BURKS-Instructor Notes- INTRO2BUS- CHAP 9 TECHNOLOGY

LEARNING OBJECTIVES

1. Distinguish between data, information, and knowledge and identify the characteristics
of useful information.
2. Explain the relationship between IT, competitive advantage, and profitability.
3. Discuss five major IT applications used by companies today to build competitive
advantage.
4. Differentiate between B2B Commerce and B2C Commerce.
5. Identify the major hardware and software components of IT and E-Commerce and
describe how they evolved over time.

I. INFORMATION, TECHNOLOGY, AND PROFITABILITY

To understand how IT has become the most recent cause of global change in
business practices, it is important to understand why information is the critical ingredient
facilitating business commerce.
1. Information is a set of data, facts, numbers, and words organized to provide users
with knowledge.
2. Knowledge is what a person perceives, recognizes, identifies or discovers from
analyzing data and information.
3. Learning is an increase of knowledge or expertise in peoples’ memory, or it may be
recorded in books or electronic forms. It makes it possible for people to better understand
and respond to situations and make better decisions, personally and in business.
4. In business, information technology facilitates a company’s ability to turn data into
information and increase organizational learning to better fit the organization’s business
model to changing forces in the environment and increase profitability.

A. Useful Information and Knowledge

Depending on whether it meets certain criteria, information may or may not be
helpful. Characteristics of useful information include whether it is:
1. Complete
2. Accurate and reliable
3. Relevant
4. Timely

B. IT and Competitive Advantage

Chapter 4 explained that the four sources of competitive global advantage are
superior productivity, quality, innovation, and responsiveness to customers. Real-time
information gives managers feedback on a company’s current operations and
performance which is constantly updated to reflect the current situation.
1. IT improves productivity by providing middle managers more data and information
about individual tasks and processes in functional activities such as controlling inventory
and reducing equipment set-up time.
2. IT improves quality by providing managers with information to better monitor
processes, reduce manufacturing errors, and improve service jobs by analyzing mistakes
in such tasks as order filling.
3. IT improves innovation by developing expert systems to speed product development
and improve decisions about which innovations will have the best chance of success.
4. IT improves responsiveness to customers through managing databases that include
information on customer profiles, preferences, and other customer relationship
management tools.

II. MAJOR APPLICATIONS OF INFORMATION TECHNOLOGY

The most important challenge facing a company’s Chief Information Officer
(CIO) is to choose, develop, and integrate an organization’s separate IT systems to
provide seamless computing.

A. Transaction Processing Systems

Transaction processing systems (TP systems) focus on the data and information
about routine, day-to-day operations. In every function, accounting, production, sales,
shipping and receiving, there is a mass of data to be collected and analyzed to operate a
company’s business model.

B. Knowledge Management Systems

Knowledge management systems (KM systems) analyze and filter the
information from the TP systems to make it useful for managers.
1. Applying Pareto’s Rule to the situation means that using 20% of the information,
managers should be able to develop 80% of the knowledge needed to increase efficiency
and effectiveness.
2. Resolving the question of which information is needed to make up the 20% can be
discovered by developing best practices, a set of skill-based competencies that allow a
particular function to be performed at a high level. A KM system can be designed to scan
the information from the TP system for patterns that spell trouble.
3. IT Consultants are especially useful in service organizations to provide feedback to
resolve customer problems and complaints.

C. Expert Systems and Artificial Intelligence

Expert systems are advanced systems that support top-level decision making as
they specialize in analyzing the needs and problems of a particular industry and suggest
best practices to resolve the problems. These systems are used to explain and improve the
fit between the company’s business model and the environment.
1. Expert systems are able to reason through information from TP and KP systems
2. Recognize patterns, problems, or issues in that information
3. Use artificial intelligence to suggest solutions to problems

