A small publishing house that you work for would like to develop a database that keeps track of the contracts that authors and publishers sign before starting a book. What fields do you anticipate needing for this database? Identify at least seven fields. Which of these fields might be in use in other databases within the firm? Answer: Author first name, author last name, author address, agent name and address, title of book, book ISBN, date of contract, amount of money, payment schedule, date contract ends, author address. Other databases might be an author database (author names, address, and agent details), a book title database (title and ISBN of book), and financial database (payments made). What types of relationships are possible in a relational database? Describe and give an example of each. Answer: There are three types of relationships: one-to-one, one-to-many, and many-to-many. A one-to-one relationship occurs when each record in one table has only one related record in a second table. An example might be a table of salespeople and a separate table of company cars. Each salesperson can only have one car, or be related to the one car in the database. A one-to- many relationship occurs when a record in one table has many related records in a second table. An example might be a table of salespeople and clients. Each salesperson may have several clients. A many-to-many relationship occurs when records in one table have many related records in a second table, and the records in the second table have many related records in the first table. An example might be a client’s table and a products table. Clients may buy more than one product, and products are sold to more than one client. The small publishing company you work for wants to create a new database for storing information about all of their author contracts. What difficulties do you anticipate? Answer: Data accuracy when the new data is input, establishing a good data model, determining which data is important and anticipating what the possible uses for the data will be, beyond looking up contract information, technical difficulties linking this system to existing systems, new business processes for data input and handling, and contracts management, determining how end users will use the data, making data definitions consistent with other databases, what methods to use to cleanse the data. Identify and describe the three basic operations used to extract useful sets of data from a relational database? Answer: The select operation creates a subset consisting of all records (rows) in the table that meet stated criteria. The join operation combines relational tables to provide the user with more information than is available in individual tables. The project operation creates a subset consisting of columns in a table, permitting the user to create new tables that contain only the information required. List and describe three main capabilities or tools of a DBMS. Answer: A DBMS includes capabilities and tools for organizing, managing, and accessing the data in the database. The most important are its data definition capability, data dictionary, and data manipulation language. The data definition capability specifies the structure of the content of the database. It is used to create database tables and to define the characteristics of the fields in each table. This information about the database would be documented in a data dictionary. A data dictionary is an automated or manual file that stores definitions of data elements and their characteristics. Data dictionaries for large corporate databases may capture additional information, such as usage; ownership (who in the organization is responsible for maintaining
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A small publishing house that you work for would like to develop a database that keeps track of
the contracts that authors and publishers sign before starting a book. What fields do you
anticipate needing for this database? Identify at least seven fields. Which of these fields might be
in use in other databases within the firm?
Answer: Author first name, author last name, author address, agent name and address, title of
book, book ISBN, date of contract, amount of money, payment schedule, date contract ends,
author address. Other databases might be an author database (author names, address, and agent
details), a book title database (title and ISBN of book), and financial database (payments made).
What types of relationships are possible in a relational database? Describe and give an example
of each.
Answer: There are three types of relationships: one-to-one, one-to-many, and many-to-many. A
one-to-one relationship occurs when each record in one table has only one related record in a
second table. An example might be a table of salespeople and a separate table of company cars.
Each salesperson can only have one car, or be related to the one car in the database. A one-to-
many relationship occurs when a record in one table has many related records in a second table.
An example might be a table of salespeople and clients. Each salesperson may have several
clients. A many-to-many relationship occurs when records in one table have many related
records in a second table, and the records in the second table have many related records in the
first table. An example might be a client’s table and a products table. Clients may buy more than
one product, and products are sold to more than one client.
The small publishing company you work for wants to create a new database for storing
information about all of their author contracts. What difficulties do you anticipate?
Answer: Data accuracy when the new data is input, establishing a good data model, determining
which data is important and anticipating what the possible uses for the data will be, beyond
looking up contract information, technical difficulties linking this system to existing systems,
new business processes for data input and handling, and contracts management, determining how
end users will use the data, making data definitions consistent with other databases, what
methods to use to cleanse the data.
Identify and describe the three basic operations used to extract useful sets of data from a
relational database?
Answer: The select operation creates a subset consisting of all records (rows) in the table that
meet stated criteria. The join operation combines relational tables to provide the user with more
information than is available in individual tables. The project operation creates a subset
consisting of columns in a table, permitting the user to create new tables that contain only the
information required.
List and describe three main capabilities or tools of a DBMS.
Answer: A DBMS includes capabilities and tools for organizing, managing, and accessing the
data in the database. The most important are its data definition capability, data dictionary, and
data manipulation language. The data definition capability specifies the structure of the content
of the database. It is used to create database tables and to define the characteristics of the fields
in each table. This information about the database would be documented in a data dictionary. A
data dictionary is an automated or manual file that stores definitions of data elements and their
characteristics. Data dictionaries for large corporate databases may capture additional
information, such as usage; ownership (who in the organization is responsible for maintaining
the data); authorization; security; and the individuals, business functions, programs, and reports
that use each data element. The data manipulation language is a specialized language used to
add, change, delete, and retrieve the data in the database. This language contains commands that
permit end users and programming specialists to extract data from the database to satisfy
information requests and develop applications.
Describe the ways in which database technologies could be used by an office stationery supply
company to achieve low-cost leadership.
Answer: Student answers will vary; an example answer is: Databases could be used to make the
supply chain more efficient and minimize warehousing and transportation costs. You can use
OLAP to better analyze sales forecasts. You can also use sales databases and predictive analysis
to determine what supplies are in demand by which customers, and whether needs are different
in different geographical areas. DSS databases could be used to predict future trends in office
supply needs, to help anticipate demand. You could use text mining to identify service issues or
inefficiencies within the company. Databases could be used to determine the most efficient
methods of transportation and delivery. In addition you could allow customers to order supplies
through the Web and have these orders influence the entire supply chain and minimize
warehousing costs.
Explain what big data refers to. What benefits does it have, and what challenges does it pose?
Answer: Big data is datasets with volumes so huge that they are beyond the ability of typical
DBMS to capture, store, and analyze. It is created by the explosion of data coming from the
Web, such as Web traffic, e-mail, Twitter, and Facebook, as well as information from other
electronic and networked devices such as sensors and meters. Businesses are interested in big
data because they contain more patterns and interesting anomalies than smaller data sets, with
the potential to provide new insights into customer behavior, weather patterns, financial market
activity, or other phenomena. However, to derive business value from these data, organizations
need new technologies and tools capable of managing and analyzing non-traditional data along
with their traditional enterprise data. They also need to know what questions to ask of the data
and limitations of big data. Capturing, storing, and analyzing big data can be expensive, and
information from big data may not necessarily help decision-makers.
What are the differences between data mining and OLAP? When would you advise a company to
use OLAP?
Answer: Data mining uncovers hidden relationships and is used when you are trying to discover
data and new relationships, and is used to answer questions such as, are there any product sales
that are related in time to other product sales. In contrast, OLAP is used to analyze multiple
dimensions of data and is used to find answers to complex, but known, questions, such as what
were sales of a product broken down by month and geographical region, and compared to sales
forecasts. I would advise a company to use OLAP when they needed to analyze sales in different
areas or for different products to see complex views of data.
What makes data mining an important business tool? What types of information does data
mining produce? In what type of circumstance would you advise a company to use data mining?
Answer: Data mining is one of the data analysis tools that helps users make better business
decisions and is one of the key tools of business intelligence. Data mining allows users to
analyze large amounts of data and find hidden relationships between data that otherwise would
not be discovered. For example, data mining might find that a customer that buys product X is
ten times more likely to buy product Y than other customers.
Data mining finds information such as:
• Associations, or occurrences that are linked to a single event.
• Sequences, or events that are linked over time.
• Classification, or patterns that describe the group to which an item belongs, found by
examining existing items that have been classified and by inferring a set of rules.
• Clusters, or unclassified but related groups
I would advise a company to use data mining when they are looking for new products and
services, or when they are looking for new marketing techniques or new markets. Data mining
might also be helpful when trying to analyze unanticipated problems with sales whose causes are
difficult to identify.
List at least two ways that a business's data can become redundant or inconsistent.
Answer: Data redundancy and inconsistency can occur because of (1) employing different
names and descriptions for the same entities or attributes; (2) multiple systems feeding a data
warehouse; (3) incorrect data entry
5-1 What are the components of IT infrastructure?
Define information technology (IT) infrastructure and describe each of its components.
A firm’s IT infrastructure provides the foundation, or platform, for supporting all the
information systems in the business.
The five major components of an information technology (IT) infrastructure are:
Computer hardware: technology for computer processing, data storage, input, and
output.
