Introduction

Why do managers need to understand and participate in the information decisions of their organizations? After all, most corporations maintain entire departments dedicated to the management of information systems (IS). These departments are staffed with highly skilled professionals devoted to the field of technology. Shouldn't managers rely on experts to analyze all the aspects of IS and to make the best decisions for the organization? The answer to that question is no.

Managing information is a critical skill for success in today's business environment. All decisions made by companies involve, at some level, the management and use of IS. Managers today need to know about their organization's capabilities and uses of information as much as they need to understand how to obtain and budget financial resources. The ubiquity of personal devices such as smart phones, laptops and tablets, and access to apps within corporations and externally over the Internet, highlights this fact because today's technologies form the backbone for virtually all business models. This backbone easily crosses the globe, adding the need for a global competency to the manager's skill set. Further, the proliferation of supply chain partnerships and the vast amount of technology available to individuals outside of the corporation have extended the urgent need for business managers to be involved in technology decisions. In addition, the availability of seemingly free (or at least very inexpensive) applications, collaboration tools and innovation engines in the consumer area has changed the landscape once again: IS and business processes are increasingly integrated. A manager who does not understand the basics of managing and using information cannot be successful in this business environment.

The majority of U.S. adults own a smart phone, laptop, and access to online apps. According to the Pew Research Center, in 2011, 83% of U.S. adults had a cell phone of some kind, and of those who had a mobile phone, 42% had a smart phone.¹ Individuals now have to manage a virtual “personal IS” and make decisions about applications to purchase. Doesn't that give them insight into managing information systems in corporations? Students often think that because of their personal experience with technology, they also are experts in corporate IS. There is some truth in that perspective, but it's also a very dangerous perspective for managers to take. Certainly managing one's own information systems gives some experience that is useful in the corporate setting such as knowing about interesting apps, being able to use a variety of technologies for different purposes, and being familiar with the ups and downs of networking. But in a corporate setting, information systems must be enterprise-ready. They must be scalable for a large number of employees; they must be delivered in an appropriate manner for the enterprise; they must be managed with corporate guidelines, and sometimes governmental regulations, in mind. Issues like security, privacy, risk, and architecture take on a new meaning within an enterprise, and someone has to manage them. A similar phenomenon occurred in the early days of database applications. Individuals who used a personal computer version of a database assumed they understood databases, but they ran into issues when they tried to integrate enterprise-level data from multiple users. That required a different architecture and skill set. Enterprise-level managing and using information systems require a unique perspective managers develop over time.

Consider the now-historic rise of companies such as Amazon.com, Google and Zappos. Amazon.com began as an online bookseller and rapidly outpaced traditional brick-and-mortar businesses like Barnes and Noble, Borders, and Waterstones. Management at the traditional companies responded by having their IS support personnel build Web sites to compete. But upstart Amazon.com moved on ahead, keeping its leadership position on the Web by leveraging its new business model into other marketplaces, such as music, electronics, health and beauty products, lawn and garden products, auctions, tools and hardware, and more. It cleared the profitability hurdle by achieving a good mix of IS and business basics: capitalizing on operational efficiencies derived from inventory software and smarter storage, cost cutting, and effectively partnering with such companies as Toys “R” Us Inc. and Target Corporation.² More recently Amazon.com changed the basis of competition in another market, but this time it was the Web services business. Amazon.com Web services offers clients the extensive technology platform used for Amazon.com, but in an on-demand fashion for developing and running the client's own applications. Shoe retailer Zappos.com challenged Amazon's business model, in part by coupling a social business strategy with exemplary service and sales, and it was so successful that Amazon.com bought Zappos.

Likewise, Google played an important role in revolutionizing the way information is located, changing the playing field for advertising and publishing business models. Google began in 1999 as a basic search company but quickly learned that a unique business model was a critical factor for future success. The company changed the way people thought about Web content by making it available in a searchable format with an incredibly fast response time and in a host of languages. Further, Google's keyword-targeted advertising program revolutionized the way companies advertise. By 2001, Google announced its first quarter of profitability, solidifying the way the world finds information, publishes, and advertises.³ More recently, Google expanded into a complete suite of Web-based applications, such as calendaring, e-mail, collaboration, shopping, and maps and then enhanced the applications by combining them with social tools to increase collaboration. Further, like Amazon.com, Google also offers clients similar on-demand services.⁴

These and other online businesses are able to succeed where traditional companies have not, in part because their management understood the power of information, IS, and the Web. These exemplary online businesses did not succeed because their managers could build Web pages or assemble an IS network. Quite the contrary. The executives in these new businesses understood the fundamentals of managing and using information and could marry that knowledge with a sound, unique business vision to achieve domination of their intended market spaces.

