Information Systems CPA F2.3 Study Manual

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INSTITUTE OF
CERTIFIED PUBLIC ACCOUNTANTS
OF
RWANDA
Foundation F2
F2.3 INFORMATION SYSTEMS
First Edition 2012
This study manual has been fully revised and updated
in accordance with the current syllabus.
It has been developed in consultation with experienced lecturers.
3
4
CONTENTS
Study
Unit
Title Page
Introduction to the Course 7
1
Introduction to Information Systems
12
The Role of Information Systems in Business Today
12
Different Perspectives on Information Systems
14
Different Views of Information Systems
18
Management Challenges 19
2
Types and Functions of Information Systems Used in Business
21
Business Processes and Information Systems
22
Types of Business Information Systems
23
Systems that Span the Enterprise
28
The Information Systems Function
30
Using Information Systems to Achieve Competitive Advantage 31
3
Ethics Social and Political Issues of Information Systems
34
Ethical and Social Issues Related To Systems
35
Ethical Dilemmas in the Information Society
37
The Moral Dimensions of Information Systems 38
4
Computer Hardware and Software
44
Infrastructure
45
Key Infrastructure Components
46
Hardware Platforms
46
Hardware Platform Trends
47
Computer Software Platforms
50
Software Platform Trends
52
Management challenges posed by IT infrastructure 57
5
Study
Unit
Title
Page
5
Telecommunications, Networks, the Internet and Wireless
59
Networks and Communications
60
Communication Networks
63
The Internet
67
Wireless Technology
74
Management Opportunities and Challenges 79
6
Managing Data and Information Resources
81
The Importance of Data
82
File Organisation
83
The Database Approach to Data Management
85
Using Databases to Improve Business Performance & Decision Making
93
Managing Data Resources
97
Management Challenges and Solutions 97
7
E-Commerce
98
Introduction to Electronic Commerce
99
Electronic Commerce
102
Mobile E-Commerce (M-Commerce)
105
E-Commerce Payment Systems
107
Management Challenge 109
8
Management Decision Support Systems
110
Decision Making
111
Business Intelligence
115
Systems to Support Decision Making
116
Executive Support Systems (ESS)
118
Group Decision Support Systems (GDSS)
119
Challenges 120
6
Study
Unit Title Page
9
Enterprise Systems
121
Enterprise Resources Planning (ERP) Systems
122
Customer Relationship Management Systems
123
Supply Chain Management Systems
125
Enterprise Integration Trends
128
Challenges 128
10
Knowledge Management
129
Introduction
130
Description of Knowledge
130
Enterprise knowledge management systems:
132
Knowledge Work Systems
134
Intelligent Systems and Techniques
136
Management Challenges and Solutions 140
11
Information Systems Security and Control
141
System Vulnerability and Threats
142
Security and Controls
145
Organisational and Managerial Framework for Security and Control
147
Tools and Technologies for Protecting Information Resources
151
Management Challenges 155
12
Information Systems Development and Acquisition
156
Building Systems and Planned Organisational Change
157
System Development
161
Alternative Approaches to Developing and Acquiring Systems
168
Contemporary Approaches to Application Development
174
Management Challenges 175
7
Study
Unit Title Page
13
Business Value of Systems and Managing Change
177
Importance of Project management
178
Selecting Projects
180
Establishing the Business Value of Information Systems
183
Change Management
186
Management Challenges
187
Information Systems Problem Areas 189
Appendix 1
190
Fair Information Practice Principles
191
Finance and IT - a special relationship?
194
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INTRODUCTION TO THE COURSE
Stage: Foundation Level 2
Subject Title: F2.3 Information Systems
Aim
The aim of this subject is for students to develop an understanding of the role and application
of Information Systems (IS) and Information Technology (IT) in the management and control
of organisations. It provides the basis for the further development of students for the roles of
manager, advisor, assurance provider and designer of IS and IT.
Information Systems as an Integral Part of the Syllabus.
This is an essential subject for the later study of Auditing, Audit Practice & Assurance
Services and Strategy & Leadership. Students will develop their understanding of selecting
and advising on the implementation of appropriate systems, processes, controls and solutions
in a business environment.
Learning Outcomes
On successful completion of this subject students should be able to:
• Explain the role of information systems in today’s competitive business environment.
• Appraise and discuss the major management challenges to building and using
information systems in organisations.
• Recognise and discuss ethical, social, and legal issues in the design and use of
information systems.
• Analyse how information systems support various business strategies for competitive
advantage.
• Analyse and discuss the challenges posed by strategic information systems and
management solutions.
• Examine the role of Internet technology in facilitating management and coordination
of internal and inter-organisational business processes.
• Assess the challenges posed and opportunities offered by electronic business and
electronic commerce and management solutions.
• Identify the challenges posed and opportunities offered by data resource management
and management solutions.
• Evaluate the challenges of managing IT infrastructure and management solutions.
• Discuss alternative methods for building information systems and alternative
methodologies for modelling systems.
• Explain what ‘eXtensible Business Reporting Language’ (XBRL) is and describe how
it improves the reliability and ease of communicating complex financial information
among internal and external users.
• Critically analyse Information Technology based case studies, thus incorporating their
strategic and practical knowledge of Information Systems to real life business
situations.
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Syllabus:
1. The Digital Firm
• Describe and discuss why information systems should be employed.
• Approaches to Information Systems.
• The role of information systems.
• The role of information systems in business strategy.
• Information systems support in the decision making process.
• Information systems and management issues.
• Ethical, social, and political issues of information systems.
• The impact of contemporary information systems and the Internet on the protection
of individual privacy and intellectual property.
• The role of information systems in today’s competitive business environment.
• The impact of the Internet and Internet Technology on business and government.
• Defining an information system from both a technical and business perspective and
distinguishing between computer literacy and information systems literacy.
• The major management challenges to building and using information
systems in organisation
2. Types of Information Systems in Business
• Information systems supporting the major business functions: sales and marketing,
manufacturing and production, finance and accounting, and human resources.
• The relationship between organisations, information systems, and business
processes.
• Transaction Processing Systems.
• Office Information Systems.
3. Functions of Information Systems
• The functions of Information Systems.
• Relationships between different information systems and where information
systems are used within the firm.
• Information systems support for business strategies for competitive advantage.
• The challenges posed by strategic information systems and management solutions.
4. Electronic Business & Mobile Commerce
• The Internet: new information technology infrastructure for the Digital Firm.
• Internet platforms.
• The use of electronic business and electronic commerce.
• Technologies used for electronic business and electronic business models.
• Internal and external applications of electronic business and electronic commerce.
• Management issues associated with electronic business.
• The impact of Internet Technology on value propositions and business models.
• The impact of electronic commerce on consumer retailing and business-to-business
transactions.
• Payment systems for electronic commerce.
• The role of Internet Technology in facilitating management and coordination of
internal and inter-organisational business processes.
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• The challenges posed by electronic business and electronic commerce and
management solutions.
• Wireless transmission media and devices, cellular network standards and generations,
and standards for mobile Web access.
• M-commerce in business and m-commerce applications.
• Wireless applications in business.
• Cloud computing
5. Information Technology
5.1 Computer Hardware
• The stages of IT infrastructure evolution.
• The technology drivers of IT infrastructure evolution.
• Contemporary computer hardware platform trends.
• The components of a computer system.
• Computer processing, storage, input and output technology.
• Types and classifications of computer systems.
• Managing hardware assets.
• Managing IT infrastructure and management solutions.
5.2 Computer Software
• Operating systems.
• Application software packages.
• Programming languages.
• Managing software assets.
• Contemporary software platform trends.
• Extensible Business Reporting Language (XBRL).
5.3 Telecommunications and Networks
• Components and functions of telecommunications systems.
• Communication networks.
• eBusiness and eCommerce technologies.
• Networking/telecommunications platforms.
• Consulting and system integration services.
5.4 Database And File Organisation
• The file organisation approach.
• The database management systems (DBMS) approach.
• Database management systems (DBMS) vs. file organisation methods.
• Types of databases.
• Database purchase issues.
• Database design & maintenance issues.
• Database design principles.
• Database trends.
• Managing data resources and management solutions.
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6. Organisational Support Systems
6.1 Knowledge Based Systems
• Knowledge Based Systems.
• The flow of Knowledge Management.
• The control of Knowledge Management.
6.2 Management Decision Support Tools
• Decision Support Systems.
• Group Decision Support Systems.
• Executive Support Systems.
• Knowledge Working
7. Information System Development
• The System Development Life Cycle (SDLC).
• Alternatives to SDLC e.g. Prototyping, RADE, etc.
• System development and management considerations.
• The impact of building new systems on organisational change.
• Developing information systems that support an organisation’s business plan.
• The core activities in the systems development process.
• Alternative methods for building information systems and alternative methodologies
for modelling systems.
• The challenges of building information systems and management solutions.
8. Feasibility Study & Business Value of Systems
• Aims, objectives, problem identification, responsibilities, planning, management and
lifecycle.
• Cost benefit analysis and final outputs.
• Models for understanding the business value of information systems.
• Change management requirements for building successful systems.
9. System Security and Control
• The need for special protection from destruction, error, and abuse of information
systems.
• The business value of security and control.
• Organisational and managerial frameworks for security and control.
• System vulnerability and abuse.
• Preventative maintenance techniques and security controls.
• Disaster recovery planning.
• Quality control and quality assurance.
• Tools and technologies for safeguarding information resources.
• Identify the challenges posed by information systems security and control and
management solutions.
12
Study Unit 1
Introduction to Information Systems
Contents
The Role of Information Systems in Business Today
Different Perspectives on Information Systems
Different Views of Information Systems
Management Challenges
13
Introduction to Information Systems
This purpose of this chapter is to introduce the role played by information systems and
technology in business firms. The topics introduced in this chapter will be covered in detail in
the remainder of the manual.
The objectives of this chapter are to:
• Explain why information systems are so essential in business today.
• Describe the digital economy and the digital firm
• Identify the business objectives for investing in information systems
• Define an information system from both a technical and a business perspective.
• Identify and describe the three dimensions of information systems
– Organisation, management and information technology.
• Assess the other assets required for information technology to provide value to a
business
• Describe the different approaches to the study of information systems:
– Technical approach - Behavioural approach - Sociotechnical systems
A. THE ROLE OF INFORMATION SYSTEMS IN BUSINESS TODAY
How Information Technology and Systems Are Transforming Business
Information systems are transforming business in a number of different ways. Information
systems and the internet have dramatically cut the cost of acquiring and distributing
information. The availability of information has increased the decision power of operational
staff. The use of information systems has also made it easier for managers to monitor
performance of staff. These two changes have contributed to a reduction in the number of
middle managers and have lead to a general flattening of organisational structures.
Information technology and systems have enabled organisations to be more flexible. For
example organisations such as the computer manufacturer, Dell, can support mass
customisation of products without increasing costs. Companies are also linked electronically
to suppliers enabling automatic triggering of orders, purchasing and payment thus reducing
order times and also reducing stock holding costs.
Organisations are using real-time business intelligence and predictive analysis to enable
faster decision-making and to cope with an ever changing market place where there are both
threats and great opportunities.
Through its ease of use and countless advantages for enhancing business, the Internet has had
a major impact on the globalisation of businesses.
Globalisation Opportunities
The Internet is now a global communications network that has dramatically reduced the cost
of operating on a global scale. Customers can now shop in a global marketplace 24 hours a
day, 7 days a week. Global business is no longer the preserve of large multinational
14
enterprises. Even small businesses can use the internet to sell their products and services in
other countries and even in other continents. Companies can use the Internet to reduce
production expenses by sourcing low cost supplies and managing factories in other countries.
Companies such as Facebook, Amazon and Google can use the Internet to duplicate their
business models and services in many different countries.
The Digital Economy and the Digital Firm
In a 2011 research paper by Oxford Economics (supported by AT&T, Cisco, Citi, PwC and
SAP) titled the “The Digital Economy”, it argues that the recent recession and financial crisis
has speeded up the adoption of key technologies such as mobility, cloud computing, business
intelligence and social media that are transforming businesses. Driven by the phenomenal
growth of the internet we are now in a global digital economy. Over the next five years, many
sectors, including technology, telecommunications, entertainment, media, banking, retail and
healthcare, will continue to be reshaped through the application of information technology
and systems. To survive and flourish in the digital economy, organisations will need to utilise
technology to the fullest extent possible.
The digital firm is a term used to describe a company that has enabled its key business
relationships with customers, suppliers, employees and business partners using digital
networks and information systems. Information technology is also used widely throughout
the organisation to support key functions and to manage internal processes. These
information systems include Enterprise Resource Planning (ERP) Systems, Supply Chain
Management (SCM) Systems, Customer Relationship Management (CRM) Systems and
Knowledge Management Systems. The aim of the digital firm is to integrate functions and
systems to enable the seamless exchange of information between internal employees and
externally with suppliers, business partners and customers.
The term “The Digital Firm” was first used by Laudon, K. in his book Management
Information Systems.
Business Objectives and Information Systems
Information systems are critical to supporting the day-to-day business in most organisations
in the developed world. Some firms, such as Amazon, eBay and Facebook couldn’t exist
without information systems. Some service industries such as finance, insurance and airlines
could not operate without information systems. The ability of a firm to use Information
technology and systems is closely linked with the firm's ability to implement its business
strategy.
There is a growing interdependence between a firm’s information systems and its business
capabilities. Changes in strategy, rules and business processes increasingly require changes in
hardware, software, databases and telecommunications. Often, what the organisation would
like to do depends on what its systems will allow it to do.
Business firms invest in information systems to accomplish six primary strategic business
objectives:
1. Operational excellence: Efficiency, productivity and improved changes in business
practices and management behaviour
15
2. New products, services and business models: A business model describes how a
company produces, delivers and sells a product or service to generate profit.
Information systems and technologies create opportunities for products, services and
new ways to engage in business.
3. Customer and supplier intimacy: Improved communication and enhanced services
to customers will help raise revenues. Closer relationships with suppliers will lead to
lower costs of supplies.
4. Improved decision making: Accurate and timely information is essential if business
managers are to make the best possible decisions.
5. Competitive advantage: Implementing effective and efficient information systems
can allow a company to charge less than competitors for quality products, leading to
higher sales and profits.
6. Survival: Information systems can also be a necessity of doing business. A necessity
may be driven by industry-level changes, such as the widespread adoption by many
airlines of online booking of flights and check-in. A necessity may also be driven by
governmental regulations, such as one requiring a business to retain data and report
specific information for a period of time.
B. DIFFERENT PERSPECTIVES ON INFORMATION SYSTEMS
What is an Information System?
An information system is a set of interrelated parts that collect, process, store and distribute
information to support decision making and control in an organisation. Information systems
can also be used to analyse problems and to create new products and services.
Data and Information
Data is raw facts and figures, while information is data that has been processed or shaped
into some useful forms for human use.
Raw data from a supermarket checkout counter point of sales system (POS) can be processed
and organised to produce meaningful information, such as the total number of litres of milk
sold in a particular shop during a particular period.
Attributes of Quality Information
For information to be useful to organisations it should possess certain attributes or qualities
which include:
• Completeness: Information should be complete – in other words all information
which is relevant to a decision should be provided.
• Accuracy: Information should be free of errors and bias. The degree of accuracy
required is relative to the intended use of the information. For example an invoice
must be accurate to the nearest RWF whereas a sales forecast might be rounded to the
nearest RWF1000.
• Relevant for purpose: Information should be relevant to its purpose.
• Timely: Information needs to be up to date; information has little value if it is out of
date.
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• Reputable source: For information to be used effectively, the managers or users of
the information must have confidence in the source of the information.
• Value: The value of the information should be greater than the cost of producing it.
Information has value if it leads to decisions that reduce costs, eliminate losses,
increase sales and allows for better utilisation of resources etc.
It is one of the challenges for Information System designers to produce information that is
relevant, accurate and timely.
Input Processing and Output
Input, processing, and output are the three main activities in an information system. Input
captures or collects raw data. Processing converts this raw input into a meaningful form.
Output transfers the processed information to the people who will use it. Information
systems also require feedback, which is output that is returned to help evaluate or refine the
input stage. Feedback enables the system to control itself; this may involve modifying
processing and/or input. See Figure 1.1.
For example, an Automatic Teller Machine (ATM) uses a number of input, processing and
output cycles to perform its function. The initial input is the customer card details; this is
processed by the ATM system. A message is output to the screen which asks the customer to
input their Pin code after which the system processes this to check if it is correct. Another
output to the screen asks the customer to input the services and amounts of money they want.
After input and processing, the amount of money is output from the machine and a receipt
may also be printed out.
Figure 1.1: A basic model of an information system
The different people who interact with an organisation’s information systems include
customers, suppliers, business partners and regulatory agencies.
Dimensions of Information Systems
It is possible to distinguish information systems, which are designed to produce information
and solve organisational problems, from the computer technology and software that is
typically used to create and manage information systems.
Input Output
Processing
Feedback
17
Computer Literacy and Information Systems Literacy
Computer literacy focuses primarily on knowledge of information technology; i.e. on
computer hardware and software. It involves understanding how computer technology works
and operates; how technology is built and how it is programmed.
Information systems literacy focuses on an understanding of information systems; i.e. how
the systems operate, their capabilities, how these systems can provide solutions to business
problems and create information that is useful to the business and its employees. The field of
management information systems (MIS) tries to achieve this broader information systems
literacy.
Three Dimensions of Information Systems
Information systems are more than just technology; there are also management and
organisational dimensions to information systems (see Figure 1.2). To be able to fully
understand information systems and utilise them effectively requires an understanding of how
systems impact and are impacted on by operational and management issues.
Figure 1.2 Three Dimensions of Information Systems
Organisation
Information systems are part of organisations, and in some cases (such as Internet
companies), they are the organisation itself. Information systems will have the procedures
and processes and the culture of an organisation imbedded within them.
The organisation structure consists of three main levels; each performing different duties and
each using information systems for different purposes (See figure 1.3).
Management
Technology
Organisation
Information
Systems
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Senior management makes long-range strategic decisions and ensures the firm's financial
performance. Middle management carries out the plans of senior management and
operational management monitors the firm's daily activities. All these activities are enabled
through information systems.
Specialists are employed in the major business functional areas such as sales and marketing,
manufacturing and production, finance and accounting, and human resources. Work within
each business function and between business functions is coordinated and enabled by detailed
business processes. These processes are increasingly made possible by information systems.
Figure 1.3: Organisational Structure.
Management
Information systems supply tools and information needed by managers to manage their work
and make decisions, in the case of both short and long term decisions. Information systems
enable managers to monitor operations, analyse data, identify changes in the market place
and help create new products and services.
Technology
Management uses technology (hardware, software, storage and telecommunications) to carry
out their functions. Information technology is one of the many tools used by management to
cope with change.
A firm's information technology (IT) infrastructure is the platform on which an organisation
can build its information systems. IT infrastructure consists of:
• Computer hardware: The physical equipment and computing devices used for input,
storage, processing, output and telecommunications. For example; keyboards,
monitors, processors, hard disks, modems etc.
• Computer software: The programs that control and coordinate the computer
hardware components. Computer software would include operating systems such
Windows and Unix.
