MIS Ch01

Information Systems in Global
Business Today
LEARNING OBJECTIVES
After reading this chapter, you will be able
Smart Stores Reinvent the Retail Space
to answer the following questions:
Will the Coronavirus Pandemic Make
1-1 How are information systems Working from Home the New Normal?
transforming business, and why are Digital Transformation of Healthcare at
they so essential for running and Singapore's Jurong Health Services
managing a business today?
Changes in the Financial Industry: Adyen and
1-2 What is an information system? How does it Fintech
work? What are its management,
organization, and technology components?
Why are VIDEO CASES
complementary assets essential Business in the Cloud: Facebook, Google,
for ensuring that information and eBay Data Centers
systems provide genuine value for UPS Global Operations with the DIAD and
organizations? Worldport
1-3 What academic disciplines are used Instructional Video:
to study information systems, and Tour IBM's Raleigh Data Center
how does each contribute to an
understanding of information systems?
1-4 How will MIS help my career?
Mylab MIS
Discussion Questions: 1-4, 1-5, 1-6; Hands-On MIS Projects: 1-7, 1-8, 1-9, 1-10;
eText with Conceptual Animations
34
Smart Stores Reinvent the Retail Space
A
lthough there has been an upsurge in online shopping, retail stores are
not going away. Some traditional retailers are fighting back by using
in formation technology to provide new ways to bring people into
physical
stores or enhance their in-store experiences, even with new requirements for
social distancing.
Acrelec, a French digital signage company, is piloting technology to help
retailers manage store curbside pickups by customers placing orders online.
Customers can use a retailer's smartphone app to indicate they are coming to
pick up an order, and the Acrelec system will estimate when a customer will
arrive at a particular store. Object-recognition cameras identify exactly when a
customer's car arrives and where it is parked. Acrelec
is especially useful for big-box retailers, grocery
stores, and home-improvement stores.
Shelves have become more than just a surface
for storing and displaying objects. New systems for
"smart" shelves use proximity sensors, 3D cameras,
microphones, RFID readers, and weight sensors to
enable interactions between shoppers in physical
stores and the shelves they're standing in front of.
These systems can create a highly personalized
shop ping experience that fundamentally improves
the way shoppers move inside physical stores.
Brands and retailers such as Pepsi, Walmart, and
Albertsons are starting to use Smart Shelf by AWM
to replicate the benefits of the online experience in IC> Eric Eric/123RF
physical retail environments. Using super-wide-an
gle low-light HD cameras, retailers deploying Smart Shelf are able to view
and track their products in real-time. The solution improves operational
efficiencies by highlighting specific shelves that need product stocking and
allows for real time on-shelf marketing to consumers. When retailers connect
Smart Shelf to their mobile apps, they can help shoppers locate products
themselves through their smartphones and tablets.
AWM Frictionless is a walk-in, walk-out solution enabling customers to shop
as normal and check out by simply exiting the store. The system uses digital
shelving and object-recognition cameras to keep track of which customers leave
with which items. When customers enter a store, they are required to have
mobile device and facial recognition scans, which allow the system to charge
their digital accounts when they leave with purchases and receive a receipt via
email or text message.
35
3 Part One Organizations, Management, and the Networked
In March 2020 AWM opened a low-contact cashierless micromarket called QuickEats at a luxury
AWM Smart Shelf is able to personalize shoppers’ experiences when they are in stores based on th
AWM also offers an anonymous consumer behavior tracking application that can direct custome
Sources: accessed April 29, 2020; AWM SmartShelf Launches Southern California’s First Autonomous Microma
T he companies and technologies described here show how essential in-

formation systems are today. Today, retail stores are struggling to stay
alive and relevant as more shoppers gravitate to online shopping and the
Internet. One solution is to use leading-edge innovative information tech-
nology to provide new ways of drawing buyers into physical stores and mak-
ing the in-store buying experience more efficient, safe, and pleasant. The
information flows that drive these reimagined retail businesses have be-
come much more digital, making use of mobile tools and object-recognition
technology.
The chapter-opening diagram calls attention to important points raised by
this case and this chapter. To compete more effectively against online retailers
and take advantage of new technology solutions, brick-and-mortar retail stores
are using innovative systems based on object-recognition technology, sensors,
and smartphones. The use of leading-edge digital technologies to drive business
operations and management decisions is a key topic today in the MIS world and
will be discussed throughout this text.
It is also important to note that deploying information technology has
changed the way customers of Acrelec and AWM Smart Shelf run their busi-
nesses. To effectively use new digital tools, these companies had to redesign
jobs and procedures for gathering, inputting, and accessing information. These
changes had to be carefully planned to make sure they enhanced efficiency,
service, and profitability.
Here are some questions to think about: How do Acrelec’s and AWM’s
systems change retail operations? How do they improve the customer
experience?
Chapter 1 Information Systems in Global Business 3
Business
Challenges
• Mounting competition from online retailers

• Devise
• Opportunities from new technology
technology Management
strategy
• Select technologies
• Revise jobfunctions
• Revise business
processes
LJIII---
I ,
Organization
Information
System
AWM Smart Shelf

Business
Solutions
• Increase sales
• View and track products • Improve service
in real time • Improve operations
• Smartphones
• Object-recognition • Personalize shopper
Technology
technology experiences
• HDcameras
• Sensors
II ■H ow are information systems transforming

business, and why are they so essential for
running and managing a business today?
It's not business as usual in the global economy anymore. Information systems
and technologies are transforming the global business environment. In 2019,
global spending on information technology (IT) and IT services was nearly
$3.8 trillion (Gartner, 2019). In addition, firms spent another $160 billion on
management consulting and services-much of which involves redesigning
firms' business operations to take advantage of these new technologies (Statista,
2020). In fact, most of the business value of IT investment derives from these
organizational, management, and cultural changes inside firms (Saunders and
Brynjolfsson, 2016). Figure 1.1 shows that between 1999 and 2019, capital in
vestment in information technology consisting of IT equipment, software, and
research and development (R&D) accounted for over 40 percent of US total
capital spending. A similar pattern has occurred globally.
As managers, most of you will work for firms that are intensively using
information systems and making large investments in information technol
ogy. You will certainly want to know how to invest this money wisely. If
you make wise choices, your firm can outperform competitors. If you make
poor choices, you will be wasting valuable capital. This book is dedicated to
help ing you make wise decisions about information technology and
information systems.
What's New in Management Information Systems?

Plenty. In fact, there's a whole new world of doing business using new tech
nologies for managing and organizing. What makes the MIS field the most
ex citing area of study in schools of business is the continuous change in
tech nology, management, and business processes. Five changes are of
paramount importance.
FIGURE 1.1 INFORMATION TECHNOLOGY CAPITAL INVESTMENT

Information technology capital investment, defined as IT equipment, software and
research and development (R&D) spending, amounted to over 40 percent of total US
capital spending (in nominal GDP) between 1999 and 2019. A similar pattern has oc-
curred globally.
Source: US Bureau of Economic Analysis.
IT EQUIPMENT, SOFTWARE, and R&D SPENDING IN NOMINAL GDP

(as a percent of total capital spending in nominal GDP)
100
95
90
85
80
75
70
65
60
Percent
55
50 IT Equipment, Software, & R&D 46.8%
45
40
35
30
25
20
15
10
5
IT Innovations A continuing stream of information technology innovations is

transforming the traditional business world. Examples include the emergence
of cloud computing, the growth of a mobile digital business platform based on
smartphones and tablet computers, big data and the Internet of Things (IoT),
business analytics, machine learning systems, and the use of social networks
by managers to achieve business objectives. Most of these changes have oc-
curred in the past few years. These innovations are enabling entrepreneurs
and innovative traditional firms to create new products and services, develop
new business models, and transform the day-to-day conduct of business. In the
process, some old businesses, even industries, are being destroyed while new
businesses are springing up.
New Business Models For instance, the emergence of online video services
for streaming or downloading, such as Netflix, Apple TV Channels, and Ama-
zon, has forever changed how premium video is distributed and even cre-
ated. Netflix by early 2020 had attracted more than 167 million subscribers
worldwide to what it calls the “Internet TV revolution.” Netflix has moved into
premium TV show production with nearly 1,200 original shows in 2019, such
as American Vandal, Suburra, The Crown, Friends From College, House of Cards,
and Orange Is the New Black, challenging cable and broadcast producers of TV
shows, and potentially disrupting cable network dominance of TV show pro-
duction. Apple has struck deals with major Hollywood studios for recent mov-
ies and TV shows. A growing trickle of viewers are unplugging from cable and
using only the Internet for entertainment.
E-commerce Expansion E-commerce sales worldwide amounted to nearly $3.6
trillion in 2019 and are expected to approach $5 trillion by 2021 (Lipsman,
2019). E-commerce is changing how firms design, produce, and deliver their
products and services. E-commerce has reinvented itself again, disrupting the
traditional marketing and advertising industry and putting major media and
content firms
in jeopardy. Facebook and other social networking sites such as YouTube, Twit-
ter, and Tumblr, along with Netflix, Apple Music, and many other media firms,
exemplify the new face of e-commerce in the twenty-first century. They sell
services. When we think of e-commerce, we tend to think of selling physical
products. While this iconic vision of e-commerce is still very powerful and the
fastest- growing form of retail worldwide, growing up alongside is a whole new
value stream based on selling services, not goods. It’s a services model of e-
commerce. Growth in social commerce is spurred by powerful growth of the
mobile platform: 98 percent of Facebook’s users access the service from mobile
phones and tablets. Information systems and technologies are the foundation of
this new services- based e-commerce. Mobile retail e-commerce worldwide
approached $2.55 billion in 2020 (and is growing at almost 20 percent a year)
(eMarketer, 2020).
Management Changes The management of business firms has changed: With
new mobile smartphones, high-speed wireless Wi-Fi networks, and tablets, re-
mote salespeople on the road are only seconds away from their managers’ ques-
tions and oversight. Management is going mobile. Managers on the move are
in direct, continuous contact with their employees. The growth of enterprise-
wide information systems with extraordinarily rich data means that managers
no longer operate in a fog of confusion but instead have online, nearly instant
access to the really important information they need for accurate and timely
decisions. In addition to their public uses on the web, social networking tools,
wikis, and blogs are becoming important corporate tools for communication,
collaboration, and information sharing.
Changes in Firms and Organizations Compared to industrial organizations of
the previous century, new fast-growing twenty-first-century business firms put
less emphasis on hierarchy and structure and more emphasis on employees
taking on multiple roles and tasks and collaborating with others on a team. They
put greater emphasis on competency and skills rather than position in the
hierarchy. They emphasize higher-speed and more-accurate decision making
based on data and analysis. They are more aware of changes in technology,
consumer attitudes, and culture. They use social media to enter into conversations
with consumers and demonstrate a greater willingness to listen to consumers, in
part because they have no choice.
They show better understanding of the importance of information technology in
creating and managing business firms and other organizations. To the extent organi-
zations and business firms demonstrate these characteristics, they are twenty-first-
century digital firms.
You can see some of these trends at work in the Interactive Session on
Organizations, which examines the impact on work and management as many
companies had their employees work remotely during the coronavirus pan-
demic of 2020.
Globalization Challenges and Opportunities: A

