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information technology and the networked economy

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this book is licensed under a creative commons attribution 3.0 license information technology and the networked economy patrick mckeown copyright © 2009 by patrick mckeown for any questions about this text please email drexel@uga.edu the global text project is funded by the jacobs foundation zurich switzerland this book is licensed under a creative commons attribution 3.0 license this edition was scanned and converted to text using optical character recognition we are in the process of converting this edition into the global text project standard format when this is complete a new edition will be posted on the global text project website and will be available in a variety of formats upon request information technology and the networked economy a global text

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preface xi part 1 introduction to information technology and the networked economy 1 chapter the networked ecoomy 2 i part 4 design and development of information systems 287 chapter 9 developing information systems 1 288 chapter 10 developing information systems 2 3 2 3 chapter 2 information technology the infrastructure of the networked economy 3 1 chapter 3 part 5 issues in the networked economy 361 chapter crime and security in the networked economy 362 privacy and ethical issues in the networked economy 397 ii sharing information and resources throu h networks 65 g part 2 information systems in organizations 107 chapter 4 chapter 5 chapter 12 chapter 13 handling the present transaction processing systems 1 08 remembering the past with organizational memory 1 44 social issues in the networked economy 435 glossary 469 credits 481 index 483 chapter 6 preparing for the future with decision support systems 1 78 part 3 electronic commerce strategy and technology 213 chapter 7 electronic commerce strategies 214 electronic commerce technologies 250 chapter 8 brief c o nte ntsy

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part 1 introduction to information technology and the networked economy 1 chapter 1 the networked economy 2 a connected world 4 the impact of computer networks on business 5 movement to the networked economy 7 impact on businesses 7 creative destruction 8 elements of the networked economy 11 economic relationships 11 computers 1 2 connectivity 13 knowledge 14 knowledge workers 1 6 information systems it in organizations 18 systems 18 is functions 18 transforming the organization 21 using is functions to deal with business risks 22 reducing demand risk 22 reducing efficiency risk 23 reducing innovation risk 23 fareast foods inc 24 comparison of operating systems 45 application software 46 computer programs and languages 48 organizational computing 49 mainframes 49 personal computers 51 client/server computing 53 three-tiered architecture 54 hardware and software at fareast foods 57 · summary 60 review questions 61 discussion questions 61 research questions 62 wildoutfitters.com 62 appendix to chapter 2 a short history of computers 63 the evolution of the pc 64 chapter 3 sharing infomation and resources through networks 65 computer networks 67 network types 67 understanding wide area networks 70 application software layer 71 networking software layer 72 physical layer 72 electronic data interchange 77 understanding local area networks 79 lan components 79 ethernet lans 81 lans at fareast foods 82 wireless networks 83 wireless lans 84 the internet a network of networks 86 what is the internet 87 using the internet 88 a look ahead 25 summary 27 review questions 28 discussion questions 28 research questions 28 wildoutfitters.com 29 chapter 2 information technology the infrastructure of the networked economy 31 elements of information technology 33 input 35 processing 36 output 37 secondary storage 38 conceptual computer 38 bits bytes and binary numbers 39 digital storage 41 a closer look at software 42 software terminology 43 operatng system software 44 a closer look at computers 33 a closer look at hardware 33 e-mail 90 ftp 91 telnet 92 newsgroups 92 internet relay chat 94 the world wide web 96 using browsers to access the web 96 browser operations 98 intranets and extranets 100 the web and electronic commerce 101 summary 102 review questions 103 discussion questions 104 research questions 104 wildoutfitters.com 104 vi conten ts

