INFORMATION SYSTEM FOR

BUSINESS

INFORMATION SYSTEMS FOR BUSINESS 1

 Centre for Continuing Education and Online Learning
Online MBA Programs
Information System for Business
Semester: 1st Semester

Authors
Dr. Tejal Shah, Assistant Professor, Parul Institute of Management and Research, Parul
University

Ashish Bhatt, Program Head -Management- Parul University

Ruturaj Doshi, Assistant Professor, CCEOL, Parul University

Credits
Centre for Continuing Education and Online Learning,
Parul University,

Post Limda, Waghodia,

Vadodara, Gujarat, India

391760.

Website: https://paruluniversity.ac.in/

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electronic, mechanical, photocopying, recording, or otherwise) without obtaining the prior written
permission from both the copyright owner and the publisher of this content.

INFORMATION SYSTEMS FOR BUSINESS 2

Note to Students
These course notes are intended for the exclusive use of students enrolled in Online MBA. They are
not to be shared or distributed without explicit permission from the University. Any unauthorized
sharing or distribution of these materials may result in academic and legal consequences.

INFORMATION SYSTEMS FOR BUSINESS 3

 TABLE OF CONTENTS

1.1 DATA INFORMATION AND ITS ATTRIBUTES ...................................................................... 7

1.2 RESOURCES AND COMPONENTS OF INFORMATION SYSTEM ........................................ 11

2.1 ROLE OF DATA AND INFORMATION ................................................................................16

2.2 SYSTEMS APPROACH AND INTRODUCTION TO INFORMATION SYSTEMS ...................... 22

3.1 DECISION-MAKING AND INFORMATION SYSTEM ........................................................... 28

3.2 ROLE OF INFORMATION SYSTEM IN DECISION MAKING ................................................ 33

3.3 TRANSACTION PROCESSING SYSTEM .............................................................................. 44

3.4 DECISION SUPPORT SYSTEM ........................................................................................... 58

3.5 EXECUTIVE SUPPORT SYSTEM ......................................................................................... 70

3.6 GROUP DECISION SUPPORT SYSTEM .............................................................................. 80

4.1 KNOWLEDGE MANAGEMENT ..........................................................................................91

4.2 ENTERPRISE CONTENT MANAGEMENT SYSTEM ...........................................................101

4.3 INTELLIGENT TECHNIQUES ............................................................................................ 110

5.1 BUSINESS PROCESS REENGINEERING ............................................................................120

5.2 TOTAL QUALITY MANAGEMENT ................................................................................... 127

7.1 E-COMMERCE ................................................................................................................ 165

7.2 PRODUCTS SOLD DIGITALLY AND VIA MOBILE COMMERCE .........................................180

7.3 BUSINESS AND INCOME GENERATION MODELS FOR ELECTRONIC COMMERCE ......... 190

7.4 ELECTRONIC COMMERCE .............................................................................................. 201

8.1 UNDERSTANDING ETHICS AND SOCIAL ISSUES RELATED TO SYSTEM .......................... 215

8.2 COMPUTER CRIME ........................................................................................................ 230

8.3 PRIVACY ISSUES ............................................................................................................. 241

INFORMATION SYSTEMS FOR BUSINESS 4

 8.4 THE MORAL DIMENSIONS OF INFORMATION SYSTEM .................................................256

8.5 SECURITY MANAGEMENT OF INFORMATION TECHNOLOGY ........................................278

INFORMATION SYSTEMS FOR BUSINESS 5

 INTRODUCTION TO INFORMATION
SYSTEMS

INFORMATION SYSTEMS FOR BUSINESS 6

 1.1 DATA INFORMATION AND ITS ATTRIBUTES

Employees must be able to obtain and analyze the many different levels, formats, and
granularities of organizational information to make decisions. Successfully collecting, compiling,
sorting, and analyzing information can provide tremendous insight into how an organization is
performing.

DATA AND INFORMATION

Data and information are frequently used interchangeably. But there is a slight distinction
between the two.

WHAT IS DATA?

Data is a collection of unprocessed, raw facts and information, such as text, observations,
numbers, symbols, and object descriptions. In other words, data is meaningless on its own and
does not serve any function. Additionally, data is expressed in terms of bits and bytes, which
are the fundamental units of information used in computer processing and storage.

Data can be categorized in various ways:

E.g., For instance, information gathered to write a research paper is only data until it is
arranged and presented.

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WHAT IS INFORMATION?
● Data is raw information. It is just there and has no value beyond that (in and of itself). Any
form, whether useful or not, may exist for it. It does not have a meaning in itself. In
computer parlance, a spreadsheet generally starts by holding data.
● Information: It is data that has been given meaning by way of relational connection. This
"meaning" can be useful, but does not have to be.
● Information is organized, structured data that has been processed. It gives data context and
makes decision-making possible. For instance, a single customer's purchase at a restaurant
is data; this becomes information when the establishment can determine which dish is the
most and least popular.
A relational database, as it is known in computer lingo, creates information from the data it
contains.
Information attributes: For the decision to be meaningful, the processed data must qualify for
the following characteristics:

Timeliness
a. The degree of up-to-date information is referred to as timeliness.
b. Information can be viewed objectively, which means that it reflects the status of the real
world at the time it is viewed.
c. Task-dependent timeliness refers to the idea that information is timely enough to be used
for a particular task.
d. A critical success factor in preventing a disaster or lessening its effects is the ability to
provide fresh information promptly, making it one of the most crucial quality dimensions
for handling disasters.

Accuracy
a. Accuracy is the degree to which information in an automated system accurately and
precisely represents states of the real world.
b. Accuracy for its usage is a highly significant quality characteristic that was the subject of
several early information quality studies.
c. Examples include daily production numbers, weekly sales numbers, monthly totals, and
annual production numbers.

Completeness

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a. Completeness is the degree to which information is not missing. Incomplete information
can be hazardous.
b. However, complete information for one person may be incomplete for another. For
example, emergency medical services, the FBI, and the Fire crew, all may be interested in
the weather conditions around the disaster site, but each may require different levels of
detail.

Accessibility
a. Accessibility implies the degree to which information is available, easily obtainable, or
quickly retrievable when needed.
b. For information to be utilized effectively, it must be accessible.
c. But this availability of information to the users is generally within the constraints of policy
and confidentiality.

Security

Security has been recognized as another crucial aspect of information quality. If information is
not secure, it can be easily intercepted and misused by any intelligent adversary (such as
criminals).

Relevancy
a. A relevant piece of knowledge is applicable and useful for the activity at hand.
b. Information must be pertinent to the needs of the end user it is being conveyed, taking into
account the demands of the scenario.
c. Example: If a machine malfunctions four times in a single day, who needs to know about it?
The operations director doesn't, but the quality assurance supervisor does.

Validity

The information must be valid in the sense that it must be true and verifiable and that it must
meet the requirements for other dimensions, including correctness, completeness, timeliness,
and security.

Format

The information must be presented in a manner that makes it simple to read and understand
for the end user.

KEY TAKEAWAYS

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● Data is a collection of unprocessed, raw facts and information.
● Information is organized, structured data that has been processed.
● Information attributes: The processed data must possess characteristics of timeliness,
accuracy, relevancy, validity, format, security, accessibility, and completeness.

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 1.2 RESOURCES AND COMPONENTS OF INFORMATION SYSTEM

WHAT IS AN INFORMATION SYSTEM?

Technically speaking, an information system is a collection of interconnected parts that gather

(or retrieve), process, store, and disseminate information to enable decision-making and
control inside an organization. Information systems can assist managers and employees with
problem-solving, coordination, and control, as well as with the visualization of complicated
concepts and the development of new goods. Information systems hold data on relevant
individuals, locations, and objects either inside the firm or in its immediate surroundings.

The information required by firms to make choices, manage operations, evaluate issues, and
develop new goods or services is produced through three activities in an information system.

Input, processing, and output are these actions.

The company's internal and external input is used to acquire or collect raw data. This raw input
gets processed into a useful form. The processed information is transferred to the users or the
purposes for which it will be used through output.

To analyze or improve the input stage, information systems also need feedback, which is the
output that is sent back to the right individuals in the organization.

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To carry out the above functions of Information systems, different components of information
systems could be helpful.

An information system depends on the:

● Resources of people (end users and IS specialists)

● Hardware (machines and media)
● Software (programs and procedures)
● Data (data and knowledge bases)
● Networks (communications media and network support)

PEOPLE RESOURCES

● All ISs require people to operate them. Users are the people who utilize an IS to carry out a
task or job function. Users are referred to as "human resources." Examples include a pupil
using a word processing program or a spreadsheet.
● Technical developers are the ones who develop the technology that goes into creating an
information system. Examples include a software programmer, an application programmer,
and a computer chip engineer.
● Business professionals: these include CEOs, business owners, managers, and employees
who utilize information systems (IS) to launch or grow their companies and carry out duties
like accounting, marketing, sales, human resources, and customer service, among others.

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 Famous CEOs like Steve Jobs of Apple and Jeff Bezos of Amazon are a couple of such
examples.
● IT Support: These specialized individuals are educated to keep the business's information
systems operating efficiently and protect it from unauthorized intrusions. Network analysts,
help desk support, and data center support are a few examples.

HARDWARE RESOURCES

● All physical tools and components utilized in information processing, such as machines and
data mediums, are included in this. Computer systems are a key component. These are the
CPUs and the peripherals that they are connected to, like terminals and networked PCs.
● Peripherals for computers. Keyboards, displays, and secondary storage are examples of
input and output devices.
● Networks for Telecommunication. These are the computer systems that are linked together
by various types of telecommunications equipment, like modems.

SOFTWARE

● System software and application software are the two categories of software available.
● An operating system known as the system software allows users to handle a computer
through a graphical user interface (GUI) while also managing the hardware, program files,
and other resources.
● Application software is made to manage specific user duties. To put it simply, system
software enables the hardware, whereas application software manages certain tasks.
● Microsoft Windows is an example of the system software, whereas Microsoft Excel is an
example of application software.
● To meet their unique demands, large companies may use licensed programs created and
maintained by software development firms. Both open-source and proprietary software
may be used for free online.

DATA

● Data is the third component. Data can be viewed as a collection of uncontested basic facts.
For instance, your first name, driver's license number, city of residence, pet photo, voice clip,
and phone number are all examples of raw data. Although you can see or hear your facts,
they don't by themselves provide you with any further significance. For instance, you may
be able to read a person's driver's license number and identify it as such, but you are
unaware of any other information about the individual. Those are the kinds of things IS
would generally need to get from you or other sources.

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● However, after being combined, indexed, and logically arranged using software like a
spreadsheet or database, the raw data will reveal fresh information and insights that a
single raw fact cannot.
● A suitable example is the preceding example of gathering all expenses (i.e., raw data) to
produce an expense tracker (new information obtained). The definitions provided at the
beginning of this chapter were all concerned with data management. Organizations gather a
variety of data, process it, and organize it in some way before using it to inform choices. The
organization can then be improved after these decisions have been evaluated for
effectiveness.
● Databases, which store processed and organized data, and knowledge bases, which store
information in several formats, such as facts and rules of inference about a certain subject,
are the two ways that data are commonly organized.

TELECOMMUNICATIONS

● To transmit information, telecommunication is used to communicate with a computer

system or other devices. Either wired or wireless methods can be used to set up the
network. Fiber optics and coaxial cable are examples of wired technologies, whereas radio
waves and microwaves are examples of wireless technologies. It joins the various parts of
hardware and moves data from one physical location to another using both physical and
software components.
● Networks can connect computers and communication devices to share voice, data, pictures,
sound, and video. To exchange information or resources, like a printer, a network connects
two or more computers. The Internet is the biggest and most popular network in the world.

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 Role of Data, Information, and Information
Systems in Organizations

INFORMATION SYSTEMS FOR BUSINESS 15

 2.1 ROLE OF DATA AND INFORMATION

Data is primarily the straightforward facts and figures gathered throughout a business' activities.
They can be used to track and measure a variety of internal and external company activities.
Even if the data itself may not be highly illuminating, it serves as the foundation for all reporting
and is therefore essential to business.

Metrics related to customer contact are based on customer data. It might be the volume of
work, the volume of inquiries, the revenue, the expenses, etc. We require data to understand
our interactions with the customer.

Data is crucial to corporate operations because it serves as the foundation for providing the
information needed.

IMPORTANCE OF INFORMATION IN BUSINESS

Systems convey data in a way that can be understood by management, enabling a business to
make educated decisions. Customer data would be helpful in this situation to provide metrics
surrounding client/customer involvement to find better ways to engage or collaborate with
your clients.

It must be acknowledged, nevertheless, that the value of information also depends on the
behaviors that the information inspires. For instance, the information is only helpful if it
prompts a change in the way the company interacts with customers. Let's say it warns you
about low customer satisfaction. To achieve optimum results, the information process should
be a part of a larger evaluation process within the organization.

REASON WHY DATA IS MORE IMPORTANT FOR AN ORGANIZATION

MAKE PEOPLE'S LIVES BETTER

You can assist individuals you support live better lives by using data: Organizations should use
data for a variety of reasons, but improving quality should be their top priority. An efficient data
system can help your organization enhance the quality of people's lives by enabling
measurement and action.

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MAKE KNOWLEDGEABLE CHOICES

Knowledge + Data. While anecdotal evidence, assumptions, or abstract observation may result
in resource waste if action is taken based on erroneous conclusions, good data provides
incontrovertible evidence.

PREVENT MOLEHILLS FROM GROWING UP TO BE MOUNTAINS

You can use data to keep track of the health of critical systems in your company: Organizations
can address issues before they turn into crises by using data for quality monitoring. Effective
quality monitoring will allow your organization to be proactive rather than reactive and will
support the organization to maintain best practices over time.

GET THE RESULTS YOU WANT

Data allows organizations to measure the effectiveness of a given strategy: When strategies are
put into place to overcome a challenge, collecting data will allow you to determine how well
your solution is performing, and whether or not your approach needs to be tweaked or
changed over the long-term.

LOOK FOR SOLUTIONS TO ISSUES

Organizations can more efficiently identify the root of issues thanks to data. Organizations can
use data to visualize connections between events occurring in various places, departments, and
systems. Is there a problem like staff turnover or vacancy rates that may suggest a cause if the
number of prescription errors has increased? Comparing these data points enables us to create
more precise hypotheses and implement more efficient solutions.

SUPPORT YOUR POINTS OF VIEW

To advocate for systems, data is essential. Data use will make it easier to make a compelling
case for system change. Whether you are arguing for more money from public or private
sources or arguing for regulatory reforms, supporting your case with examples from real-world
situations, illustrating your argument through the use of data will allow you to demonstrate
why changes are needed.

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STOP PLAYING THE GUESSING GAME

You can use data to help your stakeholders understand your decisions (both good and poor).
Whether or not your tactics and judgments produce the results you expected, you can be sure
that you established your strategy based on solid evidence rather than educated guesswork.

FUNCTIONS AND ROLE OF INFORMATION IN AN ORGANIZATION

Information systems carry out tasks like collecting input data, storing it, processing it, and
finally producing output data. They also have control over the feedback loop and the
information flow. Both open and closed systems exist.

INPUT

Information system input is divided into two categories. The output is produced by storing and
processing precise data. What kind of analysis the user wants the system to perform must be
specified to the system.

STORAGE

The most thorough level of detail should be used to store data. IT departments may choose to
keep data from different summaries and should regularly back up data to prevent losing crucial
data due to errors. These backups should also be kept in a geographically separate location to
prevent a disaster from affecting both the original data storage and the backup data storage.

PROCESSING

The action that converts data into information is this process. Adding the total number of things
sold by the company by a variable, such as a store location, the product, the time, or the date,
would be considered simple processing. Computers use complex processing to build
information from the data that is available by conducting calculations and making assumptions
about any missing data.

OUTPUT

Output is available in both graphical and textual formats. The term "graphical" refers to the
presentation of information as charts, graphs, diagrams, and drawings to examine it on a wider
scale. Textual presents information as charts, text, or numbers so that it can be seen on a
smaller, more detailed scale.

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ORGANIZATION STRUCTURES AND TYPES OF DECISIONS

It underlines how a company's level of management decision-making and the degree of

structure in the decision scenarios they encounter directly affect the type of information that
decision-makers need. It's crucial to realize that the framework of the traditional administrative
pyramid, depicted in the following Figure, still holds in today's flattened or nonhierarchical
organizational structures and downsized organizations. There are still levels of managerial
decision-making, but as today's flexible organizational structures develop, so do their size,
shape, and participants. Therefore, in a successful business, information technology must assist
the following levels of executive decision-making:

CATEGORIES OF DECISIONS:

UNSTRUCTURED DECISIONS

They are those in which the decision-maker must utilize discretion, analysis, and insight to find
a solution to the issue. Since all of these conclusions are novel, important, and out of the usual,
there is no tried-and-true method for reaching them.

STRUCTURED DECISIONS
On the other hand, can be addressed consistently because there is a predetermined method for
doing so. They are routine and repetitious.

SEMI-STRUCTURED
Meaning: Only a piece of the problem can be solved in a straightforward manner using a tried-
and-true method, and they combine elements of both types of decisions. Structured decisions
are typically more prevalent at lower organizational levels, but unstructured issues are more
prevalent at higher organizational levels of the company.

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Choosing which markets to enter and establishing the company's five- and ten-year goals are
only two of the many unstructured decisions that senior executives must make. To answer the
question "Should we join a new market?" it would be necessary to have access to news, official
reports, industry opinions, and high-level evaluations of firm performance. Additionally, senior
managers would need to use their judgment and speak with other managers to apply their
judgment and consult with other managers to come up with the optimal solution, though.

Middle management must make decisions in more controlled circumstances, but their decisions
may also include uncontrolled elements. A typical middle-level management question may be,
"Why does the stated order fulfillment report indicate a drop over the past six months at a
distribution center in Mumbai?"

This middle manager will ask the business enterprise system or distribution management
system for a report on order activity and operational efficiency at the Mumbai distribution
center. This is the structured part of the decision. This middle manager will need to consult with
staff colleagues and gather further unstructured information about local economic conditions
or sales trends from other sources before drawing any conclusions.

In general, operational supervisors and lower-level employees make more deliberate decisions.
For instance, a supervisor on an assembly line must decide whether an hourly worker qualifies

INFORMATION SYSTEMS FOR BUSINESS 20

for overtime pay. If an employee worked more than eight hours on a particular day for any time
that was clocked on that day, the supervisor would often offer overtime pay.

INFORMATION SYSTEMS FOR BUSINESS 21

 2.2 SYSTEMS APPROACH AND INTRODUCTION TO INFORMATION SYSTEMS

The planning, synchronization, and focus of efforts that go into creating a superior product or
service are what are referred to as "business processes." A business process is the ordered
series of tasks that need to be carried out in order to create a good or deliver a service
successfully. Participants in business processes will often trade resources, information, and the
skills that they bring to the table in order to facilitate the efficient execution of various
operations.

HOW RECENT DEVELOPMENTS IN INFORMATION TECHNOLOGY HAVE MADE THE OPERATIONS OF BUSINESSES
MORE EFFECTIVE?

How exactly do information systems make processes that businesses already have in place
more efficient? A considerable amount of tasks that used to be carried out manually within an
organization can now be automated because to the advancements that have been made in
information technology. Validating a customer's credit, generating an invoice and shipping
order, and similar tasks are examples of the procedures that fall under this category. On the
other hand, the capabilities of contemporary information technology are light years ahead of
their older counterparts. In point of fact, the introduction of new technology has the potential
to bring about shifts in the manner in which information is accessible as well as disseminated.
Because of this, it would be feasible to perform a number of tasks all at once as opposed to
performing them in the order that they are listed, and it would also reduce delays in the
process of deciding what to do next. Not only does the introduction of brand new information
technology make it simpler to create completely unique business models, but it also commonly
results in the transformation of an organization's internal operational structures.

DIFFERENT KINDS OF DATA AND INFORMATION SYSTEMS

Now that we have a better understanding of how business processes function, it is time to take
a more in-depth look at how information systems contribute to the successful running of a
company's business operations. Within an organization, there can be many various kinds of
interests, levels of knowledge, and jobs; hence, there can also be many distinct kinds of systems.
There is no one system that can provide all of the information that a company needs, so they
will need to use multiple systems.

In a normal company organization, the most important business functions, including sales and
marketing, manufacturing and production, finance and accounting, and human resources, are

INFORMATION SYSTEMS FOR BUSINESS 22

all supported by independent information technology systems but are still interconnected. It is
becoming increasingly difficult for functional systems to work independently of one another
since it is difficult for these systems to communicate information in order to support cross-
functional business operations. This is making it increasingly difficult for functional systems to
work independently of one another. The result is that functional systems are becoming
obsolete as a result of this. Large-scale cross-functional systems, which combine the operations
of related business processes and organizational units, have largely taken their place, and many
of them have been replaced entirely.

SYSTEMS FOR DIFFERENT MANAGEMENT GROUPS

Within an organization, there are support systems in place to offer assistance to the many
different groups and levels of management. Examples of these
kinds of systems include both the transaction processing
systems and the business intelligence systems.

It is necessary for operational managers to have access to

systems that monitor fundamental organizational activities
and transactions, such as sales, revenues, cash deposits,
payroll, credit decisions, and the flow of goods inside a plant.
One example of this kind of system is the Transaction
Processing System, or TPS for short. Transaction processing
systems, sometimes abbreviated as TPS, are the types of
databases that are responsible for supplying information of
this kind. A computerized system that is referred to as a
"transaction processing system" (TPS) is in charge of carrying
out and documenting the day-to-day administrative tasks that
are necessary for the running of a corporation. These tasks are
crucial to the success of the firm. The entry of sales orders, the
reservation of hotel rooms, the processing of payroll, the maintenance of
employee records, and shipping are all included in these responsibilities. The
provision of standard responses to enquiries and the monitoring of the
advancement of transactions as they are handled through the organization are
the two key functions of the systems that operate at this level of the
organization.

How many of the warehouse's contents are made up of separate components? Where could Mr.
Lakshman possibly have received the money that was promised to him? The pertinent

INFORMATION SYSTEMS FOR BUSINESS 23

information must, as a general rule, be straightforward to access, up to date, and correct in
order to be able to provide acceptable solutions to questions of this sort. At the level of
operations, the tasks, resources, and goals are all organized in accordance with a rigorous
hierarchy of significance. Using the criteria that were discussed before, a supervisor who works
at the operational level, for instance, is the one who determines whether or not to grant credit
to a customer. This decision is based on the information that was supplied earlier. The one and
only thing that needs to be determined is whether or not the customer satisfies the
requirements.

TPS is vital because it enables managers to keep insight into the present status of both internal
operations and the interactions the firm has with the outside world. In addition to this, TPS is
one of the most essential producers of information for the organization's other systems and
processes.

"MANAGEMENT INFORMATION SYSTEM" (MIS)

Through the use of the MIS system, middle management is able to gain access to reports
detailing the current performance of the firm. In addition to their various applications, which
include the monitoring and management of the company, these data are utilized in the process
of making projections regarding the organization's future performance. Management
information systems, often known as MIS, are responsible for compiling and reporting on an
organization's most important business processes. These systems make use of the data that is
provided by transaction processing systems. Data from a transaction processing system (TPS)
that are regarded as being fundamental are typically provided in reports that are generated on
a timetable and are compressed. The overwhelming majority of these reports are currently
made accessible over the internet.

The vast majority of management information systems rely on relatively straightforward

processes such as summaries and comparisons as opposed to complicated mathematical
models or statistical research methodology. Support for making decisions that are more
sophisticated and non-routine can be obtained from other types of corporate information
solutions.

DECISION-SUPPORT SYSTEMS

Challenges that are both unique and prone to rapid evolution, as well as challenges for which
the process for choosing a solution may not be totally foreseen in advance, are the primary
focus of decision-support systems, which are also known as DSS. These systems are abbreviated

INFORMATION SYSTEMS FOR BUSINESS 24

as DSS. They make an effort to provide responses to questions such as the ones that are listed
below: How would the manufacturing schedule be affected if there is a 100% increase in sales
during the month of December? What kind of an effect would a delay of six months have on
our return on investment if the timeframe for the facility's construction was pushed back? Even
though DSS makes use of the data that is produced internally by TPS and MIS, it frequently
takes into account information that originates from other locations, such as current stock prices
or product pricing offered by businesses that are in direct competition with DSS. These
platforms are utilized by managers and business analysts who are deemed to be "super-users"
and who seek to apply complex analytics and models in order to explore data. Additionally,
"super-users" are the only users who can access certain features of these platforms.

The term "business information systems" encompasses every single one of the management
systems that we have just reviewed in their entirety. The word "business intelligence" refers to
the process of organizing, analyzing, and disseminating data, in addition to the software tools
that make it possible for company managers and other corporate users to make more informed
decisions. This concept was coined by Gartner in 2005. Applications for business intelligence are
utilized not only by middle managers but also by senior management systems and other levels
of the organization. Middle managers are not the only level of management in the organization
to make use of these applications. These programs are utilized by managers at all levels of the
organization, not only those in middle management. Systems that include not just the long-
term tendencies and strategic challenges that are present within the firm but also those that
are present in the external environment are what senior managers are looking for. At this
moment, one of their primary concerns is "What will the state of employment be in five years?"
(which literally translates to "What will the state of working be?"). Where does our business fall
in relation to the long-term cost patterns that the sector as a whole is observing, and what
exactly are those patterns? In the subsequent period of five years, what categories of goods
should we produce? Which of our impending acquisitions would insulate us from the ebbs and
flows that are inherent to the business?

EXECUTIVE SUPPORT SYSTEMS:

These decisions are assisted by executive support systems, also known as ESS, which are
created for top management and are referred to by that acronym. They are tasked with making
ad hoc decisions that require discretion, in-depth inquiry, and profound understanding since
there is no predefined way for resolving difficulties. This is because there is no predetermined
technique for addressing issues. The interface of the ESS makes it possible for senior managers
to view graphs and data from a variety of sources in a manner that is uncomplicated and
uncomplicated. The use of a portal, which delivers integrated and personalized business

INFORMATION SYSTEMS FOR BUSINESS 25

material given via a Web interface, is a frequent practice among senior executives, and it is the
method by which the information is typically obtained by these executives.

SYSTEMS FOR LINKING THE ENTERPRISE

After looking through the many various types of systems that we have just mentioned, you may
be asking how a corporation can effectively manage the information that is stored in all of
these different types of systems after reading what we have just discussed.

APPLICATIONS GEARED TOWARD LARGE COMPANIES

Applications for Commercial Enterprises It has been demonstrated that integrating the
numerous distinct systems utilized by a firm is a task that is fraught with a great deal of
difficulty. In today's business world, it is normal practice for organizations to be developed by
combining the acquisition of smaller companies with continual "organic" expansion.
Organizations have a tendency, throughout the course of their history, to acquire a wide variety
of systems, the vast majority of which are relatively old. They are then confronted with the
difficulty of trying to make these different systems "talk" to one another and function as a
single unified system for the company. There is a great deal of variety in the approaches that
can be taken to solve this issue.

Enterprise applications are computer programs that function across functional boundaries,
place major emphasis on carrying out business activities throughout an entire corporate
organization, and include all levels of management. One technique involves the implementation
of enterprise apps, which are computer programs that operate across functional boundaries.
Enterprise applications help organizations become more flexible and productive by assisting in
the coordination of their business operations on a more intimate level and by combining groups
of processes so that businesses can focus on the efficient management of resources and the
provision of customer service. In other words, enterprise applications help organizations
become more productive and flexible.

The terms "enterprise systems," "supply chain management systems," "customer relationship
management systems," and "knowledge management systems" are together used to refer to
the four most essential applications used in corporations. The purpose of each of these
enterprise applications is to boost the company's overall performance by integrating a linked
collection of business processes and operations.

INFORMATION SYSTEMS FOR BUSINESS 26

 Information Systems in Decision Making

INFORMATION SYSTEMS FOR BUSINESS 27

 3.1 DECISION-MAKING AND INFORMATION SYSTEM

DECISION-MAKING BUSINESS INTELLIGENCE AND DECISION SUPPORT

Because of the importance of high-quality decision-making, firms are investing heavily in

business intelligence systems, which consist of technologies and applications designed to help
users make better business decisions. When we think of intelligence as applied to humans, we
typically think of people’s ability to combine learned knowledge with new information and
change their behavior in such a way that they succeed at their task or adapt to a new situation.
Likewise, business intelligence provides firms with the capability to amass information, develop
knowledge about operations, and change decision-making behavior to achieve profitability and
other business goals.

The below figure illustrates the major applications and technologies used for business
intelligence. They include supply chain management, customer relationship management, and
enterprise systems; systems for knowledge management; and technologies such as data mining
and online analytical processing (OLAP) for obtaining knowledge and insight from analyzing
large quantities of data. These systems work with specialized systems for management
decision-making (MIS, DSS, ESS) that focus on the specific decision needs of managers and
employees.

INFORMATION SYSTEMS FOR BUSINESS 28

BUSINESS VALUE OF IMPROVED DECISION MAKING

Let’s try to measure the business benefits of improved decision-making and link these
improvements to firm profitability. The below Table describes an example of a small
manufacturing firm operating in the United States with $280 million in annual revenue and 140
employees. The firm has identified several key decisions where new systems investments might
improve the quality of decision-making and produce value. Analysts have estimated the value
to the firm of improving each decision. The table provides selected estimates of the annual
value (either in cost savings or revenue enhancement) of improved decision-making in selected
areas of the firm.

Above Table shows that decisions are made at all levels of the firm and that some decisions are
very common and routine, but exceptionally valuable. Although the value of improving any
single one of these decisions may be small, improving hundreds of thousands of these small
decisions adds up to a large annual value.

BUSINESS DECISION-MAKING AND THE DECISION-MAKING PROCESS

Before making improvements in corporate decision-making with system investments, you must
understand more about the nature of decisions and the decision-making process. There are
different information requirements at different levels of responsibility in the organization that
affect the types of decisions made at each level.

INFORMATION SYSTEMS FOR BUSINESS 29

DECISION-MAKING LEVELS

There are different levels in an organization. Each of these levels has different information
requirements for decision support and different constituencies or groups that information
systems need to serve (see below Figure). The four different decision-making constituencies in
a firm are the following:

TYPES OF DECISIONS

The characteristics of decisions faced by managers at different levels are quite different.
Decisions can be classified as structured, semi-structured, and unstructured. Unstructured
decisions are those in which the decision maker must provide judgment, evaluation, and
insights into the problem definition. Each of these decisions is novel, important, and nonroutine,
and there is no well-understood or agreed on procedure for making them.

Structured decisions, by contrast, are repetitive and routine, and decision-makers can follow a
definite procedure for handling them to be efficient. Many decisions have elements of both and
are considered semi-structured decisions, in which only part of the problem has a clear-cut
answer provided by an accepted procedure. In general, structured decisions are made more
prevalently at lower organizational levels, whereas unstructured decision-making is more
common at higher levels of the firm.

Senior executives tend to be exposed to many unstructured decision situations that are open-
ended and evaluative and that require insight based on many sources of information and
personal experience. For example, a CEO in today’s music industry might ask, “Whom should
we choose as a distribution partner for our online music catalog—Apple, Microsoft, or Sony?”
Answering this question would require access to news, government reports, and industry views
as well as high-level summaries of firm performance. However, the answer would also require
senior managers to use their own best judgment and poll other managers for their opinions.

Middle management and operational management tend to face more structured decision
scenarios, but their decisions may include unstructured components. A typical middle-level
management decision might be “Why is the order fulfillment report showing a decline over the
last six months at a distribution center in Minneapolis?” This middle manager could obtain a
report from the firm’s enterprise system or distribution management system on order activity
and operational efficiency at the Minneapolis distribution center. This is the structured part of
the decision. But before arriving at an answer, this middle manager will have to interview
employees and gather more unstructured information from external sources about local
economic conditions or sales trends.

INFORMATION SYSTEMS FOR BUSINESS 30

Rank-and-file employees tend to make more structured decisions. For example, a sales account
representative often has to make decisions about extending credit to customers by consulting
the firm’s customer database which contains credit information. In this case, the decision is
highly structured, it is a routine decision made thousands of times each day in most firms, and
the answer has been preprogrammed into a corporate risk management or credit reporting
system.

The types of decisions faced by project teams cannot be classified neatly by organizational level.
Teams are small groups of middle and operational managers and perhaps employees assigned
specific tasks that may last a few months to a few years. Their tasks may involve unstructured
or semi-structured decisions such as designing new products, devising new ways to enter the
marketplace, or reorganizing sales territories and compensation systems.

STAGES IN DECISION MAKING

INTELLIGENCE

The decision-making process starts with discovering (what), identifying (where), and
understanding (why) the problem is occurring in the organization. And this is what intelligence
is concerned with.

DESIGN
After discovering, identifying, and understanding the problem, the decision maker finds some
possible solution for the problem raised, which is called Designing the solution.

CHOICE
What solution alternative should be the perfect match for the problem among solution
alternatives is the concern of this stage.

IMPLEMENTATION
This is the situation where the decision is applied. After applying the decision, Decision makers
continuously monitor if the decision is right. The decision-making process may work like a cycle
when the taken decision works properly. The decision-maker again through the same stages.

SYSTEMS FOR DECISION SUPPORT

There are four kinds of systems used to support the different levels and types of decisions just
described (see below Table). We introduced some of these systems in Chapter 2. Management
information systems (MIS) provide routine reports and summaries of transaction-level data to

INFORMATION SYSTEMS FOR BUSINESS 31

middle and operational-level managers to provide answers to structured and semi-structured
decision problems. Decision-support systems (DSS) are targeted systems that combine analytical
models with operational data and supportive interactive queries and analysis for middle
managers who face semi-structured decision situations. Executive support systems (ESS) are
specialized systems that provide senior management with making primarily unstructured
decisions with a broad array of both external information (news, stock analyses, industry trends)
and high-level summaries of firm performance. Group decision-support systems (GDSS) are
specialized systems that provide a group electronic environment in which managers and teams
can collectively make decisions and design solutions for unstructured and semistructured
problems.

INFORMATION SYSTEMS FOR BUSINESS 32

 3.2 ROLE OF INFORMATION SYSTEM IN DECISION MAKING

Information plays a vital role in decision-making. Even to take very simple decisions, we
need information. To understand the role played by information in decision-making, we have to
understand how decisions are taken.

STAGES OF DECISION MAKING

IDENTIFICATION AND STRUCTURING OF PROBLEM/OPPORTUNITY

One needs information to identify a problem and put it in a structured manner. Without
information about a problem or opportunity, the decision-making process does not even start.

PUTTING THE PROBLEM/ OPPORTUNITY IN THE CONTEXT

Without information about the context in which the problem has occurred, one cannot take
any decision on it. In a way, the information about the context defines the problem.

GENERATION OF ALTERNATIVES
Information is a key ingredient in the generation of alternatives for decision-making. One has to
have information about possible solutions to generate alternatives.

CHOICE OF THE ALTERNATIVES

Based on the information about the suitability of the alternatives, a choice is made to select the
best alternative.

Decision-making is the most important task of managers in an organization. Therefore, to

enable managers to take good quality decisions, it is very important to provide them with the
right kind of information. Information management in organizations, therefore, assumes a
special significance. In most organizations, business or otherwise, a systematic systems-based
method is used for information management. Systems-based information management works
best under a computerized environment and such a computer-based information management
system is normally called ‘Management Information Systems (MIS)’, which provides the service
of information supply to the managers enabling them to take informed decisions. It may be
worthwhile to mention here that MIS does not necessitate the use of computer-based
technology, but the use of computers and information technology makes MIS suitable for

INFORMATION SYSTEMS FOR BUSINESS 33

business organizations in a competitive environment as it helps to provide timely and accurate
information. MIS done manually, without the help of computers is neither timely nor accurate.

TYPES OF BUSINESS INFORMATION SYSTEM

Business Information Systems provide information that organizations use to manage

themselves efficiently and effectively, typically using computer systems and technology.
Primary components of business information systems include hardware, software, data,
procedures (design, development, and documentation), and people.

TRANSACTION PROCESSING SYSTEM

 A transaction process system (TPS) is an information processing system for business

transactions involving the collection, modification, and retrieval of all transaction data.
Characteristics of a TPS include performance, reliability, and consistency.
 Perform and record daily routine transactions necessary to conduct business.
 Allow managers to monitor the status of operations and relations with the external
environment.
 Serve operational levels
 Serve predefined, structured goals and decision-making.
 E.g., sales order entry, payroll, shipping.
 At the lowest level of management, TPS is an information system that manipulates data
from business transactions, i.e., manipulates transaction data into usable information).
 Any business activity such as sales, purchase, production, delivery, payments, or receipts
involves transactions and these transactions are to be organized and manipulated to
generate various information products for external use.
 For example, selling a product to a customer will give rise to the need for further
information like customer billing, inventory status, and an increase in the account
receivable balance.

TRANSACTION PROCESSING SYSTEM INVOLVES

 Capturing data to organize in files or databases.
 Processing of files/databases using application software.
 Generating information in the form of reports.
 Processing of queries from various quarters of the organization.

INFORMATION SYSTEMS FOR BUSINESS 34

PAYROLL TPS

A TPS for payroll processing captures employee payment transaction data (such as a time card).
System outputs include online and hard-copy reports for management and employee
paychecks.

Figure: A payroll system

DIFFERENT TYPES OF TRANSACTION PROCESSING SYSTEM

BATCH PROCESSING

As the name suggests, the processing of transactions takes place over batches. These batches
can be customized as per organization requirements. For example, a company may want to
process the payroll of its employees in a weekly or bi-weekly manner, thus the batches of
employee salaries will be processed over a span of one and two weeks respectively. There is
generally a time delay in this type of processing.

REAL-TIME PROCESSING

INFORMATION SYSTEMS FOR BUSINESS 35

Under real-time processing, every single transaction is processed with immediate effect. There
is no time delay in the real-time processing system.

MANAGEMENT INFORMATION SYSTEM

Management Information Systems (MIS) is the study of people, technology, organizations, and
the relationships among them. MIS professionals help firms realize maximum benefit from
investment in personnel, equipment, and business processes. MIS is a people-oriented field
with an emphasis on service through technology.

● Serve middle management

● Provide reports on the firm’s current performance, based on data from TPS
● Provide answers to routine questions with predefined procedures for answering them
● Typically have the little analytic capability

ADVANTAGES OF MANAGEMENT INFORMATION SYSTEM

● Improves the quality of an organization or information content by providing relevant

information for sound decision-making.
● MIS change a large amount of data into the summarized form and thereby avoid confusion
which may be an answer when an information officer are flooded with detailed fact.
● MIS facilitates the integration of specialized activities by keeping each department aware of
the problems and requirements of other departments.
● MIS serves as a link between managerial planning and control. It improves the ability of
management to evaluate and improve performance

DISADVANTAGES OF MANAGEMENT INFORMATION SYSTEM

● Too rigid and difficult to adapt.

● Resistance to sharing internal information between departments can reduce effectiveness.
● Hard to quantify benefits to justify the implementation of MIS.
● Quality of output of an MIS is directly proportional to the quality of input and processes.

INFORMATION SYSTEMS FOR BUSINESS 36

DECISION SUPPORT SYSTEM

It’s a computer-based system that aids the process of decision-making. It is an interactive,

flexible, and adaptable computer system. It is specially developed for supporting the solution of
a non-structured management problem for improved decision-making.

 Serve middle management.

 Support non-routine decision-making.
 Focus on problems that are unique and rapidly changing.

INFORMATION SYSTEMS FOR BUSINESS 37

E.g., What is the impact on the production schedule if December sales double?

 Often use external information as well from TPS and MIS

 DSS are designed so that users can work with them directly
 Include user-friendly software
 Use mathematical or analytical models

ALLOW VARIED TYPES OF ANALYSIS:

a. “What-if” analysis
b. Sensitivity analysis
c. Multidimensional analysis / OLAP. E.g., Pivot tables

ADVANTAGES OF DECISION SUPPORT SYSTEM

 It saves time.
 Enhances efficiency
 Reduces the cost.
 It improves personal efficiency.
 It increases the decision-maker’s satisfaction.

DISADVANTAGES OF DECISION SUPPORT SYSTEM

 Information Overload.
 Status reduction
 Over-emphasize decision-making.

EXECUTIVE SUPPORT SYSTEM

ESS is defined as a system that helps high-level executives to take policy decisions. This system
uses high-level data, analytical models, and user-friendly software for taking decisions. It is a
structured, automated tracking system that operates continuously to keep everything managed.
It provides exception and status reporting capabilities.

INFORMATION SYSTEMS FOR BUSINESS 38

 Support senior management
 Address non-routine decisions requiring judgment, evaluation, and insight.
 Enables users to extract summary data and solve complex problems.
 Provides rapid and direct access to timely information and management report.
 Capable of accessing both internal and external data.
 Provides extensive online analysis like trend analysis and scenario analysis.
 Filter, Compress, and track critical data, displaying the data of greatest importance to senior
managers.
 E.g., ESS provides a minute-to-minute view of a firm’s financial performance as measured by
working capital, accounts receivable, accounts payable, cash flow, and inventory.

ADVANTAGES OF EXECUTIVE SUPPORT SYSTEM

 Easy to use.
 Ability to analyze trends.
 Time management.
 Efficiency.
 Enhances business problem solving

INFORMATION SYSTEMS FOR BUSINESS 39

DISADVANTAGES OF EXECUTIVE SUPPORT SYSTEM

 Functions are limited.

 Difficult to keep current data.
 System can run slow.
 Less reliable.

INTER-RELATIONSHIPS AMONG SYSTEMS

EXPERT SYSTEM

An Expert System (ES) is a knowledge-based information system that uses its knowledge about
a specific, complex application area to act as an expert consultant to end users.

COMPONENTS OF AN EXPERT SYSTEM

KNOWLEDGE BASE

A knowledge base contains the knowledge needed to implement the task. There are two basic
types of knowledge:

Factual knowledge Facts, or descriptive information, about a specific subject area.

Heuristics A rule of thumb for applying facts and/or making inferences, usually expressed as
rules.

INFORMATION SYSTEMS FOR BUSINESS 40

INFERENCE ENGINE

An inference engine provides the ES with its reasoning capabilities. The inference engine
processes the knowledge related to a specific problem. It then makes associations and
inferences resulting in recommended courses of action.

USER INTERFACE

This is the means for user interactions.

To create an expert system a knowledge engineer acquires the task knowledge from the human
expert using knowledge acquisition tools.

MAJOR APPLICATION CATEGORIES OF EXPERT SYSTEM

DECISION MANAGEMENT

 This includes systems that appraise situations or consider alternatives and make
recommendations based on criteria supplied during the discovery process.
 Examples include loan portfolio analysis, employee evaluation, insurance underwriting, and
demographic forecasts.

DIAGNOSTIC/TROUBLESHOOTING

 This is the use of systems that infer underlying causes from reported symptoms and history.
 Examples include, help desk operations, software debugging, and medical diagnosis.

MAINTENANCE/SCHEDULING

 This includes systems that prioritize and schedule limited or time-critical resources.
 Examples include maintenance scheduling, production scheduling, education schedules, and
project management.

DESIGN/CONFIGURATION

 This is the use of systems that help configure equipment components, given existing
constraints that must be taken into account.
 Examples include computer option installation, manufacturability studies, communications
networks, and optimum assembly plans.

INFORMATION SYSTEMS FOR BUSINESS 41

SELECTION/CLASSIFICATION

 These are systems that help users choose products or processes from among large or
complex sets of alternatives.
 Examples include material selection, delinquent account identification, information
classification, and suspect identification.

PROCESS MONITORING/CONTROL

 This includes systems that monitor and control procedures or processes.

 Examples include machine control (including robotics), inventory control, production
monitoring, and chemical testing.

GROUP DECISION SUPPORT SYSTEM

● Interactive system to facilitate the solution of structured problems by the group.

● Specialized hardware and software; typically used in conference rooms.
a. Overhead projectors, display screens
b. Software to collect, rank, and edit participant ideas and responses.
c. May require a facilitator and staff.
● Promotes a collaborative atmosphere, guaranteeing anonymity.
● Uses structured methods to organize and evaluate ideas.

OFFICE AUTOMATION SYSTEM

● The movements towards automation in the new hardware and software technologies like
word processors, spreadsheets, electronic mail, and so on, which make office workers more
productive.
● These combinations of technologies that have a dramatic impact on day-to-day office
operations are called office automation(information) systems (OAS).
● Office Automation (OA) is the use of technology to help people do their jobs better and
faster.
● "The use of computers, micro-electronics, and telecommunications to help us produce,
store, obtain and send information in the form of pictures, words or numbers, more reliably,
quickly and economically."

INFORMATION SYSTEMS FOR BUSINESS 42

TYPES OF OFFICE AUTOMATION SYSTEMS

DOCUMENT MANAGEMENT SYSTEMS

 Word Processing
 Desktop Publishing (DTP) enables you to produce well-designed pages that combine charts
and graphics with text, it lets you do all this at your desk, without a ruler, pen, or paste.
 Corel Draw, Microsoft Publisher, PowerPoint, Photoshop
 Image Processing System Optical Character Recognition (OCR), scanners are used to
convert paper or microfilm records to a digital format for storage in secondary storage
devices

MESSAGE HANDLING SYSTEMS

 Telex
 Fax
 Teletext
 Voice Mail

TELECONFERENCING SYSTEMS:

 Audio conferencing
 Video conferencing
 Computer conferencing
 Telecommuting

INFORMATION SYSTEMS FOR BUSINESS 43

 3.3 TRANSACTION PROCESSING SYSTEM

The majority of businesses in today's world use computers to run their daily operations.
Computers are used by them to process and store data, run programs, and communicate with
clients and suppliers. The Transaction Processing System is one of the most crucial programs
used by enterprises (TPS). The concept of TPS, its elements, and its significance in corporate
operations will all be covered in this presentation.

WHAT IS TRANSACTION PROCESSING SYSTEM (TPS)?

A computer-based system known as a "transaction processing system" (TPS) collects, processes,

and stores data resulting from business transactions. Any business activity that creates or
updates data that is ultimately recorded in an information system is referred to as a transaction.
A payment, the selling of a good or service, the acquisition of raw materials, etc. are all
examples of transactions.

A TPS is made to support an organization's regular, daily operations. For efficient and
productive company operations, it automates repetitive processes like data entry, calculations,
and record-keeping. Some businesses, including banks, airlines, merchants, and manufacturing,
use TPSs to handle millions of transactions each day.

The inputs, processes, and outputs make up the three essential parts of a TPS.

INPUT

Data is gathered from a variety of sources, such as employees, clients, suppliers, and other
business systems, through the input component of a TPS. Typically, a user interface such as a
keyboard, scanner, or touchscreen is used to input data into the system.

PROCESSES:

The processing part of a TPS performs a number of processes to transform the incoming data
into useful information. This calls for the storage, transformation, computation, and validation

INFORMATION SYSTEMS FOR BUSINESS 44

of data. The processing component also ensures data integrity by checking for errors and
anomalies in the data.

OUTPUTS:

Creating useful data that managers and other stakeholders can use to make informed decisions
is the output component of a TPS. The output can be shown as dashboards, reports, charts, and
graphs, among other formats. Moreover, activities like database updates, report printing, and
notice sending may be triggered by the output component.

HISTORICAL SIGNIFICANCE OF TPS

IBM introduced the well-liked SystemJ36O in 1964, paving the way for widespread use of online
transaction processing. The CICS transaction processing monitor programme was released by
IBM in 1969. The first relational database, called System R, was introduced by IBM in the early
1970s and was based on Ted Codd's research. After Oracle and IBM's DB2 were released in the
1980s, relational DBMSs gained popularity. In 1986, SQL became standardised. After buying
Sybase in the 1990s, Microsoft introduced SQL Sewer. Since 2000, updates have been made to
the commercial Oracle, SQL Server, and IBM DBMS; however, new competition is now coming
from open source DBMS like MySQL. Large organisations that have transactions spread across
different servers and systems frequently use TPSs. The earliest type of transaction processing
was batch processing in the past. Punch cards were used in the early days of computers to input
both the data to be processed and the actual programme code. An operator physically punched
each card for input. Punch card stacks were physically fed into the computer and processed one
at a time. Online real-time processing of many transactions was just not practicable in these
early days. The hardware only handled one operation at once, and the results were
progressively saved on magnetic tape.

INFORMATION SYSTEMS FOR BUSINESS 45

TYPES OF TRANSACTION PROCESSING SYSTEM

BATCH PROCESSING SYSTEMS

A kind of computer system known as a batch processing system works with enormous amounts
of data in groups or batches. Instead of processing data in real-time or continuously, this
system collects and processes data in batches. In commerce, banking, and other industries
where massive amounts of data must be processed on a regular basis, batch processing is
frequently used

The following steps are commonly included in the batch processing system:

JOB SUBMISSION:

The user submits a batch job to the system at this point. The task usually entails running a
single program or a group of related processes.

JOB CONTROL:

After a job is submitted, a queue is created for it. The queue is managed and the execution of
the jobs is scheduled by the job control system. The job control system also handles other
duties including resource allocation and job status monitoring.

JOB EXECUTION:

During this phase, the system runs the batch task. The software is run by the system after being
loaded into memory. The job's input and output data are typically read from and written to files,
respectively.

JOB COMPLETION:

The system notifies the user when the job is complete. The user can access the output data
because it is saved in files.

INFORMATION SYSTEMS FOR BUSINESS 46

Advantages:

Efficiency: Batch processing systems are effective at handling massive amounts of data because
they can handle several jobs at once.

Automation: Batch processing systems can handle repeated jobs automatically, requiring less
human involvement.