Computer software: includes both system software and application software.
Data management technology: organizes, manages, and processes business data
concerned with inventory, customers, and vendors.
Networking and telecommunications technologies: provides data, voice, and video
connectivity to employees, customers, and suppliers.
Technology services: external consultants who run and manage infrastructure
components.
5-2 What are the major computer hardware, data storage, input, and output technologies
used in business and major hardware trends?
List and describe the various types of computers available to businesses today.
Personal computers: generally used when working alone or with a few other people in a
small business.
Workstations: desktop computers with more powerful mathematical and graphics-
processing capabilities than a PC. Used primarily for advanced design or engineering
work requiring powerful graphics or computational capabilities.
Servers: specifically optimized to support a computer network, enabling users to share
files, software, peripheral devices, or other network resources.
Mainframes: large-capacity, high performance computers that process vast amounts of
data very rapidly.
Supercomputers: specially designed and more sophisticated computers used for tasks
requiring extremely rapid and complex calculations with thousands of variables, millions
of measurements, and thousands of equations.
Grid computing: geographically remote computers connected into a single network to
create a “virtual supercomputer” by combining the computational power of all computers
on the grid.
Define the client/server model of computing and describe the difference between a two-
tiered and N-tier client/server architecture.
Client/server computing splits processing between “clients” and “servers”. Both are on the
network but each machine is assigned functions it is best suited to perform. The client is the
user point of entry for the required function and is normally a desktop computer, workstation,
or laptop computer. The user generally interacts directly only with the client portion of the
application, often to input data or retrieve data for further analysis. The server provides the
client with services. Servers store and process shared data and also perform back-end
functions not visible to users, such as managing network activities.
Two-tiered client/server architecture is the simplest form of client/server network. It consists
of a client computer networked to a server computer, with processing split between the two
types of machines.
N-tier client/server architecture is more complex than the simple two-tiered client/server
network. In this type of architecture, the work of the entire network is balanced over several
different levels of servers, depending on the kind of service being requested.
List the most important secondary storage media and the strengths and limitations of
each.
The principal secondary storage technologies are magnetic disk, optical disk, magnetic tape,
and storage networks.
Magnetic disks are the most widely used secondary storage medium and include floppy and
hard disks. Magnetic disks are convenient to use, permit direct access to individual records,
are reasonably priced, and provide fast access speeds. Hard drives and USB flash drives
provide fast access to data and larger storage capacities. RAID technology packages more
than 100 smaller disk drives with a controller chip and specialized software in a single larger
unit to deliver data over multiple paths simultaneously.
Optical disks store data at far greater densities than conventional magnetic disks, making
them valuable for storing vast quantities of data such as reference materials or documents.
There are several types of optical disk systems. CD-ROM is read-only storage, whereas CD-
RW allows users to rewrite data to the disk. DVD is a high-capacity, optical storage medium,
capable of storing a minimum of 4.7 gigabytes of data.
Information stored on magnetic tape is more time consuming to access than information
stored on a magnetic disk. Magnetic tape sequentially stores and accesses information, and
each reel of tape must be individually mounted and dismounted. Tape storage is cheaper than
disks, useful for batch applications (such as payroll), and for archiving large quantities of
data that do not require immediate usage or are used every day. Tape storage is also more
stable than disk storage. Disk technology is most useful for online applications, where direct
access is required and for databases where interrelationships among records exist.
Storage area networks (SANs) connect multiple storage devices on a separate high-speed
network dedicated to storage. The SAN creates a large central pool of storage that can be
rapidly accessed and shared by multiple servers.
List and describe the major computer input and output devices.
Table 5.1 lists the major input and output devices. Input devices include keyboard, computer
mouse, touch screen, optical character recognition, magnetic ink character recognition, pen-
based input, digital scanner, audio input, sensors, and radio frequency identification. Output
devices include cathode ray tube, printers, and audio output.
The keyboard is the principal method of data entry. Touch screens allow the user to touch the
surface of a sensitized video display monitor with a finger or a pointer to make a selection.
Optical character recognition (OCR) devices translate specially designed marks, characters,
and codes into digital form. Magnetic ink character recognition (MICR) readers read
magnetic characters on documents such as bank checks. Pen-based input devices are mainly
handwriting recognition devices used on touch-sensitive screens and are often seen with
package delivery persons. Digital scanners translate images such as pictures or documents
into digital form. Audio input devices compare the electrical patterns produced by the
speaker’s voice to a set of prerecorded patterns and accept the sounds when a pattern is
recognized. Sensors are devices that collect data directly from the environment for input into
a computer system. Radio frequency identification uses tags that incorporate microchips to
transmit information about items and their location to special RFID readers.
A cathode ray tube (CRT) displays the output on a screen much like a television set. Printers
produce printed copy of information output by the computer. There are impact printers (dot
matrix) and non-impact printers (laser, inkjet, or thermal transfer). Audio output devices are
voice output devices that convert digitally stored words into intelligent speech.
Define and describe the mobile digital platform, BYOD, nanotechnology, grid
computing, cloud computing, autonomic computing, virtualization, green computing,
HTML5, and multicore processing.
Mobile digital platform: more and more business computing is moving from PCs and
desktop machines to mobile devices such as cell phones and smartphones. Data
transmissions, Web surfing, email and instant messaging, digital content displays, and data
exchanges with internal corporate systems are all available through a mobile digital platform.
Netbooks, small low-cost lightweight subnotebooks that are optimized for wireless
communication and Internet access, are included.
BYOD: Bring Your Own Device is a concept in which companies allow employees to use
personal computing devices to access corporate networks. Devices may include cellphones,
tablet computers, or other handheld computing devices. It’s one aspect of the
“consumerization of IT” in which new information technology that first emerges in the
consumer market spreads into business organizations.
Nanotechnology: uses individual atoms and molecules to create computer chips and other
devices that are thousands of times smaller than current technologies permit. Nanotechnology
shrinks the size of transistors down to the width of several atoms.
Grid computing: connects geographically remote computers into a single network to create
a “virtual supercomputer” by combining the computational power of all computers on the
grid.
Cloud computing: a model of computing where firms and individuals obtain computing
power and software applications over the Internet, rather than purchasing their own hardware
and software. Data are stored on powerful servers in massive data centers, and can be
accessed by anyone with an Internet connection and standard Web browser. Cloud
computing consists of three types of services:
Cloud infrastructure as a service: customers use processing, storage, networking,
and other computing resources from cloud service providers to run their
information systems.
Cloud platform as a service: customers use infrastructure and programming tools
hosted by the service provider to develop their own applications.
Cloud software as a service: customers use software hosted by the vendor.
Autonomic computing: is an industry-wide effort to develop systems that can configure
themselves, optimize and tune themselves, heal themselves when broken, and protect
themselves from outside intruders and self-destruction.
Virtualization: is the process of presenting a set of computing resources (such as computing
power or data storage) so that they can all be accessed in ways that are not restricted by
physical configuration or geographic location. Server virtualization enables companies to run
more than one operating system at the same time on a single machine.
Green computing: refers to the practices and technologies for designing, manufacturing,
using, and disposing of computers, servers, and associated devices such as monitors, printers,
storage devices, and networking and communications systems to minimize their impact on
the environment. Reducing computer power consumption has been a very high “green”
priority because technology is responsible for about two percent of the total U.S. power
demand.
HTML5: makes it possible to embed images, audio, video, and other elements directly into a
document without processor-intensive add-ons. It also makes it easier for Web pages to
function across different display devices, including mobile devices as well as desktops, and it
will support the storage of data offline for apps that run over the Web. Web pages will
execute more quickly, and look like smartphone apps.
Multicore processing: uses an integrated circuit to which two or more processors have been
attached for enhanced performance, reduced power consumption, and more efficient
simultaneous processing of multiple tasks.
5-3 What are the major types of computer software used in business and major software trends?
Distinguish between application software and system software and explain the role
played by the operating system of a computer.
System software surrounds and controls access to the hardware. It manages and controls a
computer’s activities. Some types of system software consist of computer language
translation programs that convert programming languages into machine language that can be
understood by the computer and utility programs that perform common processing tasks,
such as copying, sorting, or computing a square root. The operating system allocates and
assigns system resources, schedules the use of computer resources and computer jobs, and
monitors computer system activities.
Application software works through the system software in order to develop specific business
applications. This type of software includes traditional programming languages, fourth-
generation languages, application software packages and desktop productivity tools, software
for developing Internet applications, and software for enterprise integration.
List and describe the major PC and server operating systems.
Table 5.2 describes the leading PC and server operating systems.
