Essentials of Management

Information Systems

Twelfth Edition

Kenneth C. Laudon
New York University

Jane P. Laudon
Azimuth Information Systems

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About the Authors

Kenneth C. Laudon is a Professor of Information Systems at New York

University’s Stern School of Business. He holds a B.A. in Economics from Stanford and
a Ph.D. from Columbia University. He has authored twelve books dealing with elec-
tronic commerce, information systems, organizations, and society. Professor Laudon
has also written over forty articles concerned with the social, organizational, and man-
agement impacts of information systems, privacy, ethics, and multimedia technology.
Professor Laudon’s current research is on the planning and management of large-
scale information systems and multimedia information technology. He has received
grants from the National Science Foundation to study the evolution of national informa-
tion systems at the Social Security Administration, the IRS, and the FBI. Ken’s research
focuses on enterprise system implementation, computer-related organizational and
occupational changes in large organizations, changes in management ideology, changes
in public policy, and understanding productivity change in the knowledge sector.
Ken Laudon has testified as an expert before the United States Congress. He
has been a researcher and consultant to the Office of Technology Assessment
(United States Congress), Department of Homeland Security, and to the Office of
the President, several executive branch agencies, and Congressional Committees.
Professor Laudon also acts as an in-house educator for several consulting firms and
as a consultant on systems planning and strategy to several Fortune 500 firms.
At NYU’s Stern School of Business, Ken Laudon teaches courses on Managing
the Digital Firm, Information Technology and Corporate Strategy, Professional
Responsibility (Ethics), and Electronic Commerce and Digital Markets. Ken Laudon’s
hobby is sailing.

Jane Price Laudon is a management consultant in the information systems

area and the author of seven books. Her special interests include systems analysis,
data management, MIS auditing, software evaluation, and teaching business profes-
sionals how to design and use information systems.
Jane received her Ph.D. from Columbia University, her M.A. from Harvard
University, and her B.A. from Barnard College. She has taught at Columbia University
and the New York University Stern School of Business. She maintains a lifelong inter-
est in Oriental languages and civilizations.
The Laudons have two daughters, Erica and Elisabeth, to whom this book is dedicated.
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Brief Contents
Preface xvi

I Information Systems in the Digital Age 1

1 Business Information Systems in Your Career 2
2 Global E-Business and Collaboration 38
3 Achieving Competitive Advantage with Information Systems 76
4 Ethical and Social Issues in Information Systems 110

II Information Technology Infrastructure 149

5 IT Infrastructure: Hardware and Software 150
6 Foundations of Business Intelligence: Databases and Information Management 190
7 Telecommunications, the Internet, and Wireless Technology 226
8 Securing Information Systems 268

III Key System Applications for the Digital Age 307

9 Achieving Operational Excellence and Customer Intimacy: Enterprise Applications 308
10 E-Commerce: Digital Markets, Digital Goods 340
11 Improving Decision Making and Managing Knowledge 382

IV Building and Managing Systems 421

12 Building Information Systems and Managing Projects 422

Glossary 462
Index 479

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Complete Contents
Preface xvi Decision Making: Using the Internet to Locate Jobs
Requiring Information Systems Knowledge 33
I Information Systems in the Collaboration and Teamwork Project 33
Digital Age 1 Business Problem-Solving Case
Home Depot Renovates Itself with New Systems
1 Business Information Systems in Your Career 2 and Ways of Working 34