The goal of this book is to provide the foundation to help the general business manager become a knowledgeable participant in IS decisions because any IS decision in which the manager does not participate can greatly affect the organization's ability to succeed in the future. This introduction outlines the fundamental reasons for taking the initiative to participate in IS decisions. Moreover, because effective participation requires a unique set of managerial skills, this introduction identifies the most important ones. These skills are helpful not just in making IS decisions, but all business decisions. We describe how managers should participate in the decision-making process and outline key topics to consider which develop this point of view. Finally, this introduction presents current models for understanding the nature of a business and an information system to provide a framework for the discussions that follow in subsequent chapters.

THE CASE FOR PARTICIPATING IN DECISIONS ABOUT INFORMATION SYSTEMS

Experience shows that business managers have no problem participating in most organizational decisions, even those outside their normal business expertise. For example, ask a plant manager about marketing problems, and the result is likely to be a detailed opinion on both key issues and recommended solutions. Dialogue among managers routinely crosses all business functions in formal as well as informal settings, with one general exception: IS. Management continues to tolerate ignorance in this area relative to other specialized business functions. Culturally, managers can claim ignorance of IS issues without losing prestige among colleagues. On the other hand, admitting a lack of knowledge regarding marketing or financial aspects of the business earns colleagues' contempt.

These attitudes are attributable to the historic role that IS played in businesses. For many years, technology was regarded as a support function and treated as administrative overhead. Its value as a factor in important management decisions was minimal. It often took a great deal of technical knowledge to understand even the most basic concepts.

However, in today's business environment, maintaining this back-office view of technology is certain to cost market share and could ultimately lead to the failure of the organization. Technology has become entwined with all the classic functions of business—operations, marketing, accounting, finance—to such an extent that understanding its role is necessary for making intelligent and effective decisions about any of them. Furthermore, a general understanding of key IS concepts is possible without the extensive technological knowledge required just a few years ago. Most managers today have personal technology such as a smart phone or tablet that is more functional than many corporate-supported personal computers provided by enterprises just a few years ago. In fact, the proliferation of personal technologies makes everyone a “pseudo-expert.” Each individual must manage applications on smart phones, make decisions about applications to purchase, and procure technical support when the systems fail. Finally, with the robust number of consumer applications available on the Web, many decisions historically made by the IS group are increasingly being made by individuals outside the IS group, sometimes to the detriment of corporate objectives.

FIGURE I-1 Reasons why business managers should participate in information systems decisions.

Therefore, understanding basic fundamentals about using and managing information is worth the investment of time. The reasons for this investment are summarized in Figure I-1 and are discussed next.

A Business View

Information technology (IT) is a critical resource for today's businesses. It both supports and consumes a significant amount of an organization's resources. Just like the other three major types of business resources—people, money, and machines—it needs to be managed wisely.

IT spends a significant portion of corporate budgets. Worldwide IT spending topped $3.7 trillion in 2011, a jump of almost 8% from the previous year. It is projected to continue to increase.⁵ More than 350 companies each plan to invest more than $1 billion in IT, particularly in cloud, social, mobile and big data. Companies in a Gartner study reported that cloud services will grow five times faster than overall IT enterprise spending annually through 2015.

These resources must return value, or they will be invested elsewhere. The business manager, not the IS specialist, decides which activities receive funding, estimates the risk associated with the investment, and develops metrics for evaluating the performance of the investment. Therefore, the business manager needs a basic grounding in managing and using information. On the flip side, IS managers need a business view to be able to explain how the technology will impact the business and what the tradeoffs are.

People and Technology Work Together

In addition to financial issues, a manager must know how to mesh technology and people to create effective work processes. Collaboration is increasingly common, especially with the rise of social networking. Companies are reaching out to individual customers using social technologies such as Facebook, Twitter, YouTube and numerous other tools. In fact, the term Web 2.0 describes the use of the World Wide Web (the Internet) applications that facilitate information sharing, user-centered design, interoperability and collaboration among users. Technology facilitates the work that people do and the way they interact with each other. Appropriately incorporating IS into the design of a business model enables people to focus their time and resources on issues that bear directly on customer satisfaction and other revenue- and profit-generating activities.

Adding a new IS to an existing organization, however, requires the ability to manage change. The skilled business manager must balance the benefits of introducing new technology with the costs associated with changing the existing behaviors of people in the workplace. There may be choices of technology solutions each with different impact and a decision must incorporate a clear understanding of the consequences. Making this assessment does not require detailed technical knowledge. It does require an understanding of what the short-term and long-term consequences are likely to be, how to mitigate the associated risks and why adopting new technology may be more appropriate in some instances than in others. Understanding these issues also helps managers know when it may prove effective to replace people with technology at certain steps in a process.