Flattened World
Prior to AD 1500, there was no truly global economic system of trade that con-
nected all the continents on earth although there were active regional trade
markets. After the sixteenth century, a global trading system began to emerge
based on advances in navigation and ship technology. The world trade that
ensued after these developments has brought the peoples and cultures of the
world much closer together. The Industrial Revolution was really a worldwide
phenomenon energized by expansion of trade among nations, making na-
tions both competitors and collaborators in business. The Internet has greatly
heightened the competitive tensions among nations as global trade expands
INTERACTIVE SESSION ORGANIZATIONS
Will the Coronavirus Pandemic Make Working from Home the New Normal?
As COVID-19 continued to spread around the globe,
companies large and small started to make changes laptop computers, tablets, smartphones, email, mes
saging, and videoconferencing tools. As companies
to the way they work, shuttering their offices and
shift their work from face-to-face to remote, video con
requiring most or all of their employees to work
ferencing is becoming the new normal for meetings.
remotely from their homes.
People are trying to have good conversations, share
• During the pandemic, ClearRisk, which offers critical information, generate new ideas, reach con
integrated, cloud-based software solutions for sensus, and make decisions quickly on this platform.
claims, fleet, incident, and insurance
Although less than ideal for face-to-face interac
certificate management had its entire staff
tions, videoconferencing is becoming more
working from home.
powerful and affordable. There are many options,
• Many large law firms, including Reed Smith,
includ-
Baker McKenzie, and Nixon Peabody, closed
offices and required work at home during the ing Skype, Skype for Business, Zoom, Microsoft
pandemic. The law firms emphasized that they Teams, Amazon Chime, BlueJeans, Cisco's WebEx,
could continue to serve clients despite office GoToMeeting, and Google Meet. Some business
closings and remote work. peo ple are using the same tools they do in their
• OpenText Corp., a Canadian provider of personal communications, such as FaceTime and
enter prise information management products, Facebook Messenger. (FaceTime now supports
plans to eliminate more than half of its 120 group video chat with up to 32 people.)
offices globally, with 2000 of its 15,000- Video conference software such as WebEx and
person work force working from home BlueJeans appears designed for more corporate
permanently. uses. Other software such as Microsoft's Skype and
• In mid-May 2020, 'Twitter Inc. notified employ Zoom feels more consumer-friendly and easier to
ees that most of them could work from home set up, with free or low-cost versions suitable for
indefinitely. smaller businesses. Skype works for video chats,
According to a recent MITreport, 34 percent of calls, and instant messaging and can handle up to 50
Americans who previously commuted to work people in a single video call. Skype allows calls to
stated that they were working from home by the first be recorded in case someone misses a meeting.
week of April 2020 due to the coronavirus outbreak. Skype also pro vides file-sharing capabilities, caller
Prior to the pandemic, the number of people ID, voicemail, a split view mode to keep
regularly working from home remained in the single conversations separate, and screen share on mobile
digits, with only about 4 percent of the US devices.
workforce work ing from home at least half the Up to 1,000 users can participate in a single
time. However, the trend of working from home had Zoom video call, and 49 videos can appear on the
been slowly gaining momentum thanks to advances screen at once. Zoom includes collaboration tools
in information tech nology for remote work and like simul taneous screen-sharing and co-
changes in corporate work culture. The coronavirus annotation, and the ability to record meetings and
pandemic may mark a tipping point. generate transcripts. Users can adjust meeting times,
It's likely that many people who started working select multiple hosts, and communicate via chat if
from home for the first time during the pandemic microphones and cameras are turned off.
will continue to do so thereafter. New health guide There are definite benefits to remote work: lower
lines about distancing will require some workplaces overhead, more flexible schedules, reductions in
to expand to accommodate all their employees or to employee commuting time and attrition rates, and
have a significant percentage of employees work increases in productivity. (Many companies reported
per manently from home. that productivity did not suffer when employees
Information technologies driving these changes worked at home during the pandemic.) According to
include broadband high-speed Internet connections, Global Workplace Analytics, a typical company saves
about $11,000 per half-time telecommuter per year.
Working remotely also poses challenges.
Chapter 1 Information Systems in Global Business Today 41
Not all employees have access to the Internet connection of face-to-face conversations. Remote
at home, and many work in industries that work also inhibits the creativity and innovative
require on-site work. About 80 percent of thinking that take place when people interact with
American adults each other face-to-face, and videoconferencing is
have high-speed broadband Internet service at home. only a partial solution. Studies have found that peo
However, according to a Pew Research Center study, ple working together in the same room tend to solve
racial minorities, older adults, rural residents, and problems more quickly than remote collaborators,
people with lower levels of education and income and that team cohesion suffers when members work
are less likely to have in-home broadband service. remotely.
In addition, one in five American adults access the
Internet only through their smartphones. Employees Sources: Dana Mattioli and Konrad Putzier, 'The End of the Office:
with little children or small apartments find Wall Street Journal, May 16-17, 2020; Rani Molla, "This Is the End
working at home more difficult. of the Office as We Know It,• Vox, April 14, 2020; Josh Lowy,
"Over coming Remote Work Challenges,• MIT Sloan Management
Full-time employees are four times more likely to ReView, April 9, 2020; Cate Pye, "Coronavirus: What Does the
have remote work options than part-time employees. 'New Normal• Mean for How We Work?• Computer Weekly, April
According to Global Workplace Analytics, a typical re 3, 2020; Lindsey Jacobson, 'As Coronavirus Forces Millions to
Work Remotely, the US Economy May Have Reached a 'Tipping
mote worker is college-educated, at least 45 years old, Point' in Favor of Work ing from Home,• CNBC, March 23, 2020;
and earns an annual salary of $58,000 while working Derek Thompson, 'The Coronavirus Is Creating a Huge, Stressful
for a company with more than 100 employees. Experiment in Working from Home,• The Atlantic, March 13, 2020;
Kevin Roose, 'Sorry, but Working from Home Is Overrated,• New
Although email and text messaging are very use York nmes, March 10, 2020.
ful, they are not effective tools for communication
compared to the information exchange and personal
CASE STUDY QUESTIONS

1. Define the problem described in this case. What
3. Will working from home become the dominant
are the management, organization, and technol way of working in the future? Why or why not?
ogy issues raised by this problem?
2. Identify the information technologies used to pro
vide a solution to this problem. Was this a success
ful solution? Why or why not?
and strengthened the benefits that flow from trade, and also created
significant dislocations in labor markets.
In 2005, journalist Thomas Friedman wrote an influential book declaring
the world was now flat, by which he meant that the Internet and global
communi cations had greatly expanded the opportunities for people to
communicate with one another and reduced the economic and cultural
advantages of developed countries. The United States and European countries
were in a fight for their economic lives, according to Friedman, competing for
jobs, markets, resources, and even ideas with highly educated, motivated
populations in low-wage areas in the less developed world (Friedman, 2007).
This globalization presents you and your business with both challenges and
opportunities.
A growing percentage of the economy of the United States and other ad
vanced industrial countries in Europe and Asia depends on imports and
exports. In 2019, an estimated 30 percent of the world economy resulted from
foreign trade of goods and services, both imports and exports. Half of
Fortune 500 US firms obtain nearly 50 percent of their revenue from foreign
operations. For instance, more than 50 percent of Intel's revenues in 2019
came from overseas sales of its microprocessors.
It’s not just goods that move across borders. So too do jobs, some of them
high- level jobs that pay well and require a college degree. For instance, since
2000, the United States has lost an estimated 5 million manufacturing jobs to
offshore, low-wage producers, so manufacturing is now a small part of US
employment (less than 9 percent). In a normal year, about 300,000 service jobs
move offshore to lower-wage countries, many of them in less-skilled
information system occupations but also in tradable service jobs in architecture,
financial services, customer call centers, consulting, engineering, and even
radiology.
On the plus side, the US economy created 2.6 million new jobs in 2018.
Employment in information systems and the other service occupations listed
previously has rapidly expanded in sheer numbers, wages, productivity, and
quality of work. Outsourcing has actually accelerated the development of new
systems in the United States and worldwide by reducing the cost of building
and maintaining them. In 2019 job openings in information systems and tech-
nologies far exceeded the supply of applicants.
The challenge for you as a business student is to develop high-level skills
through education and on-the-job experience that cannot be outsourced. The
challenge for your business is to avoid markets for goods and services that can
be produced offshore much less expensively. The opportunities are equally im-
mense. Throughout this book you will find examples of companies and indi-
viduals who either failed or succeeded in using information systems to adapt to
this new global environment.
What does globalization have to do with management information systems?
That’s simple: everything. The emergence of the Internet into a full-blown
international communications system has drastically reduced the costs of
operating and transacting on a global scale. Communication between a fac-
tory floor in Shanghai and a distribution center in Rapid City, South Dakota,
is now instant and virtually free. Customers can now shop in a worldwide
marketplace, obtaining price and quality information reliably 24 hours a day.
Firms producing goods and services on a global scale achieve extraordinary
cost reductions by finding low-cost suppliers and managing production facili-
ties in other countries. Internet service firms, such as Google and eBay, are
able to replicate their business models and services in multiple countries
without having to redesign their expensive fixed-cost information systems
infrastructure. Briefly, information systems enable globalization.
The Emerging Digital Firm

All of the changes we have just described, coupled with equally significant or-
ganizational redesign, have created the conditions for a fully digital firm. A
digital firm can be defined along several dimensions. A digital firm is one in
which nearly all of the organization’s significant business relationships with cus-
tomers, suppliers, and employees are digitally enabled and mediated. Core busi-
ness processes are accomplished through digital networks spanning the entire
organization or linking multiple organizations.
Business processes refer to the set of logically related tasks and behaviors
that organizations develop over time to produce specific business results and
the unique manner in which these activities are organized and coordinated.
Developing a new product, generating and fulfilling an order, creating a mar-
keting plan, and hiring an employee are examples of business processes, and
the ways organizations accomplish their business processes can be a source of
competitive strength. (A detailed discussion of business processes can be found
in Chapter 2.)
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
any time 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-flexible global
organization and management. In digital firms, both time shifting and space
shifting are the norm. Time shifting refers to business being conducted
continuously, 24/7, rather than
in narrow “work day” time bands of 9 a.m. to 5 p.m. Space shifting means that
work takes place in a global workshop as well as within national boundaries.
Work is accomplished physically wherever in the world it is best accomplished.
Many firms, such as Cisco Systems, 3M, and GE, are close to becoming digi-
tal firms, using the Internet to drive every aspect of their business. Most other
companies are not fully digital, but they are moving toward close digital inte-
gration with suppliers, customers, and employees.
Strategic Business Objectives of Information Systems