Windows 8: Most recent Windows operating system.
Windows 7: Recent Windows operating system, with improved usability, taskbar,
performance, and security as well as support for multitouch interfaces.
Windows Server 2008: most recent Windows OS for servers.
UNIX: used for powerful PCs, workstations, and network servers. Supports multitasking,
multiuser processing, and networking. Is portable to different models of computer
hardware.
Linux: Open source, reliable alternative to UNIX and Windows OS that runs on many
different types of computer hardware. Can be modified by software developers.
Mac OS X: OS for Macintosh computers that is stable and reliable, with powerful search
capabilities, support for video and image processing, and an elegant user interface. Most
recent version is Snow Leopard. The iPhone operating system is derived from OS X.
Name and describe the major desktop productivity software tools.
Word processing: allows users to make changes in the document electronically in memory,
eliminating the need to retype entire pages to make corrections. It often includes advanced
features such as spelling checkers and thesaurus programs.
Spreadsheets: composed of a grid of columns and rows and are good at performing
calculations on interrelated pieces of data. Used for applications in which numerous
calculations with pieces of data must be related to one another. When you change a value or
values, all other related values on the spreadsheet will be automatically recomputed.
Spreadsheets provide computerized versions of traditional financial modeling tools and
provide an easy-to-use method of performing what-if analysis.
Data management: used for creating and manipulating lists and for combining information
from different fields. Data management software typically has facilities for creating files and
databases to store, modify, and manipulate data for reports and queries.
Presentation graphics: allow users to create professional quality graphics presentations.
This software can convert numeric data into charts and other types of graphics and can
include multimedia displays of sound, animation, photos, and video clips.
Software suites: combine the functions of the most important microcomputer software
packages, such as spreadsheets, word processing, graphics, and data management. This
integration provides a more general-purpose software tool and eliminates redundant data
entry and data maintenance. Some low-cost desktop productivity suites can be downloaded
from the Web.
Web browsers: easy-to-use software tools for accessing the Web and the Internet. Web
browsers have become the primary interface for accessing the Internet or for using networked
systems based on Internet technology.
Explain how Java and HTML are used in building applications for the Web.
Java is used for building applications that run on the Web and HTML is used for creating
Web pages. Java is an operating system that is processor-independent. Its object-oriented
programming language has become the leading interactive programming environment for the
Web. Java enables users to manipulate data on networked systems using Web browsers,
reducing the need to write specialized software.
Hypertext markup language (HTML) is a page description language for specifying how
text, graphics, video, and sound are placed on a Web page and for creating dynamic links to
other Web pages and objects. HTML programs can be custom written, but they also can be
created using the HTML authoring capabilities of Web browsers or of popular word
processing, spreadsheet, data management, and presentation graphics software packages.
HTML editors are more powerful HTML authoring tool programs for creating Web pages.
Define Web services, describe the technologies they use, and explain how Web services
benefit businesses.
Web services are sets of loosely coupled software components that exchange information
with one another using universal Web communications standards and languages. They can be
used as components of Web-based applications linking the systems of two different
organizations or to link disparate systems of a single company. Web services are not tied to a
particular operating system or programming language. Different applications can use them to
communicate with each other in a standard way without time-consuming custom coding.
XML is the foundation technology for Web services. This language makes it possible for
computers to manipulate and interpret their data automatically and perform operations on the
data without human intervention.
Businesses use Web services to tie their Web sites with external Web sites creating an
apparently seamless experience for users. The benefit derives from not having to re-create
applications for each business partner or specific functions within a single company.
Explain why open-source software is so important today and its benefits for business.
Open-source software is not owned by any company or individual. A global network of
programmers and users manage and modify the software, fix errors in it, or make
improvements to its functionality. By definition, open-source software is not restricted to any
specific operating system or hardware technology. Several large software companies are
converting some of their commercial programs to open source.
Linux is the most well-known open-source software. It’s a UNIX-like operating system that
can be downloaded from the Internet, free of charge, or purchased for a small fee from
companies that provide additional tools for the software. It is reliable, compactly designed,
and capable of running on many different hardware platforms, including servers, handheld
computers, and consumer electronics. Linux has become popular during the past few years as
a robust low-cost alternative to UNIX and the Windows operating system.
Thousands of open-source programs are available from hundreds of Web sites. Businesses
can choose from a range of open-source software including operating systems, office suites,
Web browsers, and games. Open-source software allows businesses to reduce the total cost
of ownership. It provides more robust software that is often more secure than proprietary
software.
List and describe cloud computing software services, mashups, and apps and explain
how they benefit individuals and businesses.
Cloud computing is becoming popular for describing Web-based applications that are stored
and accessed via the “cloud” of the Internet. The software and the data they use are hosted on
powerful servers in massive data centers, and can be accessed by anyone with an Internet
connection and standard Web browser. The best examples are Google Apps desktop
productivity tools and Microsoft’s Live software suite.
Mashups are new software applications and services based on combining different online
software applications using high-speed data networks, universal communication standards,
and open-source code. Users are able to create new software applications and services based
on combining different online software applications. These new combined applications
depend on high-speed data networks, universal communication standards, and open-source
code. The idea is to take different sources and produce a new work that is “greater than the
sum” of its parts. Web mashups combine the capabilities of two or more online applications
to create a kind of hybrid that provides more customer value than the original sources alone.
Apps are small pieces of software that run on the Internet, on a computer, or on a mobile
phone or tablet to provide additional functionality. Most of the attention goes to the apps that
have been developed for the mobile digital platform. Apps turn smartphones and other
mobile handheld devices into general-purpose computing tools.
Businesses benefit most from these new tools and trends by not having to re-invent the
wheel. Apps have already been developed by someone else and a business can use them for
its own purposes. Mashups let a business combine previously developed Web applications
into new ones with new purposes. They don’t have to re-invent the previous applications
from scratch—merely use them in the new processes. Organizations using cloud computing
generally do not own the infrastructure. Instead, they purchase their computing services from
remote providers and pay only for the amount of computing power they actually use.
5-4 What are the principal issues in managing hardware and software technology?
Explain why managers need to pay attention to capacity planning and scalability of
technology resources.
The principle issues in managing hardware and software assets include capacity planning and
scalability. Capacity planning is the process of predicting when a computer hardware system
becomes saturated. It considers factors such as the maximum number of users that the system
can accommodate at one time; the impact of existing and future software applications; and
performance measures, such as minimum response time for processing business transactions.
Capacity planning ensures that the firm has enough computing power for its current and
future needs.
Scalability refers to the ability of a computer, product, or system to expand to serve a large
number of users without breaking down. Organizations must ensure they have sufficient
computer processing, storage, and network resources to handle surging volumes of digital
transactions and to make such data immediately available online.
Describe the cost components used to calculate the total cost of ownership (TCO) of
technology assets.
When calculating the total cost of ownership of technology assets, a business must include
the original cost of the hardware and software, installation costs, ongoing administration
costs for hardware and software upgrades, maintenance, technical support, training,
downtime, and even utility and real estate costs for running and housing the technology.
“Hidden costs” for support staff, downtime, and additional network management can make
distributed client/server architectures—especially those incorporating handheld computers
and wireless devices—more expensive than centralized mainframe architectures.
Identify the benefits and challenges of using outsourcing, cloud computing services, and
mobile platforms.
In the past, most companies ran their own computer facilities and developed their own
software. Today, more and more companies are obtaining their hardware and software
technology from external service vendors.
Outsourcing: The most important benefit of outsourcing technology management is that it
allows a business to concentrate on its core competencies rather than focusing on technology
issues. Instead of purchasing all the necessary hardware and software for hosting a Web site,
a business can use a Web hosting service that maintains a large Web server, or a series of
servers, and provides fee-paying subsribers with space to maintain their Web sites.
Outsourcing custom software development or maintenance to outside firms benefits a
company because it won’t have to hire programmers, analysts, and managers with the
necessary skills. An outsourcer often has the technical and management skills to do the job
better, faster, and more efficiently. Even though it’s often cheaper to outsource the
maintenance of an IT infrastructure and the development of new systems to external vendors,
a business must weight the pros and cons carefully. Service level agreements are formal
contracts between customers and service providers that define the specific responsibilities of
the service provider and the level of service expected by the customer.
Cloud computing services: refers to services that deliver and provide access to hardware
and software remotely as a Web-based service. A business can rent software from another
firm and avoid the expense and difficulty of installing, operating, and maintaining the
hardware and software on its own. A business must carefully assess the costs and benefits of
the service, weighing all people, organizational, and technology issues. It must ensure it can
integrate the software with its existing systems and deliver a level of service and performance
that is acceptable for the business.