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contents vii part 2 information systems in organizations 107 chapter 4 chapter 6 preparing for the future with decision suppart systems 178 preparing for the future 180 decision-making concepts 181 types of decisions 182 handling the present transaction processing systems 108 information systems in organizations 110 transaction processing fundamentals 112 tps and business processes 113 tps and supply chains 115 types of decision support systems 183 a closer look at transaction processing systems 116 transaction processing methods 117 transaction processing activities 119 data gathering and entry 120 processing and data manipulation 121 data storage 123 output and reporting 124 the impact of the internet on tps 124 step 1 step 2 step 3 step 4 step 5 transaction processing at the fareast foods web site 128 chapter 5 creating an order 129 submitting an order 129 processing the order at fareast foods web site 130 ordering food from wholesalers 130 creating and shipping the order to the customer 131 business-to-business transactions 132 interorganizational systems and the internet 133 supporting business-ta-business transactions with xml 136 supply chains and the internet 137 business-ta-business at fareast foods 138 summary 140 review questions 141 discussion questions 141 research questions 141 wildoutfitters.com 142 dss users 184 using a dss to support decision making 188 decisions at fareast foods 190 information-based decision support systems 1 91 types of reports 192 an information:based dss in action the balanced scorecard system 194 data-based decision support system s 196 online analytical processing 196 data mining 200 data-based dss in action customer relationship management 202 model-based decision support systems 204 parts of a model-based decision support system 204 using models 205 model-based dss in action revenue management 206 summary 210 review questions 211 discussion questions 21 1 research questions 211 wildoutfitters.com 212 part 3 electronic commerce strategy and technology 213 chapter 7 remembering the past with organizational memory 144 organizational memory 146 electronic commerce strategies 214 electronic commerce and the networked economy 216 defining electronic commerce 216 types of web sites 217 limitations of electronic commerce 221 components of organizational memory 147 semistructured versus structured organizational memory 149 structured storage of data 150 development of database management systems 151 data warehouses 155 relational database management systems 157 relational database operations with structured query language 160 objectdriented databases 161 information management 162 paper-based information storage 162 document management systems 163 searching and indexing information 165 knowledge management 166 types 01 knowledge 166 sharing knowledge 167 virtual teams 169 document databases 170 expert systems 170 summary 174 review questions 175 discussion questions 176 research questions 176 wildoutfitters.com 176 the changing nature of electronic commerce 222 effects of the internet and web on businesses 224 price transparency 226 communications flip-flop 228 perfect choice 231 internet and web effects on fareast foods 233 electronic commerce strategies 235 electronic commerce strategies for handling price transparency 235 electronic commerce strategies for dealing with perfect choice 237 electronic commerce strategies for fareast foods 239 web advertising 240 attracting customers 241 a twa-stage model to attractiveness 242 web strategies for fareast foods 245 summary 247 review questions 248 discussion questions 248 research questions 248 wildoutfitters.com 249 electronic commerce strategies to deal with communications flip-flop 240

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viii contents chapter 8 electronic commerce technologies 250 electronic commerce technology 252 electronic commerce infrastructure 252 global information infrastructure layer 252 message distribution infrastructure layer 253 electronic publishing infrastructure layer 253 business services infrastructure layer 254 electronic commerce application layer 254 application to fareast foods 255 web-based electronic commerce 256 finding web sites with search sites 256 transacting an order over the web 260 client and server-side processing 262 microsoft or open-source web server 266 problems with the http protocol 266 the stateless nature of http 266 counting web site visitors 267 using cookies far shopping carts and counting visitors 269 securing electronic commerce transactions 271 security issues 272 encryption 272 digital signatures 275 electronic commerce payment systems 276 concerns with electronic money 277 credit cards 278 electronic funds transfer 278 card-based digital cash 280 computer-based digital cash 280 summary 283 review questions 284 discussion questions 284 research questions 285 wildoutfitters.com 285 initiating the project 302 performing a feasibility study 303 creating a workplan 304 staffing the project 304 magnitude of effort 306 customer rewards feasibility study 307 developing a workplan and staffing the customer rewards project 308 analysis 310 requirements determination 312 model building 313 the system proposal 314 analysis of fareast foods customer rewords project 315 model building the fareast bucks data model 316 model building the process model 317 customer rewards system proposal 31 8 summary 319 review questions 320 discussion questions 321 research questions 321 wildoutfitters.com 321 chapter 10 planning stage for fareast foods project 306 developing information systems 2 323 continuing the development process 325 design stage 326 implementation stage 326 design stage 327 develop outsource or acquire 327 internal development 328 physical database specification 329 converting process models to physical forms 329 creating interface screens 330 using case 330 part 4 design and development of information systems 287 chapter 9 developing information systems 1 288 systems development 290 when is systems development needed 290 systems development at fareast foods 292 approaches to systems development 292 ad hoc programming 292 structured systems development 293 rapid application development 294 end-user development 294 outsourcing 295 acquisition 295 choosing among internal development outsourcing or acquisition 295 a look ahead 295 structured systems development 296 the systems development life cycle 297 stages of the structured approach 299 systems development in the networked economy 301 planning stage 302 identifying the project 302 physical data model for the fareast foods system 333 converting fareast foods process models 333 creating the interface for the fareast foods rewards system 335 implementation 337 building the system 338 the programming process 338 installation 340 training 341 maintenance 342 implementation at fareast foods 344 outsourcing and acquisition 345 outsourcing 346 application service providers 347 acquisition 347 enterprise resource planning systems 349 rapid application development 351 types of prototypes 352 evolutionary prototyping 353 summary 357 review questions 358 discussion questions 358 research questions 359 wildoutfitters.com 359 designing the fareast foods customer rewords system 333

