Systems

Optical Scanning
Other Input Technologies
Output Technologies

Building a Knowledge-Creating Company

67

Knowledge Management Systems

67

REAL WORLD SOLUTION: CenterPoint

PropertiesReinventing a Company with the
Help of I T

Video Output
Printed Output
Storage Trade-Offs

69

REAL WORLD CASE 1: How to Win Friends

and Influence Business People: Quantify I T
Risks and Value

Computer Storage Fundamentals

Direct and Sequential Access
Semiconductor Memory

76

REAL WORLD CASE 2: For Companies Both

Big and Small: Running a Business on Smartphones

79

ReadyBoost
Solid-State Drive
Magnetic Disks
RAID Storage
Magnetic Tape
Optical Disks .
Radio Frequency Identification

Computer Hardware

82

COMPUTER SYSTEMS-END USER

AND ENTERPRISE COMPUTING

83

Introduction

83

A Brief History of Computer Hardware

83

REAL WORLD CASE 1: Budway Enterprises

Inc.Looking for a Low-Cost, High-Return
Alternative to Paper
Types of Computer Systems
Microcomputer Systems
Computer Terminals
Network Computers
Information Appliances
Midrange, Mainframe, and Supercomputer Systems
The Next Wave of Computing
Technical Note: The Computer System Concept
Computer Processing Speeds
Moore's Law: Where Do We Go from Here

84
87
88
90
91
91
92
95
96
97
98

100

100
100
103
105
107
107
108
108
109
110
111
112
113
113
114
114
115
116
117
118
120

Peripherals
Input Technologies

REAL WORLD CASE 1: AstraZeneca,

United Health, and Others: I T Asset
ManagementDo You Know What You've Got?
REAL WORLD CASE 2: I T in Health Care:
Voice Recognition Tools Make Rounds
at Hospitals

Computer Software
APPLICATION SOFTWARE:
END-USER APPLICATIONS
Introduction to Software
What Is Software?
Types of Software
Application Software for End Users
REAL WORLD CHALLENGE: Japan Post
Networkfrom Government Entity to Private
Company

128

131

134
13 5
135
135
135
135

136

Contents

Business Application Software

Software Suites and Integrated Packages
Web Browsers and More
Electronic Mail, Instant Messaging, and Blogs
Word Processing and Desktop Publishing
Spreadsheets
Presentation Graphics
Personal Information Managers
Groupware
Software Alternatives

139
140
141
142
144
145
146
147
148
149

Cloud Computing

150

Software Licensing

152

SYSTEM SOFTWARE: COMPUTER

SYSTEM MANAGEMENT

153

System Software Overview

153
153

Operating Systems

174

181
183

~D

147

Application Service Providers

Overview

REAL WORLD SOLUTION: Japan Post

NetworkSavings and Competitive Advantage
with Software as a Service
REAL WORLD CASE 1: GE, H.B. Fuller Co.,
and Others: Successful Implementations of
Software as a Service
REAL WORLD CASE 2: U.S. Department of
Defense: Enlisting Open-Source Applications

XI

Data Resource Management

TECHNICAL FOUNDATIONS OF
DATABASE MANAGEMENT
Database Management System
Fundamental Data Concepts

186
186
186

Character

186

Field

186

REAL WORLD CHALLENGE: U.S. Xpress

Lots of Data, Not Enough Quality

187

153

Record

189

154

File

189

Microsoft Windows

155

Database

190

UNIX

157

Linux

157

Hierarchical Structure

191

Open-Source Software

157

Network Structure

191

OpenOjftce.org 3

159

Relational Structure

192

Mac OS X

159

Relational Operations

193

Application Virtualization '