Integrating Business with Information Systems

IS are integrated with almost every aspect of business and have been for quite some time. For example, as former CEO of Walmart Stores International, Bob Martin described IS's role: “Today technology plays a role in almost everything we do, from every aspect of customer service to customizing our store formats or matching our merchandising strategies to individual markets in order to meet varied customer preferences.”⁶ IS place information in the hands of Walmart associates so that decisions can be made closer to the customer. IS help simplify organizational activities and processes such as moving goods, stocking shelves, or communicating with suppliers. For example, handheld scanners provide floor associates with immediate and real time access to inventory in their store and the ability to locate items in surrounding stores, if necessary.

Rapid Change in Technology

The proliferation of new technologies creates a business environment filled with opportunities. The changing demographics of the workforce and the integration of “digital natives,” individuals who have grown up completely fluent in the use of personal technologies and the Web, also increase the rate of adoption of new technologies beyond the pace of traditional organizations. Even today, new uses of the Internet produce new types of online businesses that keep every manager and executive on alert. New business opportunities spring up with little advance warning. The manager's role is to frame these opportunities so that others can understand them, to evaluate them against existing business needs and choices, and finally to pursue those that fit with an articulated business strategy. The quality of the information at hand affects the quality of both the decision and its implementation. Managers must develop an understanding of what information is crucial to the decision, how to get it, and how to use it. They must lead the changes driven by IS.

Competitive Challenges

Competitors come from both expected and unexpected places. General managers are in the best position to see the emerging threats and utilize IS effectively to combat everchanging competitive challenges. Further, general managers are often called on to demonstrate a clear understanding of how their own technology programs and products compare with those of their competitors. A deep understanding of the capabilities of the organization coupled with existing IS can create a competitive advantage and change the competitive landscape for the entire industry.

Customer Pull

With the emergence of social networks such as Facebook and Renren, social microblogs such as Sina Weibo and Twitter, social media and the Web, businesses have had to redesign their existing business models to account for the change in power now yielded by customers and others in their communities. Social media have given powerful voices to customers and communities and businesses must listen. Redesigning the customer experience when interacting with a company is paramount for many managers and the key driver is IS. Social IT enable new and often deeper relationships with a large number of customers and companies are learning how to integrate and leverage this capability into existing and new business models.

WHAT IF A MANAGER DOESN'T PARTICIPATE?

Decisions about IS directly affect the profits of a business. The basic formula Profit = Revenue − Expenses can be used to evaluate the impact of these decisions. Adopting the wrong technologies can cause a company to miss business opportunities and any revenues those opportunities would generate. Inadequate IS can cause a breakdown in servicing customers, which hurts sales. Poorly deployed social IT resources can badly damage the reputation of a strong brand. On the expense side, a miscalculated investment in technology can lead to overspending and excess capacity or underspending and restricted opportunity. Inefficient business processes sustained by ill-fitting IS also increase expenses. Lags in implementation or poor process adaptation reduce profits and therefore growth. IS decisions can dramatically affect the bottom line.

Failure to consider IS strategy when planning business strategy and organizational strategy leads to one of three business consequences: (1) IS that fail to support business goals, (2) IS that fail to support organizational systems, and (3) a misalignment between business goals and organizational capabilities. These consequences are discussed briefly in the following section and in more detail in later chapters. The driving questions to consider are the potential effects on an organization's ability to achieve its business goals. How will the consequences impact the way people work? Will the organization still be able to implement its business strategy?

Information Systems Must Support Business Goals

IS represent a major investment for any firm in today's business environment. Yet poorly chosen IS can actually become an obstacle to achieving business goals. The results can be disastrous if the systems do not allow the organization to realize its goals. When IS lack the capacity needed to collect, store, and transfer critical information for the business, decisions can be impacted and options limited. Customers will be dissatisfied or even lost. Production costs may be excessive. Worst of all, management may not be able to pursue desired business directions that are blocked by inappropriate IS. Victoria's Secret experienced this problem when a Superbowl ad promoting an online fashion show generated so many inquiries to its Web site that it crashed. After spending a large amount of money on the advertisement, it was wasted when potential customers could not access the site. Likewise, Toys “R” Us experienced such a calamity when its well-publicized Web site was unable to process and fulfill orders fast enough one holiday season. It not only lost those customers, but it also had a major customer relations issue to manage as a result.