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contents ix part s issues in the networked economy 361 crime and security in the networked economy 362 the changing face of it crime 364 it criminals 365 it crime and fareast foods 366 types of it crime 366 theft of hardware data or information 367 fraudulent use of it 367 copyright infringement 373 software piracy 373 software piracy and the law 374 music and video piracy 374 attacks on information technology 375 viruses worms and dos attacks 375 internet vulnerabilities 378 legal aspects of it crime 378 information technology security 379 threats to computer systems 379 physical security 380 data security 381 security at fareast foods 384 internet security 385 securing the corporate internet connection 385 fixing known security holes 386 firewalls 388 internet security at fareast foods 389 security issues 389 legal issues 389 insurance against it crime 390 human aspects of computer security 390 security summary 391 summary 393 review questions 394 discussion questions 394 research questions 395 wildoutfitters.com 395 chapter 11 methods of id theft 420 social security number theft 421 protecting privacy 421 legislative approach 422 self-regulation 423 discussion and application of the ten commandments of computer ethics 427 summary 430 review questions 431 discussion questions 432 research questions 432 wildoutfitters.com 433 chapter 13 identity theft 419 ethical issues in the networked economy 427 social issues in the networked economy 435 the net as a part of our lives 437 privacy and ethical issues in the networked economy 397 information technology and privacy 399 data and information collection using it 403 transactional data 403 web-visit data 406 internet communications data 408 data collection at fareastfoods.com 410 t hreats to privacy 411 information exposure 411 data surveillance 41 2 information brokers 415 spyware 416 junk e-mail 418 using information at fareastfoods.com 419 the changing nature of privacy 400 privacy trade-offs 402 chapter 12 social cornerstones of the networked economy 437 consequences of internet use 438 social issues in the networked economy 440 economic issues in the networked economy 440 development of digital divides 441 taxation of electronic commerce 443 the virtual workplace 443 teleworking 444 teleworking locations 446 virtual workplaces at fareast foods 447 health issues in the networked economy 447 repetitive stress injuries 447 carpal tunnel syndrome 448 causes of repetitive stress injuries 449 mouse problems 450 ergonomics 451 psychological problems 453 health problems at fareast foods 453 online content issues 454 defamatory content 454 adult-driented web content 454 web-based gambling sites 457 international issues in the networked economy 458 international digital divide 458 politically objectionable content 459 cyberterrorism 459 the future of the networked economy 461 a day in the life of mary 2007 462 summary 465 review questions 466 discussion questions 467 research questions 467 wildoutfitters.com 467 glossary 469 credits 481 index 483