159

Multidimensional Structure

194

161

Object-Oriented Structure

194

162

Evaluation of Database Structures

195

Operating System Functions

Other System Management Programs

Programming Languages

Database Structures

191

Machine Languages

162

Assembler Languages

162

High-Level Languages

163

MANAGING DATA RESOURCES

203

Fourth-Generation Languages

163
165

Data Resource Management

Types of Databases

203

Object-Oriented Languages

166

Operational Databases

203

166

Distributed Databases

204

167

External Databases

205

169

Hypermedia Databases

205

Web and Internet Languages and Services

HTML
XML
Java and.NET
Web Services

Programming Software
Language Translator Programs
Programming Tools

170
172
172
173

Database Development
Data Planning and Database Design

Data Warehouses and Data Mining

Data Mining
Traditional File Processing
Problems of File Processing

197
199

203

207
208
210
210

XII

Contents

The Database Management Approach

213

Local Area Networks

250

Database Management System

213

Virtual Private Networks

251

Database Interrogation

215

Clien t/Server Networks

253

Database Maintenance

217

Network Computing

253

Application Development

217

Peer-to-Peer Networks

REAL WORLD SOLUTION: U.S. Xpress

Data Quality Drives Millions in Savings
REAL WORLD CASE 1: Beyond Street Smarts:
Data-Driven Crime Fighting

218
225

REAL WORLD CASE 2: Duke University

Health System, Beth Israel Deaconess Medical
Center, and Others: Medical I T Is Getting Personal 227
")

254

Digital and Analog Signals

256

Telecommunications Media

256

Wired Technologies

257

Twisted-Pair Wire

257

Coaxial Cable

257

Fiber Optics

257
u

The Problem of The Last Mile "

Wireless Technologies

258
258

Telecommunications and Networks

230

Terrestrial Microwave

259

THE NETWORKED ENTERPRISE

231

Communications Satelites

259

Networking the Organization

231

Cellular and PCS Systems

260

The Concept of a Network

231

Wireless LANs

260

Bluetooth

261

The Wireless Web

261

REAL WORLD CHALLENGE: Adena Health

System and Cherokee Health SystemsThe
Challenge of Medicine in the Rural United States
Metcalfe's Law
Trends in Telecommunications

232
234
234

Industry Trends

234

Technology Trends

234

Business Application Trends

236

Internet2

236

The Business Value of Telecommunications

Networks

237

The Internet Revolution

Telecommunications Processors

262

Modems

263

Inter-Network Processors

263

Multiplexers

264

Telecommunications Software
Network Management

264
265

Network Topologies

266

Network Architectures and Protocols

267

238

Protocols

267

Internet Service Providers

239

Network Architectures

267

Internet Applications

239

The OSI Model

267

Business Use of the Internet

241

The Internet's TCP/IP

269

The Business Value of the Internet

241

Voice over IP

270

242

Bandwidth Alternatives

272

243

Switching Alternatives

272

The Role of Extranets

245

Network Interoperability

273

TELECOMMUNICATIONS
NETWORK ALTERNATIVES

248

Telecommunications Alternatives

248

REAL WORLD SOLUTION: Adena Health

System and Cherokee Health SystemsReaching
Far Away with the Help of Technology

2 74

A Telecommunications Network Model

248

Types of Telecommunications Networks

249

The Role of Intranets

The Business Value ofIntranets

Wide Area Networks

249

Metropolitan Area Network

250

REAL WORLD CASE 1: DLA Piper, PepsiCo,

and Others: Telepresence Is Finally Coming of Age 281
REAL WORLD CASE 2: Brain Saving
Technologies, Inc. and the T-Health Institute:
Medicine through Videoconferencing

283

Contents

Business across the Enterprise

324

G E T T I N G ALL T H E GEESE
LINED UP: MANAGING AT T H E
ENTERPRISE LEVEL

325

e-Business Systems

286

Introduction

e-BUSINESS SYSTEMS

287

Introduction

287

Cross-Functional Enterprise Applications

287

CUSTOMER RELATIONSHIP
MANAGEMENT: T H E BUSINESS
FOCUS

REAL W O R L D C H A L L E N G E : Q u a l c o m m
Silos, Silos, Everywhere

288
290

Enterprise Application Architecture

Enterprise Application Integration

291

Transaction Processing Systems

293

The Transaction Processing Cycle

295

xiii

325

326

Introduction

326

W h a t is C R M

326

Contact and Account Management

326

Sales

326

REAL W O R L D C H A L L E N G E : Jelly Belly

Candy CompanyGetting Your Arms Around Sales

327

Marketing and Fulfillment

329

Enterprise Collaboration Systems

296

Customer Service and Support

329

Tools for Enterprise Collaboration

296

Retention and Loyalty Programs

330

FUNCTIONAL BUSINESS SYSTEMS

Introduction

299

T h e T h r e e Phases of C R M

3 31

299

Benefits and Challenges of C R M

332

IT in Business

299

CRM Failures

333

Marketing Systems

300

Trends in C R M

334

Interactive Marketing

301

ENTERPRISE RESOURCE
PLANNING: T H E BUSINESS
BACKBONE

Targeted Marketing

301

Sales Force Automation

302

Introduction

337

J&.