Error Detection: Batch processing systems are capable of detecting faults and exceptions, such
as missing or incorrect data, and can take the necessary action, such as cancelling the operation
or notifying the user, as necessary.

Scalability: Systems for batch processing can be scaled up or down to match changes in
workload, making them appropriate for companies and organizations with varying data
processing needs.

Disadvantages:

Delay: Due to the necessity to schedule and process jobs in batches, batch processing systems
may result in a delay in processing time.

Data Integrity: Batch processing methods could cause problems with data integrity since data
can change between the time it is collected and processed.

Lack of Flexibility: Batch processing systems are not always appropriate for processing ad hoc
or real-time data because they are built to handle specific types of workloads.

REAL-TIME PROCESSING:

A real-time processing system (TPS) is one that processes data as it is being input into the
system. Customers anticipate immediate confirmation of their transactions in sectors like e-
commerce, where real-time processing technologies are frequently used. Applications that call
for fast reaction, such as streaming video, trading in financial markets, and online gaming,
frequently use real-time processing.

INFORMATION SYSTEMS FOR BUSINESS 47

Real time processing involves the following stages:

DATA ACQUISITION:

During this stage, data is gathered from a variety of sources, including users, devices, and
sensors. The information could be presented in text, audio, or video among other media.

DATA PROCESSING:

In real-time processing, data is processed instantly and without delay as it is received. Filtering,
aggregation, analysis, and classification are a few examples of the jobs that may be involved in
the processing.

DECISION MAKING:

In real-time processing, choices are based on the data that has been processed. The choices
might be made automatically or might need human intervention.

RESPONSE:

Real-time processing generates the response right away once a decision has been taken. The
response could come in text, audio, or video, among other formats.

Advantages:

Speed: As data is handled as soon as it is received, real-time processing is extremely quick.

Accuracy: As real-time processing offers the most recent information for making decisions, it is
particularly accurate.

Responsiveness: Real-time processing offers users an immediate answer, making it incredibly

responsive.

Adaptability: Real-time processing's capacity to process data in real-time and make decisions as
a result allows it to adapt to changing circumstances.

INFORMATION SYSTEMS FOR BUSINESS 48

Disadvantages:

Complexity: Real-time processing is particularly complex since it calls for powerful computers
and advanced algorithms.

Resource Intensive: Real-time processing uses a lot of computing power and bandwidth,
making it a particularly resource-intensive operation.

Cost: Because real-time processing needs specialized gear and software, it is quite expensive.

ONLINE TRANSACTION PROCESSING SYSTEMS:

A program that supports transaction-oriented processes, such as banking, e-commerce, and

airline reservations, is known as online transaction processing (OLTP). OLTP systems are made
to manage large numbers of transactions in real-time while giving users prompt and precise
responses.

The following elements are commonly included in OLTP systems:

USER INTERFACE:

In OLTP systems, users communicate with the system using a user interface, such as a mobile
app or web application. Users can enter data into the system and get information via the user
interface.

APPLICATION SERVER:

The application server handles transaction management and user request processing. Usually,
the database server and the application server run on different servers.

DATABASE SERVER:

Data management and storage are the responsibilities of the database server. Usually, the
database server and the application server run on different servers.

INFORMATION SYSTEMS FOR BUSINESS 49

NETWORK:

The user interface, application server, and database server are all connected via the network,
enabling communication between them.

The following steps are commonly included in OLTP systems:

USER INTERACTION:

At this phase, the user interacts with the system by entering data and getting information
through the user interface.

DATA PROCESSING:

Data is processed in real-time in OLTP systems as soon as it is received. The application server,
which controls transactions and interacts with the database server, processes data.

TRANSACTION MANAGEMENT:

In OLTP systems, the application server is in charge of managing transactions, ensuring that
they are successful and that the data is accurate.

DATABASE MANAGEMENT:

The database server in OLTP systems stores and manages data. The database server makes sure
that data is accurately saved and that it may be retrieved in a timely manner.

Advantages:

Speed: As data is processed in real-time and results are produced instantly, OLTP systems
operate incredibly quickly.

Accuracy: OLTP systems have a high level of accuracy since they guarantee data consistency
and successful transaction completion.

INFORMATION SYSTEMS FOR BUSINESS 50

Scalability: OLTP systems are appropriate for companies and organizations that suffer
fluctuations in transaction volume since they can be scaled up or down to match changes in
workload.

Security: To secure sensitive information, OLTP systems offer security mechanisms including
user authentication and data encryption.

Disadvantages:

Complexity: OLTP systems include many different parts and procedures, making them
exceedingly complicated.

Resource Intensive: OLTP systems consume a significant amount of bandwidth and computer
power.

Cost: Because they require specialized hardware and software, OLTP systems can be
exceedingly expensive to develop, implement, and maintain.

DISTRIBUTED PROCESSING SYSTEM:

A single task is broken down into smaller subtasks and processed on various computers or
nodes in a technique known as distributed processing. Large-scale data processing and intricate
calculations like machine learning, scientific simulations, and data analysis are done using
distributed processing systems.

The components listed below are frequently present in distributed processing systems:

Nodes

Individual computers or servers that take part in the distributed processing system are known
as nodes. Typically, each node has independent processor, memory, and storage.

INFORMATION SYSTEMS FOR BUSINESS 51

Network:

The network links the nodes together and facilitates communication between them. Depending
on the system needs, the network might be wired or wireless.

Middleware:

Software called middleware creates an abstraction layer between an application and the
underlying hardware and network. The nodes can communicate with one another and
coordinate their processing thanks to middleware.

The following phases are frequently present in distributed processing systems:

Task Distribution:

The work is broken up into smaller sub-tasks and delivered to the nodes at this level. A
component of the task is handled individually by each node.

Processing:

During this stage, each node uses its own resources and processing capacity to complete the
assigned subtask. To coordinate their processing and make sure the job is done appropriately,
the nodes communicate with one another.

Result Aggregation:

The results from every node are gathered and merged at this stage to create the final output.
The outcome might undergo more processing, including analysis or visualization.

Advantages:

Fault Tolerance: Distributed processing systems are fault-tolerant because they can keep
running even in the event that one or more nodes fail.

Speed: Due to the fact that numerous nodes can complete a work in concurrently, distributed
processing systems have the potential to be very quick.

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Cost: As distributed processing systems can leverage already-existing resources and hardware
and don't need specialized gear, they may be more affordable.

Disadvantages:

Complexity: Due to the numerous nodes and communication channels involved, distributed
processing systems are extremely complicated.

Network Overhead: Distributed processing systems can produce a lot of network traffic, which
can clog networks and slow down operations.

Synchronization: Distributed processing systems need synchronization between the nodes, but
doing so can be challenging and slow down operations.

IMPORTANCE OF TRANSACTION PROCESSING SYSTEM

DATA ACCURACY:

TPSs are made to accurately capture, process, and store data. The danger of data errors and
inconsistencies is decreased by TPSs by automating data entry and validation. By doing this, the
company is guaranteed access to dependable and accurate data, which is necessary for making
well-informed decisions.

BETTER DECISION-MAKING:

TPSs produce information that managers and other stakeholders can utilize to make wise
decisions. Reports on sales, inventory levels, and customer information are a few examples of
this data. TPSs help businesses make quick, educated decisions by giving current, accurate
information.

BETTER CUSTOMER SERVICES:

Improved customer service is made possible by TPSs, which automate repetitive operations and
provide businesses quick access to consumer information. A TPS in a retail establishment, for

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instance, can instantly obtain a customer's purchasing history, allowing the salesperson to offer
tailored recommendations and specials.

PRODUCTIVITY GAINS:

TPSs automate repetitive activities, requiring less manual involvement. This can boost
productivity by enabling workers to concentrate on more worthwhile tasks. A TPS in a
manufacturing facility, for instance, can automate the process of monitoring inventory levels
and placing fresh orders for raw materials, freeing up staff members to concentrate on
production.

GEO-REDUNDANT:

The term "geo-redundant" refers to a system that is distributed and geographically dispersed. It
might be incorporated across several places. The system must function in the nation where the
business is conducted. In the event that the system needs to be fixed or stopped for
maintenance, a different location could serve as a backup or failover node.

CHARACTERISTICS OF TRANSACTION PROCESSING SYSTEM

Atomicity: Atomicity is one of the TPS's characteristics, which ensures that a transaction is
completed entirely and is completely undone in the event of a failure.

Consistency: This ensures that the data is accurate for each portion of the transaction by
accounting for the data saved and carrying out each transaction step consistently.

Isolation: Transactions must be independent of one another, which mean treating each
transaction differently and storing its data differently.

Durability: All transactions should be recorded, verified at any time, and backup copies of all
data retained in order for the effects of the completed transaction to persist.

Economy: Transactions shouldn't be prohibitively expensive.

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Divisibility: The ability to exchange numerous low-level transactions for a single high-level
transaction.

Scalability: The system must be able to support multiple users at once.

Interoperability: Interoperability is the capacity for a value to travel back and forth between
several systems, for as the worth of the currency used to pay for a service in a retail transaction,
which is expressed in dollars.

Conservatism: Money should be easy to store and retrieve and should maintain its worth over
time.

Customers or clients are resources, as are the tools used by a business to perform transactions,
such as hardware and software (general & specific). The majority of TPSs employed DBMS as
their storage programme.

TRANSACTION PROCESSING CYCLE

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DATA COLLECTION

Data collection is the initial phase in a transaction cycle. This occurs prior to the occurrence of a
system-side activity that may be seen on the server. Transactions are measured in easy units for
documentation, such as labour hours, dollars when dealing with finances, etc. The database is
annotated with information about the time, date, and involved parties.

DATA EDITING

It implies verifying the accuracy of the information entered. Checking for missing data items,
valid codes, and valid values are examples of typical validation tests. Authorization of the
transaction based on the customer's history and the inventory's availability may be part of a
more thorough validation.

DATA CORRECTION

It is implemented if an error is found in the entered data.

DATA MANIPULATION

It is necessary to process data after it has been gathered and entered into a system. Updating
data, making changes to data, adding data, and removing data are the four different types of
file processing. Batch processing, real-time processing and online batch processing are the
three methods for updating files.

DATA STORAGE

It is an essential stage in many data processing methods. The results that have been processed
are saved to be used as input data in the future. Records are the building blocks of a file, which
is a cohesive set of data storage. An assortment of files makes up a database. It suggests that
databases that record the transaction have been changed.

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BUSINESS APPLICATIONS OF TRANSACTION PROCESSING

Transaction Processing applications in business In order to succeed in today's cutthroat

business environment, innovative architectural design and corporate agility are essential. The
overarching goal is to use real-time information to optimize return on investment through
improved business decisions.

 Let's use some examples to try to understand the business applications of transaction
processing. Room occupancy is an obvious indicator of competitive efficiency in the
hotel industry. Business intelligence at Taj Group prioritizes privileged member status
and associated pricing models over just looking at room availability. The terms of the
stay may swiftly reflect any additional services or perks that may be provided to the
customer. A platinum member will receive better services. Systems on the room
inventory side also take into account preferences for room locations and whether or not
they are overbooked or undersold. Also, in less than a second, the system intelligence
generates a "best yield," "best price" scenario for the hotel chain and the customer. The
major goal of transaction processing is to provide a newer variety of services that draw
clients and keep them as repeat clients. The hotel reservation system needs a
transaction throughput that is quick and reliable, available everywhere, 24 hours a day,
with a complete and quick failover.
 Another illustration is a payroll system, which is necessary for every business. In
accordance with their compensation package and terms of service, employees' salaries
and wages must be tracked. Data elements like name, employee id, and email are
contained in a master file. The data elements are updated as new data is introduced to
the system.

These components can be put together in many ways depending on the reporting and analysis
needs of the organization. Calculating paid leave for each employee is one example. Calculating
the total number of additional hours done outside of regular business hours is another option.
The most typical illustration is an accounting system. It assists in keeping track of fixed costs

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 and staff incentives. It is able to monitor policies linked, money paid and pay cheques
processed.

3.4 DECISION SUPPORT SYSTEM

The process of choosing a course of action from among multiple potential outcomes is known
as decision-making. Any human being must make decisions on a daily basis. Regarding it, there
is no exemption. Making decisions in business organizations is a habit and a process as well.
Decisions that are successful and effective generate profits, whereas decisions that are
unsuccessful incur losses. Therefore, the most important process in any firm is corporate
decision-making.

We select one course of action during a decision-making process from a number of potential
possibilities. We may utilize a variety of tools, tactics, and views when making decisions.
Additionally, we may prefer a group decision over our own private ones.

Usually, decision-making is hard. Majority of corporate decisions involve some level of

dissatisfaction or conflict with another party.

HISTORY OF DECISION SUPPORT SYSTEM

EVOLUTION OF DECISION SUPPORT SYSTEM

DSS dates back to the early 1960s, when companies started employing computers for data
processing for the first time. At the time, DSS were straightforward systems that gave
administrators access to fundamental data for decision-making, such as sales numbers and
inventory levels.

Researchers started creating increasingly complex DSS that included cutting-edge analytical
tools and procedures in the late 1960s and early 1970s. Jay Forrester, a computer scientist and
engineer, was one of the important pioneers in this area. In the 1950s, he created the
Whirlwind system, the first interactive computer-based model for decision-making. Modern

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DSS were developed as a result of Forrester's research on computer-based decision-making
models.

The first commercial DSS was being developed in the 1970s, with organizations like IBM and
DEC (Digital Equipment Corporation) taking the lead. These early DSS were often stand-alone
programs created for particular sectors of the economy, such finance and healthcare.

In the 1980s, as the cost of computer hardware and software decreased, DSS became more
widely available and more affordably priced. As a result, DSS was adopted by companies and
organizations of all kinds at a previously unheard-of rate. Simultaneously, DSS began
combining ever-more complex technology, such as expert systems and artificial intelligence.

The internet and the World Wide Web fundamentally changed how DSS were developed and
applied in the 1990s. As web-based DSS gained popularity, it became easier to use and more
interesting. The development of data warehousing and data mining technology during this
time also facilitated the growth of DSS. The development of mobile and cloud-based DSS
became more widespread in the 2000s as DSS continued to change. Decision-makers may now
access crucial information and make judgments at any time and from any location due to these
platforms.

DSS are becoming a vital tool for companies and organizations of all sizes in a variety of
industries. They are always changing and incorporating new technologies, including machine
learning and natural language processing, to give decision-makers information that is ever
more precise and pertinent.

DECISION MAKING PROCESS

IDENTIFICATION OF THE PURPOSE OF DECISION

This step involves a comprehensive analysis of the issue. When determining the decision's goal,
there are a few questions that should be asked.

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What precisely is the issue?

Why should the issue be resolved?

Who are the parties impacted by the issue?

Is there a deadline or a set timeline for the issue?

INFORMATION GATHERING

The stakeholders in an organization's dilemma will be numerous. Numerous more elements

may also be associated with or impacted by the issue.

You will need to acquire as much data as possible about the causes and parties involved in the
problem in order to solve it. Tools like "Check Sheets" for information gathering can be utilized
successfully.

PRINCIPLES FOR JUDGING THE ALTERNATIVES

The foundational standards for evaluating the options should be established in this step.
Organizational objectives and business culture should be taken into account when creating the
criteria.

Profit, for instance, is one of the primary considerations in every decision-making process.
Unless it is an exceptional circumstance, businesses rarely decide to lower profits. Likewise,
fundamental ideas pertinent to the issue at hand should be discovered.

BRAINSTORM AND ANALYZE THE CHOICES

The best method for this phase is to list all the ideas during a brainstorming session.
Understanding the root causes of the issue and how to prioritize those reasons is essential
prior to the idea generating phase. Use the Pareto Chart tool and cause-and-effect diagrams
for this.

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You can use a cause-and-effect diagram to determine all the causes of the issue, and a Pareto
chart can help you rank them in order of importance and determine which ones will have the
most impact.

After then, you can continue to come up with every option (solution) to the current situation.

EVALUATION OF ALTERNATIVES

To assess each option, use your judgmental principles and decision-making standards.
Experience and the efficacy of the judgment principles are used in this step. You must weigh
the advantages and disadvantages of each solution.

SELECT THE BEST DECISION

Once you go through from Step 1 to Step 5, this step is easy. In addition, the selection of the
best alternative is an informed decision since you have already followed a methodology to
derive and select the best alternative.

EXECUTE THE DECISION

Convert your decision into a plan or a sequence of activities. Execute your plan by yourself or
with the help of subordinates.

EVALUATE THE RESULTS

Evaluate the outcome of your decision. See whether there is anything you should learn and
then correct in future decision making. This is one of the best practices that will improve your
decision-making skills.

COMPONENTS OF DECISION SUPPORT SYSTEM

User Interface

A DSS's user interface is crucial because it enables people to communicate with the system
and access the data and models. The user interface must be simple to use, friendly to the user,

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and give pertinent information. It might have dashboards, reports, and visualizations that
might aid consumers in comprehending the study' findings.

Some important factors to keep in mind when creating a DSS's user interface are as follows:

Clarity and simplicity: The user interface needs to be simple to use and comprehend, with
labelling and instructions that are straightforward to read. Additionally, there shouldn't be
many needless features or distractions in the UI.

Customizability: The user interface needs to be adaptable to the requirements and tastes of
different users. The interface should be configurable by users to show the data and
visualizations that are most pertinent to their requirements.

Navigation: Users should be able to rapidly and simply move about the system thanks to the
user interface. Users may be assisted in doing this by using menus, tabs, and search tools to
get the information they require.

Visualization: A crucial component of a DSS's user interface, visualization enables users to

comprehend intricate data and models. The user interface ought to include a selection of data
visualization tools, such as maps, graphs, and charts that may be altered to show various kinds
of data.

Interactivity: Users should be able to engage with the data and models in real-time through
the user interface. To do this, you might utilize sliders, buttons, and other interactive features
that let users explore various scenarios and modify the analyses and models.

In simple terms, a DSS's user interface is crucial in enabling users to access, comprehend, and
apply the data and models, as well as to make wise and useful decisions based on the analysis.

Database Management System

As it enables the system to handle the data required for analysis and decision-making, the
DBMS is an essential part of a DSS. The DBMS offers resources for manipulating, retrieving,
and securing data while also ensuring its security and integrity.

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Some essential DBMS components in a DSS are as follows:

Data storage: The database management system (DBMS) offers a consolidated location for
keeping the data required for analysis and decision-making. Data may need to be kept in tables,
files, or other structures that the DSS can access and query.

Data retrieval: The DBMS enables the DSS to use SQL or other query languages to retrieve
data from the database. The DSS can utilize queries to combine various tables or files to build
more complex datasets or to retrieve specific data for examination.

Data manipulation: The DBMS enables the DSS to perform a variety of data manipulation
operations on the data, including filtering, sorting, and aggregation. Utilizing SQL commands or
other DBMS tools may be required for this.

Security: The DBMS offers resources for guaranteeing the data's integrity and security. To
prevent illegal access, data loss, or corruption, this may entail implementing encryption, access
controls, backup, and recovery solutions.

Scalability: The DBMS needs to be scalable in order to support massive datasets and a rising
user base. To ensure that the system can handle growing volumes of data and users, this may
require deploying distributed databases, clustering, or other techniques.

Overall, the DBMS is a crucial part of a DSS that enables it to manage the data required for
analysis and decision-making. The DBMS offers resources for manipulating, retrieving, and
securing data while also ensuring its security and integrity.

Model base Management System

Model base management (MBM) is the process of developing, updating, and maintaining the
models that are utilized by decision support systems (DSS) to offer decision support. This
involves activities including determining which models are acceptable for the problem domain,
creating and improving models based on fresh information or modifications to the problem
domain, and ensuring that models are correct and current.

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Since models are the cornerstone of a DSS's decision-making powers, effective model base
maintenance is essential to its success. A well-managed model basis can ensure that the DSS is
giving accurate and helpful information to decision-makers, whereas a model base that is not
well-managed may produce suggestions that are inaccurate or irrelevant and may be
detrimental to the company.

Data quality, model accuracy and dependability, model scalability, and the capability of timely
model updates are a few important factors to take into account when managing model bases.
In order to ensure that models continue to offer reliable and practical recommendations to
decision-makers, it is also crucial to put systems in place for monitoring and validating their
performance over time.

ADVANTAGES OF DECISION SUPPORT SYSTEM

Time savings

Research has shown and supported shorter decision cycles, higher worker productivity, and
more current information for decision-making across all categories of decision support systems.
The use of automated decision support has been shown to save significant amounts of time.
But researchers haven't always shown that decision quality stayed the same or improved.

Enhance effectiveness

Improved decision-making efficiency and better decisions fall under a second type of benefit
that has been extensively researched and investigated. Though challenging to record and
gauge, decision effectiveness and quality are.

Instead of using quantitative indicators, most studies have looked at subjective metrics like
perceived decision quality. Supporters of data warehouse construction point to the potential
for more comprehensive analysis that can enhance decision-making.

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Improve Interpersonal Communications

Improved cooperation among decision makers and improved interpersonal communication are
both possible with DSS. Group and communications-driven DSS have had this effect when used
appropriately. Model-driven DSS offers a way to communicate data and presumptions.
Managers have access to "one version of the truth" regarding business operations thanks to
data-driven DSS, which can promote fact-based decision-making. Building a data-driven DSS is
frequently motivated by improved data accessibility. Most DSS kinds have not had this benefit
sufficiently proven.

Competitive advantage

Business intelligence systems, performance management systems, and web-based DSS

vendors typically mention this benefit. Although it is theoretically possible, it is not expected
that automated decision support will give you a competitive advantage.

Cost reduction

Some researches and especially case studies have documented DSS cost saving from labor
savings in making decisions and from lower infrastructure or technology costs. This is not
always a goal of building DSS.

Increase decision maker satisfaction

Analysis of this result has been and possibly will continue to be hampered by the novelty of
using computers. DSS may lessen decision makers' frustrations, generate the impression that
better information is being used, and/or create the impression that the person is a "better"
decision maker. Researchers frequently gauge DSS satisfaction rather than satisfaction with
employing a DSS in decision-making since satisfaction is a difficult concept to quantify.
Satisfaction with and without computerized decision aids has been examined in some research.

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 Promote learning

Learning can come about as a result of using a DSS initially and continuously. Learning new
concepts and developing a better factual awareness of the business and decision-making
environment appear to be the two main types of learning that take place. Some DSS serves as
"de facto" training resources for brand-new workers. This possible benefit has not been
sufficiently investigated.

Increase organizational control

Business transaction data is frequently made available for performance monitoring and ad hoc
querying by data-driven DSS. These technologies can improve management comprehension of
corporate processes, which is seen as helpful by managers. The financial gain from more
precise data is not always obvious. Regulations like Sarbanes-Oxley frequently specify
reporting requirements, which has a significant impact on the control information available to
managers. More concerning, some DSS include summaries of information regarding decisions
taken, system usage, and system recommendations. Managers must use extreme caution
while gathering and using decision-related data for organizational control. The advantages of a
DSS may be diminished if employees believe they are being watched or threatened while using
it.

DISADVANTAGES OF DECISION SUPPORT SYSTEM

While developing and utilizing decision support systems can benefit businesses and offer
advantages, there are particular scenarios where doing so can have unfavorable effects.

Financial cost

The decision support system necessitates the purchase of an information system in order to
gather data from a variety of sources and analyze it in order to support decision making. It is
expensive to pay the experts to set up the system because some analyses for Decision Support

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Systems require the most recent in data analysis, statistics, econometrics, and information
systems.

Overemphasize decision making

Many of us who are interested in computerized decision support have a clear focus on
decisions and decision making. Implementing a decision support system could overemphasize
decision making and decision processes while supporting the logical viewpoint. Managers must
be informed on the larger context in which decisions are made, as well as the social, political,
and emotional elements that affect organizational success. It is crucial to keep researching the
situations and situations in which Decision Support System should be developed and deployed.
We must keep asking if a particular Decision Support System is or stays appropriate to employ
for making or informing a particular decision, as well as whether the decision scenario is
appropriate for using any type of Decision Support System.

Assumption of relevance

According to Wino grad and Flores (1986), “Once a computer system has been installed it is
difficult to avoid the assumption that the things it can deal with are the most relevant things
for the manager’s concern. The danger is that once DSS become common in organizations,
that managers will use them inappropriately. There is limited evidence that this occurs. Again
training is the only way to avoid this potential problem.

Transfer of power

Constructing a decision support system, particularly one that is knowledge-driven, may be

interpreted as handing up decision-making authority to a computer program. This is more of a
problem for DSS than for decision automation systems. Because we wish to enhance decision
making while retaining a human decision maker in the "decision loop," we argue for the
development of computerized decision support systems. The "need for human discretion and
innovation" in the decision-making process is something we value generally.

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Unanticipated effects

The use of decision support technologies could have unintended effects. It is conceivable and
proven that some DSS lower the level of expertise required to complete a decision assignment.
Some decision support systems actually diminish the effectiveness of decision making by
overburdening decision makers with information.

Obscuring responsibilities

It is individuals, not computers, who make "bad" decisions.

Unfortunately, some people might blame a DSS for their own actions. Managers must
constantly be reminded that the computerized decision support system serves as a liaison
between the system's creators and its users. The people who created and utilize the DSS are
solely responsible for any decisions made using it.

False belief in objectivity

Using decision support systems by managers could make them more impartial in their
decision-making. Managers can utilize decision support technology to justify their decisions,
but computer software can also promote more logical behavior. To imply that DSS users are
more objective and logical than managers who do not use computerized decision assistance is
an exaggeration.

Status reduction

Some managers contend that utilizing a decision support system will lower their position and
compel them to do administrative duties. Implementing a DSS may be problematic because of
this perceived issue. Any status issues that may arise must be handled by managers and IS
employees who support developing and utilizing computerized decision support. Now that
computer usage is widespread and acceptable in businesses, this notion might or might not be
as prevalent.

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Information overload

People struggle greatly with having too much knowledge, and many DSS add to this problem.
Decision Support System can assist managers in organizing and using information, despite the
fact that this may be an issue. Actually, a decision support system can lessen and control a
user's information load. Developers of decision support systems should attempt to gauge the
amount of information the system generates, and decision support system users should keep
an eye on how much information they actually feel they are receiving. The growing use of
portable, wireless computing devices could make this issue and drawback worse.

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 3.5 EXECUTIVE SUPPORT SYSTEM

A kind of management information system called "Executive Support System" (ESS) offers
assistance with decision-making at the executive level of a business. ESS is made to give
executives access to accurate, timely, and relevant information so they may make more
educated decisions. Executive support systems are intended to be used by the senior managers
directly to provide support to non-programmed decisions in strategic management. These
information are often external, unstructured and even uncertain. Exact scope and context of
such information is often not known beforehand.

HISTORY OF EXECUTIVE SUPPORT SYSTEM

Executive Information Systems (EIS) first appeared in the 1980s in order to overcome the DSS's
deficiencies. EIS were created to give top executives quick access to operational data, key
performance indicators, and other strategic information. Executives could easily spot trends
and patterns in data because to EIS's interactive graphical interface. EIS, however, was unable
to assist in making difficult decisions.

Executive Support Systems (ESS), created in the 1990s to alleviate the limitations of EIS, were
introduced. Executives have access to all the DSS data, models, and analytical tools as well as
the EIS's interactive capabilities and user-friendly graphical user interface thanks to ESS. ESS
enabled executives to access internal and external data sources, which aided in both structured
and unstructured decision-making.

Business intelligence (BI) evolved in the 2000s as the next step in the development of ESS. In
order to collect, analyze, and present data to assist decision-making, businesses might use a
variety of tools, apps, and processes together referred to as business intelligence (BI). A system
called business intelligence (BI) integrates data warehouses, data mining software, and other
analytical tools that provide managers with easy access to relevant data.

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Modern ESS: Today's ESS are based on BI systems and built to give executives quick access to
real-time data, predictive analytics, and machine learning algorithms. To give CEOs
individualized and useful insights, modern ESS combine artificial intelligence (AI) and natural
language processing (NLP) technology. Today's ESS also uses cloud computing and mobile
technology, giving executives access to crucial data whenever and wherever they need it.

ESS normally consists of a number of elements, including:

Data management:

ESS collects and saves data from multiple information systems, including databases and
spreadsheets, within a business. The insights gained from organizing and analyzing this data can
then be used to help decision-making.

Reporting:

ESS creates dashboards and reports that give executives a visual view of key performance
indicators and other crucial parameters. These reports can be altered to suit each executive's
unique requirements.

Analysis:

To give executives better insights into organizational performance, ESS employs data analysis
technologies. These instruments can be used to spot patterns, forecast future events, and
assess how well certain tactics will work.

Collaboration:

ESS makes it possible for executives to work together and with other organizational
stakeholders. Numerous formats of cooperation are possible, such as video conferencing,
document sharing, and online conversations.

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Integration:

ESS is made to work with other information systems inside an organization, including enterprise
resource planning, customer relationship management, and accounting systems. Because of
this interconnectivity, executives may access all pertinent data when making judgments.

Healthcare, banking, government, and education are a few examples of industries and
organizational settings where ESS might be applied. ESS is frequently utilized for things like:

Financial management:

ESS can support executives in keeping track of spending, monitoring financial performance, and
finding cost-cutting options.

Marketing and sales:

ESS can help executives create marketing and sales strategies by revealing information about
consumer behavior and spotting new market prospects.

Human Resource:

Executives may manage staff performance, monitor employee engagement, and pinpoint areas
for development with the aid of human resources software (ESS).

Risk management:

ESS can assist executives in identifying and controlling risks, such as operational, reputational,
and financial risks.

ESS is a management information system created to support executives' decision-making. It has

capabilities for data administration, reporting, analysis, teamwork, and integration. To support
decision-making in areas including financial management, marketing and sales, human

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resources, and risk management, ESS is employed in a range of industries and organizational
contexts.

A FEW INSTANCES OF INTELLIGENT INFORMATION

Here are some instances of intelligent data, which is frequently the source of an ESS:

 Outside databases
 Reports on technology, such as patent histories, etc.
 Technical memos from advisers
 Market research
 Privileged information about rivals
 Information that is uncertain, such as market conditions
 Government regulations
 Financial facts and reports

FEATURES OF EXECUTIVE SUPPORT SYSTEM

Drill Down Capabilities

An important component of an Executive Support System (ESS) that enables executives to study
data at various degrees of detail is the drill-down capability. Executives can use this capability to
begin with a high-level picture of the data and then drill down to more specific details as
needed.

The drill-down capability, for instance, can be used by an executive to perform a more in-depth
analysis of sales data for a certain product line. Before drilling down to evaluate the sales for
each specific product in the line, they might start by examining the total sales for the product
line. The sales can then be broken down even further by location, salesperson, or any other
pertinent component. Executives can analyze the data in real-time using interactive dashboards
or charts that frequently exhibit the drill-down functionality. With the aid of this function,

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executives may more easily spot patterns and trends in the data, which can guide their
decision-making.

Personalized Analysis

The ability of an Executive Support System (ESS) to give certain executives individualized
information and insights is one of its primary characteristics. According on each user's role,
responsibilities, and areas of focus, ESS can be tailored to match their specific needs and
preferences. Here are some illustrations of customized features an ESS might provide:

Customizable Dashboard: ESS may be made to enable each executive to develop a dashboard
that shows the data and metrics that are most pertinent to their own role and responsibilities.
For instance, a CEO could want to monitor key financial indicators, whereas a sales director
might choose to concentrate on sales success and client information.

User-defined alerts: ESS can be set up to deliver notifications and alerts to particular executives
in response to predetermined triggers or thresholds. A CFO might request notification, for
instance, if revenue drops below a specific threshold or if expenses rise above a predetermined
proportion of revenue.

Personalized reports: ESS can produce customized reports that offer analysis and insights
based on the areas of focus of a certain executive. For instance, a marketing director might get
a report with thorough data on indicators for consumer interaction and campaign performance.

Individualized data access: ESS can be set up to give each executive access to the information
and data that are most pertinent to their job and other obligations. A marketing director might
have access to customer data and marketing analytics, whereas a CFO might have access to
financial data and reports.

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Predictive analytics: ESS can offer individualized predictions and suggestions to certain
executives using machine learning and other cutting-edge analytics approaches. An ESS might,
for instance, utilize historical data to forecast future sales growth or pinpoint potential business
problems.

Navigation Information

The ability to navigate information is a key component of executive support systems (ESS).
Senior executives can obtain the data they require from an ESS to help them make wise
strategic decisions. Information navigation is the process of navigating the data to find the right
information. The following are some essential components of information navigation in an ESS:

Easy Access: Information should be accessible and simple to navigate in an ESS. Executives
should be able to easily obtain the information they require thanks to the interface's design.
The ESS should be able to present pertinent data in a clear and understandable manner.

Search Functionality: The ESS must to have a search feature that enables executives to locate
certain information rapidly. The search function needs to be adaptable and capable of handling
challenging queries.

Filtering: Executives should be able to filter the data using specific criteria using the filtering
capabilities that the ESS should offer. An executive might, for instance, want to filter sales data
by location, category, or date.

Data visualization: ESS should have the ability to present data in a form that is simple to
comprehend. Executives should be able to engage with the visualization and explore the data to
spot trends and patterns.

Graphical Information

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ESS frequently employs graphical representations like charts, graphs, and diagrams to deliver
complex information in a clear and understandable visual style. Executives can immediately
spot trends and patterns and acquire insights into the data from graphical information that may
not be obvious from a text-only study.

Examples of graphical data that could be included in an ESS include:

 Sales data presented as a line graph illustrating trends over time.

 A pie chart displaying the allocation of costs among various departments.
 A heat map indicating the locations of clients or suppliers.

Executives can make better judgments by using graphical information in an ESS to give them a
clear, visual depiction of complex data.

Textual Information

A crucial component of an ESS is textual data. While textual information offers a more thorough
context and explanation for the data, graphical information can be valuable for presenting facts
in a visual style. Textual data can be used to offer more contexts, draw attention to important
trends or patterns, or elaborate on the value of the data.

Examples of textual data in an ESS include the following:

 An overview of the company's key performance indicators (KPIs), including sales data,
customer happiness ratings, and employee engagement scores
 An examination of market conditions and the competitive landscape is included in a
report on the most recent trends in the sector.
 A thorough evaluation of the company's financial performance, including an explanation
of any major variations in sales, costs, or profits.

ADVANTAGES OF EXECUTIVE SUPPORT SYSTEM

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Executive Support Systems (ESS) benefit firms and senior executives in a number of ways. The
following are a few of the major benefits of employing an ESS:

Improved decision-making

In order to help CEOs make better decisions, ESS give them instant access to real-time data and
analytics. Executives are able to weigh options and select the best course of action for the
organization thanks to the capacity to analyze data and conduct what-if scenarios.

Increased Efficiency

ESS automates data collection and analysis procedures, which saves time and effort while
gathering information. Instead of spending time manually gathering and evaluating data, this
enables executives to concentrate on making decisions and taking action.

Better communication

ESS can promote greater communication between teams and executives by offering a single
platform for exchanging data and insights. This makes it possible to guarantee that everyone is
working with the same data and that decisions are grounded in a shared knowledge of the facts.

Improved strategic planning

Executives can create more effective long-term strategy plans by using ESS to find trends and
patterns in data. Executives may more accurately identify future trends and opportunities by
being able to examine and compare data from various time periods and sources.

Improved Communication

ESS offers executives and teams a shared platform to communicate information, which can help
enhance communication and alignment throughout the enterprise. This can lessen the
possibility of miscommunication and guarantee that everyone is working toward the same
objectives.

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Increased competitiveness

ESS can help firms keep ahead of the competition by giving executives access to real-time data
and insights. In industries that move quickly, having the capacity to make educated decisions
quickly and effectively can give firms a major competitive advantage.

Improvements in decision-making, efficiency, cooperation, strategic planning, communication,

and competitiveness are just a few of the benefits of employing an ESS. These advantages can
aid businesses in achieving their objectives and sustaining long-term success.

DISADVANTAGES OF EXECUTIVE SUPPORT SYSTEM

While Executive Support Systems (ESS) has many advantages for organizations, there may
also be certain drawbacks to take into account. The following are a few of the most typical
drawbacks of using an ESS:

High implementation costs

Implementing ESS can be expensive, particularly if the firm does not already have the required
IT infrastructure, software, and hardware in place. Smaller businesses or those with tighter
finances may find it challenging to adopt an ESS as a result.

Complexity

ESS can be intricate systems that call for specialist instruction to operate properly. Because of
this, executives who are unfamiliar with the technology may find it challenging to utilize the
system to its maximum potential.

Issues with data quality

Effective ESS depends on accurate and timely data. Decisions may be made incorrectly based on
wrong information if the data being used is outdated, incomplete, or inaccurate.

Over-reliance on technology

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ESS can foster a culture of over-reliance on technology, where executives may place an undue
emphasis on the data provided by the system and neglect to take other aspects into account
that may be crucial when making decisions.

Security risks

If improperly guarded, ESS could provide security dangers. Access to sensitive data by
unauthorized individuals or other parties could result in data breaches and other security
problems.

Limited customization

Even while ESS is intended to be adjustable, there might still be certain restrictions on how
customized they can be. This can make it challenging for firms to customize the system to their
own requirements and may lead to the presentation of useless or superfluous information to
executives.

Overall, even if there are a lot of advantages to ESS, it's crucial to thoroughly weigh the risks
and drawbacks before putting one in place in a co

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 3.6 GROUP DECISION SUPPORT SYSTEM

A computer-based technology called the Group Decision Support System (GDSS) is intended to
make group decision-making procedures easier. It is a specific kind of information system that
makes it possible for teams to work together successfully and take choices more quickly. Group
members can interact, work together, and share information in real-time using the GDSS
platform, which can result in more intelligent and sensible decisions. However, GDSS offers
tools and technologies specifically designed for group decision-making and were created in
response to growing worries about the caliber and efficacy of meetings. The proliferation of
decision-maker meetings, the lengthening of those meetings and the rising attendance have
been the fundamental issues in group decision making. Between 35 and 70 percent of a
manager's time is thought to be spent in meetings.

TYPES OF GROUP DECISION SUPPORT SYSTEM

STRUCTURED GROUP DECISION SUPPORT SYSTEM

A group decision support system called structured GDSS is made to assist groups in making
decisions for clearly defined situations. A problem is well-structured when the decision-making
process is well-defined and the standards for judging solutions are transparent. Decision-

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supporting methods used by structured GDSS frequently include mathematical models, decision
trees, and other quantitative techniques.

In structured GDSS, decision trees are a frequent tool. A decision tree visually represents the
decision-making process that lists all potential outcomes. Every decision node in the decision
tree denotes a decision point when a group member must pick one of several options. Each
branch from the decision node represents the potential outcomes of any decision. The result of
the decision-making process in its entirety is represented by a terminal node in the tree.

Another tool utilized in structured GDSS is mathematical models. To describe the decision-
making process and to assess the many options, mathematical models are used. In order to
maximize profit or reduce costs, for instance, a linear programming model could be used to
optimize the allocation of resources like personnel, tools, and materials.

Structured GDSS often follows a process with numerous steps and is structured. Defining the
issue and the decision-making process' goals is the first step. This entails deciding the
alternatives that will be assessed as well as the choice criteria. The gathering of facts and
information that will be utilized to support decision-making is the second step. This entails
deciding the alternatives that will be assessed as well as the choice criteria. The gathering of
facts and information that will be utilized to support decision-making is the second step. This
could entail gathering information from corporate databases, outside sources, or professional
judgments. The third phase involves applying quantitative approaches, such as decision trees,
mathematical models, or statistical analysis, to study the data and assess the options. Making a
choice based on the evaluation of the options is the fourth phase. Implementing the choice and
keeping an eye on the results make up the fifth phase. Over other GDSS varieties, structured
GDSS has a number of advantages. First of all, it gives decision-making a methodical and
objective approach that helps lessen biases and errors. Second, it gives the group the
opportunity to assess a wide range of options and select the best one using good logic. Thirdly,
it permits the employment of mathematical models and other quantitative methods as

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decision-supporting tools, which may result in more exact and correct conclusions. Finally, it
can be used to support choices that demand a lot of research and technical know-how.

Groups that must make judgments for well-organized problems can benefit greatly from using
structured GDSS. It offers a methodical and impartial approach to decision-making, which can
lessen biases and errors and result in better-informed and more sensible choices. Decision-
supporting methods used by structured GDSS frequently include mathematical models, decision
trees, and other quantitative techniques.

UNSTRUCTURED GROUP DECISION SUPPORT SYSTEM

A group decision support system called an unstructured GDSS is intended to assist groups in
making decisions for difficult, unstructured issues. An unstructured problem is one in which the
criteria for evaluating solutions are unclear, the decision-making process is not well defined,
and the information at hand may be ambiguous or lacking. Unstructured GDSS frequently
employs idea generating, brainstorming, and other qualitative strategies to assist in decision-
making.

In unstructured GDSS, brainstorming is a frequently used tool. A group strategy for coming up
with original ideas and challenges to solve is brainstorming. Members of the group are usually
encouraged to openly express their thoughts during brainstorming sessions without receiving
feedback or judgment. The objective is to produce a lot of ideas that can be assessed and
improved later in the decision-making process. Another method utilized in unstructured GDSS is
idea creation. Idea generation is the process of coming up with numerous suggestions or
answers to an issue utilizing various tools, including mind mapping, association, and analogy.
The purpose of idea generation is to promote creativity and produce original, cutting-edge
solutions to challenging issues.

Unstructured GDSS often follows a less structured procedure than formal GDSS because
unstructured situations may involve more fluid and iterative decision-making. A typical method,
however, could have numerous steps. Defining the issue and the decision-making process' goals

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is the first step. This entails deciding the alternatives that will be assessed as well as the choice
criteria. The gathering of facts and information that will be utilized to support decision-making
is the second step. This could entail gathering information from corporate databases, outside
sources, or professional judgments. The third phase is to come up with concepts and potential
remedies for the issue. The fourth phase is to assess the concepts and decide which are most
promising. The fifth step is to create a strategy for putting the chosen solutions into action. The
sixth and final phase is to keep an eye on the implementation and assess the outcomes.
Compared to other GDSS varieties, unstructured GDSS has a number of advantages. First off, it
offers a flexible and imaginative approach to decision-making that might result in fresh and
original solutions. Second, it helps the group to produce several ideas and consider a variety of
options. Thirdly, it enables the use of qualitative methodologies to decision-making, which can
aid in capturing the collective wisdom and experience of the group. Finally, it can be applied to
decisions that demand a lot of originality and ingenuity.

Groups that must make judgments for complicated, unstructured problems can benefit greatly
from using unstructured GDSS. It offers a flexible and imaginative method of decision-making,
which may result in fresh and original solutions. Unstructured GDSS frequently employs idea
generating, brainstorming, and other qualitative strategies to assist in decision-making.

SEMI-STRUCTURED DECISION SUPPORT SYSTEM

A group decision support system called semi-structured GDSS combines aspects of unstructured
and structured GDSS. It is intended to assist groups in making decisions for partially structured
issues, i.e., situations where some elements of the decision-making process are clearly specified
while others are not. To aid in decision-making, semi-structured GDSS frequently combines
qualitative and quantitative methodologies. Semi-structured GDSS frequently entails a number
of phases. Defining the issue and the decision-making process' goals is the first step. This entails
deciding the alternatives that will be assessed as well as the choice criteria. The gathering of
facts and information that will be utilized to support decision-making is the second step. This
could entail gathering information from corporate databases, outside sources, or professional

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judgments. The third step entails data analysis and option evaluation utilizing both quantitative
and qualitative methods, including decision trees, mathematical models, idea generating, and
brainstorming. Making a choice based on the evaluation of the options is the fourth phase.
Implementing the choice and keeping an eye on the results make up the fifth phase.

Compared to other GDSS varieties, semi-structured GDSS has a number of advantages.

First of all, it gives decision-making a balanced framework that integrates quantitative and
qualitative methods. Second, it gives the group the opportunity to assess a wide range of
options and select the best one using good logic. Thirdly, it permits the employment of both
structured and unstructured strategies to aid in decision-making, which may result in decisions
that are more informed and more sensible. And finally, it can be used to decisions that call for
both analysis and originality.

For groups who need to make judgments for partially structured problems, semi-structured
GDSS is a useful technique. It offers a well-rounded method for making decisions that
incorporate both quantitative and qualitative methods. To aid in decision-making, semi-
structured GDSS frequently combines qualitative and quantitative techniques like decision trees,
mathematical models, brainstorming, and idea generation.

COMPONENTS OF GROUP DECISION SUPPORT SYSTEM

GDSS are made up of a number of parts that work together to encourage group members to
communicate, collaborate, and make decisions.

HARDWARE

Hardware is one of the key elements of GDSS is hardware. In order to enable the software
programs that support group decision-making, GDSS needs specific hardware. Servers,
workstations, and networking devices are all included in this category. The servers are in charge
of hosting the GDSS software programs and providing concurrent assistance for several users.
Individual group members connect with the GDSS software applications using workstations. The

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workstations are connected to the servers using networking hardware, which also makes it
easier for group members to communicate.

SOFTWARE

Software is yet another crucial part of the GDSS. Data gathering, analysis, and visualization are
only a few of the many parts of the decision-making process that are supported by GDSS
software programs. Tools for idea development, consensus building, voting, and brainstorming
are frequently included in GDSS software systems. To assist in evaluating options and choosing
the best one, these software programs also include decision-making models, mathematical
algorithms, and simulation tools.

TOOLS FOR COMMUNICATION

The GDSS includes communication tools as a core component. Members of the group can
connect with one another, share information, and trade ideas thanks to these technologies.
Email, instant messaging, video conferencing, and collaborative workplaces are examples of
communication technologies. Members of the group can share data, graphics, and other
material using these tools, which also enhance real-time conversation.

COLLABORATION TOOLS

Tools for collaboration are created to support group members' cooperation during the decision-
making process. These tools make it possible for group members to collaborate on projects
including creating alternatives, analyzing possibilities, and coming to an agreement. Shared
workspaces, version control systems, and document management systems are examples of
collaboration technologies. With the help of these technologies, group members can
collaborate on a shared project or document and guarantee that everyone has access to the
most recent version.

DECISION-MAKING TOOLS

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The most important part of GDSS is the decision support tools. By giving group members access
to data, information, and analysis, these technologies are intended to support the decision-
making process. Decision support tools include tools for simulation, data visualization, decision
trees, and mathematical models. Members of the group can use these tools to assess
possibilities, contrast options, and decide on the best course of action. Tools for decision
support also give group members knowledge about the repercussions of their decisions,
empowering them to make wise decisions.

SECURITY FEATURES

A crucial part of GDSS is security features. Sensitive information, including financial data, trade
secrets, and private client information, is frequently included in group decision-making. This
data must be shielded by GDSS from theft or unauthorized access. Access control,
authentication, and data encryption are security features. These features make guarantee that
only individuals with permission can access the GDSS and the information it contains.

USER INTERFACE

Another essential part of GDSS is the user interface. The area of the GDSS that group members
interact with is the user interface. Members of the group can traverse the GDSS software
applications using the menus, buttons, forms, and other visual components. The user interface
ought to be simple, easy to use, and intuitive. The involvement of group members with the
GDSS can be increased, and their overall experience can be enhanced, with a well-designed
user interface.

TRAINING AND ASSISTANCE

An integral part of GDSS is training and support. The proper use of the GDSS software programs
must be taught to group members. Additionally, they must get continuing assistance to resolve
technical problems and get beyond any roadblocks that emerge throughout the decision-
making process. User guides, online tutorials, help desks, and other resources can all be used to

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deliver training and assistance. A strong training and assistance program might help to
guarantee that group.

FEEDBACK SYSTEMS

The GDSS's feedback systems are essential elements. These tools allow group members to
express their opinions regarding the decision-making procedure, the accuracy of the data, and
the functionality of the GDSS software programs. Surveys, polls, and user feedback forms are a
few examples of feedback techniques. The comments gathered can be utilized to enhance the
GDSS and make sure it satisfies the group's requirements.

DATA STORAGE AND MANAGEMENT

The storage and administration of data are crucial GDSS components. Large volumes of data,
including text, pictures, and multimedia information, are frequently used in group decision-
making. This data needs to be managed and stored by the GDSS in a secure and effective
manner. Data archiving, data compression, and data backup and recovery are all examples of
data management and storage functions.

ADAPTABILITY FEATURES

Customization options are crucial parts of the GDSS. With the help of these characteristics,
organizations can modify the GDSS software programs to suit their particular requirements and
preferences. The ability to construct personalized decision-making models, add or delete
features and functionalities, and modify the user interface to the tastes of the group are all
examples of customization features.

SCALABILITY

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Scalability is a crucial element of the GDSS. Regardless of the group's size, the GDSS must be
expandable to meet its needs. The GDSS can be expanded to handle more decision-making
tasks and activities, and scalability features can include the ability to add or remove users,
upgrade hardware and software, and extend user numbers.

The GDSS's components work in concert to facilitate collective decision-making. Hardware,

software, collaboration and communication tools, decision support tools, security features,
user interfaces, training and support materials, feedback mechanisms, data management and
storage capabilities, customization options, and scalability are some of these components. By
utilizing these elements, teams can interact successfully, share ideas, and reach decisions that
are in line with their objectives.

CHALLENGES OF GROUP DECISION SUPPORT SYSTEM

Some of the most common challenges of GDSS include:

Technical issues: Delays and disruptions in the decision-making process can be brought on by
technical issues such as software defects, network connectivity problems, and device failures.
The dependability and correctness of the data utilized in the decision-making process might
also be affected by these problems.

Resistance to change: Some group members could be reluctant to use the GDSS because they
are unfamiliar with the technology or they prefer the old-fashioned ways of making decisions.
This opposition may slow down the adoption of GDSS and reduce its efficacy.