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the beginning of the 21st century has seen a rapid change from the industrial knowledge the networked economy is characterized by rapidly changing market economy to a networked economy built on computers connectivity and human conditions and methods of commerce instead of leveraging human strength with machines as was done in the industrial economy the networked economy leverages human knowledge with computers and connectivity to produce goods and services their organizational productivity rather than worrying about personal productivity the networked economy requires that organizations concentrate on improving t meet the needs of tomorrow s organizations colleges and universities must o ond edition of immediately begin to prepare students to work in the networked economy the sec ing today s business students with the knowledge of the networked economy necessary to be successful employees and managers in the 21st century in ormation technology and the networked economy is f aimed at provid n ew in the second edition as in the first edition commerce technology and the refocusing of the existing electronic commerce edition is divided into sections w ith the addition of a new chapter on electronic in ormation technology and the networked economy second f tronic commerce this combination of electronic commerce strategy and technol commerce in addition to this new chapter and section every chapter has been chapter to concentrate on strategy the book now includes a new section on elec ogy provides students with an understanding of the what and how of electronic extensively updated to take into account the continuing changes in the global net updating includes new information on existing topics extensive revisions to entire sections to include the latest information and in several cases sections on new top ics for example the chapter on electronic commerce strategy includes the new worked economy brought about by advances in information technology this topics of threats to business from the internet and strategies for countering these by the reader threats.all key terms are now defined in the margin as they occur for easy reference in addition all boxed features are either new or have been extensively updated type of box many of the quick review questions within chapters have been rewritten from the first edition they have also been renamed to better reflect the focus of each as have the review questions at the end of chapters in addition the number of review questions has been doubled from 10 to 20.the discussion questions have been rewrit ten and expanded and a new type of end-of-chapter exercise research questions has been added these questions ask readers to carry out research either on the web or in person and to write a paper or create a presentation on their findings the w ildoutfitters.com case at the end of each chapter has similarly been updated prefoce xi

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xii prefoce learningobjectiv es the second edition of around achieving the following six key learning objectives in so doing it ensures worked economy mter reading this book the student will be able to in ormation technology and the networked economy f is built that students will be prepared to be successful employees and managers in the net 1 understand how information technology has created the networked economy describe how people use information technology to process data into information discuss how information technology enables organizations to handle the infor mation systems and share data information and resources present remember the past and prepare for the future through the use of and discuss the implications of this transformation 2 3 4 5 describe how firms use electronic commerce strategy and technology to discuss the processes involved in developing and acquiring information systems transform the way they carry out operations 6 understand the effects that information technology and the networked economy worked economy and information technology are having on crime security and ethics and the social issues created by the net information systems and their impact on society student with an understanding of the networked economy information technology achieving these learning objectives will go a long way toward providing the organization t achieve the learning objectives the second edition of o eral after coverage of part the networked economy is divided into five parts as shown in the table below in gen in ormation technology and f 1 any of the other parts can be covered in any order coverage pa r t to pical introduction to information technology and the networked economy 2 3 4 5 information systems in organizations electronic commerce strategy and technology development of information systems issues in the networked economy technology this part includes chapters on the networked economy elements of information technology and networks for sharing data information and resources this section introduces the risks facing all organizations and the use of information part 2 covers the effects of information technology on organizations and part 1 provides information about the networked economy and information systems to address those risks includes chapters on transaction processing systems for handling the present organi zational memory for remembering the past and decision support systems for sion of information systems as they enable organizations in the networked economy not just to survive but to grow prepar ing for the future this section provides the student with a complete discus electronic commerce strategy provides the student with a basis for understanding the benefits and threats associated with the internet and web and strategies for dealing part 3 discusses electronic commerce strategy and technology the chapter on