D. Enterprise Resource Planning

Enterprise resource planning systems are multi-module applications software
packages that link and coordinate the entire set of functional operations necessary to
move products from the initial design stages through to the final customer stage.
1. ERP systems help individual functions improve its skills and performance
2. ERP systems improve integration between all functions
3. ERP systems are part of the secondary value chain that supports and improves the
activities of the primary value chain functions, as they were explained in Chapter 1.
4. ERPs improve profitability by
a. speeding up product development, improving sales revenues
b. driving down operating costs while maintaining quality
c. improving customer satisfaction using customer relationship management
(CRM) systems

BUSINESS IN ACTION: SAP’S ERP SYSTEM

This BIA introduces SAP, creator of the first ERP system in 1973. It explains how
the company has designed software for each functional activity linked to other functions
to provide information to managers across the company so they are able to better
coordinate their activities. It provides top management with an overview of the activities
of the entire company.

E. E-COMMERCE SYSTEMS
E-Commerce is trade that takes place between individuals and companies using
IT and the Internet.
1. Business to business (B2B) commerce takes place between companies by linking the
value chains of different companies. (Figure 9.6)
2. Business to customer commerce (B2C) is trade that takes place between a business and
its individual customers using IT and the Internet.
3. A company’s Intranet links their internal computers.

III. HARDWARE COMPONENTS OF E-COMMERCE

According to many experts, the strength of the U.S. economy today is the result of
its leadership in IT as it has evolved over the past fifty years. The U.S. has about 50% of
the world’s installed computing and processing power, although it has only 4.6% of the
world’s population. Global spending on IT is more than $1 trillion a year.

A. The Legacy System

A company’s existing IT system is known as its legacy system.
1. The huge investment this represents in hardware, software, and training makes it very
difficult for companies to change from one system to another.
2. Trends are for companies to buy from one of a few companies capable of making
upgrades seamless as possible.

B. Mainframe Computers
Computing has evolved from huge mainframes to PDAs, by constantly increasing
capacity and reducing size.
1. UNIVAC, the first modern computer, was developed using vacuum tubes in 1951 and
was about the size of a two-story house.
 DID YOU KNOW?
The term “de-bugging a program” comes from the problems encountered with
UNIVAC. Insects would settle on the vacuum tubes and interfere with the programs
being run on the huge computer. The tubes had to be “de-bugged” to work.

2. Texas Instruments developed the integrated circuit in 1958, allowing the development,
primarily by IBM, of mainframe computers. Mainframes were getting smaller, but had
increased processing and storage capacity. These computers, which have become
increasingly powerful, are still the center of IT for most large companies.
3. IBM continued to develop more software and hardware based on the mainframe as a
separate, “backroom” function. Functional managers had access to information only
through requests to IT managers for production, sales, or other reports.
4. In the 1960s and 1970s, Digital Equipment Corporation (DEC) and Hewlett-Packard
(H-P) began to offer “mini-computers” that were smaller and offered computing for a
particular function or division.
5. Software engineers were focusing on word-processing to replace typewriters in the
70s. The idea was to have remote terminals for secretaries and clerks linked directly to
the mainframe.

C. The Microprocessor and Personal Computer

Intel’s invention of the 4004-microprocessor, or computer-on-a-chip in 1970,
challenged the mainframe concept and opened the door for “stand-alone” computing.
1. Apple Computer introduced a kit for a personal computer in 1976. Word-processing
software was improved by many early innovators.
2. IBM and DEC had developed company and customer cultures that were stuck in the
mainframe mentality of computing as a centralized, technical function and were slow to
introduce competing personal computers.
3. In 1981, IBM introduced its first PC, a major milestone. Given their late start, Bill
Lowe, the manager responsible for developing IBM’s PC, decided to purchase all of its
hardware and software components from outside suppliers instead of developing them in-
house as usual for IBM. This meant they would be unable to protect their newly
developed technology.
4. A software operating system was needed to link the PC’s components such as the two
floppy disk drives, (hard drives had not yet been invented), the Intel supplied
microprocessor, memory board, keyboard, screen, and printer. Bill Gates owned an
operating system he called MS-DOS and licensed it to IBM.