Security issues: Using GDSS might cause security issues, particularly when sharing private or
confidential information. To avoid unauthorized access or data breaches, system security and
data protection must be guaranteed.

Training and assistance: Proper training and assistance for group members are necessary for
the successful usage of GDSS. Members may be unable to utilize the system properly if they are
not given adequate training, which could cause frustration and lower adoption.

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Group dynamics: The success of GDSS is greatly influenced by group communication and
dynamics. The effectiveness of the GDSS in enabling decision-making may be compromised if
there are problems with trust, communication, or cooperation.

Cost: GDSS deployment and upkeep can be expensive, especially for small businesses or groups
with a tight budget. Before establishing a GDSS, it is important to carefully assess the cost of
the necessary hardware, software, and training.

Availability of reliable data: Access to trustworthy and accurate data is essential for the GDSS
to function effectively. The decisions made may be faulty if the data employed in the decision-
making process is insufficient or inaccurate.

Cultural differences: GDSS performance may be impacted by cultural differences among group
members. Varied communication and decision-making processes that emerge from varied
cultural backgrounds can make it challenging to apply GDSS efficiently.

Over-reliance on technology: The use of GDSS should support human decision-making rather
than replace it. Overuse of technology can result in less creativity and critical thinking, which
can have a negative effect on decision-making.

Even though GDSS has a lot to offer companies and groups, it's necessary to be aware of the
difficulties that come with using and implementing it. The success of GDSS in promoting
efficient group decision-making can be ensured by addressing these issues through appropriate
training and assistance, good communication, and the use of reliable data.

BENEFITS OF GROUP DECISION SUPPORT SYSTEM

Increased efficiency: GDSS can facilitate group decision-making by expediting the process and
enabling members to collaborate in real time, regardless of where they are located.

Improved decision-making: GDSS can help make decisions better by increasing access to
information, increasing the accuracy of data, and minimizing the influence of biases and
personal preferences.

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Participation boost: Since GDSS offers a forum for cooperation and idea exchange; it can
motivate group members to participate more actively.

Improved communication: By giving group members a common forum for discussion and
decision-making, GDSS can improve communication among group members.

Cost savings: GDSS can assist cut expenses related to decision-making by lowering travel costs
and the requirement for physical meeting spaces.

Flexibility: GDSS allows for flexible decision-making because it may be tailored to match the
unique demands of various groups.

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 Types of Information Systems

4.1 KNOWLEDGE MANAGEMENT

Knowledge management refers to the act of amassing, disseminating, and effectively applying
an organization's collective body of information and expertise. This comprises identifying and
collecting important data, making it easily accessible to individuals who need it, and utilizing it
to improve both performance and decision-making abilities. It may also involve cultivating a
culture that places a high emphasis on the exchange of information.

One example of how knowledge management may be put into practice is when a company
develops a method for cataloging and sharing the organization’s most successful work practices
with its employees. This could involve establishing a central database in which staff members
can share their expertise and learn from one another, or it could involve putting in place a
mentorship program in which senior staff members can pass on their knowledge to junior staff
members. Both of these options are possible.

ROLE OF KNOWLEDGE MANAGEMENT SYSTEMS IN BUSINESS

Knowledge management systems are extremely important to the corporate world because they
facilitate the collection, storage, and dissemination of information and expertise inside an
organization. These solutions can help businesses improve their decision-making, make greater
use of the experience of their employees, and achieve a competitive advantage.

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Software investments in areas such as knowledge management and collaboration are among
the most rapidly expanding areas in both private industry and public administration. In the
domains of economics, management, and information systems, there has been a meteoric rise
in the amount of study conducted on knowledge and the management of knowledge during the
past decade. Since managers of many large businesses have realized that a significant portion
of their company's worth is dependent on the firm's ability to develop and manage knowledge,
knowledge management has emerged as an essential topic in these businesses.

EXAMPLES OF THE KNOWLEDGE MANAGEMENT SYSTEM

● Making it easier for employees to quickly access knowledge and information that is relevant,
which can improve both performance and productivity.
● Stimulating employee participation and the sharing of knowledge, which can lead to the
generation of more inventive ideas and approaches.
● Enabling managers to have access to dependable and relevant data to facilitate the making
of sound decisions.
● Helping to collect and store the vital information and expertise possessed by key members
of staff is something that might be of tremendous value if a member of that staff leaves the
company.
● Making it possible for organizations to handle and make use of the huge volumes of data
and information that are being produced in this era of digital technology effectively and
efficiently.

IMPORTANT DIMENSIONS OF KNOWLEDGE

The differences between facts, information, knowledge, and wisdom are critically crucial to
keep in mind. Data can be thought of as a stream of events or transactions that are captured by
systems utilized by a company, each of which is good for doing transactions but not much else.
To transform data into information that can be used, a company needs to devote resources to
organize the data into categories that can be comprehended. Some examples of these
categories include monthly, daily, regional, or store-based reports of total sales. To turn
information into knowledge, a company needs to invest additional resources to identify
patterns, rules, and contexts where the knowledge may be applied successfully. One last
definition of wisdom holds that it is the accumulated and personalized experience of putting
one's knowledge to use to solve difficulties.

The ability to recognize when, when, and how to apply one's information is essential to wisdom.
Both the individual employee and the entire company contribute to the firm's overall level of

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knowledge. People's heads are the sites of cognitive and even physiological processes that lead
to the accumulation of knowledge. Moreover, it is kept in records and libraries, as well as
shared in lectures, as well as by businesses in the form of business practices and employee
know-how that is stored by these businesses. The knowledge that just exists in the heads of
workers and has not been recorded somewhere is referred to as tacit knowledge, while
knowledge that has been recorded somewhere is referred to as explicit knowledge. Both
structured and unstructured papers, as well as e-mail and voice mail, graphics, and other types
of files, can be sources of knowledge. It is a commonly held belief that knowledge can be found
in one of two places: the minds of individuals or the operations of particular businesses.
Knowledge is "sticky," meaning that it is not easily transferable and is not applicable
everywhere. In conclusion, it is believed that knowledge is both situational and contextual. For
instance, you are responsible for knowing both how to do a process and when it is appropriate
to perform it.

KNOWLEDGE IS A FIRM ASSET

● Intangible assets include one's level of knowledge.

● The translation of raw data into information and knowledge that can be used needs the
utilization of organizational resources.
● The rule of diminishing returns does not apply to knowledge in the same way that it does to
physical assets; rather, knowledge is subject to network effects, which cause its worth to
increase as more people share it.

KNOWLEDGE HAS DIFFERENT FORMS

● Both tacit and explicit forms of knowledge are possible (codified).

● Know-how, craft, and skill are all components of knowledge.
● A fundamental component of knowledge is the ability to execute protocols.
● Knowledge includes understanding not only when things occur but also why they do so
(causality).

KNOWLEDGE HAS A LOCATION

● The cognitive process that leads to the acquisition of knowledge involves the formation of
mental models and maps of individuals.
● There is a communal basis for knowledge as well as an individual basis for it.
● Knowledge is "sticky," meaning it is difficult to transfer; it is located, meaning it is ingrained
in the culture of an organization; and it is contextual, meaning it is only applicable in certain
circumstances.

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KNOWLEDGE IS SITUATIONAL

● There are three prerequisites for knowledge: It is just as crucial to be familiar with a method
as it is to understand when it should be applied (conditional).
● Context is directly tied to knowledge: you need to be aware of how to use a specific tool
and under what conditions it should be used.

It is clear that knowledge is a distinct category of company asset compared, for example, to
architectural and financial assets; the fact that knowledge is a complicated phenomenon; and
the fact that the process of managing knowledge encompasses many different facets. Also, we
can acknowledge that the knowledge-based core competencies of companies, sometimes
known as the two or three things that an organization does very well, are essential components
of organizational assets. The ability to perform tasks effectively and efficiently, in a manner that
cannot be replicated by other businesses, is a main source of profit and a source of competitive
advantage that rivals in the industry are unable to get it easily through purchase. For example,
the possession of a one-of-a-kind production system that is built to the customer's
specifications is a kind of information as well as maybe a distinctive asset that cannot be simply
replicated by competing businesses. When businesses have access to greater knowledge, they
can make better use of the limited resources they have. Without information, businesses can't
make the most of their resources and end up failing as a result of their inability to do so
efficiently and effectively.

LEARNING WITHIN ORGANIZATIONS AND MANAGING ACCUMULATED KNOWLEDGE

Similar to how humans do it, organizations use a range of organizational learning techniques to
produce and collect their unique forms of knowledge. Experience is gained by businesses not
only via the gathering of data and the meticulous measurement of planned operations but also
through the process of trial and error, also known as experimentation, as well as through the
feedback of customers and the environment in general. Companies that can learn can adapt
their behavior to reflect that learning. One way in which they do this is by developing new
business processes and by altering the patterns of managerial decision-making. The process of
adapting to new circumstances is referred to as organizational learning. It is possible that
organizations that are better able to sense and react quickly to changes in their environments
would endure for a longer period than organizations that have less effective learning
mechanisms.

THE KNOWLEDGE MANAGEMENT VALUE CHAIN

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Knowledge management is the set of business processes that are built within an organization to
create knowledge, store knowledge, transfer knowledge, and apply knowledge. Knowledge
management enhances an organization's capacity to gain new insights from its surrounding
environment and integrate those insights into its operational procedures. The five processes
that contribute the most value to the whole process of knowledge management are depicted in
Figure 1. Each new stage added to the value chain results in an overall increase. The process of
turning raw data and information into knowledge that can be used provides another layer of
value at each stage of the value chain.
Figure 1 illustrates the separation of activities related to information systems from those that
are related to management and organizational activities. The activities related to information
systems are located at the top of the graphic, while management and organizational activities
are located below. A catchy phrase that can be used for the topic of knowledge management is
"Effective knowledge management is 80 percent managerial and organizational, and 20 percent
technology."
We describe organizational and managerial capital as the collection of business practices,
cultural norms, and behavioral patterns that are necessary to derive value from investments in
information technology. To get the most out of your investment in knowledge management
initiatives, you need to develop supportive values, structures, and patterns of behavior. This is
true not only for knowledge management but also for other information systems investments.
In Figure 1, the management and organizational activities in the lower half of the diagram
represent the investment in organizational capital required to obtain substantial returns on the
information technology (IT) investments and systems shown in the top half of the diagram.
These returns are obtained by utilizing the information obtained from the systems shown in the
top half of the diagram.

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 Figure 1

ACCUMULATION OF INFORMATION
How an organization obtains knowledge might vary greatly depending on the kind of
information that it wishes to amass. The earliest iterations of knowledge management systems
were primarily concerned with the establishment of corporate archives containing documents,
reports, presentations, and best practices. These efforts have been expanded to cover papers
that do not have a structured layout (such as e-mail). In some instances, corporations obtain
information through building online expert networks, which allow employees to "identify the
expert" within the firm who already possesses the knowledge in his or her mind. This allows the
organization to gain knowledge more efficiently. In still other instances, businesses are required
to generate new information by either finding patterns hidden within their corporate data or by
employing knowledge workstations at which engineers can find new information. A knowledge
system that is consistent and well-organized also has to be systematic. Data from the firm's
transaction processing systems, which track sales, payments, inventory, customers, and other
vital data; data from external sources, such as news feeds, industry reports, legal opinions,
scientific research, and government statistics. data from the firm's transaction processing
systems, which track sales, payments, inventory, customers, and other vital data.

KEEPING RECORDS OF INFORMATION

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Documents, patterns, and expert rules need to be saved after they have been identified so that
staff can access them when needed and put them to use. Creating a database is typically an
essential step in the process of storing information. Large databases that are capable of holding
collections of documents are what are known as document management systems. These
systems digitize, index, and tag documents with a consistent framework. Expert systems assist
businesses in several ways, including the preservation of learned knowledge through the
incorporation of that information into the culture and operations of the organization.
Employees should be rewarded for taking the time to correctly update and save documents,
and management should assist in the development of planned knowledge storage systems.
Moreover, management should encourage the creation of enterprise-wide schemas for
indexing documents. For example, it would compensate the sales force for submitting the
correct information. Names of prospects are added to a centrally located corporate database of
prospects, where all members of the sales staff have access to identify each prospect and
review the information that has been stored.

KNOWLEDGE SHARING AND SPREADING

Technology such as portals, e-mail, instant messaging, wikis, social networks, and search
engines have been added to an already extensive selection of collaboration technologies and
office systems to share calendars, documents, data, and graphics. It would appear that
contemporary technology has resulted in a flood of information and knowledge. How can
employees and managers navigate the vast amounts of information and knowledge available to
them to zero in on what is truly relevant to their decisions and their work? In this context,
training programs, informal networks, and shared management experience that are
transmitted within an environment that is supportive assist managers focus their attention on
the knowledge and information that is most important.

THE APPLICATION OF KNOWLEDGE

No matter what kind of knowledge management system is being used, the addition of value to
a company's operations will not occur if the existing information is not communicated among
employees and applied to the real-world challenges faced by managers. To generate a return
on investment, it is necessary for organizational information to be incorporated methodically
into the decision-making processes of management and to find a home in decision-support
systems. In the end, a company's business processes and critical application systems, such as
enterprise applications for managing important internal business processes and interactions
with customers and suppliers, need to have new knowledge incorporated into them to be
successful. This process is supported by management via the creation of new business

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processes, new products and services, and new markets for the company, all of which are
based on newly acquired information.

DEVELOPING ORGANIZATIONAL AND MANAGERIAL CAPITAL: COMMUNITIES OF PRACTICE, OFFICE

ENVIRONMENTS, AND COLLABORATION
In addition to the activities that we have just described, managers can assist in the process of
acquiring new information by developing new organizational roles and responsibilities for the
acquisition of knowledge. These new roles and responsibilities can include the creation of
executive positions for a chief knowledge officer, dedicated staff positions (knowledge
managers), and communities of practice. Communities of practice, often known as COPs, are
unofficial social networks of professionals and employees both inside and outside of the
company that shares similar work-related interests and activities. The activities that take place
within these communities include self-education and education in groups, as well as
conferences, online newsletters, and the day-to-day sharing of experiences and methods to
tackle particular work-related issues. The formation of thousands of online communities of
practice has been supported by a wide variety of institutions, including IBM, the United States
Federal Highway Administration, and the World Bank, amongst others. Software environments
that facilitate cooperation and communication are critically important to the success of these
communities of practice.
By directing members of a community to relevant papers, establishing document repositories,
and organizing information for others who are just joining the community, COPs can make it
simpler for people to utilize previously gained knowledge. The members of the COPs take on
the role of facilitators and encourage participation and conversation. COPs can help shorten the
learning curve for new employees by offering access to a community's existing procedures and
resources as well as interactions with subject matter experts. Lastly, COPs have the potential to
serve as a breeding ground for novel ideas, methods, and patterns of decision-making behavior.

TYPES OF KNOWLEDGE
When discussing knowledge management, it is helpful to consider the different types of
knowledge and how it is possible to share them within an organization.
The information knowledge management covers can generally be broken down into three main
types:
● Knowledge and information that can be simply codified and taught are examples of explicit
knowledge. Some examples of explicit knowledge include how to change the toner in a
printer and mathematical equations.
● Knowledge that explains how to put explicit knowledge into practice effectively is an
example of implicit knowledge. Consider having a conversation about a task with a

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 coworker who has more experience, for instance. They might provide detailed instructions
on how to carry out the task step by step. Yet, they might also utilize their knowledge of the
event to evaluate the several courses of action available to them and choose the one that is
most appropriate for their specific set of circumstances. The knowledgeable employee
makes use of and imparts some of their tacit knowledge to enhance the functioning of the
team.
● The knowledge that is obtained via experience is called tacit knowledge. Because of this, it
is easier to comprehend, but more difficult to convey to others. "Know-how," creative
thinking, and the ability to read body language are all examples of tacit knowledge.
It may be more challenging to execute knowledge management for implicit and tacit
knowledge; however, if the appropriate procedures are in place, you can ensure that all
pertinent information is disseminated throughout the company and kept even after
employees retire or leave the organization.

TYPES OF THE KNOWLEDGE MANAGEMENT SYSTEM

There are three primary categories of knowledge management systems: enterprise-wide
knowledge management systems, knowledge work systems, and intelligent approaches. Each of
these categories represents a main type of knowledge management system. The applications of
knowledge management systems are depicted in Figure 2, which covers each of these primary
categories.
Enterprise-wide knowledge management systems are efforts made throughout a whole
company to collect, store, distribute, and apply digital content and knowledge. These systems
have a general goal. The features of these systems include the ability to search for information,
store both organized and unstructured data, and locate staff expertise inside the company. In
addition, these technologies include support technologies like portals, search engines,
collaboration tools (email, instant messaging, wikis, blogs, and social bookmarking), and
learning management systems. Knowledge work systems such as computer-aided design (CAD),
visualization, simulation, and virtual reality systems have been developed as a result of the
development of powerful networked workstations and software for assisting engineers and
scientists in the discovery of new knowledge. These developments have led to the creation of
knowledge work systems. Knowledge work systems, often known as KWS, are specialized
computer programs that have been developed for use by engineers, scientists, and other
knowledge workers that are tasked with generating new information and knowledge for an
organization.

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 Figure 1
A wide variety of intelligent methods, including data mining, expert systems, neural networks,
fuzzy logic, evolutionary algorithms, and intelligent agents, are also included in knowledge
management. These methods seek to accomplish a variety of goals, from information gathering
(as in the case of data mining and neural networks) to information reduction (as in the case of
expert systems and fuzzy logic) to information accumulation (as in the case of fuzzy logic and
optimal problem solving) to information acquisition (as in the case of fuzzy logic and optimal
problem solving) (genetic algorithms).

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 4.2 ENTERPRISE CONTENT MANAGEMENT SYSTEM

Knowledge assets might be structured or semi-structured, but both types need to be organized
and managed in today's businesses. Structured knowledge is explicit information that can be
found in formal papers and also in formal norms that organizations develop by watching the
decision-making behaviors of experts in their field. However, according to the opinions of
industry professionals, at least 80% of an organization's business content is either semi-
structured or unstructured. This includes information contained in folders, messages, memos,
proposals, e-mails, graphics, electronic slide presentations, and even videos that were created
in a variety of formats and kept in a variety of locations. Both forms of information can be
managed more effectively with the assistance of enterprise content management systems.
They have the capability of capturing knowledge, storing that knowledge, retrieving that
knowledge, distributing that knowledge, and preserving that knowledge, which helps
businesses enhance their business processes and decisions. The corporate archives of papers,
reports, presentations, and best practices are included in such systems, together with the
features that they provide, to collect and organize semi-structured information like email.

Figure 1

The most important enterprise content management systems also give users the ability to
access information from other sources, such as news feeds and databases. The study, as well as
to communicate with one another through means such as e-mail, chat and instant messaging,
online discussion forums, and videoconferencing. Enterprise content management software is

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dominated by a handful of dominant companies, including Open Text Corporation, EMC
(Documentum), IBM, and Oracle Corporation. Open Text LiveLink is utilized by the most
successful gold mining company in the world, Barrick Gold.

Tools for Enterprise Content Management that are utilized to organize the copious amounts of
data necessary for the construction of mines. The system is capable of organizing and storing
both structured and unstructured content, such as CAD drawings, contracts, engineering data,
and production reports, among other types of documents. If a member of an operational team
wants to refer back to the original document, that document is kept in a centralized digital
repository rather than being dispersed across several different systems. The electronic content
management system that Barrick use helps to cut down on the amount of time spent looking
for papers, which in turn helps to cut down on project timelines and improves the overall
quality of choices and doing as little rework as possible. The formulation of an adequate
strategy for managing knowledge is one of the most significant challenges. A classification
scheme, often known as a taxonomy, helps arrange data and information into relevant
categories to make it more easily accessible. Each item of knowledge must be "tagged," or
categorized, as soon as the categories for organizing it have been formulated, so that it may
afterward be accessed with relative ease. Tagging, creating an enterprise portal environment
for employees to use when searching for corporate knowledge, and interfacing with corporate
databases where the documents are stored are all capabilities that come standard with
enterprise content management systems, which are what store the documents in the first place.

When it comes to storing and managing unstructured digital data, such as photographs, graphic
images, video, and audio information, businesses in the publishing, advertising, broadcasting,
and entertainment industries have unique requirements. For instance, Coca-Cola is required to
maintain a record of all the images of the Coca-Cola brand that have been developed in the
past at any of the company's offices located anywhere in the world. This is done to avoid
performing work that has already been done as well as deviating from a standardized
representation of the brand. The categorization, storage, and distribution of these digital items
are all made easier for businesses by the use of digital asset management systems.

Knowledge network systems, which are also known as expertise location and management
systems, were developed to solve the problem that occurs when relevant information does not
exist in the form of a digital document but rather in the memories of knowledgeable individuals
working for the company. Knowledge network systems make it easy for employees to find the
appropriate expert within a company by providing an online directory of corporate experts in a
variety of clearly delineated knowledge domains. These systems also make use of various
communication technologies to facilitate this process. Some knowledge network systems go it a

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step further by systematizing the solutions generated by specialists and then storing the
solutions in a knowledge database as a repository for best practices or frequently asked
questions (FAQ). Some knowledge network systems stop there. AskMe is a company that offers
software that may function as a stand-alone knowledge network, and many of the main
collaborative software suites also include some knowledge networking capabilities.

Figure 2

COLLABORATION TOOLS AND LEARNING MANAGEMENT SYSTEMS

Powerful portals and collaborative technologies are a part of enterprise content management
systems that are the most important. Enterprise knowledge portals can give users access not
only to internal knowledge resources but also to external sources of information such as news
feeds and research. In addition, these portals typically come equipped with features such as e-
mail, chat and instant messaging, discussion groups, and videoconferencing capabilities.
Businesses are beginning to leverage consumer Web technologies such as blogs, wikis, and
social bookmarking for internal usage to enhance collaboration and information exchange
between individuals and teams. These technologies include social bookmarking, blogs, and
wikis. This knowledge may be captured, consolidated, and centralized more easily for the
company with the use of blogs and wikis. Tools for collaboration are provided by companies
that provide commercial software, such as Microsoft SharePoint.

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In addition to these capabilities, Lotus Connections also provides users with safe online
collaboration areas to use. Wikis are simple to set up and don't cost very much money. Wikis
serve as a centralized repository for all of the different kinds of business data that can be seen
in a web browser. This includes electronic pages of papers, electronic spreadsheets, and
electronic slides. Wikis also can include e-mail and instant messaging. Wikis allow users to
amend content that was contributed by other users; however, they also offer the capability of
recording changes made to the content and tools for returning to older versions of the content.
The most effective use of a wiki is to house material that is regularly updated. Regularly, but it
must always be accessible, as information is constantly being updated.

By enabling users to add their bookmarks to Web sites on a public website and tag these
bookmarks with keywords, social bookmarking makes it simpler for users to search for and
share information. This also makes it easier for users to find information. The papers can be
arranged in a hierarchy and then searched for using these tags. Sharing a list of tags with
another person can assist them in locating the information that may be of interest to them.
Folksonomies are a term that refers to the user-created taxonomies that are used for sharing
bookmarks. Delicious and Digg are two social bookmarking sites that have gained a lot of
popularity. Imagine, for instance, that you are a member of a company research team looking
into wind power. If you conducted a search on the Internet and discovered web pages that
were pertinent to the topic of wind power, you would then go to a social bookmarking website,
click on a bookmarking button, and create a tag that would identify each web document that
you discovered to link it to wind power. You will be able to see a list of all of the tags that you
have established and select the documents that you require if you go to the social networking
site and click on the icon labeled "tags."

Businesses require methods to monitor and oversee the education of their staff members, as
well as methods to more thoroughly incorporate this information into their existing knowledge
management and other corporate systems. A learning management system, sometimes known
as an LMS, is software that helps businesses manage, deliver, track, and evaluate the many
different types of learning and training opportunities available to their employees.

Modern learning management systems enable a variety of learning formats, including CD-ROM,
downloaded videos, Web-based programs, and live instruction in classroom settings or through
the use of internet forums and chat rooms for group learning. The Learning Management
System (LMS) is responsible for the consolidation of mixed-media training, the automation of
the selection and management of courses, the assembly and delivery of learning content, and
the measurement of the effectiveness of learning. For instance, the Whirlpool Corporation uses
the learning management system provided by CERTPOINT to manage the registration,

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scheduling, and reporting of their training programs for 3,500 salespeople. CERTPOINT also
manages the content of these training programs. Whirlpool can better adapt course content to
the appropriate audience, keep track of individuals who have taken courses as well as their
ratings, and create analytics on employee performance thanks to the technology.

KNOWLEDGE WORK SYSTEM

The enterprise-wide knowledge systems that we have just discussed offer a diverse set of
capabilities that are usable by a significant number of employees and groups working inside a
company if not all of them. Companies often provide knowledge workers with access to
specialist software to assist them in the production of new information and to ensure that this
knowledge is effectively incorporated into the company.

Workers who primarily create knowledge and information for an organization include
researchers, designers, architects, scientists, and engineers. Knowledge workers are sometimes
known as "knowledge workers." Knowledge workers typically have high levels of education and
affiliations in professional organizations. Also, they are frequently tasked with exercising their
independent judgment as a routine component of their employment. Knowledge workers are
responsible for tasks such as the development of new products and the discovery of new ways
to enhance old ones.

FUNCTIONS THAT ARE VITAL TO THE BUSINESS AS A WHOLE AND TO THE MANAGERS WHO
WORK THERE SPECIFICALLY:

 Keeping the organization up to date with new information as it emerges in the outside
world, particularly in the fields of technology, science, social philosophy, and the arts.
 Acting as internal consultants concerning the areas of their expertise, the shifts that are
taking place, and the opportunities that have presented themselves.
 Taking on the role of change agents by reviewing, launching, and promoting various change
programs.

REQUIREMENTS OF KNOWLEDGE WORK SYSTEMS

The majority of knowledge workers rely on office technologies, which are meant to boost
worker productivity in the workplace, such as word processors, voice mail, e-mail,
videoconferencing, and scheduling tools. Knowledge workers, on the other hand, require highly
specialized knowledge work systems that are equipped with powerful visual and analytical tools,
as well as communications and document management capabilities. These systems require a

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substantial amount of computer capacity to be able to perform the complicated images or
computations that are necessary for knowledge workers such as scientific researchers, product
designers, and financial analysts. Because knowledge workers are so focused on the knowledge
that is available in the outside world, these systems also need to provide workers with rapid
and easy access to databases that are located outside of their company. They often have user-
friendly interfaces that enable users to execute important tasks without having to spend a great
deal of time learning how to use the system. These interfaces are user-friendly because they
were designed with the user in mind. Workers in the knowledge economy command high
salaries, and it would be financially irresponsible to waste their time.

Figure 2

Knowledge workstations are frequently built and optimized for the particular tasks that are to
be carried out. As an illustration, a design engineer will need a different workstation
arrangement than a financial analyst will. Graphics processors that are powerful enough to
operate three-dimensional (3-D) CAD systems are required for use by design engineers. But,
financial analysts are more interested in having access to a huge number of external databases
as well as a multitude of large databases for the purpose of efficiently storing massive amounts
of financial data and gaining access to it.

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EXAMPLES

CAD systems and virtual reality are examples of important uses for knowledge work.
Workstations for the financial industry as well as simulation and modeling solutions. Computer-
aided design, also known as CAD, is a process that uses computers and advanced graphics
software to automate the production of designs as well as their revisions. When employing a
physical design process that is more conventional, each design alteration necessitates the
creation of a mold and the performance of physical testing on a prototype. This procedure must
be carried out an inordinate number of times, which is a very pricey and time-consuming
undertaking. Because the design can be quickly tested and modified on the computer, the
designer only needs to construct a physical prototype towards the conclusion of the design
process when using a CAD workstation. This is because the design can be easily altered.
Because CAD software can give design specifications for tooling and manufacturing processes,
not only does it save a significant amount of time and money, but it also results in a production
process that has a far fewer number of issues. Recently, Troy Lee Designs, a company that
manufactures sports helmets, invested in CAD design software that enables the company to
develop helmets in a three-dimensional format. The conventional procedures, which entailed
drawing an idea on paper, hand-molding a clay model, and shipping the model to Asian
factories to create a plastic prototype, were rendered obsolete by the technology, which
defined the shapes more precisely. Asian factories are about to produce a replica after
obtaining the digital design by e-mail, which has resulted in a production time reduction of
approximately six months and a cost reduction of approximately thirty-five percent.

The visualization, rendering, and simulation capabilities of virtual reality systems are
significantly higher than those of conventional computer-aided design (CAD) systems. They
employ software for interactive graphics to make computer simulations that are so lifelike that
viewers nearly feel as though they are taking part in the actual event being simulated. These
simulations are created on a computer. The user of many different types of virtual reality
systems must don specialized garments, headgear, and other pieces of equipment, depending
on the specific use case. The user's movements are promptly transmitted back to the computer
by the clothing's built-in sensors, which record and track the user's every move. To navigate a
virtual reality simulation of a house, for example, you would need to wear clothing that tracks
the movement of your feet, hands, and head. In addition to this, you will require goggles that
include video screens and, in certain cases, audio attachments, as well as feeling gloves, to be
able to engross with the feedback from the computer. The 25-day training program offered by
Boeing Company includes the use of virtual reality technology. School for its 787 Dreamliner in
which students learn to remedy a wide variety of issues, ranging from malfunctioning lights in
the cabin to serious issues with the flight controls. Boeing aircraft mechanics receive training on

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a system that displays an interactive Boeing 787 cockpit as well as a 3-D exterior of the jet. This
training takes place inside a classroom with large wall-mounted schematics, where the
technicians use both laptop and desktop computers. By clicking a mouse, the mechanics "walk"
around the aircraft, open virtual maintenance access panels, and enter the plane to repair and
replace various components.

Enhanced visualization is another application of a related technology known as augmented

reality (AR). AR offers a real-time view, either directly or indirectly, of a physical environment in
the real world, with components of that environment being augmented by computer-generated
imagery. The user is kept firmly rooted in the existing real-world environment while the virtual
visuals are superimposed on top of the existing view to producing the augmented display. The
user's immediate environment will become more engaging and meaningful as a result of the
additional information provided by digital technology. This will enhance the user's perspective
of reality. Further information regarding augmented reality (AR) and the ways it can be used
will be presented at the Interactive Session on Technology.

The Virtual Reality Modeling Language is the standard that is utilized by virtual reality apps that
are built on the web (VRML). The Virtual Reality Modeling Language, or VRML, is a set of
specifications for creating interactive three-dimensional models on the World Wide Web. These
specifications can organize multiple types of media, such as animation, images, and audio, to
place users in a simulated version of a real-world setting. The Virtual Reality Modeling Language
may run on any platform, can be used on desktop computers, and takes very little bandwidth.

The chemical corporation DuPont, based in Wilmington, Delaware, developed a Virtual Reality
Modeling Language (VRML) application known as HyperPlant. This application enables users to
view three-dimensional data over the Internet by utilizing Web browser software. Engineers
can navigate through 3-D models as though they were strolling through a plant, viewing objects
at eye level the entire time. By paying this level of attention to detail, they can cut down on the
number of errors they commit while building oil rigs, oil plants, and other structures.

To make the most of the expertise and time spent by brokers, dealers, and portfolio managers,
the financial services industry is beginning to implement specialist investment workstations.
Investment workstations that integrate a wide variety of data from both internal and external
sources, such as contact management data, real-time and historical market data, and research
reports, have been installed at companies such as Merrill Lynch and UBS Financial Services.
These types of workstations are used by firms such as Merrill Lynch and UBS Financial Services.
In the past, those working in the financial industry were required to spend a significant amount
of time obtaining data from multiple systems to piece together the information they required.
The workstations streamline the entire investment process, from the selection of stocks to the

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updating of customer records, by offering information at a single point of access in a more
timely manner and with fewer errors. The most important categories of knowledge work
systems are broken forth below table.

KNOWLEDGE WORK FUNCTION

SYSTEM
CAD/CAM (computer- It gives engineers, designers, and factory managers precise control
aided manufacturing) over the manufacturing process and the design of industrial
products.
Virtual reality systems Make accurate photorealistic simulations of objects available to
people working in the pharmaceutical industry, architecture,
engineering, and medicine.
Investment PCs with a high level of processing power that is utilized in the
workstations financial industry to facilitate portfolio management and immediate
analysis of trading conditions.

Table 1

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 4.3 INTELLIGENT TECHNIQUES

WHAT IS KNOWLEDGE MANAGEMENT?

Artificial intelligence and database technology provide several intelligent techniques that
organizations can use to capture individual and collective knowledge and extend their
knowledge base. These techniques can also be used to improve the quality of the knowledge
that is captured. Techniques such as case-based reasoning, expert systems, and fuzzy logic are
utilized in the process of eliciting tacit knowledge. For knowledge discovery, neural networks,
and data mining are utilized. They can find hidden patterns, categories, and behaviors in large
data sets, which managers working alone or relying solely on their own experience are unable
to do.

The use of genetic algorithms allows for the generation of solutions to problems that are far too
extensive and complicated for individual people to be able to analyze on their own. Intelligent
agents can help businesses search for and filter information for use in electronic commerce,
supply chain management, and other activities by automating routine tasks that need to be
performed. Data mining enables businesses to uncover previously unknown knowledge hidden
in large databases, thereby providing managers with fresh perspectives on how to enhance
their company's operational efficiency. It has emerged as an essential instrument in the
management decision-making process.

Artificial intelligence (AI) technology is the foundation for the other intelligent methods that
will be covered in this section. AI technology is comprised of computer-based systems (both
hardware and software) that attempt to mimic human behavior. These kinds of systems would
be able to learn languages, carry out physical tasks, make use of a perceptual apparatus, and
mimic human expertise and decision-making abilities. Although applications of AI do not yet
demonstrate the breadth, complexity, originality, or generalizability of human intelligence, they
play an important role in the modern management of knowledge.

CAPTURING KNOWLEDGE: EXPERT SYSTEMS

Expert systems are an intelligent technique for capturing tacit knowledge in a very specific and
limited domain of human expertise. These systems are typically used in medical, legal, and
financial fields. These systems record the expertise of knowledgeable workers within an
organization and store it as a set of rules within a software program. These rules are then made

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available to other employees of the organization for use. The company's memory, also known
as its "stored learning," can be expanded thanks to the rule set contained within the expert
system.

Expert systems do not have the same depth of knowledge or comprehension of fundamental
principles as human experts. They typically carry out very limited tasks that can be completed
by trained professionals in a matter of minutes or hours, such as diagnosing a machine that is
malfunctioning or deciding whether or not to grant credit for a loan application. Problems that
cannot be solved by human experts in the same amount of time as the allotted time for the
expert system to work on them are insurmountably difficult. However, expert systems can
provide benefits to organizations by capturing human expertise in specific areas, thereby
assisting these organizations in making high-quality decisions with a smaller number of people.
Expert systems are used extensively in modern business for making decisions in situations that
are very specific and highly structured.

WORKING WITH EXPERT SYSTEM

It is necessary to model or otherwise represent human knowledge in a format that a computer

can understand and use. Expert systems represent human knowledge by modeling it as a
collection of rules, which are referred to collectively as the knowledge base. The complexity of
the issue dictates the number of these rules that are included in expert systems, which can
range anywhere from 200 to many thousands. In comparison to a conventional software
program, these rules have a significantly more complex nesting and interconnection structure.

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 Figure 1

The method that is called the inference engine is used to search through the knowledge base.
Chaining in a forward direction and chaining in a backward direction are two common
strategies.

Figure 2

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In the method known as forward chaining, the inference engine starts with the data provided
by the user and then searches the rule base to conclude. When a certain condition is met, it is
necessary to "fire" (also known as "carry out") the rule's corresponding action. If the user
enters the name of a customer whose annual income is greater than one hundred thousand
dollars, as shown in Figure 2, the engine will trigger all of the rules in sequential order, moving
from left to right. If the user then enters information indicating that the same client owns real
estate, a further pass of the rule base will take place, and additional rules will be activated. The
processing will proceed until there are no more rules that can be triggered.

Backward chaining is a method for searching the rule base that begins with the formulation of a
hypothesis, then moves on to the process of interrogating the user regarding particular facts to
determine whether or not the hypothesis should be accepted. Asking yourself "Should we add
this person to the prospect database?" refers to the scenario presented in Figure 2 of this
article. When reading the diagram, start on the right side and work your way to the left. The
individual ought to be added to the database if a sales representative is dispatched, a term
insurance policy is approved, or a financial adviser pays a visit to the client.

BENEFITS FROM IMPLEMENTING AN EXPERT SYSTEM

Increased levels of quality and service, improved decision-making, decreased rates of error,
decreased costs, and shortened periods of training time. To streamline and improve the process
of planning overnight shipment routes for its nationwide freight-trucking business, Con-Way
Transportation developed an advanced software application known as Line-haul. The business
rules that are used by dispatchers to determine how many drivers, trucks, and trailers are
needed to move 50,000 shipments of heavy goods each night across 25 states and Canada are
captured by the expert system. The system also determines the routes that these vehicles will
take. Line haul is powered by a computer platform developed by Sun and uses a database
maintained by Oracle to access information regarding daily customer shipment requests,
available drivers, trucks, caravan space, and weight. The expert system is comprised of tens of
thousands of rules and one hundred thousand lines of code written in C++ to do the number
crunching and generate the best possible routing plans for 95% of all daily goods shipments.
The routing plan that is provided by the expert system is modified by Con-Way dispatchers, and
then the final routing specifications are communicated to the field personnel who are
responsible for packing the trailers for their nighttime runs. By decreasing the number of
drivers, packing more freight into each trailer, and lowering the amount of damage caused by
rehandling, Con-Way was able to recoup its initial investment of $3 million in the system within
two years. Additionally, the system lessens the laborious nightly responsibilities of the
dispatchers.

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Even though expert systems do not possess the robust and general intelligence of human
beings, they still have the potential to be beneficial to organizations so long as their limitations
are properly understood. Expert systems are only effective at providing solutions to particular
types of issues. The vast majority of effective expert systems tackle problems of classification
within narrow fields of expertise, where there are a limited number of possible outcomes, and
all of these possibilities are known in advance.

When it comes to dealing with unstructured problems, which are typically encountered by
managers, expert systems are not nearly as useful. The development of many different kinds of
expert systems is laborious, time-consuming, and expensive. It is possible that employing or
training a greater number of experts would be less expensive than developing an expert system.
In most cases, the setting in which an expert system performs its functions is in a state of
constant flux, necessitating ongoing adaptations to be made to the expert system to keep up.
Because of the complexity of certain expert systems, particularly large ones, the costs of their
maintenance and upkeep can quickly catch up to those of their original development.

CASE-BASED REASONING

The tacit knowledge of individual experts is primarily what is captured by expert systems;
however, organizations also have collective knowledge and expertise that they have built up
over the course of their existence. Case-based reasoning allows for the collection and storage
of this type of organizational knowledge. In case-based reasoning, also known as CBR,
descriptions of previous experiences of human specialists are saved in a database and can be
retrieved at a later time when the user is presented with a new case that has parameters that
are similar to the ones in the previous case. The system looks through its database for previous
cases that have problem aspects that are comparable to the new one, identifies the one that is
the best match, and then applies the solutions from the previous case to the new one.
Successful solutions are attached to the new case, and both the new case and the successful
solutions are saved in the knowledge base alongside the other cases. In addition, solutions that
were unsuccessful in resolving the case are added to the database, along with an explanation of
why the solutions were unsuccessful.

Expert systems accomplish their tasks by applying a collection of IF-THEN-ELSE rules that are
derived from the knowledge of human experts. Case-based reasoning, on the other hand,
organizes information into a series of cases to represent knowledge. Users contribute to the
ongoing development and improvement of this knowledge base. Users of diagnostic systems in
medicine or customer support can use case-based reasoning to retrieve previous cases whose
characteristics are similar to the new case. You can find case-based reasoning used in these

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contexts. The system will make a recommendation for a solution or diagnosis based on the
retrieved case that is the best match.

FUZZY LOGIC SYSTEMS

The majority of individuals do not think in terms of conventional IF-THEN rules or exact
numerical values. People have the propensity to classify things in an imprecise manner, using
rules for decision-making that may have multiple nuances to their meaning. For instance, a man
or a woman can possess qualities such as strength or intelligence. The size of a company can
range from large to medium to small. The temperature can be hot, cold, cool, or even warm.
These categories encompass a wide variety of norms and standards.

A rule-based technology known as fuzzy logic can accurately represent such imprecision
because it involves the creation of rules that make use of approximate or subjective values. It
can provide a linguistic description of a particular phenomenon or process, after which it can
represent that description using a limited number of adaptable rules. The application of fuzzy
logic enables businesses to develop software systems that are capable of capturing tacit
knowledge in situations in which there is linguistic ambiguity.

Let's take a look at how a computer program that automatically regulates room temperature
would use fuzzy logic to represent the different temperatures that it encounters. The terms,
which are also known as membership functions, are defined in an imprecise manner. For
instance, in Figure 3, cool is between 45 degrees and 70 degrees, even though the temperature
is most obviously cool between approximately 60 degrees and 67 degrees. Take note that the
terms cold and norm overlap with cool. Using this line of reasoning, the programmer would
need to come up with similarly imprecise definitions for things like humidity and other factors,
such as the wind and temperature outside. This would allow the room's environment to be
controlled. One of the rules could state, "Increase the heat and humidity in the room if the
temperature is cool or cold and the humidity is low while the wind speed is high and the
outdoor temperature is low." This rule would apply if the indoor temperature was lower than
the outdoor temperature. The readings from the membership function would be combined in a
weighted manner by the computer, and then, using all of the rules, the computer would adjust
the temperature and humidity accordingly.

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 Figure 3

The application of fuzzy logic can provide answers to problems that require a level of expertise
that is challenging to convey in the form of clear IF-THEN rules. Sendai's subway system in
Japan is equipped with fuzzy logic controls, which allow for acceleration to be so smooth that
standing passengers do not need to hold on. As a result of utilizing control programs based on
fuzzy logic, Mitsubishi Heavy Industries in Tokyo has been successful in cutting the amount of
power that its air conditioners consume by twenty percent. Fuzzy logic is what makes it possible
for cameras to have a device that automatically focuses the lens. In these circumstances, fuzzy
logic enables incremental changes in inputs to produce smooth changes in outputs rather than
abrupt ones, which makes it useful for applications in engineering and consumer electronics.

Fuzzy logic has also been found to be useful by management for decision-making and for
controlling the organization. A company on Wall Street developed a system that uses the
language that stock traders are familiar with to select companies that might be suitable for
acquisition. To identify instances of potentially fraudulent activity within the medical claims
that are sent in by healthcare providers located anywhere in the United States, a fuzzy logic
system has been developed.

NEURAL NETWORKS

To solve difficult problems that are not fully understood and for which a significant amount of
data has been gathered, neural networks are utilized. They can find patterns and relationships
in enormous amounts of data, which would be far too complicated for a human to analyze on
their own. The processing patterns of a biological brain, such as a human brain, are mimicked
by neural networks' hardware and software, which allows for the discovery of previously
unknown information. Neural networks can "learn" patterns from large amounts of data by

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sorting through the data, looking for relationships, building models, and repeatedly correcting
the model's errors. This process is known as "data mining."

A large number of sensing and processing nodes that are in constant communication with one
another are the building blocks of a neural network. The neural network depicted in Figure 4 is
an example of one variety that includes a hidden processing layer in addition to an input layer
and an output layer. The network is "trained" by humans by providing it with a set of training
data in which the inputs produce a known set of outputs or conclusions. This process is known
as "feeding." This enables the computer to learn the correct solution by observing it being done
correctly. As more information is entered into the computer, each scenario is analyzed and
compared to the previously determined result. If there is a discrepancy, a correction is
computed and then applied to the nodes that are part of the hidden processing layer. These
steps are repeated over and over again until the desired condition is met, which might involve
the number of corrections falling below a predetermined threshold. The artificial neural
network depicted in Figure 4 has acquired the knowledge necessary to recognize a fraudulent
use of a credit card. Also, self-organizing neural networks can be trained by exposing them to
large amounts of data and letting them find the patterns and relationships in the data on their
own. This is another method of training neural networks.

Neural network builders claim that they do not program solutions and do not aim to solve
specific problems. This is in contrast to the goal of expert systems, which is to imitate or model
how a human expert approaches the solution of a problem. Instead, the designers of neural
networks strive to imbue the hardware with intelligence in the form of a generalizable capacity
to learn new things. On the other hand, the expert system is extremely tailored to the particular
challenge at hand and cannot be easily retrained.

Figure 4

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Applications of neural networks in medicine, scientific research, and business are discussed
issues with pattern classification, forecasting, financial analysis, and optimization and control. In
the field of medicine, applications of neural networks are used for a variety of purposes,
including the diagnosis of patients suffering from epilepsy and Alzheimer's disease, the
screening of patients for coronary artery disease, and the performance of pattern recognition
on images of pathology. Neural networks are widely used in the financial sector to analyze vast
amounts of data to identify patterns that may assist with the forecasting of the performance of
equities, corporate bond ratings, or corporate bankruptcies. Visa International makes use of a
neural network to assist in the detection of credit card fraud. This is accomplished by
monitoring all Visa transactions for sudden shifts in the spending habits of cardholders.

Neural networks have many components that remain baffling to understand. Neural networks,
in contrast to expert systems, which do not always provide explanations for their solutions but
can typically do so when asked, are unable to always explain why they arrived at a particular
solution. In addition, they are unable to always guarantee a solution that is one hundred
percent certain, return to the same solution again when presented with the same data, or
always guarantee the best solution. They are very sensitive, and if their training covers either
too little or too much data, it is possible that they will not perform well. Neural networks are
best utilized in the vast majority of their current applications not as decision-making
replacements but rather as decision-making assistants.

The topic of computerized stock trading applications is discussed in the Interactive Session on
Organizations. These applications are based on a related AI technology known as machine
learning. The field of machine learning focuses on the algorithms and statistical methods that
enable computers to "learn" by gleaning rules and patterns from enormous data sets and
making forecasts about the future. This process is known as "machine learning." Data mining
makes use of a variety of learning methods, including neural networks and machine learning.
The application of machine learning in the financial industry for making trading decisions
regarding securities has resulted in a variety of outcomes, as the Interactive Session explains.

GENETIC ALGORITHMS

Genetic algorithms are helpful tools that can examine a very large number of potential
solutions to a particular issue to zero in on the one that is most suited to solving that issue in
the best possible way. Inheritance, mutation, selective breeding, and genetic crossover are
some of the techniques that were derived from evolutionary biology and used in their
development (recombination). To carry out its tasks, a genetic algorithm converts the data it
processes into a string of 0s and 1s. The genetic algorithm searches through a population of

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binary digit strings that have been generated at random to find the right string that represents
the optimal solution to the problem. The weaker solutions are eliminated as others are merged
and combined, while the stronger ones are preserved to contribute to the development of even
more effective solutions.

Each of the strings in Figure 5 represents one of the variables that are involved in the problem.
A test of fitness is performed, in which the strings in the population are ranked according to the
level of desirability they possess as potential solutions. After the initial population has been
assessed for its fitness, the algorithm will produce the next generation of strings, which will
consist of strings that have passed the fitness test as well as offspring strings produced from
mating pairs of strings, and will then assess the fitness of this new generation of strings. The
procedure is repeated repeatedly until a solution is found.

Figure 5

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 Knowledge Management and Intelligent
Techniques

5.1 BUSINESS PROCESS REENGINEERING

WHAT IS THE BUSINESS PROCESS OF REENGINEERING?

According to Hammer and Champy (1993), “Reengineering is the fundamental rethinking &
radical redesign of business process to achieve dramatic improvements in critical,
contemporary measures of performance, such as cost, quality, service, and speed.”

Radical redesigning involves tossing out existing procedures and reinventing the process.

Example: IBM Credit Corporation cut the process of financing IBM computers, software, and
services from seven days to four hours by rethinking the process.

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WHY REENGINEERING?

It is focused on breakthrough improvement to dramatically improve the quality and speed of

work and to reduce its cost by fundamentally changing the process by which work gets done.

SYMPTOMS TO START REENGINEERING

 It takes too long for an organization to move its products from conception to the
marketplace as compared to its competitor.
 The budgeting process may be too complex.
 The services provided by the organization are not compatible with its customer’s needs.

HISTORY OF BUSINESS PROCESS REENGINEERING

 In the ‘60s industry concentrated on how to produce more (quantity).

 In the ‘70s how to produce it cheaper (cost).
 In the ‘80s how to produce it better (quality).
 In the ‘90s how to produce it quicker (lead time).
 In the 21st century how to offer more (service).

History of BPR Most agrees that Michael Hammer laid the foundation for the reengineering
approach.

FACTORS INFLUENCED THE BIRTH AND HYPE AROUND BUSINESS PROCESS REENGINEERING

 The origins can be traced back to several successful projects undertaken by management
consulting firms like McKinsey in the 80s.
 TQM had brought the notion of process improvement onto the management agenda.
 The recession and globalization in the late 1980s and early 1990s stimulated companies to
seek new ways to improve business performance.
 Programs often aimed at increasing flexibility and responsiveness in Middle management
under particular pressure.

DEFINITION OF BUSINESS PROCESS REENGINEERING

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Michael Hammer, a former MIT professor in computer science published an article in the
Harvard Business Review, emphasizing the need for fundamental organizational change and for
the first time using the term Business Process Reengineering Business Process Reengineering
(BPR).