Chapter-Opening Case:
2 Global E-Business and Collaboration 38
The San Francisco Giants Keep Winning
with Information Technology 3 Chapter-Opening Case:
1-1 Why are information systems so essential for Enterprise Social Networking Helps ABB Innovate
running and managing a business today? 5 and Grow 39
How Information Systems Are Transforming Business 5 • 2-1 What major features of a business are
What’s New in Management Information Systems? 6 • important for understanding the role
Globalization Challenges and Opportunities: A Flattened of information systems? 41
World 8 Organizing a Business: Basic Business Functions 41 •
Interactive Session: People Business Processes 42 • Managing a Business and
The Mobile Pocket Oice 9 Firm Hierarchies 44 • The Business Environment 45 •
Business Drivers of Information Systems 11 The Role of Information Systems in a Business 46
1-2 What exactly is an information system? How 2-2 How do systems serve different management
does it work? What are its people, organizational, groups in a business and how do systems that
and technology components? 13 link the enterprise improve organizational
What Is an Information System? 13 • It Isn’t Simply performance? 46
Technology: The Role of People and Organizations 15 • Systems for Diferent Management Groups 47 •
Dimensions of Information Systems 16 Systems for Linking the Enterprise 51
Interactive Session: Technology Interactive Session: Organizations
UPS Competes Globally with Information New Systems Help Plan International Manage
Technology 19 Its Human Resources 52
1-3 How will a four-step method for business E-Business, E-Commerce, and E-Government 55
problem solving help you solve information 2-3 Why are systems for collaboration and social
system–related problems? 21 business so important and what technologies
The Problem-Solving Approach 21 • A Model of the do they use? 56
Problem-Solving Process 21 • The Role of Critical What Is Collaboration? 56 • What Is Social
Thinking in Problem Solving 24 • The Connections Business? 57 • Business Beneits of Collaboration and
Among Business Objectives, Problems, and Solutions 24 Social Business 58 • Building a Collaborative Culture
1-4 How will information systems affect business and Business Processes 60 • Tools and Technologies
careers, and what information systems skills for Collaboration and Social Business 60
and knowledge are essential? 25 Interactive Session: People
How Information Systems Will Afect Business Careers 25 Is Social Business Working Out? 64
• Information Systems and Your Career: Wrap-Up 28 2-4 What is the role of the information systems
• How This Book Prepares You For the Future 29 function in a business? 66
Review Summary 30 • The Information Systems
Key Terms 30 • Review Department 66 • Information
Questions 31 • Discussion Systems Services 67
Questions 31 • Hands-On Review Summary 68 •
MIS Projects 32 Key Terms 69 • Review
Management Decision Problems Questions 69 • Discussion
32 • Improving Decision Making: Questions 70 • Hands-On
Using Databases to Analyze Sales Trends 32 • Improving MIS Projects 70
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 Management Decision Problems 70 • Improving Decision Collaboration and Teamwork Project 105
Making: Using a Spreadsheet to Select Suppliers 71 Business Problem-Solving Case
• Achieving Operational Excellence: Using Internet Will Technology Save Sears? 106
Software to Plan Eicient Transportation Routes 71
Collaboration and Teamwork Project 71
Business Problem-Solving Case 4 Ethical and Social Issues in Information
How Much Does Data-Driven Planting Help Systems 110
Farmers? 72 Chapter-Opening Case:
The Dark Side of Big Data 111
3 Achieving Competitive Advantage with 4-1 What ethical, social, and political issues are
Information Systems 76 raised by information systems? 113
Chapter-Opening Case: A Model for Thinking About Ethical, Social, and
Should T.J. Maxx Sell Online? 77 Political Issues 114 • Five Moral Dimensions of
the Information Age 115 • Key Technology Trends
3-1 How do Porter’s competitive forces model, the
That Raise Ethical Issues 116
value chain model, synergies, core competencies,
4-2 What specific principles for conduct can
and network-based strategies help companies
be used to guide ethical decisions? 118
use information systems for competitive
Basic Concepts: Responsibility, Accountability,
advantage? 79
and Liability 118
Porter’s Competitive Forces Model 79 • Information
System Strategies for Dealing with Competitive Forces 81 Interactive Session: Organizations
Edward Snowden: Traitor or Protector
Interactive Session: Technology
of Privacy? 119
Nike Becomes a Technology Company 83
Ethical Analysis 120 • Candidate Ethical Principles 121 •
The Internet’s Impact on Competitive Advantage 86 •
Professional Codes of Conduct 122 • Some Real-World
The Business Value Chain Model 87 • Synergies, Core
Ethical Dilemmas 122
Competencies, and Network-Based Strategies 89 •
4-3 Why do contemporary information systems
Disruptive Technologies: Riding the Wave 91
technology and the Internet pose challenges
3-2 How do information systems help businesses
to the protection of individual privacy and
compete globally? 92
intellectual property? 122
The Internet and Globalization 93 • Global Business and
Information Rights: Privacy and Freedom in the Internet
System Strategies 93 • Global System Coniguration 94
Age 122 • Property Rights: Intellectual Property 129
3-3 How do information systems help businesses
4-4 How have information systems affected laws
compete using quality and design? 95
for establishing accountability and liability
What Is Quality? 95 • How Information Systems
and the quality of everyday life? 132
Improve Quality 96
Computer-Related Liability Problems 132 • System
3-4 What is the role of business process management
Quality: Data Quality and System Errors 133 • Quality
(BPM) in enhancing competitiveness? 97
of Life: Equity, Access, and Boundaries 134 • Health
What is Business Process Management? 98
Risks: RSI, CVS, and Cognitive Decline 137
Interactive Session: Organizations Interactive Session: People
Datacard Group Redesigns the Way Are We Relying Too Much on Computers
It Works 100 to Think for Us? 138
Review Summary 102 • Review Summary 140 •
Key Terms 103 • Review Key Terms 141 • Review
Questions 103 • Discussion Questions 141 • Discussion
Questions 104 • Hands-On Questions 142 • Hands-On
MIS Projects 104 MIS Projects 142
Management Decision Management Decision
Problems 104 • Improving Problems 142 • Achieving
Decision Making: Using a Database to Clarify Operational Excellence:
Business Strategy 105 • Improving Decision Creating a Simple Blog 143 • Improving
Making: Using Web Tools to Conigure and Decision Making: Analyzing Web Browser
Price an Automobile 105 Privacy 143