Small- and medium-size businesses may find it more advantageous to use cloud computing
services because of the minimal overhead and upfront costs. Large businesses will have to
factor in whether cloud computing capabilities are sufficiently secure or reliable for their
most critical systems. These firms may choose to handle their average processing loads in-
house and pay for only as much additional computing power as the market demands. This
arrangement enables firms to have a more flexible infrastructure, some of it owned by the
firm, and some of it rented from giant computer centers run by technology specialists.
Mobile platforms: Integrating mobile platforms with the firm’s existing IT infrastructure
and applications may be quite a challenge for many organizations. Central coordination and
oversight are essential. Firms must inventory the mobile devices and develop policies and
tools for tracking, updating, and securing them and for controlling the data and applications
that run on them. Gains in employees’ productivity and efficiency must be balanced against
increased costs of integrating the devices into the firm’s IT infrastructure and from providing
technical support. The total cost of ownership for each device is much higher than typical IT
hardware.
Explain why software localization has become an important management issue for
global companies.
A global organization must create systems that can be realistically used by multiple business
units in different countries. Software applications may require local language interfaces
including menu bars, commands, error messages, reports, queries, online data entry forms,
and system documentation. The interfaces must be easily understood and mastered quickly in
a variety of languages. Global systems must also consider differences in local cultures and
business processes.
Discussion Questions
5-5 Why is selecting computer hardware and software for the organization an important
business decision? What people, organization, and technology issues should be considered
when selecting computer hardware and software?
As computer hardware and software significantly impact an organization’s performance, the
selection of IT assets is critical to the organization’s operations and ultimate success. Issues,
include capacity planning and scalability, making decisions regarding the required computer
processing and storage capabilities, computer and computer processing arrangements, kinds
of software and software tools needed to run the business, determining the criteria necessary
to select the right software, the acquisition and management of the organizations hardware
and software assets, and what new technologies might be available and beneficial to the firm.
5-6 Should organizations use software service providers (including cloud services) for all
their software needs? Why or why not? What people, organization, and technology factors
should be considered when making this decision?
The answer to the first question is very dependent upon the organization and its processing,
storage, and business needs. When evaluating software service providers, the organization
should examine such factors as availability and reliability, technology, fees and how the fees
are assessed, and available applications. Managers should compare the costs and capabilities
of using software service providers to the organization’s costs and capabilities of operating
and owning its own hardware and software assets. The organization should examine how
using the service will impact organizational culture and how using an outside vendor
addresses organizational and business needs. The technology factors include examining how
well usage of the service fits with the firms IT infrastructure, as well as examining the
appropriateness of using a software service provider to address current problems.
5-7 What are the advantages and disadvantages of cloud computing?
Cloud computing is the idea of making computing resources available based on what a user
really needs instead of what they might need.
The advantages include:
Not dependent on physical location of either resources or users.
Users access computing resources on their own not necessarily dependent on IT staff.
Based on standard network and Internet devices.
Resources serve multiple users with computing virtually assigned according to need.
Resources are increased or decreased according to demand.
Charges are based on the amount of resources actually used.
Large investments in IT infrastructure are not necessarily needed or investments are
significantly reduced.
Firms can shift additional processing requirements to cloud computing during peak
business periods.
It allows a more flexible IT infrastructure.
The disadvantages include:
Responsibility for data storage and control is transferred away from the organization
to a third party.
Security risks and chances of data compromises are increased.
Risk diminishing system reliability.
Increased dependency on a third party making everything work.
Huge investments in proprietary systems supporting unique business processes may
be at risk. ----------------------------
Identify and describe three major enterprise applications.
Answer: Enterprise systems, customer relationship management, and supply chain management
are three enterprise applications. Enterprise systems are based on a suite of integrated software
modules and a common central database. Enterprise systems utilize enterprise software to
support financial and accounting, human resources, manufacturing and production, and sales and
marketing processes. Enterprise systems provide many benefits including an enterprise-enabled
organization, improved management reporting and decision making, a unified information
systems technology platform, and more efficient operations and customer-driven business
processes.
Supply-chain management systems help an organization better manage its supply chain,
including planning, sourcing, making, delivering, and returning items. Supply-chain management
software can be categorized as a supply-chain planning system or as a supply-chain execution
system. A supply-chain planning system enables a firm to generate demand forecasts for a
product and to develop sourcing and manufacturing plans for that product. A supply-chain
execution system manages the flow of products through distribution centers and warehouses to
ensure that products are delivered to the right locations in the most efficient manner. Supply-
chain management benefits include improved customer service and responsiveness, cost
reduction, and cash utilization.
Customer-relationship management systems help firms maximize the benefits of their customer
assets. These systems capture and consolidate data from all over the organization and then
distribute the results to various systems and customer touch points across the enterprise.
Customer-relationship management systems can be classified as operational or as analytical.
Operational CRM refers to customer-facing applications, such as sales force automation, call
center and customer service support, and marketing automation. Analytical CRM refers to
customer-relationship management applications dealing with the analysis of customer data to
provide information for improving business performance. Benefits include increased customer
satisfaction, reduced direct marketing costs, more effective marketing, and lower costs for
customer acquisition and retention.
Identify at least four benefits and four challenges of enterprise systems.
Answer: Benefits include: increasing operational efficiency; providing firmwide information to
help decision making; standardized business processes; greater responsiveness to customer
needs; greater accuracy in fulfilling product demand; reduction of inventory and inventory costs;
reduction in order-to-delivery time; improving business processes; removing redundant
processes and systems; lowering costs through centralized processing; and improved decision
making. Challenges include: the expense of the software and related costs; the time required for
implementation; deep-seated technological changes required, the deep-seated organizational
changes required; overcoming organizational resistance; switching costs; data cleansing work
required.
Identify two classifications for supply-chain software. For each classification, identify four
capabilities.
Answer: Supply-chain planning systems and supply-chain execution systems are two
classifications for supply-chain software. Supply-chain planning systems enable a firm to
generate demand forecasts for a product and develop sourcing and manufacturing plans for that
product. Capabilities include order planning, advanced scheduling and manufacturing planning,
demand planning, distribution planning, and transportation planning. Supply-chain execution
systems manage the flow of products through distribution centers and warehouses to ensure that
products are delivered to the right locations. Capabilities include order commitments, final
production, replenishment, distribution management, and reverse distribution.
What additional complexities are faced in global supply chains? How does the Internet help in
managing global supply chains?
Answer: Global supply chains typically span greater geographic distances and time differences
than domestic supply chains and have participants from a number of different countries.
Although the purchase price of many goods might be lower abroad, there are often additional
costs for transportation, inventory, and local taxes or fees. Performance standards may vary from
region to region or from nation to nation. Supply-chain management may need to reflect foreign
government regulations and cultural differences. All of these factors impact how a company
takes orders, plans distribution, organizes warehousing, and manages inbound and outbound
logistics throughout the global markets it services. The Internet helps companies manage many
aspects of their global supply chains, including sourcing, transportation, communications, and
international finance. As goods are being sourced, produced, and shipped, communication is
required among retailers, manufacturers, contractors, agents, and logistics providers. With
Internet technology, supply chain members communicate through a Web-based system. Firms
use intranets to improve coordination among their internal supply chain processes, and they use
extranets to coordinate supply chain processes shared with their business partners.
Identify two supply-chain models. Which is better?
Answer: Push-based and pull-based models were discussed in the textbook. Push-based refers
to a supply chain driven by production master schedules based on forecasts or best guesses of
demand for products. Pull-based refers to a supply chain driven by actual customer orders or
purchases so that members of the supply chain produce and deliver only what customers have
ordered. Pull-based models are better.
Identify and describe the two types of customer relationship management applications.
Answer: Operational CRM and analytical CRM are two types of CRM. Operational CRM refers
to customer-facing applications, such as sales force automation, call center and customer service
support, and marketing automation. Analytical CRM refers to customer-relationship
management applications dealing with the analysis of customer data to provide information for
improving business performance.
Identify five benefits of customer-relationship management systems.
Answer: Benefits include: better customer service, make call centers more efficient, cross-sell
products more effectively, help sales staff close deals faster, simplify marketing and sales
processes, acquire new profitable customers, sell additional products and services, provide
customer information for developing new products, increase product utilization, reduce sales and
marketing costs, identify and retain profitable customers, optimize service delivery costs, retain
high-lifetime value customers, improve customer loyalty, improve response rates to direct mail,
increase product profitability, respond quickly to market opportunities.