The analysis and design of workflow and processes within and between organizations.
~Davenport and Short

The fundamental rethinking and radical redesign of business processes to achieve dramatic
improvements in critical contemporary measures of performance, such as cost, quality, service,
and speed.” ~ Hammer and Champy

The use of information technology to radically redesign the business processes to achieve
dramatic improvements in their performance.” ~ Hammer

BENEFITS OF BUSINESS PROCESS REENGINEERING

Business Process Reengineering (BPR) can be defined as the elemental rethinking and radical
redesigning of business processes to achieve remarkable improvements in critical measures of
performance like cost, service, quality, and speed. An organization where the application of BPR
is being done is process-oriented, where all processes are identified and given specific names.
Each individual is aware of the particular process in which he or she is involved and complete
process measurements such as monitoring and control are performed. Business Process
Reengineering or BPR is also known by other names like Business Process Redesign, Business
Process Change Management, or Business Transformation. BPR brings numerous benefits to
organizations and companies in which it is implemented. Some of the common benefits of BPR
are:

INCREASE EFFECTIVENESS
As all employees are aware of the processes to which they belong, they have a greater sense of
responsibility. All processes are completely monitored under the strict control of the
management. The net result of this is that employees deliver high-quality products to their
customers.

HELPS TO IMPROVE EFFICIENCY

Proper management and control of all business processes reduce the time lag between
different processes, which otherwise is quite high causing delays. This in turn reduces the time
to market the product to the target customers and gives quick responses to buyers.

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REDUCES COST
With the proper management of processes, improved efficiency, and quick delivery of products
to the buyers, the overall product costs are reduced resulting in cost saving for the organization
in the long run.

MEANINGFUL JOB FOR EMPLOYEES

As the time lag of product processing between different departments gets reduced due to the
application of business process reengineering, there are more meaningful tasks to be
performed by employees. This leads to an increase in their levels of motivation and the desire
to perform well.

IMPROVEMENT IN ORGANIZATIONAL APPROACH

According to the traditional approach of managing an organization, there is no flexibility or
adaptability to change. The management formulated strict rules for employees of the
organization. Whereas now, when most organizations have implemented business process
reengineering there is an increase in flexibility and adaptability for change. This has created a
better environment for people to work in, thus leading to employee satisfaction.

GROWTH OF BUSINESS
Implementation of BPR results in the growth of the present business thus enabling the
emergence of new businesses within the same organization.
Although BPR is very effective in controlling cost and improving efficiency, its implementation is
a hard nut to crack. Employees are very resistant to this kind of change thus, it is important to
have extensive support from the top management.

GENERAL PRINCIPLES OR RULES OF REENGINEERING

 Externally, focusing on end customers and the generation of greater value for customers.
 Internally, focusing on harnessing more of the potential of people and applying it to those
activities which identify and deliver value to customers.
 Encouraging learning and development by building creative working environments.
 Thinking and executing as much activity as possible horizontally, concentrating on flows and
processes throughout the organization.
 Removing non-value-added activities, undertaking parallel activities, and speeding up
response and development time.

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 Concentrating on outputs rather than inputs, and linking performance measures and
rewards to customer-related outputs.
 Giving priority to the delivery of value rather than the maintenance of management control.
 Networking related people and activities.
 Moving discretion and authority closer to the customer.
 Encouraging involvement and participation.
 Ensuring that people are motivated, equipped, and empowered to do what is expected of
them.
 Whenever possible, assume full responsibility for managing and controlling themselves.
 Avoid over-sophistication by not replacing creative thinking with the software.
 Building learning, renewal, and short feedback loops into the business process.

KEY TARGETS OF BUSINESS PROCESS REENGINEERING

CUSTOMER FRIENDLINESS

One of the main goals of introducing BPR is to get a competitive edge, and that can only be
gained by providing the customer more than what the others in the market asking for.

EFFECTIVENESS

How effective is the product or service that the business or manufacturing company providing
the customer? If whatever product or service the business might be providing for the customer
is successful, then the customers would automatically want to buy that service again.

EFFICIENCY

How efficient is the company that is manufacturing the product in minimizing costs before
introducing it to the market? This is one of the questions that are believed to be very important.

BUSINESS PROCESS REENGINEERING METHODOLOGY

DEVELOP THE BUSINESS VISION & PROCESS OBJECTIVES

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BPR is driven by a business vision that implies specific objectives such as cost reduction, time
reduction, and quality management.

IDENTIFY THE PROCESSES TO BE REDESIGNED

High Impact approach i.e., most important processes or those that conflict most with the
business vision.

UNDERSTAND & MEASURE THE EXISTING PROCESSES

Essential for avoiding the repeating of old mistakes & providing baselines for future
improvements.

PROJECT PHASES REQUIRED FOR SUCCESSFUL BUSINESS PROCESS REENGINEERING

Phase 1: Begin Organizational Change

Phase 2: Build the Reengineering Organization

Phase 3: Identify BPR Opportunities

Phase 4: Understand the Existing Process

Phase 5: Reengineer the Process

Phase 6: Blueprint the New Business System

Phase 7: Perform the Transformation

PHASE 1: BEGIN ORGANIZATIONAL CHANGE

 Assess the current state of the organization.
 Explain the need for change (Consolidate the problems which can be converted into the
opportunities-creates potential for trying new technologies).
 Illustrate the desired state
 Create a communications campaign for change.

PHASE -2 BUILD THE RE-ENGINEERING ORGANIZATION ACTIVITIES

 Establish a BPR organizational structure.
 Establish the roles for performing BPR.
 Choose the personnel who will re-engineer.

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PHASE3 –IDENTIFY BPR OPPORTUNITIES ACTIVITIES
 Identify the core/high-level processes.
 Recognize potential change enablers.
 Gather performance metrics within the industry.
 Gather performance metrics outside the industry.
 Select processes that should be re-engineered.
 Prioritize selected processes.
 Evaluate pre-existing business strategies.
 Consult with customers for their desires - Quality, Delivery.
 Determine customers’ actual needs.
 Formulate new process performance objectives.
 Establish key process characteristics.
 Identify new potential barriers.

PHASE4 – UNDERSTAND THE EXISTING PROCESS ACTIVITIES

 Understand why the current steps are performed.
 Model the current process.
 Understand how technology is currently used – COBOL – Unix-based system.
 Understand how information is currently used – batch system – noninteractive – text-based
terminals (NO GUI).
 Understand the current organizational structure (slow to react to customer needs).
 Compare the current process with the new objectives – cycle time reduction – fast in
reacting to customer needs – competitive in the market.

PHASE5 – RE-ENGINEER THE PROCESS

 Ensure the diversity of the reengineering team – (Top management, User Group,
Developers Group).
 Question current operating assumptions.
 Brainstorm using change levers – Selecting the correct technology within the Budget.
 Brainstorm using BPR principles.
 Evaluate the impact of new technologies – Competitive Advantage, Cycle time reduction,
Work life enrichment.
 Consider the perspectives of stakeholders – Faith in the information system.
 Use customer value as the focal point – Quality and Delivery.

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PHASE 6 BLUEPRINT THE NEW BUSINESS SYSTEM ACTIVITIES

 Define the new flow of work.

 Model the new process steps.
 Model the new information requirements.
 Document the new organizational structure.
 Describe the new technical specifications.
 Record the new personnel management systems.
 Describe the new values and culture required.

PHASE 7 PERFORM THE TRANSFORMATION ACTIVITIES

 Develop a migration strategy – A project plan.

 Create a migration action plan – PERT network with important milestones.
 Develop metrics for measuring performance during implementation.
 Involve the impacted staff – Consult Users who are going to use the system.
 Implement in an iterative fashion - Building prototypes.
 Establish the new organizational structures.
 Assess the current skills and capabilities of the workforce.
 Map new tasks and skill requirements to staff.
 Re-allocate the workforce.
 Develop a training curriculum.

5.2 TOTAL QUALITY MANAGEMENT

The 1950s saw the development of the Total Quality Management concept, which has
progressively gained popularity since the early 1980s. Complete Quality refers to a company's
culture, mindset, and organizational structure that aims to satisfy customers with goods and
services. The company's culture demands quality in all facets of operations, with processes
completed correctly the first time and errors and waste eliminated. Total Quality Management,
or TQM, is a process that enables management and staff to participate in the ongoing
enhancement of the creation of goods and services. It combines management and quality tools
to boost sales and decrease losses brought on by wasteful behavior.

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Some of the companies that have implemented TQM include Ford Motor Company, Phillips
Semiconductor, SGL Carbon, Motorola, and Toyota Motor Company.

DEFINITION OF TOTAL QUALITY MANAGEMENT

Total Quality Management (TQM) is a management philosophy that aims to integrate all
organizational functions (marketing, finance, design, engineering, production, customer service,
etc.) with an emphasis on achieving both organizational goals and customer needs.

An organization is seen by TQM as a collection of processes. It asserts that businesses should

always endeavor to enhance these procedures by taking into account the skills and knowledge
of their staff. "Do the right things, right the first time, every time" is the straightforward TQM
goal. TQM is adaptive and infinitely variable. TQM is today acknowledged as a general
management tool that is equally relevant in service and public sector organizations, despite
being initially applied to manufacturing processes and for many years exclusively being
employed in that sector. There are several evolutionary strands, with different sectors creating
their versions from the common ancestor.

ACTIVITIES OF TOTAL QUALITY MANAGEMENT

 Commitment by senior management and all employees.

 Meeting customer requirements.
 Reducing development cycle times.
 Just-in-time/demand flow manufacturing.
 Improvement teams.
 Reducing product and service costs.
 Systems to facilitate improvement.
 Line management ownership.
 Employee involvement and empowerment.
 Recognition and celebration.
 Challenging quantified goals and benchmarking.
 Focus on processes/improvement plans.
 Specific incorporation in strategic planning.

This shows that TQM must be practiced in all activities, by all personnel, in manufacturing,
marketing, engineering, R&D, sales, purchasing, HR, etc.

PRINCIPLES OF TOTAL QUALITY MANAGEMENT

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MANAGEMENT COMMITMENT
● Plan (drive, direct)
● Do (deploy, support, participate)
● Check (review)
● Act (recognize, communicate, revise)

EMPLOYEE EMPOWERMENT
● Training
● Suggestion scheme
● Measurement and recognition
● Excellence teams

FACT BASED DECISION MAKING

● SPC (statistical process control)
● DOE, FMEA
● The 7 statistical tools
● TOPS (Ford 8D – team-oriented problem solving)

CONTINUOUS IMPROVEMENT
● Systematic measurement and focus on CONQ
● Excellence teams
● Cross-functional process management
● Attain, maintain, and improve standards

CUSTOMER FOCUS
 Supplier partnership
 Service relationship with internal customers
 Never compromise quality
 Customer-driven standards

CONCEPT OF CONTINUOUS IMPROVEMENT BY TOTAL QUALITY MANAGEMENT

Continuous improvement in all work, from high-level strategic planning and decision-making to
meticulous execution of job elements on the shop floor, is the major focus of TQM. It comes
from the conviction that errors and flaws may be prevented. As a result of continually

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enhancing capabilities, people, processes, technology, and machine capabilities, it leads to
consistently better results in all facets of work.
Constant improvement must focus on developing capacities to deliver better results in the
future, rather than just improving results. Demand generation, supply generation, technology,
operations, and people capability are the five main areas that need to be improved to increase
capacity.
A central principle of TQM is that mistakes may be made by people, but most of them are
caused, or at least permitted, by faulty systems and processes. This means that the root cause
of such mistakes can be identified and eliminated, and repetition can be prevented by changing
the process.

MAJOR MECHANISMS OF PREVENTION

 Preventing mistakes (defects) from occurring (mistake-proofing or poka-yoke).
 Where mistakes can’t be prevented, detecting them early to prevent them from being
passed down the value-added chain (inspection at source or by the next operation).
 Where mistakes recur, stop production until the process can be corrected, to prevent the
production of more defects. (stop in time).

IMPLEMENTATION PRINCIPLES AND PROCESSES

Assessing the organization's current reality is a necessary first step in the TQM implementation
process. Relevant preconditions concern the organization's past, and present requirements,
triggers for TQM, and current employee quality of life at work. Implementing TQM should be
postponed until the organization is in a situation where TQM is likely to succeed if the existing
reality lacks critical prerequisites.
TQM will be simpler to implement if a company has a history of being effective at responding to
the environment and has been able to successfully change how it functions when necessary.
Employee cynicism and a lack of organizational commitment will exist if a company has a
history of being reactive and can improve its operational systems.
A thorough program of management and leadership development may be implemented if this
situation continues. To determine the existing levels of organizational functioning and areas
that require change, a management audit is a useful assessment technique. Before
implementing TQM, an organization should be in generally good health. TQM would not be
accepted if it has substantial issues like a very unstable financial basis, feeble administrative
processes, a lack of managerial talent, or low staff morale.
To start TQM, though, a certain amount of stress is generally preferable. The need for change
must be felt by the populace. Kanter (1983) discusses the components of successful

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organizational change to address this phenomenon. These drivers include breaking with
convention, a crisis or motivating event, tactical choices, specific "primary movers," and action
tools. Departures from tradition are actions that take place, typically at lower levels of the
organization, when businesspeople go beyond the conventional methods of doing things to
address an issue. If a crisis isn't too crippling, it can also assist instill a sense of urgency that
inspires people to take action. When it comes to TQM, this could be a budget reduction or
threat, as well as requests for higher service quality from customers or other stakeholders.
During a crisis, a leader may strategically step in by presenting a fresh outlook on the future to
aid the organization in resolving it. A plan to apply TQM could be one of these. Such a leader
may then become a prime mover, who takes charge in championing the new idea and showing
others how it will help them get where they want to go. Finally, action vehicles are needed and
mechanisms or structures to enable the change to occur and become institutionalized.

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 Business Process Management

6.1 ENTERPRISE RESOURCE PLANNING (ERP)

Microsoft, Coca-Cola, Cisco, Eli Lilly, and Alcoa share what? Enterprise resource planning helped
these market leaders speed up their businesses. Most companies still use back-office systems
from 25 years ago (ERP). ERP systems helped these companies reduce inventories, cycle times,
and costs and improve operations.

All kinds of businesses use ERP systems. A company's manufacturing, logistics, distribution,
accounting, financial, and human resource management functions are integrated and
automated by an enterprise resource planning (ERP) system. ERP systems were installed
worldwide in the 1990s to help large companies reengineer their business processes. ERP

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systems are these. ERP was needed to integrate and execute cross-functional processes. In
today's dynamic business environment, many companies need enterprise resource planning
(ERP) to improve efficiency, agility, and responsiveness. ERP streamlines operations, helping
businesses adapt to changing market conditions.

DEFINATION OF ERP

Enterprise resource planning (ERP) integrates sales order processing, inventory management
and control, production and distribution planning, and financial planning. ERP powers e-
business. An integrated suite of software modules powers a cross-functional enterprise
resource planning system. This platform supports basic internal business processes. For
example, manufacturing ERP software processes data from sales, inventory, shipping, and
invoicing and forecasts raw material and human resource needs. Figure 1 shows the main ERP
system application subparts.

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Figure 1 Application components of ERP (Source: Obrien)

ERP gives a company real-time visibility into its core business processes. Production, order
processing, and inventory management are examples. ERP software and a database
management system link these processes. The ERP system can track cash, raw materials,
production capacity, and business commitments regardless of which department entered the
data (such as customer orders, purchase orders, and employee payroll). No matter how the
data was entered. ERP software typically integrates modules for manufacturing, distribution,
sales, accounting, and HR management. Supported manufacturing processes include material,
production, and capacity planning. ERP aids sales analysis, planning, and pricing analysis.
Logistics, order management, and purchasing are common distribution applications. ERP
systems support many essential human resource processes, from personnel requirements
planning to salary and benefits administration, as well as most financial recordkeeping and
managerial accounting tasks. Figure 2 shows Colgate-ERP Palmolive's system supporting
multiple business processes. Let's analyse Colgate's ERP experience.

Figure 2 Colgate-Palmolive Company. (Source: Obrien)

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Colgate-Palmolive uses SAP R/3 for enterprise resource planning. Colgate implemented SAP R/3
to improve data quality, maximize working capital, and reduce manufacturing costs. The
software's applicability to all of Colgate's operations was crucial. Colgate needed global and
local coordination. SAP increased Colgate's supply chain profitability. After being implemented
in Colgate's largest sales operations, SAP was implemented in all of its divisions worldwide.
Costs were reduced by product and packaging standardization and global purchasing efficiency.

• Before ERP, Colgate US took one to five days to acquire an order and one to two days to
process it. Order acquisition and processing take four hours instead of seven days.
Distribution planning and picking now take 14 hours instead of four days. Order-to-
delivery time has been halved.
 •Before ERP, 91.5% of deliveries were on time and 97.55% were correct. After R/3, they
are 97.5% and 99.0%.
 •ERP reduced domestic inventories by one-third and receivables days from 31.4 to 22.4.
Working capital is now 6.3% of revenue, down from 11.3%. A big drop. Delivery costs
per case have dropped almost 10%.

BENEFITS AND CHALLENGES OF ERP

As Colgate-Palmolive showed, ERP systems can improve a company's operations. Many

businesses have found ERP to be financially valuable in several ways:

Quality and efficacy. ERP streamlines a company's internal business processes, improving
customer service, production, and distribution. ERP developers created ERP.

Savings-

Many businesses have reduced transaction processing costs, hardware, software, and IT
support staff by replacing their nonintegrated legacy systems with ERP systems.

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Decision support

ERP's quick and easy access to cross-functional business performance data helps managers
make better decisions across the business enterprise.

Business agility

ERP systems break down "silos" between business processes, information systems, and
information resources. This creates more flexible organizational structures, managerial
responsibilities, and work roles, making the organization and workforce more agile and
adaptable to new business opportunities.

THE COSTS OF ERP:

ERP implementation is like corporate brain surgery. PeopleSoft replaced all the company's
applications. Business disruption was a risk because ERP failure guarantees company failure.

Jim Prevo, Green Mountain Coffee of Vermont's CIO, said this about the ERP system's success.
As shown in the text's real-world examples and cases, ERP has many benefits, costs, and risks.
The company's ERP implementation costs. Remember that purchasing new hardware and
software is only a small part of implementing a new ERP system. Reengineering business
processes, training employees to use the new system, and managing organizational change
account for most costs. Another major ERP implementation cost is converting legacy data to the
new cross-functional ERP system.

A failed ERP implementation is costly and risky. Most businesses have successfully implemented
ERP systems, but a significant minority have failed spectacularly and expensively, crippling their
operations. Revenue, profits, and market share dropped when core business processes and
information systems failed. Orders and shipments were often lost, inventory changes were
inaccurately recorded, and unreliable inventory levels caused weeks-long stock-outs. Hershey
Foods, Nike, A-DEC, and Connecticut General lost hundreds of millions. FoxMeyer Drugs, a $5

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billion pharmaceutical wholesaler, filed for bankruptcy, and its main competitor, McKesson
Drugs, bought it.

Shane Co., a family-owned jewellery retailer and one of the world's 10 largest, is the latest
enterprise resource planning system failure. Shane Company filed for bankruptcy in January
2009, citing delays and cost overruns in SAP AG's $36 million inventory-management system.
Shane Company claimed that SAP's installation and implementation of their system took almost
three years, instead of one, and that costs "ballooned" to $36 million, far exceeding the
maximum projection of $10 million. After SAP, based in Walldorf, Germany, completed the
system in September 2007, Shane, based in Centennial, Colorado, became "substantially
overstocked with inventory, and with the wrong mix of inventory," according to the bankruptcy
filing. The software "had a negative effect on sales" during the first nine months of 2008.

On January 28, 2008, American LaFrance (ALF), a fire truck and ambulance manufacturer, filed
for Chapter 11 bankruptcy. Court documents state that the software vendor's installation and
transition to a new ERP system caused inventory and production issues. "This is a legal process
known as'reorganization' that will make the company stronger," said American LaFrance, a fire
and emergency response equipment manufacturer in business since 1832. "Operational
disruptions caused by the installation of a new ERP system" and Freightliner's failure to disclose
obsolete inventory prompted the bankruptcy filing. Patriarch Partners, a New York City
investment firm, bought American LaFrance in late 2005 for an undisclosed amount.

American LaFrance has about $100 million in secured debt since buying its business, according
to company officials. The statement blamed inventory obsolescence and ERP issues. These
issues have slowed production, created a backlog of unfulfilled orders, and left the business
short on funds. ALF bought Freightliner in 2005. The purchase agreement required Freightliner
to manage inventory, payroll, and manufacturing until June 2007, according to reports. The
Charleston, South Carolina-based Post and Courier wrote, "But American LaFrance, which was
preparing to take over those functions by creating its own in-house system, fumbled the
changeover."

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The newspaper quoted the company: "The two systems were not entirely compatible with one
another, and a significant amount of financial information was lost in the transition." The
inventory was so disorganised that workers couldn't find the parts. The US Bankruptcy Court
documents stated that ALF's new system, created with a software vendor, had "serious
deficiencies" that "crippled" the company. The newspaper reported that operational and IT
issues "forced American LaFrance to seek protection from its more than 1,000 creditors," who
are owed over $200 million. A recent CIO survey on ERP systems and their importance to 21st-
century businesses explains how technological disasters like American LaFrance can occur.
Eighty-five percent of respondents said they "could not live without" their ERP systems.

CAUSES OF FAILURE OF ERP

What are the main reasons ERP projects fail? These businesses' business managers and IT
professionals almost always underestimated the difficulty of planning, developing, and training
for a new ERP system that would drastically change their information systems and business
procedures. Failure to involve affected employees in planning, development, and change
management programmes, as well as rushing the conversion process, were common ERP
project failures. Inadequate training in the ERP system's new work tasks and data conversion
and testing also contributed to the failure. Another factor that contributed to the ERP system's
failure was company or IT management's overreliance on ERP software vendors or prestigious
consulting firms hired to implement the ERP system. A successful ERP implementation can be
learned from the following company.

A change-of-address form had to be signed by ten Capital One Financial Corp. HR specialists a
few years ago. That requires a lot of paperwork with thousands of employees worldwide. HR
can now focus on strategic staffing, programme planning, and change management because
self-service applications allow address changes. This example shows how PeopleSoft
applications have changed the $2.6 billion financial services company. The change improved
greatly. "It's a cultural change that has freed people to not deal with minutiae but to deal with
business value," says executive vice president and CIO Gregor Bailar. "Culture has freed people

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from minutiae." "It was revolutionary." Bailar anticipates more automation to handle the
financials team's massive data requests. Financials will follow HR's "lean-process" design.
PeopleSoft ERP supports Capital One's financials, HR, asset-management, and supply-chain
processes for 18,000 users, including 15,000 employees and some business partners. BEA
Systems Inc.-powered web portals provide access to the applications. Capital One is considering
partnerships with ERP application service providers after completing data correction and
process linking. The organization's effort to shape the future of work relies on operating the
applications, even though they're now commodity jobs. Bailar calls this "a very mobile,
interactive, collaborative environment" that supports the company's knowledge workers, its
most valuable asset. It has extensive Wi-Fi, laptops with VoIP, instant messaging, BlackBerrys,
and electronic workflows. Bailar says, "This suite of apps kind of draws everyone's daily life." It's
insane.

TRENDS IN ERP

Enterprise resource planning (ERP) is adapting to technological and market changes. Integration
and flexibility improvements, e-business application extensions, new user reach, and Internet
technology adoption are influencing ERP development. Four ERP application trends are
noteworthy. First, the enterprise resource planning (ERP) software packages that were the
backbone of ERP implementations in the 1990s and were often criticised for their inflexibility
have been gradually modified into more flexible products. These packages dominated ERP
implementations at the time. ERP users pressured software vendors to adopt open, flexible,
and standards-based architectures. This makes it easier for business users to integrate the
software with other applications and adjust it to fit an organization's business processes. In
2002, SAP AG released SAP R/3 Enterprise, a successor to SAP R/3. SAP R/3 Enterprise. Oracle,
PeopleSoft, and J.D. Edwards are three more major ERP companies with more flexible products.

Web-based ERP software was the second ERP advancement. Software companies had to use
internet technologies to add web interfaces and networking capabilities to enterprise resource
planning (ERP) systems due to the Internet and corporate intranets and extranets. These

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features simplify ERP system use and integration with other company applications and business
partners' systems. Interenterprise ERP systems have developed due to internet connectivity.
ERP systems link a company's inventory, production, suppliers, distributors, and customers via
the web.

These external links indicated a trend towards integrating ERP applications with SCM and
supply chain partners. These changes drove ERP functions into e-business suites. The major ERP
software companies have developed modular, Web-enabled software suites that integrate ERP,
CRM, SCM, procurement (purchasing), decision support (DS), enterprise portals (EP), health
care functionality (HCF), and other business applications and functions. MySAP and Oracle's e-
Business Suite are examples. Some e-business suites reassemble ERP components into other
modules, but others keep ERP as its own module. Naturally, these software suites allow
businesses to manage most of their operational procedures using a single Web-enabled system
with integrated software and databases, rather than several e-business applications.

Features of ERP

● Common definitions
● Common database
● Update one module, automatically updates others
● ERP looks at your value chains, rather than functions

THE COSTS OF ERP

An ERP implementation is like the corporate equivalent of a brain transplant.

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 Figure 6.1 Typical costs of implementing a new ERP system

As we'll see in the text's real-world examples, ERP has many benefits but also many drawbacks.
Figure 6.1 shows a business's ERP system deployment costs. Reengineering business processes,
training staff, and managing change account for the majority of ERP system deployment costs.
Hardware and software costs are small. Transferring data from legacy systems to the new cross-
functional ERP system is another costly ERP implementation step. New ERP systems are costly
and risky. Most companies implemented ERP successfully, but a significant minority failed
spectacularly and severely damaged their business. When business processes and information
systems failed, revenue, profits, and market share plummeted. Orders and shipments were
often lost, inventory changes were misrecorded, and unreliable inventory levels caused weeks-
long stock-outs. Hershey Foods, Nike, A-DEC, and Connecticut General lost hundreds of millions
of dollars.

6.2 SUPPLY CHAIN MANAGEMENT

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The supply chain of a company is a network of organisations and business processes that are
responsible for the acquisition of raw materials, the processing of these materials into
intermediate and finished products, and the distribution of finished products to end users. It
connects the suppliers, manufacturing plants, distribution centers, retail outlets, and end users
so that goods and services can be provided from the point of origin all the way through
consumption. The material goods, information, and financial transactions all flow in both
directions through the supply chain. First existing as raw materials, then as intermediate
products (also known as components or parts), and finally as finished products, the goods
undergo a series of transformations as they make their way through the supply chain. Raw
materials are the first step in the process. After the manufacturing process is complete, the
finished goods are sent to distribution centers, and from there they are distributed to retailers
and end users. Whenever an item is returned, it goes from the buyer to the seller rather than
the other way around. As an illustration, let's look at the supply chain for a pair of Nike trainers.
Sneakers, socks, athletic clothing and accessories are just some of the products that Nike
designs, markets and sells all over the world. The majority of its supplies come from contract
manufacturers who operate factories in a variety of countries, including China, Thailand,
Indonesia, Brazil, and others. These businesses are responsible for the manufacture of finished
Nike products.

The contract manufacturers that Nike uses do not create trainers from the ground up. They
start by obtaining the components for the sneakers from other suppliers, such as the laces,
eyelets, uppers, and soles, and then they assemble those components into finished sneakers.
These suppliers, in turn, have other suppliers that they work with. For instance, the
manufacturers of soles have access to suppliers of synthetic rubber, suppliers of chemicals that
are utilised in the process of melting rubber in preparation for moulding, and suppliers of
moulds into which rubber can be poured. Those who sell laces typically have other sources for
the thread, dyes, and plastic lace tips that they use in their products. Figure 1 is a simplified
illustration of the supply chain that Nike uses for the production of trainers. It depicts the flow
of information and materials between Nike's suppliers, Nike, as well as Nike's distributors,

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retailers, and customers. The contract manufacturers who work for Nike are the company's
primary sources of supply. Secondary (Tier 2) suppliers include those who provide soles, eyelets,
uppers, and laces. Tertiary suppliers, also known as Tier 3 suppliers, are those that supply these
primary suppliers.

The company's suppliers, as well as the suppliers of the company's suppliers, as well as the
processes for managing relationships with these parties make up the upstream portion of the
supply chain. The portion that is located downstream includes the organisations and processes
that are responsible for the distribution and delivery of products to the end consumers.
Companies that engage in manufacturing, such as those that are Nike's contract suppliers of
trainers, are also responsible for managing their own internal supply chain processes. These
processes include the transformation of raw materials, components, and services provided by
their suppliers into finished products or intermediate products (components or parts) for their
customers, as well as the management of materials and inventory.

The upstream portion of the supply chain for sneaker soles is the only part of the sneaker
supply chain that is depicted in Figure 1. The figure only shows two contract manufacturers that
make sneakers. Nike has hundreds of contract manufacturers that are responsible for the

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production of finished shoes, socks, and athletic clothing. Each of these manufacturers has its
own group of suppliers. In reality, thousands of different entities would make up the upstream
segment of Nike's supply chain. Additionally, Nike has a large number of distributors and sells
its shoes in tens of thousands of retail stores, which makes the company's downstream portion
of the supply chain both large and complicated.

INFORMATION SYSTEMS AND SUPPLY CHAIN MANAGEMENT

A lack of accurate or timely information is the root cause of inefficiencies throughout the supply
chain. These inefficiencies manifest themselves as shortages of parts, underutilised plant
capacity, excessive finished goods inventory, or high transportation costs. For instance,
manufacturers might maintain an excessively large inventory of parts because they are unsure
of the precise timing of the arrival of their subsequent shipments from their respective
suppliers. Because they lack accurate information on demand, suppliers may place orders for
insufficient quantities of raw materials. Inefficiencies in a company's supply chain can account
for a loss of up to 25 percent of that company's total operating costs. If a manufacturer had
complete and accurate information regarding exactly how many units of a product customers
wanted, when they wanted them, and when they could be produced, then it would be possible
for the manufacturer to implement a just-in-time strategy that would be very efficient.
Components would be delivered precisely when they were required, and finished goods would
be sent out for shipment as soon as they came off the assembly line.

Unpredictability, on the other hand, is inevitable in a supply chain because there are so many
factors that can't be predicted, such as fluctuations in product demand, late shipments from
suppliers, defective parts or raw materials, or breakdowns in the production process. In order
to ensure customer satisfaction, manufacturers frequently prepare for potential risks and
unanticipated occurrences by stocking their warehouses with a greater quantity of raw
materials and finished goods than they anticipate needing. The safety stock fills the role of a
buffer in the supply chain, compensating for the chain's limited flexibility. Even though having

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an excessive amount of inventory is a costly endeavour, having a low fill rate can also be
expensive because it can result in customers cancelling their orders.

The bullwhip effect is one of the recurrent issues that arise in the management of supply chains.
This effect occurs when information regarding the demand for a product is distorted as it is
passed from one entity to the next along the supply chain. If there is even a modest increase in
demand for a product, various members of the supply chain, including distributors,
manufacturers, suppliers, secondary suppliers (suppliers' suppliers), and tertiary suppliers
(suppliers' suppliers' suppliers), might begin stockpiling inventory in order to ensure that they
have enough "just in case." These changes cause a ripple effect that travels all the way through
the supply chain, amplifying what was initially a minor adjustment to the orders that were
planned and leading to increased costs associated with excess inventory, production,
warehousing, and shipping.

For instance, as a result of such distorted information, Procter & Gamble (P&G) discovered that
it had excessively high inventories of its Pampers disposable diapers at various points along its
supply chain. When P&G would offer aggressive price promotions, distributors would place
significantly more orders, despite the fact that customer purchases in stores were fairly
consistent. Along the supply chain, there was an accumulation of Pampers and the components
of Pampers in warehouses in an effort to meet a demand that did not actually exist. P&G
revised its marketing, sales, and supply chain processes, as well as used more accurate demand
forecasting, in order to eliminate this issue. When all participants in the supply chain have
access to accurate and up-to-date information, the bullwhip can be tamed by reducing the
amount of uncertainty that exists regarding demand and supply. If all participants in the supply
chain shared dynamic information about their inventories, they could adjust their plans for
sourcing materials, producing goods, and distributing them.

Members of the supply chain are able to make more informed decisions regarding purchasing
and scheduling thanks to the information that is made available by supply chain management
systems.

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INFORMATION FROM SUPPLY CHAIN MANAGEMENT SYSTEMS HELPS COMPANIES DOES THE
FOLLOWING:
• Decide when and what to produce, store, and move
• Rapidly communicate orders
• Track the status of orders
• Check inventory availability and monitor inventory levels
• Reduce inventory, transportation, and warehousing costs
• Track shipments
• Plan production based on actual customer demand
• Rapidly communicate changes in product design
• Plan production based on actual customer demand
• Rapidly communicate

SUPPLY CHAIN MANAGEMENT SOFTWARE

Software that assists businesses in planning their supply chains is known as supply chain
planning software. Software that assists businesses in carrying out the various steps of the
supply chain is known as supply chain execution software (supply chain execution). The
company is now able to model its existing supply chain, generate demand forecasts for
products, and develop optimal plans for manufacturing and sourcing thanks to the
implementation of supply chain planning systems.

These types of systems assist businesses in making more informed choices, such as deciding
how much of a particular product to produce in a given amount of time; determining inventory
levels for raw materials, intermediate products, and finished goods; deciding where to store
finished goods; and deciding which mode of transportation to use for product delivery.

For instance, if a large customer places an order that is larger than usual or makes changes to
that order with short notice, it may have an effect that ripples throughout the entire supply
chain. It's possible that you'll need to place an order with your suppliers for additional raw
materials or a different combination of raw materials. It's possible that manufacturing will need

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to adjust their shift schedules. It's possible that a transportation carrier will need to rearrange
delivery times. The appropriate modifications to the production and distribution plans are
made by the software that manages supply chain planning.

The relevant participants in the supply chain are informed of any changes that have occurred
and given the opportunity to coordinate their work accordingly. Demand planning is one of the
most important and difficult aspects of supply chain planning because it determines how much
of a particular product an organisation needs to produce in order to meet the requirements of
all of its customers. Major providers of supply chain management software include Manugistics
and i2 Technologies, both of which have been acquired by JDA Software. In addition, enterprise
software providers SAP and Oracle-PeopleSoft both offer supply chain management modules.

The Whirlpool Corporation, which manufactures a variety of home appliances including

washing machines, dryers, refrigerators, ovens, and more, uses supply chain planning systems
to ensure that the products it manufactures meet the needs of its customers. i2 Technologies
provides the company with supply chain planning software, which includes modules for master
scheduling, deployment planning, and inventory planning. In addition, Whirlpool implemented
i2's Web-based tool for Collaborative Planning, Forecasting, and Replenishment (CPFR), which
allows the company to share and combine its sales forecasts with those of its major sales
partners. Whirlpool was able to increase the availability of products in stock when customers
needed them to 97 percent thanks to improvements in supply chain planning combined with
new state-of-the-art distribution centres. In addition, the company was able to reduce the
number of excess finished goods in inventory by 20 percent and the number of forecasting
errors by 50 percent.

The flow of products through distribution centres and warehouses is managed by supply chain
execution systems, which in turn ensures that products are delivered to the appropriate
locations in the most time and cost effective manner possible. They monitor the physical
condition of the goods, as well as the management of the materials, the operations of the
warehouse and transportation, and the financial information involving all parties. One such

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example is the Warehouse Management System (WMS) utilised by Haworth, Incorporated. The
office furniture manufacturer and designer Haworth has distribution centres in four different
states across the country. Haworth is a world leader in the office furniture industry. The WMS
monitors and manages the movement of finished goods from the distribution centres owned by
Haworth to the end users of those goods. The WMS is responsible for directing the movement
of goods based on the immediate conditions for space, equipment, inventory, and personnel.
These directions are based on shipping plans for customer orders.

The Southwest Airlines Interactive Session on Organizations explains how the implementation
of software for supply chain management improved the company's ability to make decisions
and its operational performance. This business stays ahead of the competition by providing
exceptional customer service while also maintaining low prices. The company's ability to
manage its parts inventory in an efficient manner is essential to achieving these goals.

GLOBAL SUPPLY CHAINS AND THE INTERNET

Before the Internet, supply chain coordination was hampered by the difficulties of making
information flow smoothly among disparate internal supply chain systems for purchasing,
materials management, manufacturing, and distribution. It was also difficult to share
information with external supply chain partners because the systems of suppliers, distributors,
or logistics providers were based on incompatible technology platforms and standards.
Enterprise and supply chain management systems enhanced with Internet technology supply
some of this integration. A manager will use a Web interface to tap into suppliers’ systems to
determine whether inventory and production capabilities match demand for the firm’s
products. Business partners will use Web-based supply chain management tools to collaborate
online on forecasts. Sales representatives will access suppliers’ production schedules and
logistics information to monitor customers’ order status.

GLOBAL SUPPLY CHAIN ISSUES

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More and more businesses are selling their wares in international markets, contracting out
their manufacturing operations, and sourcing their supplies from other nations in addition to
expanding their global sales. Their distribution networks span a variety of countries and
geographic areas. The management of a global supply chain comes with its own unique set of
complications and difficulties.

Global supply chains typically involve more parties from a wider variety of nations and span
greater geographical distances and time differences than domestic supply chains. Additionally,
global supply chains are typically longer than domestic supply chains. Even though the cost of
purchasing many different types of goods may be lower in other countries, there are frequently
additional costs associated with transportation, inventory (the requirement for a larger buffer
of safety stock), and local taxes or fees. There may be variations in the performance standards
from one region to another or even from one nation to another. It's possible that management
of the supply chain will need to take into account the cultural norms and regulations of other
countries. All of these factors have an effect on how a company handles taking orders, planning
distribution, determining the size of warehouse space needed, and managing inbound and
outbound logistics across the global markets it serves. Companies are able to manage many
aspects of their global supply chains with the assistance of the Internet, including the sourcing
of their goods, the transportation of those goods, communications with customers, and
international finance. For example, the modern apparel industry relies heavily on contract
manufacturers based in China and other low-wage countries. These manufacturers typically
work on a piece-rate basis. Companies that sell clothing are beginning to manage their global
supply chains and production issues with the help of the Internet. For instance, Koret of
California, a subsidiary of apparel manufacturer Kellwood Co., uses e-SPS Web-based software
to gain end-to-end visibility into its entire global supply chain. Koret is able to do this because
Kellwood is able to track all of its orders. E-SPS includes Web-based software for sourcing,
tracking work-in-progress and production, tracking product development, identifying and
collaborating on problems, projecting delivery dates, and answering questions and submitting
reports related to production.

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Communication is required between retailers, manufacturers, contractors, agents, and
providers of logistics services as goods are sourced, produced, and shipped. A significant
number of businesses, particularly those of a smaller size, continue to exchange product
information via faxes, e-mails, and telephone calls. The supply chain moves more slowly as a
result of these methods, which also contribute to an increase in errors and uncertainty.
Through the use of an Internet-based platform, all participants in the supply chain are able to
communicate with one another. In the event that the status of a product is updated by one of
Koret's suppliers, all parties involved in the supply chain are made aware of the modification. In
addition to contract manufacturing, globalisation has encouraged the outsourcing of
warehouse management, transportation management, and other related operations to third-
party logistics providers like UPS Supply Chain Solutions and Schneider Logistics Services.
Globalization has also encouraged the outsourcing of contract manufacturing. These logistics
services provide their customers with software that is based on the Internet in order to give
them a clearer picture of their global supply chains. Customers can check a secure website to
keep track of their inventory as well as their shipments, which enables them to operate their
global supply chains in a more effective manner.

The Shift from Push to Pull in Demand-Driven Supply Chains Production in Addition to Effective
Communication with Customers

In addition to lowering operating expenses, supply chain management systems make it easier
to provide effective responses to customers. This paves the way for the operations of the
business to be driven more by the requirements of its clients. Push-based models drove the
earlier supply chain management systems. Pull-based models are more common today (also
known as build-to-stock). In a push-based model, production master schedules are based on
forecasts or best guesses of demand for products, and products are “pushed” to customers. A
pull-based model can be implemented in supply chain management with greater ease thanks to
the new information flows made possible by tools based on the web. Actual orders or
purchases made by customers are what set off events further along the supply chain in a pull-

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based model, which is also known as a demand-driven model or build-to-order. Along the
supply chain, transactions that produce and deliver only what customers have ordered move up
from retailers to distributors to manufacturers and, finally, to suppliers. This ensures that
nothing is wasted. Only products to fulfil these orders move back down the supply chain to the
retailer. Only information regarding actual order demand is used by manufacturers to
determine their production schedules and the quantities of components and raw materials to
purchase. The Internet and technology related to the Internet make it possible to transition
from sequential supply chains, in which information and materials flow sequentially from
company to company, to concurrent supply chains, in which information flows in multiple
directions simultaneously among members of a supply chain network. Sequential supply chains
involve the use of the Internet. When there is a shift in the schedule or the number of orders,
complex supply networks that include manufacturers, logistics suppliers, outsourced
manufacturers, retailers, and distributors are able to make the necessary adjustments
immediately. Internet connectivity has the potential to one day give the entire supply chain a
"digital logistics nervous system."

BUSINESS VALUE OF SUPPLY CHAIN MANAGEMENT SYSTEMS

You have just seen how supply chain management systems make it possible for businesses to
streamline the processes involved in their internal as well as their external supply chains and
provide management with more accurate information regarding what products to produce,
store, and move. Companies are able to more effectively use their assets, match supply to
demand, reduce inventory levels, improve delivery service, and speed up the time it takes for
products to reach the market after they have implemented a supply chain management system
that is networked and integrated.

The total costs of the supply chain account for the majority of operating expenses for many
companies, and in certain markets, they approach 75 percent of the total budget for operating
expenses. It's possible that lowering the costs of the supply chain will have a significant effect
on the profitability of the company. Supply chain management systems, in addition to lowering

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costs, also contribute to an increase in sales. When a customer wants a product and that
product is not available, the customer will frequently try to purchase the product from a
different vendor. A firm's capacity to make the appropriate product available for customer
purchases at the appropriate time is bolstered by increased granularity in the control it
exercises over its supply chain.

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 6.3 CUSTOMER RELATIONSHIP MANAGEMENT

WHAT EXACTLY IS MEANT BY THE TERM "CUSTOMER RELATIONSHIP MANAGEMENT"?

In order to construct and maintain healthy, long-lasting relationships with customers, what
kinds of information would you require? You would want to have a thorough understanding of
your clientele, including who they are, how to get in touch with them, whether or not they are
expensive to service and sell to, the kinds of goods and services that pique their interest, and
the amount of money they spend with your business. You would want to make sure that you
knew each of your customers very well, as if you were operating a store in a small town, if you
had the opportunity to do so. And you would want to make your loyal customers feel like they
are receiving special treatment. It is possible for the owners and managers of a small business
that is located in a neighbourhood to really know their customers on a personal, face-to-face
basis if the business is a neighbourhood establishment. But it is impossible to "know your
customer" in such a personal way when you run a large business that operates on a
metropolitan, regional, national, or even global scale.

In these kinds of companies, there are an excessive number of customers, as well as an

excessive number of distinct ways in which customers engage with the company (over the Web,
the phone, fax, and in person). As a result of the large number of customers and the difficulty of
integrating information from all of these sources, the situation becomes particularly challenging.
The processes for sales, service, and marketing in a large company are typically highly
compartmentalised, and these departments do not typically share a great deal of essential
customer information with one another. The account that a particular customer has with the
company may serve as a repository for and organiser of certain information pertaining to that
customer. It's possible that other bits of information about the same customer could be
organised according to the products that they bought. There is no way to compile all of this

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information into one centralised location so that employees throughout the company can have
a consistent view of a customer.

In situations like this, customer relationship management systems can be of assistance.

Customer relationship management (CRM) systems collect and integrate customer data from all
over the organisation, consolidate the data, analyse the data, and then distribute the results to
a variety of systems and customer touch points across the enterprise. CRM stands for
"customer relationship management." A touch point is a method of interaction with the
customer, such as a telephone, e-mail, customer service desk, conventional mail, website,
wireless device, or retail store. A touch point is also referred to as a contact point.

CRM systems that have been thoughtfully designed offer businesses a unified view of their
customers, which can help them improve both their sales and their customer service. These
kinds of systems give customers a unified perspective of the company, regardless of which of
the company's touch points they choose to interact with.

The best customer relationship management (CRM) systems provide the data and analytical
tools necessary to answer questions such as "What is the value of a particular customer to the
firm over the course of his or her lifetime?" "Who are our customers who are the most loyal to
us?" (The cost of selling to a new customer can be up to six times higher than the cost of selling
to an existing customer.) "Who are our best customers in terms of profitability?" and "What is it
that these highly profitable customers are looking to purchase?" The responses to these
questions are used by businesses to increase their customer base, improve their level of service
and support for existing customers, more precisely tailor their product or service to the
preferences of individual customers, and provide ongoing value in order to keep profitable
customers.

SOFTWARE FOR THE MANAGEMENT OF CUSTOMER RELATIONSHIPS

Commercial CRM software packages can range from niche tools that perform limited functions,
such as personalising Web sites for specific customers, to large-scale enterprise applications

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that capture a myriad of interactions with customers, analyse them using sophisticated
reporting tools, and link to other major enterprise applications, such as supply chain
management and enterprise systems. Niche tools perform limited functions, such as
personalising Web sites for specific customers. Modules for partner relationship management
(PRM) and employee relationship management (ERM) are included in the more comprehensive
customer relationship management (CRM) packages (ERM).

To improve the level of collaboration that exists between a company and its selling partners,
PRM makes use of many of the same data, tools, and systems that are utilised in customer
relationship management. If a business does not sell its products or services directly to end
users but rather works with distributors or retailers, then PRM can assist these channels in
selling directly to end users. It integrates lead generation, pricing, promotions, order
configurations, and availability, providing a company and its selling partners with the capability
to trade information and distribute leads and data about customers. In addition to this, it gives
a company the tools it needs to evaluate the performance of its business partners, allowing the
company to provide its most successful partners with the assistance and resources they require
to bring in additional customers.

ERM software addresses employee issues that are closely related to CRM, such as objective
setting, employee performance management, performance-based compensation, and
employee training. ERM software also addresses other employee-related issues. SAP,
Salesforce.com, Microsoft Dynamics CRM, and Siebel Systems and PeopleSoft, both of which
are owned by Oracle, are among the most important CRM application software vendors.

Customer relationship management systems typically offer downloadable software as well as

online tools for use in various business functions including marketing, customer service, and
sales. A few of these capabilities are discussed in more detail below.

SALES FORCE AUTOMATION (SFA)

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The sales force automation modules that are included in CRM systems are designed to assist
sales staff in increasing their productivity. This is accomplished by directing the sales staff's
efforts towards the customers who are most likely to generate the most revenue for the
company and who are also likely to be good candidates for additional products and services. In
addition, the sales force automation modules in CRM systems are designed to assist sales staff
in increasing their productivity. Information regarding sales prospects and contacts, products,
product configuration capabilities, and the ability to generate sales quotes are all made
available by CRM systems. This kind of software is able to compile information regarding a
particular customer's previous purchases, which helps the salesperson provide more
individualised recommendations to the customer. The marketing, sales, and delivery
departments are able to more easily collaborate thanks to the use of CRM software, which
makes it possible for them to share information about customers and prospects. It lowers the
cost of each sale, as well as the cost of acquiring new customers and keeping the ones they
already have, which contributes to an overall improvement in the effectiveness of each
individual salesperson. In addition to these functions, customer relationship management
software enables sales forecasting, territory management, and team selling. In other words,
CRM software is an all-in-one solution.

CUSTOMER SERVICE

Call centres, help desks, and customer support staff can all see improvements in their
productivity thanks to the customer service modules included in CRM systems. These modules
provide information and tools. They are able to assign and manage requests for customer
service and have those capabilities.

One of these capabilities is a telephone line for making appointments or getting advice: When a
customer calls a regular phone number, the system directs the call to the appropriate service
representative, who then enters the relevant information about the customer into the system
just the one time. Any customer service representative is able to handle the relationship with
the customer once the customer's data have been entered into the system. Call centres are

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able to handle more calls per day and reduce the amount of time each call lasts when they have
improved access to customer information that is accurate and consistent. As a result, call
centres and customer service groups are able to achieve greater productivity, decreased
transaction times, and improved service quality at significantly reduced costs. The satisfaction
level of the customer has increased as a result of the decreased amount of time spent on the
phone explaining the customer's issue to various customer service representatives.

CRM systems may also include self-service capabilities that are accessible via the web:
Customers who have questions about the company's products or services will have the ability
to access personalised support information and the option to speak with a customer service
representative over the phone if they use the company's website.

MARKETING

CRM systems provide support for direct-marketing campaigns by providing capabilities for
capturing prospect and customer data, for providing product and service information, for
qualifying leads for targeted marketing, and for scheduling and tracking direct-marketing
mailings or e-mails. These capabilities are referred to collectively as "data capture." Tools for
analysing marketing and customer data, determining profitable and unprofitable customers,
designing products and services to satisfy specific customer needs and interests, and
determining opportunities for cross-selling are all included in marketing modules. The act of
marketing products that are complementary to existing ones to existing customers is known as
cross-selling. (In the realm of financial services, for instance, a client who already possesses a
checking account could be upsold to a money market account or offered a loan for home
improvements.) CRM tools also assist businesses in managing and carrying out marketing
campaigns at every stage, from the planning stage to the stage where the success rate of each
campaign is determined. The most important capabilities for sales, service, and marketing
processes that can be found in major CRM software products. These capabilities can be found
in major CRM software products. This software, in the same vein as enterprise software, is
driven by business processes and incorporates hundreds of business processes that are thought

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to represent best practises in each of these areas. Companies need to revise and model their
business processes to conform to the best-practice business processes that are included in the
CRM software in order to achieve the maximum benefit from using it. How a best practise for
boosting customer loyalty through excellent service could be modelled by customer
relationship management software. Directly serving customers gives businesses the
opportunity to increase customer retention by giving profitable, long-term customers
preferential treatment. This can be accomplished by increasing the value of the service they
provide to customers. CRM software is able to provide call centres with information that can
assist in the routing of each customer's service request to agents who are best able to handle
that customer's specific needs. This scoring system can be based on the customer's value to the
company as well as the customer's loyalty to the company. The system would immediately
present the customer service representative with a comprehensive profile that includes the
customer's value and loyalty scores. This profile would be generated automatically by the
system. The service agent would use this information to present the customer with special
offers or additional services in an effort to entice the customer to continue doing business with
the company. In our Learning Tracks, you will find additional information on other business
procedures that are considered to be industry standards for CRM systems.