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Collaboration and Teamwork Project 143 Business Problem-Solving Case
Business Problem-Solving Case BYOD: Business Opportunity
Facebook Privacy: What Privacy? 144 or Big Headache? 186

II Information Technology 6 Foundations of Business Intelligence: Databases

Infrastructure 149 and Information Management 190
Chapter-Opening Case:
5 IT Infrastructure: Hardware and Software 150 Better Data Management Helps the US Postal
Service Rebound 191
Chapter-Opening Case:
EasyJet Flies High with Cloud Computing 151 6-1 What is a database and how does a relational
database organize data? 193
5-1 What are the components of
Entities and Attributes 194 • Organizing Data in
IT infrastructure? 153
a Relational Database 194 • Establishing
Infrastructure Components 153
Relationships 196
5-2 What are the major computer hardware,
6-2 What are the principles of a database
data storage, input, and output technologies
management system? 199
used in business and the major hardware
Operations of a Relational DBMS 200 • Capabilities
trends? 155
of Database Management Systems 202 • Nonrelational
Types of Computers 155 • Storage, Input,
Databases and Databases in the Cloud 203
and Output Technology 157 • Contemporary
6-3 What are the principal tools and technologies
Hardware Trends 158
for accessing information from databases to
Interactive Session: Technology improve business performance and decision
Wearable Computers Go to Work 160 making? 204
Interactive Session: Organizations The Challenge of Big Data 204 • Business Intelligence
Cloud Computing Takes Of 165 Infrastructure 205
5-3 What are the major types of computer software Interactive Session: People
used in business and the major software New York City Embraces Data-Driven Crime
trends? 169 Fighting 206
Operating System Software 169 • Application
Software and Desktop Productivity Tools 171 •
Interactive Session: Technology
HTML and HTML5 173 • Web Services 174 •
Driving ARI Fleet Management with Real-Time
Software Trends 175 Analytics 209
5-4 What are the principal issues in managing Analytical Tools: Relationships, Patterns, Trends 210 •
hardware and software technology? 177 Databases and the Web 214
Capacity Planning and Scalability 177 • Total Cost 6-4 Why are information policy, data administration,
of Ownership (TCO) of Technology Assets 177 • Using and data quality assurance essential for
Technology Service Providers 178 • Managing Mobile managing the firm’s data resources? 215
Platforms 179 • Managing Software Localization for Establishing an Information Policy 215 • Ensuring
Global Business 180 Data Quality 215
Review Summary 180 • Review Summary 216 •
Key Terms 182 • Review Key Terms 217 • Review
Questions 182 • Discussion Questions 218 • Discussion
Questions 183 • Hands-On Questions 219 • Hands-On
MIS Projects 183 MIS Projects 219
Management Decision Management Decision
Problems 183 • Improving Problems 219 • Achieving
Decision Making: Using a Spreadsheet to Evaluate Operational Excellence: Building a Relational
Hardware and Software Options 184 • Improving Database for Inventory Management 220 • Improving
Decision Making: Using Web Research to Budget Decision Making: Searching Online Databases For
for a Sales Conference 184 Overseas Business Resources 220
Collaboration and Teamwork Project 185 Collaboration and Teamwork Project 221