304

Manufacturing

304

WhatlsERP?
Benefits and Challenges of ERP

337
339

Manufacturing Systems
Computer-Integrated

337

306

The Costs of ERP

339

HRM and the Internet

306

Causes of ERP Failures

341

HRM and Corporate Intranets

307

Trends in E R P

342

308

SUPPLY CHAIN MANAGEMENT:

T H E BUSINESS N E T W O R K

345

Human Resource Systems

Accounting Systems
Online Accounting Systems

310

Financial Management Systems

310

REAL W O R D S O L U T I O N : Q u a l c o m m
Breaking Down Silos and Integrating Applications
REAL W O R L D CASE 1: Toyota Europe,
Campbell Soup Company, Sony Pictures,
and W.W. Grainger: Making the Case for
Enterprise Architects
REAL W O R L D CASE 2: Nationwide Insurance:
Unified Financial Reporting and " O n e Version
of the Truth"

Introduction

345

W h a t is S C M

345

Electronic Data Interchange

347

T h e Role of S C M

349

Benefits and Challenges of S C M

351

Trends in S C M

354

319

REAL W O R L D S O L U T I O N : Jelly Belly

Candy C o m p a n y C o m p e t i n g with C R M

356

321

REAL W O R L D CASE 1: Kennametal,

Haworth, Dana Holding, and Others: ERPs
G e t a Second Lease on Life

362

312

XIV

Contents

REAL WORLD CASE 2: Cisco Systems,

Black & Decker, and O'Reilly Auto Parts:
Adapting Supply Chains to Tough Times

364
)

e-Commerce Systems

367

e-COMMERCE FUNDAMENTALS

368

Introduction to e-Commerce

368

The Scope of e-Commerce

368

e-Commerce Technologies

368

REAL WORLD CHALLENGE:

TicketmasterNew Clients, New Outlets,
New Needs

REAL WORLD CASE 1: Sony, 1-800-Flowers,

Starbucks, and Others: Social Networks, Mobile
Phones, and the Future of Shopping

405

REAL WORLD CASE 2: Linked In, Umbria,

Mattel, and Others: Driving the "Buzz" on
the Web

408

Supporting Decision Making

411

SUPPORTING DECISION
MAKING

412

Introduction

412

369

Information, Decisions, and Management

412

Categories of e-Commerce

372

Information Quality

412

Essential e-Commerce Processes

373

Access Control and Security

374

Profiling and Personalizing

374

Decision Structure

415

Search Management

374

Decision Support Trends

417

Content and Catalog Management

374

Decision Support Systems

420

Workflow Management

376

Example

420

Event Notification

377

DSS Components

420

Collaboration and Trading

378

Electronic Payment Processes

378

Web Payment Processes

378

Electronic Funds Transfer

379

OLAP Examples

425

Secure Electronic Payments

379

Geographic Information and Data

Visualization Systems

428

e-COMMERCE APPLICATIONS
AND ISSUES

381

REAL WORLD CHALLENGE: Deutsche

Post DHLThe Challenges of Creating and
Managing a Global Brand

Management Information Systems

Management Reporting Alternatives
Online Analytical Processing

Using Decision Support Systems

413

422
423
423

430

381

What-IfAnalysis

431

382

Sensitivity Analysis

431

382

Goal-Seeking Analysis

432

386

Optimization Analysis

432

Getting Customers to Find You

387

Data Mining for Decision Support

433

Serving Your Customers

388

Managing a Web Store

389

e-Commerce Trends
Business-to-Consumer e-Commerce
e-Commerce Success Factors
Web Store Requirements

Business-to-Business e-Commerce
e-Commerce Marketplaces

390
391

Executive Information Systems

Features of an EIS
Enterprise Portals and Decision Support
Enterprise Information Portals