OPERATIONAL AND ANALYTICAL CRM

Every one of the applications that we have just gone over provides support for either the
operational or analytical aspects of customer relationship management. The customer-facing
applications that are a part of operational CRM include things like marketing automation
software, call centre and customer service support software, and sales force automation
software. Analytical Customer Relationship Management is Customer Relationship
Management that includes applications that analyse customer data generated by operational
Customer Relationship Management applications to provide information that can be used to
improve business performance.

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Analytical CRM applications are based on data warehouses, which consolidate the data
collected from operational CRM systems and customer touch points. This data is then made
available for use with online analytical processing (OLAP), data mining, and other methods of
data analysis. Data on customers collected by the organisation could be combined with
information obtained from other sources, such as customer lists for direct-marketing campaigns
acquired from other businesses or demographic information. The analysis of such data allows
for the identification of purchasing patterns, the creation of segments for the purpose of
targeted marketing, and the identification of profitable and unprofitable customers. The
lifetime value of the customer to the company is an additional significant output of analytical
CRM. The customer lifetime value (CLTV) is calculated by looking at the relationship between
the revenue generated by a particular customer, the expenses incurred in acquiring and
servicing that customer, and the anticipated length of time that the customer will have a
relationship with the company.

THE THREE PHASES OF CRM

Another way to think about the value that customer relationship management provides to
businesses and their customers, as well as the components of this service. We can think of
customer relationship management (CRM) as an integrated system of web-enabled software
tools and databases that carry out a variety of customer-focused business processes to provide
support for the three stages of the relationship that exists between a company and its
customers.

Acquire:

A company relies on customer relationship management (CRM) software tools and databases
to assist it in the process of acquiring new clients by performing an exceptional job of contact
management, sales prospecting, selling, direct marketing, and fulfilling orders. The purpose of
these CRM functions is to facilitate the enhancement of customers' perceptions of the value of
products and services provided by exceptional businesses.

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Enhance:

Customer relationship management (CRM) account management, customer service and

support tools that are enabled via the web help to keep customers happy by supporting
superior service provided by a responsive networked team of sales and service specialists and
business partners. In addition, customer relationship management (CRM) sales force
automation tools, direct marketing and fulfilment tools help businesses cross-sell and up-sell to
their existing customers, which in turn increases the customers' profitability to the company.
The convenience of being able to get all of their shopping done in a single location at
reasonable prices is the value that the customers perceive.

Retain:

CRM analytical software and databases assist a company in proactively identifying and
rewarding its most loyal and profitable customers in order to retain and expand their business
via targeted marketing and relationship marketing programmes. Retain and expand their
business is accomplished through targeted marketing. The customers have the perception that
the value they receive is derived from a satisfying and individualised working relationship with
"their company."

BENEFITS AND CHALLENGES OF CRM

There are numerous possible advantages for a company's bottom line that could result from
investing in customer relationship management. For instance, customer relationship
management makes it possible for a company to single out and focus on its most valuable
customers—those who bring in the most revenue—in order to keep those customers as
permanent clients who can take advantage of additional and more lucrative services. It enables
real-time customization and personalization of products and services based on the wants,
needs, purchasing patterns, and life cycles of individual customers. CRM software can also
record the date and time of each customer interaction with an organisation, irrespective of the
channel of communication used. In addition, CRM systems can make it possible for a company

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to provide a superior level of service and support across all of the contact points that a
customer selects, thereby creating a more consistent experience for the customer. All of these
benefits would provide a company with strategic business value, while also providing significant
value to the customers of that company.

CRM FAILURES

There is no assurance that a business will reap the benefits of customer relationship
management; in fact, this has not been the case at many different companies. More than fifty
percent of customer relationship management (CRM) projects reportedly did not produce the
results that were promised, according to surveys conducted by industry research groups.
According to another research report, twenty percent of the companies surveyed stated that
the implementation of CRM systems had, in fact, harmed their long-standing relationships with
customers. In addition, a survey of senior management's satisfaction with 25 management
tools found that customer relationship management (CRM) ranked near the bottom in terms of
user satisfaction, despite the fact that 72 percent anticipated having CRM systems
implemented in the near future.

It is generally accepted that the following factors contribute to the failure of CRM systems:
• A lack of sponsorship from senior management
• Poor change management
• Protracted projects that attempt to accomplish too much, too quickly
• A lack of or poor integration between CRM and core business systems
• A lack of end-user incentives, which results in low user adoption rates

In spite of the points made above, research indicates that the most common factor contributing
to CRM failure is a lack of understanding and preparation. Too frequently, business managers
will rely on a major new application of information technology (such as CRM) to solve a

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business problem without first developing the necessary changes to business processes and
change management programmes. For instance, in many instances, CRM projects that were
implemented without the participation of the business stakeholders involved were deemed to
be unsuccessful. As a result, neither the employees nor the customers were prepared for the
new processes or challenges that came with the implementation of the new CRM system.
Failures in information technology management, system implementation, and change
management are all going to be topics of conversation during this session.

TRENDS IN CRM

It is becoming increasingly necessary for businesses to strengthen their collaborative ties with
their partners, suppliers, and customers in order to reduce wasteful time and expenses while
simultaneously boosting both the quality of the customer experience and the overall value
proposition. The following is a rundown of the benefits that can accrue to a company from
implementing the four different types or categories of CRM that are currently in use by many
businesses today. These categories can also be interpreted as stages or trends in the manner in
which many businesses implement CRM applications, and the figure also outlines some of the
capabilities that CRM software products offer. The majority of companies begin with functional
CRM systems such as sales force automation and customer service centres when they first open
their doors. The next step is to implement analytical CRM applications by utilising a variety of
analytical marketing tools, such as data mining, in order to obtain vital information regarding
customers and prospects for the purposes of developing targeted marketing campaigns.

Businesses are increasingly adopting collaborative customer relationship management (CRM)

systems in order to involve their business partners and customers in collaborative customer
service efforts. This includes customer self-service and feedback systems, as well as systems for
partner relationship management (also known as PRM). PRM applications make use of a
significant number of the tools that are found in CRM systems in order to improve collaboration
between an organisation and its business partners, such as distributors and dealers, in order to
coordinate and optimise sales and service to customers across all marketing channels. Finally,

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many companies are constructing Internet, intranet, and extranet Web-based customer
relationship management (CRM) portals as a common gateway for varying levels of access to all
customer information, as well as operational, analytical, and collaborative CRM tools for
customers, employees, and business partners. These portals serve as a central point of access
for customers, employees, and business partners. Let's take a look at a situation that actually
occurred.

OPERATIONAL CRM
• Allows for more convenient customer interaction through a variety of channels, such as
phone, fax, e-mail, chat, and mobile devices.
• Operational CRM supports the use of a wide variety of channels.
• Maintains synchronisation of customer interactions across all channels in a consistent
manner
• Eases the process of conducting business with your company

ANALYTICAL CRM
• Extracts in-depth customer history, preferences, and profitability information from your
data warehouse and other databases
• Allows you to analyse, predict, and derive customer value and behaviour
• Allows you to forecast demand
• Lets you approach your customers with relevant information and offers that are tailored
to their needs Analytical CRM

Collaborative CRM enables easy collaboration with customers, suppliers, and partners;
improves efficiency and integration throughout the supply chain; allows for greater
responsiveness to customer needs through the sourcing of products and services from outside
your enterprise; and

Portal Based :

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The benefits of using a CRM that is based on a portal include the following:
• It gives all users access to tools and information that are tailored to their specific roles
and preferences; • It enables all employees to respond to customer demands more
quickly and to become more customer-focused;
• It gives users the ability to instantly access, link, and use all customer information that is
stored internally and externally.

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 Enterprise Systems and E-commerce

7.1 E-COMMERCE

The nature of competition is shifting as a result of the increased speed of action enabled by e-
commerce, as well as the increased standardization of interactions, products, and monetary
transactions between customers and businesses, as well as between businesses and their
suppliers. Electronic commerce entails more than simply making purchases and sales of goods
and services online for the vast majority of businesses operating in today's world. In its place, it
refers to the entirety of the online process of creating, marketing, selling, delivering, servicing,
and paying for products and services that are transacted on inter-networked, global
marketplaces of customers, with the assistance of a worldwide network of business partners.
This can be done from the comfort of one's own home. In point of fact, many people believe
that the term "e-commerce" has become somewhat dated. It is possible that it will soon be
time to eliminate the distinction between e-commerce and e-business and accept that it is all
just "business as usual." This is due to the fact that a large number of young businesspeople
have grown up in a world in which online commerce has always been available. We will
continue to use the term "e-commerce" until that time because it provides a better
understanding of the distinctions between business transactions that take place online and
those that are more traditionally conducted.

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As we will see in the following chapter, e-commerce systems are dependent on the resources
provided by the Internet as well as a wide variety of other information technologies in order to
support each step of the process. In addition, we will see that the vast majority of businesses,
both large and small, are involved in some manner of online commercial activity. As a result,
most businesses operating in today's market need to develop an e-commerce capability in
order to remain competitive.

When it comes to conducting business, the use of the Internet and the World Wide Web is
referred to as "e-commerce." To be more precise, the term "e-commerce" refers to business
dealings that are conducted over the internet between and among companies as well as private
individuals. Transactions that take place over the Internet and the World Wide Web are the
primary focus of this definition. Organizational boundaries are crossed in the course of
commercial transactions, which involve the exchange of value (such as money) or personal
limitations in exchange for products and services.

In 1995, one of the first Internet portals, Netscape.com, accepted the first ads from major
corporations and popularised the idea that the Web could be used as a new medium for
advertising and sales. This was the beginning of the birth of electronic commerce, also known
as "e-commerce."

At the time, nobody could have predicted what would turn out to be an exponential growth
curve for e-commerce retail sales, which doubled and tripled in the first few years of their
existence. Before the economic downturn of 2008–2009, growth in e-commerce was
accelerating at double-digit rates on a yearly basis. After that, growth slowed to a crawl. In 2009,
revenues from e-commerce were relatively unchanged, which is not a bad result when one
considers the fact that traditional retail sales were dropping by 5 percent annually. In point of
fact, e-commerce was the only part of the retail industry that remained stable throughout the
recession. Some online retailers have made record-breaking strides: Amazon's revenue in 2009
was up 25 percent compared to the company's sales in 2008. In spite of the economic
downturn, the number of people who made purchases online increased by 6 percent in 2010,

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reaching 133 million, and the average amount spent increased by 5 percent, reaching $1,139.
Over the course of the year, Amazon's revenue increased by 28%.

A market bubble in e-commerce stocks was caused by the extremely rapid growth of e-
commerce in its early years. This phenomenon was analogous to the historical trajectory of
much technological advancement, including the telephone, radio, and television. The "dot-
com" bubble burst, just like every other bubble (in March 2001). During this process, there
were a significant number of e-commerce companies went bankrupt. However, the outcomes
have been more favorable for a great number of other companies, including Amazon, eBay,
Expedia, and Google. These companies have seen skyrocketing revenues, finely tuned business
models that produce profits, and rising stock prices. By 2006, e-commerce revenues had
returned to solid growth, and they have continued to be the form of retail trade that is
expanding at the fastest rate across all of Europe, Asia, and the United States.

 According to estimates, online consumer sales reached an all-time high of

approximately $225 billion in 2010, representing an increase of more than 12 percent
from the previous year (this figure includes sales of digital downloads and travel
services), with 133 million people making purchases and 162 million people shopping
and gathering information but not necessarily making purchases (E-Marketer, 2010a).
 The number of people of all ages who used the internet in the United States increased
to 221 million in 2010, which is an increase from the 147 million who used the Internet
in 2004. There are now more than 1.9 billion people around the world that have access
to the Internet. The rise in the total number of people using the Internet has been a
driving force behind the expansion of online business (E-Marketer, 2010b).
 In 2010, approximately 68 percent of all households, or approximately 80 million of the
nation's total households, had access to the Internet via a broadband connection.
 Roughly 83 million people in the United States currently connect to the internet through
a mobile device such as an iPhone, Droid, or BlackBerry. Applications, ringtones,
downloaded entertainment, and location-based services have all contributed to the

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 explosive growth of mobile e-commerce, which has now reached a tipping point. Within
the next few years, mobile phones will replace desktop computers as the most common
device used to access the Internet.
 It is estimated that 128 million adult Internet users in the United States log on to the
Internet on a daily basis. There are approximately 102 million people who send emails,
81 million people who use search engines, and 71 million people who get news. There
are approximately 63 million people who make use of social networks, 43 million who
conduct banking transactions online, 38 million who watch videos online, and 28 million
who look for information on Wikipedia (Pew Internet & American Life Project, 2010).
 The use of the internet for business-to-business commerce and collaboration among
business partners increased to more than $3.6 trillion, which is referred to as B2B e-
commerce.

The revolution brought on by e-commerce is just getting started. As more goods and services
become available online and as more households switch to broadband telecommunications,
more individuals and businesses will turn to the Internet to conduct business transactions at an
increasing rate. E-commerce will have a greater impact on a wider range of industries in the
future, including travel reservations, music and entertainment, news, software, education, and
the financial sector.

THE SCOPE OF E-COMMERCE

The spectrum of commercial activities, including marketing, purchasing, and selling of goods
and services, as well as after-sales support, are carried out by businesses that engage in e-
commerce. Internet-based technologies, as well as applications and services geared specifically
towards e-commerce, are relied upon by businesses engaged in e-commerce, whether as
buyers or sellers, in order to successfully carry out marketing, discovery, transaction processing,
as well as product and customer service procedures. For instance, interactive marketing,
ordering, payment, and customer support are all examples of e-commerce processes that can
be found on e-commerce catalogues and auction sites that are hosted on the World Wide Web.

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Nevertheless, e-commerce also includes e-business processes such as extranet access of
inventory databases by customers and suppliers (transaction processing), intranet access of
customer relationship management systems by sales and customer service reps (service and
support), and customer collaboration in product development through e-mail exchanges and
Internet newsgroups (marketing/discovery).

Because of the benefits of e-commerce, businesses of virtually any size and located virtually
anywhere on the planet are able to transact business with virtually anyone and everyone,
regardless of where they are located. Imagine a small olive oil producer located in a remote
village in Italy selling its wares to large department stores and specialty food shops in major
metropolitan markets such as New York, London, Tokyo, and other major cities around the
world. Because of the power of e-commerce, geophysical barriers can be eliminated, which
means that all consumers and businesses on the earth have the potential to be customers and
suppliers.

BUSINESS TRANSFORMATION

• When compared to physical retail stores, services, and entertainment venues, e-commerce
continues to be the form of business that is expanding at the quickest rate.

• The first wave of online shopping completely revolutionized traditional industries like the
music industry, the book industry, and airline travel. In the second wave, nine new industries,
including marketing and advertising, telecommunications, movies, television, jewelry and
luxury goods, real estate, online travel, bill payments, and software, are all facing a scenario
that is analogous to the first.

• The variety of products and services available through e-commerce continues to expand,
particularly in the services sector of the economy, which includes social networking, travel,
information clearinghouses, entertainment, retail apparel, appliances, and home furnishings.

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• The demographics of people who shop online are beginning to resemble those of people who
shop in physical stores.

• While traditional retail brands like Sears, JCPenney, L.L.Bean, and Walmart use e-commerce
to maintain their dominant retail positions, pure e-commerce business models are being
refined further in order to achieve higher levels of profitability.

• New startups and small businesses are continually entering the e-commerce market. These
companies frequently ride on the infrastructures developed by industry giants such as Amazon,
Apple, and Google, and they are increasingly making use of the cloud-based computing
resources that are available.

• The United States sees the beginning of a boom in mobile e-commerce with the introduction
of location-based services and entertainment downloads such as electronic books.

TECHNOLOGY FOUNDATIONS

• The number of wireless Internet connections, including Wi-Fi, WiMax, and 3G and 4G on
smartphones, is rapidly increasing.

• Powerful handheld mobile devices support not only voice communication but also music
playback, web surfing, and other forms of entertainment. As a medium for the distribution of
video, radio, and user-generated content, podcasting and streaming are becoming increasingly
popular.

• As a result of declining costs associated with the transmission, the foundation for broadband
Internet use in homes and businesses is growing stronger. In 2010, more than 80 million homes
in the United States had access to the Internet through broadband services such as cable or DSL,
representing approximately 68 percent of all homes in the country (eMarketer, 2010a).

• E-commerce, marketing, and advertising are all set to benefit greatly from social networking
software and websites, such as Facebook, MySpace, Twitter, and Linkedin, among thousands of

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others. Facebook has reached a total of 500 million users across the globe, including 180 million
users in the United States (comScore, 2010).

• The price of building an e-commerce website can be drastically cut by utilizing various
Internet-based models of computing, such as software as a service (SaaS), cloud computing,
and Web 2.0 applications.

NEW BUSINESS MODELS EMERGE

• More than half of all people who use the internet are members of at least one online social
network, make regular contributions to social bookmarking sites, maintain personal blogs, and
exchange photos. These websites, when combined, produce a massive online audience that is
comparable in size to that of television and is appealing to advertisers.

• As Google and other technology players such as Microsoft and Yahoo! seek to dominate
online advertising and expand into offline ad brokerage for television and newspapers, the
traditional advertising business model is being severely disrupted.

• Newspapers and other traditional media are adopting online, interactive models; however,
despite increasing their online readership, they are experiencing a decline in advertising
revenues as a result of competition from online players.

• The growth of online entertainment business models that offer television, movies, music,
sports, and electronic books is facilitated by collaboration between major copyright owners in
Hollywood and New York and Internet distributors such as Google, YouTube, Facebook, and
Microsoft. These models offer a variety of entertainment options, including television shows,
movies, music, sports, and electronic books.

WHY E-COMMERCE IS DIFFERENT

Why has the growth of e-commerce been so rapid? The answer can be found in the one-of-a-
kind characteristics of the Internet and the World Wide Web. Simply put previous technological

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revolutions such as radio, television, and the telephone pale in comparison to the depth and
power offered by the Internet and technologies related to electronic commerce.

UBIQUITY

A marketplace is a physical location, like a department store or grocery store, where people go
to buy and sell goods in the traditional sense of the word. The term "ubiquitous" refers to the
fact that e-commerce can be conducted pretty much always and pretty much anywhere.
Through the use of mobile commerce, it is now possible to shop from your computer while you
are at home, at work, or even while you are driving. The resulting phenomenon is known as a
market space, and it is essentially a marketplace that has expanded beyond its conventional
confines and is independent of both time and place. Ubiquity has the effect of lowering
transaction costs, which are defined as the expenses incurred as a result of taking part in a
market. It is not necessary longer to spend time or money traveling to a market in order to
conduct business, and making a purchase also requires a significantly reduced amount of
mental effort.

GLOBAL REACH

The technology behind e-commerce makes it possible for commercial transactions to take place
across cultural and national boundaries in a manner that is significantly more convenient and
cost-effective than that of traditional commerce. As a consequence of this, the size of the
potential market for online retailers is roughly equivalent to the size of the online population of
the entire world. In contrast, the vast majority of transactions in traditional commerce take
place on a local or regional scale, and they involve either local merchants or national merchants
who have outlets in the local area. For example, television and radio stations, as well as
newspapers, are primarily local and regional institutions that have limited but powerful national
networks. These institutions can attract an audience on a national level, but it is difficult for
them to cross national boundaries and reach an audience on a global level.

UNIVERSAL STANDARDS

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The fact that the technical standards of the Internet and, consequently, the technical standards
for engaging in e-commerce are universal standards is one of the characteristics of e-commerce
technologies that stands out as being strikingly unusual. They are a resource that is shared by
all countries around the world and make it possible for any computer to link with any other
computer, despite the fact that each operates on a different technological platform. On the
other hand, the majority of the technologies used in traditional commerce vary from country to
country. For instance, the standards for television and radio vary from one region of the world
to another, as does the technology for mobile phones. The universal technical standards of the
Internet and e-commerce have significantly reduced the costs merchants must pay simply to
bring their goods to market. These costs are referred to as market entry costs. At the same time,
consumers benefit from universal standards because they reduce search costs, which refer to
the amount of effort required to locate products that meet their needs.

RICHNESS

The level of complexity and detail contained within a message is referred to as its "information
richness." Traditional markets, national sales forces, and small retail stores all share an
important quality: when trying to make a sale, they are able to provide customers with
personalized, face-to-face service while also making use of auditory and visual cues. The
abundance of goods available at traditional markets makes them effective settings for
commercial transactions. Before the invention of the World Wide Web, there was a trade-off
between richness and reach the larger the audience that could be reached, the poorer the
quality of the message. Because of the Internet, it is now possible to send multi-media
messages that include text, audio, and video to a large number of people at the same time.

INTERACTIVITY

E-commerce technologies, in contrast to any other commercial technologies developed in the

20th century, with the possible exception of the telephone, are interactive. This means that
they enable two-way communication between the consumer and the business that is

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conducting the transaction. Television, for example, is not allowed to pose any questions to
viewers or engage in conversation with them, and it is not permitted to request that viewers fill
out any forms or provide any information about themselves. On the other hand, each of these
pursuits is doable on a website that specializes in online commerce. With the help of
interactivity, an online retailer can interact with a customer in a manner that is analogous to
face-to-face interactions, but on a much larger and more widespread scale.

INFORMATION DENSITY

The Internet and the World Wide Web have led to an enormous increase in information density,
which refers to the total amount and quality of information that is made available to all market
participants, including consumers and business owners alike. E-commerce technologies reduce
the costs of collecting information, storing information, processing information, and
communicating information, all while significantly increasing the information's currency,
accuracy, and timeliness. Prices and costs are easier to understand thanks to the increased
information density in e-commerce markets. Cost transparency refers to the capability of
consumers to discover the actual costs that merchants pay for products, whereas price
transparency refers to the ease with which consumers are able to discover the variety of prices
that are offered in a market.

Additionally, there are benefits for business owners and merchants. Now, more than ever,
customers can reveal a great deal of personal information to online retailers. Price
discrimination refers to the practice of selling the same goods, or nearly the same goods, to
different targeted groups at different prices. This makes it possible for merchants to segment
the market into groups of customers who are willing to pay different prices, and it enables
merchants to engage in price discrimination.

For instance, an online retailer can learn that a customer is very interested in pricey and
unusual vacations. Based on this information, the retailer can then attempt to sell the customer
high-end vacation plans at a premium price, knowing that the customer is willing to pay more

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for such a vacation. At the same time, an online retailer can offer a more price-conscious
customer a discounted version of the same vacation package they are offering to other
customers. Merchants also benefit from increased information density because it helps them
differentiate their products in terms of price, brand, and quality.

PERSONALIZATION/CUSTOMIZATION

Personalization is made possible by the technologies that support e-commerce. Retailers are
now able to direct their marketing messages at specific individuals by tailoring the message to
the individual's name, interests, and previous purchases. Additionally, the technology enables
customization, which is the alteration of a product or service that is provided to a user in
response to that user's preferences or previous actions. Because the technology behind e-
commerce can be interactive, a great deal of information about the customer can be gleaned
from the marketplace at the very moment the customer makes a purchase. Because of the rise
in information density, online retailers are now able to store and make use of a significant
amount of data regarding a customer's previous purchases as well as their general behavior.

As a consequence, this allows for a level of personalization and customization that was
previously impossible with conventional business technologies. For instance, you might be able
to control what you see on television by changing the channel, but you will not be able to alter
the programming that is broadcast on the channel that you select. On the other hand, the
online version of the Wall Street Journal enables you to choose the categories of news stories
that appear first and provides you with the option to receive notifications whenever particular
occurrences take place.

SOCIAL TECHNOLOGY: USER CONTENT GENERATION AND SOCIAL NETWORKING

When compared to earlier forms of technology, the Internet and technologies related to e-
commerce have developed into much more social forms. This is because they enable users to
generate and share content in the form of text, videos, music, or photographs with their
personal friends as well as a larger community located all over the world. Users are able to

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expand their existing social networks as well as form new ones when they make use of the
aforementioned modes of communication.

All of the previous forms of mass communication in modern history, including the printing press,
have followed a broadcast model (one-to-many), in which content is generated in a centralized
location by professionals (such as professional writers, editors, directors, and producers), and
audiences are gathered together in large numbers to consume a standardized product. Users
now have the ability to create and distribute content on a large scale, as well as the ability to
program their own content consumption thanks to advancements in e-commerce and the
Internet. The many-to-many model of mass communication is made possible by the Internet in
a way that is not found anywhere else.

Drivers of business

Utilization of the Internet The adoption of e-commerce and e-business by businesses is driven
by the benefits that these activities provide to various aspects of their organizations. To begin,
one of their primary concerns is how the advantages of conducting business online will
influence an organization's ability to turn a profit or add value to the business. The following
are the two primary methods that can be utilized to accomplish this goal: There is the potential
for an increase in revenue as a result of a broader customer base being reached, as well as
existing customers being encouraged to remain loyal and make additional purchases. Through
the delivery of services in an electronic format, cost savings are realized. The costs of staff,
transportation, and materials, such as paper, will all be lowered as part of the reductions. A
government report published in 2000 by the Department of Trade and Industry identified two
main categories of drivers that are still relevant today. These drivers were identified at a
relatively early point in the adoption of e-business.

1. Factors influencing costs and efficiencies

2. An increase in the speed with which supplies can be obtained.

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3. An increase in the speed with which goods can be shipped.

4. A reduction in the costs of both sales and purchases.

5. Decreased overall costs of operation.

Motivators of competitiveness

1. Satisfying the needs of the customer

2. Expanding the types and levels of services provided

3. Preventing the loss of market share to competitors who are already utilizing e-commerce.

KEY CONCEPTS IN E-COMMERCE: DIGITAL MARKETS AND DIGITAL GOODS IN A GLOBAL

MARKETPLACE

The price of information and how it is disseminated can have an impact not only on where and
when businesses operate but also on the revenue models they employ. Because of the Internet,
there is now a digital marketplace in which millions of people in different parts of the world are
able to directly trade massive amounts of information with one another in an instant and
without cost. Because of this, companies now have a greater global reach and have altered the
way they conduct business as a direct result of the Internet.

The Internet helps level the playing field when it comes to information. There is said to be an
information asymmetry between two parties involved in a transaction when one of the parties
possesses more information that is relevant to the transaction than the other party does,
having this information allows for a more accurate assessment of their relative bargaining
power. Customers and vendors are both able to "see" the prices that are being asked for the
goods that are being sold on digital markets. Because of this, digital markets are considered to
be more "transparent" than traditional markets.

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For instance, prior to the emergence of websites dedicated to auto retailing on the Internet,
there was a significant information gap between customers and auto dealers. It was difficult for
customers to find the best price because the information regarding the prices set by the
manufacturers was only known to the auto dealers. This imbalance of information directly
impacted the profit margins of automobile dealers. Consumers of today have access to a
multitude of websites that provide information on competitive pricing, and three-quarters of all
auto buyers in the United States use the Internet to compare shop for the best deal. As a result,
the disparity in the information that surrounds the purchase of a vehicle has been reduced
thanks to the Internet. The information asymmetries that exist between businesses that are
looking to make purchases from one another have been significantly reduced thanks to the
proliferation of online resources.

Because they operate with reduced search and transaction costs, lower menu costs (the costs
that merchants incur when changing prices), greater price discrimination, and the ability to
change prices dynamically based on market conditions, digital markets are very flexible and
efficient. In the practice of dynamic pricing, the cost of a good or service shifts according to
factors such as the nature of the customer's demand or the circumstances surrounding the
provider of the good or service. These new digital markets could either lower or raise switching
costs, depending on the nature of the product or service being sold, and they could also cause
some additional delay in gratification. This would be the case even if they did not cause any
additional delay in gratification. When shopping on the internet, as opposed to at a traditional
store, you won't be able to try on or wear an item of clothing right away (although immediate
consumption is possible with digital music downloads and other digital products.)

The use of digital markets enables businesses to circumvent traditional middlemen, such as
wholesalers and retailers, and instead engage directly with end users as potential customers. It
is possible to significantly reduce the costs associated with making purchases if intermediaries
in the distribution channel are removed. A product may need to have a price that is as much as

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135 percent higher than its initial cost to manufacture in order to account for the various steps
that are involved in the conventional distribution channel.

How much money can be saved by getting rid of each of these layers in the distribution process?
Companies are able to boost their profits while simultaneously lowering the prices they charge
customers when they bypass multiple middlemen and sell their wares directly to end users. A
value chain may be said to have undergone disintermediation when organizations or business
process layers that were responsible for intermediate steps in the chain have been eliminated.

The market for services is currently being influenced by disintermediation. Since airlines and
hotels that operate their own reservation sites online earn more revenue per booking, travel
agents have been phased out as a revenue source for these businesses.

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 7.2 PRODUCTS SOLD DIGITALLY AND VIA MOBILE COMMERCE

PRODUCTS SOLD DIGITALLY AND VIA MOBILE COMMERCE

DIGITAL GOODS

The rise of the digital marketplace on the internet has led to a significant increase in the sales of
digital goods. Products that can be delivered over a digital network are referred to as digital
goods. Purely digital products are ones that can be expressed, stored, delivered, and sold. Some
examples of these products include music tracks, videos, Hollywood movies, software,
newspapers, magazines, and books. At this time, the majority of these products are sold as
physical goods, such as compact discs, digital video discs, newspapers, and books in hard copy.
However, the Internet makes it possible to have any or all of these products delivered on
demand in the form of digital products. When it comes to digital goods, the marginal cost of
producing another unit is typically very close to zero (it costs nothing to make a copy of a music
file). However, the cost of producing the initial first unit is relatively high; in fact, it is almost the
total cost of the product because there are few other costs of inventory and distribution. This is
due to the fact that there are fewer costs associated with producing additional units.

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The costs of delivery over the Internet are extremely low, the costs of marketing are
maintained at their previous levels, and the pricing structure can be extremely fluid. (Because
of the low cost of maintaining an online menu, retailers are free to adjust prices whenever they
see fit.) The effect of the internet on the market for digital goods has been nothing short of
revolutionary, and we see the results all around us on a daily basis. Businesses that rely on the
sale of physical products to generate revenue, such as record labels, film studios, book
publishers, and music stores, run the risk of seeing their sales decrease, and may even see their
companies go out of business altogether. Even as the number of people reading newspapers
online continues to grow, traditional print publications like newspapers and magazines
continue to lose readers and advertisers to the Internet. The rise of illegal music download sites
and internet piracy is hurting sales for record label companies, while independent record stores
are closing their doors.

Video rental businesses such as Blockbuster, which are based on a physical DVD market and
physical stores, have lost sales to Netflix, which uses an Internet catalog and a streaming video
model. Blockbuster is currently in the process of filing for bankruptcy. Hollywood studios also
face the possibility that Internet pirates will distribute their product as a digital stream,
sidestepping Hollywood's monopoly on DVD rentals and sales, which now accounts for more
than half of industry film revenues. Hollywood's monopoly on DVD rentals and sales accounts
for over half of industry film revenues. Because the major film studios and Internet distributors
like YouTube, Amazon, and Apple are learning how to cooperate, illegally downloaded movies
have not been able to pose a significant threat to the revenue of the Hollywood film industry as
of yet.

BUSINESS AND TECHNOLOGY IN THE AGE OF E-COMMERCE

After beginning as a few advertisements on early web portals in 1995, e-commerce has grown
to account for over 6% of all retail sales in 2010 (an estimated $255 billion), surpassing the mail
order catalog business in terms of size. E-commerce is an intriguing hybrid that combines
traditional business practices with cutting-edge information technologies. First, let's get a

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fundamental understanding of the different types of e-commerce, and then we'll go over the
different business and revenue models for e-commerce. In addition to this, we will discuss the
newest technologies that enable businesses to connect with the over 221 million online
shoppers in the United States and the estimated 800 million more shoppers located elsewhere
in the world.

E-COMMERCE CAN TAKE MANY FORMS

 There are many different ways that transactions involving electronic commerce can be
categorized. One way to do this is by investigating the kinds of people who are involved
in electronic commerce transactions. Consumer-to-consumer (C2C) e-commerce,
business-to-business (B2B) e-commerce, and business-to-consumer (B2C) e-commerce
are the three primary subsets of online transactions that fall under the umbrella of
electronic commerce.
 Retailing goods and services to individual consumers is what is meant by the term
"business-to-consumer" (B2C) electronic commerce. One example of business-to-
consumer (B2C) e-commerce is the website BarnesandNoble.com, which offers products
such as books, software, and music to individual customers.
 The buying and selling of products and services between companies is the focus of
business-to-business, or B2B, electronic commerce. The online marketplace that
ChemConnect provides for businesses to trade chemicals and plastics is an example of
business-to-business (B2B) electronic commerce.
 Consumers selling their wares directly to other consumers are the focus of consumer-to-
consumer, or C2C, electronic commerce. For instance, eBay, the world's largest online
auction site, enables individuals to sell their wares to other customers by either offering
them for sale at a predetermined price or putting them up for auction to the highest
bidder. Consumers who want to buy from or sell directly to other users make the most
use of Craigslist, which is the most popular platform for such transactions.

Transactions in electronic commerce can also be categorized according to the platforms that
were utilized by the various parties involved in a given transaction. Up until relatively recently,

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the majority of e-commerce transactions were carried out by means of a personal computer
that was connected to the Internet by means of wired networks. There are now two different
wireless mobile options: smartphones and dedicated e-readers like the Kindle that use cellular
networks, and smartphones and small tablet computers that use Wi-Fi wireless networks. Both
of these options are available wirelessly. Mobile commerce, also known as m-commerce, refers
to the practice of making purchases of goods and services using portable wireless handheld
devices from any location.

M-COMMERCE:
M-commerce, also known as mobile commerce, refers to the process of purchasing and selling
goods and services through the use of wireless handheld devices like cellular telephones and
personal digital assistants (PDAs). M-commerce, also known as the next generation of e-
commerce, gives users the ability to access the Internet without the necessity of finding a
location with an available plug. The developing technology that underpins mobile commerce is
called Wireless Application Protocol (WAP), and it has made significantly more headway in
Europe than it has in the United States. This is because mobile devices in Europe are much
more frequently equipped with Web-ready micro-browsers than they are in the United States.
Handset manufacturers such as Nokia, Ericsson, Motorola, and Qualcomm are collaborating
with carriers such as AT&T Wireless and Sprint to develop WAP-enabled smartphones, which
are the industry's answer to the Swiss Army Knife, and ways to reach them. This is being done
in order to capitalize on the potential of the mobile commerce market. Smartphones, which
make use of Bluetooth technology, combine the functions of faxing, e-mailing, and making
phone calls into a single package. This opens the door for mobile commerce to become widely
adopted by an increasingly mobile workforce. There is widespread speculation that mobile
commerce, also known as m-commerce, will eventually overtake wireline electronic commerce
as the method of choice for conducting digital commerce transactions. This is due to the fact

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that content delivery over wireless devices is becoming faster, more secure, and more scalable.
The following types of businesses are impacted by the rise of mobile commerce:

1. Financial services, such as mobile banking (when customers use their handheld devices to
access their accounts and pay their bills) and brokerage services (where stock quotes can be
displayed and trading can be conducted from the same handheld device), are included in this
category. Mobile banking allows customers to access their accounts and pay their bills using
their handheld devices.

2. Telecommunications, in which making service changes, paying bills, and reviewing accounts
can all be done using the same handheld device.

3. Service/retail, in which the customer is given the ability to place an order and pay for it at any
time during the transaction.

4. Information services, such as the transmission of business news, sports scores, and traffic
reports to a single mobile device.

Mobile commerce (also known as M-Commerce, mCommerce, or U-Commerce, owing to the

ubiquitous nature of its services) is the ability to conduct commerce, using a mobile device such
as a mobile phone (cell phone), a PDA, a smartphone, and other emerging mobile equipment
such as dashtop mobile devices. Other names for mobile commerce include M-Commerce,
mCommerce, and U-Commerce. Mobile commerce was first coined in 1999 and has since been
given a variety of other names. The following is how mobile commerce has been defined:
"Mobile Commerce is any transaction, involving the transfer of ownership or rights to use
goods and services that is initiated and/or completed by using mobile access to computer-
mediated networks with the assistance of an electronic device." This definition describes
mobile commerce as any transaction that involves the transfer of ownership or rights to use
goods and services.

THE FUTURE OF MOBILE COMMERCE

The following are some potential futures for mobile commerce:

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1. Ubiquity denotes the fact that a user is able to make use of services and carry out
transactions largely independent of the geographic location he or she is currently located in.

2. Immediacy: It ensures that services are accessible at any given moment in real-time.

3. Localization: Location-based services like GPS make it possible for businesses to provide users
with goods and services that are specifically tailored to the user's current location.

4. Instant connectivity is a feature that makes using the product more convenient for the user.
This is made possible by the introduction of services such as GPRS, which ensures that users are
always in contact with one another and connected.

5. Easy verification: The functionality of mobile telecommunications devices is dependent on a

small electronic chip known as a SIM card, which can be recognized with relative ease. The
authentication procedure can then be completed quickly and easily with just this information
and the individual's Personal Identification Number (PIN).

Particular Benefits of Conducting Business via Mobile Devices

The following are some of the specific benefits of mobile commerce:

1. Mobile commerce makes it possible to provide location-based services, which are tailored to
the particular context in which they are used. This category of services is known as context-
specific services (e.g. time of the day, location, and the interests of the user).

2. Time-sensitive circumstances: The ubiquity and instantaneous nature of mobile commerce

enable the user to complete time-sensitive tasks in an effective manner, regardless of the
geographic location to which he or she currently resides.

3. Spontaneous needs are not triggered by anything external and generally involve decisions
that do not require very careful consideration, such as purchasing decisions involving small
amounts of money. Spontaneous decisions and needs Spontaneous needs are not triggered by
anything external and generally involve decisions that do not require very careful consideration.

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4. Increase in efficacy: Mobile commerce contributes to increased workforce productivity by
facilitating an increase in the effectiveness of employees' regular activities. "Dead spots" in the
day, such as during the daily commute to and from the workplace, can be used more effectively
by consumers who are under time constraints and our employees.

SERVICES AND APPLICATIONS RELATED TO M-COMMERCE

The most significant contributors to expansion in mobile e-commerce are location-based
services, which brought in approximately $215 million in revenue in 2010, software application
sales at stores such as iTunes (approximately $1.8 billion), entertainment downloads including
ring tones, music, video, and TV shows (approximately $1 billion), mobile display advertising
($784 million), direct shopping services such as Slifter ($200 million), and e-book sales ($338
million).

M-commerce applications have become increasingly popular for services that require
immediate attention, that are appealing to people who are constantly on the move, or that
complete a task more efficiently than other methods. They have gained a significant amount of
popularity in recent years, particularly in Europe, Japan, South Korea, and other nations that
have developed robust wireless broadband infrastructures. In the following sections, some
examples will be described.

SERVICES THAT ARE DETERMINABLE BASED ON THEIR LOCATION

Wikitude.me offers a specialized kind of web browser for use on smartphones that come pre-
installed with both a global positioning system (GPS) and a compass. This browser is able to
determine both the precise location of the user and the direction in which the phone is pointed.
This browser overlays information about points of interest you are viewing, and displays that
information on your smartphone screen, superimposed on a map or photograph that you just
snapped. The information comes from over 800,000 points of interest that are available on
Wikipedia, as well as thousands of other local sites. For instance, users can point the cameras
on their smartphones toward mountains while riding in a tour bus, and the names and heights
of the mountains will appear on the screen. Which would you rather be lost in a medieval city in

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Europe or downtown Los Angeles? Launch the Wikitude browser, point your camera at the
structure you want information about, and then find out its address and any other relevant
information. Wikitude.me gives its users the ability to geotag the world around them and then
uploads those tags to Wikitude so that they can share content with other users. Both Facebook
and Twitter introduced a feature called Places in 2010 that enables users to let their friends
know where they are located at any given time. These services are in direct competition with
others, such as Foursquare and Gowalla, which let users check in at locations and broadcast
their current location to their friends.

Loopt is a free social networking application that can be downloaded onto smartphones such as
the iPhone, BlackBerry, and more than one hundred other mobile devices. With Loopt, you are
able to share your current status and track the location of friends. Loopt users also have the
option to integrate the app with other social networks, such as Facebook and Twitter, into their
experience. Loopt currently has four million active users. Although the service does not sell user
information to advertisers, it does post advertisements based on the location of the user. Loopt
aims to conduct business with advertisers at the foot traffic level (within 200 to 250 meters). A
comparable service is made available by Foursquare to its 4 million registered users, who are
able to connect with friends and keep their location up to date. When you "check-in" at one of
the designated locations, you will earn points. Users have the option to post their check-ins to
either their Facebook or Twitter accounts, or both if they so choose. Users can also obtain
badges by checking in at locations that have been assigned specific tags, by checking in
frequently, or by checking in at specific times. More than three thousand eateries, bars, and
other businesses (including 4Food, which was discussed in the case that opened the chapter)
use Foursquare to attract customers with special offers and discounts.

SERVICES RELATING TO BANKING AND FINANCE

Customers will soon be able to use their mobile devices to manage their banking and credit
card accounts thanks to new services being rolled out by financial institutions and credit card
companies. Customers of JPMorgan Chase and Bank of America can use their mobile devices to

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perform banking-related tasks such as checking account balances, transferring funds, and
paying bills.

ADVERTISING AND SHOPPING OVER WIRELESS NETWORKS

Even though the mobile advertising market is only worth $784 million at the moment, it is
expanding at a rapid rate (up 17 percent from the previous year and expected to grow to over
$6.2 billion by 2014). This is because an increasing number of businesses are looking for ways to
capitalize on new databases of location-specific information. The new service, which will be
managed by 1020 Placecast and offered by Alcatel-Lucent, will identify cell phone users located
within a given area.

Within a certain distance of the advertiser's nearest outlet, inform the customer of the outlet's
address and phone number, and possibly include a link to a coupon or other type of promotion.
Hyatt, FedEx, and Avis Rent-A-Car are just a few of 1020 Placecast's satisfied customers.

Yahoo's mobile home page features advertisements for a variety of businesses, including Pepsi,
Procter & Gamble, Hilton, Nissan, and Intel, amongst others. While Microsoft offers banner and
text advertising on its MSN Mobile portal in the United States, Google is displaying
advertisements on its mobile search engine that are linked to cell phone searches made by
users of the mobile version of Google's search engine. Advertisements can be found within a
variety of mobile applications, including games, videos, and other mobile apps.

Shopkick is a mobile application that enables merchants like Best Buy, Sports Authority, and
Macy's to provide customers with coupons as soon as they enter their stores. The Shopkick app
is able to detect when the user has entered one of its partner retail stores automatically. When
this occurs, the user is rewarded with a new virtual currency known as "kickbacks," which can
be exchanged for Facebook credits, iTunes Gift Cards, travel vouchers, DVDs, or immediate
cash-back rewards at any of the participating stores.

In 2010, consumers placed orders for approximately $2.2 billion worth of tangible goods from
websites using their mobile devices (over 1 billion of that at Amazon alone). Thirty percent of
retail establishments have what are known as "m-commerce" websites, which are condensed

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versions of their regular websites that allow customers to use their mobile phones to place
orders. The home improvement store Home Depot, the clothing stores Lilly Pulitzer and Armani
Exchange, and 1 800 Flowers are among the businesses that have developed specialized apps to
facilitate mobile commerce.

AMUSEMENTS AND DIVERTISSEMENTS

In recent years, mobile phones have evolved into portable platforms for entertainment.
Smartphones such as the iPhone and the Droid make it possible to stream or download digital
versions of movies, television shows, games, and music as well as ringtones. Customers of the
major wireless carriers who subscribe to broadband services have the ability to stream video
clips, news clips, and weather reports on demand. MobiTV is a service that is provided by Sprint
and AT&T Wireless. It provides live television programming, such as MSNBC and Fox Sports.
There has been a recent uptick in the production of shorter films that are tailored specifically
for use on mobile devices. Mobile versions of user-generated content are also becoming more
common. There are mobile-friendly versions of a number of popular social networking sites,
including Facebook, MySpace, and YouTube. The top 10 most popular applications on Facebook
in 2010 are all games, with Farmville leading the pack with more than 16 million daily users.

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 7.3 BUSINESS AND INCOME GENERATION MODELS FOR ELECTRONIC COMMERCE

BUSINESS AND INCOME GENERATION MODELS FOR ELECTRONIC COMMERCE

MODELS OF BUSINESS INVOLVED IN E-COMMERCE

Alterations in the economics of information, which were described earlier, have established the
conditions for the emergence of entirely new business models, while simultaneously causing
the demise of older business models. Everyone uses the Internet in some way or another,
either to increase the value of products and services that already exist or to lay the groundwork
for the creation of brand-new products and services.

PORTAL
Portals such as Google, Bing, Yahoo, MSN, and AOL provide users with powerful Web search
tools in addition to an integrated package of content and services. These content and services
include things like news, e-mail, instant messaging, maps, calendars, shopping, music
downloads, video streaming, and more, and they are all accessible from one central location. In
the beginning, portals primarily functioned as "gateways" to the Internet. Today, on the other
hand, the portal business model offers users a destination website where they can begin their
Internet search and continue to linger in order to read the news, find entertainment, meet
other people, and be exposed to advertising. Portals generate revenue primarily through the

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attraction of very large audiences, the charging of advertisers for ad placement, the collection
of referral fees for steering customers to other sites, and the charging of premium fees for
premium services.

It is estimated that portals brought in revenues of $13.5 billion in the year 2010. In spite of the
fact that there are hundreds of portal and search engine sites, the top five sites (Google, Yahoo,
MSN/Bing, AOL, and Ask.com) gather more than 95 percent of the traffic on the Internet
because of their superior brand recognition.

E-TAILER
E-tailers, which are another name for online retail stores, can range in size from the enormous
Amazon, which generated more than $24 billion in revenue in 2010, to the tiniest local shops,
which simply have websites. E-tailers are very similar to traditional storefronts made of brick
and mortar, with the exception that in order for customers to view available stock and place
orders, all they need is a connection to the Internet. About $152 billion was brought in by
online retailers worldwide in 2010, according to estimates. The value proposition of online
retailers is to make shopping easy and affordable around the clock, to provide customers with a
wide variety of options, and to cater to their individual preferences. Bricks-and-clicks refers to
the fact that some online retailers, such as Walmart.com and Staples.com, are actually divisions
or subsidiaries of traditional brick-and-mortar stores, and they sell the same kinds of goods. On
the other hand, there are those who only exist in the virtual world and have no connections to
real-world locations. This category of online retailer includes sites such as Amazon,
BlueNile.com, and Drugstore.com, amongst others. There are also several other types of e-
tailers, such as online malls, online versions of direct mail catalogs, and online sales that are
conducted by the manufacturer directly.

CONTENT PROVIDER
E-commerce was initially a channel for the sale of retail products; however, in recent years, it
has increasingly evolved into a channel for the distribution of content across the globe. The
term "content" has come to refer to anything that can be considered intellectual property. The

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term "intellectual property" refers to any and all forms of human expression that are capable of
being recorded on a physical medium such as text, CDs, or DVDs, or stored on any digital (or
other) media, including the World Wide Web. Providers of content disseminate various forms
of information content, including digital video, music, photographs, and text. Artwork that is
displayed on the web. The value proposition of online content providers is that consumers can
find a wide range of content online, in a convenient location, and purchase this content
inexpensively, so that it can be played, or viewed, on multiple computer devices or
smartphones. This is the value proposition.

Providers do not necessarily have to be the original producers of the content (although in some
cases they are, such as Disney.com). Instead, they are most commonly Internet-based
distributors of content that were produced and created by third parties. For instance, Apple's
iTunes Store sells music tracks, but the company does not compose new music nor does it
commission new music to be composed. New methods of delivering digital content, such as
podcasting and mobile streaming, have been made possible as a result of the incredible success
of Apple's iTunes Store and the company's Internet-connected mobile devices, such as the
iPhone, iPod, and iPad. The term "podcasting" refers to a method of publishing audio or video
broadcasts over the Internet. This method enables users who subscribe to the broadcasts to
download audio or video files onto their personal computers or portable music players.
Streaming is a method of publishing audio and video files that sends a continuous stream of
content to a user's device without storing the content locally on the device itself. Streaming can
be used for both music and video files.

The annual revenue from music downloads and streaming services is expected to be
somewhere between $8 billion and $10 billion in 2010, according to various estimates. They are
the sector of e-commerce that is expanding at a rate that is estimated to be twenty percent per
year, making them the fastest-growing segment.

TRANSACTION FACILITATOR/BROKER

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Transaction brokers are online businesses that facilitate consumer business that would more
commonly be conducted in-person, over the phone, or through the mail. The financial and
travel service industries are the most prominent examples of this business model's use. The
primary value propositions offered by the online transaction broker are cost savings and time
savings, in addition to the provision of an extraordinary inventory of financial products and
travel packages, all of which can be found in a single location. The fees that online travel
booking services and online stock brokers charge are significantly lower than the fees that are
charged by traditional versions of these services.