You have been hired by Santori, Inc., a small company that imports and distributes an Italian
sparkling water. The company is interested in what benefits an enterprise system would bring.
Would an enterprise application be appropriate for this company? What steps would you take in
determining this?
Answer: An enterprise system may be too expensive, although there are enterprise software
packages that are available to smaller companies. A cloud-based enterprise application might be
the most economical way to implement an enterprise system. To determine whether this would
be beneficial to Santori, I would first look at their existing business processes. It would be ideal
to determine if their efficiency meets benchmarks in their industry and allows them to be
competitive with other businesses in their niche. Then I would review cloud-based or open-
source enterprise systems to see how each application's business processes matched up with
Santori's. It would be important to compare the costs of instituting new business processes with
the benefits and cost savings. Because their business is based on imports and distribution, and
working with suppliers in different countries, it might be best to start off with a supply chain
management system.
Plant Away is an Oregon-based retailer and distributor of trees and shrubs. They have hundreds
of smaller nurseries based around the country that grow the plant stock. The majority of their
business is conducted online: Consumers purchase typically small quantities of products online
and Plant Away coordinates the shipping from the most appropriate nursery. What unique
problems might you anticipate they have in their supply chain? What might remedy these
problems?
Answer: Typical problems in supply chains arise from unforeseeable events. In a plant nursery,
variations in the weather, growing season, plant diseases, and crop output would be uncertainties.
Other problems might be interstate regulations governing plants allowed in different states, and
making sure plants survive and are healthy during transportation. It would be very important to
have up-to-date forecasting of the weather or growing seasons that could anticipate possible
problems, and analyze and determine the best transportation routes.
You have been hired by Croydon Visiting Nurse Services, whose business processes are all
manual, paper-based processes. How might a CRM system benefit them?
Answer: A CRM system that includes patient's health records would allow any nurse to take
over if another needed replacement. Assuming that the nurses had access via laptops or other
PDAs to the system, a new nurse would have instant access to the patients needs. The CRM
might also be able to record which types of treatments or products customers were most
interested in or gave the greatest benefit to customers, and help anticipate needs. Additionally,
with PRM capabilities, products needed by the nursing service would be more easily anticipated,
ordered, and delivered. Since the employees work in the field, or away from a central office,
Internet-based communications might provide tools for reviewing employee performance.
9-1 How do enterprise systems help businesses achieve operational excellence?
Define an enterprise system and explain how enterprise software works.
Enterprise software consists of a set of interdependent software modules that support basic
internal business processes. The software allows data to be used by multiple functions and
business processes for precise organizational coordination and control. Organizations
implementing this software would have to first select the functions of the system they wish to
use and then map their business processes to the predefined business processes in the
software. A particular firm would use configuration tables provided by the software to tailor
a particular aspect of the system to the way it does business. Table 9.1 describes some of the
major business processes supported by enterprise software. These include financial and
accounting processes, human resources processes, manufacturing and production processes,
and sales and marketing processes.
Describe how enterprise systems provide value for a business.
Enterprise systems provide value both by increasing operational efficiency and by providing
firmwide information to help managers make better decisions. Large companies with many
operating units in different locations have used enterprise systems to enforce standard
practices and data so that everyone does buisness the same way. Enterprise systems help
firms respond rapidly to customer requests for information or products. Manufacturing is
better informed about producing only what customers have ordered, procuring exactly the
right amount of components or raw materials to fill actual orders, staging production, and
minimizing the time that components or finished products are in inventory.
Enterprise software includes analytical tools for using data captured by the system to
evaluate overall organizational performance. Enterprise system data have common
standardized definitions and formats that are accepted by the entire organization. Enterprise
systems allow senior management to easily find out at any moment how a particular
organizational unit is performing or to determine which products are most or least profitable.
Companies can use enterprise systems to support organizational structures that were not
previously possible or to create a more disciplined organizational culture. They can also
improve management reporting and decision making. Furthermore, enterprise systems
promise to provide firms with a single, unified, and all-encompassing information system
technology platform and environment. Lastly, enterprise systems can help create the
foundation for a customer-driven organization
9-2 How do supply chain management systems coordinate planning, production, and
logistics with suppliers?
Define a supply chain and identify each of its components.
A supply chain is defined as a network of organizations and business processes for procuring
materials, transforming raw materials into intermediate and finished products, and
distributing the finished products to customers. It links suppliers, manufacturing plants,
distribution centers, retail outlets, and customers to supply goods and services from source
through consumption. Supply chain management is the integration of supplier, distributor,
and customer logistics requirements into one cohesive process.
Explain how supply chain management systems help reduce the bullwhip effect and
how they provide value for a business.
The bullwhip effect occurs when information about the demand for a product gets distorted
as it passes from one entity to the next across the supply chain. It can also result from
“gaming,” as purchasers present manufacturers or suppliers with a false picture of consumer
demand. It can be dealt with by reducing uncertainties about demand and supply when all the
players in a supply chain have accurate and up-to-date information.
Define and compare supply chain planning systems and supply chain execution systems.
Supply chain planning systems enable the firm to generate demand forecasts for a product
and to develop sourcing and manufacturing plans for that product. They help companies
make better operating decisions such as determining how much of a specific product to
manufacture in a given time period; establishing inventory levels for raw materials,
intermediate products, and finished goods; determining where to store finished goods; and
identifying the transportation mode to use for product delivery. One of the most important
functions is demand planning, which determines how much product a business needs to make
to satisfy all of its customers’ demands. These functions are referred to as order planning,
advanced scheduling, demand planning, distribution planning, and transportation planning.
Supply chain execution systems manage the flow of products through distribution centers
and warehouses to ensure that products are delivered to the right locations in the most
efficient manner. They track the physical status of goods, the management of materials,
warehouse and transportation operations, and financial information involving all parties.
These functions are referred to as order commitments, final production, replenishment,
distribution management, and reverse distribution.
Describe the challenges of global supply chains and how Internet technology can help
companies manage them better.
Firms use intranets to improve coordination among their internal supply chain processes, and
they can use extranets to coordinate supply chain processes shared with their business
partners. Using intranets and extranets (both based on Internet technology), all members of
the supply chain can instantly communicate with one another, using up-to-date information
to adjust purchasing, logistics, manufacturing, packaging, and schedules. A manager can use
a Web interface to tap into suppliers’ systems to determine whether inventory and production
capabilities match demand for the firm’s products. Business partners can use Web-based
supply chain management tools to collaborate online with suppliers and customers. Sales
representatives can access suppliers’ production schedules and logistics information to
monitor customers’ order status. The Internet has introduced new ways of managing
warehousing, shipping, and packaging based on access to supply chain information that can
give companies an edge in delivering goods and services at a reasonable cost.
Distinguish between a push-based and pull-based model of supply chain management
and explain how contemporary supply chain management systems facilitate a pull-
based model.
In a push-based model, production master schedules are based on forecasts or best guesses
of demand for products, and products are “pushed” to customers. In a pull-based model,
actual customer orders or purchases trigger events in the supply chain.
In contemporary supply chain management systems, the Internet and Internet technology
make it possible to move from sequential supply chains, where information and materials
flow sequentially from company to company, to concurrent supply chains, where information
flows in many directions simultaneously among members of a supply chain network.
Members of the network immediately adjust to changes in schedules or orders. 9-3 How do customer relationship management systems help firms achieve customer
intimacy?
Define customer relationship management and explain why customer relationships are
so important today.
Customer relationship management: a business and technology discipline that uses
information systems to coordinate all of the business processes surrounding the firm’s
interaction with its customers in sales, marketing, and service.
Importance of customer relationships: Globalization of business, the Internet, and
electronic commerce have put more power in the hands of customers. Companies realize that
their only enduring competitive strength may be their relationships with their customers.
Some say that the basis of competition has switched from who sells the most products and
services to who “owns” the customer, and that customer relationships represent the firm’s
most valuable asset.
Describe how partner relationship management (PRM) and employee relationship
management (ERM) are related to customer relationship management (CRM)?
CRM systems capture and integrate customer data from all over the organization, consolidate
the data, analyze the data, and then distribute the results to various systems and customer
touch points across the enterprise. Companies can use this customer knowledge when they
interact with customers to provide them with better service or to sell new products and
services. CRM systems integrate and automate many customer-facing processes in sales,
marketing, and customer service, providing an enterprise-wide view of customers. These
systems track all of the ways in which a company interacts with its customers and analyze
these interactions to maximize customer lifetime value for the firm. CRM extends to a firm’s
business partners who are responsible for selling to customers.
The more comprehensive CRM packages contain modules for partner relationship
management (PRM) and employee relationship management (ERM).