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Business Problem-Solving Case
Can We Trust Big Data? 222 8 Securing Information Systems 268
Chapter-Opening Case:
7 Telecommunications, the Internet, and Wireless Target Becomes the Target for Massive Data
Technology 226 Theft 269
Chapter-Opening Case: 8-1 Why are information systems vulnerable
Wireless Technology Makes Dundee Precious Metals to destruction, error, and abuse? 271
Good as Gold 227 Why Systems Are Vulnerable 271 • Malicious
7-1 What are the principal components Software: Viruses, Worms, Trojan Horses, and
of telecommunications networks and key Spyware 274 • Hackers and Computer Crime 276 •
networking technologies? 229 Internal Threats: Employees 280 • Software
Networking and Communication Trends 229 • What Vulnerability 280
is a Computer Network? 230 • Key Digital Networking 8-2 What is the business value of security and
Technologies 231 control? 281
7-2 What are the different types of Legal and Regulatory Requirements for Electronic
networks? 234 Records Management 282 • Electronic Evidence
Signals: Digital vs. Analog 234 • Types of and Computer Forensics 283
Networks 235 • Transmission Media and 8-3 What are the components of an organizational
Transmission Speed 236 framework for security and control? 283
7-3 How do the Internet and Internet technology Information Systems Controls 283 • Risk Assessment 284
work and how do they support communication Interactive Session: People
and e-business? 236 The Flash Crash: A New Culprit 285
What Is the Internet? 236 • Internet Addressing and
Architecture 237 Security Policy 287 • Disaster Recovery Planning
and Business Continuity Planning 288 • The Role
Interactive Session: Organizations of Auditing 289
The Battle over Net Neutrality 240 8-4 What are the most important tools and
Internet Services and Communication Tools 241
technologies for safeguarding information
Interactive Session: People resources? 289
Monitoring Employees on Networks: Unethical Identity Management and Authentication 290 •
or Good Business? 244 Firewalls, Intrusion Detection Systems, and Antivirus
The Web 246 Software 291 • Securing Wireless Networks 293 •
7-4 What are the principal technologies and standards Encryption and Public Key Infrastructure 293 •
for wireless networking, communication, and Ensuring System Availability 295 • Security Issues for
Internet access? 253 Cloud Computing and the Mobile Digital Platform 295 •
Cellular Systems 253 • Wireless Computer Networks Ensuring Software Quality 296
and Internet Access 254 • RFID and Wireless Sensor
Interactive Session: Technology
Networks 256
BYOD: A Security Nightmare? 297
Review Summary 259 •
Key Terms 260 • Review Review Summary 299 •
Questions 261 • Discussion Key Terms 300 • Review
Questions 261 • Hands-On Questions 300 • Discussion
MIS Projects 261 Questions 301 • Hands-On
MIS Projects 301
Management Decision
Problems 262 • Improving Management Decision
Decision Making: Using Spreadsheet Software to Problems 301 • Improving
Evaluate Wireless Services 262 • Achieving Operational Decision Making: Using Spreadsheet Software
Excellence: Using Web Search Engines for Business to Perform a Security Risk Assessment 302 •
Research 262 Improving Decision Making: Evaluating Security
Outsourcing Services 302
Collaboration and Teamwork Project 263
Collaboration and Teamwork Project 302
Business Problem-Solving Case
Google, Apple, and Facebook Struggle for Your Business Problem-Solving Case
Internet Experience 264 Sony Hacked Again: Bigger Than Ever 303