ESTABLISHMENT OF A MARKET
Creators of markets are responsible for constructing a digital atmosphere in which buyers and
sellers can interact, display products, search for products, and set prices. The creators of online
markets offer a platform where sellers can easily display their wares and where buyers can buy
directly from the sellers. This is the value proposition that online market creators offer to
customers. Examples of successful market creator business models include eBay and Priceline,
both of which are online auction marketplaces. Another illustration of this would be the
Amazon Merchants platform, which, like programs of a similar nature on eBay, enables retailers
to establish virtual stores on the Amazon website and sell items to customers at predetermined
prices. This brings to mind outdoor markets, in which a facility (like a town square) is managed
by the person responsible for organizing the market, and it serves as a meeting place for
customers and vendors. The proprietors of online markets are projected to bring in
approximately $12 billion in revenue in 2010.

THE PROVIDER OF SERVICES

E-tailers are the ones who sell products online, whereas service providers are the ones who sell
their services online. There has been a meteoric rise in the number of online services. A service
provider business model is utilized by all Web 2.0 applications, as well as online sites that allow
for photo sharing and data backup and storage. Instead of buying software from a store, more
and more people are subscribing to it online through a model known as software as a service

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(SaaS). This model replaces the traditional model of selling software as a physical product that
comes packaged with a CD (see Chapter 5). When it comes to the creation of online software
services applications, such as Google Apps, Gmail, and online data storage services, Google has
been at the forefront of innovation.

PROVIDER SERVING THE COMMUNITY

Community providers are websites that cultivate a virtual space on the internet in which users
with shared passions can engage in financial transactions (such as the purchase and sale of
goods), share their passions, photographs, and videos; engage in meaningful conversation with
others who share their interests; acquire information pertinent to their passions; and even live
out their wildest fantasies by taking care of virtual pets. Personas are referred to as avatars. The
social networking websites Facebook, MySpace, LinkedIn, and Twitter, as well as online
communities like iVillage, and hundreds of other smaller, niche websites like Doostang and
Sportsvite, all offer users the ability to build communities with the help of various tools and
services. In recent years, social networking sites have been the Web sites with the fastest-
growing audiences, frequently doubling the size of their audience in just one year. They are, on
the other hand, having difficulty turning a profit. This subject will be discussed in depth during
the Interactive Session on Organizations.

MODELS OF REVENUE FROM ONLINE COMMERCE

The revenue model of a company explains how that company intends to earn revenue, how it
will make profits, and how it will produce a superior return on investment. Even though there
are a great number of distinct revenue models for e-commerce that have been developed, the
vast majority of businesses rely on either one or some combination of the six revenue models
that are listed below: advertising, sales, subscription, free/freemium, transaction fee, and
affiliate.

ADVERTISING REVENUE MODEL

A website generates revenue through the use of an advertising revenue model by first drawing
in a large audience of visitors who are then shown various types of advertisements on the

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website. The advertising model is the type of revenue model that is used the most frequently in
e-commerce, and one could argue that the Web as we know it today would be an entirely
different experience if it weren't for advertising revenues. Visitors are able to access "free"
content on the Internet, which includes everything from news to videos and opinions because
advertisers cover the costs of production and distribution in exchange for the opportunity to
display advertisements to website visitors.

It is estimated that businesses will spend a total of 240 billion dollars on advertising in 2010,
with online advertising accounting for approximately 25 billion dollars of that total (in the form
of a paid message on a Web site, paid search listing, video, widget, game, or another online
medium, such as instant messaging). Over the course of the past five years, advertisers have
increased their spending on online channels while simultaneously decreasing their spending on
more traditional channels such as radio and newspapers. Along with the growth of online
advertising, there has been an expansion in television advertising revenues. Websites that have
the largest viewership or that attract a highly specialized, differentiated viewership and are able
to retain user attention (also referred to as "stickiness") are able to charge higher advertising
rates. Display advertisements (also known as banner advertisements) and, to a lesser extent,
text advertisements on search engines contribute almost entirely to Yahoo's revenue. In an
environment similar to that of an auction, ninety-eight percent of Google's revenue comes from
the sale of keywords to various advertisers (the AdSense program). The typical weekly time
spent on Facebook by users is over five hours, which is significantly longer than time spent on
other portal sites.

SALES REVENUE MODEL

Companies generate revenue according to the sales revenue model by selling products,
information, or services to end users of their products. Amazon, which sells books, music, and
other products, LLBean.com, and Gap.com are all examples of companies that have sales
revenue models. Apple has been a pioneer in the acceptance of micropayments and has
strengthened the practice in recent years. Content providers generate revenue by charging for
downloads of entire files, such as music tracks (iTunes Store) or books, as well as for

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downloading music and/or video streams. Micropayment systems offer content providers a
method that is both efficient and cost-effective for processing high volumes of very small
monetary transactions (anywhere from $.25 to $5.00 per transaction). These transactions can
range anywhere from $0.25 to $5.00 in value. A Learning Track is available on MyMISlab, which
provides additional information on micropayment and other e-commerce payment systems.

SUBSCRIPTION REVENUE MODEL

Under the subscription revenue model, a website that provides content or services may choose
to charge users an ongoing fee in exchange for access to some or all of the website's available
goods and services. This monetization strategy is utilised frequently by content providers. For
example, the online version of Consumer Reports only gives subscribers access to premium
content such as detailed ratings, reviews, and recommendations. Subscribers have the option
of paying a monthly fee of $5.95 or an annual fee of $26.00 to gain access to this premium
content. More than 15 million people were subscribed to Netflix as of September 2010, making
it one of the most successful online subscription services. More than one million people
subscribe to the Wall Street Journal's online edition, making it the publication with the most
online subscribers. For the subscription model to be profitable, the content must be regarded
as having high added value, be differentiated from other content on the market, and not be
easily accessible elsewhere or elsewhere online and straightforward to reproduce. Match.com
and eHarmony, which provide dating services, Ancestry.com and Genealogy.com, which
provide genealogy research, Microsoft's Xboxlive.com, which provides video games, and
Rhapsody.com, which provides online music streaming services, are all successful examples of
businesses that offer content or services online via a subscription model (music).

FREE/FREEMIUM REVENUE MODEL

Companies use the freemium revenue model, in which they provide fundamental services or
content without charging a fee while charging a fee for more advanced or specialized features.
For instance, Google does not charge for the use of its applications, but it does charge for its
premium services. Pandora is a radio streaming subscription service that provides two tiers of
service: a free one with time restrictions and a premium one with no such restrictions. The

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online photo-sharing platform Flickr is available free basic services for sharing photos with
friends and family, as well as the sale of a "premium" package for $24.95 that gives users access
to unlimited storage, high-definition video storage, and playback, as well as freedom from
display advertisements. The goal is to first bring in very large audiences by providing free
services and then convince a portion of these audiences to sign up for paid subscriptions so that
they can access premium content. Converting people who are "freeloaders" into paying
customers is one of the challenges that this business model presents. "Free" can be a very
effective business strategy for losing money.

THE REVENUE MODEL BASED ON TRANSACTION FEES

In the revenue model known as transaction fees, a business is compensated monetarily for
each transaction that it facilitates or completes. For instance, eBay is a platform that facilitates
online auctions and collects a nominal transaction fee from a seller in the event that the seller
is successful in selling an item listed for auction on eBay. When an online stockbroker like
E*Trade executes a stock transaction on behalf of a client, the company is entitled to
transaction fees. The transaction revenue model is popular in part because users are not
immediately aware of the full cost of utilizing the platform, which contributes to the model's
widespread acceptance.

AFFILIATE REVENUE MODEL

The affiliate revenue model is one in which websites, which are referred to as "affiliate
websites," direct visitors to the websites of other organizations in exchange for a referral fee or
a percentage of the revenue from any sales that are generated. For instance, MyPoints
generates revenue by introducing businesses to new customers and by providing its members
with access to exclusive discounts and deals. Members earn "points" that can be redeemed for
free products and services when they take advantage of an offer and make a purchase, and
MyPoints receives a referral fee for each member who does so. Community rating and review
websites like Epinions and Yelp generate the majority of their revenue from directing
prospective customers to other websites where they can complete their purchases. Amazon
makes use of affiliates, which are individuals or companies that direct customers to the Amazon

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website by displaying the Amazon logo on their own websites or blogs. Affiliate marketing is
something that can be done through personal blogs. Some bloggers are paid directly by
manufacturers, while others receive free products in exchange for providing links to sales
channels and providing positive feedback on their products.

SOCIAL NETWORKING AND THE WISDOM OF THE CROWD ARE AT THE HEART OF WEB 2.0

CROWDS
Web 2.0 online services constitute one of the areas of e-commerce revenue that are expanding
at one of the highest rates. Social networking, which refers to online meeting places where
people can meet their friends and the friends of their friends, has become the most popular
service offered by Web 2.0 over sixty million people who use the internet in the United States
log on to social networking websites on a daily basis. These websites include Facebook,
MySpace, LinkedIn, and hundreds of others.

People are able to mine their friends and the friends of their friends on social networking sites
for sales leads, job-hunting tips, or new friends. This is because social networking sites connect
people through their shared business or personal connections. People who are primarily
interested in expanding their friendships are likely to use social networking sites like MySpace,
Facebook, and Friendster, whereas LinkedIn is geared towards job networking for professionals.

New business opportunities can be found through the use of online communities and social
networking websites. Networking sites such as Facebook and MySpace sell products such as
music, videos, and electronic books in addition to selling advertisements in the form of banners,
videos, and text. They also sell user preferences to marketers. Companies engage in online
conversations with prospective clients by creating profiles on social networking sites like
Facebook and MySpace. For instance, Procter & Gamble created a MySpace profile page for
Crest toothpaste and solicited "friends" for a fictional character called "Miss Irresistable."
Business organizations can also "listen" to what users of social networking sites are saying
about their products and obtain valuable feedback from customers. High-quality video content
is used to display advertisements on user-generated content websites like YouTube. Hollywood

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studios have set up their own channels to market their products on user-generated content
websites like YouTube. The Interactive Session on Management takes a closer look at social
networking on Facebook, with a particular emphasis on the platform's influence on users' level
of privacy.

You and your friends are able to share and discuss different shopping ideas when you use social
shopping sites such as Kaboodle, ThisNext, and Stylehive. Facebook provides the exact same
service, but users have the option to opt-out. Utilizing viral marketing strategies in online
communities is another excellent use of this type of venue. The difference between traditional
word-of-mouth marketing and online viral marketing is that the former can spread throughout
an online community at the speed of light, while the latter can reach much further
geographically than a small network of friends. Both types of marketing are known as word-of-
mouth marketing.

THE INTELLIGENCE OF CROWDS

Establishing websites where thousands or even millions of people can communicate with one
another provides commercial enterprises with new avenues for marketing and advertising, as
well as the opportunity to learn who appreciates (or despises) their products. Some people
believe that a large number of people can make better decisions about a wide variety of
subjects or products than a single person or even a small committee of experts can. This theory
is referred to as "the wisdom of crowds," and it asserts that large groups of people are more
likely to reach the best conclusion.

Even though this is not always the case, it is still possible for it to occur in fascinating ways. In
the field of marketing, the concept of the "wisdom of crowds" proposes that businesses should
consult with thousands of their customers, first as a means of establishing a relationship with
them, and then to gain a better understanding of how their products and services are used and
appreciated by their target demographic (or rejected). Building trust with your customers and

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showing that you care about what they have to say by actively soliciting their feedback and
sending the message that you need their advice is essential to the success of your business.
Using a method known as crowdsourcing, companies can get more than just advice from their
customers; they can also get active assistance in resolving certain business issues. As an
illustration,

In 2006, Netflix announced a competition in which it offered a prize of one million dollars to the
individual or team that devised a method for improving Netflix's prediction of what movies
customers would like by ten percent when measured against their actual choices. By the end of
the year 2009, Netflix had received 44,014 submissions from 5,169 teams located in 186
different countries. The winning group made significant improvements to an important aspect
of Netflix's business: a recommender system that advises customers on what new movies to
purchase based on their individual viewing history as well as the viewing histories of millions of
other customers who are similar to them. Another way for businesses to tap into the collective
intelligence of consumers is through the use of prediction markets. Participants in prediction
markets place bets on the specific outcomes of a variety of events, such as quarterly sales of a
new product, designs for new products, or political elections. Prediction markets are
established as peer-to-peer betting markets. Betfair, which was established in 2000, is the
world's largest commercial prediction market. On this market, you can bet for or against
various outcomes. Against particular outcomes on football games, horse races, and the
question of whether or not the Dow Jones will increase or decrease in a single day. IEM stands
for Iowa Electronic Markets and is an academic market with a primary focus on elections. It is
possible to wager money on the results of both local and national election.

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 7.4 ELECTRONIC COMMERCE

ELECTRONIC COMMERCE

ESSENTIAL E-COMMERCE PROCESSES

Figure 1 depicts the essential e-commerce processes that are necessary for the successful
operation and management of e-commerce activities. These processes are required for
successful e-commerce operations. The nine essential elements of an e-commerce process
architecture, which serves as the basis for e-commerce endeavors undertaken by a great
number of businesses in the modern era, are outlined in the figure below. Although we focus
on the part these processes play in e-commerce systems, you should be aware that many of
these components may also be used in internal e-business applications that do not involve
commerce. An example of this would be an intranet-based human resource system that
employees of a company use. This system might use all of the processes shown in Figure 1, with

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the exception of the catalog management and product payment processes. Let's spend a
moment going over each essential process category in more detail.

ACCESS MANAGEMENT AND SAFETY MEASURES

E-commerce processes need to authenticate users, authorize access, and enforce security
features in order to establish mutual trust and secure access between the parties involved in an
e-commerce transaction. Using user names and passwords, encryption keys, digital certificates,
signatures, or other similar methods, these processes, for instance, verify that a customer and
an e-commerce site are who they claim to be. The e-commerce website must then restrict user
access to only those sections of the website that are relevant to their specific requirements to
complete the specific transactions that pertain to him or her. Because of this, you will typically
be granted access to all of an e-commerce web site's resources, with the exception of other
users' accounts, restricted company data, and areas reserved for the Web master's
administration. Companies that engage in business-to-business electronic commerce may rely
on secure industry exchanges or web trading portals for the procurement of goods and services.
These portals restrict access to trading information and applications to customers who have

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registered with the site. The resources of e-commerce websites are protected from dangers
such as hacker attacks, the theft of passwords or credit card numbers, and system failures by
other security procedures.

METHODS OF PERSONALIZATION AND PROFILING

After you have signed up for an e-commerce website and been granted access to the site, a
process called "profiling" may begin. This process involves the collection of data about you,
your behavior, and your choices on the website, as well as the creation of an electronic profile
of your qualities and inclinations. User profiles are developed with the help of profiling tools
like user registration, cookie files, software that tracks behavior on websites, and user feedback.
As a part of a one-to-one marketing strategy, these profiles are then used to recognize you as
an individual user and provide you with a personalized view of the contents of the site. In
addition, you will receive product recommendations and personalized web advertising based on
your browsing history and preferences. In order to authenticate your identity for account
management and payment purposes, profiling processes can also be used. Additionally,
profiling can be used to collect data for customer relationship management, marketing
planning, and website management.

MANAGEMENT OF THE SEARCH

Efficient and effective search processes are a top capability for e-commerce websites, as they
assist customers in locating the specific product or service that they wish to evaluate or
purchase. E-commerce software packages may include a search engine for the website as one
of their components; alternatively, a company may acquire a customized e-commerce search
engine from a company that specializes in search technology, such as Google or Requisite
Technology. Search engines may use a combination of search techniques, such as searches
based on content (such as a product description) or parameters (such as above, below, or
between a range of values for multiple parameters) to find the results that users are looking for
a product's characteristics or attributes).

ADMINISTRATION OF CONTENT AND CATALOGS

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E-commerce businesses can save time and money by using content management software to
create, generate, deliver, update, and archive text data as well as multimedia information on
their websites. Take, for instance, the German media conglomerate Bertelsmann, which has a
stake in Barnes & Noble.com uses the StoryServer content manager software to generate Web
page templates. These templates give online editors in six international offices the ability to
easily publish and update book reviews and other product information. This information is then
sold to other e-commerce websites through a process known as "syndication."

The product information that is presented in e-commerce content frequently appears in the
form of multimedia catalogs. As a result, one of the most important aspects of content
management, also known as catalog management, is the process of creating and managing
catalog content. Take, for instance, W.W. Distributor of industrial parts worth multiple billions
of dollars Grainger & Co. uses the CenterStage catalog management software suite to retrieve
data from more than 2,000 different supplier databases, standardize the data, translate it into
HTML or XML for use on the Web, organize and enhance the data for efficient delivery as
multimedia Web pages on its www.grainger.com website. This allows the company to deliver
the data as quickly as possible.

The software that manages content and catalogs works in conjunction with the profiling tools
that we discussed earlier in order to personalize the content of Web pages that are viewed by
specific users. While a user is engaged in an online travel-related transaction, for instance,
Travelocity.com makes use of the OnDisplay content manager software to send that user
personalized promotional information about other travel opportunities. Lastly, content and
catalog management may be expanded to include product configuration processes that support
Web-based customer self-service and the mass customization of a company's products. These
configuration processes could be added to the management of a company. Customers shopping
online can get assistance from configuration software in selecting the best possible
combination of product features that can be incorporated into the final product. For instance,
in order to sell custom-built computers and network processors to their online customers, both
Dell Computer and Cisco Systems use configuration software.

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MANAGEMENT OF THE WORKFLOW
With the assistance of workflow management software, a significant number of the business
processes that are involved in e-commerce applications can be managed and partially
automated. Electronic collaboration among workers is facilitated by e-business workflow
systems designed for enterprise use. These systems help employees work together to complete
structured work tasks that are part of knowledge-based business processes. A workflow
software engine that contains software models of the business processes that need to be
completed is necessary for workflow management in both e-business and e-commerce. Both of
these types of online businesses rely on each other. The workflow models communicate the
predetermined sets of business rules, the roles of stakeholders, the authorization requirements,
the various routing alternatives, the databases that are utilized, and the sequence of tasks that
are necessary for each e-commerce process. Consequently, workflow systems make certain
that the appropriate transactions and decisions are made, work activities are carried out, and
the appropriate employees, customers, suppliers, and other business stakeholders receive the
data and documents they require to carry out their responsibilities. Many of you are about to
embark on careers in the business world, and one of your primary responsibilities will be to
reduce the amount of money spent on existing business procedures while simultaneously
maintaining or enhancing the efficiency of those procedures. You will investigate workflow
management as the key to this optimization of cost and effectiveness throughout the business
as you continue to acquire a greater appreciation and understanding of how technology can
benefit the business. This will be accomplished as you continue to learn how technology can
benefit the business.

Take, for instance, the online shopping and ordering procedures found in Microsoft
Corporation's MS Market software. The employees of Microsoft use the company's global
intranet as well as the catalog/content management and workflow management software
engines that are built into MS Market to make electronic purchases totaling more than $3
billion annually of business supplies and materials from approved suppliers who are connected

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to the MS Market system by their corporate extranets. These purchases are made from vendors
who are able to access the MS Market system through their own corporate extranets.

NOTIFICATION OF AN EVENT
The vast majority of e-commerce applications are event-driven systems that respond to a
multitude of events. These events can range from a new customer's first access to a Web site to
the processes of payment and delivery, as well as numerous customer relationship
management activities and supply chain management endeavours. Customers, suppliers,
employees, and any other stakeholders in an e-commerce transaction need to be notified of
any and all events that have the potential to affect their status in the transaction. This is why
event notification processes play an important role in e-commerce systems. The use of
workflow management software in conjunction with event notification software allows for the
monitoring of all e-commerce processes and the recording of all relevant events, including
unexpected changes or problem situations. After that, it collaborates with software that
profiles users in order to automatically inform all parties involved in the transaction of
significant transaction events by utilising appropriate user-preferred methods of electronic
messaging. These methods include e-mail, newsgroup, pager, and fax communications. This
notification is sent to the management of a company, who are then able to monitor the
responsiveness of their staff members to e-commerce events as well as the feedback from
customers and suppliers. For instance, if you make a purchase on a retail e-commerce website
such as Amazon.com, you will immediately be sent a record of your order via e-mail. After that,
you might get e-mail notifications informing you of any changes to product availability or the
status of your shipment, and finally, you might get an e-mail message informing you that your
order has been shipped and is finished being processed.

COOPERATION AND COMMERCIALIZATION

This major category of e-commerce processes includes those that provide support for the
essential collaboration arrangements and trading services that are required in order for
customers, suppliers, and other stakeholders to successfully complete e-commerce transactions,
how an online company that places a strong emphasis on customer service makes use of

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communication channels like e-mail, chat rooms, and online forums in order to foster the
growth of online communities of interest among its staff members and customers in order to
improve customer service and to build customer loyalty in online retailing and commerce.
Internet-based trading services may also be used to facilitate the essential collaboration that
exists between businesses that are trading partners in online commerce. For instance, business-
to-business (B2B) e-commerce Web portals such as those offered by companies such as Ariba
and Commerce One facilitate matchmaking, negotiation, and mediation processes between
commercial buyers and sellers. In addition, business-to-business (B2B) electronic commerce is
highly reliant on Internet-based trading platforms and portals, which supply e-business
enterprises with online exchanges and auctions. Therefore, the online auctions and exchanges
that are being developed by businesses such as FreeMarkets are revolutionizing the
procurement processes of many of the world's largest corporations.

ELECTRONIC PAYMENT PROCESSES

It should come as no surprise that one of the most important steps in any e-commerce
transaction is collecting payment for the goods and services that were bought. However,
payment processes are not straightforward due to the nearly anonymous nature of electronic
transactions that take place between the networked computer systems of buyers and sellers, as
well as the numerous security concerns that are involved in these dealings. The many different
debit and credit options, as well as the financial institutions and intermediaries that might be
involved in the transaction, all contribute to the complexity of the payment processes that are
used in online commerce. As a result, a number of different forms of electronic payment
systems have evolved over time. In addition, in order to meet the safety and operational
requirements of conducting business online, brand-new payment methods are currently being
researched, developed, and evaluated.

TRANSACTIONAL ARRANGEMENTS ON THE WEB

The majority of business-to-consumer (B2C) e-commerce systems on the Internet rely on the
use of credit card payment processes, whereas the majority of business-to-business (B2B) e-
commerce systems rely on more complicated payment processes that are based on the use of

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purchase orders. Nevertheless, the typical method for conducting either kind of online business
is through the use of an electronic shopping cart, which gives customers the ability to select
items from a website catalog displays and put them provisionally in a virtual shopping basket so
that they can be processed and checked out at a later time.

ELECTRONIC FUNDS TRANSFER

In the retail and banking sectors respectively. Electronic funds transfer systems make use of a
wide variety of information technologies in order to record and process monetary and credit
transactions involving customers, businesses, and financial institutions. For instance, banking
networks provide support for teller terminals at each and every bank office as well as
automated teller machines (ATMs) in locations all over the world. Pay-by-phone services could
potentially receive support from financial institutions, credit card companies, and other types
of businesses. Customers of banks and other bill payment services have the ability to make
electronic payments to their bills through the use of the Internet with the assistance of web-
based payment services such as PayPal and BillPoint for cash transfers, as well as CheckFree
and Paytrust for automatic bill payment. These services are extremely popular. Additionally, the
majority of point-of-sale terminals in retail stores are networked to bank EFT systems. This
allows you to use a credit card or debit card to pay instantly for gas, groceries, or other
purchases at retail outlets that accept these forms of payment.

SECURE ELECTRONIC PAYMENTS

When you make a purchase using your credit card over the Internet, the information on that
card is susceptible to being intercepted by network sniffers, which are pieces of software that
can quickly identify the format of credit card numbers. This security issue is being addressed
with a combination of three fundamental countermeasures: (1) encrypting (codifying and
scrambling) the data that is transferred between the customer and the merchant; (2)
encrypting (codifying and scrambling) the data that is transferred between the customer and
the company that is authorizing the credit card transaction; and (3) taking sensitive information
offline.

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For instance, a large number of businesses make use of the security protocol known as Secure
Socket Layer (SSL), which was developed by Netscape Communications and automatically
encrypts any data that is transmitted between your web browser and a retailer's server. As a
result of the fact that sensitive information is still susceptible to being misused after it has been
decrypted (decoded and unscrambled) and stored on the server of a retailer, a payment system
that utilizes digital wallets was developed. To implement this strategy, you will need to equip
your web browser with additional security software add-on modules. This enables your browser
to encrypt the information related to your credit card in such a way that only the bank that
authorizes the transaction can decrypt it credit card transactions made by the customer are
visible to the retailer. The only information that is provided to the retailer regarding your credit
card transaction is whether or not it was approved. This digital wallet approach is expanded
upon by the Secure Electronic Transaction (SET) standard for the security of electronic payment
transactions. In this approach, special software is used to encrypt a digital envelope containing
digital certificates, each of which details the payment information for a specific transaction. SET
has received support from the majority of the industry's major players, including VISA,
MasterCard, IBM, Microsoft, and Netscape. As a result, a system similar to SET might end up
becoming the industry standard for making safe electronic payments via the Internet.

BUILDING AN E-COMMERCE WEBSITE

PIECES OF THE SITE-BUILDING PUZZLE

Let's say for the sake of this discussion that you are a manager at a medium-sized company that
manufactures industrial parts and has around 10,000 employees across the world. This
company operates in eight countries across Europe, Asia, and North America. To construct an e-
commerce website in a timeframe of one year, senior management has allotted you a budget
of one million dollars. This site will be used to sell to the company's 20,000 customers, the
majority of which are local machine and metal fabricating shops located all over the world, and
provide service to those customers. Where do you even begin? To begin, it is imperative that
you have a solid understanding of the primary domains in which you will be required to make

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decisions. On both the organizational and the human resources fronts, you will need to
assemble a group of people who are in possession of the skill sets necessary to construct and
manage an effective e-commerce website in order to be successful. This team will be
responsible for making the most important decisions concerning the technology, site design, as
well as social and information policies that will be implemented at your site. If you want to
avoid the catastrophes that have taken place at some companies, the entire process of
developing the website needs to be managed very carefully. In addition to this, you will be
tasked with making choices concerning the hardware, software, and telecommunications
infrastructure of your website. Your choices in technology ought to be determined by the
requirements of your clientele. Your customers will want technology that makes it simple for
them to find what they are looking for, view the product, purchase the product, and then
quickly receive the product from your warehouses. In addition to this, you will need to give
careful consideration to the design of your website. After you have determined the primary
considerations for the decision, the next step is to formulate a strategy for the project.

BUSINESS OBJECTIVES, SYSTEM FUNCTIONALITY, AND INFORMATION REQUIREMENTS

When you're planning out your website, one of the questions you should ask yourself is, "What
do we want the e-commerce site to do for our company?"

The most important thing to take away from this experience is that business decisions should
drive technology, not the other way around. This will ensure that your technology platform is in
sync with your company's goals and objectives. In this section, we will assume that you have
identified a business strategy and selected a business model to achieve your strategic
objectives. However, how can you translate your strategies, business models, and ideas into a
functioning e-commerce site? During your planning, you should first determine the specific
business goals for your website, and then create a list of the system functionalities and
information requirements that are necessary. Business objectives are nothing more than the
capabilities you have in mind for your website. System functionalities are a subset of the
capabilities of information systems that you will need to have in order to accomplish your

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business goals. In order for a system to successfully accomplish its business goals, it is necessary
for that system to generate certain types of information; these types of information are
referred to as the system's information requirements.

CONSTRUCTING THE WEBSITE IN-HOUSE COMPARED TO OUTSOURCING IT

OUTSOURCING
There are a variety of options available for constructing and maintaining websites. How much
money you are willing to spend is a major factor in many aspects. There are a variety of options
available, including handing over the entirety of the website development to an outside vendor
or constructing everything on your own (in-house). You also have a second choice to make,
which is whether or not you will host the website on the servers that are owned and operated
by your company, or whether you will choose to outsource the hosting to a provider of web
hosting. There are some providers who will design, construct, and host your website, while
others will only construct or host your website (but not both).

THE CHOICE REGARDING THE BUILDING

There are many different choices available to you if you decide to construct your own website.
In order to create the website, you should make use of a pre-built template even if you have
some level of technical expertise. For instance, Yahoo Merchant Solutions, Amazon Stores, and
eBay all provide templates that merely require you to input text, graphics, and other data.
These platforms also provide the infrastructure necessary to run the website once it has been
created. This is the solution that will cost you the least amount of money and will be the easiest
to implement, but you will be restricted to the "look and feel" and functionality that the
template and infrastructure providers. It is possible that you will choose to construct the
website on your own if you have prior experience working with computers. Adobe
Dreamweaver, Adobe InDesign, and Microsoft Expression are examples of tools that help you
build everything truly "from scratch." On the other end of the spectrum are top-of-the-line
prepackaged site-building tools that can create sophisticated websites that are tailored to your
specific requirements. There is a wide range of tools available to choose from. The choice to

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create a website on your own comes with a number of potential downsides. Because of the
complicated nature of certain features, such as shopping carts and credit card authentication,
and processing, inventory management, and order processing, not to mention the high costs of
development and the high risks of doing a poor job. You will be recreating what has already
been built by other specialized companies, and the learning curve for your staff may be long
and difficult, which will delay your entry into the market. Your efforts could fail. On the bright
side, you might be able to build a website that does exactly what you want, and you might also
be able to develop the in-house expertise necessary to rapidly revise the website if a shifting
business environment makes this necessary. If you go with one of the more pricey website
construction packages, you can rest assured that you will get software that has been put
through its paces. You might reach the market more quickly. On the other hand, in order to
arrive at a wise choice, you will need to investigate a wide variety of software programs, which
can be a time-consuming endeavor. It is possible that in order to adapt the packages to the
requirements of your company, you will need to make modifications to them and possibly bring
in additional outside consultants to assist you. Costs skyrocket as the number of modifications
increases. A package that costs $4,000 has the potential to easily become a development
project that costs $40,000 to $60,000. In the past, traditional retailers would typically design
their own e-commerce websites from scratch (because they already had the skilled staff and IT
infrastructure in place to do this). Larger retailers in today's market, on the other hand, rely
heavily on third-party vendors to supply them with highly developed website capabilities, even
though they also keep a sizeable internal workforce. Frequently, new businesses of medium
size will invest in a sophisticated package, after which they alter it to meet their requirements.
Templates are used by very small businesses like mom-and-pop shops that are looking for
simple storefronts.

THE CHOICE MADE REGARDING HOSTING

Now, let's take a look at the decision regarding the host. The vast majority of companies opt to
hire a third party to host their websites and pay a fee to do so. This means that the hosting
company is responsible for ensuring that the website is "live" or accessible at all times of the

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day and night. Because the company has agreed to pay a fee on a monthly basis, it does not
have to be concerned with the technical aspects of establishing and maintaining a web server,
telecommunications links, or specialized staffing. Your company purchases or leases a web
server through a co-location agreement, but instead of locating the server in its own physical
location, it is located in the facility of a third-party vendor. This gives your company complete
control over the server's operation. The facility, as well as the communications lines and the
machinery, are all maintained by the vendor. Now that we live in an age of cloud computing, it
is a lot more cost-effective to host your website in computing facilities that are virtualized. In
this scenario, rather than purchasing a server, you rent the resources of a data center that is
housed in the cloud. The price of cloud hosting can range anywhere from $4.95 per month to
several hundred thousand dollars per month depending on the size of the website, the amount
of bandwidth that is required, the amount of storage space that is required, and the level of
support that is required. Establishing enormous "server farms" in strategic locations across the
country and the world allows very large providers to realize significant economies of scale.
Examples of such providers include IBM, HP, and Oracle. This indicates that the price of basic
web hosting has decreased at the same rapid rate as the price of servers, with an annual
decrease of approximately fifty percent.

WEB SITE BUDGETS

Building and hosting even the most basic websites can be done for a cost of less than $5,000 in
the first year. It costs several million dollars each year for large companies to create and
maintain websites that have high levels of interactivity and are linked to the corporate systems
of those companies. For example, in September of 2006, Bluefly, an online retailer that offers
discounted designer clothing for both women and men, began the process of developing an
improved version of its website based on software provided by Art Technology Group. This new
version of Bluefly's website is now live (ATG). In August of 2008, it went live with the new
website. In relation to the revamping of the website, it has already made investments totaling
over $5.3 million up until this point. Bluefly's online sales reached $81 million in 2010, and the

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company is currently expanding at a rate of 7.5 percent annually. Its annual budget for e-
commerce technology is over $8 million, which is equivalent to roughly 10 percent of the
company's total revenues.

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 Ethics, Security, and Social Issues in
Information Systems

8.1 UNDERSTANDING ETHICS AND SOCIAL ISSUES RELATED TO SYSTEM

It is essential to have an understanding of the fact that the proliferation of information

technology has had both positive and negative effects on individuals, society, and the world at
large in each of these domains. The computerization of a manufacturing process, for instance,
may have the advantageous effect of improving working conditions and producing products of
higher quality at a lower cost; however, it also has the unfavorable effect of eliminating jobs for
people. Therefore, as a manager or business professional, it is part of your job to manage not
only your own work activities but also the work activities of others, with the goal of minimizing
the negative effects that business applications of information technology have and maximizing

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the positive effects that they have. That kind of use of information technology would be
commensurate with a high standard of morality.

You have a responsibility to encourage moral and lawful applications of information technology
in the workplace if you are a professional in the business world. Accepting the ethical
responsibilities that come along with your work activities is something you should do regardless
of whether or not you have managerial responsibilities. This includes carrying out your
responsibilities as an essential human resource in the business systems that you help develop
and that are utilized in your organization in the appropriate manner. If you are a manager or a
business professional, it will be your responsibility to make decisions regarding the activities of
your company and the use of information technologies. These decisions may have an ethical
component that needs to be taken into consideration.

Should you, for instance, electronically monitor the activities of your employees at work as well
as their e-mail? Should you allow employees to use their work computers for personal business
or let them take copies of work software home with them to use on their own computers?
Should you use technology to access the personnel records of your employees or the files
stored on their workstations? Should you sell the information about your customers that was
extracted from the transaction processing systems to other businesses? These are just a few
examples of the different kinds of decisions with an ethical component that you will need to
make in the future. Now that we have that out of the way, let's take a deeper dive into a few
different ethical foundations in business and information technology.

When making day-to-day decisions about a company's operations, managers are regularly
required to grapple with a wide variety of moral dilemmas, which are the focus of business
ethics. It is important to take note of the fact that the issues of intellectual property rights,
customer and employee privacy, security of company records, and workplace safety are
emphasized because they have been major areas of ethical controversy in the field of
information technology.

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It is possible to make use of a number of significant alternatives that are based on theories of
corporate social responsibility. For instance, the stockholder theory of business ethics states
that managers are the agents of the stockholders, and their one and only ethical responsibility
is to increase the profits of the company without breaking the law or engaging in fraudulent
practices. This theory was developed in the context of business ethics.

However, according to the social contract theory, businesses have ethical responsibilities to
fulfill toward all of the members of society. This is what makes it possible for corporations to
exist in accordance with a social contract. Companies are required, as the first condition of the
contract, to increase the level of economic satisfaction of both their customers and their
employees. In order to accomplish this goal, they must refrain from engaging in activities that
pollute the environment, deplete natural resources, abuse their position of political power, or
place their employees in dehumanizing working conditions. The second criterion stipulates that
businesses must abstain from engaging in fraudulent activities, must demonstrate respect for
their workers as individuals, and must not engage in activities that systematically weaken the
position of any group within society.

According to the stakeholder theory of business ethics, managers have an ethical responsibility
to manage a company for the benefit of all of its stakeholders. Stakeholders are defined as
individuals or groups that have a claim or stake in a company. These constituents make up the
community at large. Sometimes the meaning of the term is expanded to include all groups that
can affect or be affected by the corporation, such as other businesses in the same industry,
government agencies, and groups with a specific interest. It goes without saying that finding a
happy medium between the competing demands of various stakeholders is not an easy task for
managers.

 Lehman Brothers, one of the oldest American investment banks, went bankrupt in 2008
and remained in business until 2010. Lehman Brothers hid its poor investment decisions
by manipulating its information systems and engaging in creative accounting. In addition,

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 Lehman engaged in deceptive business practices in order to remove investments from
its books.
 WG Trading Company (2010): Paul Greenwood, a hedge fund manager and general
partner at WG Trading, pleaded guilty to defrauding investors of $554 million over a
period of 13 years. Greenwood has forfeited $331 million to the government and faces a
maximum sentence of 85 years in prison for his actions.
 Minerals Management Service, which is part of the United States Department of the
Interior (2010): Managers are accused of accepting gifts and other favors from oil
companies, letting oil company rig employees write up inspection reports, and failing to
enforce existing regulations on offshore Gulf drilling rigs. Employees engaged in
widespread and systematic falsification of information record systems.
 Pfizer, Eli Lilly, and AstraZeneca (2009): Major pharmaceutical firms paid billions of
dollars to settle U.S. federal charges that executives fixed clinical trials for antipsychotic
and painkiller drugs, marketed them inappropriately to children, and claimed
unsubstantiated benefits while covering up negative outcomes. The charges alleged that
executives fixed clinical trials for antipsychotic and painkiller drugs; marketed them
inappropriately to children; and marketed them inappropriately to children. Companies
have fabricated data in their reports and computer systems.
 Galleon Group (2009): The founder of the Galleon Group was criminally charged with
trading on insider information, having paid a total of $250 million to various banks on
Wall Street in exchange for receiving market information that was not available to other
investors.
 Siemens (2009), the largest engineering company in the world, agreed to pay over $4
billion to authorities in Germany and the United States as part of a settlement for a
decades-long, global bribery scheme that was approved by corporate executives in
order to exert influence over potential customers and governments. payments that are
kept secret from the standard reporting and accounting systems.

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Although in the past businesses would frequently pay for the legal defense of their employees
who were involved in civil charges and criminal investigations, today businesses are encouraged
to cooperate with prosecutors in order to reduce charges against the entire firm for obstructing
investigations. In the past, businesses would pay for the legal defense of their employees who
were involved in civil charges and criminal investigations. Because of these developments,
whether you are a manager or an employee, you will have to determine for yourself, more so
than ever before, what constitutes appropriate legal and ethical behavior.

Despite the fact that departments of information systems were not the ones who
masterminded these major instances of unethical and illegal judgment failure, information
systems were instrumental in the commission of many of these frauds. In a number of instances,
those responsible for these offenses made deft use of the information systems for financial
reporting in order to conceal their choices from the scrutiny of the general public, in the vain
hope that they would never be discovered.

The principles of right and wrong that individuals, acting as free moral agents, use to make
decisions and direct their behaviors are referred to as ethics. Information systems generate
new opportunities for intense social change, and as a result, they pose a threat to the pre-
existing distributions of power, money, rights, and obligations. This fact gives rise to new ethical
questions for both individuals and societies. Information technology, like other technologies
such as steam engines, electricity, the telephone, and the radio, can be used to achieve social
progress, but it can also be used to commit crimes and threaten social values that are held in
high esteem. The advancement of information technology will result in benefits for a large
number of people while also producing costs for others. The proliferation of the Internet and
the rise of electronic commerce have heightened the importance of ethical concerns pertaining
to information systems. New concerns have arisen regarding the appropriate use of customer
information, the protection of personal privacy, and the protection of intellectual property as a
result of the increased ease with which information can be assembled, integrated, and
distributed as a result of the proliferation of the internet and digital firm technologies. The

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establishment of accountability for the effects of information systems, the establishment of
standards to safeguard system quality that protects the safety of the individual and society, and
the preservation of values and institutions regarded as essential to the quality of life in an
information society are some of the other pressing ethical issues raised by information systems.
It is essential to ask, "What is the ethical and socially responsible course of action when utilizing
information systems?”

THE ETHICS OF TECHNOLOGY

Another essential component of ethics is the moral considerations that should be taken into
account when applying any kind of technological innovation. In order to help ensure the ethical
implementation of information technologies and information systems in business, these
principles can serve as basic ethical requirements that companies should meet.

The potential dangers to one's health that come with sitting at a computer workstation for long
periods of time while performing high-volume data entry jobs is one example of a common
scenario involving technological ethics. The practice of scheduling work breaks and limiting the
amount of time data entry workers spend staring at a computer monitor is an example of
ethical behavior displayed by many businesses. These measures are taken to reduce employees'
chances of developing a variety of work-related health disorders, such as hand or eye injuries.

PRINCIPLES OF GOOD CONDUCT

We have provided an outline of a few ethical principles that can act as the foundation for
ethical behavior on the part of managers, end users, and information systems professionals.
However, what specific guidelines could be of assistance to you in making ethical use of
information technology? Today, the answer to this question is provided by a large number of
businesses and organizations in the form of comprehensive policies outlining appropriate
guidelines for employees' use of computers and the Internet. For instance, the majority of
policies state that company computer workstations and networks are company resources that
must be used exclusively for work-related purposes, regardless of whether the user connects to

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the Internet or to an internal network. Examining the statements of responsibilities that are
included in the codes of professional conduct for IS professionals is another approach that can
be taken to respond to this question. An excellent illustration of this is the code of professional
conduct that is upheld by the Association of Information Technology Professionals (AITP), which
is an organization comprised of individuals who work in the field of computing. Ethical
considerations that are inherent in the primary responsibilities of an IS professional are
outlined in the organization's code of conduct.

By voluntarily adhering to these guidelines, business and information systems professionals can
fulfill the ethical responsibilities that come with their roles. One way to be a responsible
professional is to (1) act with integrity; (2) increase one's professional competence; (3) establish
high standards for one's personal performance; (4) accept responsibility for one's work; and (5)
work to improve the public's health, privacy, and general welfare. Then you would be able to
demonstrate ethical conduct, stay away from committing crimes involving computers, and
increase the security of any information system that you create or use.

A FRAMEWORK FOR CONSIDERATION OF ETHICAL, SOCIAL, AND POLITICAL QUESTIONS AND

CONCERNS
There is a strong connection between ethical, social, and political problems. The moral
conundrum that you face may encounter in your role as a manager of information systems is
typically reflected in social media and political debate. Imagine that society is a pond on a warm
summer day that is more or less calm. A fragile ecosystem exists in a state of partial equilibrium
with individuals as well as social and the institutions of politics. Because of the social
environment, individuals are aware of how to behave in this pond. The rules that govern
institutions (such as families, schools, and businesses) have been refined over time of the
conduct, and these are backed up by laws that were developed in the political sector that
prescribe behavior and threaten consequences for those who break the rules. Now, throw a
rock at it into the middle of the water in the pond. What takes place? Naturally, there will be
ripples.

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Imagine, instead, that the disruptive force is a potent jolt of fresh information. The impact of
technology and systems on a society that is more or less stable. Individuals appeared out of
nowhere Actors frequently find themselves in novel circumstances that are not addressed in
earlier works' rules. These ripples can't be responded to by social institutions overnight; it could
take a while. It took years to develop proper manners, expectations, social responsibility, and
politically correct language attitudes or generally accepted norms. The formation of political
institutions also takes a considerable amount of time new laws almost always demand evidence
of actual harm before authorities will take any action. In the meantime, you might need to take
action. It's possible that you'll have no choice but to operate in a hazy area of the law. This
model allows us to illustrate the dynamics that connect ethical, social, and political issues as
well as political concerns. This model is also helpful for determining the primary moral of the
story dimensions of the information society, which can be found on a number of different levels
individual, social, and political action is required.

THE INFORMATION AGE, VIEWED FROM FIVE DIFFERENT MORAL PERSPECTIVES

The most significant moral, social, and political questions that are posed by information
systems incorporate the following ethical considerations:

 Rights and responsibilities regarding information. What information rights do people

and organizations have with regard to themselves, and how are those rights exercised?
What are they able to defend?
 Legal responsibilities and rights pertaining to the property. In a digital society where it is
difficult to trace and account for ownership and where ignoring property rights is
relatively simple, how can traditional intellectual property rights be protected?
 Control and responsibility are required. Who will be held accountable and liable for the
damage that was done to individual and collective information and property rights, and
who is able to hold them accountable?

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  The caliber of the system. What minimum requirements for the quality of the data and
the system should we demand to ensure the protection of individual rights and the
welfare of society?
 The standard of living. In a society that is increasingly dependent on information and
knowledge, what core values ought to be maintained? Which establishments ought we
to take precautions to prevent their being violated? Which aspects of cultural norms
and customs are bolstered by the development of new information technology?

THE MOST IMPORTANT TECHNOLOGY TRENDS THAT INVOKE ETHICAL CONCERNS

Long before the advent of information technology, there were ethical questions to be asked. In
spite of this, advancements in information technology have raised ethical concerns, put strain
on pre-existing social structures, and rendered certain laws either wholly irrelevant or severely
ineffective. These ethical challenges can be traced back to four primary developments in
technology.

The power of computers has been doubling approximately every 18 months, which has made it
possible for most companies to use information systems for their primary production processes.
As a direct consequence of this, our reliance on computer systems as well as our susceptibility
to data inaccuracies and malfunctions has grown. The norms of society and the laws have not
yet been modified to accommodate this dependence. There is neither a universal consensus
nor a consistent enforcement of standards designed to guarantee the precision and
dependability of information systems.

Databases on individuals, including employees, customers, and potential customers, are being
kept up by a growing number of private and public organizations as a direct result of recent
developments in data storage techniques and a rapid decline in the cost of data storage.
Because of the advancements in data storage, the routine invasion of individual privacy is now
not only effective but also relatively inexpensive. Massive data storage systems can be
purchased at a price that is affordable for regional and even local retailing companies to use in
order to identify customers. Another trend in technology that is heightening ethical concerns is

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the advancement of data analysis techniques for large pools of data. This is the case because
businesses and government agencies are now in a position to discover extremely specific
personal information about individuals. Using the cutting-edge software for managing data

Companies are now in a much better position than they were in the past to compile and
combine the numerous pieces of information about you that are stored on computers. Consider
all of the ways in which you create computer information about yourself, such as through the
use of a credit card, a telephone, a magazine subscription, a video rental, a mail-order purchase,
banking records, records from the local, state, and federal governments (including records from
courts and police departments), and visits to websites. This information, once compiled and
mined effectively, could reveal not only your credit information but also your driving habits,
your tastes, your associations, and your political interests as well. These companies buy
information from these sources that are relevant to their business in order to improve the
precision with which they target their marketing campaigns. The utilization of computers to
compile information from a variety of sources.

The process of gathering extensive information about individuals and compiling it into
electronic profiles is known as profiling. For instance, several thousand of the most popular
websites, including one owned by Google called DoubleClick, which is an Internet advertising
broker, allow DoubleClick to track the activities of their visitors in exchange for revenue from
advertisements based on the visitor information that DoubleClick gathers. DoubleClick creates a
profile of each online visitor by using the information provided and adding more specifics to the
profile each time the visitor accesses one of the associated DoubleClick sites. Over the course of
time, DoubleClick is able to compile a comprehensive profile of a person's spending and
computing patterns while using the Internet. This profile can then be offered to businesses as a
means of assisting those businesses in more precisely targeting their online advertisements.

Choice Point compiles and maintains electronic dossiers on virtually every adult in the United
States by collecting data from public records such as police, criminal, and motor vehicle records;
credit and employment histories; current and previous addresses; professional licenses; and

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insurance claims. Choice Point also collects data from previous addresses. This private
information is offered for sale to other companies as well as government agencies by the
company. Because of the enormous demand for personal data, businesses that act as data
brokers are thriving, and one such business is Choice Point. The nonobvious relationship
awareness (NORA) data analysis technology has provided both the private and public sectors
with even more potent capabilities for profiling individuals. NORA is able to collect information
regarding people from many different sources, such as employment applications, telephone
records, customer listings, and "wanted" lists and correlate relationships to find obscure hidden
connections that might help identify criminals or terrorists. Examples of these types of sources
include employment applications, telephone records, customer listings, and "wanted" lists. The
NORA technology searches through data and pulls out information as the data are being
generated. Because of this, it is able to do things like instantly discover a man at an airline ticket
counter who shares a phone number with a known terrorist before that person even makes the
connection a passenger boards a flying vehicle. Because it can provide such a detailed picture of
the activities and associations of a single person, the technology is regarded as a useful tool for
homeland security; however, there are privacy implications associated with it as a result of its
capabilities. Finally, developments in networking technologies, such as the Internet, hold the
promise of drastically lowering the costs associated with moving and accessing large amounts
of data. These developments will also open the door to the possibility of mining large pools of
data remotely using small desktop machines, which will make it possible for an invasion of
privacy on a scale and with a precision that was previously unimaginable.

RESPONSIBILITY, ACCOUNTABILITY, AND LIABILITY ARE THREE ESSENTIAL CONCEPTS

Individuals who are accountable for the results of their deeds are the only ones who can make
ethical decisions about what they should do. The concept of responsibility is central to actions
that are moral. Being responsible means that you are willing to take on the potential
responsibilities, duties, and costs that come along with the decisions you make. Accountability
is a characteristic of both systems and social institutions, and it denotes the presence of
mechanisms to ascertain who is responsible for what and who is responsible for taking

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responsible action. Systems and institutions in which it is impossible to determine who was
responsible for what action are incapable, by their very nature, of engaging in ethical analysis or
taking ethical action. The idea of responsibility is brought one step further into the realm of the
law through the application of liability. A characteristic of political systems known as liability is
the existence of a body of laws that make it possible for individuals to seek compensation for
losses sustained as a result of the actions of other people, institutions, or organizations. A
related characteristic of law-governed societies is referred to as a due process, and it refers to a
procedure in which the laws are known and comprehended, and there is the ability to appeal to
higher authorities in order to ensure that the laws are applied correctly.