Information Systems Must Support Organizational Systems

Organizational systems represent the fundamental elements of a business—its people, work processes, tasks, structure and control systems—and the plan that enables them to work efficiently to achieve business goals. If the company's IS fail to support its organizational systems, the result is a misalignment of the resources needed to achieve its goals. For example, it seems odd to think that a manager might add functionality to a corporate Web site without providing the training these same employees need to use the tool effectively. Yet, this mistake—and many more costly ones—occur in businesses every day. Managers make major IS decisions without informing all the staff of resulting changes in their daily work. For example, an enterprise resource planning (ERP) system often dictates how many business processes are executed and the organization's systems must change to reflect the new processes. Deploying technology without thinking through how it actually will be used in the organization—who will use it, how they will use it, how to make sure the applications chosen actually accomplish what is intended—results in significant expense. In another example, a company may decide to block access to the Internet, thinking that they are prohibiting employees from accessing offensive or unsecure sites. But that decision also means that employees can't access social networking sites, which may be useful for collaboration, or other Web-based applications that may offer functionality to make the business more efficient.

The general manager, who, after all, is charged with ensuring that company resources are used effectively, must guarantee that the company's IS support its organizational systems and that changes made in one system are reflected in the other. For example, a company that plans to allow workers to work remotely needs an information system strategy compatible with its organization strategy. Desktop PCs located within the corporate office are not the right solution for a telecommuting organization. Instead, laptop computers, applications that are accessible online anywhere and anytime, and networks that facilitate information sharing are needed. Workers may want to use tablets or smart phones remotely, too, and those entail a different set of IS processes. If the organization only allows the purchase of desktop PCs and only builds systems accessible from desks within the office, the telecommuting program is doomed to failure.

SKILLS NEEDED TO PARTICIPATE EFFECTIVELY IN INFORMATION TECHNOLOGY DECISIONS

Participating in IT decisions means bringing a clear set of skills to the table. All managers are asked to take on tasks that require different skills at different times. Those tasks can be divided into visionary tasks, or tasks that provide leadership and direction for the group; informational/interpersonal tasks, or tasks that provide information and knowledge the group needs to have to be successful; and structural tasks, tasks that organize the group. Figure I-2 lists basic skills required of managers who wish to participate successfully in key IT decisions. Not only does this list emphasize understanding, organizing, planning, and solving the business needs of the organization, but it also is an excellent checklist for all managers' professional growth.

FIGURE I-2 Skills of successful managers.

These skills may not look much different from those required of any successful manager, which is the main point of this book: General managers can be successful participants in IS decisions without an extensive technical background. General managers who understand a basic set of IS concepts and who have outstanding managerial skills, such as those listed in Figure I-2, are ready for the digital economy.

How To Participate in Information Systems Decisions

Technical wizardry is not required to become a knowledgeable participant in the IS decisions of a business. Managers need curiosity, creativity, and the confidence to ask questions in order to learn and understand. A solid framework that identifies key management issues and relates them to aspects of IS provides the background needed to participate.

The goal of this book is to provide that framework. The way in which managers use and manage information is directly linked to business goals and the business strategy that drive both organizational and IS decisions. Aligning business and IS decisions together is critical. Business, organizational, and information strategies are fundamentally linked in what is called the Information Systems Strategy Triangle, discussed in the next chapter. Failing to understand this relationship is detrimental to a business. Failing to plan for the consequences in all three areas can cost a manager his or her job. This book provides a foundation for understanding business issues related to IS from a managerial perspective.

Organization of the Book

To be a knowledgeable participant, managers must know about both using information and managing information. The first five chapters offer basic frameworks to make this understanding easier. Chapter 1 uses the Information Systems Strategy Triangle framework to discuss alignment of IS and the business. This chapter also provides a brief overview of relevant frameworks for business strategy and organizational strategy. It is provided as background for those who have not formally studied organization theory or business strategy. For those who have studied these areas, this chapter is a brief refresher of major concepts used throughout the remaining chapters of the book. Subsequent chapters provide frameworks and sets of examples for understanding the links between IS and business strategy (Chapter 2), links between IS and organizational strategy (Chapter 3), collaboration and individual work (Chapter 4), and business processes (Chapter 5).

The rest of the text looks at issues related to the business manager's role in managing IS itself. These chapters are the building blocks of an IS strategy. Chapter 6 provides a framework for understanding the four components of IS architecture: hardware, software, networks, and data. Chapter 7 discusses the business of IT, with a look at IS organization, funding models, portfolios, and monitoring options. Chapter 8 looks at the governance of IS resources. Chapter 9 explores sourcing and how companies provision IS resources. Chapter 10 focuses on project and change management. Chapter 11 dives into business intelligence, knowledge management, and analytics and provides an overview of how companies manage knowledge and create a competitive advantage using business analytics. Finally, Chapter 12 discusses the ethical use of information, privacy, and security.