436
436
438
438

393

Knowledge Management Systems

440

e-Commerce Integration

394

Other Clicks-and-Bricks Strategies

396

ADVANCED TECHNOLOGIES
FOR DECISION SUPPORT

442

e-Commerce Channel Choices

396

Business and AI

442

An Overview of Artificial Intelligence

442

Clicks and Bricks in e-Commerce

REAL WORLD SOLUTION: Ticketmaster

Changing the Way Tickets Are Sold

398

The Domains of Artificial Intelligence

444

Contents

Expert Systems
Components of an Expert System

447
.

447

Identifying Business/IT Strategies

Business Application Planning
Business/ITA rchitecture Planning

Expert System Applications

448

Benefits ofExpert Systems

449

IMPLEMENTATION CHALLENGES

Limitations ofExpert Systems

449

Implementation

451

Implementing Information Technology

Developing Expert Systems

Knowledge Engineering

452

Neural Networks

452

Fuzzy Logic Systems

454

Fuzzy Logic in Business

455

459

REAL WORLD CASE 1: I T Leaders: I T /

Business Alignment Takes on a
Whole New Meaning

511

462

REAL WORLD CASE 2: Centene, Flowserve,

and Shaw Industries: Relationships, Collaboration,
and Project Success
514

Virtual Reality

456

REAL WORLD SOLUTION: Deutsche

Post DHLDecision Support for
Local Brand Investments

A Change Management Process

505

455

Intelligent Agents

Change Management

490
492
493
496
496
496
497
499
501

REAL WORLD SOLUTION: Sloan Valve

CompanyIT and the Redesign of the
New Product Development Process

Genetic Algorithms
VR Applications

End-User Resistance and Involvement

xv

458

REAL WORLD CASE 1: Valero Energy, Elkay

Manufacturing, J&J, and Overstock.com: The Move
Toward Fact-Based Decision Making
469
REAL WORLD CASE 2: Kimberly-Clark Corp.:
Shopping for Virtual Products in Virtual Stores
472

Developing Business/IT Solutions

DEVELOPING BUSINESS SYSTEMS
IS Development
The Systems Approach
Systems Thinking

Dew

REAL WORLD CHALLENGE: Starwood

Hotels and ResortsSuccess and Growth
Bring on I T Challenges

Business/IT Strategies for Development

476

IT PLANNING FUNDAMENTALS

477

Introduction

477

Organizational Planning

477

The Scenario Approach

477

Systems Analysis and Design

The Systems Development Life Cycle
Starting the Systems Development Process
Feasibility Studies
Operational Feasibility
Economic Feasibility

REAL WORLD CHALLENGE: Sloan Valve

CompanyERP, Business Processes, and the
Need to Change

478

Human Factors Feasibility

Planning for Competitive Advantage

483

Legal/Political Feasibility

SWOT Analysis

Technical Feasibility

484

Systems Analysis

517
518
518
518
518

519
521
521
521
522
523
523
524
525
525
526
526
526
527

Business Models and Planning

485

Organizational Analysis

Business/IT Architecture Planning

488

Analysis of the Present System

Information Technology Architecture

488

Logical Analysis

Balanced Scorecard

489

Functional Requirements Analysis and Determination 528

XVI

Contents

Systems Design

528

Prototyping

529

The Prototyping Process

530

User Interface Design

531

System Specifications

533

End-User Development

533

Focus on IS Activities

Security and Ethical Challenges

Doing End-User Development

535

Technical Note: Overview of Object-Oriented

Analysis and Design

537

SECURITY, ETHICAL, A N D SOCIETAL

CHALLENGES OF I T

567

Introduction

567

The Nexus ofIT, Ethics, Security, and Safety

I M P L E M E N T I N G STRATEGIC
BUSINESS SYSTEMS

539

Ethical Responsibility of Business Professionals

The World of Systems Implementation

539

Implementing New Systems

539

REAL WORLD CHALLENGE: Harland

ClarkeReinventing the Company,

Project Management

541

What Is a Project?