An ethical analysis of information systems and the individuals who manage them should begin
with these fundamental concepts as their foundation. To begin, information technologies are
mediated by social institutions, organizations, and individual people. Systems in and of
themselves do not have any impacts. Whatever impacts there are on information systems, they
are the products of actions and behaviors at institutional, organizational, and individual levels.
Second, it is clear that the institutions, organizations, and individual managers who choose to
use the technology are the ones who are responsible for the outcomes of their decision to
utilize the technology. If you use information technology in a way that is socially responsible, it
means that you will be able to be held accountable for the results of your actions, and you
should expect to be. Third, in a moral and political society, individuals and other people have
the ability to seek compensation for harm done to them through the application of a body of
law that is exemplified by due process.

ETHICAL ANALYSIS
How should one go about conducting an analysis when confronted with a circumstance that
appears to raise ethical concerns? The five-step process that is outlined below should be of
assistance:

Determine the facts, and describe them in as much detail as possible. Find out who did what to
whom, where it took place, when it happened, and how it happened. In many cases, you will be

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surprised to find errors in the facts that were initially reported, and frequently, you will discover
that simply getting the facts straight help define the solution. It is also beneficial to get the
conflicting parties involved in an ethical conundrum to agree on the facts.

Define the problem or the conundrum, and then determine the higher-order values that are at
play. Questions that pertain to ethics, society, and politics almost always make reference to
higher values. All of the disputants assert that they are working towards more important goals
(e.g., freedom, privacy, protection of property, and the free enterprise system). In most cases,
an ethical issue will involve a conundrum, which is defined as two courses of action that
couldn't be more different from one another but both support worthwhile values. For instance,
the case study that concludes the chapter provides an illustration of two competing values: the
requirement to enhance the process of keeping health care records and the requirement to
safeguard individual privacy.

Determine the various parties involved. Stakeholders are players in the game who have an
interest in the outcome, who have invested in the situation, and who typically have vocal
opinions regarding the matter at hand. Stakeholders are present in every ethical, social, and
political issue. Determine the nature of these organizations and the goals they hope to achieve.
This information will prove useful in the later stages of the solution design process.

Determine the courses of action that are within your capabilities. It's possible that none of the
choices will satisfy all of the stakeholders' needs, but you might discover that certain choices
are more effective than others. Finding a good or ethical solution does not always require
striking a balance between the various consequences that must be considered by the
stakeholders.

Determine the potential outcomes that could result from each of your choices. There are
choices that might be acceptable from an ethical standpoint but would have extremely negative
consequences in other contexts. It's possible that other options will work in one scenario, but
not in others that are very similar. Ask yourself this question at all times: "What if I choose this
option consistently over the course of time? ”

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CANDIDATE ETHICAL PRINCIPLES
After you have finished your analysis, what ethical standards or guidelines ought you to follow
in order to make a decision? Which of these higher-order values ought to guide your decision-
making? Even though you are the only person who can decide which of many ethical principles
you will follow and how you will prioritize them, it is helpful to consider some ethical principles
that have deep roots in various cultures and have survived throughout recorded history. These
include the following:

1. The Golden Rule states that you should treat other people the same way you would like
to be treated (do unto others as you would have them do unto you). The practice of
putting yourself in the position of others and considering that you are the object of the
decision can assist you in thinking about fairness when making decisions.
2. According to Immanuel Kant's theory of the categorical imperative, if an action is not
right for everyone to take, then it is not right for anyone. Consider the following: if
everyone did this, would the organization or society be able to survive? ”
3. According to the rule of change proposed by Descartes, an action is not morally
permissible if it cannot be carried out on multiple occasions. The rule of the slippery
slope states that an action may bring about a minor change in the here and now that is
acceptable, but if the action is repeated, it will bring about changes that are
unacceptable in the long run. In common parlance, one might say something along the
lines of
4. If you start down a slippery path, it's possible that you won't be able to turn back.
5. Follow the course of action that will result in a higher or greater value (Utilitarian
Principle). This rule makes the assumption that you are able to arrange values in a
hierarchical order and comprehend the results of taking a variety of different actions.
6. Choose the course of action that will cause the least amount of damage or has the
lowest potential cost (Risk Aversion Principle). Building a nuclear power plant in the
middle of a city, for example, has extremely high failure costs but a very low probability
of occurring. Other actions, on the other hand, have extremely high failure costs but a

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 moderate probability of occurring (speeding and automobile accidents). Steer clear of
these high-failure-cost actions and focus more of your attention on high-failure-cost
potentials with moderate to high probabilities.
7. Assume that almost everything, both tangible and intangible, is owned by someone else
unless there is a specific declaration to the contrary. This applies to both things that can
be touched and things that can't be touched. If something that another person has
created can be useful to you, then it has value, and you should operate under the
assumption that the creator wants to be compensated for their work. This is the "no
free lunch" rule of ethics.

Any behavior that does not easily adhere to these guidelines calls for a heightened level of
vigilance and a great deal of caution. The perception that you and your company are engaging
in unethical behavior can cause just as much damage to you and your business as actually
engaging in unethical behavior.

CODES OF CONDUCT APPLICABLE TO PROFESSIONS

When a group of people makes the claim to be a profession, they automatically acquire unique
rights and responsibilities as a result of the special claims they make to a certain level of
knowledge, wisdom, and respect. Associations of professionals, such as the American Medical
Association (AMA), the American Bar Association (ABA), the Association for Information
Technology Professionals (AITP), and the Association for Computing Machinery, are the ones
that are responsible for drafting and disseminating professional codes of conduct (ACM). These
professional organizations are responsible for a portion of the regulation of their respective
professions, specifically the determination of entrance requirements and levels of competence.
Codes of ethics are agreements made by different professions to self-regulate in order to serve
the needs of society as a whole. A few examples of the General Moral Imperatives found in the
ACM's Code of Ethics and Professional Conduct include avoiding causing harm to other people,
honoring property rights (including intellectual property rights), and respecting personal privacy.

SOME REAL-WORLD ETHICAL DILEMMAS

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The proliferation of information systems has resulted in the emergence of new moral
conundrums, in which one group of interests competes with another. For instance, a significant
number of the largest telephone companies in the United States are decreasing the size of their
workforces by employing various forms of information technology. Because it enables
computers to recognise a customer's responses to a series of computerized questions, voice
recognition software helps to cut down on the number of human operators that are required. It
is common practice for businesses to keep tabs on the activities of their employees online in
order to prevent them from squandering company resources on pursuits that are unrelated to
company business. In each scenario, there are two sets of values that are competing with one
another, and there are groups that are taking opposing positions in a debate. A company may
contend, for instance, that it has the legal right to make use of information systems in order to
raise its level of productivity and decrease the number of employees it employs in order to
bring down its operating expenses and continue to be in business. Employees who find
themselves out of work due to the implementation of new information systems might argue
that their employers bear some responsibility for ensuring their well-being. When it comes to
minimizing losses in productivity, business owners may feel compelled to monitor the use of e-
mail and the Internet by their employees. There is a possibility that workers will believe they
should be able to perform brief personal errands on the Internet rather than on the telephone.
Try to apply some of the principles of ethical analysis described to each of these cases. A close
examination of the facts can sometimes produce compromised solutions that give each side
"half a loaf." What would be the appropriate action to take?

8.2 COMPUTER CRIME

One of the most rapidly expanding industries on the Internet is cybercrime. Criminals today are
engaging in a wide range of activities, including the theft of intellectual property and the
commission of fraud, as well as the release of viruses and the commission of acts of
cyberterrorism. Individuals who take advantage of the widespread use of computers as well as

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the vulnerability posed by the Internet and other networks are the root cause of computer
crime, a growing problem that poses a growing threat to society. Computer crime is caused by
the criminal or irresponsible actions of individuals. The ethical application of information
technologies faces a significant obstacle as a result of this. As a result of the fact that computer
crime not only poses serious threats to the integrity of most business systems but also to their
safety and continued existence, the development of efficient security methods has become a
top priority.

The Association of Information Technology Professionals (AITP) has a definition for computer
crime that includes the following: (1) the unauthorized use, access, modification, and
destruction of hardware, software, data, or network resources; (2) the unauthorized release of
information; (3) the unauthorized copying of software; (4) denying end-user access to his or her
own hardware, software, or network resources; and (5) using or conspiring to use computer or
network resources to obtain something illegally. This definition was supported by the
Association for Information Technology Professionals (AITP) in a Model Computer Crime Act,
and it is reflected in a variety of computer crime laws.

HACKING AND CRACKING

Cybercriminals have access to a dozen harmful tools, ranging from "scans" that locate
vulnerabilities in website software programs to "sniffers" that steal passwords. These "scans"
and "sniffers" are used to steal sensitive information. In the language of computers, hacking
refers to either the compulsive use of computers or the unauthorized access and use of
computer systems that are connected via a network. Hackers are people from the outside or
inside a company who use the Internet or other networks to steal information or programs or
to damage those programs. One of the difficulties associated with hacking is determining what
action should be taken against a hacker who commits only electronic breaking and entering.
This type of hacker gains access to a computer system and reads some files, but does not steal
or damage anything. The prosecution of cases involving computer crimes typically finds itself in
this predicament. Courts have, in the vast majority of instances, determined that the language

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of typical computer crime statutes, which prohibits malicious access to a computer system,
does, in fact, apply to anyone who gains unauthorized access to the computer networks of
another party.

E-mail, access to a Web server, or file transfers can all be monitored by hackers who are looking
to extract passwords, steal network files, or plant data that will cause a system to be more
vulnerable to intrusion. In order to gain privileged access within a network, a hacker might also
use remote services, which enable one computer on a network to execute programs on another
computer in the network. The Internet tool Telnet, which allows for the interactive use of
remote computers, can assist hackers in gaining information that can be used to plan additional
attacks. Hackers have been known to use Telnet to gain access to a computer's e-mail port, for
instance, in order to monitor e-mail messages in search of passwords and other information
pertaining to privileged user accounts and network resources. These are just some examples of
the common types of illegal activities related to computers that are frequently carried out by
hackers on the internet. Because of this, implementing Internet security measures such as
encryption and firewalls, which will be covered in the following section, is absolutely necessary
for the success of e-commerce and other applications related to e-business. When discussing
hacking, members of the hacking community are quick to differentiate between hacking and
cracking. A cracker is a malicious or criminal hacker. They are also referred to as black hat
hackers or hackers on the dark side. Outside of the field of computer security and among some
contemporary programmers, this term is used very infrequently. The term "hacker" is
commonly used to refer to the same concept by the general public. The term "hacker" can have
a significantly broader meaning in the context of computer jargon. The name comes from the
concept of black hat hackers being the opposite.

A cracker is typically a person who keeps knowledge of the vulnerabilities he or she discovers
and exploits them for private gain, rather than disclosing them to either the general public or
the manufacturer so that they can be fixed. A significant number of crackers prioritize individual
liberty and accessibility over confidentiality and safety. Crackers might try to make holes in
systems larger; attempts to patch software are typically made to prevent other people from

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compromising a system over which the crackers have already obtained secure control. In the
worst possible scenarios, a cracker might work to cause damage on purpose for malicious
reasons or make threats to do so for the purpose of blackmail.

Richard Stallman is the one who came up with the idea of using the term "cracker" as an
alternative to misusing the term "hacker" for the same purpose. The use of this term is
restricted (as is the use of the term "black hat") mostly to certain areas of the computer and
security field, and even in those areas, it is regarded as contentious. Computer nerds are part of
the subculture that calls itself "hackers." Computer enthusiasts are another subculture. The
other meaning, which is the one that is used more frequently, refers to individuals who make
an attempt to gain unauthorized access to computer systems. Although many members of the
first group try to persuade others that the term "hackers" should be used instead of "crackers,"
the term "hacker" continues to be the term that is most commonly understood and used.

CYBER-THEFT
Theft of money is a common component of many types of computer crimes. The majority of
these incidents are the result of inside jobs carried out by employees, which typically involve
fraudulent alteration of computer databases and unauthorized entry into the network in order
to cover their tracks. Of course, the use of the Internet is involved in a significant number of
computer crimes. One early instance was the 1994 theft of 11 million dollars from Citibank,
which served as an example. Vladimir Levin, a Russian hacker, and his cohorts in St. Petersburg
made use of the Internet in order to successfully break into the electronic mainframe systems
of Citibank in New York.

After that, they were successful in moving the money from multiple accounts held at Citibank
to their own accounts held at banks located in Finland, Israel, and California respectively. In the
vast majority of instances, the scale of such monetary losses is significantly larger than the
incidents that were reported. It is not common practice for businesses to disclose the fact that
they have been the targets or victims of computer crime. They are afraid of frightening their
customers and inciting complaints from their shareholders. In point of fact, several British

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banks, including the Bank of London, paid hackers a total of over half a million dollars to keep
quiet about electronic break-ins that they had carried out.

CYBERTERRORISM
The term "cyberterrorism" refers to the use of an organization's or government's computers
and information, most commonly through the use of the Internet, with the intent of causing
damage in the real world or severe disruption of infrastructure. There is a school of thought
that contends cyberterrorism is really just another name for hacking or information warfare.
They disagree with the classification of it as terrorism due to the remote possibility that it could
cause fear, significant physical harm, or death in a population through the use of electronic
means, taking into consideration the technologies that are currently used for attacks and
defences.

The National Conference of State Legislatures (NCSL) provides a definition that is much more
specific, stating that the term refers to the utilisation of information technology by terrorist
groups and individuals in order to further their agenda. This can include the use of information
technology in the organisation and execution of attacks against networks, computer systems,
and telecommunications infrastructures, as well as the use of information technology for the
electronic exchange of information or the making of threats.

Cyberterrorism has the potential to have a negative impact on a large scale and on a significant
number of people. It has the potential to significantly cripple a nation's economy, preventing
that nation from gaining access to important resources and making it more susceptible to
military assault. Internet-based businesses are also susceptible to the effects of cyberterrorism.
In the same way that traditional brick-and-mortar retailers and service providers stand to lose
money in the event of downtime caused by cyber criminals, the majority of websites that
generate income (whether through advertising, the exchange of money for goods, or paid
services) also stand to lose money in this scenario.

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What would normally be considered cybercrime becomes more political and as a result,
"terror" related, as the economic importance of Internet businesses grows for countries. There
have been no reported instances of cyberattacks carried out against the United States as of yet.
However, there have been several instances of cyberterrorism on a large scale in countries
other than our own.

One incident of this kind occurred in Romania, and it involved cyberterrorists gaining
unauthorized access to the computers that controlled the life-support systems at an Antarctic
research station. As a result, 58 researchers were put in jeopardy. However, the perpetrators
were apprehended before the damage could be fully assessed. The majority of acts of sabotage
that have caused damage have been non-political in nature. For example, in Maroochy Shire,
Australia, a dissatisfied employee was responsible for the release of untreated sewage into the
water supply. This caused financial and other types of damage. Some nuclear power plants
have experienced a degradation or shutdown of non-essential computer systems due to
computer viruses; however, it is not believed that these incidents were the result of a
deliberate attack.

More recently, in May 2007, Estonia was the target of a widespread cyber-attack in retaliation
for the relocation of a Russian World War II war memorial from the central business district of
Tallinn. The attack was a distributed denial of service attack, in which selected sites were
bombarded with traffic in order to force them off-line; nearly all of Estonia's government
ministry networks, in addition to two major Estonian bank networks, were knocked off-line; in
addition, the political party website of Estonia's current Prime Minister Andrus Ansip featured a
counterfeit letter of apology from Ansip for removing the memorial statue.

The defense minister of Estonia admitted that he did not have any evidence linking cyber
attacks to Russian authorities, despite the fact that there was widespread speculation that the
attack had been coordinated by the Russian government. Russia has described the allegations
of its involvement as "unfounded," and experts from both NATO and the European Commission
were unable to locate any evidence of official participation on the part of the Russian

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government. A man from Estonia was found guilty of launching attacks against the website of
the Estonian Reform Party in January of 2008 and received a fine as a result of his conviction.

UNAUTHORIZED USE AT WORK

Theft of time and resources is another term that can be used to describe the illegal use of
computer systems and networks. Unauthorized use of computer networks owned by the
company by employees is a common example. This use can include anything from conducting
personal or private business, such as accounting or consulting, to engaging in recreational
activities, such as playing video games or engaging in unauthorized Internet use while using
company networks. Sniffers, which are pieces of software used for network monitoring, are
frequently put to use in order to evaluate network capacity and monitor network traffic in
order to find evidence of improper network use.

One survey found that 90 percent of workers in the United States admit to surfing recreational
sites during work hours, and 84 percent of workers say they send personal e-mails from their
workplace computers. Therefore, engaging in just this kind of activity might not be enough to
get you fired from your job; however, engaging in other kinds of Internet activities at work
might result in immediate termination. For instance, 23 employees at The New York Times were
terminated after it was discovered that they had been sending jokes that were racially and
sexually offensive through the company's e-mail system.

More than 40 employees of Xerox Corporation were terminated after the company discovered
that they were spending up to eight hours per day viewing pornographic websites on the
internet. Because several workers downloaded pornographic videos, the company's network
became so congested that their coworkers were unable to send or receive e-mail. This was
because the pornographic videos took up so much network bandwidth. Xerox has established a
Special Weapons and Tactics (SWAT) team on computer abuse, which consists of eight
members and utilizes software to review every website that its 40,000 computer users view on
a daily basis. Some businesses take a stricter stance by installing software such as SurfWatch,

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which gives them the ability to restrict and monitor users' access to restricted websites on the
internet.

SOFTWARE PIRACY
Thefts of computer programs are common because they are valuable property and can be
obtained easily from computer systems. However, another significant type of software theft is
known as software piracy, which refers to the illegal copying of software. The Software
Publishers Association, which is an association of software developers, has filed lawsuits against
major corporations that allowed unauthorized copying of their programs as a result of the
widespread practice of software piracy by company employees. This practice has led to the
filing of these lawsuits.

Because software is considered intellectual property, it is protected by copyright laws and user
licensing agreements. It is against the law to copy software without permission. For instance, in
the United States, the Computer Software Piracy and Counterfeiting Amendment to the Federal
Copyright Act provides protection for commercial software packages. This amendment was
passed in 1988. The purchase of a commercial software package is, in most instances, really a
payment to license its fair use by an individual end user. This is because commercial software
packages are typically designed to be used by multiple people. As a result, numerous businesses
choose to enter into site license agreements, which give them the legal right to reproduce a
predetermined number of copies for the use of their personnel at a specific location. There is
also public domain software, which is not protected by intellectual property rights, and
shareware, which enables users to make copies of software for the benefit of others.

According to the findings of the most recent study conducted by the Business Software Alliance,
an anti-piracy organization whose members include Apple Computer, IBM, Intel, and Microsoft,
in 2007, pirated software accounted for 38 percent of all software that was utilized all over the
world. In 2007, losses attributed to software piracy were reported to be nearly $48 billion, an
increase of $8 billion from the previous year. "That's over a third of the industry's revenue,"
says Bob Kruger, who is the vice president for enforcement at this organization. The research

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concluded that only $50 billion of the $100 billion worth of software that was purchased in
2007 was done so in a legitimate manner. To put it another way, for every dollar that was spent
on software that was purchased legitimately across the globe, there was a value of software
that was obtained illegally equal to fifty cents.

For instance, Carol Bartz, the president and chairman of Autodesk, Inc. (www.autodesk.com),
reports that one of their flagship products, AutoCAD, has 90 percent of the computer-aided
design (CAD) market in China, despite the fact that sales are virtually negligible due to the
widespread acceptance of software piracy. In the United States, software piracy is illegal. Bartz
also claims that many software companies are hesitant to pursue the educational market
because of concerns that a few copies of legally purchased software could lead to millions of
copies of illegal software that are produced "in the name of educating children."

THEFT OF INTELLECTUAL PROPERTY

Computers can be used to steal a variety of different types of intellectual property, not just
software. Infringements of copyrighted material, which include things like music, videos, images,
articles, books, and other written works, are something that the majority of courts have
deemed to be illegal. This type of intellectual property theft can take many forms. The digitized
versions can be easily captured by computer systems and made accessible for people to access
or download at websites on the internet, or they can be easily distributed by e-mail as file
attachments with ease. The development of peer-to-peer (P2P) networking technologies, has
made it even easier for unauthorized parties to use digital versions of copyrighted content. P2P
file-sharing software, for instance, enables direct MP3 audio file transfers of selected tracks of
music between your personal computer and the computers of other users who are connected
to the internet. Consequently, this kind of software generates a peer-to-peer network
consisting of millions of people who use the Internet and trade digital versions of copyrighted
or public domain music that is stored on the hard drives of their personal computers. More
recently, music manufacturers and publishers have begun to provide legitimate, low-cost access
methods to a variety of online music formats. These methods allow users to listen to music

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online. The proactive stance taken by the music industry has resulted in a decrease in the illegal
downloading of music and video properties, and reports indicate that this trend is expected to
continue at a significant rate. Let's take a closer look at the heated discussion that is still going
on in this contentious area by using an example from the real world that highlights the danger
that emerging technologies pose to intellectual property rights.

COMPUTER VIRUSES AND WORMS

The distribution of malicious software on a computer system, such as a virus or worm, is an
example of one of the most damaging types of computer crime. Although "virus" is the term
that is most commonly used, technically speaking, a virus is any piece of program code that is
unable to function unless it is inserted into another program. A worm is a separate program
that can execute by itself without any assistance. In either scenario, these programs will copy
routines that are either obnoxious or destructive into the networked computer systems of
anyone who either accesses computers that are infected with the virus or who uses copies of
magnetic discs taken from computers that are infected with the virus. As a result, a computer
virus or worm has the potential to infect a large number of users.

In spite of the fact that they occasionally only display humorous messages, the vast majority of
the time they are used to destroy the data stored on memory, hard discs, and other types of
storage devices. E-mails and file attachments sent through the internet and other online
services are the most common way that computer viruses get into a system. Illegal copies of
software or copies obtained through borrowing are also common ways. Another possible origin
of viruses is local copies of shareware programs that have been downloaded from the internet.
In most cases, a virus will replicate itself within the files that make up the operating system of a
computer. After that, the virus replicates itself on the computer's hard disc, as well as any
inserted floppy discs, and spreads to the main memory of the computer. It is possible for the
virus to spread to other computers via e-mail, file transfers, other forms of telecommunication,
or floppy discs from computers that have already been infected. As a result, it is recommended
that you refrain from installing software from dubious sources without first checking for the

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presence of viruses. Additionally, you should make use of antivirus programs on a regular basis.
These programs can assist in the diagnosis and removal of computer viruses from infected files
located on your hard disc.

ADWARE AND SPYWARE

Adware and spyware are two examples of newer types of computer vulnerabilities that have
emerged in recent years. Adware is software that, in addition to purporting to serve a useful
function and frequently performing that function as intended, also enables Internet advertisers
to display advertisements on the computer in the form of banners and pop-up ads without
obtaining the permission of the computer user.

Adware can, in the most extreme cases, also collect information about the user of the
computer that it is hosting and send that information over the Internet to the owner of the
adware. Spyware is a subcategory of adware that refers to any software that uses a user's
Internet connection in the background without the user's knowledge or express permission.
Spyware falls under the category of potentially unwanted software (PUP). Spyware is software
that secretly gathers information about its users, which may include general demographic data
such as name and address, as well as specific information such as credit card number, Social
Security number, user names, and passwords, as well as other types of personal data. It is
essential to realize that not all programs that are classified as adware are also spyware. When
used appropriately, proper adware does not pose any significant risk to users' privacy and
represents a viable revenue model for many software companies, despite the fact that it can be
annoying at times. This model enables users to obtain products at no cost and does not pose a
significant risk to the company's bottom lines. Spyware, on the other hand, poses a significant
risk to users' privacy and should be treated as such.

Spyware, on the other hand, adheres to an odd moral framework, as opposed to the standard
adware model, which gives the user of the computer the option to agree to the program's use
in exchange for the free use of some software. Take into account the following:

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  You gain unauthorized access to the computer system of a bank and install a piece of
software that operates invisibly within their network. If you are discovered or caught,
you risk being prosecuted and could end up spending time in jail.
 You create a worm or virus on your own and then distribute it across various networks,
including the internet. If you are discovered or caught, you risk being prosecuted and
could end up spending time in jail.
 You write a program that spreads a spyware agent across computer systems connected
to the Internet. This spyware agent steals personal information from the users whose
computers it infects, tampers with their experience while using the internet, and
displays your advertisements on the websites and browsers of other people. If you are
discovered or caught, you might get rich, you won't go to jail, and the people whose
computers you infected will have to reinstall their operating system in order to get rid of
your spyware. This leaves the computer users in a difficult position.

8.3 PRIVACY ISSUES

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Efficiently manage data and information through seamless storage, integration, exchange, and
retrieval processes. The aforementioned attribute holds significant advantageous implications
for the efficacy and proficiency of information systems that rely on computer technology. The
capacity of information technology to store and retrieve data may potentially impinge upon the
fundamental right to privacy of individuals. Numerous organizations monitor the confidential
email communications of their employees. Individuals' personal information is gathered each
time a website on the internet is accessed.

The theft or misuse of confidential information pertaining to individuals stored in centralized

computer databases maintained by credit bureaus, government agencies, and private business
firms has led to various negative consequences such as privacy violations, fraudulent activities,
and other forms of injustice. The unapproved utilization of said data has significantly
compromised the confidentiality of persons. Inaccuracies within said databases possess the
potential to significantly impact an individual's creditworthiness or public image.

Privacy concerns are being deliberated by governments globally, with particular emphasis in the
United States, where diverse legislative options are being explored. The debate surrounding
privacy legislation in relation to the Internet is largely focused on the distinction between opt-in
and opt-out approaches. An opt-in standard, wherein privacy is the default, is commonly
endorsed by consumer protection groups. The implementation of an opt-in system provides
automatic protection to consumers who have not explicitly granted permission for the
compilation of their data. Most business stakeholders support the opt-out approach,
contending that it does not impede the continuity of electronic commerce. It is noteworthy that
the existing regulations concerning this matter exhibit variations between the United States
and Europe. The default position in the United States is opt-out, while in Europe, consumers are
required to opt-in for their information to be utilized. Further privacy concerns that are
currently being discussed comprise:

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  The act of obtaining confidential electronic correspondence and computer files, as well
as gathering and disseminating personal data obtained from an individual's online
activities on websites and newsgroups, constitutes a breach of privacy.
 The increasing association of mobile and paging services with individuals rather than
locations has led to a heightened awareness of their whereabouts, particularly in the
context of computer monitoring.
 The practise of utilizing diverse channels to obtain customer data for the purpose of
promoting supplementary business offerings through computerized matching.

The act of creating personal files without proper authorization through the collection of
personal information, including but not limited to telephone numbers, email addresses, credit
card numbers, and other identifying data, for the purpose of constructing individual customer
profiles.In the absence of appropriate measures, individuals are susceptible to surreptitious
data collection during activities such as sending emails, browsing websites, posting on
newsgroups, or engaging in online banking and shopping, regardless of whether such activities
are for personal or professional purposes. Thankfully, through the utilization of techniques such
as encryption and anonymous remailers, coupled with judicious discernment regarding the
websites frequented and the personal data disclosed, one can effectively mitigate, if not
entirely eradicate, the potential infringement upon one's privacy.

The Internet is widely recognised for providing its users with a sense of anonymity, despite the
fact that their online activities are highly visible and susceptible to privacy breaches. The
majority of the Internet, including the World Wide Web, e-mail, chat, and newsgroups, remains
an unsecured electronic frontier with a lack of stringent regulations regarding the classification
of personal and private information. The collection of data pertaining to Internet users occurs
in a lawful and automated manner during every instance of accessing a website or newsgroup
and is subsequently documented as a "cookie file" on the user's hard drive. Subsequently,
proprietors of websites or digital auditing entities such as DoubleClick have the potential to
vend the data extracted from cookie files and other forms of records pertaining to your online

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activities to external entities. The vulnerability of the internet and web to unauthorized access
and theft of personal information by hackers is a concerning issue for internet users.

There are various methods available to safeguard one's privacy. Encryption can be employed to
safeguard sensitive e-mails, provided that both parties involved in the e-mail exchange utilize
compatible encryption software integrated into their respective e-mail applications. It is
possible to make postings on newsgroups in a confidential manner by utilizing anonymous
remailers, which safeguard one's identity while contributing to a discussion. It is possible to
request that one's Internet service provider refrain from disclosing personal information and
name to mailing list providers and other marketers. One can opt to withhold personal
information and interests on their online service and website user profiles as a means of
mitigating the risk of electronic surveillance.

COMPUTER MATCHING
The topic at hand pertains to contentious issues surrounding the safeguarding of personal
privacy. The utilization of profiling software has resulted in erroneous arrests and
incarcerations, as well as credit denials, due to the incorrect or inappropriate matching of
individuals' physical profiles or personal data. An additional peril pertains to the unapproved
correlation of digitised data pertaining to an individual, procured from sales transaction
processing systems' databases, and subsequently vended to information brokers or other
corporations. A contemporary concern pertains to the unapproved correlation and
commercialization of personal data obtained from online websites and discussion forums, as
previously deliberated. Subsequently, one is exposed to an overwhelming influx of unrequested
advertising content and sales outreach, which results in an infringement of personal privacy.

PRIVACY LAWS
The collection and utilization of personal data by business corporations and government
agencies are subject to strict regulations in numerous countries. Numerous privacy regulations
implemented by governments aim to ensure the confidentiality of digital files and electronic
communications. The United States has established legal frameworks such as the Electronic

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Communications Privacy Act and the Computer Fraud and Abuse Act, which prohibit activities
such as interception of data communications messages, data theft or destruction, and
unauthorized access to federal computer systems. Privacy attorneys contend that the inclusion
of federal-related computer systems within the ambit of the Internet necessitates companies to
apprise their employees of any intention to monitor Internet usage, in compliance with relevant
laws. An additional instance pertains to the U.S. Computer Matching and Privacy Act, a
legislative measure that oversees the matching of information contained in federal agency
records to authenticate qualification for federal initiatives. In recent times, the enactment of
fresh laws aimed at safeguarding personal privacy has presented novel hurdles for entities.
Organisations are confronted with numerous compliance challenges, including but not limited
to Sarbanes-Oxley, the Health Insurance Portability and Accountability Act (HIPAA), Gramm-
Leach-Bliley, the USA PATRIOT Act, the California Security Breach Law, and Securities and
Exchange Commission rule 17a-4. To adhere to the recently implemented privacy regulations, it
is projected that an average organisation will allocate approximately 3-4% of its IT budget
towards compliance initiatives and software.

HIPAA
The U.S. Congress passed the Health Insurance Portability and Accountability Act (HIPAA) in
1996. The legislation in question is designed to tackle a diverse range of concerns pertaining to
personal health insurance. The Health Insurance Portability and Accountability Act (HIPAA)
comprises two crucial components, namely the privacy regulations and the security regulations.
The two aforementioned provisions of the law aim to establish protective measures against the
unapproved utilisation, revelation, or dissemination of an individual's health-related data
without their explicit consent or authorization. The scope of privacy regulations encompasses
all forms of Protected Health Information (PHI), whether in physical or digital format. However,
the security regulations are specifically focused on Electronic Protected Health Information
(EPHI). The regulations delineate three distinct categories of security measures that must be
implemented for adherence: administrative, physical, and technical.

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The rules pertaining to each type specify distinct security standards. Each standard is
accompanied by implementation specifications, which are categorized as either required or
addressable. The HIPAA regulation mandates the adoption and administration of required
specifications. Addressable specifications offer greater flexibility. Covered entities at an
individual level have the autonomy to assess their respective circumstances and ascertain the
optimal approach for executing addressable specifications.

SARBANES-OXLEY:
The Sarbanes-Oxley Act of 2002, also referred to as the Public Company Accounting Reform
and Investor Protection Act of 2002, is a federal law that was passed on July 30, 2002, in
response to several significant corporate and accounting scandals. These scandals included
those that impacted Enron, Tyco International, Adelphia, Peregrine Systems, and WorldCom.
The act is commonly abbreviated as Sarbanes-Oxley, Sarbox, or SOX. The aforementioned
scandals had a significant impact on investors, resulting in substantial financial losses due to the
decline in the share prices of the implicated companies. Furthermore, these events had a
detrimental effect on the trust and assurance of the general public in the securities markets of
the country. The legislation, which bears the names of its sponsors, Senator Paul Sarbanes and
Representative Michael G. Oxley, was granted approval by the House with a vote of 334-90 and
by the Senate with a unanimous vote of 99-0. The law was signed by President George W. Bush,
who asserted that it encompassed the most extensive modifications to American business
practices since the era of Franklin D. Roosevelt.

The legislation established novel or improved criteria for all boards of directors, management
teams, and public accounting firms operating within the United States. However, it is important
to note that this provision is not applicable to companies that are privately held. The legislation
comprises eleven distinct sections that encompass a wide range of provisions, including but not
limited to, augmented corporate board obligations and punitive measures. Additionally, the
Securities and Exchange Commission (SEC) is mandated to enforce regulations pertaining to
adherence to the newly enacted legislation.

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The advantages and disadvantages of the Sarbanes-Oxley Act (SOX) are still a topic of ongoing
discussion. Advocates argue that the aforementioned bill was imperative and has effectively
contributed to the reinstatement of public trust in the United States financial markets. This was
achieved, in part, through the reinforcement of corporate accounting regulations. Critics of the
legislation argue that it has diminished the global competitiveness of American financial service
providers vis-à-vis their foreign counterparts. They contend that the Sarbanes-Oxley Act has
engendered a regulatory landscape that is excessively intricate and burdensome for U.S.
financial markets.

COMPUTER LIBEL AND CENSORSHIP

The antithetical aspect of the discourse on privacy concerns the entitlement of individuals to
access information that others may prefer to keep confidential (right to information), the
entitlement of individuals to articulate their viewpoints on such matters (freedom of speech),
and the entitlement of individuals to disseminate those viewpoints (freedom of the press). The
bulletin boards, e-mail boxes, and online files of the Internet and public information networks
such as America Online and the Microsoft Network have emerged as significant arenas for the
ongoing debate. The armaments employed in this conflict encompass tactics such as spamming,
flame mail, libel laws, and censorship.

Spamming refers to the act of sending unsolicited email messages, commonly known as spam,
to a large number of internet users without discrimination. The preferred strategy of individuals
who send out unsolicited advertisements or junk e-mails in large quantities is spamming. The
act of spamming has been utilised by malevolent actors in the digital realm to disseminate
computer viruses or gain unauthorised access to multiple computer networks.

The act of sending highly critical, derogatory, and frequently vulgar electronic mail messages
(commonly referred to as "flame mail") or postings on newsgroups to other users on the
Internet or online services is known as flaming. The act of flaming is observed to be particularly
widespread on certain special-interest newsgroups on the Internet.

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Numerous instances of discriminatory or slanderous content on the internet have prompted
demands for censorship and legal action for defamation. Furthermore, the existence of sexually
explicit content on numerous websites across the World Wide Web has resulted in legal
proceedings and censorship measures initiated by diverse organizations and governmental
entities.

THE CURRENT STATE OF CYBER LAW

The legal framework governing activities conducted over the Internet or through electronic
data communications is commonly referred to as cyber law. The field of cyber law pertains to a
diverse range of legal and political concerns that are associated with the Internet and other
forms of communication technology. These concerns include but are not limited to matters of
intellectual property, privacy, freedom of speech, and jurisdiction.

The convergence of technology and the legal system is frequently a subject of contentious
debate. There are individuals who hold the belief that the regulation of the Internet is either
unnecessary or unfeasible. In addition, the advancement of intricate technologies, such as
encryption and cryptography, poses a significant challenge to conventional regulatory measures.
The Internet's inherent end-to-end architecture ensures that in the event of regulation or
cessation of one mode of communication, an alternative method will be developed and emerge.
As per the statement made by John Gilmore, the founder of the Electronic Frontier Foundation,
the Internet perceives censorship as a form of impairment and consequently, circumvents it.

An instance of progress in the field of cyber law can be observed in the Consumer Sentinel
Project of the Federal Trade Commission (FTC). The Consumer Sentinel is a distinctive
investigative cyber instrument that grants members of the Consumer Sentinel Network the
ability to retrieve data from a vast number of consumer grievances. The Consumer Sentinel
database encompasses grievances pertaining to a wide range of issues, such as identity theft,
violations of the do-not-call registry, computers, the Internet, online auctions, telemarketing
scams, advance-fee loans, credit scams, sweepstakes, lotteries, and prizes, business

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opportunities, work-at-home schemes, health and weight loss products, debt collection, credit
reports, and various other financial matters.

The underlying principle of Consumer Sentinel is that the dissemination of information has the
potential to enhance the efficacy of law enforcement. The Consumer Sentinel Network
facilitates access to consumer complaints submitted to the Federal Trade Commission by
providing law enforcement members with direct access to these complaints. Additionally,
members are granted access to complaints shared by data contributors.

As per the FTC Sentinel Report of 2007, a total of over 800,000 complaints were handled by
Sentinel, wherein 11 percent of the complaints pertained to internet-related offenses and 23
percent were related to computer-based identity theft. Although some of these grievances are
arduous, if not unfeasible to litigate, there is a growing dedication to tackling cyber-linked
misconduct with increased resources.

The emergence of the Internet has given rise to a relatively new field of study known as cyber
law. The growth of the Internet occurred in a relatively unstructured and unregulated fashion,
as is commonly understood. The extent and profound implications of contemporary and future
cyberspace were unforeseeable even by the initial trailblazers of the Internet. While legal
conflicts concerning cyber activities did arise in the early 1990s, it was not until 1996 and 1997
that a distinct legal framework began to take shape. The region, which is evidently in its early
stages of development, predominantly lacks human habitation. The ongoing discourse pertains
to the suitability of comparable legal tenets extrapolated from antecedent disputes that were
unrelated to the realm of cyberspace. As our comprehension of the intricate matters in the
realm of cyberspace advances, it is probable that novel and improved legislation, directives, and
strategies will be embraced and implemented.

CHALLENGES

EMPLOYMENT CHALLENGES:

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The ethical implications of the utilization of computers for the automation of work activities are
closely linked to the effects of information technologies on employment. Undoubtedly, the
utilization of information technologies has led to the emergence of novel employment
opportunities and enhanced efficiency, albeit concurrently resulting in a notable decline in
certain job prospects. Computers are capable of performing tasks that were previously
executed by numerous clerks and machinists, such as accounting systems and automated
control of machine tools. Furthermore, the employment opportunities generated by the field of
information technology may necessitate distinct skill sets and educational backgrounds in
comparison to the positions that are rendered obsolete. Hence, individuals may face
unemployment unless they undergo retraining to acquire new roles or responsibilities.
Undoubtedly, the emergence of Internet technologies has generated a plethora of novel
employment prospects. The emergence of e-business and e-commerce applications has led to
the creation of various job roles such as Internet Web masters, e-commerce directors, systems
analysts, and user consultants. The emergence of information technologies has facilitated the
production of intricate industrial and technical goods and services, which were previously
unattainable, thereby leading to the creation of supplementary employment opportunities.
Activities that rely heavily on information technology, such as space exploration,
microelectronic technology, and telecommunications, have resulted in the creation of
employment opportunities.

COMPUTER MONITORING:
Computer monitoring has emerged as a highly contentious ethical issue in the realm of
workplace privacy and working conditions within the business sector. Computers are presently
utilized to oversee the efficiency and conduct of a vast number of employees during their work
activities. Allegedly, computer monitoring is implemented by employers to gather productivity
data pertaining to their employees, with the aim of enhancing service quality and efficiency.
The practice of computer monitoring has been subject to ethical criticism due to its focus on
individuals rather than work-related activities, and its continuous nature, which is seen as a
violation of workers' privacy and personal autonomy. In the context of airline reservations, the

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performance of reservation agents may be evaluated based on various metrics such as the
duration of each call, the interval between calls, and the frequency and duration of breaks
taken. These metrics may be used to measure the efficiency and productivity of the reservation
agents. Furthermore, it is possible that your dialogue could be subject to monitoring. The
practice of computer monitoring has faced criticism for its potential infringement upon the
privacy of employees. This is due to the fact that, in numerous instances, employees are
unaware of the monitoring or lack understanding of how the gathered data is utilized.
According to critics, the utilization of collected data to make personnel decisions may
potentially impede an employee's entitlement to due process. The implementation of computer
monitoring has been associated with elevated stress levels among employees who are
subjected to continuous electronic surveillance. Additionally, it has been attributed to adverse
health outcomes among monitored workers. The practice of computer monitoring has been
criticized for depriving employees of the sense of self-respect associated with their job. At its
most extreme, the practice of computer monitoring has the potential to give rise to an
environment akin to an "electronic sweatshop," characterized by substandard working
conditions and a frenzied pace of work imposed upon laborers. The intensification of political
pressure is leading to the consideration of the prohibition or regulation of computer monitoring
practices in the workplace. Public advocacy groups, labor unions, and legislators are advocating
for policy implementation at both the state and federal levels within the United States. The
proposed legislation aims to establish regulations pertaining to computer monitoring in order
to safeguard the rights of workers with regard to their right to privacy and right to information.
Meanwhile, there has been a rise in legal actions taken by monitored employees against their
respective employers. The ethical issue of computer monitoring of employees remains a
persistent concern in the realm of business.

CHALLENGES IN WORKING CONDITIONS:

The advent of information technology has effectively eradicated tedious and unpleasant duties
that were previously assigned to human personnel in both office and factory settings. The
utilization of word processing and desktop publishing has significantly simplified the production

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of office documents, while the automotive industry has witnessed the replacement of
repetitive welding and spray painting tasks with robots. The transition in question often enables
individuals to focus on tasks that are more complex and engaging, enhances the proficiency
level required for the work at hand, and generates demanding employment opportunities that
necessitate advanced computer-related abilities within the computer sector and computer-
oriented establishments. Therefore, it can be argued that information technology enhances
work quality by improving working conditions and work activities. Certain occupations within
the field of information technology, such as data entry, may involve performing tasks that are
highly repetitive and standardized in nature. In certain forms of automation, the utilization of
computers necessitates that IT assumes some accountability for the censure of assembly-line
procedures that mandate the incessant iteration of rudimentary duties, thereby compelling an
employee to operate akin to a machine as opposed to a proficient artisan. Automated
operations have been subject to criticism due to their tendency to assign workers to a passive
standby position, wherein they spend a significant portion of their time waiting for sporadic
opportunities to engage in button-pushing activities. The negative impact of such effects on
work quality must be weighed against the positive aspects of information technology, which
can create less onerous and more innovative job opportunities.

CHALLENGES OF INDIVIDUALITY:
A commonly expressed critique of information systems pertains to their perceived adverse
impact on the individuality of individuals. Computer-based systems have been subject to
criticism for their perceived impersonal nature, which is said to dehumanize and depersonalize
activities that have been automated. This is attributed to the absence of human relationships
that are present in non-computerized systems. One additional facet of the erosion of personal
identity pertains to the standardization that appears to be necessary for certain computer-
oriented frameworks. The observed systems lack apparent flexibility. Rigorous adherence to
precise procedures is required for the proper functioning of the system. The adverse effects of
Information Technology (IT) on individuality are substantiated by anecdotal accounts that
depict the rigidity and indifference of certain institutions that rely on computerized procedures

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in addressing their own errors. Instances have been reported where automated customer
billing and accounting systems persisted in issuing payment demands and cautionary
notifications to a customer, despite the customer's repeated efforts to rectify the error, after
the account had already been settled. Nonetheless, numerous IT-based business applications
are formulated with the aim of reducing depersonalization and regimentation. Numerous e-
commerce systems prioritize personalization and community functionalities as a means of
promoting recurrent visits to e-commerce websites. The extensive utilisation of personal
computers and the Internet has significantly enhanced the advancement of information
systems that are tailored to the needs of individuals.

HEALTH ISSUES
The utilization of information technology within the workplace gives rise to a diverse range of
health concerns. According to reports, the extensive utilization of computers is leading to
various health issues such as occupational stress, impaired musculature in the arms and neck,
visual discomfort, exposure to radiation, and even fatalities resulting from computer-related
accidents. Computer monitoring has been identified as a significant contributor to job-related
stress in the field of computer technology. The practice of computer monitoring has been
subject to criticism by workers, unions, and government officials due to its perceived negative
impact on employee well-being, which is believed to result in various health issues.

Individuals who engage in fast-paced, repetitive keystroke jobs while seated at PC workstations
or visual display terminals (VDTs) are susceptible to experiencing a range of health issues that
are commonly referred to as cumulative trauma disorders (CTDs). Individuals may experience
weakness and pain in their fingers, wrists, arms, necks, and backs to the extent that they are
unable to engage in work-related activities. The potential consequences of overexertion or
injury include muscular strain, discomfort in the back region, and impairment of the nervous
system. Carpal tunnel syndrome is a debilitating condition affecting the hand and wrist, which
may afflict certain individuals working with computers. Typically, surgical intervention is
necessary to alleviate the associated pain and discomfort.

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Extended periods of watching video displays can result in ocular fatigue and other health issues
among workers who are required to engage in this activity for extended durations. The
production of video displays by cathode ray tubes (CRTs) is associated with radiation, which is a
significant health concern. Cathode Ray Tubes (CRTs) generate an electromagnetic field that has
the potential to emit hazardous radiation to workers who are in close proximity to video
monitors for extended periods of time. Pregnant employees have reported adverse pregnancy
outcomes such as foetal deformities and miscarriages as a result of prolonged exposure to
cathode ray tubes (CRTs) in the workplace. Despite the lack of conclusive evidence, various
organizations advise female workers to limit their exposure to CRTs while pregnant.

ERGONOMICS
The science of ergonomics, also known as human factors engineering, serves as the basis for
addressing certain health issues. Ergonomics aims to create work environments that promote
the well-being of individuals by ensuring their safety, comfort, and satisfaction, ultimately
leading to enhanced employee motivation and efficiency. The field of ergonomics places
emphasis on the promotion of healthy design in various aspects of the workplace, including
workstations, computers, machines, and software applications. Certain health concerns may
necessitate ergonomic interventions that prioritize job design over workplace design. As an
illustration, this methodology may necessitate the implementation of regulations that allow for
intermittent work pauses during prolonged utilization of video monitors, coupled with the
restriction of cathode ray tube (CRT) exposure for expectant employees. The implementation of
ergonomic job design can offer increased task variety for employees who primarily engage in
computer-based work throughout their workday.

SOCIETAL SOLUTIONS
As stated in the introductory section of this chapter, the utilization of the Internet and other
information technologies can yield numerous advantageous outcomes for society. Information
technologies have the potential to address human and social issues through various societal
solutions, including but not limited to medical diagnosis, computer-assisted instruction,
governmental program planning, environmental quality control, and law enforcement.

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Computers have the potential to aid in the diagnosis of illnesses, provide essential treatment
recommendations, and track the recovery of patients in medical facilities. The utilization of
computer technology in education has facilitated the implementation of computer-assisted
instruction (CAI) and computer-based training (CBT), which offer personalized and interactive
instruction that caters to the unique needs of individual learners. Telecommunications
networks, videoconferencing, electronic mail, and other technological tools are utilized to
facilitate distance learning.

The utilization of information technologies in law enforcement applications can facilitate crime
control. Computerized alarm systems enable law enforcement to promptly detect and react to
indications of illicit conduct. Computing technology has been employed to observe and
measure the extent of contamination in the atmosphere and aquatic environments, identify the
origins of pollutants, and provide prompt alerts in the event of hazardous thresholds being
exceeded.

Computers are also used for the program planning of many government agencies in such areas
as urban planning, population density and land use studies, highway planning, and urban transit
studies. Computers are being used in job placement systems to help match unemployed
persons with available jobs. These and other applications illustrate that information technology
can be used to help solve the problems of society. Obviously, individuals or organizations that
do not accept ethical responsibility for their actions cause many of the detrimental effects of
information technology. Like other powerful technologies, information technology possesses
the potential for great harm or great good for all humankind. If managers, business
professionals, and IS specialists accept their ethical responsibilities, then information
technology can help improve living and working conditions for all of society.

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 8.4 THE MORAL DIMENSIONS OF INFORMATION SYSTEM

PRIVACY AND FREEDOM IN THE INTERNET AGE :

Individuals' right to privacy is their demand to be left alone, unwatched, and free from
interference from other people or organizations, including the government. The workplace also
involves privacy claims: Numerous high-tech surveillance methods, including electronic ones,
are used to monitor millions of workers. Individual privacy rights are in danger because
information technology and systems make privacy invasions easy, affordable, and profitable.

The right to privacy is protected in various ways by the constitutions of the United States,
Canada, and Germany, as well as by various statutes in other nations. The First Amendment's
guarantees of freedom of speech and association, the Fourth Amendment's prohibitions against
unreasonable searches and seizures of someone's person or property, and the guarantee of due
process all serve to safeguard the right to privacy in the United States.

The most significant of these laws, the Privacy Act of 1974, governs the gathering, use, and
disclosure of information by the federal government. Most federal privacy laws in the United
States currently only apply to the federal government and only a small portion of the private
sector. The majority of privacy laws in the United States and Europe are based on a system
known as Fair Information Practises (FIP), which was first outlined in a report by a federal
government advisory committee in 1973 (U.S. Department of Health, Education, and Welfare,
1973). FIP is a set of guidelines that control how personal data is gathered and used. The idea of
a mutuality of interest between the record holder and the individual forms the foundation of
FIP principles.