BASIC ASSUMPTIONS

Every book is based on certain assumptions, and understanding those assumptions makes a difference in interpreting the text. The first assumption made by this text is that managers must be knowledgeable participants in the IS decisions made within and affecting their organizations. That means that the general manager must have a basic understanding of the business and technology issues related to IS. Because technology changes rapidly, this text also assumes that the technology of today is different from the technology of yesterday, and most likely, the technology available to readers of this text today differs significantly from that available when the text was written. Therefore, this text focuses on generic concepts that are, to the extent possible, technology independent. It provides a framework on which to hang more current information, such as new uses of the Web, new social tools, or new networking technologies. It is assumed that the reader will seek out the most current sources to supplement the discussions of this text and to learn about the latest technology.

Although some may debate this next assumption, a second assumption is that the role of a general manager and the role of an IS manager are distinct and their skill sets differ. The general manager must have a basic knowledge of IS to make decisions that may have serious implications for the business. Whereas in addition to general business knowledge, the IS manager must have more in-depth knowledge of technology to manage IS and to partner with general managers who must use the information. As digital natives take on increasingly more managerial roles in corporations, this second assumption may have to be altered. But for this text, we assume a different skill set for the IS manager and we do not attempt to provide that here. Assumptions are also made about how business is done and what IS are in general.

Assumptions about Management

The classic view of management includes four activities performed by managers to reach organizational goals and each dependent on the others: planning, organizing, leading, and controlling (see Figure I-3). Conceptually, this simple model provides a framework of the key tasks of management, which is useful for both general business and IS management activities. Although many books have been written describing each of these activities, organizational theorist Henry Mintzberg offers a view that most closely details the perspective relevant to IS management.

FIGURE I-3 Classic management model.

Source: Adapted from James A. F. Stoner, Management, 2nd ed. (Upper Saddle River, NJ: Prentice Hall, 1982).

Mintzberg's model describes management in behavioral terms by categorizing the three major roles a manager fills: interpersonal, informational, and decisional (see Figure I-4). This model is useful because it considers the chaotic nature of the environment in which managers actually work. Managers rarely have time to be reflective in their approaches to problems. They work at an unrelenting pace, and their activities are brief and often interrupted. Thus, quality information becomes even more crucial to effective decision-making. The classic view is often seen as a tactical approach to management, whereas some describe Mintzberg's view as more strategic.

FIGURE I-4 Manager's roles.

Source: Adapted from H. Mintzberg, The Nature of Managerial Work (New York: Harper & Row, 1973).

Assumptions about Business

Everyone has an internal understanding of what constitutes a business, which is based on readings and experiences in different firms. This understanding forms a model that provides the basis for comprehending actions, interpreting decisions, and communicating ideas. Managers use their internal model to make sense of otherwise chaotic and random activities. This book uses several conceptual models of business. Some take a functional view and others take a process view.

Functional View

The classical view of a business is based on the functions that people perform, such as accounting, finance, marketing, operations, and human resources. The business organizes around these functions to coordinate them and to gain economies of scale within specialized sets of tasks. Information first flows vertically up and down between line positions and management; after analysis it may be transmitted across other functions for use elsewhere in the company (see Figure I-5).

Process View

Michael Porter of Harvard Business School describes a business in terms of the primary and support activities that are performed to create, deliver, and support a product or service (see Figure I-6). The primary activities of inbound logistics, operations, outbound logistics, marketing and sales, and service are chained together in sequences that describe how a business transforms its raw materials into value-creating products. This value chain is supported by common activities shared across all the primary activities. For example, general management and legal services are distributed among the primary activities. Improving coordination among activities increases business profit. Organizations that effectively manage core processes across functional boundaries will be winners in the marketplace. IS are often the key to this process improvement and cross-functional coordination.

Both the process and functional views are important to understanding IS. The functional view is useful when similar activities must be explained, coordinated, executed, or communicated. For example, understanding a marketing information system means understanding the functional approach to business in general and the marketing function in particular. The process view, on the other hand, is useful when examining the flow of information throughout a business. For example, understanding the information associated with order fulfillment or product development or customer service means taking a process view of the business. This text assumes that both views are important for participating in IS decisions.

FIGURE I-5 Hierarchical view of the firm.

FIGURE I-6 Process view of the firm: the value chain.

Source: M. Porter, Competitive Advantage: Creating and Sustaining Superior Performance (New York: The Free Press, 1985, 1998).

Assumptions about Information Systems

Consider the components of an information system from the manager's viewpoint, rather than from the technologist's viewpoint. Both the nature of information (hierarchy and economics) and the context of an information system must be examined to understand the basic assumptions of this text.

Information Hierarchy

The terms data, information, and knowledge are often used interchangeably, but have significant and discrete meanings within the knowledge management domain (and are more fully explored in Chapter 11). Tom Davenport, in his book Information Ecology, pointed out that getting everyone in any given organization to agree on common definitions is difficult. However, his work (summarized in Figure I-7) provides a nice starting point for understanding the subtle but important differences.