541

The Process of Project Management

541

Evaluating Hardware, Software, and Services

543

Hardware Evaluation Factors

544

Software Evaluation Factors

546

Evaluating IS Services

547

Other Implementation Activities

547

Testing

547

Data Conversion

548

Documentation

549

Training

566

534

System Conversion Strategies

Direct Conversion
Parallel Conversion

549
550
551
551

567
567

Reinventing Security

568

Business Ethics

570

Ethical Use ofTechnology

571

Ethical Guidelines

571

Computer Crime

573

Hacking and Cracking

575

Cyber-Theft

576

Cyberterrorism

577

Cyber-Warfare

577

Unauthorized Use at Work

579

Software Piracy

580

Theft ofIntellectual Property

581

Computer Viruses and Worms

582

Adware and Spyware

585

Privacy Issues

586

Pilot Conversion

551

Privacy on the Internet

587

Phased Conversion

552

Computer Matching

589

Postimplementation Activities

552

Privacy Laws

589

Systems Maintenance

552

Computer Libel and Censorship

590

Postimplementation Review

553

The Current State of Cyber Law

590

Other Challenges

591

REAL WORLD SOLUTION: Starwood

Hotels and ResortsToward a Completely
New Infrastructure
REAL WORLD CASE 1: Microsoft, SiCortex,
and Others: How Virtualization Helps
Software Developers
REAL WORLD CASE 2: JetBlue Airways,
West Jet Airlines, and Others: The Difficult
Path to Software Upgrades

554

561

Employment Challenges

591

Computer Monitoring

592

Challenges in Working Conditions

593

Challenges of Individuality

593

Health Issues
563

593

Ergonomics

594

Societal Solutions

594

Contents I
Organizing I T
Managing Application Development

xvii
632
633

SECURITY MANAGEMENT OF
INFORMATION TECHNOLOGY

596

Introduction

596

Managing IS Operations

633

Tools of Security Management

596

IT Staff Planning

Inter-Networked Security Defenses

598

The CIO and Other IT Executives

Encryption

598

Technology Management

634
635
636

Firewalls

599

Managing User Services

636

Denial of Service Attacks

600

E-mail Monitoring

602

Outsourcing

637

Viral Defenses

603

Offshoring

638

Other Security Measures

605

Trends in Outsourcing and Offshoring

639

Outsourcing and Offshoring I T and IS

637

Security Codes

605

Failures in I T Management

640

Backup Files

606

Management Involvement

641

Security Monitors

606

IT Governance

642

Biometric Security

607

MANAGING GLOBAL IT

645

Computer Failure Controls

607

The International Dimension

645

Fault-Tolerant Systems

608

Global I T Management

645

Disaster Recovery

609
609

Cultural, Political, and Geoeconomic

Challenges

646

Information System Controls

609

Global Business/IT Strategies

648

Auditing IT Security

610

Global Business/IT Applications

649

Global I T Platforms

651

System Controls and Audits

REAL WORLD SOLUTION: Harland

ClarkeToward a Comprehensive Risk
Management Program

613

REAL WORLD CASE 1: Texas Health

Resources and Intel: Ethics, IT, and Compliance

620

REAL WORLD CASE 2: Wyoming Medical

Center, Los Angeles County, and Raymond
James: End-Point Security Gets Complicated

Enterprise and Global Management of

Information Technology

The Internet as a Global IT Platform

626
627

Business and I T

627

Managing Information Technology

627

REAL WORLD CHALLENGE: State Street

CorporationThe Need to Reshape I T
Infrastructure

628

Business/IT Planning

630

Manaeinff the I T Function

654

Internet Access Issues

655

Systems Development Strategies

MANAGING IT FOR THE

ENTERPRISE

Information Technology Architecture

Global Data Access Issues

Global Systems Development

623

631
632

652

656
657

REAL WORLD SOLUTION: State Street

CorporationChanging the "Where, When
and How" of I T
REAL WORLD CASE 1: Reinventing I T at BP

659
665

REAL WORLD CASE 2: Cadbury, Forrester

Research, A.T. Kearney, and Others: I T Leaders
Face New Challenges in a Globalized World

667

Review Quiz Answers

Selected References
Glossary for Business Professionals
Name Index
Company Index
Subject Index

670
673
679
705
709
713