What makes information systems so essential today? Why are businesses in-
vesting so much in information systems and technologies? In the United States,
more than 25 million business and financial managers, and 36 million profes-
sional workers in the labor force rely on information systems to conduct busi-
ness. Information systems are essential for conducting day-to-day business in
most advanced countries as well as achieving strategic business objectives.
Entire sectors of the economy are nearly inconceivable without substan-
tial investments in information systems. E-commerce firms such as Amazon,
eBay, Google, and E*Trade simply would not exist. Today’s service industries—
finance, insurance, and real estate as well as personal services such as travel,
medicine, and education—could not operate without information systems.
Similarly, retail firms such as Walmart and Tesco and manufacturing firms such
as General Motors and Siemens require information systems to survive and
prosper. Just as offices, telephones, filing cabinets, and efficient tall buildings
with elevators were once the foundations of business in the twentieth century,
information technology is a foundation for business in the twenty-first century.
There is a growing interdependence between a firm’s ability to use informa-
tion technology and its ability to implement corporate strategies and achieve
corporate goals (see Figure 1.2). What a business would like to do in five years
often depends on what its systems will be able to do. Increasing market share,
becoming the high-quality or low-cost producer, developing new products, and
increasing employee productivity depend more and more on the kinds and
quality of information systems in the organization. The more you understand
about this relationship, the more valuable you will be as a manager.
Specifically, business firms invest heavily in information systems to achieve
six strategic business objectives: operational excellence; new products, services,
and business models; customer and supplier intimacy; improved decision mak-
ing; competitive advantage; and survival.
Operational Excellence
Businesses continuously seek to improve the efficiency of their operations in
order to achieve higher profitability. Information systems and technologies are
some of the most important tools available to managers for achieving higher
IFIGURE 1.2 THE INTERDEPENDENCE BETWEEN ORGANIZATIONS AND

INFORMATION SYSTEMS
In contemporary systems, there is a growing interdependence between a firm's infor
mation systems and its business capabilities. Changes in strategy, rules, and business
processes increasingly require changes in hardware, software, databases, and telecom
munications. Often, what the organization would like to do depends on what its systems
will permit it to do.
Business Firm Information System
levels of efficiency and productivity in business operations, especially when

coupled with changes in business practices and management behavior.
Walmart, the largest retailer on earth, exemplifies the power of informa
tion systems coupled with state-of-the-art business practices and supportive
management to achieve world-class operational efficiency. In fiscal year
2019, Walmart achieved $524 billion in sales-nearly one-tenth of retail sales
in the United States-in large part because of its Retail Link system, which
digitally links its suppliers to every one of Walmart's stores. As soon as a
customer pur chases an item, the supplier monitoring the item knows to ship
a replacement to the shelf. Walmart is the most efficient retail store in the
industry.
New Products, Services, and Business Models

Information systems and technologies are a major enabling tool for firms to cre
ate new products and services as well as entirely new business models. A
busi ness model describes how a company produces, delivers, and sells a
product or service to create wealth.
Today's music industry is vastly different from the industry a decade ago.
Apple Inc. transformed an old business model of music distribution based on
vinyl records, tapes, and CDs into an online, legal distribution model based
on its own technology platform. Apple has prospered from a continuing
stream of innovations, including the iTunes music service, the iPad, and the
iPhone.
Customer and Supplier Intimacy

When a business really knows its customers and serves them well, the
custom ers generally respond by returning and purchasing more. This raises
revenues and profits. Likewise with suppliers-the more a business engages its
suppliers, the better the suppliers can provide vital inputs. This lowers costs.
How to re ally know your customers or suppliers is a central problem for
businesses with millions of offline and online customers.
High-end hotels, such as the Mandarin Oriental hotel group, which
operates hotels in Asia, Europe, and the Americas, exemplify the use of
information Chapter 1 Information Systems in Global Business 4
systems and technologies to achieve customer intimacy. These hotels use com-
puters to keep track of guests’ preferences, such as their preferred room tem-
perature, check-in time, frequently dialed telephone numbers, and television
programs, and store these data in a large data repository. Individual rooms in
the hotels are networked to a central network server computer so that they can
be remotely monitored and controlled. When a customer arrives at one of these
hotels, the system automatically changes the room conditions, such as dim-
ming the lights, setting the room temperature, or selecting appropriate music,
based on the customer’s digital profile. The hotels also analyze their customer
data to identify their best customers and to develop individualized marketing
campaigns based on customers’ preferences.
Charles Tyrwhitt, a UK retailer specializing in dress shirts, and JCPenney,
a US department store chain, exemplify the use of information systems to en-
able supplier and customer intimacy. Every time a dress shirt is bought one of
their stores, the record of the sale appears immediately on computers in Hong
Kong at their supplier. TAL Apparel, a contract manufacturer that produces one
in six dress shirts sold in the United States. TAL runs the numbers through a
computer model it developed and then decides how many replacement shirts
to make and in what styles, colors, and sizes. TAL then sends the shirts to each
store, bypassing the retailer’s warehouses. These systems reduce inventory
costs and ensure that what customers want are actually on the shelves.
Improved Decision Making

Many business managers operate in an information fog bank, never really
having the right information at the right time to make an informed decision.
Instead, managers rely on forecasts, best guesses, and luck. The result is over-
or underproduction of goods and services, misallocation of resources, and poor
response times. These poor outcomes raise costs and lose customers. In the
past decade, information systems and technologies have made it possible for
managers to use real-time data from the marketplace when making decisions.
For instance, Privi Organics Ltd., a leading Indian company that manufac-
tures, supplies, and exports aroma chemical products worldwide, uses the
Oracle Human Capital Management system for real-time insight into individual
employee information—including performance rating and compensation his-
tory. The system helps managers make faster human resource decisions, such
as promotions or transfers, by integrating all employee records across the orga-
nization. Managers are able to quickly review employee performance ratings
for the previous three years and drill down into more details. A digital dash-
board helps management view and monitor hiring status in multiple locations,
such as the number of open positions and the time taken to fill these positions.
Competitive Advantage
When firms achieve one or more of these business objectives—operational ex-
cellence; new products, services, and business models; customer/supplier inti-
macy; and improved decision making—chances are they have already achieved
a competitive advantage. Doing things better than your competitors, charging
less for superior products, and responding to customers and suppliers in real
time all add up to higher sales and higher profits that your competitors cannot
match. Apple Inc., Walmart, and UPS, described later in this chapter, are indus-
try leaders because they know how to use information systems for this purpose.
Survival
Business firms also invest in information systems and technologies because
they are necessities of doing business. Sometimes these "necessities" are
driven by industry-level changes. For instance, after Barclays Bank introduced
the first automated teller machines (ATMs) in London in 1967, its
competitors rushed to provide ATMs to their customers to keep up. Today,
virtually all large banks around the world have regional ATMs and link to
national and international ATM networks, such as Cirrus. Providing ATM
services to retail banking cus tomers is simply required in the retail banking
business.
Most nations have statutes and regulations that create a legal duty for compa
nies and their employees to retain records, including digital records. For instance,
the European Council's Regulation on Registration, Evaluation, Authorization, and
Restriction of Chemicals (REACH) and the U.S.Toxic Substances Control Act (1976),
which regulates the exposure of employees to toxic chemicals, require firms to re
tain records on employee exposure for a certain period of time. Many other pieces
of national and regional legislation impose significant information retention and
reporting requirements on US businesses. Firms tum to information systems to
provide the capability to respond to these record management requirements.
Ifj What is an information system? How

does it work? What are its management,
organization, and technology components?
Why are complementary assets essential
for ensuring that information systems
provide genuine value for organizations?
So far we've used information systems and technologies informally without
defin ing the terms. Information technology (IT) consists of all the hardware
and software that a firm needs to use in order to achieve its business
objectives. This includes not only computer machines, storage devices, and
handheld mo bile devices but also software, such as the Windows or Linux
operating systems, the Microsoft Office desktop productivity suite, and the many
thousands of computer programs that can be found in a typical large firm.
"Information sys tems" are more complex and can be best understood by looking
at them from both a technology and a business perspective.
What Is an Information System?

An information system can be defined technically as a set of interrelated
components that collect (or retrieve), process, store, and distribute information
to support decision making and control in an organization. In addition to sup
porting decision making, coordination, and control, information systems may
also help managers and workers analyze problems, visualize complex subjects,
and create new products.
Information systems contain information about significant people, places, and
things within the organization or in the environment surrounding it. By infor
mation we mean data that have been shaped into a form that is meaningful and
useful to human beings. Data, in contrast, are streams of raw facts representing
events occurring in organizations or the physical environment before they have
been organized and arranged into a form that people can understand and use.
I FIGURE 1.3 DATA AND INFORMATION

Raw data from a supermarket checkout counter can be processed and organized to produce
meaningful information, such as the total unit sales of dish detergent or the total sales revenue
from dish detergent for a specific store or sales territory.
331 Brite Dish Soap 1.29 Sales Region: Northwest Store: Superstore #122
863 BL Hill Coffee 4.69 ITEM NO. DESCRIPTION UNITS SOLD
173 Meow Cat .79 Information
331 Brite Dish Soap 1.29
663 Country Ham 3.29
System 331 Brite Dish Soap 7,156
524 Fiery Mustard 1.49 YTD SALES
113 Ginger Root .85 $9,231.24
331 Brite Dish Soap 1.29
A brief example contrasting information and data may prove useful.

Supermarket checkout counters scan millions of pieces of data from bar
codes, which describe each product. Such pieces of data can be totaled and
analyzed to provide meaningful information, such as the total number of
bottles of dish detergent sold at a particular store, which brands of dish
detergent were selling the most rapidly at that store or sales territory, or the
total amount spent on that brand of dish detergent at that store or sales region
(see Figure 1.3).
Three activities in an information system produce the information that or
ganizations need to make decisions, control operations, analyze problems,
and create new products or services. These activities are input, processing, and
out put (see Figure 1.4). Input captures or collects raw data from within the
orga nization or from its external environment. Processing converts this raw
input into a meaningful form. Output transfers the processed information to
the people who will use it or to the activities for which it will be used.
Information systems also require feedback, which is output that is returned
to appropriate members of the organization to help them evaluate or correct
the input stage.
In the AWM Smart Shelf system, input includes the digital results from scan
ning on-shelf products and store shelf identification codes, along with
scanned images of items customers have selected for purchase. Computers
store and process these data to keep track of the items on each shelf, the
items each customer purchases or examines, and a history of the customer's
purchases and items of interest. The system then determines what items on
what shelves need restocking, and what items should be recommended to
each customer. The system provides meaningful information such as all the
items sold in a particular store or on a particular store shelf on a specific day,
what items have been purchased by a specific customer, and which items
need restocking.
Although computer-based information systems use computer technology
to process raw data into meaningful information, there is a sharp distinction
be tween a computer and a computer program on the one hand and an
informa tion system on the other. Computers and related software programs
are the technical foundation, the tools and materials, of modern information
systems. Computers provide the equipment for storing and processing
information. Computer programs, or software, are sets of operating
Chapter 1 Information
instructions that direct and control computer processing. KnowingSystems
how in Global Business 4
computers and computer
IFIGURE 1.4 FUNCTIONS OF AN INFORMATION SYSTEM