Senior
Management
Middle
Management
Operational
Management
19
• Data management software: This software controls the organisation of data on
physical storage media.
• Networking and telecommunications technology: This is the hardware and software
used to link various devices and transfer data from one location to another to enable
the sharing of data such as files, images, sounds, video, or to share resources such as a
printer.
Each of these topics listed above are discussed in detail later in this manual.
A Business Perspective on Information Systems
Information systems enable the firm to increase its revenue or decrease its costs by providing
information that helps managers make better decisions or that improves the efficiency of
business processes.
The value of an information system to a business is determined by how the use of the system
will lead to better management decision making, more efficient business processes and
ultimately to higher profits.
This business view of information systems highlights the link between the organisation
(business process), management and information systems.
Information Technology Investments
Some organisations achieve better returns from their information systems investments than
others. Studies of returns from information technology investments show that those firms that
get lower return on investment are those that fail to adopt a new business model that better
suits the new technology.
Research also found that information technology investments cannot make organisations and
managers more effective unless they are accompanied by investments in complementary
assets which include:
• Organisational assets: These include a supportive business culture that values
efficiency and effectiveness, an appropriate business model, efficient business
processes, decentralisation of authority and decision rights.
• Managerial assets: These include strong senior management support for change,
incentive systems that monitor and reward individual innovation, an emphasis on
teamwork and collaboration, training programs and a management culture that values
flexibility and knowledge.
• Social assets: These are generally investments by governments, and other bodies in
such areas as the Internet, educational system and regulations and laws.
Research indicates that firms that support their technology investments with investments in
complementary assets, such as new business processes or training, receive higher returns.
C. DIFFERENT VIEWS OF INFORMATION SYSTEMS
Information systems are referred to as socio-technical systems. Although they are made up of
technology, they require substantial input from people to make them work properly. Since
20
problems with information systems and their solutions, are seldom either technical or
behavioural, a multidisciplinary approach is needed.
Technical Approach
A technical approach to information systems emphasises the use of mathematical models to
study information systems, the physical technology used to construct the systems and the
capabilities of information systems. The areas of study that contribute to the technical
approach are computer science, management science and operational research.
Behavioural Approach
The behavioural approach does not ignore technology, but tends to focus on non-technical
areas. A behavioural approach to information systems focuses on questions such as strategic
business integration, behavioural problems related to systems use, logical system design and
implementation, social and organisational impacts of information systems, political impacts
of information systems and individual responses to information systems. Solutions to
problems created by information technology are primarily changes in attitudes, management,
organisational policy and behaviour. The disciplines that contribute to the behavioural
approach are psychology, sociology and economics.
A Socio-technical Systems Approach
The study of Management Information Systems (MIS) combines the work of computer
science, management science and operations research with a practical focus towards
developing system solutions to business problems. It is also concerned with behavioural
issues surrounding the development, use and impact of information systems, which are
typically discussed in the fields of sociology, economics and psychology.
In the sociotechnical view of systems, the best possible organisational performance is
achieved by optimising both the social and technical systems used in production. Technology
must be changed and designed to fit organisational and individual needs. Organisations and
individuals must also be adapted through training, learning and planned organisational
change to utilise the new technology as much as possible.
In a sociotechnical perspective, the performance of a system is optimised when both the
technology and the organisation adjust to one another until a satisfactory fit is obtained.
D. MANAGEMENT CHALLENGES
Laudon & Laudon (2010) identifies five key management challenges involved in building,
operating and maintaining information systems, which include the following:
• The strategic business challenge is how information technology can be used to design
organisations so that are competitive, effective and digitally enabled.
• The globalisation challenge facing organisations is how organisations understand the
system requirements of a global economic environment.
• The information architecture and infrastructure challenge is that organisations must
be able to develop an information architecture that is able to support the company goals
when both the business conditions and the technologies are changing so rapidly.
21
• The information systems investment challenge is how organisations determine the
business value of systems.
• The responsibility and control challenge is how organisations can ensure that their
information systems are used in an ethical and socially responsible way.
The topics discussed throughout this manual should provide the knowledge required to deal
with these challenges.
22
Study Unit 2
Types and Functions of Information Systems Used in Business
Contents
Business Processes and Information Systems
Types of Business Information Systems
Systems that Span the Enterprise
The Information Systems Function
Using Information Systems to Achieve Competitive Advantage
23
Introduction
This chapter provides an overview of the role of information systems in business.
The objectives of this chapter are to:
• Define and describe business processes and their relationship to information systems.
• Describe the information systems supporting the major business functions.
• Describe the role played by systems serving the various levels of management in a
business and their relationship to each other.
• Explain how enterprise applications and intranets promote business process
integration and improve organisational performance.
• Assess the role of the information systems function in a business.
A. BUSINESS PROCESSES AND INFORMATION SYSTEMS
As previously discussed in Chapter 1, the “digital firm” means connecting each functional
area and each management level to one another so they can share information. Data input to
the system in manufacturing must be made available to sales, accounting and logistics.
Managers in the human resources department must have access to a range of information
related to employees. Integrating information from different sources is important for the
digital firm.
As we go through this chapter, we’ll look at the types of information systems organisations
use at each management level.
Business Processes
Business processes refer to work that is organised, coordinated and focused to produce a
product or service. Business processes also refer to the ways in which organisations co-
ordinate and organise activities, information and knowledge to produce their products or
services. Every firm has its own set of business processes.
The performance of a firm will to some extent depend on how well its business processes are
designed and coordinated. Many business processes are linked to a specific functional area,
such as sales and marketing, while others cross many different functional areas and will also
require coordination across departments.
Business processes for the manufacturing and production area include product assembling
and stock control. For the sales and marketing area, business processes include processing
orders. In finance and accounting, business processes involves paying creditors. In the case of
human resources, business processes involve evaluating employee performance.
How Information Technology Enhances Business Processes
Information systems enhance business processes in two main ways by:
1. Increasing the efficiency of existing processes
2. Enabling entirely new processes that have the potential to transform the business
24
Information systems can improve the efficiency of a business by removing many of the
manual activities. Some processes can be automated through the use of information systems.
Internet banking enables customers to pay bills, transfer money and check account balances
without any involvement of bank employees.
Information systems can transform the way the business operates and make completely new
business processes possible. Companies such as Amazon and Apple have employed entirely
new business processes based on new business models that would not be possible without
information technology. Ryanair’s business processes both for purchasing tickets, checking in
for flights and even checking in luggage would not be possible without information systems
and the Internet in particular.
B. TYPES OF BUSINESS INFORMATION SYSTEMS
No single system can provide all the information required by an organisation. Even small
firms have a collection of different systems, for example: e-mail systems, sales tracking
systems, etc. In this section we look at the types of systems used in business from two
different perspectives (summarised in Figure 2.1):
1. Functional perspective: identifying systems by their business function.
2. Constituency perspective: identifies systems in terms of the major organisational groups
that they serve.
Figure 2.1: The main types of business information systems (adapted from Laudon and
Laudon, 2010).
Transaction
Processing
Systems (TPS)
Management Information
Systems (MIS)
Decision-Support
Systems (DSS)
Executive Information
Systems (EIS)
Strategic Management
Tactical Management
Operation Level
Management
Sales and Marketing Manufacturing & Production Finance & Accounting Human Resources
Order Processing Production
planning
system
Accounts
Payable Employee
Performance
appraisal
Sales
Management Inventory
Control Skills
Analysis
Budgeting
5-year Sales Forecasting
5-Year Operating Plan
Profit Planning
Personnel Planning
25
Systems from a Functional Perspective
There are four primary types of information systems that serve different functional areas:
• Sales and marketing systems
• Manufacturing and production systems
• Finance and accounting systems
• Human resources systems
Sales and Marketing Systems
Sales and marketing information systems assist the firm in marketing and sale of products
and services to customers. An important operational system in this area is the sales order
processing system which is used to capture customer orders. At a strategic level, information
systems are used to forecast trends.
Manufacturing and Production Systems
Manufacturing and production information systems deal with the planning, development and
production of products. An important system in this area is an inventory system which is used
to provide information about the number of items held in inventory to support manufacturing
and production activities.
Finance and Accounting Systems
Finance and accounting information systems keep a record of the firm's financial assets and
the flow of funds. The finance function is responsible for managing the firm’s financial assets
such as cash, shares and other investments. To establish if the firm is getting the best return
on its investments, the finance function must obtain information from both external and
internal sources. The accounting function is responsible for maintaining and managing the
firm’s financial records. The accounting function attains information mainly from sources
internal to the firm.
An accounts receivable system is an example of a system used by the financial and
accounting functional area. It tracks and stores important customer data, such as payment
history, credit rating and billing history. Other systems used in this area include accounts
payable and budgeting systems.
Human Resources Systems
Human resources information systems maintain employee records, record employee skills,
job performance and training, and assist planning of employee compensation and career
development. An example of a system used in the human resources area would be a
performance appraisal tracking system which is used to track details of each employee’s
performance evaluations.
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Systems from a Constituency Perspective
Taking a functional perspective on systems tell us how systems serve the various functions
but does not tell us much about how the systems help managers with managing the
organisation. We can also look at systems in terms of the various levels of management and
the type of decisions they support.
The four major types of systems from a contingency perspective are:
1. Transaction Processing Systems (TPS)
2. Management Information Systems (MIS
3. Decision Support Systems (DSS)
4. Executive Support Systems (ESS)
Transaction Processing Systems (TPS)
Transaction processing systems are generally found at the operational level of the
organisation. Examples of these systems include order processing, material movement
control, payroll, accounts payable and employee record keeping.
Transaction Processing Systems (TPS) support the day-to-day or week-to-week processing
and recording of routine business transactions such as Orders, Despatch Notes, Invoices,
Credit Notes, Payments etc. One example is a sales order processing system.
One of the most important applications of IT has been in making business operations more
efficient. Computer based data processing is utilised at the operational level of organisations
to handle transactions that were previously carried out by office workers. A major role of IT
is in cost reduction through improving operational efficiency in transaction processing.
The primary function of a transaction processing system is transaction handling and record
keeping as well as providing information. Transaction processing systems are used in
functional areas such as Sales, Purchasing, Accounts etc.
Management Information Systems (MIS)
Management information systems provide managers with reports based largely on data taken
from transaction processing systems. Those using management information systems (MIS)
require information on a periodic basis rather than a daily basis like those using a transaction
processing system. Managers also require information on an exception basis. That is, they
need to know if production is higher or lower than the targeted rate or if they are over or
under their budgets. They also need to know about trends.
MIS systems tend to have an internal orientation where the primary sources of information
are internal and the users are normally members of the organisation. MIS systems are
inclined to have limited flexibility in that they present information but usually don’t permit
manipulation of the information by the user.
The information presented by MIS systems is retrieved from files or databases and is
presented either on screen or in the form of a report. Figure 2.2 illustrates examples of a
number of different types of screen presentation utilised by MIS systems.
Examples of management information systems include sales management, inventory control
and annual budgeting.
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Figure 2.2: MIS display examples
Decision-Support Systems (DSSs)
Decision support systems (DSS) or business intelligence systems, assist managers with non-
routine decisions that are unique, rapidly changing and not easily specified in advance (semi-
structured decision-making). DSS are more analytical than MIS, as they use a variety of
models to analyse internal and external data or compress large quantities of data for analysis.
Decision-support systems are generally used at the middle management level.
Decision-support systems are used for complex “what-if” questions that necessitate internal
and external data. Decisions made at this management level are predominantly semi-
structured so the information system needs to be able to respond to the unique needs of the
managers.
A selection of decision-support systems includes sales region analysis, production
scheduling, profitability analysis and contract cost analysis. Decision-support systems are
discussed in more extensive detail in Chapter 8.
Executive Support Systems (ESSs)
Executive support systems (ESS) are used at the top levels of management. ESSs supply a
generalised computing and communications environment that assists senior managers in
addressing strategic issues and identifying long-term trends in the firm and its environment.
Typical decisions made at the strategic level are characteristically quite unstructured. Often
there is no specific question to address, but rather a series of undefined situations executives
may face. There are no straightforward, definable answers. These executives require
summarised, historical information collected from all other levels throughout the
organisation, together with large quantities of external data assembled from many sources.
ESS present graphs and data from a range of internal and external sources through an
interface that is uncomplicated for senior managers to use. The information is regularly
(RWF1000)
Sales in RWF1000
Sales in RWF1000
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delivered to senior executives through a portal, which uses a Web interface to present
integrated personalised business content.
Executive-support systems are discussed in greater detail in Chapter 8.
Relationship between Systems
The various forms of systems in the organisation exchange data with each another (See
Figure 2.3). TPS provide a major source of data for other systems, in particular MIS and
DSS, however these systems may also use other data. TPS are operational-level systems that
gather transaction data. Some examples of TPS include payroll or order processing that track
the flow of daily routine transactions that are essential for conducting business. DSS use data
from TPS and also MIS. MIS rely heavily on data from TPS.
ESSs acquire the majority of their internal data from MIS and DSS. These different types of
systems are loosely joined in most business firms, but increasingly firms are using new
technologies to integrate information that resides in many different systems.
Figure 2.3: Interrelationships among systems
Office Information Systems
This is a category of systems that combine hardware and software and networks to improve the
flow of information and enhance communications between employees in an organisation. These
systems support the office tasks of creating publishing and distributing information. Office
information systems include word processors, desktop publishers, e-mail, voicemail, fax,
teleconferencing, videoconferencing and groupware.
The terms “office automation systems” is also used to describe these systems.
MIS
TPS
ESS
DSS
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C. SYSTEMS THAT SPAN THE ENTERPRISE
Enterprise Applications
Enterprise applications are systems that span functional areas, focus on carrying out business
processes across the business firm and encompass all levels of management. Enterprise
applications assist businesses in becoming more flexible and productive by coordinating their
business processes more closely.
There are four main enterprise applications:
1. Enterprise systems
2. Supply chain management systems
3. Customer relationship management systems
4. Knowledge management systems
Each of these enterprise applications integrates a related set of functions and business
processes to improve the performance of the organisation as a whole.
Enterprise Systems
Enterprise systems, or enterprise resource planning (ERP) systems, model and automate
many business processes, for instance filling an order or scheduling a shipment, with the
objective of integrating information throughout the company and eradicating complex,
costly links between computer systems in different areas of the business. Information that
was in the past split between different systems can now effortlessly flow throughout the
company, allowing it to be shared by business processes in manufacturing, accounting,
human resources and other areas of the organisation. Distinct business processes from sales,
production, finance and logistics can be integrated into company-wide business processes that
flow across organisational levels and functions.
The enterprise system assembles data from a range of key business processes and stores the
data in a single comprehensive data repository where it can be utilised by other parts of the
business. Managers are provided with information that is more accurate and timely for
assisting in the coordination of the daily operations of the business and a firm-wide view of
business processes and information flows.
Supply Chain Management Systems
Supply chain management (SCM) systems facilitate businesses with managing relationships
with their suppliers. These systems help suppliers, purchasing firms, distributors and logistics
companies share information about orders, production, inventory levels, and delivery of
products and services so that they can source, produce and deliver goods and services more
efficiently.
SCM systems increase firm profitability by reducing the costs associated with moving and
manufacturing products and by enabling managers to make better decisions about how to
organise and schedule sourcing, production and distribution.
Supply chain management systems are a form of inter-organisational system because they
automate the flow of information across organisational boundaries. Firms that carefully
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manage their supply chains get the correct amount of products from their source to the point
of consumption in the minimum amount of time and at the lowest cost.
Customer orders, shipping notifications, optimised shipping plans and other supply chain
information, flow between the Warehouse Management System (WMS), Transportation
Management System (TMS), and its back-end corporate systems.
Customer Relationship Management Systems
Customer relationship management (CRM) systems focus on coordinating the business
processes regarding a firm's interactions with its customers in sales, marketing and service, to
fully optimise profits, customer satisfaction and customer retention. They merge customer
data from numerous sources and communication channels to enable firms to identify
profitable customers, acquire new customers, improve service and support and target
products and services more accurately to particular customers’ preferences.
Knowledge Management Systems
The value of a firm's products and services is based not only on its physical resources but also
on intangible knowledge assets. Some firms perform better than others because they have
superior knowledge regarding the creation, production, and delivery of products and services.
Knowledge management systems support processes for discovering, codifying, sharing, and
distributing knowledge, as well as processes for generating new knowledge and integrating
external sources of knowledge.
ERP, SCM and CRM systems are discussed in more detail in Chapter 9 while knowledge
management is discussed in Chapter 10.
Intranets and Extranets
Companies that do not boast the resources required to invest in enterprise applications can
still achieve some information integration through the use of intranets and extranets.
Intranets normally present information to employees through a private portal that supplies a
single point of access to information from numerous different systems and to documents
using a Web interface. Corporate portals regularly feature e-mail, collaboration tools and
tools for searching for internal corporate systems and documents. Companies can connect
their intranets to internal company transaction systems, allowing employees to carry out
actions fundamental to a company's operations, such as checking the status of an order or
granting a customer credit.
Extranets accelerate the flow of information between the firm and its suppliers and
customers. They can facilitate different firms working collaboratively on product design,
marketing and production. Intranets and Extranets are discussed in detail in Chapter 5.
Enterprise applications and technologies are transforming firms' relationships with customers,
employees, suppliers and logistic partners into digital relationships via networks and the
Internet.
E-Business, E-Commerce and E-Government
Electronic business, or e-business, refers to the use of digital technology and the Internet to
execute the major business processes in the organisation. E-business includes activities for
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the internal management of the firm and for coordination with suppliers and other business
partners. It also includes electronic commerce or e-commerce.
E-commerce is the division of e-business that deals with buying and selling of goods and
services over the Internet. It encompasses activities that support these market transactions, for
example advertising, marketing, customer support, security, delivery and payment.
E-government (electronic government) refers to the use of the Internet and networking
technologies in digitally enabling government and public sector agencies' relationships with
citizens, businesses and other arms of government. In addition to enhancing delivery of
government services, e-government can make government operations more efficient,
transparent and accountable. Furthermore, it can empower citizens by allowing them easier
access to information. The different categories of e-government include:
• G2C – government to citizens
• G2B – government to business enterprises
• G2G – inter-agency relationship within government
E-business and e-commerce are discussed in greater detail in Chapter 7.
D. THE INFORMATION SYSTEMS FUNCTION
The Information Systems Department
In all but the smallest of firms, the information systems department is the formal
organisational unit responsible for information technology services. The information systems
department is in charge of maintaining the hardware, software, data storage and networks that
make up the firm's IT infrastructure. The information systems department proposes new
business strategies and new information-based products and services. It then coordinates both
the development of the technology and the planned changes in the organisation.
The information systems department consists of specialists, such as:
• Programmers: technical specialists who write the software instructions for computers.
• Systems analysts: the principal liaisons between the information systems groups and the
rest of the organisation.
• Information systems managers: leaders of teams of programmers and analysts, project
managers, physical facility managers, telecommunications managers or database
specialists.
In many companies, the information systems department is headed by a chief technology
officer; a senior manager who supervises the use of information technology in the firm. End
users are employees of departments outside of the information systems group who use the
information systems.