The record keeper, which is typically a company or government agency, needs information
about the individual to support the transaction because the individual is interested in engaging
in it. Once information has been collected, the individual retains ownership of the record, and it

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cannot be used to further any other purposes without the individual's permission. The original
FIP was revised and expanded by the FTC in 1998 to include recommendations for safeguarding
online privacy.

PRACTICE PRINCIPLES
The Federal Trade Commission's Fair Information Practise principles are currently serving as a
framework to facilitate modifications in privacy regulations. The Children's Online Privacy
Protection Act (COPPA) was enacted by the U.S. Congress in July 1998, mandating that websites
must secure parental consent prior to gathering data on minors below the age of 13.

The core principle is centered around the concept of notice or awareness. Prior to gathering
data, websites are required to reveal their information protocols. The aforementioned
elements are integral to the academic examination of data collection. These elements
encompass the identification of the collector, the various uses of the data, the other parties
who may receive the data, the active or inactive nature of the collection, the voluntary or
required status of the collection, the potential consequences of refusing to participate, and the
measures taken to safeguard the confidentiality, integrity, and quality of the data.

The core principle of choice and consent is of utmost importance. It is imperative to establish a
system of choice that empowers consumers to exercise control over the utilization of their
personal information for purposes beyond facilitating the primary transaction. This includes
internal usage as well as the transfer of data to external entities.

Access/participation: It is imperative that individuals are afforded the opportunity to scrutinize

and challenge the precision and comprehensiveness of information gathered pertaining to
them through a prompt and cost-effective mechanism.

Security: It is imperative for data collectors to undertake responsible measures to ensure the
accuracy and security of consumer information, thereby preventing any unauthorized usage.

Enforcement: It is imperative to establish a mechanism for the enforcement of Fair Information

Practise (FIP) principles. Possible academic rewrite: The strategies for addressing violations of

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consumer rights may include self-regulation, legal recourse for consumers through legislation,
or federal laws and regulations.

There is a risk of being overturned. The Federal Trade Commission (FTC) has proposed further
legislative measures to safeguard the privacy of online consumers in advertising networks that
gather data on their web activity to create comprehensive profiles. These profiles are
subsequently utilized by other firms to tailor online advertisements. Additional Internet privacy
legislation has been suggested with the aim of safeguarding the digital usage of personal
identification numbers, such as social security numbers. Furthermore, it aims to protect the
personal information that is gathered online pertaining to individuals who are not
encompassed by COPPA. Additionally, it seeks to restrict the utilization of data mining for the
purpose of homeland security.

The process of extending the fair information practices doctrine to behavioral targeting was
initiated by the FTC in February 2009. The Federal Trade Commission (FTC) conducted hearings
to deliberate on its initiative for the implementation of voluntary industry principles aimed at
regulating behavioral targeting. The Network Advertising Initiative, an online advertising trade
organization, has released its own set of self-regulatory principles that are largely in alignment
with the Federal Trade Commission's guidelines. However, there remains a disagreement
between the government, privacy advocacy groups, and the online advertising industry
regarding two matters. Advocates for privacy are advocating for the implementation of an opt-
in policy across all websites, as well as the establishment of a national Do Not Track registry.
According to the Federal Trade Commission (2009), the opposition from the industry persists
and emphasizes the necessity of an opt-out capability as the sole means to evade tracking.
Despite varying perspectives, there is a growing agreement among stakeholders that
addressing behavioral tracking necessitates increased transparency and user agency, including
the implementation of opt-out tracking as the default option.

Recent legislative measures have incorporated privacy safeguards in the context of

deregulating financial services and ensuring the secure maintenance and transmission of

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personal health information. The Gramm-Leach-Bliley Act of 1999, which nullifies prior
limitations on associations between banks, securities firms, and insurance companies,
incorporates certain privacy safeguards for consumers of financial services. It is mandatory for
financial institutions to reveal their protocols and methodologies for safeguarding the
confidentiality of nonpublic personal data and to provide customers with the option to abstain
from sharing information with nonaffiliated third-party entities.

The Health Insurance Portability and Accountability Act (HIPAA) enacted in 1996, became
effective on April 14, 2003, and comprises provisions for safeguarding the confidentiality of
medical records. The legal framework provides patients with the opportunity to access their
personal medical records that are under the care of healthcare providers, hospitals, and health
insurers. Additionally, patients have the right to authorize the usage or disclosure of protected
information pertaining to themselves. Healthcare providers are required to restrict the
dissemination of patients' personal information to the least amount necessary to accomplish a
specific objective.

THE EUROPEAN DIRECTIVE ON DATA PROTECTION

Privacy protection regulations in Europe are comparatively more rigorous than those in the
United States. In contrast to the United States, European nations prohibit the utilization of
personally identifiable information by businesses without obtaining the prior consent of
consumers. The European Commission's Directive on Data Protection was implemented on
October 25, 1998, with the aim of expanding privacy protection in the European Union (EU)
member states. The aforementioned directive mandates that corporations must provide
individuals with a notification when they gather data pertaining to them and divulge the
methods by which it will be retained and employed. In order for a company to lawfully utilize
data pertaining to its customers, it is imperative that said customers provide their informed
consent. Additionally, customers possess the entitlement to access such information, rectify
any inaccuracies, and demand that no further data be procured. The concept of informed
consent can be defined as the act of granting consent after being provided with all the

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necessary information required to make a well-informed and rational decision. It is imperative
for member states of the European Union to incorporate these principles into their respective
legal frameworks and refrain from transmitting personal data to countries, such as the United
States, that lack comparable privacy protection regulations.

In collaboration with the European Commission, the United States Department of Commerce
has devised a secure harbor structure for companies based in the United States. A safe harbor
refers to a self-governing policy and enforcement mechanism that satisfies the goals of
government regulators and legislation while being independent of government regulation or
enforcement. American enterprises would be authorized to utilize personal information
originating from European Union nations provided that they establish privacy safeguarding
protocols that adhere to EU criteria. In the United States, enforcement of fair trade statutes
would be implemented through self-policing, regulation, and government enforcement.

INTERNET CHALLENGES TO PRIVACY

The protection of personal privacy now faces new difficulties as a result of internet technology.
Before reaching its intended destination, information sent over this enormous network of
networks may pass through a number of different computer systems. These systems are all
capable of keeping an eye on, recording, and storing communications that pass through them.

It is possible to keep track of a variety of online behaviors, such as the searches someone has
done, the websites and pages they've visited, the online content they've accessed, and the
products they've looked at or bought online. Many of these monitoring and tracking activities
take place behind the scenes without the visitors' knowledge. Advertising networks like
Microsoft Advertising, Yahoo, and DoubleClick, which have the ability to monitor all browsing
activity across thousands of websites, also engage in it. Due to their ability to inform businesses
about who is visiting their websites and how to better target their offerings, tools to track Web
usage have gained popularity. (Some businesses also keep track of how their employees use the
Internet to see how they are utilizing the company network resources.) This personal data is in
high demand from the commercial world.

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If visitors voluntarily register on a website to make a purchase, use a free service, or obtain
information, the website can learn the identities of those visitors. Using cookie technology,
websites can also collect user data without the user's knowledge.

When a user visits a website, a small text file called a cookie is placed on their computer's hard
drive. Cookies track website visits and recognize the visitor's web browser. The Web site
software will search the visitor's computer, find the cookie, and know what the visitor has
previously done when they visit a site that has stored a cookie. Depending on the activity during
the visit, it may also update the cookie. By doing this, the website can personalize Amazon.com
so that, should you return from the same browser in the future, it will greet you by name and
suggest additional books based on your prior purchases.

Cookies are used by DoubleClick, which was previously discussed in this chapter, to compile
dossiers on information about online purchases and analyze visitor behavior. How cookies
operate is shown in Figure 4-3. The names and addresses of visitors cannot be directly obtained
by websites using cookie technology. The information can be used in conjunction with cookie
data to identify a visitor, though, if they have registered with the website. In order to create
very specific profiles of their visitors, website owners can also combine the information they
have collected from cookies and other Web site monitoring tools with personal information
from other sources, such as offline information gathered from surveys or paper catalog
purchases.

Even more subtle and covert tools are now available for monitoring Internet users. Web
beacons are an additional tool used by marketers to track online activity. Web beacons,
sometimes referred to as Web bugs, are little pieces of software that are hiddenly inserted into
emails and Web pages in order to track how users interact with those platforms. The Web
beacon records and sends data like the user's computer's IP address, when and how long a Web
page was viewed, the kind of browser that retrieved the beacon, and previously set cookie
values. "Third-party" businesses that pay the popular websites for access to their audience
place web beacons on those websites. Popular websites typically have 25–35 Web beacons. By

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piggybacking on more substantial applications, other spyware can covertly install itself on a
computer used for browsing the Internet. Once installed, the spyware can report the user's
online activities to other computers and ask Web sites to send banner ads and other unwanted
material to the user. The majority of Internet users in the world—roughly 75%—use Google
search and other services, making Google the largest global data collector. The use of Google's
data has a significant impact on online privacy. According to the majority of experts, Google has
access to more personal data about more people than any other government agency. the
principal Google services that gather user information and how Google uses this information.
Google has been using behavioral targeting for a while to help it show users more relevant ads
based on their search activity. One of its programs enables advertisers to target ads based on
Google users' search histories as well as any other data the user provides to Google that Google
can obtain, such as age, demographics, region, and other Web activities (like blogging).

In accordance with another program, Google can assist advertisers in choosing keywords and
creating advertisements for different market segments based on search histories, such as
assisting a clothing website in developing and testing advertisements for teenage females. The
contents of emails that Gmail users receive are also being scanned by Google. Gmail is a free
web-based email service. Users who read their emails may notice advertisements that are
pertinent to the messages' topics. Based on the information in each user's email, profiles are
created for them. Google now serves up targeted banner ads through its DoubleClick ad
network in addition to displaying targeted ads on YouTube and Google mobile applications.

In the past, Google avoided making excessive use of the information it gathered, which was
regarded as the best source of information about user interests on the Internet. Google has
made the decision to do more to make money from its user data in light of the rise of
competitors like Facebook that are aggressively tracking and selling online user data.

Without obtaining the informed consent of the person whose information is being used, the
United States has permitted businesses to collect transaction information generated in the
marketplace and use that information for other marketing purposes. Most American e-

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commerce websites are happy to post statements on their websites explaining how visitors'
information will be used. To these information policy statements, some people have added opt-
out selection boxes. Until a customer expressly requests that their data not be collected, an
opt-out informed consent model allows the collection of personal information. Privacy
advocates would like to see more widespread adoption of the opt-in model of informed
consent, which forbids businesses from gathering any personal data unless the customer
specifically consents to its collection and use.

In order to protect consumers, the online industry has chosen self-regulation over privacy
legislation. In order to promote self-regulation and create a set of privacy guidelines for its
members, the online industry established the Online Privacy Alliance in 1998. The organization
encourages using online seals that certify websites adhere to specific privacy principles, such as
the TRUSTe seal. The Network Advertising Initiative (NAI), a new industry association founded
by participants in the advertising network sector, including Google's DoubleClick, will create its
own privacy policies to assist consumers in opting out of advertising network programs and
offer consumers recourse in cases of abuse.

Recently, businesses like AOL, Yahoo!, and Google have adopted their own policies in an effort
to allay public concerns about tracking individuals online. Users of AOL's website can opt out of
being tracked thanks to the company's opt-out policy. Yahoo abides by NAI standards and
offers an opt-out feature for tracking and Web beacons (web bugs). Google has shortened its
tracking data retention period.

In general, consumers don't take the necessary precautions to protect their privacy, and the
majority of Internet businesses do little to protect the privacy of their clients. Many businesses
that have websites lack privacy policies. About half of the businesses that do post privacy
policies on their websites don't keep an eye on them to make sure they're being followed. Less
than half of online shoppers who claim to be concerned about online privacy actually read the
privacy policies on websites.

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A group of Berkeley students conducted surveys of online users and of privacy-related
complaints made to the Federal Trade Commission in one of the more insightful studies of
consumer attitudes toward Internet privacy. Some of their outcomes are shown here. User
concerns include a lack of control over the data gathered about them and a lack of knowledge
about where to file a complaint. practices for websites: Websites gather all of this data but
deny users access; the policies are ambiguous; they share data with "affiliates" but never
specify who or how many affiliates they have.

We are unaware that web bug trackers are present on the pages we visit despite their
prevalence. The findings of this study and other studies indicate that customers are not
expressing a sentiment along the lines of "Take my privacy, I don't care, send me the service for
free." "We want access to the information, some controls over what can be gathered and what
is done with the information, the option to opt out of the entire tracking enterprise, and some
clarity on what the policies really are. We also don't want those policies changed without our
participation and permission," they are claiming.

TECHNICAL SOLUTIONS
Apart from legal measures, novel technologies have emerged to safeguard users' privacy while
engaging with online platforms. Several of these tools are utilized for encrypting electronic mail,
rendering electronic mail or browsing activities unidentifiable, impeding client computers from
accepting cookies or identifying and eradicating spyware.

Currently, there exist various tools that aid users in identifying the specific types of personal
information that can be extracted by websites. The Platform for Privacy Preferences (P3P)
facilitates the automated exchange of privacy policies between an electronic commerce
website and its users. The P3P protocol offers a uniform approach to conveying a website's
privacy policy to online users and for evaluating that policy against the user's preferences or
other established benchmarks, such as the FIP guidelines of the FTC or the Data Protection
Directive of Europe. P3P can be utilized by users to determine the degree of privacy they desire
to uphold while engaging with the website.

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The P3P protocol facilitates the dissemination of privacy policies on websites in a machine-
readable format. Upon being codified in accordance with P3P regulations, the privacy policy is
integrated into the software of individual web pages. Individuals who utilise Microsoft Internet
Explorer as their preferred web browsing software have the capability to retrieve and peruse
the privacy policy of the P3P website, as well as a comprehensive index of all cookies originating
from said website. The Internet Explorer browser provides users with the ability to customize
their computer settings to either block all cookies or selectively allow cookies based on
predetermined privacy levels. The "Medium" level of cookie acceptance permits cookies from
first-party host sites that offer opt-in or opt-out policies while disallowing third-party cookies
that utilize personally identifiable information in the absence of an opt-in policy.

Nevertheless, the efficacy of P3P is limited to the websites of those who are members of the
World Wide Web Consortium and have converted their privacy policies into the P3P format.
The technology has the capability to exhibit cookies originating from websites that are not
affiliated with the consortium. However, it does not provide users with access to the sender's
details or privacy policies. It is possible that a portion of users may require instruction on how
to properly comprehend corporate privacy policies and the various levels of privacy offered by
the Platform for Privacy Preferences (P3P). Critics have highlighted that a limited proportion of
the most frequently visited websites employ P3P. Additionally, a significant number of users
lack comprehension of their browser's privacy configurations. Furthermore, there exists no
mechanism to enforce P3P standards, thereby enabling companies to make any assertions
regarding their privacy policies.

PROPERTY RIGHTS: INTELLECTUAL PROPERTY

The advent of modern information systems has posed significant challenges to the established
legal and societal norms that safeguard confidential intellectual property. Intellectual property
is a type of property that is intangible in nature and is generated by either individuals or
organizations. The advent of information technology has posed a challenge in safeguarding
intellectual property due to the ease with which digital information can be replicated and

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disseminated across various networks. The safeguarding of intellectual property is governed by
a diverse range of protective measures within three distinct legal frameworks, namely trade
secrets, copyright, and patent law.

TRADE SECRETS
A trade secret can be defined as any form of intellectual property, such as a formula, device,
pattern, or compilation of data, that is utilized for commercial purposes and is not derived from
publicly available information. The legal safeguards for proprietary information differ across
different states. Trade secret laws typically confer exclusive rights over the concepts underlying
a given product, albeit subject to significant uncertainty. Software that comprises distinctive or
original components, processes, or collections may be classified as proprietary information. The
legal framework of trade secret law safeguards the concepts inherent in a given output, rather
than solely its tangible expression. In order to assert this assertion, it is imperative for the
originator or proprietor to ensure that personnel and patrons are bound by nondisclosure
agreements and that measures are taken to avert the disclosure of confidential information to
the general public.

The trade secret safeguard has a constraint in that, despite the presence of distinctive
components in almost all intricate software programs, it is arduous to forestall the
dissemination of the concepts in the work to the general public when the software is
extensively circulated.

COPYRIGHT
Copyright is a legal provision that offers a safeguard to creators of intellectual property against
unauthorized reproduction of their work by others for any purpose, for the duration of the
author's life and an additional 70 years post their demise. The duration of copyright protection
for works owned by corporations is 95 years from the time of their original creation. The
legislative body of the United States, Congress, has granted an extension of copyright
protection to various forms of creative works, including but not limited to books, periodicals,
lectures, dramas, musical compositions, maps, drawings, artwork of any kind, and motion

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pictures. The primary objective of copyright laws is to incentivize the production of original
works by providing creators with economic and non-economic rewards for their efforts.
Numerous industrialized nations possess their own distinct copyright regulations, and multiple
global conventions and bilateral accords exist to facilitate the coordination and implementation
of these laws across nations.

During the mid-1960s, the Copyright Office initiated the registration of software programs.
Subsequently, in 1980, the Computer Software Copyright Act was passed by Congress. This
legislation explicitly safeguards software program code and copies of the original that are sold
in commerce. Additionally, it delineates the rights of the purchaser to utilize the software while
the creator retains legal ownership.

The legal concept of copyright serves to safeguard against the replication of complete software
programs or their constituent components. Compensation and legal remedies are easily
accessible in cases of infringement. One limitation of copyright law is that it solely safeguards
the tangible expression of a work, rather than the abstract concepts that underlie it. It is
possible for a rival entity to utilize your software, comprehend its functionality, and create
novel software that adheres to the same principles without violating any copyright laws.

Lawsuits pertaining to copyright infringement related to the "look and feel" of a product are
centered on the differentiation between an idea and its manifestation. During the early 1990s,
Apple Computer initiated legal action against Microsoft Corporation and Hewlett-Packard,
alleging that the defendants had violated Apple's Macintosh interface expression by replicating
the overlapping windows feature. The defendants presented a counterargument that the
concept of overlapping windows can only be articulated in a singular manner, and hence, does
not qualify for protection under the merger doctrine of copyright law. In cases where ideas and
their expression are fused together, the expression is not eligible for copyright protection.

As a general observation, it appears that courts are adhering to the rationale set forth in the
1989 legal case of Brown Bag Software v. Symantec Corp. In this case, the court meticulously
analyzed the constituent components of the software that were purportedly in violation of

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intellectual property rights. The court determined that copyright law does not provide
protection for comparable concepts, functions, general functional characteristics (such as drop-
down menus), and color schemes.

PATENTS
A patent confers upon its proprietor a sole and exclusive right to the concepts underlying an
innovation for a period of two decades. The primary objective of patent law, as intended by
Congress, was to guarantee that creators of novel machines, devices, or methodologies are duly
compensated for their efforts while simultaneously enabling broad utilization of the invention
by offering comprehensive blueprints to those interested in utilizing the concept under the
patent holder's authorization. The issuance of a patent is contingent upon the decision of the
United States Patent and Trademark Office and is predicated on judicial precedents. The
fundamental principles that underlie patent law are centered around the notions of originality,
novelty, and invention. Prior to a 1981 Supreme Court ruling, the Patent Office did not typically
grant applications for software patents. This decision established that computer programs
could be considered a component of a patentable process. Subsequent to that period, a
multitude of patents have been officially recognized and numerous others are presently
pending evaluation.

The primary advantage of patent protection lies in conferring exclusive rights over the
fundamental concepts and ideas that underlie software. The challenge lies in meeting rigorous
standards of non-obviousness, which entails demonstrating a unique comprehension and
contribution, originality, and novelty. Additionally, obtaining protection may require a
prolonged waiting period spanning several years.

CHALLENGES TO INTELLECTUAL PROPERTY RIGHTS

The current state of information technologies, particularly software, presents notable
difficulties for established intellectual property systems, resulting in consequential ethical,
social, and political implications. Digital media exhibit distinct characteristics that set them
apart from traditional forms of media such as books and periodicals. These characteristics

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include their ease of replication, transmission, and alteration, as well as the challenges
associated with classifying software works as programs, books, or music. Additionally, digital
media's compactness makes them vulnerable to theft, while establishing their uniqueness can
be a complex task.

The widespread expansion of electronic networks, such as the Internet, has presented a
heightened challenge in safeguarding intellectual property. Prior to the ubiquitous utilization of
networks, the dissemination of software, literature, periodicals, or motion pictures necessitated
their storage on tangible mediums, such as print, computer discs, or videotape, thereby
presenting certain obstacles to their distribution. The utilization of networks facilitates the
broader dissemination and replication of information. According to the Seventh Annual Global
Software Piracy Study conducted by the International Data Corporation and the Business
Software Alliance, the global software piracy rate increased to 43% in 2009, resulting in a total
of $51 billion in global losses due to software piracy. Globally, the ratio of illicitly acquired
software, valued at $75, to legitimately purchased software, valued at $100, was observed. The
original purpose of the Internet was to facilitate the unrestricted dissemination of information
across the globe, which encompasses copyrighted materials. The World Wide Web facilitates
the effortless replication and dissemination of virtually any content to a global audience,
irrespective of the diversity of computer systems employed by the users. Illicit replication of
data from a source and its subsequent dissemination through various networks and systems
can occur without the voluntary participation of the involved parties, constituting an
infringement.

For several years, there has been a prevalence of unlawful reproduction and dissemination of
digital MP3 music files by individuals through online means. Various file-sharing platforms,
including Napster, Grokster, Kazaa, and Morpheus, emerged to facilitate the discovery and
exchange of digital music files, some of which were subject to copyright protection.

The prevalence of unauthorized distribution of digital media files reached a level that posed a
significant risk to the sustainability of the music recording sector. The recording industry has

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achieved some legal victories in its efforts to terminate these services but has not been
successful in completely eradicating the practice of illicit file sharing. With the increasing
adoption of high-speed Internet access in households, the motion picture industry is likely to
face comparable risks from unlawful video file sharing. Efforts are underway to devise
mechanisms for lawful online sales and dissemination of books, articles, and other forms of
intellectual property. The Digital Millennium Copyright Act (DMCA) enacted in 1998 is
furnishing certain safeguards for copyright protection. The Digital Millennium Copyright Act
(DMCA) has enforced a treaty established by the World Intellectual Property Organisation
(WIPO) that renders unlawful the act of circumventing technological measures that safeguard
copyrighted materials. Upon receiving notification of copyright infringement, internet service
providers (ISPs) are obligated to remove the offending websites that they are hosting.

The Software and Information Industry Association (SIIA) advocates for the interests of
prominent software and information content companies, including Microsoft, through lobbying
efforts aimed at promoting the creation of new laws and the enforcement of current laws that
safeguard intellectual property on a global scale. The Software & Information Industry
Association (SIIA) operates a hotline dedicated to receiving reports of piracy activities from the
public. Additionally, the organization provides educational programs aimed at assisting
organizations in their efforts to combat software piracy. Furthermore, the SIIA has released
guidelines pertaining to the use of software by employees.

ACCOUNTABILITY, LIABILITY, AND CONTROL

The emergence of novel information technologies is posing a challenge to the current liability
laws and social norms that are responsible for ensuring the accountability of individuals and
institutions, in addition to privacy and property laws. In cases where an individual sustains
injuries as a result of a machine that is partially operated by software, the question arises as to
who should be deemed responsible and held accountable for the incident. The question at
hand is whether public bulletin boards or electronic services, such as America Online, should be
allowed to facilitate the transmission of pornographic or offensive material, similar to

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broadcasters. Additionally, it is being considered whether these entities should be exempt from
any legal liability for the content transmitted by their users. What is the impact of the Internet?
In the event of outsourcing information processing, is it possible to hold the external vendor
accountable for any harm inflicted upon one's clientele? Empirical illustrations could provide
insight into these inquiries.

COMPUTER-RELATED LIABILITY PROBLEMS

In the final week of September 2009, a significant number of TD Bank patrons, constituting a
substantial portion of North America's banking clientele, were compelled to undertake urgent
efforts to locate their payroll and social security checks, as well as their savings and checking
account balances. Due to a technical malfunction, the financial institution's clientele of 6.5
million experienced a temporary lack of available funds. The issues arose due to an
unsuccessful attempt to merge the TD Bank and Commerce Bank systems. According to a
representative from TD Bank, the integration of systems was successful overall, but
encountered some challenges during the final stages due to the large scale and intricate nature
of the project. Who bears responsibility for any financial losses incurred by individuals or
enterprises who were unable to access their complete account balances during this period?
This particular case highlights the challenges encountered by executives in the field of
information systems, who bear the ultimate responsibility for any negative consequences
arising from systems created by their teams. Broadly speaking, if computer software is
integrated into a machine and the machine causes physical or financial harm to an individual,
the manufacturer of the software and the individual operating it may be subject to legal
responsibility for any resulting damages. To the extent that software functions as a medium for
storing and presenting information, courts have exhibited hesitancy in attributing liability to
authors, publishers, and vendors of books, except in cases of deceit or slander. Consequently,
courts have been cautious in ascribing liability to software authors for software that resembles
books in its functionality.

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In the realm of software production, it is a challenging task, if not an unattainable one, to
impose liability on software producers for their products that are akin to books, irrespective of
the consequential physical or financial damage. Throughout history, there has been a
reluctance to hold print publishers, books, and periodicals accountable due to concerns that
legal claims could impede the First Amendment's protections of free speech.

Regarding the topic of software delivery models, what is the significance of software as a
service? Automated Teller Machines (ATMs) are a financial service offered to clients of banking
institutions. In the event of a potential failure of this service, customers may experience
inconvenience and potential economic harm if they are unable to promptly access their funds.
Is it appropriate to grant liability protections to software publishers and operators of financial,
accounting, simulation, or marketing systems that are flawed? The nature of software differs
significantly from that of books. Users of software may develop an unwavering belief in the
software's infallibility. This is due to the fact that software is not as easily scrutinized as a book,
and its quality cannot be easily compared to that of other software products. Unlike a book,
software purports to perform a task rather than simply describe it. Additionally, individuals
often rely on services that are fundamentally based on software. Considering the ubiquitous
nature of software in contemporary society, it is highly probable that the scope of liability law
will encompass software, even in cases where the software solely offers an informational
function.

Telephone systems have been exempted from liability for the messages they transmit due to
their status as regulated common carriers. As a condition for their entitlement to offer
telecommunication services, providers are obligated to ensure accessibility to all individuals at
justifiable rates and attain satisfactory levels of dependability. Broadcasters and cable television
stations are bound by numerous federal and local regulations pertaining to their content and
infrastructure. It is possible for organizations to face legal responsibility for objectionable
content present on their websites, while online services such as America Online may be held
accountable for user-generated content. Despite the growing trend of U.S. courts to absolve
websites and internet service providers of liability for content uploaded by third parties, the

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prospect of legal repercussions continues to deter small enterprises and individuals who lack
the financial resources to pursue litigation.

SYSTEM QUALITY: DATA QUALITY AND SYSTEM ERRORS

The discourse surrounding responsibility and culpability for inadvertent outcomes stemming
from system utilization engenders a correlated yet distinct ethical facet. What constitutes an
appropriate level of system quality that is both achievable through current technology and
practices for implementation? At what juncture ought system administrators declare, "Cease
testing, we have exhausted all possible avenues to refine this software." Proceed with the
shipment. Entities and persons can be held accountable for preventable and predictable
outcomes that they are obligated to recognize and rectify. The issue at hand pertains to certain
system errors that can be anticipated but can only be rectified at a significant cost, rendering
the pursuit of absolute perfection economically unfeasible as it would render the end product
unaffordable.

Despite the efforts of software companies to eliminate errors in their products prior to their
release, it is a common practice for them to intentionally distribute products with known
defects. This is due to the fact that the expenses and time required to address all minor issues
would impede the release of these products. In the absence of the product is available on the
marketplace, could the overall social welfare potentially regress and deteriorate? Expanding on
this inquiry, what precisely constitutes the obligation of a provider of computer services?
Should it discontinue the distribution of a product that can never attain perfection, apprise the
user of potential hazards, or disregard the associated risks and leave the onus on the purchaser?
The primary factors contributing to suboptimal system performance are identified as follows: (1)
software defects and inaccuracies, (2) hardware or facility malfunctions resulting from natural
or other factors, and (3) inadequate input data quality. The Learning Track presented in Chapter
8 delves into the topic of unattainability of zero defects in software code, regardless of its
complexity. Additionally, the severity of residual bugs cannot be accurately gauged. Thus, the
existence of a technological obstacle to flawless software necessitates that users acknowledge

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the possibility of disastrous malfunction. The software industry is yet to establish testing
standards that ensure the production of software with satisfactory performance, albeit not
flawless.

While software bugs and facility catastrophes may receive significant media attention, data
quality remains the primary cause of business system failures. Several companies do not
regularly assess the quality of their data, however, specific organizations have reported data
error rates that vary from 0.5 to 30 percent.

QUALITY OF LIFE: EQUITY, ACCESS, AND BOUNDARIES

The adverse societal implications of the implementation of information technologies and
systems are progressively accumulating in tandem with the potency of the technology. Several
adverse societal outcomes do not entail infringements upon individual rights or property
offenses. However, the adverse effects of these consequences can have significant detrimental
impacts on individuals, communities, and governmental establishments. The advent of
computers and information technologies has the potential to both enhance and undermine the
cultural and societal fabric, with the latter resulting in the loss of valuable elements. In the
event of a balance between positive and negative outcomes resulting from the utilization of
information systems, who bears accountability for the unfavorable ramifications? Subsequently,
an overview is presented regarding the adverse societal implications of systems, encompassing
reactions at the individual, communal, and governmental levels.

BALANCING POWER
The dichotomy between center and periphery. During the inception of the computer era, a
prevalent concern was the potential centralization of power at corporate headquarters and in
the nation's capital due to the existence of large, centralized mainframe computers. This
development was feared to result in a society reminiscent of George Orwell's dystopian novel,
1984. The trend towards extensively decentralized computing, in conjunction with a philosophy
of enabling a multitude of employees and the distribution of decision-making authority to lower
tiers of the organization, has assuaged concerns regarding the concentration of power within

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institutions. However, a significant portion of the empowerment portrayed in mainstream
business publications is of little significance. While lower-level employees may be granted some
level of decision-making authority, significant policy decisions may still remain centralized,
similar to previous practices.

RAPIDITY OF CHANGE: REDUCED RESPONSE TIME TO COMPETITION

The implementation of information systems has significantly enhanced the efficiency of both
domestic and global markets. The increased efficiency of the global marketplace has diminished
the customary social barriers that previously allowed businesses a significant amount of time to
adapt to competitive pressures. The phenomenon of time-based competition entails a potential
downside: the enterprise in which one is employed may face a dearth of time to react to
international competitors, resulting in potential obsolescence within a year, thereby
jeopardizing one's employment status. There is a potential for the emergence of a societal
structure characterized by a reliance on immediate gratification, wherein employment
opportunities, workplaces, familial arrangements, and leisure activities are all subject to the
same just-in-time paradigm.

MAINTAINING BOUNDARIES: FAMILY, WORK, AND LEISURE

Certain sections of this literary work were composed while in transit on locomotives and
aircraft, as well as during leisure trips and periods that would have otherwise been designated
for familial activities. The potential peril associated with the widespread adoption of ubiquitous
computing, telecommuting, nomad computing, and the "do anything anywhere" computing
paradigm lies in the fact that it is rapidly becoming a reality. The conventional demarcations
that distinguish occupational pursuits from familial obligations and recreational activities have
been diminished.

The conventional practice of authors working in any location, facilitated by the portability of
typewriters for almost a century, has been impacted by the emergence of information systems
and the expansion of knowledge-based professions. Consequently, individuals are increasingly

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engaged in work activities during periods that were previously reserved for leisure or social
interactions with loved ones. The scope of work has expanded beyond the traditional eight-
hour day.

The utilization of leisure time on the computer poses a potential threat to interpersonal
relationships that are characterized by intimacy and closeness. Prolonged utilization of the
Internet, irrespective of its intended purpose, results in social disconnection from one's
acquaintances and loved ones. Adolescents and pre-adolescents may exhibit detrimental anti-
social conduct, including the recent proliferation of cyberbullying.

Undermining these establishments presents unambiguous hazards. Throughout history, family

and friends have served as influential sources of support for individuals, serving as stabilizing
forces within society by safeguarding personal life, offering a space for introspection, enabling
individuals to engage in divergent thinking, and fostering imaginative ideation.

DEPENDENCE AND VULNERABILITY

Presently, various entities including businesses, governments, schools, and private
organizations such as churches, rely heavily on information systems, making them susceptible
to significant vulnerabilities in the event of system failures. It is noteworthy to recall that
despite the widespread use of systems comparable to the telephone system, there is a lack of
regulatory or standard-setting entities akin to those governing public utility technologies such
as electrical, radio, and television. The potential lack of established criteria and the significance
of certain system applications may prompt requests for national standards and potentially
regulatory supervision.

COMPUTER CRIME AND ABUSE

The advent of novel technologies, such as computers, has engendered fresh prospects for
perpetrating criminal activities, owing to the emergence of novel valuable assets to pilfer,
innovative methods to execute theft and novel ways to inflict harm upon others. Computer
crime refers to the perpetration of unlawful activities either by means of a computer or
directed towards a computer system. Computers or computer systems can serve as both the

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target and the means of criminal activity. For instance, they may be subjected to destruction,
such as in the case of a company's computer center or computer files, or they may be exploited
as a tool for perpetrating crimes, such as in the instance of stealing computer lists through
unauthorized access to a computer system via a personal computer. Unauthorized access to a
computer system with the intention of causing harm, even if unintentional, is currently
considered a federal offense.

The perpetuation of actions involving a computer that may not be deemed unlawful but are
regarded as unethical is referred to as computer abuse. The widespread usage of the Internet
and electronic mail has transformed spamming into a significant issue for individuals and
enterprises, constituting a form of computer abuse. Spam refers to unsolicited electronic mail
that is disseminated by an entity or person to a broad audience of online users who have not
demonstrated any inclination toward the product or service being advertised. Individuals who
engage in spamming activities typically promote illicit content such as pornography, deceptive
offers and services, fraudulent schemes, and other items that are not generally accepted in
most cultured communities. Certain nations have implemented legislation to prohibit the
practice of spamming or to impose limitations on its utilization. Within the United States, the
legality of an email is contingent upon the absence of fraudulent activity and the accurate
identification of both the sender and subject matter.

The proliferation of spamming can be attributed to its low cost, as it only requires a nominal fee
to disseminate a multitude of promotional messages to online consumers. Sophos, a prominent
security software vendor, reported that spam constituted 97% of all corporate email during Q2
of 2010. The expenses incurred by businesses due to spam are significant, with an estimated
cost of over $50 billion annually. This is attributed to the extensive utilization of computing and
network resources by billions of unsolicited email messages, as well as the time required to
manage them.

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 8.5 SECURITY MANAGEMENT OF INFORMATION TECHNOLOGY

The rapid proliferation of Internet access may lead one to surmise that bandwidth is the
primary impediment to e-commerce. However, the primary concern is security. One of the
contributing factors to the issue at hand is that the development of the Internet prioritized
interoperability over impenetrability. As demonstrated in Section I, numerous noteworthy risks
exist that pose a threat to the security of information systems in the realm of business. This
section is devoted to examining the techniques that businesses can employ to oversee their
security. Business managers and professionals bear the responsibility of ensuring the security,
quality, and performance of the information systems within their respective business units.
Similar to other crucial assets in the business domain, safeguarding hardware, software,
networks, and data resources is imperative through a range of security measures to guarantee
their integrity and advantageous utilization. The business value of security management is a
significant consideration.

The primary objective of security management is to ensure the precision, consistency, and
protection of all information system operations and assets. Effective security management has
the potential to reduce errors, fraud, and losses in the information systems that connect
modern businesses with their customers, suppliers, and other stakeholders. The management
of contemporary networked business enterprises faces a significant challenge in ensuring the
security of their systems. Numerous enterprises are presently undergoing the procedure of
achieving complete connectivity to the World Wide Web and the Internet for electronic

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commerce. They are also restructuring their internal business operations by incorporating
intranets, e-business software, and extranet connections to their customers, suppliers, and
other commercial associates. It is imperative to safeguard critical network connections and
commercial processes against external cyber threats and internal breaches caused by malicious
or negligent insiders. The implementation of a comprehensive security management program
necessitates the utilization of diverse security tools and defensive measures. Let us examine
some of the crucial security measures.

ENCRYPTION
Network resources, particularly those located on the Internet, other types of intranets, and
extranets. Computer systems allow for the transmission of passwords, messages, files, and
other types of data in a scrambled form, which can then be unscrambled exclusively for
authorized users. Encryption is the process of converting digital data into scrambled code
before sending it over a network and then decoding the data once it has been received. This
process requires the use of specialized mathematical algorithms, also known as keys. The
method of encryption that is used the most frequently makes use of a set of public and private
keys that are individual to each person. E-mail, for instance, might be scrambled and encoded
by employing a one-of-a-kind public key that is specific to the recipient but is known to the
sender. After the email has been sent, the message can only be decoded using the recipient's
secret private key.

It is possible to buy encryption programs as stand-alone products or to have them built into
other software that will be used in the encryption process. There are multiple software
encryption standards that compete with one another, but the top two are RSA (by RSA Data
Security) and PGP (which stands for "pretty good privacy"), a popular encryption program that
can be downloaded from the Internet. A number of different software packages, such as
Microsoft Windows XP, Novell NetWare, and Lotus Notes, include encryption tools that are
powered by RSA software.

FIREWALLS

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Utilizing computers and software that act as a firewall is an additional important method for
maintaining control and ensuring security on the Internet and other networks. A
communications processor, most often a router, or a dedicated server, along with software
designed specifically for use as a firewall, can both function as a network firewall. The function
of a firewall is to act as a gatekeeper system, protecting an organization's intranets and other
computer networks from unauthorized access. It does this by acting as a filter and providing a
safe transfer point for data going to and from the Internet and other networks. It examines
every bit of network traffic to ensure that the appropriate passwords and other security codes
are being used, and it restricts authorized transmissions from going into and coming out of the
network. Because of the vulnerable nature of their "always-on" connection status, individuals
who connect to the Internet with DSL or cable modems have also found that installing firewall
software on their computers has become an essential component of their computer systems.

Unauthorized access (also known as hacking) to computer networks can be discouraged but not
entirely stopped by using firewalls. It's possible that a firewall will only let "safe" information
pass through or that it will restrict access to specific computers behind the firewall to trusted
locations on the Internet. Users may be able to access their e-mail and read it from remote
locations, but they may not be able to run certain programs due to a firewall. In some
circumstances, it is not possible to differentiate between the safe and unsafe utilization of a
specific network service; consequently, it is necessary to deny all requests. It is possible that the
firewall will then be able to provide replacements for certain network services, such as e-mail
or file transfers, that carry out the majority of the same functions but are not as susceptible to
being breached.

DENIAL OF SERVICE ATTACKS

Major attacks carried out over the past few years against e-commerce and corporate websites
have shown that the Internet is extremely susceptible to a wide variety of attacks carried out by
criminal hackers, particularly distributed denial of service (DDOS) attacks. These attacks have
shown that the Internet is extremely vulnerable. provides an overview of the measures that

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organizations can take to defend themselves against DDOS attacks. Denial of service attacks
carried out via the Internet are dependent on three layers of networked computer systems: (1)
the Web site of the victim; (2) the Internet service provider (ISP) of the victim; and (3) the sites
of "zombie" or slave computers that the cybercriminals have taken control of. For instance, at
the beginning of the year 2000, hackers broke into hundreds of servers, the majority of which
were poorly protected servers located at universities, and planted Trojan horse.exe programs.
These programs were subsequently used to launch a barrage of service requests in a concerted
attack on e-commerce Web sites such as Yahoo! and eBay.

VIRUS DEFENSES
Is your personal computer protected from the most recent viruses, worms, Trojan horses, and
other types of malicious programs that can cause havoc on your personal computer? If it is
periodically linked to the corporate network, then there is a good chance that it is. These days,
protecting a company's network from viruses is a responsibility that falls under the purview of
information technology. It is either pre-installed on your personal computer and notebook by
another person, or it is increasingly being distributed over the internet. The antivirus software
is set to run in the background and will provide you with reassurance messages at regular
intervals. The complete mechanization of the procedure is currently the prevalent practice.

Many businesses are strengthening their defenses against the proliferation of viruses by
delegating responsibility for the distribution and maintenance of antivirus software to the
information security departments of their organizations. Other businesses are shifting the
burden of virus protection to third-party providers, such as Internet service providers,
telecommunications companies, or management firms that specialize in security. One of the
reasons for this pattern is that the major antivirus software companies, such as McAfee
(VirusScan) and Symantec (Norton Antivirus), have developed network versions of their
programs, which they are marketing to Internet service providers and other businesses as
service that they should offer to all of their customers. This is one of the reasons why we are
seeing this trend. Antivirus companies are also marketing security suites of software that

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integrate virus protection with firewalls, Web security, and content-blocking features. These
suites can be purchased separately from the antivirus software.

OTHER SECURITY MEASURES

SECURITY CODES
For the most part, a password management system with multiple levels is utilized for security
administration. To begin, a user must initially log on to the computer system by entering his or
her individual identification code, also known as a user ID. Second, in order to enter the system,
the final user must first enter a password that has been provided to them.(The passwords you
use should be changed on a regular basis and should be made up of a random combination of
capital letters, lowercase letters, and numbers.) Third, in order to access a specific file, you will
need to enter the file's specific name. In some operating systems, the password required to
read the contents of a file is distinct from the password needed to write to a file (change the
contents of the file). This function provides an additional layer of security for the resources that
store data. However, for even more stringent security, passwords can be scrambled, also
known as encrypted, to prevent their theft or improper use, which is something we will go over
in a moment. In addition, some security systems make use of smart cards, which are equipped
with microprocessors that generate random numbers that are then added to the password of
the end user.

BACKUP FILES
Another crucial component of data and program safety is the creation of backup files, also
known as copies of the original files. In addition, files can be safeguarded by using file retention
procedures, which involve the archiving of copies of files from earlier time periods. In the event
that the currently active files are lost, it is possible to recreate the currently active files by using
files from earlier time periods. When it comes to control, it is sometimes necessary to keep
several generations of files. As a result, master files from multiple recent processing periods can
be saved for use as backups. These files are referred to as child, parent, and grandparent files
respectively. It is possible for such files to be stored off-premises, which means in a location

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that is physically separate from the data center of a company. Sometimes, these files are kept
in specialized storage vaults that are located in remote areas.

SECURITY MONITORS
System security monitors are specialized software packages that can be installed on a
computer's operating system to provide added protection for a computer network. Programs
known as system security monitors are responsible for keeping an eye on how computers and
networks are being used in order to safeguard them against unauthorized access, fraud, and
destruction. These types of programs deliver the required level of network security to ensure
that only authorized users can connect to the networks. For instance, identification codes and
passwords are used quite frequently for the purpose of accomplishing this. A computer
system's security monitors are also responsible for controlling how its hardware, software, and
data resources are utilized. It's possible, for instance, that even authorized users have their
access to certain devices, programs, and data files limited in some way. In addition, security
programs keep an eye on how computer networks are used and compile statistics regarding any
attempts made to use them inappropriately. After that, they produce reports that contribute to
the ongoing efforts to keep the network secure.

BIOMETRIC SECURITY
The field of biometric security is one that is expanding rapidly within the realm of computer
security. Voice verification, fingerprints, hand geometry, signature dynamics, keystroke analysis,
retina scanning, face recognition, and genetic pattern analysis are examples of the types of
security measures that can be provided by computers and other electronic devices. Other
examples include facial recognition and genetic pattern analysis. In order to create an accurate
biometric profile of a person based on their fingerprints, voiceprints, or any other physical
characteristic, biometric control devices make use of specialized sensors. After being digitized,
the signal is subjected to processing, after which it is compared to a previously processed
profile of the individual that has been saved on a magnetic disc. If the individuals' profiles are
found to be compatible, the person is granted access to the restricted areas of the system and
permission to join the computer network. It is determined how accurate each option is and

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how much it costs. As the examples have shown, there are always compromises to be made in
these four different areas. Despite the fact that face geometry is thought to be less intrusive
and requires less effort from the user, it is not considered to have the same level of accuracy as
other approaches. The field of biometrics is still in its infancy, and a great number of innovative
technologies are currently being developed to enhance accuracy while simultaneously reducing
the amount of effort required of the user.

COMPUTER FAILURE CONTROLS

The phrase "Sorry, our computer systems are down" is one that a good number of end users
have heard before. This type of computer failure can be avoided entirely or its effects can be
mitigated through the use of a variety of controls. There are many reasons why computer
systems crash, including power outages, problems with electronic circuitry or electronic
circuitry malfunctions, issues with telecommunications networks, hidden programming errors,
computer viruses, computer operator mistakes, and electronic vandalism. For instance, there
are currently computers on the market that are capable of automatic and remote maintenance.
It is common practice to implement preventative maintenance programs for hardware and
management systems for software updates. It is possible to make arrangements with disaster
recovery organizations to have a functioning backup computer system. In order to minimize the
likelihood of problems, significant hardware or software updates are typically planned and
implemented with great care. In conclusion, a company's computer system and networks can
be kept running smoothly with the assistance of personnel in the data center who have
received extensive training as well as performance and security management software.

FAULT-TOLERANT SYSTEMS
Numerous companies make use of fault-tolerant computer systems, which are characterized by
the presence of redundant processors, peripherals, and software. These systems offer a fail-
over capability to back up the system's components in the event that the system fails. This
system may provide a fail-safe capability in order for the computer system to continue
operating at the same level even in the event that there is a significant failure in either the
hardware or the software. The majority of fault-tolerant computer systems, on the other hand,

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provide a fail-soft capability. This enables the computer system to continue operating at a
diminished but still satisfactory level in the event of a significant system failure.

DISASTER RECOVERY
It is possible for criminal activity, terrorist acts, and even simple human error to cause severe
damage to the computing resources of an organization, and in turn, the health of the
organization itself. Losing even a few hours of computing power can be catastrophic for many
businesses, particularly online retailers and wholesalers engaged in electronic commerce (e-
commerce), airlines, banks, and Internet service providers (ISPs), for example. There are a lot of
companies that wouldn't last more than a few days without their computer facilities. Because
of this, organizations develop strategies for disaster recovery and put them in writing as part of
a disaster recovery plan. It details which employees will take part in disaster recovery and what
responsibilities they will have, as well as the types of hardware, software, and facilities that will
be utilized, as well as the order of importance for the applications that will be processed. An
efficient disaster recovery plan will also include making arrangements with other businesses to
use alternative locations as disaster recovery sites and storing an organization's databases in a
location that is not on the organization's physical premises.

SYSTEM CONTROL AND AUDITS

INFORMATION SYSTEM CONTROLS

Controls in an information system are any methods or devices that are utilized in an effort to
guarantee the correctness, validity, and ethical behavior of the activities carried out by an
information system. Controls for the information system (IS) need to be designed and
implemented in order to guarantee accurate data entry, processing methods, storage strategies,
and information output. Therefore, the activities of any information system's input, processing,
output, and storage are monitored and their quality and security are maintained using
information system controls. These controls are designed to do this. For instance, in order to
prevent the occurrence of the garbage in, garbage out (GIGO) syndrome, information systems
controls are required to guarantee the accurate entry of data into a business system. The use of

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passwords and other types of security codes, formatted data entry screens, and audible error
signals are some examples. Instructions that detect incorrect, invalid, or improper input data as
it is being entered into the computer system can be included in the software that runs on
computers. For example, a data entry program can check for invalid codes, data fields, and
transactions, and conduct “reasonableness checks” to determine if input data exceed specified
limits or are out of sequence.

AUDITING IT SECURITY
Auditing of information technology security management should be performed on a regular
basis, either by the internal auditing staff of a company or by external auditors from
professional accounting firms. During these audits, proper and adequate security measures and
management policies are examined and evaluated to determine whether or not they have been
developed and put into practice. This process typically involves validating the correctness and
integrity of the software that is being utilized, in addition to the data that is being input into
business applications and the output that is being produced by those applications. Some
businesses choose to complete this task with the assistance of specialized computer security
auditors. They may use specialized test data in order to verify the control procedures that are
built into the software and ensure the accuracy of the processing. The auditors might create
their own unique testing programs or use audit software already on the market. Checking the
validity of the audit trail maintained by an application is also an essential part of conducting
business system audits. The presence of documentation that enables a transaction to be
tracked back through all of the stages of its information processing is what we mean when we
talk about an audit trail.

This journey might start with the appearance of a transaction on a source document and end
with the transformation of that transaction's data into the information contained in a report or
final output document. The audit trail of manually operated information systems is highly
visible and straightforward to follow. However, the format of the audit trail has shifted due to
the introduction of computer-based information systems. In order to follow the audit trail of
today's networked computer systems, auditors need to be able to search electronically through

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disc and tape files of historical activity. This electronic audit trail will frequently take the form of
control logs, which will automatically record any activity that occurs on a computer network
onto magnetic discs or tape devices. Numerous online transaction processing systems,
performance and security monitors, operating systems, and network control programs include
this audit feature in their software. On the Internet, particularly on the World Wide Web, as
well as on the intranets and extranets used by businesses, there is extensive use of software
that logs all activities that occur on a network. An audit trail of this kind not only assists auditors
in checking for errors or fraudulent activity, but it also assists information systems security
specialists in tracing and evaluating the trail of hacker attacks on computer networks.

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