D. Network Computers: Servers and Clients

As the use of PCs spread rapidly during the 80s, companies realized that there
would be major gains in efficiency and effectiveness by linking them to communicate
with one another.
1. Powerful mid-range computers known as servers were used to link PCs, known as
clients, within a function in a big company and made low-cost systems available to
smaller companies.
2. The collection of client PCs linked to a server is known as a LAN, or Local Area
Network.
E. The World Wide Web and the Internet
Soon software engineers recognized the potential of linking computers across
companies, countries, educational institutions, and the Internet and World Wide Web
were developed.
1. The Internet is made up of all of the computer hardware such as mainframes, servers,
PCs, and the electronic switches or routers, fiber optic cable, telephone lines, and
wireless technology that connect them into a global network.
2. The World Wide Web is the total content of the digital information and knowledge
posted on the Internet and contained in the websites and webpages of its users. It is based
on the development by Tim Burners-Lee of the HTML software code that allows posting
of webpages on the Internet. He won a Nobel Prize for his invention that created the
WWW in 2004.

F. Wireless Computers and Personal Digital Assistants

The need for people to “compute on the go” drove the development of laptop
computers and Personal Digital Assistants.
1. Research led to smaller components and long-lasting batteries to create laptop
computers.
2. In 1996, Palm Pilot introduced a hand-held PDA able to manage scheduling, address-
book, note-taking, and expense tracking. They sold more than one million units in 18
months.
3. Today, many companies market “smart phones” that combine cell phone technology
with the functions of PDAs, cameras, music and video players and are web-enabled.
People are able to access their company’s LAN and their home or office computers.

G. Wired and Wireless Broadband Technology

Another complex IT choice has emerged between the use of Ethernet and
Broadband technology for the fast an accurate transmission of data between a company’s
computers.
1. The Ethernet is a LAN that uses fiber optic or coaxial cable and transmits information
at speeds between 10 and 100 million bits of information per second (MPS). It is much
faster than a telephone line dial-up connection.
2. Broadband technology allows for the downloading of the vast amounts of
information on the WWW.
3. Another, more recent, development is Wi-fi, a wireless Ethernet that is a s fast as fiber
optic broadband.

BUSINESS IN ACTION: WIRELESS BROADBAND’S FAST TAKE OFF

This BIA explains how Wi-fi operates to connect computers to the Internet
without any wires or cables or telephones by using radio-based local area networks.
Access points known as “hotspots” are available in restaurants, airports, and other
locations for those who want to connect. Home networks can link computers and
entertainment devices.

4. Bluetooth is a wireless technology that connects all of a computer system’s hardware

without wires. It can also link most devices in a home, such as a PDA, television, and
stereo into a home system, but it is not a broadband technology, so it doesn’t connect to
the Internet.

THINK ABOUT IT
The evolution of computing, as is true of many other technological changes, is about a
shift in our paradigm about sharing information. A paradigm is a set of rules, or a model,
we use to process information from the world around us or with the way we accomplish a
task. For instance, IBM was stuck in the “mainframe” paradigm and nearly missed the
opportunity to compete effectively in the PC market. The shift to PDAs and wireless
phone technology has brought another shift.
2. Who creates these changes?
Usually those who do are not heavily invested in the old paradigm. Kodak passed up the
chance to develop xerography and almost did it again with digital cameras, Fed Ex was
Fred Smith’s graduate school project, Yahoo was developed by two Stanford students,
and Apple Computer was started by two young guys in a garage.
3. What happens to companies that are stuck in the old paradigm?
They don’t survive. Being ready to spot and adapt to the new paradigm is the key to
survival and success.

IV. SOFTWARE COMPONENTS OF INFORMATION TECHNOLOGY

The need to link the four different levels of computer hardware has driven the
need to develop software that improves integration across levels to realize productivity
gains. Competition is very strong to be known as the best of breed solution, the highest
performing application for ERP, networking, or security software.