Small companies may not have a formal information systems group. Larger companies will
normally have a separate information systems department
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E. Using Information Systems to Achieve Competitive Advantage
Firms with a competitive advantage over others, typically have access to special resources
that others do not or are have special competencies that enable them to use resources more
efficiently, or in ways that their competitors find difficult to imitate. Competitive advantage
can be turned into higher profits for the company. Porters five forces model can be used to
understand the competitive force in an industry and how they affect profitability.
Porter’s Competitive Forces Model
Michael Porter's competitive forces model (Figure 2.4), describes five competitive forces that
shape the fate of the firm.
1. Intensity of Rivalry between competitors: Generally the strongest of the five forces.
Rivalry can be focused on such factors as; price, performance features, new product
innovation, quality, durability, warranties, after-sale service and brand image.
2. Threat of new market entrants: New companies have certain advantages, such as not
being locked into old equipment, as well as disadvantages, such as less expertise and little
brand recognition. Barriers to entry can include; economies of scale, capital costs, and
access to supplier, distributors, expertise and customer loyalty.
3. Threat of Substitute products and services: These are substitutes that customers might
use if prices become too high. For example, Internet telephone services can substitute for
traditional telephone services. The more substitute products and services available in an
industry, the harder it is to control price and the lower profit margins will be as a result.
4. Bargaining power of Customers: The power of customers grows if they can easily
switch to a competitor's products and services, or if they can force a business and its
competitors’ to compete on price alone where there is little product differentiation and all
prices are known instantly (such as on the Internet).
5. Bargaining power of Supplier’s: The more different suppliers that are available to a
firm, the greater control the firm can exercise over suppliers in terms of price, quality and
delivery schedules. Where there are many suppliers in an industry their power will be
low.
Figure 2.4: Porter’s Competitive Forces Model
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Information System Strategies for dealing with Competitive Forces
Michael Porter developed a number of generic strategies that can be used by companies to
deal with competitive forces. A company will normally choose the particular strategy which
best suits the particular competitive advantage they want to pursue in the market place. The
following section shows how information systems can be used with each of the following
strategy options:
1. Low-cost leadership: Information systems can be used to achieve the lowest operational
costs and the lowest prices. For example, a supply chain management system can be used
to directly link customers to distribution, production and supply chains, helping lower
inventory and distribution costs.
2. Product differentiation: Information systems can enable new products and services, or
greatly change the customer convenience in using existing products and services. For
example; Dell uses mass customisation, offering individually tailored computers using the
same production resources as mass production, to customise computers to individual
customer needs.
3. Focus on market niche: Use information systems to enable a specific market focus and
serve this narrow target market better than competitors. Information systems support this
strategy by producing and analysing data for finely tuned sales and marketing techniques.
The Internet’s Impact on Competitive Advantage
The Internet has seriously damaged some industries and has severely threatened more. It has
also created entirely new markets and formed the basis for thousands of new businesses.
Because of the Internet, the traditional competitive forces are still at work, but competitive
rivalry has become much more intense. Internet technology is based on universal standards,
making it easy for rivals to compete on price alone and for new competitors to enter the
market. Because information is available to everyone, the Internet raises the bargaining
power of customers, who can quickly find the lowest-cost provider on the Web. Some
industries, such as the travel industry and the financial services industry, have been more
impacted than others. However, the Internet also creates new opportunities for building
brands and establishing very large and loyal customer bases, as is the case for Google,
Facebook and eBay.
Table 2.5 summarises some of the potential impacts of the Internet on the five competitive
forces identified by Porter.
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Table 2.5: The impact of the internet on the five competitive forces
Five forces
Impact of the internet
Intensity of Rivalry The internet has had the effect of reducing differences between
companies and makes it more difficult for any one company to
maintain competitive advantage
Threat of new entrants The internet reduces the barriers to entry making it easier for a new
company to enter a market. E-commerce can be used
instead of
investing in new shops.
Threat of Substitutes The internet has enabled new substitutes to emerge and new ways
of meeting customer needs.
Bargaining power of
Customers
This is increasing as customers can use the internet to find cheaper
product and services.
Bargaining power of
Suppliers
Companies can use the internet to source new suppliers thus
reducing their power. Suppliers can also benefit from the power of
the internet to eliminate intermediaries and in some cases enables
them to sell directly to consumers.
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Study Unit 3
Ethics Social and Political Issues of Information Systems
Contents
Key Infrastructure Components
Hardware Platforms
Hardware Platform Trends
Computer Software Platforms
Software Platform Trends
Management challenges posed by IT infrastructure
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Introduction
The objectives of this chapter are to:
• Describe the Ethics Social and Political Issues of Information Systems
• Describe the impact of modern information systems and the Internet on the protection
of individual privacy and intellectual property.
• Give a brief overview of Data Protection legalisation
A. ETHICAL AND SOCIAL ISSUES RELATED TO SYSTEMS
Ethics creates theories about the nature of right and wrong, duty and obligation that
individuals can use to guide their behaviour. Individuals act within a social environment that,
in turn, exists within a political environment. Ethical dilemmas are problems that affect
society as a whole and are often dealt with in a political setting. The development of
Information systems can drive intense social change thereby raising new ethical questions for
both the individuals and societies involved. For example, new computer technology makes it
easier to gain private information about individuals, such as their shopping preferences,
names, addresses, phone numbers and e-mail addresses as well as bank and social security
details, creating an ethical dilemma for the potential user of that information (whether or not
to invade the privacy of the individual). Society will react by demanding new laws to regulate
the use and storage of data.
Ethical, Social, and Political Issues
Introducing a new technology can gives rise to new ethical, social and political issues that
must be dealt with on individual, social and political levels. These issues have five moral
dimensions: information rights and obligations, property rights and obligations, system
quality, quality of life and lastly accountability and control. Introducing a new Information
system can affect ethical issues that in turn lead to social issues and these subsequently cause
political issues. This demonstrates the tight relationship between ethical, social and political
issues in this modern information society and how introducing a new information system can
ultimately impact on them all.
Five Moral Dimensions of the Information Age
Laudon and Laudon (2010) describe five moral dimensions of information systems as
follows:
1. Information Rights: What information rights do individuals and organisations have with
respect to information about themselves? There are also moral obligations for those
dealing with this information.
2. Property Rights: How will intellectual property rights be protected in a digital society,
where traditional measures that protect property are no longer applicable?
3. Accountability and Control: Who can be held responsible for damage caused to
individual information and property?
4. System Quality: Data quality and system errors - No software program is perfect, errors
will be made, even if the errors have a low probability of occurring
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5. Quality of Life: What values should be retained in an information society? Which
cultural values and practices are supported by the new information technology?
These dimensions pose useful ethical questions that a company should consider when
introducing a new technology.
These issues are discussed in more detail in Section 3.3.
Technology Trends That Raise Ethical Issues
There are a number of technological trends that generate ethical concerns including:
• Computing power has doubled every 18 months: This is enables growing numbers of
organisations to use information systems in their primary business practices. This is
increasing reliance on systems and increases vulnerability to system errors and reduced
data quality.
• Rapidly falling data storage costs and developments in data storage techniques: This
has led to big increases in the amount of data kept on individuals by private and public
organisations - allowing for violation of an individual’s privacy.
• Networking advances and the Internet: This enables personal data to be remotely
accessed. It is incredibly easy to copy data from one location to another. This raises the
issue of who actually owns the data? Furthermore, how can this ownership be protected?
• Advances in data analysis techniques: This has enabled companies and government
agencies to use profiling to establish detailed information about an individual's behaviour
and tastes and to create a record of this personal information.
• Non-obvious Relationship Awareness (NORA) is a new data analysis technology that
can locate obscure hidden connections between people or other entities by analysing
information from a range of sources to identify relationships. This technology is used by
governments and the private sector to provide powerful profiling. NORA can gather
information about people from many sources such as job applications, telephone records,
customer records, court record, tax records etc. This correlates relationships so that
hidden connections can be uncovered that might help identify criminals or terrorists.
NORA poses ethical questions in relation to privacy implications for individuals. In other
words the information that each of us generates about ourselves every day can be
correlated, manipulated, mined and sold, as it is very valuable. This is an intrusion into an
individual’s privacy and is a major ethical issue for our society
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B. ETHICAL DILEMMAS IN THE INFORMATION SOCIETY
Responsibility, Accountability and Liability
The term responsibility means that an individual must accept the possible costs and
obligations for the decisions they make. Accountability is a feature of systems and social
institutions that establishes who is responsible. Liability is an aspect of political systems that
allows individuals to recover damages done to them by individuals or organisations that are
deemed responsible. Due-process requires that laws are known and understood by all and
that individuals can appeal to higher authorities to ensure laws were properly applied.
Ethical Analysis
If faced with a situation that poses ethical issues and dilemmas, the following five-step
analysis can be applied:
1. Identify and explain the facts clearly
2. Define the conflict or ethical dilemma posed and recognize the higher order values
concerned
3. Identify the stakeholders
4. Assess the options that can be reasonably taken
5. Identify the possible consequences of these options.
Ethical Principles
Once the 5-step analysis above has been carried out, the following six ethical principles can
be applied to aid in decision making:
1. The Golden Rule: It suggests doing unto others, as you would have them do unto you.
This ethical guideline is found in all major religions and traditions.
2. Immanuel Kant’s Categorical Imperative: Act on rules that you wish to apply to
yourself and universally. This suggests that if an action is not right for everyone to take,
then it is not right for anyone.
3. Descartes’ Rule of Change: This rule also known as the slippery slope rule, suggests
that if an action cannot be taken repeatedly, then it is not right to be taken at any time.
4. Utilitarian Principle: The Utilitarian Principle suggests taking the action that overall
achieves the higher or greater value. An action is good if it promotes ‘happiness’ over
‘pain’ between those affected by it.
5. Risk Aversion Principle: The Risk Aversion Principle suggests taking the action that
produces the least harm or the least potential cost
6. The Ethical “no free lunch rule”: This rule says that practically all tangible and
intangible objects are owned by someone unless there is a specific declaration to state
otherwise. If someone has created something of value to you, that person probably wants
some form of payment for your use.
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Code of Conduct for Professionals
In declaring one-self to be a professional, special rights and obligations are taken on. Being a
professional, involves entering into constrained relationships with employers, customers, and
society due to special claims to knowledge, wisdom and respect. Professional codes of
conduct are propagated by associations of professionals in order to regulate entrance
qualifications and competencies and to establish codes of ethics. Codes of ethics are applied
by professions to regulate themselves in the general interest of society. For example
honouring property rights and including intellectual property rights.
Examples of Ethical Dilemmas - related to IT systems
The following are some real world examples of ethical dilemmas:
• Using IT systems to increase efficiency can have the knock-on effect of causing layoffs
and personal hardships
• Using IT systems to monitor employee e-mail in order to protect valuable company
assets, is coupled with the ethical dilemma of invading employee privacy
• Monitoring employees’ use of the Internet at work similarly decreases employee privacy
C. THE MORAL DIMENSIONS OF INFORMATION SYSTEMS
Information Rights
Privacy is defined as a state in which an individual is not being observed or disturbed by
other people or organisations. Claims to privacy involve the workplace as well as the home.
Information technology threatens the individual’s claims to privacy by making the invasion
of privacy cheap, profitable and effective. An example of Information technology affecting
the individual’s claims to privacy is the controversy related to Google Street view where
pictures of people’s homes and individual were displayed on the internet without their
consent.
Most European and American privacy law is based a set of principles called the Fair
Information Practices (FIP) which govern the collection and use of information about
individuals. The five FIP principles are:
(1) Notice/awareness;
(2) Choice/consent;
(3) Access/participation;
(4) Security;
(5) Enforcement.
For more details on the Fair Information Practices (FIP), see section 14.1 in Appendix 1
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Data Protection
For example:
Privacy protection in Europe is far stricter than in the United States. In contrast to the US,
European countries do not permit the use of personally identifiable information by businesses
without the consumer’s prior consent.
How the Internet is challenging the protection of individual privacy
Internet technology creates new obstacles to the protection of an individuals’ privacy. When
information is sent over the Internet it may pass through a variety of different computer
systems before it finally reaches its intended destination. Each of these systems may
jeopardise the individuals’ privacy as they are capable of monitoring, recording and storing
information that pass through them.
Web sites can uncover an individual’s identity if they register on the web site in order
purchase a product or utilise a free service. Web sites can capture information about
individuals that visit their site without their knowledge using a technology called cookies (see
Figure 4.3).
Cookies are small files sent by a Web site to the user’s browser, which are subsequently used
to identify the visitors Web browser and track visits to the Web site. In this way the site can
customise its content to the interests of each particular visitor. For example if you purchase a
book on Amazon the Website will be able to recommend other books of interest based on
previous purchases. Most modern Web browsers allow users to decide whether to accept
cookies or not. However rejecting cookies may make some websites unusable.
Figure 4.3: How Cookies work (Collins, 2009).
Other malicious tools include Web bugs, which are small graphic files embedded in e-mail
messages and Web pages that record who is reading the e-mail message or Web page and
communicates this information to another computer.
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Protecting the Individual privacy of Internet users
There are a range of approaches that can be implemented to protect the privacy of Internet
users, these include the following:
• Informed consent means that an individual visiting a Web site knowingly consents to the
collection of their data upon visiting the company’s Web site. Federal privacy laws in
United States help mediate the correct collection, usage and disclosure of information.
Similar laws exist in the majority of European countries.
• Self-regulation: Businesses have taken some steps to enhance protection of Internet users
privacy, including publishing statements regarding how their information will be used and
sometimes offering an opt-out right. However, few businesses offer an opt-in approach,
which is far more favourable for protection of privacy, whereby it is prohibited to collect
personal data unless the individual approves it.
• Laws and privacy legislation: These can help regulate the collection, usage, and
disclosure of information.
• Technical solutions: Several technology tools are available to combat privacy invasion
including e-mail encryption, anonymous e-mailing and surfing, cookie rejection and
Spyware detection. The Platform for Privacy Preferences (P3P) is a benchmark for
relating a Web site's privacy policy to its visitors to enable them to select the level of
privacy they desire to maintain while using the Web site.
Intellectual Property Rights
Intellectual property describes intangible property created by individuals or businesses.
Developments in Information technology has created obstacles to the protection of
intellectual property because of the ease with which information can be copied and circulated
over networks such as the Internet. Described below are three legal mechanisms that protect
property rights are trade secret, copyright and patent.
Protecting Property Rights
A trade secret is any intellectual work product used for a business purpose that can be
classified as belonging to that business, provided it is not based on information available in
the public domain. An obstacle to trade secret protection is that once an idea enters into the
public domain, it can no longer be protected as a trade secret.
A copyright is a statutory grant that protects creators of intellectual property against their
work being copied by others for any purpose.. A patent allows the owner a monopoly on the
ideas behind an invention for 20 years. While patent protection does grant a monopoly on the
underlying concepts and ideas, there is a challenge to passing stringent criteria of non-
obviousness, originality and novelty. The Internet makes it very easy to widely distribute and
reproduce intellectual property.
Challenges posed to Intellectual Property Rights
Digital media and software can now be so readily copied, altered, or transmitted, that it is
becoming increasingly difficult to protect with existing intellectual property safeguards.
Illegal copying of software and music and video files is a widespread problem with no
immediate solution or prevention.
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While it is possible to protect against copying of software program code, copyright protection
can't prevent another person from using the underlying ideas behind a piece of software and
subsequently developing new software that follows the same fundamental concepts. Patent
protection protects the underlying ideas behind software. However a very limited amount of
software has received this protection because the software must first pass very stringent
criteria concerning the originality and novelty of the ideas involved in its design. The Internet
poses a huge challenge to Intellectual Property Rights because it makes it even easier to copy
intellectual property and transmit it freely around the world.
The Business Software Alliance (BSA) is a registered, non-profit trade association composed
of the worlds leading IT organisations and majors software publishers (such as Microsoft and
Oracle). The principle aims of the BSA involve promoting awareness among both the public
and businesses of proper software management practices and the value of software
compliance.
Methods are being developed for the sale and distribution of books, articles and other
intellectual property legally on the Internet. The Digital Millennium Copyright Act (DMCA)
of 1998 is supplying some copyright protection. The DMCA put into practice a World
Intellectual Property Organisation Treaty that makes it illegal to ignore technology-based
protection of copyrighting.
SOFTWARE PIRACY
Software piracy encompasses the unauthorised copying, distribution and/or use of
copyrighted software products. Huge financial loses occur each year to the software industry
as a result of software piracy.
FORMS OF SOFTWARE PIRACY
The following are the primary forms of software piracy:
• Illegal use by End users: This involves the use of copyrighted software without an
appropriate licence or allowing more users of the software than the licence permits.
• Illegal Copying: This consists of making unauthorised copies of software for installation
on other computers and also producing copies for private sale.
• Illegal Bundling: This is where hardware vendors without proper licensing install
copyrighted software onto computers they are selling to increase revenue.
• Professional Counterfeiting: This involves the illegal copying and sale of software
along with imitation logos, manuals and licences to disguise the illegal product.
SOURCES OF SOFTWARE PIRACY
The main sources of software piracy are the following:
• End users who purposely disobey the law or are ignorant of it
• Organisation that ignore the law
• Unprincipled hardware or software dealers
• Internet sites that sell counterfeit software or make them available for illegal download
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Accountability, Liability and Control
As well as acting as obstacles to both privacy and property rights, modern information
technologies are challenging existing liability laws and social practices for holding
individuals and institutions accountable.
It is very difficult, if not impossible, to hold software producers liable for their software
products as it is only when software acts as a part of a defective product that stringent
liability pertains. However, if the software is strictly a service (not part of a product) these
laws do not apply.
Other interesting ethical issues are: Should an Internet Service Provider (ISP) be held liable
for the material that users transmit, when telephone companies are not held liable for the
messages that users transmit over the phone? Should the providers of online bulleting boards
(and blogs) be held liable for the content posed on these sites? Also should authorities do
more to control the cumbersome amounts of Spam in circulation? Spam is described as un-
requested junk e-mails sent to thousands of Internet users. The primary ethical issues raised
by new technology are whether or not the individuals and organisations that create, produce
and sell systems are morally responsible for the consequence of their use. Furthermore, what
liability should the users assume and what liability should the provider assume?
Note: A Blog is defined as a form the online diary or journal where people provide
commentary or articles on a particular subject. Blogs are continuing to grow exponentially in
number, popularity and content.
Causes of System Quality Problems
The primary sources of system quality problems are hardware and facility failures, software
bugs and errors, and low data quality. It is of note that while software companies generally
try to de-bug their products before releasing them to the public marketplace, they may
knowingly ship products with bugs due to the fact that the time and cost required to fix all
minor errors would prevent the product from ever being released as it would no longer be
financially viable. However while these software errors and bugs are a source of many
system quality problems, the most common cause is in fact data quality.
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Quality of Life Impacts of Computers and Information Systems
Laudon and Laudon (2010) identified a number of quality of life impacts of computers and
information systems as described below:
1. Balancing power depicts the shift toward highly decentralised computing, coupled with
an ideology of "empowerment" of workers and decentralisation of decision making to
lower organisational levels. The problem with this idea is that the lower-level worker’s
involvement in decision-making still tends to be minor or trivial. Key policy decisions
largely remain as centralised as they were in the past.
