laudon lecture notes on management information system.doc

Chapter 1
Information Systems in Global Business Today
Student Learning Objectives
1-1 How are information systems transforming business and why are they so essential for
running and managing a business today?
1-2 What is an information system? How does it work? What are its management,
organization, and technology components? Why are complementary assets essential for
ensuring that information systems provide genuine value for organizations?
1-3 What academic disciplines are used to study information systems and how does each
contribute to an understanding of information systems?
1-4 How will MIS help my career?
Learning Catalytics is a “bring your own device” student engagement, assessment, and
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time diagnostics. Students can use any modern, web-enabled device (smartphone, tablet,
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contact your Pearson Representative.
Key Terms
The following alphabetical list identifies the key terms discussed in this chapter. The
page number for each key term is provided.
Business functions, 19 Information technology (IT) infrastructure, 22
Business model, 14 Input, 17
Business processes, 12 Internet, 21
Complementary assets, 26 Intranets, 21
Computer hardware, 21 Knowledge workers, 19
Computer literacy, 18 Management information systems (MIS), 18
Computer software, 21 Middle management, 19
Culture, 20 Network, 21
Data, 16 Networking and telecommunications technology, 21
Data management technology, 21 Operational management, 19
Data workers, 19 Organizational and management capital, 26
Digital firm, 12 Output, 17
Extranets, 21 Processing, 17
Feedback, 17 Production or service workers, 19
Information, 16 Senior management, 19
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Copyright © 2020 Pearson Education, Inc.

Information system, 16 Sociotechnical view, 29
Information systems literacy, 18 World Wide Web, 22
Information technology (IT), 16
Teaching Suggestions
You are probably meeting in the first class session to introduce yourself, the course, and
to meet the students. It is good to get to the classroom early and meet the students as they
come in. Learn a few names as the students enter.
After going over any requirements you may have for the course, try to give an overview
of the course stressing that this is not a technical course. Usually, you can’t do enough to
put non-technical types at ease.
The opening case, “PCL Construction: The New Digital Firm,” shows students that even
the most successful businesses must continually embrace technology upgrades and
improvements as a way to enhance customer value and increase a business’s competitive
advantage. Students will become familiar with the idea that many different kinds of
businesses have had to change the way they operate.
PCL, a group of independent general contracting construction companies, has digitized
most of its paper-based work tools like blueprints, project documents, cost estimates, and
subcontractor tracking. Electronic touch-screen kiosks throughout the job site and
electronic plan rooms provide access to digitized, updated blueprints so team members
don’t have to waste time tracking down paper versions. By performing much of the
design and planning work on the computer, PCL is able to identify and resolve conflicts
and constructability issues early in the construction process to help keep projects ahead of
schedule and within budget.
A secure project-based web site provides real-time storage and management of
information in a single shared, accessible location. Construction contractors,
subcontractors, consultants, suppliers, and clients can work from the same documents
wherever they are.
Staff working on PCL projects can access information from cloud-based systems at any
time and location using mobile devices as well as conventional desktop machines and an
Internet connection. PCL saves 80 percent of the cost of backing up its corporate data by
using the Azure platform.
Section 1-1, “How are information systems transforming business and why are they so
essential for running and managing a business today?” gives students a feel for the
importance of information systems in business today and how they have transformed
businesses on the world stage. A good discussion of the six important business objectives
outlined in this section allows the instructor and students to discuss why businesses have
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become so dependent on information systems today and the importance of these systems
for the survival of a firm. Stress to students that information systems are not a luxury. In
most businesses they are the core of survival. This would be a good time to ask students
to discuss how their own schools are using information systems to enhance their
product offering.
Globalization is affecting virtually every country in the world. The most striking
evidence of this trend is the increasing presence of cell phones in the very small villages
of Africa. As technology becomes more pervasive and, in some cases easier to use,
globalization will continue its steady march. China, Singapore, and Russia are good
examples of how globalization has flattened the world. They have become major
exporters to other countries, especially industrialized and advanced countries like the
United States and many European countries. Emerging countries, like Poland, the
Ukraine, and Ireland, are excellent examples of increasing globalization.
Ask students to provide examples of truly digital firms (Cisco Systems and Dell
Computers) as opposed to those businesses (local mom-and-pop stores or a local doctor’s
office) that still perform many business processes outside of integrated information
systems.
Review the six strategic business objectives: operational excellence; new products,
services, and business models; customer and supplier intimacy; improved decision
making; competitive advantage; and survival. The rest of the text will continually refer
to these six objectives as reasons why firms should incorporate and integrate business
processes with information systems.
Interactive Session: Management: Can You Run the Company with Your iPhone?
Case Study Questions
1. What kinds of applications are described here? What business functions do they
support? How do they improve operational efficiency and decision making?