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III Key System Applications Collaboration and Teamwork Project 335
for the Digital Age 307 Business Problem-Solving Case
Customer Relationship Management Helps Celcom
Become Number One 336
9 Achieving Operational Excellence and Customer
Intimacy: Enterprise Applications 308
Chapter-Opening Case:
10 E-Commerce: Digital Markets, Digital
Goods 340
ACH Food Companies Transforms Its Business with
Enterprise Systems 309 Chapter-Opening Case:
9-1 How do enterprise systems help businesses Uber Digitally Disrupts the Taxi
achieve operational excellence? 311 Industry 341
What are Enterprise Systems? 311 • Enterprise 10-1 What are the unique features of e-commerce,
Software 312 • Business Value of Enterprise digital markets, and digital goods? 343
Systems 313 E-Commerce Today 344 • The New E-Commerce:
9-2 How do supply chain management systems Social, Mobile, Local 345 • Why E-commerce
coordinate planning, production, and logistics is Diferent 347 • Key Concepts in E-commerce:
with suppliers? 314 Digital Markets and Digital Goods in a Global
The Supply Chain 314 • Information Systems and Supply Marketplace 349
Chain Management 316 • Supply Chain Management 10-2 What are the principal e-commerce business
Software 317 and revenue models? 353
Interactive Session: Organizations Types of E-Commerce 353 • E-Commerce Business
Scotts Miracle-Gro Cultivates Supply Chain Models 353 • E-Commerce Revenue Models 356
Proiciency 319 10-3 How has e-commerce transformed
marketing? 358
Global Supply Chains and the Internet 320 • Business
Behavioral Targeting 358 • Social E-commerce
Value of Supply Chain Management Systems 321
and Social Network Marketing 361
9-3 How do customer relationship management
systems help firms achieve customer Interactive Session: People
intimacy? 322 Getting Social with Customers 364
What Is Customer Relationship Management? 322 • 10-4 How has e-commerce affected Business-
Customer Relationship Management Software 323 • to-Business transactions? 365
Operational and Analytical CRM 325 • Business Electronic Data Interchange (EDI) 366 • New Ways
Value of Customer Relationship Management of B2B Buying and Selling 366
Systems 327 10-5 What is the role of m-commerce in
9-4 What are the challenges that enterprise business, and what are the most important
applications pose and how are enterprise m-commerce applications? 368
applications taking advantage of new Location-Based Services and Applications 369
technologies? 327 Interactive Session: Organizations
Enterprise Application Challenges 327 • Next- Can Instacart Deliver? 370
Generation Enterprise Applications 328 Other Mobile Commerce Services 371
Interactive Session: Technology 10-6 What issues must be addressed when building
Unilever Uniies Globally with Enhanced ERP 330 an e-commerce presence? 372
Review Summary 331 • Develop an E-commerce Presence Map 372 •
Key Terms 332 • Review Develop a Timeline: Milestones 373
Questions 333 • Discussion Review Summary 374 •
Questions 333 • Hands-On Key Terms 375 • Review
MIS Projects 334 Questions 375 • Discussion
Management Decision Questions 376 • Hands-On
Problems 334 • Improving MIS Projects 376
Decision Making: Using Database Software to Management Decision
Manage Customer Service Requests 334 • Achieving Problems 376 • Improving
Operational Excellence: Evaluating Supply Chain Decision Making: Using Spreadsheet Software
Management Services 335 to Analyze a Dot-Com Business 376 • Achieving