2. The rapidity of change impact suggests that information systems have increased the
efficiency of the global marketplace. As a result of this efficiency, businesses no longer
have many years to adjust to competition. This has the negative effect of many
businesses being wiped out very rapidly before they can develop, meaning that jobs are
lost.
3. The maintaining boundaries impact proposes that the development of laptops and
telecommuting have created a situation where people can take their work anywhere with
them and do it at any time. This has negative connotations, for example workers may
find that their work is cutting into family time, vacations and leisure, weakening the
traditional institutions of family and friends and blurring the line between public and
private life.
4. The dependency and vulnerability impact indicates that businesses, governments,
schools and private associations are becoming increasingly dependent on information
systems leaving them highly vulnerable to the failure of those systems.
5. The computer crime and abuse impact suggests that computers have created new
medium for committing crimes and subsequently have themselves become the target of
criminal acts.
6. The employment impact implies that redesigning business processes may lead to
countless middle level managers and clerical workers losing their jobs. Worse still, if the
proposed re-engineering works as claimed, these workers will be unable to find similar
employment as the need for their skills will decline.
7. The equity and access impact proposes that access to computers and information
resources, like wealth, is not equally distributed throughout society. Access is distributed
inequitably along racial, economic and social class lines (in the same way as many other
information resources).
8. Health risks have been attributed to computers and information technologies. For
instance, businesses are reported to now spend $20 billion a year to compensate and treat
victims of computer-related occupational diseases. The most important occupational
disease today is repetitive stress injury (RSI). The largest single source of RSI is
considered to be computer keyboards. However, RSI is avoidable; workstations can be
designed for a neutral wrist position, with a wrist rest to support the wrists, proper
monitor stands and footrests. These measures collectively contribute to proper posture
and reduced incidence of RSI and should be enhanced with frequent rest breaks and
rotation of employees to different jobs.
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Study Unit 4
Computer Hardware and Software
Contents
Key Infrastructure Components
Hardware Platforms
Hardware Platform Trends
Computer Software Platforms
Software Platform Trends
Management challenges posed by IT infrastructure
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Introduction
The objectives of this chapter are to:
• Introduce the different types of IT infrastructure
• Describe the different hardware platform
• Highlight a number of emerging hardware technology trends
• Describe the different computer software platforms
• Highlight a number of emerging software technology trends
A. INFRASTRUCTURE
Information technology infrastructure is the shared technology resources that provide the
platform for the firm’s specific information systems. IT infrastructure includes hardware,
software and services that are shared across the entire firm.
Laudon and Loudon (2010) identified the following IT infrastructure elements:
• Computing platforms that are used to provide computing services.
• Telecommunications services that connect employees, customers and suppliers.
• Physical facilities management which develop and manage the physical installations
required for the computing, telecommunications and data management services.
• Application software services such as ERP, SCM, CRM and Knowledge management
systems that are shared across all business units.
• Data management services that manage the company’s data and make it available to
internal and external users as required.
• IT management services that plan, develop and manage the IT infrastructure.
• IT education and training services that train employees on how to properly use the
systems.
Different Levels of IT Infrastructure
IT infrastructure is organised at three major levels:
• Public: All firms are dependent on public IT infrastructure, which includes the Internet,
the Public Switched Telephone Network (PSTN) and other IT support facilities such as
cable systems and cellular networks.
• Enterprise-wide infrastructure: This includes services such as e-mail, a corporate Web
site, corporate intranets and a range of enterprise software applications.
• Business unit: This IT infrastructure is tailored to the particular line of business such as
specialised production systems, customer support systems, local order entry and other
transaction systems.
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B. KEY INFRASTRUCTURE COMPONENTS
Information Technology is composed of seven key components:
1. Computer hardware platforms include client computers and servers.
2. Operating system platforms include Windows operating systems for client computers,
and UNIX or Linux operating system for servers. Operating systems are the software that
manage the hardware resources and activities of the computer and act as an interface for
the user.
3. Enterprise and other software applications include SAP and Oracle, and middleware
software that are used to link a firm's existing application systems.
4. Data management and storage is handled by database management software and
storage devices including traditional storage methods, such as disk arrays and tape
libraries, and newer network-based storage technologies such as storage area networks
(SANs). SANs connect multiple storage devices over dedicated high-speed networks.
5. Networking and telecommunications platforms include Windows server operating
systems; Novell, Linux, and UNIX. Nearly all LAN and many wide area networks
(WANs) use the TCP/IP standards for networking.
6. Internet platforms overlap with, and must interconnect with the firm's general
networking infrastructure, hardware and software platforms. Internet-related
infrastructure includes the hardware, software and services to maintain corporate Web
sites, intranets and extranets, including Web hosting services. A Web hosting service
maintains large Web servers and provides fee-paying customers with space to maintain
their Web sites.
7. Consulting and system integration services are employed to integrate a firm's legacy
systems with new technology and infrastructure and providing expertise in implementing
new infrastructure along with relevant changes in business processes, training and
software integration.
C. HARDWARE PLATFORMS
The term Hardware platform is used to describe the hardware equipment on which the
information system is installed.
The microprocessor is the heart of any computing device no matter how small or large. Two
companies produce most micro processing chips: Intel and Advanced Micro Devices (AMD).
The most widely used of these is Intel.
Since the network is becoming so commonplace and the heart of computing; network service
providers must have the correct type server in place to meet the increased demand. Blade
servers which are small compact highly efficient servers are meeting these needs while being
cheaper and easier to manage than traditional big-box servers.
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Categories of Computer
The following are the main categories of computers:
• Microcomputers are the most important category of computer for business people and
consumers. Microcomputers are normally referred to as personal computers or PCs. Most
microcomputers are called desktop computers as they are designed to sit on a desk.
Another important type of microcomputer is the laptop, which is designed to suit those
who want a portable computer.
• Midrange computers including minicomputers and high-end network servers are multi-
user systems that can manage networks of PCs and terminals. Midrange computers can
support hundreds of users and are popular as industrial processing control and
manufacturing plant computers. Midrange computers have also become popular as
powerful network servers to help manage large Internet websites and corporate Intranets.
• Mainframe computers are large, fast and powerful computing systems. These systems
are normally found in large corporations who have significant transactions processing
volumes or complex computational problems. Major International banks, airlines, oil
companies and other large organisations used mainframe computers to process millions of
sales transactions and customer enquires each day.
D. HARDWARE PLATFORM TRENDS
Integration of Computing and Telecommunications Platforms
The Integration of Computing and Telecommunications Platforms is one of the most
dominant themes in hardware today where increasingly computing is taking place over the
network. Client level communications devices such as cell phones are taking on the functions
of handheld computers. An example is the smartphone which has all the functionality of a
cell phone coupled with the ability to send and receive e-mail as well as browse the internet.
The functionality of these devices has been further extended by the availability of thousands
of application programmes that can be installed in the smartphone. At the server and network
level, the growing success of Internet telephone systems shows how historically separate
telecommunications and computing platforms are converging towards a single network.
Cloud computing (also called on-demand computing)
On-demand computing, which is another term for cloud computing, provides necessary
infrastructure from centralised sources. Cloud computing enables firms to off-load the
demand for computing power to remote, large-scale data processing centres. By doing this
firms can reduce their investment in IT infrastructures, and pay for only as much computing
power as they require. It’s cheaper and helps companies reduce the total cost of ownership of
IT technology. They can also take advantage of newer technologies than what they are able to
buy and maintain on their own. Utility computing is another term for cloud computing.
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Advantages of Cloud Computing
The advantages associated with cloud computing includes:
• It is not dependent on physical location of either resources or users.
• Users access computing resources on their own and are not necessarily dependent on IT
staff.
• It is 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.
Disadvantages of Cloud Computing
The disadvantages associated with cloud computing includes:
• 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.
• Huge investments in proprietary systems supporting unique business processes may be at
risk.
Grid Computing
Grid computing involves connecting geographically remote computers into a single network
to create a computational grid that combines the computing power of all the computers on the
network to create a large computing platform. It allows companies to save money on
hardware and software, and increase computing and processing speeds to make the company
more agile.
Edge computing
Edge computing is a multi-tier, load-balancing scheme for Web-based applications in which
parts of the Web site content and processing are performed by smaller, less expensive servers
located near the computer. In an edge computing platform client requests are initially
processed by the edge servers, which may deliver static presentation content and reusable
code, while database and business logic components are delivered by the enterprise servers.
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Autonomic computing
As companies rely more and more on IT to meet the demands of employees, customers,
suppliers, and business partners, they can’t afford to have any system downtime at all.
Autonomic computing is a step towards creating an IT infrastructure that is able to diagnose
and fix problems with very little human intervention. Autonomic computing features systems
that can:
• Configure themselves
• Optimise and tune themselves
• Repair themselves when broken
• Protect themselves from intruders and self-destruction
Although this type of computing is still relatively new, it promises to relieve the burden many
companies experience in trying to maintain large, complex IT infrastructures.
Virtualisation and Multi-core Processors
As companies deploy more and more servers, many have discovered that they are spending
more on electricity to power and cool their systems than they did on acquiring the hardware.
Power consumption can be lowered through virtualisation and multi-core processors.
Virtualisation 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 virtualisation enables companies to run
more than one operating system at the same time on a single machine. Most servers run at
just 10 to 15 percent of capacity, and virtualisation can boost server utilisation rates to 70
percent or higher.
A multi-core processor is an integrated circuit that contains two or more processors. This
technology enables two or more processing engines with reduced power requirements and
heat dissipation to perform tasks faster than a single-core processor.
Intel and Advanced Micro Devices (AMD) now make multi-core processors. SUN
Microsystems sells servers using its eight-core processor.
Green Computing
This is an approach to reduce the impact on the environment and reduce resources
consumption by using more efficient hardware and better software.
A few trends in green computing include:
• purchasing desktops that are built to reduce power needs;
• more efficient server computers;
• increase the use of virtualisation to reduce the number of servers needed;
• reducing power costs;
• turning off equipment that isn’t being used;
• recycling computer equipment;
• Using environmentally friendly materials in computer manufacture.
From a business perspective it makes sense to reduce costs, both in the short term and long
term.
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The Growth of Mobile Platform:
Cell phones and smartphones (for example; BlackBerry, iPhone and Android phones) are
now being used for data transmission, Web surfing, sending and receiving e-mails and instant
messaging.
Other types of mobile devices include
• Netbooks which are small, low-cost lightweight notebooks that have optimised
wireless communication and core computing tasks
• Tablet computers (for example the iPad)
• Networked e-readers (such as the Kindle)
E. COMPUTER SOFTWARE PLATFORMS
Operating System Platforms
An operating system is the software that interacts with the hardware of the computer in order
to manage and direct the computer’s resources. Operating systems tell computers what to do,
when to do it, and how. Operations such as logging on, file management, and network
connectivity are controlled by the operating system. By far the most prolific operating system
is Microsoft Windows. Windows is also the operating system used by some non-traditional
computing devices such as hand-held devices and cell phones.
Unix and Linux are often associated with large networks that require less application
overheads and faster processing. Linux open-source software is becoming the operating
system of choice for organisations looking to save money. Businesses and governments
across the globe are adopting the Linux platform as a way to reduce IT spending and license
costs.
Application Software
Application software consists of programs that direct the computer to perform specific
information processing activities and that provide functionality for users. Because there are
many different types of users of computer systems there are a large number of different types
of application programs available.
Application Software can be subdivided into the following two groups:
• Application Specific Software
• General Purpose Application Programs
Application Specific Software
Application Specific Software packages support end users in business and other fields. For
example application specific software packages support business uses such as Transaction
Processing, decision support, accounting, sales management etc.
General Purpose Application Programs
There is a wide variety of general-purpose application programs available including: word-
processing and spreadsheet packages.
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Enterprise Software Applications
Integrating applications into seamless processes across the organisation is the goal of
enterprise software applications. Customer relationship management and supply chain
management systems are the two most popular applications in this category.
Application Programming Languages
The following are the main application programming languages:
• COBOL (COmmon Business Oriented Language) was developed in the early 1960s. It
was designed with business administration in mind. It is used for processing large data
files with alphanumeric characters and for performing repetitive tasks such as payroll. It
is poor at complex mathematical calculations.
• C and C++ are powerful and efficient languages developed at AT&T’s Bell Labs. They
combine machine portability with tight control and efficient use of computer resources.
C++ is object-oriented.
• FORTRAN (FORmula translator) is useful in processing numeric data and is primarily
used for scientific and engineering applications.
• BASIC and Pascal are used primarily in education programming. Assembly language
resembles machine language, but it substitutes mnemonics for 1s and 0s, making it easier
to program (although it is perhaps the most difficult language). Assembly language is
designed for a specific machine and specific microprocessors.
Object-oriented Programming
Object-oriented programming combines data and specific procedures that operate on that data
into an object. Instead of passing data to procedures, programs send a message for an object
to perform a procedure that is already embedded in it. Programmers can focus on what they
want an object to do, and the object decides how to do it. Each object is an independent
software building block that can be used in many different systems without changing the
program code.
In traditional programming, data and procedures are treated as independent components and
are not combined as in object-oriented programming. A separate programming procedure
must be written every time someone wants to take an action on a particular piece of data.
Procedures act on data the program passes to them.
Data Management and Storage
Businesses and organisations are gathering more and more data on customers, employees and
even the business itself. Managing and storing the data so that they are easily accessible and
provide meaningful information to the organisation is becoming a complex task. The systems
that are responsible for organising and managing the storage of the firms are called Database
management Systems (DBMS). Data Management systems are discussed in detail in Chapter
6.
In addition to the traditional physical storage mediums of disk and tapes, many large firms
are turning to high speed network based storage solutions called Storage area networks
(SANs). SANs provide an interconnected, economical way to consolidate data from across
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any and all systems within the business. Online users want instant access to data and SANs
help companies provide it.
Networking and telecommunications platforms
As we continue towards convergence of all forms of digital communications, networking and
telecommunications platforms are merging into one. Rather than having one platform for
networking computer devices and a separate platform for telecommunications, we’ll see one
company providing a combination of telephone services, cell phone connectivity, computers
and peripheral devices, handheld PDAs, and wireless services all rolled into one. Many
telecommunications companies are now merging with Internet service providers to offer a
complete package of digital services.
Internet Platforms
The Internet and its technology standards continue to expand the services businesses are able
to provide their employees, customers, suppliers and business partners. Intranets and
extranets built on Internet technologies giving businesses an easy and inexpensive method of
providing services.
Rather than purchase all of the hardware necessary to support Web sites, intranets, and
extranets, many small and medium-sized companies use Web hosting services instead. It’s
cheaper and easier to have these service providers take care of hardware, software and
security issues while the business concentrates on its core processes.
Consulting and System Integration Services
Systems used in many medium and large-sized companies and organisations are so complex
that most businesses simply can’t manage by themselves. Integration services provided by
companies like IBM and Hewlett-Packard are necessary to keep up with changes. It makes
more business sense for a small/medium company to concentrate on its core business and let
a service provider like HP take care of the technology issues.
These services become more critical as many companies merge their old legacy systems with
newer technologies such as wireless computing. Some legacy systems can’t be thrown away
but must work seamlessly with today’s technologies. Companies choose not to totally replace
legacy systems because it’s too expensive, involves too much training, and carries too much
organisational change and sometimes risk. It’s easier to use middleware and other
technologies to merge old and new systems.
F. SOFTWARE PLATFORM TRENDS
The main trends in contemporary software platforms are:
• Open source software
• Java
• Enterprise integration software
• Web services and service-oriented architecture
• Apps (Mobile)
• Software outsourcing
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Open-Source Software
Open-source software is computer software for which the source code and certain other rights
normally reserved for copyright holders are provided under a software license that meets the
Open-Source definition or that is in the public domain. Open-source software is produced and
maintained by a global community of programmers and is downloadable for free. Users can
use, change, and improve the software, and redistribute it in modified or unmodified forms. It
is very often developed in a public, collaborative manner.
Linux is a powerful, resilient open-source operating system that can run on multiple
hardware platforms and is used widely to run Web servers. Linux is virtually free, meaning
expensive operating licenses are practically eliminated. Support is available through the
open-source Linux community. Other help is increasingly becoming more available as more
companies migrate towards this software.
Java
Java is a programming language that delivers only the software functionality needed for a
particular task. With Java, the programmer writes small programs called applets that can run
on another machine on a network. With Java, programmers write programs that can execute
on a variety of operating systems and environments. Further, any program could be a series
of applets that are distributed over networks as they are needed and as they are upgraded.
Java is important because of the dramatic growth of Web applications. Java is an operating
system that can run on multiple hardware platforms and is used widely to run Web servers. It
provides a standard format for data exchange and for Web page descriptions.
Enterprise integration software
Software for enterprise integration is needed by firms, who need to integrate existing legacy
systems with newer information systems and technologies. Replacing isolated systems that
cannot communicate with enterprise software is one solution. However, many companies
cannot simply discard essential legacy applications. Some integration can be achieved by
middleware, which is software that creates an interface or bridge between two different
systems. Firms increasingly purchase enterprise application integration (EAI) software
that enables multiple systems to exchange data through a single software hub.
EAI software uses special middleware that creates a common platform, which enables many
different applications to communicate with each other. EAI requires much less programming
and development than traditional point-to-point integration (See Figure 5.3).
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Figure 5.3: Enterprise application integration versus point to point integration.
Web Services and Service-Oriented Architecture
WEB SERVICES
Web services refer to a set of loosely coupled software components that exchange
information with each other using standard Web communication standards and languages.
Some of the characteristics of Web services include:
• They can exchange information between two different systems regardless of the
operating systems or programming languages on which the systems are based.
• They can be fused to build open standard Web-based applications linking systems of
two different organisations.
• They can be used to create applications that link disparate systems within a single
company.
• They are not tied to anyone operating system or programming language.
• Different applications can use them to communicate with each other in a standard way
without time-consuming custom coding.
The foundation technology of web services is XML – this is discussed below.
MARKUP LANGUAGES
Hypertext Markup Language (HTML) is a page description language for specifying
how text, graphics, video and sound are placed in a Web page document.
Extensible Markup Language (XML) provides a standard format for data exchange,
enabling Web services to pass data from one process to another. It was developed in 1996 by
the World Wide Web Consortium as a more flexible markup language than HTML. While
HTML is limited to describing how data should be presented in the form of a Web page,
Application
D
Application
C
Application
A
Application
B
Application
A
Middleware
Application
D
Application
C
Application
B
Point to Point IntegrationEnterprise Application Integration (EAI)
56
XML can perform presentation, communications, and storage of data. The tag in XML is able
to specify the type of data – for example it can specify if the piece of data is a price, a date or
a customer id etc.
By tagging selected elements of the content of a document with their meaning XML makes it
possible for computers to automatically manipulate and interpret the data and perform
operations on the data without human intervention.
XHTML (Extensible Hypertext Markup Language) combines HTML language with the
XML language to create a more powerful language for building more useful Web pages.