An information system contains information about an organization and its surrounding
environment. Three basic activities-input, processing, and output-produce the infor
mation organizations need. Feedback is output returned to appropriate people or activi
ties in the organization to evaluate and refine the input. Environmental actors, such as
customers, suppliers, competitors, stockholders, and regulatory agencies, interact with
the organization and its information systems.
ENVIRONMENT
Suppliers Customers
\\
,,' ,
'
ORGANIZATION
INFORMATION SYSTEM
\
I
GI
Processing
.. Classify
'I
Input Arrange
I Calculate
/ t
•
Feedback
,, ' I I
\
\\
' '
I
Regulatory Agencies Stockholders

Com petitors
programs work is important in designing solutions to organizational problems,

but computers are only part of an information system.
A house is an appropriate analogy. Houses are built with hammers, nails, and
wood, but these do not make a house. The architecture, design, setting,
landscap ing, and all of the decisions that lead to the creation of these features
are part of the house and are crucial for solving the problem of putting a roof
over one's head. Computers and programs are the hammers, nails, and lumber of
computer based information systems, but alone they cannot produce the
information a particular organization needs. To understand information systems,
you must un derstand the problems they are designed to solve, their architectural
and design elements, and the organizational processes that lead to the solutions.
Dimensions of Information Systems

To fully understand information systems, you must understand the broader
or ganization, management, and information technology dimensions of
systems (see Figure 1.5) and their power to provide solutions to challenges
and prob lems in the business environment. We refer to this broader
understanding of in formation systems, which encompasses an understanding
of the management and organizational dimensions of systems as well as the
technical dimensions of systems, as information systems literacy.
Computer literacy, in contrast, focuses primarily on knowledge of
information technology.
The field of management information systems (MIS) tries to achieve
this broader information systems literacy. MIS deals with behavioral issues
as well as technical issues surrounding the development, use, and impact of
informa tion systems used by managers and employees in the firm.
I FIGURE 1.5 INFORMATION SYSTEMS ARE MORE THAN COMPUTERS

Using information systems effectively requires an understanding of the organization,
management, and information technology shaping the systems. An information system
creates value for the firm as an organizational and management solution to challenges
posed by the environment.
/m m
,
Technology
lnfonnation
Organization s
Management
Let's examine each of the dimensions of information systems-organizations,

management, and information technology.
Organizations
Information systems are an integral part of organizations. Indeed, for some com
panies, such as credit reporting firms, there would be no business without an in
formation system. The key elements of an organization are its people, structure,
business processes, politics, and culture. We introduce these components of
orga nizations here and descnbe them in greater detail in Chapters 2 and 3.
Organizations have a structure that is composed of different levels and
spe cialties. Their structures reveal a clear-cut division of labor. Authority
and re sponsibility in a business firm are organized as a hierarchy, or a
pyramid struc ture. The upper levels of the hierarchy consist of managerial,
professional, and technical employees, whereas the lower levels consist of
operational personnel. Senior management makes long-range strategic
decisions about products and services as well as ensures financial
performance of the firm. Middle management carries out the programs
and plans of senior management, and operational management is
responsible for monitoring the daily activities of the business. Knowledge
workers, such as engineers, scientists, or architects, design products or
services and create new knowledge for the firm, whereas data workers,
such as secretaries or clerks, assist with scheduling and com munications at
all levels of the firm. Production or service workers actually
produce the product and deliver the service (see Figure 1.6).
Experts are employed and trained for different business functions. The major
business functions, or specialized tasks performed by business
organizations, consist of sales and marketing, manufacturing and production,
finance and ac counting, and human resources (see Tuble 1.1). Chapter 2
provides more detail on these business functions and the ways in which they
are supported by infor mation systems.
An organization coordinates work through its hierarchy and through its busi
ness processes. Most organizations' business processes include formal rules that
ITABLE 1.1 MAJOR BUSINESS FUNCTIONS

FUNCTION
PURPOSE
Sales and marketing

Selling the organization's products and services
Manufacturing and production
Producing and delivering products and services
Finance and accounting
Managing the organization's financial assets and
maintaining the organization's financial records
Human resources
Attracting, developing, and maintaining the organization's
labor force; maintaining employee records
have been developed over a long time for accomplishing tasks. These rules
guide employees in a variety of procedures, from writing an invoice to respond
ing to customer complaints. Some of these business processes have been
writ ten down, but others are informal work practices, such as a requirement
to return telephone calls from coworkers or customers, that are not formally
docu mented. Information systems automate many business processes. For
instance, how a customer receives credit or how a customer is billed is often
determined by an information system that incorporates a set of formal
business processes.
Each organization has a unique culture, or fundamental set of assumptions,
values, and ways of doing things, that has been accepted by most of its mem
bers. You can see organizational culture at work by looking around your
univer sity or college. Some bedrock assumptions of university life are that
professors know more than students, that the reason students attend college is
to learn, and that classes follow a regular schedule.
Parts of an organization's culture can always be found embedded in its infor
mation systems. For instance, UPS's first priority is customer service, which is
an aspect of its organizational culture that can be found in the company's pack
age tracking systems, which we describe in this section.
IFIGURE 1.6 LEVELS IN A FIRM

Business organizations are hierarchies consisting of three principal levels: senior man
agement, middle management, and operational management. Information systems
serve each of these levels. Scientists and knowledge workers often work with middle
management.
Middle Management
Scientists and knowledge workers
Operational Management Production and service workers Data workers

Different levels and specialties in an organization create different inter-

ests and points of view. These views often conflict over how the company
should be run and how resources and rewards should be distributed. Conflict
is the basis for organizational politics. Information systems come out of this
cauldron of differing perspectives, conflicts, compromises, and agreements
that are a natural part of all organizations. In Chapter 3, we examine these
features of organizations and their role in the development of information
systems in greater detail.
Management
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, they set
the organizational strategy for responding to those challenges, and they allocate
the human and financial resources to coordinate the work and achieve success.
Throughout, they must exercise responsible leadership. The business
information systems described in this book reflect the hopes, dreams, and
realities of real-world managers.
But managers must do more than manage what already exists. They must
also create new products and services and even re-create the organization from
time to time. A substantial part of management responsibility is creative work
driven by new knowledge and information. Information technology can play
a powerful role in helping managers design and deliver new products and ser-
vices and redirecting and redesigning their organizations. Chapter 12 treats
management decision making in detail.
Information Technology
Information technology is one of many tools managers use to cope with change.
Computer hardware is the physical equipment used for input, processing, and
output activities in an information system. It consists of the following: comput-
ers of various sizes and shapes (including mobile handheld devices); various
input, output, and storage devices; and telecommunications devices that link
computers together.
Computer software consists of the detailed, preprogrammed instructions
that control and coordinate the computer hardware components in an infor-
mation system. Chapter 5 describes the contemporary software and hardware
platforms used by firms today in greater detail.
Data management technology consists of the software governing the orga-
nization of data on physical storage media. More detail on data organization and
access methods can be found in Chapter 6.
Networking and telecommunications technology, consisting of both
physical devices and software, links the various pieces of hardware and
transfers data from one physical location to another. Computers and
communications equipment can be connected in networks for sharing voice,
data, images, sound, and video. A network links two or more computers to
share data or resources, such as a printer.
The world’s largest and most widely used network is the Internet. The
Internet is a global “network of networks” that uses universal standards (de-
scribed in Chapter 7) to connect millions of networks in more than 230 coun-
tries around the world.
The Internet has created a new “universal” technology platform on which to
build new products, services, strategies, and business models. This same
technology platform has internal uses, providing the connectivity to link
different systems and networks within the firm. Internal corporate networks
based on Internet
technology are called intranets. Private intranets extended to authorized users

outside the organization are called extranets, and firms use such networks to
coordinate their activities with other firms for making purchases, collaborating
on design, and other interorganizational work. For most business firms today,
using Internet technology is both a business necessity and a competitive
advantage.
The World Wide Web is a service provided by the Internet that uses uni-
versally accepted standards for storing, retrieving, formatting, and displaying
information in a page format on the Internet. Web pages contain text,
graphics, animations, sound, and video and are linked to other web pages. By
clicking on highlighted words or buttons on a web page, you can link to related
pages to find additional information and links to other locations on the web.
The web can serve as the foundation for new kinds of information systems such
as UPS’s web- based package tracking system described below.
All of these technologies, along with the people required to run and man-
age them, represent resources that can be shared throughout the organization
and constitute the firm’s information technology (IT) infrastructure. The
IT infrastructure provides the foundation, or platform, on which the firm can
build its specific information systems. Each organization must carefully design
and manage its IT infrastructure so that it has the set of technology services it
needs for the work it wants to accomplish with information systems. Chapters
5 through 8 of this book examine each major technology component of infor-
mation technology infrastructure and show how they all work together to cre-
ate the technology platform for the organization. The Interactive Session on
Technology describes some examples of the technologies used in computer-
based information systems today.
UPS’s global delivery system provides another example. UPS invests heavily
in information systems technology to make its business more efficient and cus-
tomer oriented. It uses an array of information technologies, including bar code
scanning systems, wireless networks, large mainframe computers, handheld
computers, the Internet, and many different pieces of software for tracking
packages, calculating fees, maintaining customer accounts, and managing
logistics.
Let’s identify the organization, management, and technology elements in the
UPS package tracking system. The organization element anchors the package
tracking system in UPS’s sales and production functions (the main product of
UPS is a service—package delivery). It specifies the required procedures for
identifying packages with both sender and recipient information, taking inven-
tory, tracking the packages en route, and providing package status reports for
UPS customers and customer service representatives.
The system must also provide information to satisfy the needs of managers
and workers. UPS drivers need to be trained in both package pickup and deliv-
ery procedures and in how to use the package tracking system so that they can
work efficiently and effectively. UPS customers may need some training to use
UPS in-house package tracking software or the UPS website.
UPS’s management is responsible for monitoring service levels and costs and
for promoting the company’s strategy of combining low cost and superior ser-
vice. Management decided to use computer systems to increase the ease of
sending a package using UPS and of checking its delivery status, thereby reduc-
ing delivery costs and increasing sales revenues.
The technology supporting this system consists of handheld computers, bar
code scanners, desktop computers, wired and wireless communications net-
works, UPS’s data center, storage technology for the package delivery data, UPS
in-house package tracking software, and software to access the web. 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.
INTERACTIVE SESSION TECHNOLOGY