The information hierarchy begins with data, or simple observations, data are a set of specific, objective facts or observations, such as “inventory contains 45 units.” Standing alone, such facts have no intrinsic meaning, but can be easily captured, transmitted, and stored electronically.

FIGURE I-7 Comparison of data, information, and knowledge.

Source: Adapted from Thomas Davenport, Information Ecology (New York: Oxford University Press, 1997).

Information is data endowed with relevance and purpose.⁷ People turn data into information by organizing it into some unit of analysis (e.g., dollars, dates, or customers). For example, a mashup of location data and housing prices adds something beyond what the data provides individually, and that makes it information. A mashup is the term used to for applications that combine data from different sources to create a new application on the Web. Deciding on the appropriate unit of analysis involves interpreting the context of the data and summarizing it into a more condensed form. Consensus must be reached on the unit of analysis.

To be relevant and have a purpose, information must be considered within the context that it is received and used. Because of differences in context, information needs vary across the function and hierarchical level. For example, when considering functional differences related to a sales transaction, a marketing department manager may be interested in the demographic characteristics of buyers, such as their age, gender, and home address. A manager in the accounting department probably won't be interested in any of these details, but instead wants to know details about the transaction itself, such as method of payment and date of payment.

Similarly, information needs may vary across hierarchical levels. These needs are summarized in Figure I-8 and reflect the different activities performed at each level. At the supervisory level, activities are narrow in scope and focused on production or the execution of the business's basic transactions. At this level, information is focused on day-to-day activities that are internally oriented and accurately defined in a detailed manner. The activities of senior management are much broader in scope. Senior management performs long-term planning and needs information that is aggregated, externally oriented, and more subjective. The information needs of middle managers in terms of these characteristics fall between the needs of supervisors and senior management. Because information needs vary across levels, a daily inventory report of a large manufacturing firm may serve as information for a low-level inventory manager, whereas the CEO would consider such a report to be merely data. A report does not necessarily mean information. The context in which the report is used must be considered in determining if it is information.

FIGURE I-8 Information characteristics across hierarchical level.

Knowledge is information that is synthesized and contextualized to provide value. It is information with the most value. Knowledge consists of a mix of contextual information, values, experiences, and rules. For example, the mashup of locations and housing prices means one thing to a real estate agent, another thing to a potential buyer, and yet something else to an economist. It is richer and deeper than information and more valuable because someone thought deeply about that information and added his or her own unique experience, judgment, and wisdom. Knowledge also involves the synthesis of multiple sources of information over time.⁸ The amount of human contribution increases along the continuum from data to information to knowledge. Computers work well for managing data, but are less efficient at managing information.

Some people think there is a fourth level in the information hierarchy, wisdom. In this context, wisdom is knowledge, fused with intuition and judgment that facilitates the ability to make decisions. Wisdom is that level of the information hierarchy used by subject matter experts, gurus, and individuals with a high level of experience who seem to “just know” what to do and how to apply the knowledge they gain. This is consistent with Aristotle's view of wisdom as the ability to balance different and conflicting elements together in ways that are only learned through experience.

ECONOMICS OF INFORMATION VERSUS ECONOMICS OF THINGS

In their book, Blown to Bits, Evans and Wurster argued that every business is in the information business.⁹ Even those businesses not typically considered to be information businesses have business strategies in which information plays a critical role. The physical world of manufacturing is shaped by information that dominates products as well as processes. For example, a high-end Mercedes automobile contains as much computing power as a midrange personal computer. Information-intensive processes in the manufacturing and marketing of the automobile include design, market research, logistics, advertising, and inventory management.

As our world is reshaped by information-intensive industries, it becomes even more important for business strategies to differentiate the timeworn economics of things from the evolving economics of information. Things wear out; things can be replicated at the expense of the manufacturer; things exist in a tangible location. When sold, the seller no longer owns the thing. The price of a thing is typically based on production costs. In contrast, information never wears out, though it can become obsolete or untrue. Information can be replicated at virtually no cost without limit; information exists in the ether. When sold, the seller still retains the information, but this ownership provides little value if the ability of others to copy it is not limited. Finally, information is often costly to produce, but cheap to reproduce. Rather than pricing it to recover the sunk cost of its initial production, its price is typically based on the value to the consumer. Figure I-9 summarizes the major differences between the economics of goods and the economics of information.

FIGURE I-9 Comparison of the economics of things with the economics of information.