Four software standards and communication protocols provide easy access to data and
information via Web services in the first layer:
• XML (eXtensible Markup Language): describes data in Web pages and databases
• SOAP (Simple Object Access Protocol): allows applications to pass data and
applications to one another
• WSDL (Web Services Description Language): describes a Web service so that other
applications can use it
• UDDI (Universal Description, Discovery, and Integration): lists Web services in a
directory so it can be located
EXTENSIBLE BUSINESS REPORTING LANGUAGE (XBRL)
XBRL is a language for the electronic communication of business and financial data, which
is revolutionising business reporting around the world. It provides major benefits in the
preparation, analysis and communication of business information. It offers cost savings,
greater efficiency and improved accuracy and reliability to all those involved in supplying or
using financial data.
XBRL stands for eXtensible Business Reporting Language. It is one of a family of "XML"
languages which is becoming a standard means of communicating information between
businesses and on the internet.
The idea behind XBRL, eXtensible Business Reporting Language, is simple. Instead of
treating financial information as a block of text - as in a standard internet page or a printed
document - it provides an identifying tag for each individual item of data that is computer
readable. For example, company net profit has its own unique tag.
The introduction of XBRL tags enables automated processing of business information by
computer software, cutting out laborious and costly processes of manual re-entry and
comparison. Computers can treat XBRL data "intelligently": they can recognise the
information in a XBRL document, select it, analyse it, store it, exchange it with other
computers and present it automatically in a variety of ways for users. XBRL greatly
increases the speed of handling of financial data, reduces the chance of error and permits
automatic checking of information.
Companies can use XBRL to save costs and streamline their processes for collecting and
reporting financial information. Consumers of financial data, including investors, analysts,
financial institutions and regulators, can receive, find, compare and analyse data much more
rapidly and efficiently than if it is in XBRL format.
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XBRL can handle data in different languages and accounting standards. It can flexibly be
adapted to meet different requirements and uses. Data can be transformed into XBRL by
suitable mapping tools or it can be generated in XBRL by appropriate software (Source -
http://www.xbrl.org/).
The XBRL format is governed and marketed by an international consortium (XBRL
International Incorporated) of approximately 600 organisations including; companies,
regulators, government agencies, infomediaries and software vendors.
XBRL International is supported by its jurisdictions—independent bodies, generally
organised on a country specific basis — that work to promote the adoption of XBRL and the
development of taxonomies that define the information requirements of their particular
domains. XBRL is being adopted around the world in order to migrate business information
process from paper-based and legacy electronic proprietary formats more fully onto Internet
oriented processes (both for external and internal reporting processes).
SERVICE – ORIENTED ARCHITECTURE
A service-oriented architecture is a set of self-contained services that communicate with
each other to create a working software application. Business tasks are accomplished by
executing a series of these services. Software developers are able to reuse these services in
other combinations to create other applications when needed.
Apps (Mobile)
Apps are Small pieces of software that run on the Internet, on your computer, or on your cell
phone. The most popular apps are available for the iPhone, BlackBerry, Android and
Windows smartphones and tablet computers. They are generally delivered over the Internet.
Software Outsourcing
Today most business firms continue to operate their legacy systems that continue to meet a
business need that would be very costly to replace. However they will purchase most of their
new software applications from external sources. There are three main external sources of
software:
• Software Packages from Software Vendor: A software package is a prewritten
commercially available set of software programs that eliminates the need for the business
to write its own software for certain functions such as payroll processing and order
handling.
• Software as a Service (SaaS) is a model of software deployment whereby a provider
licenses an application to customers for use as a service on demand. SaaS software
vendors (such as SalesForce.com) may host the application on their own web servers or
upload the application to the consumer device, disabling it after use or after the on-
demand contract expires. The on-demand function may be handled internally to share
licenses within a firm or by a third-party application service provider (ASP) sharing
licenses between firms. The sharing of end-user licenses and on-demand use may also
reduce investment in server hardware or the shift of server use to SaaS suppliers of
applications file services. Using a SaaS can allow companies to bootstrap business
necessities and reduce hiring costs (e.g. using onsip.com for a business telephone system
rather than hiring an IT/systems specialist to install a phone system.)
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• Application Service Provider (ASP): An ASP is a business that delivers and manages
applications and computer services from remote computer centres to multiple users using
the Internet or private network. Instead of buying and installing the software programs,
subscribing companies can rent the same functions from the ASP. Users pay for the use of
this software either on a subscription or per-transaction basis.
• Outsourcing: This is where a firm contract out custom software development or
maintenance of existing legacy programs to outside firms, frequently to firms who
operate in low-wage areas of the world (outsourcing is described in detail in Chapter 12).
G. MANAGEMENT CHALLENGES POSED BY IT INFRASTRUCTURE
The objective of infrastructure management is to provide a coherent and balanced set of
computer based services to customers, employees and suppliers. To reach this objective
firms must deal with a number of issues:
• Cost of IT infrastructure
• Integration of information, applications and platforms
• Flexibility to respond to business environments
• Resilience
• Service levels
Creating and maintaining a coherent IT infrastructure raises multiple challenges including:
• Making wise infrastructure investments – IT infrastructure is a major capital
investment for the firm. If too much money is spent on infrastructure, it lies idle and
constitutes a drag on firm financial performance. If too little is spent, important business
services cannot be delivered and the firm’s competitors will outperform the under-
investing firm.
• Coordinating infrastructure components – Firms create IT infrastructures by choosing
combinations of vendors, people, and technology services and fitting them together so
they function as a coherent whole.
• Dealing with scalability and technology change – As firms grow, they can quickly
outgrow their infrastructure. As firms shrink, they can get stuck with excessive
infrastructure purchased in better times. Scalability refers to the ability of a computer,
product or system to expand to serve a larger number of users without breaking down.
• Management and governance – Involves who will control and manage the firm’s IT
infrastructure.
Total Cost of Ownership (TCO)
Total cost of ownership (TCO) is a financial estimate. Its purpose is to help consumers and
enterprise managers determine direct and indirect costs of a product or system. The total cost
of owning technology resources includes not only the original cost of acquiring and installing
hardware and software, but it also includes the ongoing administration costs for hardware and
upgrades, maintenance, technical support, training, and even utility and real estate costs for
running and housing the technology. When incorporated in any financial benefit analysis, it
provides a cost basis for determining the economic value of that investment.
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TCO tries to offer a statement on the financial impact of deploying an information technology
product over its Lifecycle. These technologies include software and hardware, and training.
Some of the Total Cost of Ownership elements that can be considered in the deployment of
technology include the costs of the following:
• Computer hardware and programs
• Network hardware and software
• Server hardware and software
• Workstation hardware and software
• Installation and integration of hardware and software
• Purchasing research
• Warranties and licenses
• License tracking - compliance
• Other migration expenses
• Risks: susceptibility to vulnerabilities, availability of upgrades, patches and future
licensing policies, etc.
• Operation expenses
• Infrastructure (floor space)
• Electricity (for related equipment, cooling, backup power)
• Testing costs
• Downtime, outage and failure expenses
• Diminished performance (i.e. users having to wait, diminished money making
ability)
• Security (including breaches, loss of reputation, recovery and prevention)
• Backup and recovery process
• Technology training
• Audit (internal and external)
• Insurance
• Information technology related personnel
• Corporate Level Management time
• Long term expenses
• Replacement
• Future upgrade or scalability expenses
• Decommissioning
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Study Unit 5
Telecommunications, Networks, the Internet and Wireless
Contents
A.
Networks and Communications
B.
Communication Networks
C.
The Internet
D.
Wireless Technology
E.
Management Opportunities and Challenges
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Introduction
The objectives of this chapter are:
• To give an overview of the major trends in telecommunications
• To describe the different types of communication networks and technologies
• To illustrate the operation of the Internet and the services that are provided over it
• To describe Intranets and Extranets and their business benefit
• To explain wireless technology and how it can be utilised for business benefit
A. NETWORKS AND COMMUNICATIONS
Major Trends in Telecommunications
The major trends in telecommunications include:
• Rapid technological innovation has resulted in many new forms of business
communications, ranging from cell phones with Internet access to Wi-Fi wireless local
area networks.
• Continuing deregulation of telecommunications has driven competition leading to
lowered prices for telephone services, and an expansion of alternative phone services
such as wireless, cable, and Internet telephones.
• The line between telephone, cable television and Internet, has blurred as each different
type of network operator (fixed line, mobile and cable TV operator) tries to provide
video, voice, and data connectivity on a single network.
• Growing importance of Internet technologies in voice, video, and data communications.
• Increase in speed of broadband connections to homes and businesses.
• Rapid growth in wireless telephones, wireless computer networks, and mobile Internet
devices such as smartphones and tablet computers.
• Growth in communication based services and products such as Internet telephone and
video and TV over the internet. A new addition is telephone television, which is making
its way into the market.
Business Network Infrastructure
The network infrastructure used in businesses today to link departments, offices, and various
functions is a combination of many different networks. These include the public switched
telephone network, the Internet, wide area networks and local area networks linking
workgroups, departments, or office floors. The basic function of any telecommunications
networks is the transmission of information from the source device through the network(s) to
its correct destination while ensuring that the received message is free of errors.
Figure 7.1 shows a simple network that includes the major components found in a company
network. These components include:
• Computers (PCs), network interfaces, a connection medium network operating system
software, and either a hub or a switch.
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• Each computer on the network contains a network interface device (NIC) that the
network is connected to.
• Connection medium for linking network components can be a copper wire, coaxial cable,
fibre optic cable, or radio signal in the case of wireless networks.
• Network operating systems manage the communications on the network between the
different network elements.
• Most networks contain a hub or switch acting as a connection device between the
computers or other devices on the network.
• To communicate with another network, the network would use a router which is a
special communications device used to route packets of data through different networks,
to ensure that any message sent gets to the correct address.
Figure 7.1: A simple network
The Complexity of Large Company Networks
Today’s enterprises have large complex networks usually consisting of a number of local-
area networks (LANs) linked to enterprise wide area network (WAN) for data and voice
communication. Many large servers are utilised for supporting company Web sites, an
intranet and extranets. The connect various applications and databases that support services
such as sales, ordering, and financial transactions, inventory control etc.. These large
enterprises may also have a number of enterprise applications such as supply chain
management and CRM systems. A challenge for organisations is the integration of these
networks and systems.
Server
Internet
SwitchHub or Switch Router
Company's Private
Network
NIC
NIC
NIC
NIC
PC
PC
PC
PC
Server running a
Network Operating
System
Network Interface Card (NIC)
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Important Telecommunications Technologies
Modern digital networks and the Internet are based on three key technologies: (1)
Client/server computing; (2) the use of packet switching; (3) and the development of
widely used communications standards such as TCP/IP.
Client/Server Computing
A client/server arrangement involves client computers (PCs) and a server connected across a
network. The server has hard disks holding shared data, shared applications and may often
have other resources that can also be shared such as printers, etc. The clients are all the other
computers on the network. Under the client/server arrangement, processing is usually done by
the server, and only the results are sent to the client. However, some of the processing can be
shared with the client. For example, the client may request data from a database on the server;
the server then processes the request and sends the results to the client, who performs further
processing on the data.
The Client/server arrangement can help reduce the amount of data traffic on a network thus
allowing faster response for the client computers. Security can be controlled as clients can be
forced to authenticate to the server before being given access to resources. Authentication can
be achieved using login names and passwords. Because management of the network is
centralised, costs are lower. Since the server does most of the intensive processing, less
expensive computers can be used by the clients. The main disadvantages of the client server
model include the fact that if the server fails, the system fails
Packet Switching:
Packet switching makes efficient use of network capacity by breaking messages into small
packets that are sent independently along different paths in a network and are then
reassembled at their destination (see Figure 7.2).
When a user sends a message to another user on the Internet, the message is first decomposed
into packets using the TCP protocol. Each packet contains the destination address of the
message and sequence in the overall message. The packets are then sent from the client
computer to the network server and from there to various routers on the networks to arrive at
a specific destination computer address. The routers use the destination address of the packets
to select a route for each packet. At the destination address, the packets are finally
reassembled into the original message.
Packet Switching technology allows greater utilisation of available links and capacity.
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Figure 7.2: Packet Switching Example – individual packets can take different routes to the
destination.
Communications Standards – Protocols
A protocol is a standard set of rules and procedures for the control of communication in a
network. Having a standard set of protocols provides a universally agreed upon method for
data transmission and supports communications between diverse hardware and software
equipment. Examples of protocols are:
• TCP/IP: Transmission Control Protocol/Internet Protocol is a suite of protocols that is
used on the Internet (and other networks) to control how the packets of data are sent and
received.
• Ethernet: The Ethernet protocol is widely used in networking. It specifies rules that
govern the communications between computers on a network.
TCP/IP is discussed in more detail later in this chapter.
B. COMMUNICATION NETWORKS
WANs, MANs and LANs
Wide Area Network (WAN): A WAN is a wide area telecommunications network, spanning
a large geographical distance. WANs may use a variety of media and a combination of
switched and dedicated lines.
Metropolitan Area Network (MAN): A MAN is a metropolitan area network that spans an
urban area, usually a city and its major suburbs.
Local Area Network (LAN): A LAN is a network that encompasses a limited distance,
usually one building or several buildings in close proximity. A router connects the LAN to
other networks (such as a WAN or MAN), so that the LAN can exchange information with
external networks.
Message received
& reassembled
Message to be sent
broken into packets
P3
P4
P4
P3
P2
P1
P1
P2
P4
P1
P3
P4
P2
P4
P3
P2
P1
Kigali
Kampala
Dar es Salaam
Bujumbura
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Network Topologies
There are three main types of network topologies as shown in figure 7.3:
• In a star topology, all devices on the network connect to a single hub and all network
traffic flows through the hub.
• In a bus topology, one station transmits signals, which travel in both directions along a
single transmission segment. All of the signals are broadcast in both directions to the
entire network, with special software to identify which device should receive each
message.
• A ring topology connects network devices in a closed loop. Messages pass from
computer to computer in only one direction around the loop and only one station at a time
may transmit.
Figure 7.3: Network Topologies
Transmission Media
Networks use different types of physical transmission media to carry messages from one
device to another, these include the following:
• Twisted pairs: Twisted pairs of copper wires are used mostly for analogue voice
signals but also for data.
• Coaxial cable: Coaxial cable consists of a single, thickly insulated and shielded
copper wire, which can transmit a large volume data than twisted pair.
• Fibre optic cable and Optical networks: Fibre optic cable is made up of strands of
glass fibre, each about the thickness of a human hair. The data is transformed into
pulses of light which are sent through the fibre optic cable at very high speed using a
laser light.
Optical networks are networking technologies for high-speed transmission of data in
the form of light pulses. They are becoming important because they can transmit all
types of traffic (voice, data, and video) over fibre cables and provide the massive
bandwidth for new types of services and software. One advantage of this type of
network is that there is very little degradation in quality, unlike transmission over
copper wire.
Bus Topology Star TopologyRing Topology
Server
Server
Server
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Wireless Transmission Media and Devices
Wireless transmission involves sending signals through the air or space without the need for a
physical line. Each type of wireless transmission uses specific frequency ranges. Microwave
systems transmit high-frequency radio signals through the atmosphere. Other types of
wireless transmission such as cellular telephones are assigned a specific range of frequencies
by national regulatory agencies in line with international agreements.
Microwave systems transmit high-frequency radio signals through the atmosphere and are
widely used for high-volume, long distance and point-to-point communications. Microwave
signals follow a straight line and do not bend with the curvature of the earth. Therefore long
distance microwave transmission systems require transmission stations to be located
approximately 37 miles apart to increase the expense of microwave.
This problem can be solved by bouncing microwave signals off communication satellites,
enabling them to serve as relay stations communication satellites are used for geographically
dispersed organisations. However, using satellite communications can be very expensive for
a business.
Comparing the speed and cost of the different transmission media
Table 7.4 summarises typical speeds for the different telecommunications transmission
media.
Table 7.4: Telecommunications media
Medium
Speed
Twisted wire
Up to 100 Mbps
Microwave
Up to 600+ Mbps
Satellite
Up to 600+ Mbps
Coaxial cable
Up to 1 Gbps
Fiber-optic cable
Up to 6+ Tbps
Broadband (High Speed) Network Service Technologies
There are a number of services available to organisations that require high speed or
broadband transmission capabilities or access to the Internet. These include:
• Asynchronous Transfer Mode (ATM): ATM connects all the different parts of a
network into what will appear to the user as one network. It parcels data into uniform
cells for high-speed transmission. It can transmit data, video, and audio over the same
network. ATM equipment is expensive and as a result its popularity is declining.
• ISDN: Integrated Services Digital Network, an international communications standard for
sending voice, video, and data over digital telephone lines. ISDN supports data transfer
rates of 64 Kbps (64,000 bits per second). There are two types of ISDN:
o Basic Rate Access, which consists of two 64-Kbps B-channels and one D-
channel for transmitting control information.
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o Primary Rate Access, which consists of 30 B-channels and one D-channel
(Europe) or 23 B-channels and one D-channel (U.S.).
• Leased Line: This is a permanent connection between two points normally set up by a
telecommunications company. Typically, leased lines are used by businesses to connect
geographically distant offices. Unlike normal dial-up connections, a leased line is always
active. The fee for the connection is a fixed monthly rate. The primary factors affecting
the monthly fee are the distance between end points and the speed of the circuit. Because
the connection doesn't carry anybody else's communications, the carrier (supplier) can
assure the business (customer) a certain level of quality.
• Digital Subscriber Line (DSL) Broadband: DSL technologies use sophisticated
modulation schemes to send data at high speeds over standard copper telephone wires.
DSL can be used to provide high-speed connection to the Internet. The term Broadband is
used to refer to a high-speed, high-capacity transmission mechanism that can be used to
carry voice, data or video.
• Cable modem is service for high-speed transmission of data over cable TV lines that are
shared by many users.
Connectivity to these different network transmission services are normally provided by the
telecommunications service provider.
Other Networking Terms
Bandwidth
Bandwidth describes (a) the speed of data on a given transmission path and (b) the width of
the range of frequencies that an electronic signal occupies on a given transmission medium.
The term bandwidth is applied to both digital and analogue signals.
Bandwidth is normally measured in the amount of data transmitted per second. For example:
it requires more bandwidth, to download a picture in one second than a one-line document. In
digital systems, bandwidth is measured in bits transmitted per second (BPS). The higher the
bandwidth, the more messages that can be transmitted or messages can be transmitted faster.
Some applications working over a network will require different bandwidth than others. For
example, the bandwidth required to view a video over a network is far higher than that
required to view a text document.
Bandwidth can be affected by many factors – the physical media that makes up the network,
the amount of network traffic, and the software protocols of the network and the network
connection. To increase bandwidth, we can have higher capacity media (normally cables), or
we can increase traffic speed.
Broadband
Broadband is a term used to refer to the high-speed transmission technology that can
generally transmit multiple channels of data simultaneously.
Converged Network
A converged network is a network that provides technology to enable voice and data to run
over a single network. These multi-service networks can potentially reduce networking costs
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by eliminating the need to provide support services for each different type of network.
Multimedia networks can be attractive solutions for companies running multimedia
applications such as video, voice-data call centres, unified messaging or for firms with high
costs for separate voice and data services.