Digital Transformation of Healthcare at Singapore's Jurong Health Services
Jurong Health Services (JurongHealth) is one of System enables the hospital to both control access
Singapore's six public healthcare clusters. to the wards and track or contact visitors and staff
Healthcare clusters provide holistic and integrated if necessary.
care when patients move from one care setting, like Another IT system implemented is the
a clinic, to another, like a hospital. JurongHealth Warehouse Management System, which eliminates
primarily man ages the 700-bed Ng Teng Fong the tedious process of manually counting inventory.
General Hospital, the 400-bed Jurong Community The system uses passive radio frequency
Hospital, and the Jurong Medical Center, all of identification (RFID) technology and a two-bin
which are located in western Singapore. shelving system to auto mate inventory top-up
JurongHealth's goal is to provide transformative requests and improve inven tory management. Once
medical care for its patients through the use of in the primary compartment of the storage bin is
novative information technologies. Underscoring empty, the clinical staff transfers the relevant RFID
this commitment, in 2016 JurongHealth's Ng Teng tag into a drop-box, where the reader automatically
Fong General Hospital became the first hospital in sends a request for drug replen ishment, thus
Singapore and the ASEAN region, and fifth in Asia avoiding stock-outs.
Pacific, to receive the highest level of the JurongHealth has also implemented a Real-Time
Healthcare Information and Management Systems Location Tracking System to automatically track pa
Society (HIMSS) Electronic Medical Record tients and medical equipment using Wi-Fi triangula
Adoption Model Award, which measures a hospital's tion, low frequency exciters, and about 6,000 active
implementation of IT systems. RFID tags attached to patients or medical
JurongHealth has integrated more than SO health equipment. These tags continuously communicate
care IT systems as part of the Project OneCare with the low frequency exciters to transmit data to
initia tive. The systems' implementation and the backend system for processing, allowing hospital
integration took four years and has enabled the staff to pre cisely locate patients and equipment, thus
hospital to be come paperless, chartless, and eliminat ing the need for tedious manual searching.
filmless. For instance, self-service kiosks now JurongHealth made a conscious effort to ensure
enable patients to register themselves merely by that the different IT systems would not be stand
scanning their national identi fication cards and alone. The hospital thus implemented an integrated
obtaining a queue number gener ated by the Electronic Medical Record (EMR) system that com
Enterprise Queue Management System. This unique bines all the functional modules of the hospital in
number is used throughout the patient's visit for all addition to being interfaced with 140 medical
service itineraries in the hospital. Patients refer to devices and equipment. Using the vendor-neutral
live screens located in the waiting areas that display Medical Devices Middleware Integration System,
a real-time queue status showing their turn. This data from these medical devices is directly uploaded
system has not only helped JurongHealth to cut into the EMR system, so that the clinical staff no
down on expenses but also to improve efficiency, as longer has to manually enter such readings, reducing
patients do not need different numbers for different the likeli hood of charting errors. Being vendor-
services. It reduces waiting time and increases pa neutral also means the freedom to adopt best-of-
tient satisfaction. breed individual modules as well as a lack of
Similarly, the Visitor Management System self reliance on a single vendor.
service kiosks enable visitors to scan their identifica Since the implementation of the EMR system,
tion cards and register themselves to gain access to JurongHealth has continued to move forward, par
hospital wards. Visitors can also register themselves ticularly in response to the COVID-19 pandemic.
and obtain an e-pass from the Visitor Registration In September 2020, the hospital introduced a series
counters. The identification card or e-pass is of measures to make the facilities more secure and
scanned at the gantry when entering and leaving the infection-free. For instance, they deployed a
ward. security robot to patrol the grounds and a second
The gantry not only logs visitor information but "Kenobi" (a security and concierge robot) to carry
also tracks staff, who must also use the same gan out thermal scanning of visitors. Drones have also
tries to enter the wards. The Visitor Management been deployed
to carry out inspections and surveillance. In addi Sources: "Combating Covid-19: A Birth of Innovations,» The
tion, as an immediate response to the pandemic, and Straits Times, September 29, 2020; Salma Khalik, "Singapore on
as a longer-term solution to infection control, new 1tack to Have One of World's Most IT-enabled Healthcare
Systems,• The Straits Times, June 2, 2017; JurongHealth, 'Awards &
touch-free technology has been introduced to operate Accolades,• wwwjuronghealth.com.sg, accessed January 5, 2017; P.
patient and visitor lifts. Bhunia, 'The JurongHealth ITJourney-Integrating IT from the
IT has played a key role in enabling Ground-Up into a New Digital Hospital,• opengovasia.com,
November 13, 2016;
JurongHealth to achieve its mission of providing !HIS, 'Ng Tong Fong General Hospital Becomes First in Singapore
world-class medical care at an affordable cost. As a and ASEAN to Achieve HIMSS Analytics EMRAM Stage 7
result, JurongHealth has developed a reputation as a Award,• Press Release, www.ihis.com, October 7, 2016; •our
lead ing technology-driven healthcare provider as Milestones,• wwwjuronghealth.com.sg, October 2016; Ai Lei Too,
'Singapore's Jurong Health Services: nansforming Healthcare
well as a role model not only in Singapore but also Through Data Tochnologies,• computerweekly.com, April 16,
the entire region. This is also evident from its many 2016; A. Shukla, 'Singapore Hospitals Deliver Enhanced Care to
accolades, which include awards for IT-driven Patients by Integrating Their IT Systems,' www.cio-asia.com,
March 17, 2016;
transformation and for overall organizational !HIS, 'Integrated Healthcare IT Systems at Ng Tong Fong General
transformation. Hospital and Jurong Community Hospital Win the Project of the Year
Award at the SPMI Symposium 2016,• Press Release, www. ihis.com,
March 14, 2016; J. Kellehei; "JurongHealth Services CIO Discusses
the Fully Integrated EMRSuite, Hospital JCTSystems and Achieving
CASE STUDY QUESTIONS HIMSS EMRAM Stage 6,• opengovasia.com, February 18, 2016.
1. What technologies are used by
JurongHealth? What purpose do they serve? 3. What information systems are implemented by
2. Search the web for RFID. Suggest an example
JurongHealth? Describe the input, processing, and
output of any one such system.
of how RFID can be used for locating and
tracking people. 4. Why are information systems important
Case contributed by Neerja Sethi and Vijay Sethi, for JurongHealth?
Nanyang 'Thchnological University
It Isn't Just Technology: A Business Perspective on

Information Systems
Managers and business firms invest in information technology and systems
be cause they provide real economic value to the business. The decision to
build or maintain an information system assumes that the returns on this
investment will be superior to other investments in buildings, machines, or
other assets. These superior returns will be expressed as increases in
productivity, as in creases in revenues (which will increase the firm's stock
market value), or per haps as superior long-term strategic positioning of the
firm in certain markets (which will produce superior revenues in the future).
We can see that from a business perspective, an information system is an
im portant instrument for creating value for the firm. Information systems
enable the firm to increase its revenue or decrease its costs by providing
information that helps managers make better decisions or that improves the
execution of business processes. For example, the information system for
analyzing super market checkout data illustrated in Figure 1.3 can increase
firm profitability by helping managers make better decisions as to which
products to stock and promote in retail supermarkets.
Every business has an information value chain, illustrated in Figure 1.7, in
which raw information is systematically acquired and then transformed
through various stages that add value to that information. The value of an
information system to a business, as well as the decision to invest in any new
information system, is, in large part, determined by the extent to which the
system will lead to better management decisions, more efficient business
processes, and higher
I FIGURE 1.7 THE BUSINESS INFORMATION VALUE CHAIN

From a business perspective, information systems are part of a series of value-adding activities for
ac quiring, transforming, and distributing information that managers can use to improve decision
making, enhance organizational performance, and, ultimately, increase firm profitability.
DDDD
Business Processes
DDDM
/ Supply Enterprise Customer Knowledge
Chain Management Management Management
Firm Profitability and Strategic Position
•mMt
Data
Dissemination
""DDDD
Collection Transfor
and mation
Storage into Business
Systems
Planning Coordinating Controlling Modeling and

Decision
Making
Information Processing Activities Management Activities
Business Value
firm profitability. Although there are other reasons why systems are built,
their primary purpose is to contribute to corporate value.
The business perspective calls attention to the organizational and managerial na
ture of information systems. An information system represents an organizational
and management solution, based on information technology, to a challenge or
problem posed by the environment. Every chapter in thisbook begins with a
short case study that illustrates this concept. A diagram at the beginning of each
chapter illustrates the relationship between a business challenge and resulting
manage ment and organizational decisions to use IT as a solution to challenges
generated by the business environment. You can use this diagram as a starting
point for ana lyzing any information system or information system problem you
encounter.
Review the diagram at the beginning of this chapter. The diagram shows how
the AWM Smart Shelf system helps solve the business problem of brick-and
mortar stores losing market share to online retailers. This system provides a
so lution that takes advantage of opportunities provided by new object-
recognition and wireless digital technology.
AWM Smart Shelf digitally enables keybusiness processes for inventory
man agement, sales, and marketing, helping retailers improve their overall
business performance. The diagram also illustrates how management,
technology, and organizational elements work together to create the systems.
Complementary Assets: Organizational Capital and

the Right Business Model
Awareness of the organizational and managerial dimensions of information
systems can help us understand why some firms achieve better results from
their information systems than others. Studies of returns from information
ITABLE 1.2 COMPLEMENTARY SOCIAL, MANAGERIAL, AND

ORGANIZATIONAL ASSETS REQUIRED TO OPTIMIZE RETURNS
FROM INFORMATION TECHNOLOGY INVESTMENTS
Organizational assets Supportive organizational culture that values efficiency and effectiveness
Appropriate business model

Efficient business processes
Decentralized authority
Distributed decision-making rights
Strong IS development team
Managerial assets Strong senior management support for technology investment and
change
Incentives for management innovation
Teamwork and collaborative work environments
Training programs to enhance management decision skills
Management culture that values flexibility and knowledge-based
decision making
Social assets The Internet and telecommunications infrastructure
IT-enriched educational programs raising labor force computer literacy
Standards (both government and private sector)
Laws and regulations creating fair, stable market environments
Technology and service firms in adjacent markets to assist
implementation
technology investments show that there is considerable variation in the

returns firms receive (see Figure 1.8). Some firms invest a great deal and
receive a great deal (quadrant 2); others invest an equal amount and receive
few returns (quad rant 4). Still other firms invest little and receive much
(quadrant 1), whereas
IFIGURE 1.8 VARIATION IN RETURNS ON INFORMATION TECHNOLOGY