Evans and Wurster suggest that traditionally the economics of information has been bundled with the economics of things. However, in this Information Age, firms are vulnerable if they do not separate the two. The Encyclopedia Britannica story serves as an example. Bundling the economics of things with the economics of information made it difficult for Encyclopedia Britannica to gauge the threat posed by Encarta, the encyclopedia on CD-ROM that was given away to promote the sale of computers and peripherals. Britannica focused on its centuries-old tradition of providing information in richly bound tomes sold to the public through a well-trained sales force. Only when it was threatened with its very survival did Encyclopedia Britannica grasp the need to separate the economics of information from economics of things and sell bits of information online. Clearly, Encyclopedia Britannica's business strategy, like that of many other companies, needed to reflect the difference between the economics of things from the economics of information.¹⁰

System Hierarchy

An information system comprises three main elements: technology, people, and process (see Figure I-10). When most people use the term information system, they actually refer only to the technology element as defined by the organization's infrastructure. In this text the term infrastructure refers to everything that supports the flow and processing of information in an organization, including hardware, software, data, and network components, whereas architecture refers to the strategy implicit in these components. These ideas will be discussed in greater detail in Chapter 6. Information system (IS) is defined more broadly as the combination of technology (the “what”), people (the “who”), and process (the “how”) that an organization uses to produce and manage information. In contrast, information technology (IT) focuses only on the technical devices and tools used in the system. We define information technology as all forms of technology used to create, store, exchange, and use information.

FIGURE I-10 System hierarchy.

Above the information system itself is management, which oversees the design and structure of the system and monitors its overall performance. Management develops the business requirements and the business strategy that the information system is meant to satisfy. The system's architecture provides a blueprint that translates this strategy into components, or infrastructure.¹¹

SUMMARY

Aligning information systems and business decisions is no longer an option; it's an imperative for business. Every business operates as an information-based enterprise. In addition, the explosive growth of smart phones, tablets, social tools and Web-based businesses provides all managers with some experience in information systems, and some idea of the complexity involved in providing enterprise-level systems. This highlights the need for all managers to be skilled in managing and using IS.

It is no longer acceptable to delegate IS decisions to the management information systems (MIS) department alone. The general manager must be involved to both execute business plans and protect options for future business vision. IS and business maturity must be aligned to provide the right level of information resources to the business.

This chapter makes the case for general managers' full participation in strategic business decisions concerning IS. It outlines the skills required for such participation, and it makes explicit certain key assumptions about the nature of business, management, and IS that will underlie the remaining discussions. Subsequent chapters are designed to build on these concepts by addressing the following questions.

Frameworks and Foundations

• How should information strategy be aligned with business and organizational strategies? (Chapter 1)
• How can a business achieve competitive advantages using its IS? (Chapter 2)
• How do organizational decisions impact IS decisions? (Chapter 3)
• How is the work of the individual in an organization affected by decisions concerning IS? (Chapter 4)
• How are information systems integrated with business processes? (Chapter 5)

IS Management Issues

• What are the components of an IS architecture? (Chapter 6)
• How is the IT organization managed and funded? (Chapter 7)
• How are IS decisions made? (Chapter 8)
• What source should provide IS services? (Chapter 9)
• How are IS projects managed and risks from change management mitigated? (Chapter 10)
• How is business intelligence managed within an organization? (Chapter 11)
• What ethical and moral considerations bind the uses of information in business? (Chapter 12)

KEY TERMS

architecture (p. 18)

data (p. 14)

digital natives (p. 6)

information (p. 14)

information system (p. 18)

information technology (p. 19)

infrastructure (p. 18)

knowledge (p. 16)

mashup (p. 15)

social business (p. 8)

social IT (p. 8)

social media (p. 8)

social networking (p. 8)

Web 2.0 (p. 5)

wisdom (p. 16)

DISCUSSION QUESTIONS

1. Why is it important for a general manager to be knowledgeable about information technology?
2. Indicate whether each of the following is information, data, or knowledge:
   1. A daily sales report of each sales transaction that is sent to the chief operating officer
   2. A daily sales report of each sales transaction over $100,000 that is sent to the division marketing manager
   3. A monthly production report that is sent to shop floor supervisors who don't use the report because they believe the figures reported are outdated and inaccurate
   4. An exception report of all accounts that are more than 90 days past-due, which is sent to the Accounts Receivable Manager
   5. A list of Social Security numbers
   6. The contact list in an individual's LinkedIn account
3. Why, in your opinion, did the term Web 2.0 emerge? What is different in the way the Web is used today from the “Web 1.0” world? What do you predict Web 3.0 will mean?

CASE STUDY I-1
TERRY CANNON, MBA¹²

Terry Cannon, a typical MBA, was about to receive an MBA from a leading Business School, fueling a desire to change the world while growing a significant savings account. Terry was debating among three job opportunities, each of which would be a big step up the professional ladder from the associate's job held when working for Impressive Consulting Group (ICG) prior to returning to school to get an MBA. Terry wasn't sure which job to take.