Peer to Peer Network
A peer-to-peer network is a group of computers that basically operate as equals. Each
computer is called a peer. The peers share resources, such as files and printers, but no
specialised servers exist. Each peer is responsible for its own security, and effectively each
peer is both a client (because it requests services from the other peers) and a server (because
it offers services to the other peers). Small networks may work well in this configuration. An
example might involve a company in which each department wants to maintain its own files
on its own computer, but allow other department to access these files.
The main disadvantages of a peer-to-peer network include lack of speed – as the number of
computers on the network grows, the performance decreases because of heavy traffic.
Security is also a problem as is the management of the network. Each computer owner is
responsible for the management of his or her machine.
Centralised and Distributed Processing
Centralised processing is where data processing is carried out at one point. The data for
processing can be gathered from several different locations. The output can then be
distributed over a wide area.
Distributed processing on the other hand, allows the data processing to be distributed. There
are several independent but interacting processors. These processors can be used to process
the data near the source. Processors’ workloads can be balanced so if one processor is
overloaded and then the load can be redistributed to another processor. Because the
processing is spread between several points, if a processor fails, the other sites can continue
working independently. It might be possible to off-load the work of the affected processor to
the other processors in the system, thus minimising downtime.
Router
A router is a network communications device that routes messages through different network
and ensures that it gets to the correct address.
C. THE INTERNET
The Internet, which is the largest computer network in the world, is actually a network of
networks. It is a collection of hundreds of thousands of different individual network owned
by governments, universities, and businesses. These interconnected networks interchange
information seamlessly by using the same open, non-proprietary standards and protocol. The
Internet has opened up new possibilities that challenge the existing ways of interacting,
communicating and doing business.
Operation of the Internet
The Internet is a packet switched network where each message is broken into packets. Each
packet contains the address of the sending and receiving machine as well as sequencing
information about its location relative to other packets in the message. Individual packets
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may follow different routes across the network but when all the packets arrive at the
receiving computer they are reassembled into the complete message.
Connecting to the Internet
The most common methods of connecting to the Internet include DSL, Leased Line, cable
modem, dial-up access using a modem, and Wireless access to an Internet Service Provider
(ISP).
How the Domain Name and IP Addressing System works
A domain name system converts IP addresses to domain names. A name identifies one or
more IP addresses. For example, the domain name Microsoft.com represents about a dozen
IP addresses. Domain names are used in Uniform Resource Locators (URLs) to identify
particular Web pages. For example, in the http://www.cpaireland.ie, the domain name is
cpaireland.ie. Every domain name has a suffix that indicates which top-level domain (TLD)
it belongs to. There are only a limited number of such suffixes. For example:
• gov - Government agencies
• edu - Educational institutions
• org - Organisations (non-profit)
• mil - Military
• com - commercial business
• net - Network organisations
An IP addressing system is an identifier for a computer or device on a TCP/IP network.
Networks using the TCP/IP protocol route messages based on the IP address of the
destination. The format of an IP address is a 32-bit numeric address written as four numbers
separated by periods. Each number can be zero to 255. For example, 1.10.10.220 could be an
IP address.
Because the Internet is based on IP addresses not domain names, every Web server requires a
Domain Name System (DNS) server to translate domain names into IP addresses. When a
user sends a message to another user on the Internet, the message is first decomposed into
packets using the TCP protocol. Each packet contains its destination IP address. The packets
are then sent from the client to the network server and from there to the next server until it
arrives at its destination address. At the destination address, the packets are reassembled into
the original message.
TCP/IP
Transmission Control Protocol/Internet Protocol (TCP/IP) is the basic communication
language or protocol of the Internet. It can also be used as a communications protocol in a
private network (either an intranet or an extranet). Every computer with direct access to the
Internet will have a copy of the TCP/IP program running on their computer.
TCP/IP is a two-layer protocol. The higher layer, Transmission Control Protocol, manages
the assembling of a message or file into smaller packets that are transmitted over the Internet
and received by a TCP layer at the distant machine which reassembles the packets into the
original message. The lower layer, Internet Protocol, handles the address part of each packet
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so that it gets to the right destination. Each gateway computer on the network checks this
address to see where to forward the message. Even though some packets from the same
message are routed differently than others, they are reassembled at the destination. TCP/IP
uses the client/server model of communication in which a computer user (a client) requests
and is provided a service (such as sending a Web page) by another computer (a server) in the
network. TCP/IP communication is primarily point-to-point, meaning each communication is
from one point (or host computer) in the network to another point or host computer.
Internet Services
This section provides an overview on some of the main internet services and communications
tools.
Communication Services
ELECTRONIC MAIL
Electronic mail systems are used by most organisations to send and messages. The Internet is
the most important e-mail system because it connects so many companies and individuals.
Users can attach text files, graphics, spreadsheets or even application files to a mail message.
Not all networks use the same e-mail format so a computer called a gateway translates the e-
mail message to a format that the next network understands.
The components of a typical e-mail address are:
Individual Name @ Domain.Function/location
joeblogs@gmail.com
NEWSGROUPS
Newsgroups are international discussion groups in which people share information and ideas
on a particular topic. Many newsgroups exist on the Internet. Discussion in newsgroups takes
place on electronic bulletin boards where anyone can post messages for others to read.
CHATTING
Chatting allows two or more people who are simultaneously connected to the Internet to hold
live interactive written conversations. Chat groups are divided into channels, each assigned
its own topic of conversation.
Note: Both newsgroups and chat groups have decreased in popularity with the phenomenal
growth in social networking.
TELNET
Telnet is a protocol that establishes a link between two computers. Telnet allows users to be
on one computer while doing work on another. Users can log on to their office computer
from their home. Also users can logon to, and use, third party computers that have been made
accessible to them.
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INTERNET TELEPHONY
Internet telephony (also called Voice over IP or VoIP) lets users talk across the Internet to
any personal computer equipped to receive the call for the price of only the Internet
connection. However sound quality can be poor due to delays in the transmission process
when large amounts of data clog the Internet at certain times.
STREAMING AUDIO AND VIDEO
Streaming allows Internet users to see and hear data as it is transmitted from the host server
instead of waiting until the entire file is downloaded.
Streaming audio enables the broadcast of radio programs, music, press conferences,
speeches and news programs over the Internet.
Streaming video has business application including training, entertainment, communication,
advertising and marketing.
Information Retrieval
Information retrieval over the Internet allows users to access thousands of online library
catalogues and databases that have been opened to the public by companies, government
agencies and academic intuitions. Also many users can download free software made
available over the Internet.
File Transfer Protocol (FTP) enables users to access a remote computer and retrieve files
from it.
The World Wide Web
While the Internet and the World Wide Web are closely related they are not the same thing.
The Internet functions as a transport mechanism and the World Wide Web (also called the
Web and WWW) is an application that uses those transport functions. Other applications such
as e-mail also run on the Internet.
The Web is a system with universally accepted standards for storing, retrieving, and
displaying information via client/server architecture. The technology supporting the World
Wide Web was created by Timothy Berners-Lee who in 1989 proposed a global network of
hypertext documents that would allow physics researchers to work together.
HYPERTEXT
The Web is based on a standard hypertext language called Hypertext Markup Language
(HTML), which formats documents and incorporates dynamic hypertext links to other
documents, which can be stored on the same or different computers. To use a hypertext link a
user clicks on the highlighted word (usually coloured blue and underlined) and is then
transported to another document.
HYPERMEDIA
Hypermedia is a term created by Ted Nelson in 1970. It is an extension of the term hypertext,
in which graphics, audio, video, plain text and hyperlinks are intertwined in the same medium
of information. Hypermedia also involves hyper-linked pages. The World Wide Web is an
example of hypermedia.
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WEB SITES AND HOME PAGES
Organisations or individuals who wish to offer information on the Web need to establish a
home page. A home page is a text and graphical screen display that explains the organisation
that has established the page and provides links to other pages. All the pages of a particular
organisation or individual are known as a Web site. The person in charge of the Web site is
called the Webmaster.
URLS AND HTTP
To access a Web site a user must specify the uniform resource locator (URL), which points
to the address of a specific resource on the Web. The HTTP stands for Hypertext Transport
Protocol, which is the transport protocol, used to transfer pages across the WWW portion of
the Internet. HTTP defines how messages are formatted and transmitted and what action Web
servers and browsers should take in response to various commands.
BROWSERS
Users will normally access the Web through software applications called browsers. The
browser is capable of communicating via HTTP, managing HTML and displaying graphical
data types such as GIF (Graphical Interchange Format) and JPEG (Joint Photographic Expert
Group).
There are a number of popular browsers such as Internet Explorer from Microsoft, Firefox,
Safari and Google Chrome.
SEARCH ENGINES
‘Search’ is one of the Webs most popular activity. Search engines are programs that return a
list of Web sites or pages that match the selected criteria. To use a search engine a user will
navigate to the search engines Web site and enter the details of the subject to be searched for.
The search engine will then return the URLs of sites that match the subject entered by the
user. Some of the most popular search engines are Google and Yahoo.
Unified Communications (UC)
In the past each of a firm’s networks for wired, wireless, voice and data operated
independently of each other and had to be management separately by the IT department.
Now organisations are able to merge different communication modes into a single universally
accessible service using Unified communications.
Unified communications technology integrates separate channels for voice communications,
data communications, instant messaging, e-mail, and electronic conferencing into a single
experience where users can switch back and forth between different communications modes.
Presence technology can show whether a person is available to receive a call or is occupied.
Firms will need to examine how this technology can be incorporated into work flows and
business processes and what alternations are needed.
Rather than having separate systems for voice mail, e-mail, conference calling, and instant
messaging, the Unified communications technology can bring everything together into a
more cohesive package.
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Unified communications can help accelerate information sharing and allows everyone to
make faster, better decisions.
Web 2.0
A Web 2.0 site allows users to interact with other users or to change website content, in
contrast to non-interactive websites where users are limited to the passive viewing of
information that is provided.
Web 2.0 refers to second-generation, interactive Internet-based services, such as:
• Blogs: Informal yet structured Web site where subscribing individuals can publish stories,
opinions, and links to other Web sites of interest
• RSS: RSS (Rich Site Summary, or Really Simple Syndication) technology pulls specified
content from Web sites and feeds it automatically to users' computers, where it can be
stored for later viewing
• Wikis: Collaborative Web sites where visitors can add, delete, or modify content on the
site, including the work of previous authors
Services such as the photo sharing website Flickr, the social networking site Facebook,
video-sharing site YouTube and the collaborative encyclopaedia Wikipedia are all examples
of Web 2.0.
VIRTUAL PRIVATE NETWORK
A Virtual Private Network (VPN) is a secure network that uses the Internet (or a public
network owned by a telephone company) as the backbone network but uses firewalls and
other security features to secure connections between distant locations. A VPN offers the
advantages of a private network but at a cheaper cost.
A VPN can be a private network of computers linked using a secure “tunnel” connection over
the Internet. It protects data transmitted over the public Internet by encoding the data to hide
its content, to provide what is a virtual private connection that travels through the public
Internet.
Intranets and Extranets
Intranets
An Intranet is a private network inside an organisation that uses Internet technologies such as
web browsers and servers, TCP/IP network protocols, HTML hypermedia document
publishing and databases. Companies use Intranets to provide an Internet-like environment
within the enterprise for information sharing, communications, collaboration, and the support
of business processes.
USE OF INTRANETS IN ORGANISATIONS
In sales and marketing, intranets help oversee and coordinate the activities of the sales
force. The sales force can obtain updates on pricing, promotions, rebates, customers, or
information about competitors. The sales force can also access presentation and sales
documents, which they can customise for specific customers.
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In the human resources area, intranets keep employees informed of company issues and
policies, allow employees to access and update their personnel records, and take online
competency tests. Further, job postings and internal job information can be made available to
employees. Employees can enrol in health care, benefit plans, or company training seminars.
In finance and accounting, intranets provide an online, integrated view of financial and
accounting information in an easy-to-use format.
In the manufacturing area, intranets integrate complex information across the plant floors or
many plants, particularly in managing work flow and process control.
Business Value of Intranets
There are a number ways in which an intranet can provide business value which include:
• Intranets can significantly improve communications and collaboration within an
enterprise. Regardless of location, intranets allow organisational members to exchange
ideas, share information, and work together on common projects and assignments.
• Intranets lower cost of publishing and accessing multimedia business information
internally via intranet web sites. Examples include: employee manuals, documents,
company policies, business standards, company news, staff directories, product
information including pricing, competitor profiles and even training material, can all be
accessed using browser software on a standard computer. This is one of the main reasons
for the rapid growth in the use of intranets in business.
• Intranets can be used to integrate information from different sources into a common view.
• Intranets are being used as the platform for developing and implementing business
applications to support business operations and managerial decision making. Employees
within the company, or external business partners can access and run such applications
using web browsers from anywhere on the network.
• A company’s Intranet can also be accessed through the Intranets of customers, suppliers,
and other business partners via extranet links.
Extranets
An extranet is a type of inter-organisational information system. Extranets enable people who
are located outside a company to work together with the company's internally located
employees. Extranets are network links that use Internet technologies to interconnect the
Intranet of a business with the Intranets of its customers, suppliers, or other business partners.
The word extranet comes from extended intranet. The main purpose of extranets is to foster
collaboration between selected suppliers, customers and other business partners.
Companies can:
• Establish direct private network links between themselves, or create private secure
Internet links between them called virtual private networks.
• Use the unsecured Internet as the extranet link between its Intranet and consumers and
others, but rely on encryption of sensitive data and its own firewall systems to provide
adequate security.
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Business Value of Extranets
The business value of extranets is derived from several factors:
• The web browser technology of extranets makes customer and supplier access of intranet
resources a lot easier and faster than previous business methods.
• Extranets enable a company to offer new kinds of interactive Web-enabled services to
their business partners. Thus, extranets are another way that a business can build and
strengthen strategic relationships with its customers and suppliers.
• Extranets enable and improve collaboration by a business with its customers and other
business partners.
• Extranets facilitate an online, interactive product development, marketing, and customer-
focused process that can bring better designed products to market faster.
Extranets provide the privacy and security of an Intranet with the global reach of the Internet.
Extranets are becoming the major platform for B2B (Business-to-Business) electronic
commerce, replacing or supplementing Electronic Data Interchange (EDI).
Electronic Data Interchange (EDI)
Electronic Data Interchange (EDI) is a communications standard that enables businesses to
exchange business documents such as purchase orders, invoices, and shipment schedules
electronically with other businesses. EDI formats the documents according to an agreed data
standard and transmits the message. The messages can be sent over a value added network
(VAN) or over the Internet. The transaction data is sent automatically from the computer
systems of one business to the computer of the other business, eliminating the handling of
paper and the manual re-input of data. EDI offers a number of benefits over manual systems
such as reduced data entry error, better security, increased productivity and improved
customer service.
D. WIRELESS TECHNOLOGY
Wireless communications helps businesses stay in touch with customers, suppliers and
employees and supports more flexible arrangements for organising work. Wireless
technology has also led to the creation of new products and services.
The Growth in Wireless Communications
Increasingly individuals and businesses are turning to wireless devices such as cell phones,
wireless handheld devices, and laptops with wireless network connections to communicate
and to obtain information and data.
Mobile phones are cheaper, more powerful and usage has exploded world wide. According to
the International Telecommunication Union (ITU); as of Dec 2010, there are some 5.5 billion
mobile subscribers worldwide, as well as about 1.268 fixed access lines, with the vast
majority of new subscriptions being mobile as opposed to fixed. The number of mobile
subscribers is expected to top 6 billion in 2012.
Mobile phones are no longer used exclusively for voice communications; they have become
mobile platforms for delivering digital data, used for recording and downloading photos,
video and music, Internet access and sending and receiving e-mail. An array of technologies
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are available that provide high-speed wireless access to the Internet for PCs, mobile phones
and other wireless handheld devices. Businesses are increasingly using wireless networks and
applications to cut costs, increase productivity and flexibility, and create new products and
services.
Business Value of Wireless Networking
There are a number ways in which wireless technology can provide business value which
includes:
• Wireless technology helps businesses stay more easily in touch with customers, suppliers,
and employees and provides more flexible arrangements for organising work.
• Wireless technology increases productivity and worker output by providing anytime,
anywhere communication and access to information.
• Companies can save on wiring offices and conference rooms by using wireless networks
because they do not have to pull cables through walls. Wireless networks also make
additions, moves, and changes much easier.
• Wireless technology has also been the source of new products, services, and sales
channels in a variety of businesses.
Devices for Wireless Transmission
Devices for wireless transmission include:
E-mail hand held devices: These devices include a small display screen and a keypad for
typing short messages. Some versions of these devices have a built in organiser, web and
voice transmission features and the ability to integrate with corporate applications. An
example of an E-mail wireless handheld device is the Blackberry.
Cellular telephones (Cell phones): These work by using radio waves to communicate
with radio antennas (usually located in towers or masts) placed within adjacent
geographical areas called cells. A telephone message is transmitted to the local cell by the
cellular telephone and then passed to the cell of its destination where it is transmitted to
the receiving telephone. As the cellular signal travels from one cell into another (as the
location of the mobile phones moves) a computer that monitors signals from the cells
switches the conversation to a radio channel assigned to the next cell.
Short message service (SMS) is a text message service used by a number of digital cell
phone systems to send and receive short alphanumeric messages less than 160 characters
in length. Like e-mail, SMS messages can be forwarded and stored for retrieval later.
Smart phones: This class of digital communications device combine the functionality of
a Personal Digital Assistant (PDA) with a digital cell phone and require a cellular phone
service connection. These smart phones can handle voice transmission and e-mail, save
addresses, store schedules, access a private corporate network, and access information
from the Internet. Smart phones include Web browser software that enable digital cellular
phones to access Web pages formatted to send text or other information that is suitable
for small screens. Increasingly smartphones are also fitted with built in WiFi which can
be used to provide high speed access to the Internet at a designated WiFi enabled
location.
77
Personal computers are also starting to be used in wireless transmissions – most new laptops
are now Wi-Fi enabled.
Cellular Network Standards and Generations
Major cellular standards include Code Division Multiple Access (CDMA), which is used
primarily in the United States, and Global System for Mobile Communication (GSM),
which is the standard in Europe and much of the rest of the world.
Cellular networks have evolved from slow-speed (1G) analogue networks to high-speed high-
bandwidth digital packet-switched third-generation (3G) networks with speeds ranging from
144 Kbs to over 2 Mbps for data transmission. Second-generation (2G) cellular networks are
digital networks used primarily for voice transmission, but they can also transmit data at
ranges from 9.6 to 14.4 Kbps. 2.5G networks are packet-switched, use many existing
infrastructure elements and have data transmission rates ranging from 50 to 144 Kbps. A
2.5G service called General Packet Radio Service (PRS) transports data over GSM wireless
networks and improves wireless Internet access. 2.5G also improves data transmission rates
for CDMA. See figure 7.5 for a summary of these generations.