INVESTMENT
Although, on average, investments in information technology produce returns far above
those returned by other investments, there is considerable variation across firms.
Souroe: Brynjolfsson, Erik,and Lorin M. Hin,"Beyond Computation: Information Technology, Organizational Transformation, and Business
Performance.' Journalof Economic Perspectives 14, No. 4 (2000).
4.0
• 2
2.0
•
Productivity
(relative to 1.0
industry
average)
.5
.25
3 4
.12.25 1.04.0 8.0
IT Capital Stock (relative to industry average)

others invest little and receive little (quadrant 3). This suggests that investing
in information technology does not by itself guarantee good returns. What ac-
counts for this variation among firms?
The answer lies in the concept of complementary assets. Information
technology investments alone cannot make organizations and managers
more effective unless they are accompanied by supportive values, structures,
and behavior patterns in the organization and other complementary assets.
Business firms need to change how they do business before they can really
reap the advantages of new information technologies.
Complementary assets are those assets required to derive value from a pri-
mary investment (Teece, 1998). For instance, to realize value from automobiles
requires substantial complementary investments in highways, roads, gasoline
stations, repair facilities, and a legal regulatory structure to set standards and
control drivers.
Research indicates that firms that support their technology investments
with investments in complementary assets, such as new business models, new
business processes, management behavior, organizational culture, or training,
receive superior returns, whereas those firms failing to make these comple-
mentary investments receive less or no returns on their information technol-
ogy investments (Brynjolfsson, 2005; Brynjolfsson and Hitt, 2000; Laudon,
1974). These investments in organization and management are also known as
organizational and management capital.
Table 1.2 lists the major complementary investments that firms need to
make to realize value from their information technology investments. Some
of this investment involves tangible assets, such as buildings, machinery,
and tools. However, the value of investments in information technology de-
pends to a large extent on complementary investments in management and
organization.
Key organizational complementary investments are a supportive busi-
ness culture that values efficiency and effectiveness, an appropriate business
model, efficient business processes, decentralization of authority, highly dis-
tributed decision rights, and a strong information system (IS) development
team.
Important managerial complementary assets are strong senior man-
agement support for change, incentive systems that monitor and reward
individual innovation, an emphasis on teamwork and collaboration, training
programs, and a management culture that values flexibility and knowledge.
Important social investments (not made by the firm but by the society at
large, other firms, governments, and other key market actors) are the Internet
and the supporting Internet culture, educational systems, network and com-
puting standards, regulations and laws, and the presence of technology and
service firms.
Throughout the book, we emphasize a framework of analysis that considers
technology, management, and organizational assets and their interactions.
Perhaps the single most important theme in the book, reflected in case stud-
ies and exercises, is that managers need to consider the broader organization
and management dimensions of information systems to understand current
problems as well as to derive substantial above-average returns from their in-
formation technology investments. As you will see throughout the text, firms
that can address these related dimensions of the IT investment are, on aver-
age, richly rewarded.
ifj What academic disciplines are used

to study information systems, and
how does each contribute to an
understanding of information systems?
The study of information systems is a multidisciplinary field. No single
theory or perspective dominates. Figure 1.9 illustrates the major disciplines
that con tribute problems, issues, and solutions in the study of information
systems. In general, the field can be divided into technical and behavioral
approaches. Information systems are sociotechnical systems. Though they are
composed of machines, devices, and "hard" physical technology, they require
substantial so cial, organizational, and intellectual investments to make them
work properly.
Technical Approach
The technical approach to information systems emphasizes mathematically
based models to study information systems as well as the physical technology
and formal capabilities of these systems. The disciplines that contribute to the
technical ap proach are computer science, management science, and operations
research.
Computer science is concerned with establishing theories of computabil
ity, methods of computation, and methods of efficient data storage and
access. Management science emphasizes the development of models for
decision making and management practices. Operations research focuses on
mathemat ical techniques for optimizing selected parameters of
organizations, such as transportation, inventory control, and transaction
costs.
Behavioral Approach
An important part of the information systems field is concerned with behavioral
issues that arise in the development and long-term maintenance of
information systems. Issues such as strategic business integration, design,
implementation,
IFIGURE 1.9 CONTEMPORARY APPROACHES TO INFORMATION SYSTEMS

The study of information systems deals with issues and insights contributed from techni
cal and behavioral disciplines.
Technical
Approaches
MIS
utilization, and management cannot be explored usefully with the models used
in the technical approach. Other behavioral disciplines contribute important
concepts and methods.
For instance, sociologists study information systems with an eye toward how
groups and organizations shape the development of systems and also how
systems affect individuals, groups, and organizations. Psychologists study
information systems with an interest in how human decision makers perceive
and use formal information. Economists study information systems with an
interest in understanding the production of digital goods, the dynamics of
digital markets, and how new information systems change the control and cost
structures within the firm.
The behavioral approach does not ignore technology. Indeed, information
systems technology is often the stimulus for a behavioral problem or issue. But
the focus of this approach is generally not on technical solutions. Instead, it
concentrates on changes in attitudes, management and organizational policy,
and behavior.
Approach of This Text: Sociotechnical Systems

Throughout this book, you will find a rich story with four main actors: suppliers
of hardware and software (the technologists); business firms making invest-
ments and seeking to obtain value from the technology; managers and employ-
ees seeking to achieve business value (and other goals); and the contemporary
legal, social, and cultural context (the firm’s environment). Together these ac-
tors produce what we call management information systems.
The study of management information systems (MIS) arose to focus on the
use of computer-based information systems in business firms and government
agencies. MIS combines the work of computer science, management science,
and operations research with a practical orientation toward developing system
solutions to real-world problems and managing information technology re-
sources. It is also concerned with behavioral issues surrounding the develop-
ment, use, and impact of information systems, which are typically discussed in
the fields of sociology, economics, and psychology.
Our experience as academics and practitioners leads us to believe that no
single approach effectively captures the reality of information systems. The
successes and failures of information systems are rarely all technical or all
behavioral. Our best advice to students is to understand the perspectives of
many disciplines. Indeed, the challenge and excitement of the information
systems field are that it requires an appreciation and tolerance of many different
approaches.
The view we adopt in this book is best characterized as the sociotechnical
view of systems. In this view, optimal organizational performance is achieved
by jointly optimizing both the social and technical systems used in production.
Adopting a sociotechnical systems perspective helps to avoid a purely techno-
logical approach to information systems. For instance, the fact that information
technology is rapidly declining in cost and growing in power does not
necessarily or easily translate into productivity enhancement or bottom-line
profits. The fact that a firm has recently installed an enterprise-wide financial
reporting system does not necessarily mean that it will be used, or used
effectively. Likewise, the fact that a firm has recently introduced new business
procedures and processes does not necessarily mean employees will be more
productive in the absence of
investments in new information systems to enable those processes.
In this book, we stress the need to optimize the firm’s performance as a
whole. Both the technical and behavioral components need attention. This
means that technology must be changed and designed in such a way as to fit
IFIGURE 1.10 A SOCIOTECHNICAL PERSPECTIVE ON INFORMATION

SYSTEMS
In a sociotechnical perspective, the performance of a system is optimized when both the
technology and the organization mutually adjust to one another until a satisfactory fit is
obtained.
TECHNOLOGY ORGANIZATION
Alternative Alternative
1 - 1
Alternative Alternative
-
2
- 2
. ..
Alternative
3
Alternative
3
FinalFinal
Design ofDesign of
TechnologyOrganization
organizational and individual needs. Sometimes, the technology may have

to be "de-optimized" to accomplish this fit. For instance, mobile phone users
adapt this technology to their personal needs, and as a result manufactur
ers quickly seek to adjust the technology to conform to user expectations.
Organizations and individuals must also be changed through training, learn
ing, and planned organizational change to allow the technology to operate
and prosper. Figure 1.10 illustrates this process of mutual adjustment in a
sociotechnical system.
II• How will MIS help my career?

Here is how Chapter 1 and this text can help you find an entry-level job as a
financial client support and sales assistant.
The Company
Power Financial Analytics Data Services, a data and software company serving
the financial industry with offices in London, New York, Sydney, and
Singapore, is looking to fill an entry-level position for a financial client support
and sales assistant. The company has 1,600 employees, many of whom are
consultants showing clients how to work with its powerful financial analytics
software and data products.
Position Description
The financial client support and sales assistant will be part of a team in the
company's consulting services. Consulting teams combine a thorough under
standing of finance and technology with specific expertise in Power Financial
Analytics Data Services software and assist clients in a variety of ways. The
company provides on-the-job training in its software and consulting methods.

Job responsibilities include:
• Supporting Financial Analytics Data Services applications.
• Helping the team create custom models and screens.
• Training clients in their offices and at seminars.
• Providing expert consultation to clients by telephone and on-site.
Job Requirements
• Recent college graduate or investment professional with one to two years
of experience. Applicants with backgrounds in finance, MIS, economics, ac-
counting, business administration, and mathematics are preferred
• Knowledge of or interest in learning about financial markets
• Sound working knowledge of spreadsheets
• Very strong communication and interpersonal skills
• Strong desire to learn in rapidly changing environment
Interview Questions
1. What is your background in finance? What courses did you take? Have you
ever worked in the financial industry? What did you do there?
2. What is your proficiency level with spreadsheet software? What work have
you done with Excel spreadsheets? Can you show examples of your work?
3. Are you able to discuss current trends in the financial industry and how they
impact Power Financial’s business model and client base?
4. Did you ever work with clients? Can you give examples of how you provided
client service or support?
5. Can you give us an example of a finance-related problem or other business
problem that you helped solve? Did you do any writing and analysis? Can
you provide examples?
Author Tips
1. Use the web to learn about financial markets and the financial industry.
2. Use the web to research the company, its financial products, and the tools
and services it offers customers. Learn what you can about its consulting
services. Additionally, examine the company’s social medial channels, such
as LinkedIn and Facebook, for trends and themes.
3. Inquire exactly how you would be using spreadsheets for this job. Pro-
vide examples of how you used spreadsheets to solve problems in the
classroom or for a job assignment. Show the spreadsheet work you did in
finance.
4. Bring examples of your writing (including some from your Digital Port-
folio described in MyLab MIS) demonstrating your analytical skills and
project experience. Be prepared to discuss how you helped customers
solve a business problem or the business problem solving you did for your
courses.
62 Part One Organizations, Management, and the Networked Enterprise
1-1 How are information systems transforming business, and why are they so essential for running and
managing a business today?
Organizations are trying to become more competitive and efficient by digitally enabling their
core business processes and evolving into digital firms. The Internet has stimulated globalization by
dra matically reducing the costs of producing, buying, and selling goods on a global scale.
Newinformation system trends include the emerging mobile digital platform, big data (including
IoT), more remote management, democratization of decision making, machine learning systems,
and the growing use of social media in business.
Information systems are a foundation for conducting business today. In many industries, survival
and the ability to achieve strategic business goals are difficult without extensive use of information
technology. Businesses today use information systems to achieve six major objectives: operational
excellence; new products, services, and business models; customer/supplier intimacy; improved
deci sion making; competitive advantage; and day-to-day survival.
1-2 What is an information system? How does it work? What are its management, organization, and
technology components? Why are complementary assets essential for ensuring that information
systems provide genuine value for organizations?
From a technical perspective, an information system collects, stores, and disseminates
information from an organization's environment and internal operations to support organizational
functions and decision making, communication, coordination, control, analysis, and visualization.
Information sys tems transform raw data into useful information through three basic activities:
input, processing, and output.
From a business perspective, an information system provides a solution to a problem or challenge
facing a firm and represents a combination of management, organization, and technology elements.
The management dimension of information systems involves issues such as leadership, strategy,
and management behavior. The technology dimension consists of computer hardware, software, data
man agement technology, and networking/telecommunications technology (including the Internet).
The organization dimension of information systems involves issues such as the organization's
hierarchy, functional specialties, business processes, culture, and political interest groups.
In order to obtain meaningful value from information systems, organizations must support their
technology investments with appropriate complementary investments in organizations and manage
ment. These complementary assets include new business models and business processes, supportive
organizational culture and management behavior, and appropriate technology standards,
regulations, and laws. New information technology investments are unlikely to produce high returns
unless busi nesses make the appropriate managerial and organizational changes to support the
technology.
1-3 What academic disciplines are used to study information systems, and how does each contribute
to an understanding of information systems?
The study of information systems deals with issues and insights contributed from technical and
be havioral disciplines. The disciplines that contribute to the technical approach focusing on formal
mod els and capabilities of systems are computer science, management science, and operations
research. The disciplines contributing to the behavioral approach focusing on the design,
implementation, man agement, and business impact of systems are psychology, sociology, and
economics. A sociotechnical view of systems considers both technical and social features of systems
and solutions that represent the best fit between them.
Key Terms
Business functions, 49 Information technology (IT) infrastructure, 52
Business model, 44 Input, 47
Business processes, 42 Internet, 51
Complementary assets, 57 Intranets, 52
Computer hardware, 51 Knowledge workers, 49
Computer literacy, 48 Management information systems (MIS), 48
Computer software, 51 Middle management, 49
Culture, 50 Network, 51
Data, 46 Networking and telecommunications
Data management technology, 51 technology, 51
Data workers, 49 Operational management, 49
Digital firm, 42 Organizational and management capital, 57
Extranets, 52 Output, 47
Feedback, 4 7 Processing, 47
Information, 46 Production or service workers,
Information system, 46 49 Senior management, 49
Information systems literacy, 48 Sociotechnical view, 59
Information technology (IT), 46 World Wide Web, 52
Mylab MIS
To complete the problems with Mylab MIS, go to the EOC Discussion Questions in Mylab MIS.
Review Questions
1-1 How are information systems transforming • Explain why organizations have a
business, and why are they so essential for struc ture composed of different levels
running and managing a business today? and specialties.
• Describe how information systems • Describe how the parts of an
have changed the way businesses organization's culture can be found
operate and their products and services. embedded in its infor mation systems.
• Identify three major new information • Describe the features of an
sys tem trends. organization's information value chain.
• Describe the characteristicsof a digital firm. • Based on what you have read, identify
• Describe the challenges and opportunities the key elements of organizational and
of globalization in a "flattened" world. man agement capital.
• List and descnbe six reasons why 1-3 What academic disciplines are used to study
information systems are so important for information systems, and how does each
business today. contribute to an understanding of
1-2 What is an information system? How does it information systems?
work? What are its management, organization, • List and describe each discipline that con
and technology components? Why are tributes to a technical approach to
complementary assets essential for ensuring informa tion systems.
that information systems provide genuine value • List and describe each discipline that
for organizations? con tributes to a behavioral approach to
• Explain the differences between infor mation systems.
informa tion and data. Why is the former • Describe the sociotechnical perspective
essential to the latter? on information systems.
• Describe the three activities in an
informa tion system that produce the
information that organizations need.
Discussion Questions
1-4 Information systems are too important to be
1-6 What are some of the organizational,
MyLab MIS MyLab MIS
left to computer specialists. Do you agree? managerial, and social complementary
Why or why not? assets that help make UPS’s information
1-5 If you were setting up the website systems so successful?
MyLab MIS
for a professional football team, what
management, organization, and technology
issues might you encounter?
Hands-On MIS Projects