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prefoce xiii with those threats the chapter on electronic commerce technology discusses a num for businesses ber of the technologies used to make electronic commerce a viable revenue stream part 4 considers the issues involved in developing or acquiring information sys tems this includes topics on designing new information systems and deciding also covers the process of developing an information system these chapters provide whether to acquire outsource or internally develop the new system this section the student with an understanding of the systems development process including the structured systems development approach rapid application development rad outsourcing and acquisition finally part 5 covers the impact of information technology and the networked tal issues this section includes a chapter on crime and security in organizations a with information technology and the networked economy economy on society in the areas of security crime privacy ethics health and socie chapter on privacy and ethical issues and a chapter on the societal issues associated approoch to prepare readers to be successful in the networked economy by understanding the impact of information technology and information systems and the networked economy second edition uses a variety of pedagogical elements in ormation technology f features review questions discussion questions and research questions including two running cases quick review questions after each major section boxed f ar eastf oo d s i nc r un ningcase an important element is the fareast foods inc case that runs through all of the retail stores catalogs and the internet it provides students with a look at the ways in which companies use information technology and information systems to transact business in the networked economy fareast foods takes orders over the internet chapters this case is based on a fictitious company that distributes asian foods via that it fulfills by ordering individual items from wholesalers the company com visiting the fareast foods web site at www.fareastfoods.com as students move opment chapters 9 and picks up and delivers to the customer students can simulate the purchase process by bines individual food items to create a shipment that a package delivery company systems are applied to the company for example in the chapters on systems devel through the book the various aspects of information technology and information 10 the running case describes how fareast foods the web site.throughout the book whenever the fareast foods running case is dis to what you see here cussed the material is highlighted by the fareast foods logo in the margin similar enhances its information system and students can experience that enhancement at quickreview qu estions material immediately after reading it answers to these questions are available at www.course .com so students can gauge their comprehension of the material the quick review questions enable students to check their understanding of the marginal glossary to help readers with the terminology that is so much a part of information systems and information technology we have added a new feature to this edition-marginal glossar y definitions for each key term in the text w ith these definitions promi word phrase or acronym readers will also find a traditional glossary at the end of nently displayed in the margin the reader can easily determine the meaning of a the book as in the first edition.

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xiv preface bo xedfeatures the five boxed features in each chapter include an opening case that focuses on management issues a t echnology on the edge box that provides information on new technologies an internet in action box that provides an interesting example of using the internet an it innovators box that discusses one of the pioneers in it and the networked economy and an end-of-chapter management case with associ ated critical thinking questions these boxes provide interesting information about elements of the networked economy beyond the material covered in the body of the mation technology and cutting edge management issues in the networked economy general electric dreamworks home depot dell computers and more chapter.the chapter opening and closing case boxes pay particular attention to infor at a wide variety of companies that students will recognize including lands end learningo bie ctives summary andrevi ew di scussion a n d r esearch questions each chapter opens with a series of questions that the student will be able to after reading the chapter the material in the chapter is summarized by providing answer answers to these questions.the review discussion and research questions at the end of the chapter provide readers with an opportunity to review what they have learned learning objectives summary review questions discussion questions and research ques tions all work in concert to guide students to mastery of the material from the chapter and to research and discuss issues associated with the material the wildout fi tters .c omrunningcase the running case at the end of each chapter wildoutfitters.com introduces the reader to alex and claire campagne owners of a small shop specializing in equip ment and provisions for outdoor recreation located near the new river gorge of case asks students to apply what they have learned in the chapter to the develop west virginia the campagnes are moving their business onto the internet and the ment of the company the wildoutfitters.com cases also request that readers use uation described in the case microsoft office or equivalent software to solve problems associated with the sit i ns tructionalr es ourc es teaching tools for in addition to this textbook a variety of instructional resource items are a part of the in ormation technology and the networked economy second edition finstructor s manual an instructor s manual can also be found at www.course.com and on the end-of-chapter material objectives chapter outlines detailed lecture notes quick quizzes and solutions to assist the instructor these items include the following sample syllabi learning instructor s resource cd the instructor s manual contains a variety of items to power point presentations these include a complete set of powerpoint slides created b y mark huber and aid have extensive experience teaching an introductor y information systems course craig p iercy of the university of georgia the authors of this very useful teaching using the first edition of this textbook since its release in spring class-tested the new slides using pre-release chapters of the book with almost one thousand students the slides are available for download at word protected 2000 they have www.course.com pass