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 Operational Excellence: Evaluating E-Commerce Management Decision Problems 415 • Improving
Hosting Services 377 Decision Making: Using Pivot Tables to Analyze
Collaboration and Teamwork Project 377 Sales Data 416 • Improving Decision Making: Using
Intelligent Agents for Comparison Shopping 416
Business Problem-Solving Case
Walmart and Amazon Duke It Out for E-Commerce Collaboration and Teamwork Project 416
Supremacy 378 Business Problem-Solving Case
What’s Up with IBM’s Watson? 416
11 Improving Decision Making and Managing
Knowledge 382
Chapter-Opening Case: IV Building and Managing
Germany Wins the World Cup with Big Data Systems 421
at Its Side 383
11-1 What are the different types of decisions, 12 Building Information Systems and Managing
and how does the decision-making process Projects 422
work? 385
Business Value of Improved Decision Making 385 • Chapter-Opening Case:
Types of Decisions 386 • The Decision-Making Girl Scout Cookie Sales Go Digital 423
Process 387 • High-Velocity Automated Decision 12-1 What are the core problem-solving steps for
Making 387 • Quality of Decisions and Decision developing new information systems? 425
Making 388 Deining and Understanding the Problem 425 • Developing
11-2 How do business intelligence and business Alternative Solutions 427 • Evaluating and Choosing
analytics support decision making? 388 Solutions 427 • Implementing the Solution 428
What is Business Intelligence? 389 • The Business 12-2 What are the alternative methods for building
Intelligence Environment 389 • Business Intelligence information systems? 431
and Analytics Capabilities 390 Traditional Systems Development Life Cycle 431 •
Interactive Session: Technology Prototyping 432 • End-User Development 433 •
America’s Cup: The Tension Between Technology Purchasing Solutions: Application Software
and Human Decision Makers 394 Packages and Outsourcing 433 • Mobile Application
Development: Designing for a Multi-Screen
Business Intelligence Users 396 • Group Decision-
World 435 • Rapid Application Development
Support Systems 399
for E-Business 436
11-3 What are the business benefits of using
intelligent techniques in decision making Interactive Session: Technology
and knowledge management? 400 The Challenge of Mobile Application
Expert Systems 400 • Case-Based Reasoning 401 • Development 437
Fuzzy Logic Systems 402 • Neural Networks 403 • 12-3 What are the principal methodologies for
Genetic Algorithms 404 modeling and designing systems? 438
Structured Methodologies 438 • Object-Oriented
Interactive Session: People
Development 440 • Computer-Aided Software
Facial Recognition Systems: Another Threat
Engineering (CASE) 442
to Privacy? 405
12-4 How should
Intelligent Agents 407 information systems
11-4 What types of systems are used for enterprise- projects be selected
wide knowledge management and knowledge and managed? 442
work, and how do they provide value for Project Management
businesses? 408 Objectives 442
Enterprise-Wide Knowledge Management Systems 408 •
Knowledge Work Systems 410
Interactive Session: Organizations
Britain’s National Health Service Jettisons Choose
Review Summary 412 • and Book System 443
Key Terms 414 • Review Selecting Projects: Making the Business Case for
Questions 414 • Discussion a New System 445 • Managing Project Risk and
Questions 415 • Hands-On System-Related Change 448
MIS Projects 415
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Review Summary 452 • Key Terms 454 • Review Collaboration and Teamwork Project 456
Questions 454 • Discussion Questions 455 • Hands-On Business Problem-Solving Case
MIS Projects 455 A Shaky Start for Healthcare.gov 457
Management Decision Problems 455 • Improving
Decision Making: Using Database Software to Glossary 462
Design a Customer System for Auto Sales 456 • Index 479
Achieving Operational Excellence: Analyzing Web
Site Design and Information Requirements 456

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