The projects in this section give you hands-on experience in analyzing financial reporting and inventory man-
agement problems, using data management software to improve management decision making about increasing
sales, and using Internet software for researching job requirements. Visit MyLab MIS to access this chapter’s
Hands-On MIS Projects.
Management Decision Problems

1-7 Magical Toys is a South African toy store chain. The toys are sold in their five stores and from their own
web shop. Each Tuesday, management needs sales reports from last week’s activities. Work at the stores is
hectic, so usually at least one store fails to deliver the report, making it impossible to sum up the previous
week’s sales. The reports, sent by email as spreadsheets, sometimes have inconclusive or erroneous
data, and following up means that employees are unable to give their full focus to the customers. Some
errors in the spreadsheets may also cause the purchasing manager to place unnecessary purchase orders.
What are the main issues that Magical Toys faces in the absence of an information system? How could an
information system be of help, and what issues can an information system not solve?
1-8 Diskonto operates deep-discount stores in Estonia offering housewares, cleaning supplies, clothing, health
and beauty aids, and packaged food, with most items selling for a very low price. Its business model
calls for keeping costs as low as possible. The company has no automated method for keeping track of
inventory at each store. Managers know approximately how many cases of a particular product the store
is supposed to receive when a delivery truck arrives, but the stores lack technology for scanning the
cases or verifying the item count inside the cases. Merchandise losses from theft or other mishaps have
been rising and now represent more than 3 percent of total sales. What decisions have to be made before
investing in an information system solution?
Improving Decision Making: Using Databases to Analyze Sales Trends

Software skills: Database querying and reporting
Business skills: Sales trend analysis
1-9 In this project, you will start out with raw transactional sales data and use Microsoft Access database
software to develop queries and reports that help managers make better decisions about product pricing,
sales promotions, and inventory replenishment. In MyLab MIS, you can find a Store and Regional
Sales Database developed in Microsoft Access. The database contains raw data on weekly store sales
of computer equipment in various sales regions. The database includes fields for store identification
number, sales region, item number, item description, unit price, units sold, and the weekly sales period
when the sales were made. Use Access to develop some reports and queries to make this information
more useful for running the business. Sales and production managers want answers to the following
questions:
• Which products should be restocked?
• Which stores and sales regions would benefit from a promotional campaign and additional marketing?
• When (what time of year) should products be offered at full price, and when should discounts be used?
You can easily modify the database table to find and report your answers. Print your reports and results of
queries.
Improving Decision Making: Using the Internet to Locate Jobs Requiring Information
Systems Knowledge
Software skills: Internet-based software
Business skills: Job searching
1-10 Visit a job-posting website such as EURES, the European Job Mobility Portal run by the European Com-
mission. Spend some time at the site examining jobs for accounting, finance, sales, marketing, and human
resources. Find two or three descriptions of jobs that require some information systems knowledge. What
information systems knowledge do these jobs require? What do you need to do to prepare for these jobs?
Write a one- to two-page report summarizing your findings.
Collaboration and Teamwork Project

Selecting Team Collaboration Tools
1-11 Form a team with three or four classmates and review the capabilities of Google Drive and Google Sites
for your team collaboration work. Compare the capabilities of these two tools for storing team
documents,
project announcements, source materials, work assignments, illustrations, electronic presentations, and web
pages of interest. Learn how each works with Google Docs. Explain why Google Drive or Google Sites is more
appropriate for your team. If possible, use Google Docs to brainstorm and develop a presentation of your
findings for the class. Organize and store your presentation using the Google tool you have selected.
Changes in the Financial Industry: Adyen and Fintech

CASE STUDY
A
lthough 2020 was a very difficult year for and requires several companies to work together to
many companies, it was a very successful ensure that the payment is successful. To start with,
one for Adyen, a Dutch company that there is, of course, the merchant, but there are also
mostly companies providing a gateway for the payments, as
focuses on processing Internet payments. As the sessing the risk, and so on. Because of this crowded
COVID-19 pandemic boosted the volume of online field of facilitators, many things can go wrong. For
payments, business soared. Ayden announced in instance, software may be outdated, or programs used
November 2020 that it was expanding in the Middle
by one provider may be incompatible with those of
East, opening a new office in Dubai. Earlier that
another.
year, Internet retailer Zalando chose Adyen to pro
According to Forrester, a market research firm
cess its credit card payments in all European mar
that focuses on information technology, around 10
kets. Raffies Hotel Singapore selected Adyen as its
percent of all payments fail for "technical" reasons.
preferred payment provider to offer a seamless and
Adyen is reducing this performance gap by integrat
more customer-centric digital payment experience
ing several components of the payment chain (such
across all of the hotel's touchpoints. The company
as the gateway, risk assessment, and processing)
also signed a new agreement with Microsoft,
into one platform. It has thus been successful in
expand ing and deepening their cooperation on
ensuring a higher success rate in its payments chain
payments processing. These are just the latest in a
than other facilitators.
long series of successes for Ayden. In 2018,
Ayden's second advantage is that its payments
American Internet giant eBay announced that
platform is connected to most payment systems
Adyen would become eBay's primary payments
being used in the world. Payment systems can differ
provider. This wassignifi cant for two reasons. First,
greatly from country to country. In the Netherlands,
eBay is, of course, a huge company: in 2019, the
for instance, most online payments are done through
value of goods sold on the platform amounted to a
the iDEAL system, which links payments to check
staggering $90.2 billion. For Adyen, this meant a
ing accounts. In other countries, most payments are
huge increase of its business.
done through credit cards or debit cards like Visa
Second, and perhaps more importantly, eBay gave
or Mastercard. When it comes to processing pay
preference to Adyen over PayPal, which is very
ments, this variety of methods complicates things
often the first choice of online companies. For a
enormously, as the payment processors need to have
startup like Adyen to beat a market leader like
several platforms. Adyen, however, has one integrated
PayPal was remarkable.
platform that can link with most payment methods
As a result of all these successes, Adyen has been
being used all over the world. This is, of course, an
the star of the Amsterdam stock exchange for several
attractive option for merchants or online companies
years. In 2018, Adyen had a very successful initial
that sell their goods worldwide. When eBay decided
public offering (IPO) and its shares, which were
to work with Adyen, it gave two reasons for its
priced at €240, nearly doubled in price during the
decision: Adyen processes payments more cheaply
first trading day. Since then Adyen's share price has
and gives more control to merchants that use the
continued to increase, reaching over €740 by the end
platform.
of 2019. Then the coronavirus crisis broke and more
Adyen is a good example of a company that
and more people started to shop online and make
works in the field of fintech (financial technology).
payments through Adyen. The company's share price
Companies that use technology to facilitate
more than doubled over the following months and by
financial transactions have been highly successful
December 11, 2020, it had risen to €1834.50.
over the last decade. Founded in 2006, Adyen is
What explains Adyen's success? The answer to
relatively old for
that rests primarily in the technology it uses. To put
a fintech company, but it has grown enormously-
it simply, Adyen makes payment transactions easier.
in 2019 it had €240 billion in processed volume.
Making payments on the Internet is a much more
Remarkable as Adyen's case is, it is definitely not
complicated business than many people think it is,
unique; other firms have used technology to find a
new niche in the international payments universe. Adyen has