A. PC Software
Microsoft, the world’s largest software maker, provides the operating system and
applications software for more than 90% of PCs.
1. Microsoft Windows became the industry standard in the 1990s. Control of the
industry standard shapes future IT development over time.
2. Applications software makers must ensure that their applications will be compatible
with Windows.
3. The value of any particular kind of software for a user is dependent on how many other
people and companies are using the same software to communicate and share files.
4. When a software program such as Windows becomes the industry standard, more and
more software is developed to be compatible with it, which in turn makes it more
popular.

B. Networking and Mainframe Software

Today, most of the growth in software sales is in networking all parts of a
company’s systems from mainframe to PDAs.
1. IBM maintains its lead as the largest mainframe software maker.
2. Oracle, the second largest software maker after Microsoft, controls the industry
standard for network database management software. It is highly compatible with
Microsoft.
3. Sun Microsystems is an example of a company that succeeded at first by developing
network software that focused on the market for server and PC networks. It made a
costly mistake by deciding not to be compatible with the Windows platform and has
rapidly lost market share, since most companies have Windows on their PCs.

C. Computer Security Software

Companies need to protect the vital, proprietary knowledge contained in their
databases from Internet users and competitors, while being able to network its computers
to take advantage of the efficiencies of the Internet.
1. The solution to managing the interface between a company’s Intranet and the Internet
is a firewall, which provides a safe pathway to the Internet and controls access to the
company’s data. (Figure 9.8)
2. A firewall protects a computer system from hackers who try to access private systems
for malicious or illegal reasons.
3. Computer viruses are software code written to deliberately harm a company’s
operating and applications software. They present a major problem in IT to differentiate
between information that should be allowed through a firewall and a harmful virus.

D. Wireless Computing Software

The competition to become the industry standard in software for PDAs is likely to
swing the balance toward or away from Microsoft, as Nokia and Palm work hard to gain
market share. Nokia’s Symbian Division is also being supported by Sony, Samsung, and
Motorola.

E. IT and Business Occupations

Computers and computer skills have become vital to success, no matter what the
occupation.
1. Today, more than 5 million people are involved in developing computer hardware and
software and in managing and servicing it for others.
2. There are many new occupational specialties such as LAN managers, expert systems
analysts, database managers, and Internet design specialists.
3. IT has transformed nearly every occupation from driving a delivery truck to medicine.

REVIEW OF LEARNING OBJECTIVES

1. Distinguish between data, information, and knowledge and identify the

characteristics of useful information.
Data are the numbers, facts, and words collected by information systems.
Information is the result of organizing the data to provide users with specific knowledge.
Knowledge is what a person perceives, recognizes, identifies, or discovers from
analyzing data and information.

2. Explain the relationship between IT, competitive advantage, and profitability.

 The purpose of a company’s IT system is to allow managers at all levels,
functions, and divisions to work together to achieve superior productivity, quality,
innovation, and responsiveness to customers thereby increasing competitive advantage
and profitability.

3. Discuss five major IT applications used by companies today to build competitive

advantage.
The five major IT applications are transaction processing systems, Knowledge
management systems, expert systems and artificial intelligence, enterprise resource
planning systems, and E-commerce.

4. Differentiate between B2B Commerce and B2C Commerce.

Business to Business (B2B) commerce takes place between companies using the
IT and the Internet to link and coordinate the value chains of different companies. Its goal
is to increase the profitability of making and selling goods and services. Business-to-
customer (B2C) is trade that takes place between a company and individual customers
using IT and the Internet. The goal of B2C is to attract more customers by providing
more information.

5. Identify the major hardware and software components of IT and E-Commerce

and describe how they evolved over time.
Computing has evolved from huge mainframes to PDAs, by constantly increasing
capacity and reducing size. UNIVAC, the first modern computer, was developed using
vacuum tubes in 1951 and was about the size of a two-story house. The main
components of hardware systems are the legacy system, mainframe computers,
microprocessors and personal computers, personal digital assistants, and wired, wireless
and broadband communication. The main components of software are IT software, PC
software, networking software, computer security software, and PDA software.