Generation
Capacity
Description
1G
Low
Analogue cellular networks for voice communication
2G 10 to14Kbps
Digital wireless networks, primarily for voice
communication; limited data transmission capability
2.5G 50 to144 Kbps Interim step toward 3G in the US similar to GPRS in
Europe
3G 144 Kbps to 2+ Mbps
High speed, mobile, supports video and other rich
media, always on for e- mail, Web browsing, instant
messaging
4G Up to 100Mbps
This is the next evolution of wireless cellular
networks
Figure 7.5: Wireless Cellular Generations
Wireless Computer Networks and Internet Access
This section discusses the major standards for wireless networks and for wireless Internet
access. The Institute of Electrical and Electronics Engineers (IEEE) has established a
hierarchy of related standards for wireless computer networks. These include:
• Bluetooth (802.15) for small personal area networks,
• Wi-FI (802.11) for Local Area Networks (LANs),
• WiMax (802.16) for Metropolitan Area Networks (MANs).
Bluetooth
Bluetooth is a telecommunications industry specification that describes how mobile phones,
computers, and personal digital assistants (PDAs) can be easily interconnected using a short-
78
range wireless connection. Bluetooth can link up to eight devices within a 10-meter area
using low-power, radio-based communication and can transmit up to 722 Kbps in the 2.4
GHz band. Wireless phones, keyboards, computers, printers, and PDAs using Bluetooth can
communicate with each other and even operate with each other without direct user
intervention. Through this technology, users of cellular phones, pagers, and personal digital
assistants can buy a three-in-one phone that can double as a portable phone at home or in the
office, get quickly synchronised with information in a desktop or notebook computer, initiate
the sending or receiving of a fax, initiate a print-out, and, in general, have all mobile and
fixed computer devices coordinated completely.
Bluetooth is designed for personal area networks that are limited to a 10-meter area. It has
low power requirements, so it is better for battery-powered appliances.
Wi-Fi
Wi-Fi stands for Wireless Fidelity and refers to the 802.11 family of wireless networking
standards.
The 802.11a standard can transmit up to 54Mbps in the unlicensed 5GHz frequency range
and has an effective distance of 10 to 30 meters. The 802.11b standard can transmit up to 11
Mbps in an unlicensed 2.4 GHz band and has an effective distance of 30 - 50 meter area,
providing a low-cost flexible technology for creating wireless LANs and providing wireless
Internet access.
A Wi-Fi system can operate in two different modes:
• Infrastructure Mode: In this mode, wireless devices communicate with a wired LAN
using access points. An access point is box consisting of a radio receiver/transmitter and
antennas that link to a wired network, router, or hub. Each access point and its wireless
devices are known as a Basic Service Set (BSS).
• Ad-hoc Mode: In this mode, also known as peer-to-peer mode, wireless devices
communicate with each other directly and do not use an access point. Most Wi-Fi
communications use an infrastructure mode.
Wi-Fi hotspots which are located in hotels, restaurants, airports, libraries, college campuses,
and other public places provide mobile access to the Internet. Hotspots generally consist of
one or more access points positioned on a ceiling, wall or other spot in a public place to
provide maximum wireless coverage for a specific area. Users within range of the hotspot can
then access the internet from their laptop or mobile device. Most laptops, smart phones and
tablet computers come equipped with wireless network interface card (NIC) built–in radio
that can send and receive Wi-Fi signals.
Wi-Fi networking costs have declined so that a basic network can be setup relatively cheaply.
Benefits of Using Wi-Fi
The benefit of Wi-Fi include:
• Can be used create low-cost wireless LANs and to provide Internet access from
conference rooms and temporary workstations.
• Helps individual companies extend their networking to new areas and obtain Internet
services at a low cost.
79
Challenges of Using Wi-Fi
The challenges of using Wi-Fi include:
• Transforming Wi-Fi from a wireless hit-or-miss phenomenon into a sustainable
business.
• Users cannot freely roam between hotspots if they use different Wi-Fi network
services.
• Public and private hotspots need to be transformed into interoperable, dependable
networks with billing systems, roaming agreements, and technical standards that will
enable users to plug into hotspots at will.
• Overcoming weak security features that make Wi-Fi wireless networks vulnerable to
intruders.
• Susceptibility to interference from nearby systems operating in the same spectrum.
WiMax
WiMax, which stands for Worldwide Interoperability for Microwave Access, is the popular
term for IEEE Standard 802.16, which is known as the “Air Interface for Fixed Broadband
Wireless Access Systems.”
WiMax antennas are able to beam high-speed Internet connections to rooftop antennas of
homes and businesses that are miles away. WiMax has a wireless access range of up to 31
miles and a data transfer rate of up to 75 Mbps, making it suitable for providing broadband
Internet access in areas lacking DSL and cable lines. Whereas Wi-Fi is vulnerable to
penetration by outsiders, WiMax (802.16) has robust security and quality of service features
to support voice and video.
Radio Frequency Identification (RFID)
Radio frequency identification (RFID) systems use tiny tags that have embedded microchips
that contain data about an item and its location. The tag transmits radio signals over a short
distance to special RFID readers. The RFID readers then pass the data over a network to a
computer for processing (As shown in Figure 5.6). This technology provides value to a
business by capturing data on the movement of goods as these events take place and by
providing detailed, immediate information as goods move through the supply chain.
RFID and Privacy Issues
Privacy activists have objected to RFID technology applications that could lead to more
tracking and monitoring of individual behaviour. They fear it could someday enable
marketers, the government, or insurers to compile details about individuals’ shopping habits
or even assist in tracking people’s movements.
80
Figure 5.6: A Radio frequency identification (RFID) system
Wireless in Health Care
Health care systems have traditionally been dominated by paper based processes. The vast
majority of hospitals have communications networks but still have problems getting essential
information to the right place at the right time.
Mobile technology can provide some solutions. Some Hospitals are installing wireless LANs
in emergency rooms and treatment areas and are equipping staff with Wi-Fi enabled laptop
computers or wireless handheld devices and Smart phones.
E. MANAGEMENT OPPORTUNITIES AND CHALLENGES
Some businesses will benefit from incorporating wireless technology into their business
strategy, while others may not. Before investing heavily in wireless technology, firms must
address a series of technology and organisational issues.
Opportunities
Wireless technology opens up new opportunities to business which include:
• Wireless technology gives firms more flexibility and the ability to innovate.
• Wireless systems support business processes that are not limited by time or location,
extending the company's reach and saving employees and customers substantial amounts
of time.
• The technology provides a new channel for connecting with customers.
• It can also be a source of exciting new products and services.
Management Challenges
The principal challenges posed by wireless technology are integrating this technology into the
firm’s IT infrastructure and maintaining security and privacy.
Tag fitted to item
being tracked
Network RFID
Reader
Tag
Computer
Reader pick up the data
from the tag and send it to
the computer or network
Computer processes
the data from the tag
and updates a system
such as a supply chain
management system
The data originating from the
tag may be sent over a network
Radio signal
from the tag
81
Integrating Wireless Technology into the Firm’s IT Infrastructure
A large enterprise may have hundreds of wireless access points and many thousands of
wireless devices to configure and monitor, similar to a desktop environment. It will be a
challenge to integrate this new network infrastructure with the firm's existing infrastructure
and applications. Central coordination and oversight are required.
Some companies have found that the savings they expected from using wireless technology
did not materialise due to unexpected costs. Gains in productivity and efficiency from
equipping employees with wireless mobile computing devices must be balanced with
increased costs associated with integrating these devices into the firm's IT infrastructure and
providing technical support.
Maintaining Security and Privacy
Maintaining security and privacy poses special challenges for users of wireless technology.
Wi-Fi security is not well developed, making such systems especially vulnerable to
infiltration from outsiders. Wireless systems are easily susceptible to interference from other
devices in the same bandwidth.
One of the unique benefits of wireless technology is its location-tracking capability.
However, this same capability worries privacy advocates who fear the technology could be
used to continuously monitor where users are going and what they are doing. These privacy
issues are particularly relevant to RFID technology and mobile phones.
82
Study Unit 6
Managing Data and Information Resources
Contents
The Importance of Data
File Organisation
The Database Approach to Data Management
Using Databases to Improve Business Performance & Decision Making
Managing Data Resources
Management Challenges and Solutions
83
Introduction
The objectives of this chapter are to:
• Explain the importance of data
• Describe the traditional file method of data storage
• Describe the database approach to data storage
• Compare and contrast the advantages and disadvantages of both the file and database
methods of data storage
• Describe the principal types of databases
• Provide an overview of database design
• Explain how databases can improve business performance
• Discuss the management of data resources and data quality
A. THE IMPORTANCE OF DATA
Data is a vital organisational resource that needs to be carefully managed. The following are
some of issues that impact on the management of organisational data:
• The amount of data being generated in information systems is growing at a phenomenal
rate.
• Data must be stored for a long period of time, both for legal reasons and so it can be
analysed to aid business decision making.
• Data is collected by many groups within in the organisation using different methods and
technology.
• Data is stored using different servers, systems, databases and formats.
• Only a small fraction of an organisation’s data is appropriate for aiding any specific
decision.
• An increasing amount of external data needs to be considered when making decisions.
• Data security, quality, and integrity are critical issues for those managing organisational
data.
These issues highlight the need for careful planning and management of data within an
organisation.
Most organisational data is associated with applications systems. The data may be inputted
into the system or created during processing. Data is generally stored by the applications
using one of two means:
• Files
• Databases
84
B. FILE ORGANISATION
The Traditional File Environment
Information cannot be used effectively if it is stored in a disorganised, inflexible manner.
Without proper file management, it may be difficult or even impossible to extract information
from an automated system. Retrieving a simple report can be timely and costly, if the
information is not properly managed. File management must also be flexible enough to
accommodate new pieces of information or to combine different pieces of information in
changing ways. When computer files are poorly managed it will result in poor performance,
high costs, and minimal flexibility.
The Hierarchy of Data
The data hierarchy, as depicted in Figure 6.1, includes bits, bytes, fields, records, files, and
databases. Data are organised in a hierarchy that starts with the bit, which is represented by
either a 0 or 1. Bits can be grouped to form a byte to represent one character, number, or
symbol. Bytes can be grouped to form a field, such as a name or date, and related fields can
be grouped to form a record. Related records are combined to form files, and related files can
be organised into a database.
Figure 6.1: Hierarchy of Data
Entities, Attributes, and Key fields
An entity is a person, place, thing or event from which information can be obtained. An
attribute is a piece of information describing a particular entity. A key field is a field in a
record that uniquely identifies the record so that it can be retrieved, updated, or sorted (See
Bit
Byte
File
Database
Field
Record
1
01000001 (Binary for letter A)
3025 (Part Number)
Part Number
Part Description Unit Price Supplier Num
3025 80 mm bolt RWF1 201
Parts File
Supplier File
Customer File
Part Number
Part Description Unit Price Supplier Num
3025 80 mm bolt RWF1.50 201
3040 50 mm bolt RWF1.00 201
3128 6 mm nut RWF0.20 218
85
Figure 6.2). For example, a product description may not be unique but a product number can
be designed to be unique
Figure 6.2: Entities, Attributes, and Key fields
Methods of File Organisation
There are three main methods of file organisation:
• Sequential file organisation: In this method of file organisation records are organised in
order of the key field. If a particular record is required in a sequential file, all the prior
records must be read before the required record is reached.
• Direct file organisation: Direct file processing or direct access allows the computer to go
directly to the desired record by using a record key. To retrieve a record a formula is
applied to the record key. The result is the disk address of the particular record. This
operation is referred to as hashing. The record key is generated by the system. Direct
access retrieves specific records quickly.
• Indexed file organisation: This method of file organisation is a form of compromise
between the sequential and direct methods. The indexed file is made up of two files. The
first file is a sequential file where the data is stored. The second file is an index file. It
contains entries consisting of the key to each record and the address of that record. For a
record to be accessed directly the key must be located in the index file and the address
retrieved. The address is then used to retrieve the required record.
Problems associated with the File Environment
The use of a traditional approach to file processing encourages each functional area in a
corporation to develop specialised applications and files. Each application requires its own
unique data file.
The problems with the traditional file environment include data redundancy and confusion,
program-data dependence, lack of flexibility, poor security, and lack of data sharing and
availability.
Data redundancy is the presence of duplicate data in multiple data files. In this situation,
confusion results because the data can have different meanings in different files.
Program-data dependence is the tight relationship between data stored in files and the
specific programs required to update and maintain those files. This dependency is very
Part Number
Part Description
Unit Price
Supplier Num
3025
80 mm bolt
RWF1.50
201
Entity = Parts
Attributes
Field
Key field
86
inefficient, resulting in the need to make changes in many programs when a piece of data, has
to be changed (e.g. changing the length of a data field).
Lack of flexibility refers to the fact that it is very difficult to create new reports from data
when needed. Ad-hoc reports are impossible to generate and a new report may require
programmers to modify the application so it can search the file for the particular information
and output the report required.
Poor security results from the lack of control over the data because the data are so
widespread.
Data sharing is virtually impossible because it is distributed in so many different files
around the organisation and each file can only be accessed by its own application.
C. THE DATABASE APPROACH TO DATA MANAGEMENT
A database is an integrated collection of logically related data elements. A database
consolidates records previously stored in separate files into a common pool of data elements
that provides data for many applications. The data stored in a database is independent of the
application programs using them and of the type of storage device on which they are kept.
Therefore a single database can serve multiple applications. All the data is consolidated into a
single database eliminating data duplication and redundancy. The data can therefore be
shared by multiple applications.
Database Structure
Database records are stored in tables with each table row representing a separate record. One
field is designated the primary key and must hold a unique value for each record. A key
field that identifies records in a different table is called a foreign key. Figure 6.3 shows an
example of a simple database structure with two tables (Parts and Suppliers).
Figure 6.3: Database Structure
RWF
RWF
RWF
RWF
RWF
Kigali
Butare
Kibuye
87
Database Software
A database is a store of data, while the software application that controls access to the
database, is called the Database Management System (DBMS).
A Database Management System (DBMS)
The DBMS (see Figure 6.4) serves as an interface between the Physical database and the
applications programs that use it. When an application calls for a data item, the DBMS
locates it in the database and presents it to the application program. There is no need for the
application to specify to the DBMS where the data is physically stored. The DBMS looks
after the job of physically reading and writing of the data, which simplifies the job of the
application program. However the application programs will still need to understand the
logical structure of the data.
Figure 6.4: The Database Environment
A database management system (DBMS) is a collection of programs that enable users to
create and maintain a database. The DBMS is a software system that facilitates the process
of defining, constructing and manipulating databases
Defining a database involves specifying the data types, structures and constraints for the data
to be stored in the database
Constructing the database is the process of storing the data itself on some storage medium
that is controlled by the DBMS
Manipulating the database includes such functions as querying the database to retrieve
specific data, updating the database to reflect changes to the data, and generating reports from
the data.
Database
Application
B
Application
A
Database
Management
System
88
The capabilities of the DBMS include the following:
• Controlling redundancy of persistent data
• Providing efficient ways to access a large amount of data
• Supporting a logical data model
• Supporting high-level languages to define the structure of data, access data and
manipulate data
• Enabling concurrent access to data by multiple users
• Maintaining the integrity of the data
• Protecting the data from unauthorised access and malicious use
• Recovering from failures without losing data
• Being able to represent complex relationships among data
• Enforcing integrity constraints
• Providing persistent storage for program objects and data structures
Benefits of a DBMS
A database management system (DBMS) can:
• Reduce the complexity of the information systems environment
• Reduce data redundancy and inconsistency
• Eliminate data confusion
• Create program-data independence
• Reduce program development and maintenance costs
• Enhance flexibility
• Enable ad-hoc retrieval of information, improve access and availability of information
• Allow for the centralised management of data, their use, and security.
89
Database Management Systems (DBMS) Versus File Organisation Methods
Table 6.5 below summarises the advantages and disadvantages of both the database and file
approaches.
Table 6.5: Comparing the Advantages and Disadvantages of DBMS and Flat File approaches
DBMS Advantages over Flat file
FLAT FILE Advantages over DBMS
1.
Superior mechanism of retaining,
controlling and
managing tens, hundreds,
thousands or millions of database records.
2.
DBMS serve as an interface between
application programs and a set of co-
ordinated and integrated physical files
called a database.
3. Data independence
4. Program independence
5. User not concerned
with physical location
of Data
6.
View all data associated with a Unique
search of Query
7. Generated Report options are excellent
8.
Better revision control and maintenance of
data and records (limited or no Data
redundancy)
9. Back up of Data is centrally located
1.
Very cheap when compared to DBMS
pricing
2. Does not require a Database Administrator
(DBA)
3.
Does not require expensive high
performance computers (servers)
DBMS Disadvantages over Flat file
FLAT FILE Disadvantages over DBMS
1. Requires considerable resources
2. Initial cost of the Database
3. Generally requires a DBA
4. Staff Training Costs
1. Data Redundancy
2. Program / Data Dependency
3. Lack Of Flexibility
4. Poor Security
5. Lack Of Data sharing and availability
6. Lack Of Data integration
90
Principal Types of Databases and Advantages and Disadvantages of Each
The principal types of databases include relational, hierarchical, network, and object-oriented.
Relational Database
The relational database model organises data into two-dimensional tables (see Figure 6.6).
The relational model can relate any piece of information in one table to any piece of
information in another table as long as the two tables share a common data element (such as a
Supplier Number). Because relational DBMS can easily combine information from different
sources, they are more flexible than the other DBMS structures. They can easily respond to
ad-hoc inquiries. The main problem with relational DBMS is poor processing efficiency.
Response time can be very slow if large numbers of accesses to data are required to select,
join, and extract data from tables. Developments in relational technology, such as indexing,
can overcome this problem.
Figure 6.6: Relational Database Model
Hierarchical Database
The hierarchical database model stores data logically in a vertical hierarchy resembling a
tree-like structure. An upper record is connected logically to a lower record in a parent-child
relationship. A parent segment can have more than one child, but a child can only have one
parent. Hierarchical databases are good for treating one-to-many relationships. They can store
large numbers of segments and process information efficiently, but they can only deliver
information if a request follows the linkages of the hierarchy. Their disadvantages are their
low user-friendliness, inflexibility and programming complexity. They are advantageous for
high-volume, rapid response systems.
Part Number
Part Description
Unit Price
Supplier Num
3025
80 mm bolt
RWF1.50
201
3040
50 mm bolt
RWF1.00
201
3128
6 mm nut
RWF0.20
218
PARTS Table
Each Row
is a Record
Primary Key
Supplier Num
Supplier Name
Address
201
ABC Ltd
Kigali
203
Apple Industries
Butare
218
Oakpark
Ltd
Kibuye
Foreign Key
Linked
SUPPLIERS Table
91
Network Database
The network model stores data logically in a structure that permits many-to-many
relationships. Through extensive use of pointers, a child segment can have more than one
parent. Network databases reduce redundancy and, like hierarchical databases, they process
information efficiently. However, they are inflexible and are very complex to maintain and
program.
Object-oriented Database
The object-oriented database stores data and the procedures acting on the data as objects that
can be automatically retrieved and shared. Object-oriented databases can store complex types
of information, but are slower at processing larger numbers of transactions when compared to
relational DBMS.
Database Terms
Data Dictionary
A data dictionary is a collection of descriptions of the data items. The data dictionary defines
the format needed to enter data into the database. The data dictionary contains information
about each attribute in the database, such as its name, whether it’s a primary key or not and
the type of data it is (numeric, alphanumeric, data, currency etc). For certain attributes a
possible predefined set of values may be listed. A data dictionary would also contain
information about who used the attribute (e.g. form, reports, applications etc).