The company 'IransferWise (which was founded in
Estonia but now mostly operates from the United
Kingdom) is another example: it facilitates money
transfers from Country A to Country B while avoiding
currency conversion.
Initially, traditional banks found it hard to
compete with companies like Adyen. It is in the
DNA of fin tech companies to develop and focus on
state-of-the art information systems. 'Iraditional
banks are very different; they tend to value direct,
physical contact with the customer and often have
branches in various countries that function more or
less independently. Their IT staff often has a
supporting role and not, as in the case of Adyen, a
guiding one. 'Iraditional banks use IT systems to
facilitate business operations, not
to compete with other financial providers. Their IT
systems are usually at the national level and may
dif fer from country to country. The heart of Adyen
is
its technical platform, and the IT staff works
continu ously to make it cheaper and more user-
friendly. The data received on this platform are
analyzed and used to upgrade and update it. The
data that Adyen gets are global (the platform
processes payments from all over the world) and
highly diverse (from payment trans actions on the
Internet as well as transactions per formed in
physical shops). This wealth of data ensures that
Adyen has better opportunities to analyze the market
of payment transactions and its developments than
traditional banks do.
Fintech is a good example of what economists call
•creative destruction." This term, originally coined
by the Austrian economist Joseph Schumpeter, de
scribes the influence of technology on the economy.
According to his theory, new technologies inevitably
result in winners and in losers. One famous example
of a disruption is the Spinning Jenny, a device in
vented in Britain during the eighteenth century. The
Spinning Jenny made the production of cloth more
efficient, cheaper, and-critically-reduced the num
ber oflaborers needed in the textiles industry. Over
the last 30 years, the Internet has had the same effect:
some jobs have disappeared, and others have come
into existence. A good example is travel agencies.
Forty years ago, there was a travel agency on every
high street, but today, the vast majority of travel is
booked online. Likewise, traditional hotels now have
to compete with sites like Airlmb.
Creative destruction comes in waves, and the bank
ing industry is now in the frontline of change
because of the emergence offintech companies.
incorporated many stages of the payment chain, and
traditional companies that used to provide, for in stance,
risk assessment now have to either make their business
model more efficient or face the very real possibility of
going out of business. The German firm N26 is also a
good example of how fintech is changing the banking
industry. This company provides pay ment services just
like a normal bank does, but it does not have physical
locations where customer agents give advice to the
customers; everything is online. In 2020, N26 had over 5
million customers in 25 markets. One of its founders,
Maximilian Tuyenthal, remarked that traditional banks
had not taken N26 seriously when the company was
launched. See the Chapter 3 opening case for more
information on N26.
Fintech companies that make online banking much
easier have already had a huge impact on the physical
presence ofbanks in many countries. The number of bank
branches in Europe has declined dramatically, from
240,000 a decade ago to around 165,000 in 2020. In the
Netherlands, the digital banking experience progressed so
rapidly that the Dutch government felt it necessary to
make it clear that it would not allow the loss of cash
payments from the Dutch High Streets as this would
severely limit the participation in soci ety of vulnerable
groups such as the elderly.
According to experts, the next wave of technology
will be even more disruptive. In 2018, Antony Jenkins,
who ran Barclays from 2012 to 2015, told the BBC that
in the coming years around 50 percent of all jobs in
banking (including those of middle manag ers and
customer agents) would be replaced by some
kind of artificial intelligence. Andy Haldane, the chief
economist of the Bank of England, warned in the same
year ofa fourth industrial revolution that would cause
severe disruptions in the job market, and at the heart ofit
would be artificial intelligence-a modern counterpart to
the Spinning Jenny.
This does not mean that success is automatically
guaranteed for new companies like Adyen and
'IransferWise. Research shows that around 90 percent of
new fintech companies gobankrupt without ever having
been profitable. Many require large invest ments of
capital before they can generate profits.
Even when they generate profits, these are often, for a
time at least, rather small. Fintech companies are now
also being challenged by the major traditional banks,
who are rapidly developing their own versions of online
payment systems, from peer-to-peer pay ments for retail
customers, to highly automated online payment and
billing systems for global businesses.
As consumers and firms have moved towards mobile expectations that it will surpass all of those bench
and online payments, many traditional banks have marks for 2020. Myen illustrates how fintech startups
invested heavily in new technologies in part using are changing the traditional bank and payment sys
the funds saved by closing down traditional physical tems using new technologies and business models.
bank branches. Where in-house innovation has not
Sources: Bernard Vogelsang, "AEX Lager Het Weekend In
worked, the large banks have purchased fintech firms
Door Brexit-Zorgen,» Telegraaf, December 11, 2020; •Adyen
and folded them into their existing business and tech Breidt Samenwerking Met Microsoft Uit,• deaandeelhouder.
nology platforms. Traditional banks have a decided nl, December 10, 2020; Ayden, "Raffles Hotel Singapore Tokes
advantage over fintech startups: extraordinary cash Its Legendary Guest Experience to the Next Level with Adyen,•
www.adyen.com, November 24, 2020; Robert Vink, "How
flow and tens of millions of loyal customers and firms.
Adyen Is Simultaneously Disrupting Banks and the Payments
In this scenario, fintech firms have been early to the Industry,• www.seekingalpha.com, November 18, 2020; Adyen,
partybut typically do not survive to the end of the •Adyen to Expand in the Middle East, Opens Dubai Office,•
party, at least not as independent firms. www.adyen.com, November 10, 2020; Ben Dummet, 'A Little
Known Payments Provider Grows into One of Europe's Most
Myen's founders were very experienced entrepre
Valuable Finance Form,• Wall Street Journal, November 16, 2020;
neurs when they started their company. They had "Quarter of Bank Branches Will Close in Coming Three Years,•
already created another company, Bibit, which they Consultancy.uk, September 14, 2020; Adyen, •Adyen to Process
sold to The Royal Bank of Scotland for €100 million. European Credit Card Payments for Zalando,• www.adyen.
Indeed, the word adyen means •again" in a language com, August 13, 2020; Ryan Browne, "Fintech Firm Adyen Posts
34% Surge in First-Quarter Revenue as Coronavirus Bolsters
from Surinam, meaning that Myen is their second en Online Payments,• www.cnbc.com, April 21, 2020; Adyen, "2019
deavor in the field of financial technology. Myen ap Annual Report,• www.adyen.com, March 24, 2020; eBay, "eBay
pears likely to be one of the survivors. The volume of Inc. Reports Fourth Quarter and Full Year 2019 Results,• www.
payments it processes has grown from €32 billion in ebay.com, January 28, 2020; Tomasz Grynkiewicz, "This Fintech
Attracts 10,000 Customers a Day,• www.netguru.com, December
2015 to €240 billion in 2019. Myen's revenues during
4, 2019; Kamal Ahmed, "Bank of England Chief Economist Warns
this time period have also grown, from €98.5 billion on AI Jobs Threat,• BBC News, www.bbc.com, August 20, 2018;
in 2015 to almost €500 billion by 2019. Unlike many Jan Hammer, •Adyen: A Global Success Born in Amsterdam,•
fintech company, Myen hasalso been able to show Index Ventures, www.indexventures.com, June 13, 2018,; "Bank
Jobs Could Fall by 50% in 10 Years, Says Ex-Barclays Boss,•
a profit, with net income rising from €131 million in
BBC News, www.bbc.com, November 26, 2015.
2018 to €204 million in 2019, up 56 percent, and
with
do investors pay so much for shares of
CASE STUDY QUESTIONS com panies that hardly make any profits?
1-12 According to Adyen, the payments platform 1-14 Explain the term "creative destruction." Is
has two advantages compared to other pay the German bank N26 destroying jobs or
ment platforms. Describe these advantages creating new jobs?
in your own words.
1-15 Explain why such a high percentage offin
1-13 Many fintech companies are very valuable tech startups gobankrupt before making any
on the stock exchange even though they profits at all.
make little or no profit. Explain this
situation. Why Case contributed by Bernard Bouwman
Chapter 1 References
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2005).
Wiley (1974).
Brynjolffson, Erik, and Avinash Collis. “How Should We Measure
Lev, Baruch. “Intangibles: Management, Measurement, and Re-
the Digital Economy?” Harvard Business Review (November– porting.” The Brookings Institution Press (2001).
December 2019).
Lipsman, Andrew. “Global E-Commerce 2019.” eMarketer (June
Brynjolfsson, Erik, and Lorin M. Hitt. “Beyond Computation: Informa-
27, 2019).
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Mithas, Sunil, and Roland T. Rust. “How Information Technology
Performance.” Journal of Economic Perspectives 14, No. 4 (2000). Strategy and Investments Influence Firm Performance: Con-
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Chae, Ho-Chang, Chang E. Koh, and Victor Prybutok. “Information IT- Enabled Resources: Antecedents and Consequences of
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Review of the Empirical Evidence.” Center for Research on Impacts on Firm Performance: An Extension of Kohli and
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Information Systems in Global

T he companies and technologies described here show how essential in-

• Mounting competition from online retailers

AWM Smart Shelf

II ■H ow are information systems transforming

What's New in Management Information Systems?

FIGURE 1.1 INFORMATION TECHNOLOGY CAPITAL INVESTMENT

IT EQUIPMENT, SOFTWARE, and R&D SPENDING IN NOMINAL GDP

IT Innovations A continuing stream of information technology innovations is

Globalization Challenges and Opportunities: A

INTERACTIVE SESSION ORGANIZATIONS

CASE STUDY QUESTIONS

The Emerging Digital Firm

Key corporate assets—intellectual property, core competencies, and financial

Strategic Business Objectives of Information Systems

IFIGURE 1.2 THE INTERDEPENDENCE BETWEEN ORGANIZATIONS AND

Business Firm Information System

levels of efficiency and productivity in business operations, especially when

New Products, Services, and Business Models

Customer and Supplier Intimacy

Improved Decision Making

Ifj What is an information system? How

What Is an Information System?

I FIGURE 1.3 DATA AND INFORMATION

A brief example contrasting information and data may prove useful.

IFIGURE 1.4 FUNCTIONS OF AN INFORMATION SYSTEM

Regulatory Agencies Stockholders

programs work is important in designing solutions to organizational problems,

Dimensions of Information Systems

I FIGURE 1.5 INFORMATION SYSTEMS ARE MORE THAN COMPUTERS

Let's examine each of the dimensions of information systems-organizations,

ITABLE 1.1 MAJOR BUSINESS FUNCTIONS

Sales and marketing

IFIGURE 1.6 LEVELS IN A FIRM

Operational Management Production and service workers Data workers

Different levels and specialties in an organization create different inter-

technology are called intranets. Private intranets extended to authorized users

INTERACTIVE SESSION TECHNOLOGY

It Isn't Just Technology: A Business Perspective on

I FIGURE 1.7 THE BUSINESS INFORMATION VALUE CHAIN

Firm Profitability and Strategic Position

Planning Coordinating Controlling Modeling and

Complementary Assets: Organizational Capital and

ITABLE 1.2 COMPLEMENTARY SOCIAL, MANAGERIAL, AND

Appropriate business model

technology investments show that there is considerable variation in the

IFIGURE 1.8 VARIATION IN RETURNS ON INFORMATION TECHNOLOGY

.12.25 1.04.0 8.0

IT Capital Stock (relative to industry average)

ifj What academic disciplines are used

IFIGURE 1.9 CONTEMPORARY APPROACHES TO INFORMATION SYSTEMS

Approach of This Text: Sociotechnical Systems

IFIGURE 1.10 A SOCIOTECHNICAL PERSPECTIVE ON INFORMATION

organizational and individual needs. Sometimes, the technology may have

II• How will MIS help my career?

company provides on-the-job training in its software and consulting methods.

Hands-On MIS Projects

Management Decision Problems

Improving Decision Making: Using Databases to Analyze Sales Trends

Collaboration and Teamwork Project