PRM uses many of the same data, tools, and systems as CRM to enhance collaboration
between a company and its selling partners. If a company does not sell directly to customers
but rather works through distributors or retailers, PRM helps these channels sell to customers
directly.
ERM software deals with employee issues that are closely related to CRM, such as setting
objectives, employee performance management, performance-based compensation, and
employee training.
Describe the tools and capabilities of customer relationship management software for
sales, marketing, and customer service.
Customer relationship management systems typically provide software and online tools for
sales, customer service, and marketing. Refer to Figure 9-8 for a diagram of the business
processes that CRM software supports for sales, marketing, and service. Capabilities include
the following:
Sales:
Sales force automation modules in CRM systems help sales staff increase their
productivity by focusing sales efforts on the most profitable customers, those who are
good candidates for sales and services.
Provide sales prospect and contact information, product information, product
configuration capabilities, and sales quote generation capabilities.
Enable sales, marketing, and delivery departments to easily share customer and prospect
information.
Increase salespeople’s efficiency in reducing the cost per sale as well as the cost of
acquiring new customers and retaining old ones.
Capabilities for sales, forecasting, territory management, and team selling.
Supports direct-marketing campaigns by providing capabilities for capturing prospect and
customer data, for providing product and service information, for qualifying leads for
targeted marketing, and for scheduling and tracking direct-marketing mailings or email.
Customer Service:
Provide information and tools to make call centers, help desks, and customer support
staff more efficient.
Includes capabilities for assigning and managing customer service requests.
May also include Web-based self-service capabilities.
Marketing:
Support direct-marketing campaigns by providing capabilities for capturing prospects and
customer data, for providing product and service information for qualifying leads for
targeted marketing, and for scheduling and tracking direct-marketing mailings or email.
Includes tools for analyzing marketing and customer data. Identifies profitable and
unprofitable customers, designs products and services to satisfy specific customer needs
and interests, and identifies opportunities for cross-selling, up-selling, and bundling.
Distinguish between operational and analytical CRM.
Operational CRM includes customer-facing applications such as tools for sales force
automation, call center and customer service support, and marketing automation.
Analytical CRM includes applications that analyze customer data generated by operational
CRM applications to provide information for improving business performance management.
Applications are based on data warehouses that consolidate data from operational CRM
systems and customer touch points. The database serves online analytical processing, data
mining, and other data analysis techniques. Provides information related to customer lifetime
values.
9-4 What are the challenges posed by enterprise applications?
List and describe the challenges posed by enterprise applications.
Enterprise applications are very difficult to implement successfully. They require extensive
organizational change, expensive new software investments, and careful assessment of how
these systems will enhance organizational performance. Enterprise applications require both
deep-seated technological changes and fundamental changes in business operations.
Employees must accept new job functions and responsibilities. They must learn new work
activities and understand how data they enter into the system can affect other parts of the
company. Enterprise applications introduce switching costs that make it very expensive to
switch vendors. Multiple organizations will share information and business processes.
Management vision and foresight are required to take a firm- and industry-wide view of
problems and to find solutions that realize strategic value from the investment.
Explain how these challenges can be addressed.
Enterprise applications create new interconnections among myriad business processes and
data flows inside the firm (and in the case of supply chain management systems, between the
firm and its external supply chain partners). Employees require training to prepare for new
procedures and roles. Attention to data management is essential. Management must
understand the impact that implementing enterprise applications will have on every facet of
the business. Executives must not underestimate the time and costs of implementation, not
just on the organization but also on customers, suppliers, and business partners.
9-5 How are enterprise applications taking advantage of new technologies?
How are enterprise applications taking advantage of SOA, Web services, open source
software, and wireless technology?
Enterprise application vendors are delivering more value by developing systems that are
more flexible, Web-enabled, and capable of integration with other systems. Next-generation
enterprise applications include open source and on-demand solutions. Small companies
choose open source products because there are no software licensing fees even though
support and customization for open-source products cost extra. Major enterprise application
vendors offer portions of their products that work on mobile handheld computing devices.
Salesforce.com and Oracle include some Web 2.0 capabilities and services that enable
organizations to identify new ideas more rapidly, improve team productivity, and deepen
interactions with customers.
Define social CRM and explain how customer relationship managements systems are
using social networking.
Social CRM tools enable a business to connect customer conversations and relationships
from social networking sites to CRM processes rather than having them in separate “silos.”
The tools help organizations identify new ideas more rapidly, improve team productivity, and
deepen interactions with customers. When employees interact with customers via social
networking sites, they are often able to provide customer service functions much faster and
more cheaply than by using telephone conversations or email. Customers have come to
expect rapid responses to their questions and complaints and aren’t willing to wait on slower,
outdated technologies.
Discussion Questions
9-6 Supply chain management is less about managing the physical movement of goods and
more about managing information. Discuss the implications of this statement.
The information obtained through a supply chain management system can be used to make
better decisions regarding purchasing, production, and logistics. Information helps to reduce
the bullwhip effect that comes about from not having enough information or accurate
information. Information can help supply chain planning systems generate forecasts and
supply chain execution systems manage the flow of products through the supply chain to
delivery. Supply chain management systems facilitate communication with all members of
the chain.
9-7 If a company wants to implement an enterprise application, it had better do its
homework. Discuss the implications of this statement.
Most students should agree that adopting an enterprise system is a key business decision first
and foremost. CEOs and top executives must lead the change in the cultural climate. A firm
understanding of business processes and the reorganization of those processes is essential to
a successful implementation. Involving all parties, including end users, is also crucial to the
success of such an undertaking. Creating a collaborative working environment is a key
component. Also, the organization must realize how much time, money, and personnel
resources will be required by the implementation of an enterprise application.
9-8 Which enterprise application should a business install first: ERP, SCM, or CRM?
Explain your answer.
Because each of these applications are so powerful in changing the way an organization works,
implementation is an extreme challenge for any business. The decision about which to install
first depends on individual organizations. A business may decide to go with just a CRM system
or a SCM system first to gain experience in the implementation process. Some issues a business
or organization needs to consider include:
Expenses associated with purchase and implementation
Deep-seated technological changes
Fundamental changes in the way the business operates
New organizational learning
Understanding just how much organizational change is required
Determining possible switching costs should the organization change to a different
vendor
Understanding how the organization uses its data and how it will be organized under the
new system
Keeping customizations to a minimum
------------------------
What is the most profound way in which e-commerce and the Internet has changed the
relationship between companies and their customers? Support your answer.
Answer: Student answers will vary. A sample answer is: The most profound way in which e-
commerce and the Internet has changed this relationship is in the shrinking of information
asymmetry. An information asymmetry exists when one party in a transaction has more
information that is important for the transaction than the other party. That information helps
determine their relative bargaining power. In digital markets, consumers and suppliers can "see"
the prices being charged for goods and, in that sense, digital markets are said to be more
"transparent" than traditional markets. For example, until auto retailing sites appeared on the
Web, there was a pronounced information asymmetry between auto dealers and customers. Only
the auto dealers knew the manufacturers' prices, and it was difficult for consumers to shop
around for the best price. Auto dealers' profit margins depended on this asymmetry of
information. Today's consumers have access to a legion of Web sites providing competitive
pricing information, and three-fourths of U.S. auto buyers use the Internet to shop around for the
best deal. Thus, the Web has reduced the information asymmetry surrounding an auto purchase.
The Internet has also helped businesses seeking to purchase from other businesses reduce
information asymmetries and locate better prices and terms.
List and describe at least five different Internet business models. Which of these models do you
think would be the most risky for a startup business today? Support your answer.
Answer: Internet business models include: e-tailer, transaction broker, market creator, content
provider, community provider, portal and service. The choice of riskiest model will depend on
the individual student. A sample answer is: Today the riskiest model would be a content-
provider, because most, if not all, of the major offline entertainment and content producers such
as television networks and newspapers are online. They would be your competitors, and already
have the means for content creation and distribution in place. All of the other business models do
not have the risk of creating brand new content.
"Knowledge increases exponentially" is a phrase with which we are all familiar. How does this
concept apply to electronic business and the emergence of the digital firm? Support your
contentions.
Answer: Student answers will vary. A sample answer is: The exponential increases of
knowledge refer to shared information. For example, once the concept of a wheel is established,
inheritors of that knowledge do not have to "reinvent the wheel." The Internet is a tool similar to
the wheel: it is based on shared standards and universal tools. The Internet and shared
networking technologies are allowing new techniques for attracting customers and selling
customers to be developed and adapted very quickly. For example, although early Internet
retailers had difficulty setting up secure credit card transactions and payment systems, today
there are many systems in place as vendors step in to create shared tools for doing this. The
Internet is fostering shared knowledge and, as such, propagating ever greater increases in that
knowledge.