Most database management systems keep the data dictionary hidden from users to prevent
them from accidentally damage to its contents.
Structured Query Language (SQL)
Structured Query Language (SQL) pronounced either see-kwell or as separate letters SQL, is
a standardised query language for requesting information from a database. Structured Query
Language allows users to query a database and set up Ad-Hoc Reports.
The three most important SQL commands are SELECT, FROM, and WHERE.
• SELECT lists the columns from tables that the user wishes to see in a result table.
• FROM identifies the tables or views from which the columns will be selected.
• WHERE includes conditions for selecting specific records within a single table and
conditions for joining multiple tables.
Example:
SELECT Part_Number, Part_Description, Unit_Price
FROM Parts
WHERE Unit_Price > RWF10
Data Redundancy
Data stored in separate files, as opposed to in a database, tends to repeat some of the same
data over and over. Data redundancy occurs when different areas and groups within an
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organisation independently collect the same piece of information. Because it is collected and
maintained in so many different places, the same data item may have different meanings in
different. Different parts of the organisation and different names may be used for the same
item. Also, the fields into which the data is gathered may have different field names, different
attributes, or different constraints.
End User Involvement in selection and of a database management system
End users should be involved in the selection of a database management system and the
database design. Developing a database environment requires much more than just selecting
the technology. It requires a change in the company’s attitude toward information. The
organisation must develop a data administration function and a data planning approach. The
end-user involvement can be important in reducing resistance to sharing information that has
been previously controlled by one organisational group.
The Role of the Database Administrator (DBA)
The role of the Database Administrator (DBA) is to:
• Maintain a data dictionary. The data dictionary defines the meaning of each data item
stored in the database and describes interrelations between data items.
• Determine and maintain the physical structure of the database.
• Provide the updating and changing the database, including the deletion of inactive
records.
• Create and maintain edit controls regarding changes and additions to the database.
• Develop retrieval methods to meet the user’s needs.
• Implement security & disaster recovery procedures.
• Control configuration of the database and ensure that changes requested by one user must
be first approved by the other users of the database before they are implemented.
• Assign user access rights in order to prevent unauthorised use of data.
• A DBA will work closely with users to create, maintain, and prevent damage to the
database.
Database Design
To create a database environment, you must understand the relationship among the data, the
type of data that will be stored in the database and how the data will be used. Database design
must also consider how the organisation will use the data in the future, including sharing data
with its business partners.
The creation of a new database involves two design stages; a logical design and a physical
design stage. The logical design of a database is a model of the database from a business
perspective, whereas the physical design shows how the database is arranged in the storage
devices. The logical design requires a detailed description of the business information needs
of the end users of the database.
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The logical database design describes how the data elements in the database are to be
grouped. The design process identifies relationships among data elements and the most
efficient way of grouping data elements. Groups of data are organised and refined until an
overall logical view of the relationships among all data elements in the database emerge.
To use a relational database, complex groupings of data must be simplified. The process of
creating small, flexible data structures from complex groups of data is called normalisation.
This process is illustrated in Figure 6.7 and 6.8. The advantage of normalisation is that it
reduces redundancy and improves efficiency. In the example of the unnormalised relation
(Figure 6.7) the supplier details would have to be recorded for each part they supply, while in
the normalised tables (Figure 6.8) each suppliers details is only recorded once in the supplier
table and is linked to each part using the “Supplier Num” field in the Parts table.
Figure 6.7: An unnormalised relation for PARTS
Figure 6.8: Normalised tables created from PARTS
ENTITY RELATIONSHIP DIAGRAMS
Database designers document their data model using an Entity Relational Diagram as shown
in Figure 6.9. The diagram shows the relationship between the entities Salesperson,
Customer, Orders, and Invoices. The boxes represent entities. The lines connecting the boxes
represent relationships. A line connecting two entities that ends with a crow’s foot topped by
a short mark indicates a one-to-many relationship. A line connecting two entities that end
with no crow’s foot designates a one-to-one relationship. Figure 6.9 shows that one
Salesperson can serve many Customers. Each Customer can place many orders but each order
can only be placed by one customer. Each order generates only on Invoice.
PARTS
Part
Number
Part
Description
Unit Price
Supplier
Num
Supplier
Name
Address
Part
Number
Part
Description
Unit Price
Supplier
Num
Supplier
Num
Supplier
Name
Address
PARTS SUPPLIER
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Figure 6.9: An Entity-Relationship Diagram (Stair & Reynolds 2012)
Distributing Databases
A distributed database is one that is stored in more than one physical location. A distributed
database can be partitioned or replicated (duplicated). A partitioned database is divided
into partitions so that there is local access to the data that it needs to serve its local area.
These databases can be updated locally and later synchronised with the central database.
With replication, the database is duplicated at various remote locations. The central database
can be partitioned so that each remote processor has the necessary data to serve its local area.
Changes in local files are synchronised with the central. The central database can be
replicated at all remote locations. Any change made to the database at one location is
automatically replicated at all the other locations.
D. USING DATABASES TO IMPROVE BUSINESS PERFORMANCE
& DECISION MAKING
Businesses use their databases to:
• Keep track of basic transactions
• Provide information that will help the company run the business more efficiently
• Help managers and employees make better decisions
In companies with large databases and multiple systems, special technologies are needed to
access data from the multiple systems and for analysing vast quantities of data. These
technologies include data warehousing, data mining, and tools for accessing databases
through the web.
Salesperson
Customer
Orders
Invoice
Serves
Generates
Places
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Data Warehousing
A data warehouse is a centralised data repository (storage for data), which can be queried for
business benefit. A data warehouse is a database that stores current and historical data that is
of interest to the organisation. This data originates in many different information systems and
from external sources, each with different data models. The data from the diverse
applications are copied into the warehouse database as often as needed (hourly, daily, weekly
etc). The data are transformed into a common data model and consolidated so that they can
be used across the enterprise for management analysis and decision-making. The data are
available for anyone to access as needed. Data warehouses are specifically designed to allow
the warehouse users to:
• Extract archived operational data
• Overcome inconsistencies between different legacy data formats
• Integrate data from throughout an enterprise, regardless of location or format
• Incorporate additional information
The data warehouse concept is shown in Figure 6.10. The data warehouse is designed to
provide the information to aid essential business decisions. The firm may need to change its
business processes to benefit from the information in the warehouse.
Companies can build enterprise-wide warehouses where a central data warehouse serves the
entire organisation. The company can also create smaller warehouses which focus on a single
area of the company or individual information system, which are called data marts.
A data mart is a subset of a data warehouse in which a summarised or highly focused portion
of the organisation's data is placed in a separate database where it can be accessed by a
specific group of users. A data mart will typically focus on a single subject area or line of
business, so it usually can be constructed quicker and at lower cost than an enterprise wide
data warehouse.
Figure 6.10: Components of a Data Warehouse
Data
Warehouse
External
Databases
Application
Data
Inventory
Application
Data
Orders
Application
Data
Payroll
Data
Extraction Data
Analysis
User Interface
•Queries
•Report
•OLAP
•Data mining
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Business Intelligence, Data Analysis and Data Mining
Business intelligence refers to a series of analytical tools which works with data stored in
databases to find patterns and insights for helping managers and employees make better
decisions and improve organisational performance. Business intelligence provides
organisation with the capability to collect and store information, develop knowledge about
operations, and change decision-making behaviour, so as to achieve business objectives.
Technologies such as data mining can be used to obtain knowledge and insight from
analysing large quantities of data which is stored in databases. Business intelligence is
discussed in more detail in Chapter 8.
Data Analysis
Data warehouses support multidimensional data analysis, also known as online analytical
processing (OLAP). OLAP represents relationships among data as a multidimensional
structure, which can be visualised as cubes of data, enabling more sophisticated data analysis.
Data Mining
Data mining is the analysis of data for hidden relationships. For example, the sales data for a
particular brand of beer, is analysed and related to other market data, and may show a
seasonal correlation with the purchase of other types of alcohol by the same individuals.
Data mining results include:
• Associations: when one occurrence can be correlated to another occurrence.
• Sequences: or one event leads to another event.
• Recognition of patterns and the creation of new organisation of data - for example
analysing purchases to create customer profiles.
• Forecasting future trends as a result of finding patterns in the data.
Text Mining and Web Mining
Text mining and Web mining differ from conventional data mining in that the data is
unstructured and comes from a variety of sources, where as conventional data mining focuses
on structured data in databases and files.
TEXT MINING
Text mining focused on finding patterns and trends in unstructured data in text files. The data
may be in email, memos, survey responses, legal cases, service reports etc. Text mining tools
extract key elements from large unstructured data sets, discover patterns and relationships,
and summarise the information.
WEB MINING
WEB mining can be used by businesses to understand customer behaviour, evaluate the
effectiveness of a particular Web site, and measure the success of a marketing campaign.
There are a number of different aspects to web mining:
• Web mining looks for patterns in data
• Web content mining extracts knowledge from the content of Web pages
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• Web structure mining inspects data related to the structure of a particular site
• Web usage mining examines user interaction data recorded by a Web server whenever
requests for a Web site’s resources are received.
Databases and the Web
Databases play an important role in making organisations information resources available on
the World Wide Web. A series of middleware and other software products have been
developed to help users gain access to organisations’ legacy data through the Web. For
example a customer with a Web browser might want to search an online retailer’s database
for product information. Figure 6.11 shows how a customer might access the retailer’s
internal database over the Web. The user would access the Web site over the Internet using
Web browser on their PC. The Web browser requests data from the organisations database
via the WEB server who in turn calls the application service who passes the request on to the
Database Server. The following is a summary of the function of each server:
Database server
The database server runs the DBMS to process SQL statements and perform database
management tasks.
Application server
This application system is installed on this server – this software handles all application
operations. It also translates HTML commands into SQL so that they can be processed by the
DBMS.
Web server
This server presents WEB pages to users & passes user requests for data to the application
server. The WEB server also delivers data in the form of web pages back to the user.
Figure 6.11: Accessing Databases over the Web
ADVANTAGES OF THIS APPROACH
This approach is a cost effective flexible approach. The WEB site can be setup without
making changes to the internal database. Also, it costs much less to add a web interface in
front of a legacy system than to redesign and rebuild the system to improve user access.
Database
Application
Server
WEB
Server
Browser
Database
Server
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E. MANAGING DATA RESOURCES
Data planning may need to be performed to make sure that the organisation's data model
delivers information efficiently for its business processes and enhances organisational
performance. There can sometimes be resistance in organisations to the sharing of
information that has been previously controlled by one group. Creating a database
environment is a long-term endeavour that requires significant investments and organisational
change.
Information Policies
An information policy specifies the company’s rules for acquiring, classifying, standardising
and sharing, information, and includes procedures and roles.
Data administration is responsible for the specific information policies and procedures
through which data can be managed.
The Importance of Data Quality
Data residing in any database that is not accurate, timely, or does not contain relevant
information will limit the effectiveness of an organisation. Organisations need to identify and
correct faulty data and establish routines to edit and update data once a database becomes
operational. Analysis of the quality of the data involves doing a data quality audit.
A data quality audit, involves a structured survey of the accuracy and level of completeness
of the data in an information system. Data cleansing consists of activities for detecting and
correcting data in a database that are incorrect or redundant. Data cleansing not only corrects
data but also enforces consistency among different sets of data that originated in separate
information systems.
Database design should include efforts to maximise data quality and eliminate error. Some
data quality problems result from redundant and inconsistent data, but most stem from errors
in data input. Organisations need to identify and correct faulty data and establish better
controls for input and editing.
F. MANAGEMENT CHALLENGES AND SOLUTIONS
Developing a database environment requires much more than selecting database technology.
It requires a formal information policy governing the maintenance, distribution, and use of
information in the organisation. The organisation must also develop a data administration
function and a data-planning. Data-planning is needed to make sure that the organisation’s
data provides the information efficiently for its business processes and organisational
decision making and contributes to enhanced performance. Resistance to the sharing of data
must also be addressed.
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Study Unit 7
E-Commerce
Contents
Introduction to Electronic Commerce
Electronic Commerce
Mobile E-Commerce (M-Commerce)
E-Commerce Payment Systems
Management Challenge
Management Decision Support Systems
Decision Making
Business Intelligence
Systems to Support Decision Making
Executive Support Systems (ESS)
Group Decision Support Systems (GDSS)
Challenges
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Introduction
The objectives of this chapter are to:
• Describe Electronic Commerce
• Describe M-Commerce
• Provide an overview of the main E-Commerce Payment Systems
A. INTRODUCTION TO ELECTRONIC COMMERCE
Electronic commerce (e-commerce) can be defined as the process of buying, selling,
transferring, or exchanging products, services or information via computer networks
including the internet (Rainer, Turban etal 2007).
E-commerce has grown dramatically over the last ten years and continues to grow at a very
high rate. Some of the reasons for this growth are discussed in the next two sections.
E-business is a broader concept as in addition to buying and selling of goods and services it
also includes servicing customers, collaborating with business partners and performing
electronic transactions both within and outside an organisation.
Internet Technology and the Digital Firm
The Internet is an international network of networks connecting many millions of people
from most countries in the world. It is the largest information superhighway in the world. The
Internet provides a universal and easy-to-use set of technologies and standards that can be
adopted by all organisations, no matter what computer system or information technology
platform they are using. It provides a much lower cost and easier-to-use alternative for
coordinating activities than proprietary networks, it reduces organisational transaction and
agency costs and increases communication, including electronic mail, online forums, and
chatting. Additionally it provides access to increased information and information retrieval
from many thousands of online databases around the world and increases market potential
with online offerings of information and products through the easy-to-use World Wide Web.
The Internet is changing how companies do business
The Internet radically reduces the cost of creating, sending, and storing information while
making that information more widely available. The Internet reduces search costs, allowing
customers to locate products, suppliers, prices, and delivery terms. The Internet enables
companies to collect and analyse more detailed and accurate information about their
customers, allowing these companies to more effectively target their products and services to
a suitable market. The Internet has transformed the richness and reach of information. It can
help companies create and capture profits in new ways by adding extra value to existing
products and services. It also provides the foundation for new products and services. The
Internet permits personalisation (targeting personal messages to consumers) and
customisation (changing a product or service based on consumer preference or history).
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Digital Goods and Digital Markets
Digital Goods
Digital goods are products that can be created, stored, delivered and sold as purely digital
products and can be delivered over a digital network such as the internet. They include music,
video, newspapers books and software. When compared to traditional goods, the marginal
cost of producing another unit of a digital good is approximately zero and delivery costs over
the Internet are very low. However while the marketing costs of digital goods are similar to
physical goods the methods of marketing have change significantly with the phenomenal
growth of internet marketing. The pricing of digital goods is far more flexible and can be
varied depending on demand conditions and customer profile. Digital goods are sold in
digital markets.
Digital Markets
Digital markets are very flexible and efficient because they allow the following:
• Reduced search and transaction costs
• Lower costs of changing prices
• Price discrimination
• Dynamic pricing (prices changing based on the demand characteristics of the customer or
the seller's supply situation)
• Disintermediation: Elimination of intermediaries such as wholesalers or retailers
Disintermediation
The typical distribution channel has several intermediary layers, each of which adds to the
final cost of a product (see Figure 10.1.). Removing layers such as wholesalers and retailers
lowers the final cost of the product or service to the consumer. Disintermediation or
removing the intermediaries, has allowed many companies to improve their profits while
reducing prices. For example Airlines have reduced their costs by using the internet to sell
flights directly to their customers thereby removing the travel agent from transactions with
customers. As a result the cost of flights to consumers have been a significant reduced.
Figure 10.1: Three different distribution channels
Channel 1
Channel 2
Channel 3
Manufacturer
¦
¦
¦
¦
¦
Consumer
Manufacturer
¦
Wholesaler
¦
Retailer
¦
Consumer
Manufacturer
¦
¦
¦
Retailer
¦
Consumer
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Internet business models for electronic commerce
Laudon and Laudon (2010) identified the following eight Internet business models:
1. Virtual storefront: These sell physical products directly to consumers or individual
businesses. Online retail stores are also called e-tailers.
2. Information broker: These provide product, pricing, and information to individuals and
businesses. They generate revenue from advertising and from directing buyers to sellers.
3. Transaction broker: The transaction broker processes online sale transactions for
consumers and generates a fee each time.
4. Online marketplace: An online marketplace provides a digital environment where
buyers and sellers meet, search for and display products, and set prices for those products.
It can also provide online auctions facilities to users.
5. Content provider: A content provider creates revenue by providing digital content, such
as digital news, music, photos, or video on the Web. Some newspapers and magazines are
now pursuing this online strategy.
6. Online service provider: The online service provider supplies online services for
individuals and businesses and generates revenue from subscription or transaction fees
and from advertising. An example of an online service provider is salesforce.com who
provides a Web based Customer Relationship Management (CRM) solution for
businesses.
7. Virtual community: The virtual community provides an online meeting place where
people with similar interests can communicate and find useful information. These include
YouTube, and social networking sites such as Facebook and MySpace.
8. Portal: The portal provides an initial point of entry to the Web along with specialised
content and other services. Examples of portals include Google, Bing, Yahoo, MSN etc.
Many of these new business models generate revenue from:
• Sales of traditional or digital goods
• Selling advertising space for banner ads and pop-up ads
• Transaction fees
• Sales of marketing information collected by users
• Directing buyers to sellers and charging a referral fee or percentage of the revenue from
resulting sales
• Charging a subscriptions fee to access content and service
• Offering a basic service for free and charging a premium for special features.
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PURE-PLAY AND CLICKS-AND-MORTAR BUSINESS MODELS
A pure-play business model is based purely on the Internet. An example of a company using
this business model is Amazon.com A clicks-and-mortar business model has a Web site that
is an extension of a traditional bricks-and-mortar business.
B. ELECTRONIC COMMERCE
Categories of Electronic Commerce
The three major types of electronic commerce are:
1. Business-to-Consumer (B2C): Business-to-consumer e-commerce involves retailing
products and services to individual shoppers. Amazon.com is an example of business-to-
consumer electronic commerce.
2. Business-to-Business (B2B): Business-to-business e-commerce involves the sale of
goods and services among businesses. In this type of e-commerce all participants are
businesses. B2B is an efficient tool for connecting business partners in a virtual supply
chain to cut costs and supply times.
3. Consumer-to-consumer (C2C): Consumer-to-consumer e-commerce involves
consumers selling directly to consumers. eBay.com is an example of consumer-to-
consumer e-commerce company
Electronic commerce transactions can also be categorised based on the participants’ physical
connections to the Web. Participants can use wired networks or mobile commerce (m-
commerce).
Distinctive features of retailing using the Internet
The Internet enables companies to create closer, cost-effective relationships with its
customers. The company can use the Internet to provide information, services, support, and in
many instances deliver the product over the Web. The Internet facilitates direct sales over
the Web, interactive marketing and personalisation, blogs and customer self-service.
The Internet digitally enables the firm. The firm can link to customers and suppliers so that
electronic commerce, business-to-business transactions