Terry started business school after four years of experience at Impressive Consulting Group (ICG), a global consulting organization with practices in virtually every major city in the world. Terry worked in the Dallas office as an associate right out of undergraduate school, with a degree in business with a concentration in marketing. Terry had worked on a number of interesting strategic marketing projects while at ICG. The last one, before returning to school, involved monitoring Twitter for a large client, to make sure all mentions of the client were known to the client.

Terry was completing a standard MBA program after two years of full-time study and a summer working for MFG Corporation, a large manufacturing company in the Midwest. The internship at MFG Corporation involved working with the new Web marketing group, which Terry chose to see just how a company like MFG takes advantage of the Web. At the same time, Terry hoped to become more proficient in using Web and Internet technologies. The experience at MFG's Web marketing group, however, only made Terry more anxious, highlighting how much more was involved in information systems and the Web than Terry had previously thought. Terry returned to business school in the fall of the second year wondering just how much information systems knowledge would be needed in future jobs. Further, Terry felt that becoming a knowledgeable participant in information decisions was critical to success in the fast-paced Internet-based business world waiting after graduation.

Terry had three job offers as graduation closed in, and wondered just what type of information systems knowledge was needed for each of them. All three jobs involved a competitive salary, a signing bonus, and stock/retirement benefits, so the decision came down to the knowledge needed to be successful on the job. The three jobs are summarized as follows.

1. Return to ICG as a consultant. This job was attractive to Terry because it meant returning to a former employer. Terry had left in good standing and liked the company that rewarded innovation and supported learning and growth among consultants. Terry figured a partnership was possible in the future. As a consultant, Terry could live anywhere and travel to the client site four days a week. The fifth day each week, Terry would be able to work at home, or if desired, in a company office. As a consultant, Terry initially thought engagements in strategic marketing would be the most interesting. ICG had a strong programming group that was brought into each engagement to do the programming and systems analysis work. The consultant role involved understanding client concerns and assisting in building a marketing strategy. Virtually all the projects would have some social IT component and might involve actually building and managing communities for clients. This challenge interested Terry, but based on the summer job experience, Terry wondered just how much technical skill would be required of the consultants in this arena.
2. Join start-up InfoMicro. Several of Terry's friends from business school were joining together to form a new start-up company on the Web. This business plan for this company projected that InfoMicro would be one of only two start-ups in their marketplace, giving the company a good position and great opportunity for growth. The business plan showed the company intending to go public through an IPO as early as three years after inception, and Terry believed they could do it. Terry would join as VP of marketing, supplementing the other three friends who would hold president, VP of finance, and VP of operations positions. The friends who would be president and finance VP were just completing a techno-MBA at Terry's school and would provide the technical competence needed to get InfoMicro on the Web. Terry would focus on developing customers and setting marketing strategy, eventually building an organization to support that operation as necessary. Because InfoMicro was a Web-based business and because social IT was critical to successful marketing efforts, Terry felt a significant amount of information systems knowledge would be required of a successful marketing executive to both understand the company's business and to talk with customers about how to use InfoMicro's products.
3. Return to MFG Corporation. The job would be to join the marketing department as a manager responsible for new customer development. Many of MFG Corporation's customers were older, established companies like MFG Corporation itself, but new customers were likely to be start-ups and up-and-coming companies, or highly successful younger companies like Google or Zappos. Terry felt that some knowledge of information systems would be necessary simply to provide innovative interaction mechanisms such as customer Web-based communities. Terry knew that discussions with the MFG information systems group would be necessary to build these new interfaces. How knowledgeable must Terry be on information systems issues to hold this job?

As spring break approached, Terry knew a decision had to be made. Recruiters from all three companies had given Terry a deadline of the end of break week, and Terry wasn't at all sure which job to take. All sounded interesting, and all were reasonable alternatives for Terry's next career move.

Discussion Questions

1. For each position Terry is considering, what types of information systems knowledge do you think Terry would need?
2. How could Terry be a knowledgeable participant in each of the three jobs? What would it mean to be a knowledgeable participant in each job? Give an example for each job.
3. As a marketing major and an MBA, is Terry prepared for the work world awaiting? Why or why not?

CASE STUDY I-2
ANYGLOBAL COMPANY INC.¹³

Memo

To: Chris Bytemaster, CIO

From: Hazel Hasslefree, CEO

The Board of Directors has been discussing an old article they found in The Harvard Business Review (May 2003) titled “IT Doesn't Matter” by Nicholas Carr. What particularly caught their attention was this quote:

I have been asked to prepare a short presentation about what the article means to our company and whether IT does, in fact, matter in our company. As you know, we have proposed a significant increase in our IT budget for next year and the Board is concerned about this investment. I'm not convinced that advantages from IT spending are no longer available.

Would you please prepare a short report, about a page, that I can use as a basis for my presentation to them? You can find the article in our library or online at Carr's blog:

http://bit.ly/NCarrBlog

Thanks.