Describe the use of personalization and customization in e-commerce. What business value do
these techniques have?
Answer: In personalization, merchants can target their marketing messages to specific
individuals by adjusting the message to a person's name, interests, and past purchases. For
example, Amazon.com greets each logged in user with their user name. With customization,
merchants can change the delivered product or service based on a user's preferences or prior
behavior. The Wall Street Journal Online allows you to select the type of news stories you want
to see first and gives you the opportunity to be alerted when certain events happen. The ability of
Internet technology to track customer behavior at Web sites, along with records of purchases and
other behavior, allows merchants to create a detailed profile of a customer. These profiles can be
used to create unique personalized Web pages that display content or ads for products or services
of special interest to each user, improving the customer's experience and creating additional
value. The business value of personalization is reduced marketing costs, as you spend only the
money to target customers that are more likely to be receptive and are more profitable, and
improved sales results, from increased customer response to personalized sites that better serve
their own purposes and shopping needs. Personalization can achieve some of the benefits of
using individual salespeople for dramatically lower costs.
Define location-based services and describe the main categories of these services. Which of the
categories do you feel has the most potential in terms of e-commerce revenues, and why?
Answer: Location-based services are services that use GPS mapping services available on
smartphones to deliver value-added services. They include geosocial services, geoadvertising,
and geoinformation services. A geosocial service can tell you where your friends are meeting.
Geoadvertising services can tell you where to find the nearest Italian restaurant, and
geoinformation services can tell you the price of a house you are looking at, or about special
exhibits at a museum you are passing. Student answers as to the most valuable of these services
will vary; an example is: I feel that geoadvertising services have the most potential for profit, as
it is based on a profit-making mechanism: advertising. Geosocial services and geoinformation
services, by themselves, are more content- and communication-oriented.
List and describe the three main categories of electronic commerce. Which do you think is
ultimately the most valuable to the individual consumer? Support your answer.
Answer: Business-to-consumer, business-to-business, and consumer-to-consumer. All three are
valuable to the consumer, but in the long run, business-to-business may be the most valuable to
the individual consumer because it will reduce prices and increase both goods and services.
What methods could a portal use to generate revenue? Which do you think might be most
successful, and why?
Answer: Advertising, subscriptions, selling collected marketing information, and directing
buyers to sellers could all generate revenue. Student evaluations will vary. A sample answer is: I
would think the most successful method would be through collecting marketing information,
because as a portal that links to large amounts of external information and attracts repeat
customers, the portal would have the opportunity to gather a lot of information about each user.
You are consulting for Lucky's, a chain of gas stations. What types of e-commerce opportunities,
if any, are relevant to Lucky's? Could Lucky's make use of any Internet business models for this
opportunity?
Answer: Student answers will vary. A sample answer is: In terms of B2B e-commerce, Lucky's
might be able to procure goods over the Internet, use a private industrial network to coordinate
their supply chain with suppliers and manage inventory. Depending on the structure of the
gasoline retail business, industry net marketplaces and exchanges might be of use. In terms of
B2C e-commerce, there are not many opportunities, as it is inefficient to sell gasoline over the
Internet. Lucky's could make sure that its stations are listed in popular location-based mobile
services that help drivers find nearby gas stations.
You have been hired as a marketing consultant by a law firm in Los Angeles that specializes in
juvenile justice. What ways can you use the Internet as a marketing tool and to advertise the
firm's services?
Answer: Student answers will vary. A sample answer is: For marketing research, you could
advertise on search engines. You could pay for marketing research at relevant portals. You could
also collect customer information from the company's Web site. You could monitor relevant
blogs to see what issues are of concern in juvenile justice, so as to address these concerns in your
advertising campaigns. To advertise, you could advertise on search engine results and at relevant
portals or legal information content providers. If it were feasible, you could create a juvenile
justice portal and blog for the company in order to attract users from whom you could gather
market research as well as promote your services. You might also want to investigate social
network marketing - assuming that your clients might be the best leads for other clients.
Web site tracking software can log the path a customer took through the web site, the time spent
on the site, and what geographic area, in general, the customer is from, all of which can help in
customer analysis. It can also log the customer's operating system and which browser the
customer is using. How could these last two data items be of interest to a company? Give
examples.
Answer: Student answers will vary, but should include an understanding that customer OS and
browser interact technologically with a web site and might be relevant in data analysis. An
example is: Customer OSs and browsers could help a company determine what technical
functionalities could be used in the site. For example, if it found out that a significant percentage
of its users are using mobile browsers, they might want to make sure that the web site is easily
used by various mobile devices. Secondly, this data might be relevant in data mining or other
analysis. For example, a retail clothing company might find that a significant portion of their
most valued customers use an Apple operating system, and from other data analysis know that
Apple users are more likely to purchase cashmere sweaters. Then the company may want to
place a greater emphasis on selling the cashmere sweaters.
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10-1 What are the unique features of e-commerce, digital markets, and digital goods?
Name and describe four business trends and three technology trends shaping
e-commerce today.
Students can answer this question by including information outlined in Table 10.1 which lists
several business and technology trends shaping e-commerce today.
List and describe the eight unique features of e-commerce.
Table 10.2 outlines eight unique features of e-commerce which include:
E-commerce technology is ubiquitous, meaning it is available just about
everywhere a computer can connect to the Internet.
It has global reach, permitting commercial transactions to cross cultural and
national boundaries far more conveniently and cost effectively than is true in
traditional commerce.
It operates according to universal standards shared by all nations around the
world, whereas most traditional commerce technologies differ from one nation
to the next.
It provides information richness, enabling an online merchant to deliver to an
audience of millions complex and rich marketing messages with text, video, and
audio in a way not possible with traditional commerce technologies, such as
radio, television, or magazines.
It is interactive, meaning it allows for two-way communication between
merchant and consumer and enables the merchant to engage a consumer in ways
similar to a face-to-face experience but on a much more massive, global scale.
It increases information density (the total amount and quality of information
available to all market participants).
It permits personalization and customization: Merchants can target their
marketing messages to specific individuals by adjusting the message to a
person’s name, interests, and past purchases.
Social technology enables user content creation and distribution and supports
social networks.
Define a digital market and digital goods and describe their distinguishing features.
Digital markets are said to be more “transparent” than traditional markets. Table 10.3
describes distinguishing features of digital markets. The Internet has created a digital
marketplace where millions of people are able to exchange massive amounts of information
directly, instantly, and for free. Information asymmetry is reduced. Digital markets are very
flexible and efficient, with reduced search and transaction costs, lower menu prices, and the
ability to change prices dynamically based on market conditions. Digital markets provide
many opportunities to sell directly to the consumer, bypassing intermediaries, such as
distributors or retail outlets. Other features include delayed gratification, price
discrimination, market segmentation, switching costs, and network effects.
Digital goods are goods that can be delivered over a digital network and include music,
video, software, newspapers, magazines, and books. Once a digital product has been
produced, the cost of delivering that product digitally is extremely low. New business models
based on delivering digital goods are challenging bookstores, publishers, music labels, and
film studios that depend on delivery of traditional goods.
10-2 What are the principal e-commerce business and revenue models?
Name and describe the principal e-commerce business models.
Table 10.5 identifies seven Internet business models.
E-tailer: sells physical products directly to consumers or individual businesses.
Transaction broker: saves users money and time by processing online sale
transactions and generates a fee each time.
Market creator: provides a digital environment where buyers and sellers meet,
search for and display products, and establishes prices for those products; it can
provide online auctions and reverse auctions.
Content provider: creates revenue by providing digital content, such as digital
news, music, photos, or video over the Web.
Community provider: provides an online meeting place where people with
similar interests can communicate and find useful information.
Portal: provides an initial point of entry to the Web along with specialized
content and other services.
Service provider: provides Web 2.0 applications such as photo sharing, video
sharing, and user-generated content as services. Provides other services such as
online data storage and backup.
Name and describe the e-commerce revenue models.
There are six e-commerce revenue models:
Advertising revenue: generates revenue by attracting a large audience of
visitors who can then be exposed to advertisements. It’s the most widely used
revenue model in e-commerce.
Sales revenue: companies derive revenue by selling goods, information, or
services to customers.
Subscription revenue: a Web site offering content or services charges a
subscription fee for access to some or all of its offerings on an ongoing basis.
Free/fremium revenue: basic services or content are free while advanced or
special features cost extra.
Transaction fee revenue: a company receives a fee for enabling or executing a
transaction.