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prefoce xv exam vi e w this textbook is accompanied by examview a powerful testing software package that allows instructors to create and administer printed computer lan-based and created by mark huber and craig piercy students can use examview to generate detailed study guides that include page references for further review the computer ers and also save the instructor time by grading each exam automatically internet exams examview includes more than 1000 test questions which were also based and internet testing components allow students to take exams at their comput fareastfoods i n c de monstrationwebsite interact with a simulated electronic commerce company although students cannot other activities described in the text users may also access a web site www.fareastfoods.com which accompanies the fareast foods inc case that runs throughout the text this site allows students to actually receive goods from www.fareastfoods.com they can carry out all of the studentands ol utionfiles fo rwildout fi tters .c omcase resource cd solution files are password protected and available only to instruc w ildoutfitters.com case tors student files include any files necessary for the user to work with the student and solution files can be found at www.course.com and on the instructor s acknowledgmen ts anyone familiar with writing a textbook such as this knows that the final product is not just the work of the author but the result of a team effort the team for i am appreciative of their efforts first i want to thank richard t watson of the terry in his role as advisor rick discussed the topical coverage of each chapter with me college of business at the university of georgia for his work advising me on the text lriformation technology and the networked economy second edition includes many talented people and made suggestions for material to be included and acted as first reviewer of each chap ter several other colleagues at the university of georgia including hugh watson dale writing of the text and i am grateful to them i also want to thank craig piercy of the goodhue and mark huber were available for many helpful suggestions during the university of georgia for writing the wildoutfitters.com cases that appear at the end cases interesting as well as useful in the learning process dave preston of the university chapters and at the end of the chapters the health section of chapter 13 is primarily of each chapter he brought to this part of the book a special talent for making the of georgia did a fine job of writing answers to all of the exercises both within the the result of work carried out by my wife carolyn mckeown rn bsn and i want i also want to express my appreciation for those who reviewed one or more chap to express special thanks to her for that effort include paul m bauer university of denver sonny buder eastern kentucky university charmayne cullom university of northern colorado george heilman ters of the manuscript the final text reflects many of their ideas these reviewers bay jack klag colorado t echnical university terence m waterman golden gate university richard t watson university of georgia and dennis l w illiams university of northern colorado brent hussin university of w isconsin at green california polytechnic state university i would like to thank those at course t echnology who were involved in editing and producing this textbook marilyn freedman did an outstanding job as developmental editor in working with me to create the final text her analyses of the tricia boyle worked as product manager and i appreciate her efforts to keep the proj ect on schedule thanks also go to the production editor melissa panagos the photo reviews were extremely helpful as was her attention to every detail of the project.

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xvi prefoce researcher abby reip and to the designer,ann small who designed the book i also want to express my appreciation to jennifer locke managing editor for overseeing the project to a successful completion finally my acknowledgements would be incomplete without again mentioning my wife of 35 years carolyn without her love support and work on the project i would not have been able to complete it on time and it would not have been worth doing at all about the author dr patrick g mckeown head of the top-ten ranked departinent of management information systems in the terry college of business has been at the university of georgia since 1976 he received his bachelor s and master s degrees at the georgia institute of technology and his ph.d from the university of north carolina-chapel hill mckeown has published more than 30 text books and close to 50 articles in the areas of management science and informa tion systems he was the 1997 rec;ipient of th terry college of business distinguished service award for his work in enhancing computer literacy through computer projects in non-computer courses mckeown was a 1998 fulbr ight scholar in portugal where he taught an mba course in electronic com merce and has served as a reviewer for various fulbright programs since that time he has also taught in france .at lyon iii university in finland with the helsinki school of economics,· and at the graduate school of business leadership at the university of south africa.

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11 i i 1 l i ntrod u ction to infor m ation tech nology andthene twor k ed economy the dramatic g rowth of the internet and the world wide web are changing the way we live wark and play in many ways one impartant change has been the transition from the industrial economy to the networked economy the networked economy is based on computers connectivity and human knowledge and will involve changes in the way goods and services are created produced sold and distributed like the industrial and agricultural economies the networked economy must have an underlying infrastructure its infrastructure is known as information technology it and the primary components of it are the computer and computer networks which make connectivity possible introduction begins with a broad discussion of both a reas fol lowed by chapters on the book you should have a good grasp of the networked economy and information tech nology part 1 introduces you to the networked economy and information tech nology this computer hardware and software and computer networks after reading this first part of

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