Affiliate revenue: sites that steer customers to an affiliate business receive a
referral fee or percentage of the revenue from any resulting sales.
10-3 How has e-commerce transformed marketing?
Explain how social networking and the “wisdom of crowds” help companies improve
their marketing.
Networking sites sell banner, video, and text ads; sell user preference information to
marketers; and sell products such as music, videos, and e-books. Corporations set up their
own social networking profiles to interact with potential customers and “listen” to what
social networkers are saying about their products, and obtain valuable feedback from
consumers. At user-generated content sites, high-quality video content is used to display
advertising. Online communities are ideal venues to employ viral marketing techniques.
Creating sites where thousands, even millions, of people can interact offers business firms
new ways to market and advertise products and services, and to discover who likes or
dislikes their products. In a phenomenon called the “wisdom of crowds” some argue that
large numbers of people can make better decisions about a wide range of topics or products
than a single person or even a small committee of experts. In marketing, the wisdom-of-
crowds concept suggests that firms should consult with thousands of their customers first as a
way of establishing a relationship with them, and second, to better understand how their
products and services are used and appreciated. Actively soliciting customer comments
builds trust and sends the message to customers that the company cares what they are
thinking and that customer advice is valuable.
Define behavioral targeting and explain how it works at individual Web sites and on
advertising networks.
Behavioral targeting refers to tracking the click-streams of individuals for the purpose of
understanding their interests and intentions, and exposing them to advertisements which are
uniquely suited to their behavior. Ultimately, this more precise understanding of the customer
leads to more efficient marketing and larger sales and revenues. Behavioral targeting of
millions of Web users also leads to the invasion of personal privacy without user consent.
Behavioral targeting takes place at two levels: at individual Web sites and on various
advertising networks that track users across thousands of Web sites. Most e-commerce Web
sites collect data on visitor browser activity and store it in a database. They have tools to
record the site that users visited prior to coming to the Web site, where these users go when
they leave that site, the type of operating system they use, browser information, and even
some location data. They also record the specific pages visited on the particular site, the time
spent on each page of the site, the types of pages visited, and what the visitors purchased.
Firms analyze this information about customer interests and behavior to develop precise
profiles of existing and potential customers.
Define the social graph and explain how it is used in e-commerce marketing.
A social graph is a depiction of all the people you know and all the people they know. A
digital social graph is a mapping of all significant online social relationships. It’s
synonymous with the idea of a “social network” used to describe offline relationships. The
small world theory believes any person is only six links away from any other person on earth.
The products and services you buy will influence the decisions of your friends, and their
decisions will in turn influence you. It’s the “word of mouth is the best advertising” theory in
digital format. Marketers’ target audience is not the one isolated individual but millions of
connected people all talking to one another and swapping information. Marketers will spend
more than $3 billion on social network marketing in 2012. That’s twice the amount of money
spent in 2010 and about 9 percent of all online marketing.
Table 10.7 has four features of social commerce that include: social sign-on, collaborative
shopping, network notification, and social search recommendations.
10-4 How has e-commerce affected business-to-business transactions?
Explain how Internet technology supports business-to-business electronic commerce.
Business-to-business transactions can occur via a company Web site, net marketplace, or
private exchange. Web sites make it easy to sell and buy direct and indirect goods over the
Internet, compare suppliers, products, and prices, and even find out how others feel about the
product. Further, supply chain linkages through intranets and extranets can support JIT,
reduce cycle times, and other practices of continuous improvement. Because of the ease and
efficiencies brought by the Internet, business-to-business participants can save a significant
amount of money and time.
Define and describe Net marketplaces and explain how they differ from private
industrial networks (private exchanges).
A net marketplace is a single digital marketplace based on Internet technology linking many
buyers to many sellers. The net marketplace is an important business model for B2B
e-commerce because some net marketplaces serve vertical markets for specific industries and
other net marketplaces serve horizontal markets, selling goods that are available in many
different industries. Also, net marketplaces can sell either direct goods or indirect goods. Net
marketplaces are more transaction-oriented and less relationship-oriented than private
industrial networks.
10-5 What is the role of m-commerce in business, and what are the most important
m-commerce applications?
List and describe important types of m-commerce services and applications.
The most popular categories of m-commerce services and applications for mobile computing
include:
Location-based services: users are able to locate restaurants, gasoline stations,
local entertainment, or call a cab.
Banking and financial services: users can manage their bank accounts, checking
account balances, transfer funds, and pay bills using their cell phones.
Wireless advertising: cell phones provide another avenue for advertisers to reach
potential customers. Cell phone service providers can sell advertising on phones.
Games and entertainment: users can download video clips, news clips, weather
reports, live TV programs, and short films designed to play on mobile phones.
Personalized services: Services that anticipate what a customer wants based on
that person’s location or data profile, such as updated airline flight information
or beaming coupons for nearby restaurants.
10-6 What issues must be addressed when building an e-commerce Web site? List and describe the 4 types of e-commerce presence.
Figure 10.10 lists the four types of e-commerce presence businesses should consider:
Web sites: traditional, mobile, and/or tablet platforms with search, display, apps,
affiliates, sponsorships as possible activities
Email: internal lists and/or purchased lists as a platform with newsletters, updates,
and sales as possible activities
Social media: Facebook, Twitter, and/or blogs as a platform with conversation,
engagement, sharing, and/or advice as possible activities
Offline media: print and or TV and radio as the platform with education, exposure,
and/or branding as possible activities
Discussion Questions
10-7 How does the Internet change consumer and supplier relationships?
One clear change is that consumers can research products and services online and then make
their purchases either on the Internet or in physical stores. As the Internet increases the
richness and range of information that is available, it shrinks information asymmetry.
The Internet is responsible for creating new business models and promoting customer-centered
retailing, direct sales over the Web, interactive marketing and personalization, m-commerce,
and customer self-service.
In today’s competitive environment, suppliers must increasingly offer consumers and
businesses a variety of products and services offering mass customization and personalization
without increased delivery times. However, delivery performance depends on many different
factors, such as finished parts inventory levels and work-in-progress. Suppliers can track these
factors inexpensively through the use of information systems.
The Internet changes information density available to consumers. Price transparency and cost
transparency disrupt the typical relationship between suppliers and customers, giving
customers more power to control prices. On the other hand, the Internet gives suppliers more
price discrimination over customers. Suppliers and customers can deal with each other directly
over the Internet and cause disintermediation for the traditional middleman.
10-8 The Internet may not make corporations obsolete, but the corporations will have to
change their business models. Do you agree? Why or why not?
Most students will probably agree, but whichever way they go, they must support their case. If
you have students on both sides of the issue, lead a discussion that challenges the position of
both sides.
The Internet is certainly driving tremendous changes, and it is important to note that these
changes are self-perpetuating and happening much faster than ever before. There are seven
megatrends where the Internet’s impact is changing how businesses operate. These trends are
found in every industry and every country around the world. The megatrends include:
New channels are revolutionizing sales and brand management. The balance of power may be shifting to the customer. Competition is intensifying across all dimensions. The pace of business is fundamentally accelerating. Companies are transforming into extended enterprises. Companies are reevaluating how they, their partners, and their competitors add value. Knowledge is becoming more of a key strategic asset.
Instead of inwardly-focused companies “sticking to their knitting,” we will see extended
enterprises; instead of companies with circumscribed relationships with their suppliers and
customers, we will see a myriad of electronic relationships and shared processes; instead of a
hierarchical chain of command, we will see virtual teams, empowered to make decisions on
behalf of the company. Without the Internet, none of this would be possible.
10-9 How have social technologies changed e-commerce?
The sheer numbers of people using social networking, more than 120 million users every day
in the United States, changes e-commerce business models and strategies. The networking sites
sell banner, video, and text ads; sell user preference information to marketers; and sell products
such as music, videos, and e-books. Corporations have begun establishing a prominent
presence on social networking sites to market or sell products/services, gain insight into
customer preferences, or engage customers in new ways not available through any other
conduit. User-generated content sites provide new ways for companies to produce videos that
advertise and promote their products. Social networks create a new “front door” for customers
to reach businesses and either learn about or purchase products/services. Online viral
marketing provides new ways for people to obtain information—both positive and negative—
about products/services.
The wisdom of crowds and crowdsourcing was not possible prior to the rise of social
technologies. Now businesses can use both to interact with customers to discover who likes or
hates their products, and to advertise and market products/services. By actively soliciting
comments from customers, businesses can build trust and send the message that it cares what
its customers think. Crowdsourcing allows customers to “help” companies solve problems or
generate new ideas.
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