Email, messaging, social networking, and salesforce management are described in this
case study. The applications support business functions including collaboration, location-
based services, and communications with colleagues. These applications improve
operational efficiency and decision making by allowing people to communicate from
wherever they are. They are no longer tethered to one place or one machine. They can
receive information and data instantaneously which allows them to make better, faster
decisions.
2. Identify the problems that businesses in this case study solved by using mobile
digital devices.
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Network Rail uses a group of custom apps for its 22,000 iPhone and iPad devices to
streamline maintenance operations, quickly capture incident data, and immediately share
critical information.
One of Network Rail’s app helps employees report hazards as they are found so problems
can be addressed quickly. Workers can take pictures of dangerous situations immediately
with their phones which speeds up the time it takes to fix problems in the rail lines.
Another app allows field managers to electronically scan ID cards to verify that workers
are qualified to perform specific tasks.
British Airways agents use phones to scan boarding passes, review customer books, look
up alternate flight options, and rebook and reticket passengers within four minutes. That
creates a lot of customer satisfaction.
The company also uses mobile apps to shorten and streamline the aircraft turnaround
process which generates huge business benefits. Turnaround managers are able to
monitor the aircraft loading process and share data with pilots and back-office staff in
real time. The apps helped British Airways achieve an industry-leading benchmark for
aircraft turnaround.
3. What kinds of businesses are most likely to benefit from equipping their
employees with mobile digital devices such as iPhones and iPads?
Any business with a need to communicate with customers, suppliers, and business
colleagues can benefit from equipping employees with mobile digital devices.
Student answers will vary as they relate their own experiences and knowledge of using
mobile digital devices. Try to encourage student creativity and imagination with this
question. Here are a couple examples:
Insurance companies: claims adjusters or agents writing new policies or updating old
ones, can take pictures of property as-is or that’s been damaged, update data on the
condition of a property, and document property damage for claims processing.
Real estate agents: can take pictures of homes for sale and send to prospective buyers,
send information to other agents or prospective buyers and sellers, answer questions and
complete documents related to buying and selling property.
Winemakers: can receive up-to-date weather forecasts, track crop information via GPS
coordinates, store and access data on crop varieties for later analysis, track employee
productivity during harvest time, take pictures of crops to include in a database, and
communicate with suppliers and customers.
4. One company deploying iPhones has said, “The iPhone is not a game changer,
it’s an industry changer. It changes the way that you can interact with your
customers and with your suppliers.” Discuss the implications of this statement.
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First and foremost, those that effectively and efficiently deploy mobile digital device
technology gain a huge competitive advantage over those who do not use the technology
to stay in constant touch with customers and suppliers. Sales and Marketing can take a hit
by not having access to information that can close business deals faster and more
efficiently. Costs can increase without the ability to contact suppliers and track product
shipments, especially for those companies who use just-in-time supply chains.
Section 1-2, “What is an information system? How does it work? What are its
management, organization, and technology components? Why are complementary
assets essential for ensuring that information systems provide genuine value for
organizations?” gives students the facts and definitions that underpin information
systems and allow students to knowledgeably discuss information systems. Students do
not need the knowledge of a technical person, but they do need to understand the role of
information technology and how it must support the organization’s business strategy.
They must also understand how information technology can be used to help transform a
business. Note that the chapter’s definitions and terms help prepare students to discuss
information systems as an intricate part of business systems. Encourage students to see
that technology is subordinate to the organization and its purposes.
This is also a good place to reinforce the differences between information systems
literacy and computer literacy. When asked to describe company information systems,
students often depict information systems in terms of technology. It is important to stress
that information systems are more than just technology, and that they have management,
organization, and technology dimensions. Figure 1-5 and the diagram at the beginning of
the chapter can be used to illustrate this point.
Ask students why some companies can achieve much better results using information
systems while others cannot. That will help them understand the concept of
complementary assets and show that there is much more to building a digital firm than
simply buying the latest, greatest hardware and software. It will also help them
understand the delicate relationship between technology, management, and organizations
assets.
Interactive Session: Technology: UPS Competes Globally with Information
Technology
Case Study Questions
1. What are the inputs, processing, and outputs of UPS’s package tracking system?
Inputs: The inputs include package information, customer signature, pickup,
delivery, time-card data, current location (while en route), and billing and customer
clearance documentation.
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Processing: The data are transmitted to a central computer and stored for retrieval.
Data are also reorganized so that they can be tracked by customer account, date,
driver, and other criteria.
Outputs: The outputs include pickup and delivery times, location while en route, and
package recipient. The outputs also include various reports, such as all packages for a
specific account or a specific driver or route, as well as summary reports for
management.
2. What technologies are used by UPS? How are these technologies related to
UPS’s business strategy?
Technologies include handheld computers (DIADs), barcode scanning systems, wired
and wireless communications networks, desktop computers, UPS’s central computer
(large mainframe computers), and storage technology for the package delivery data.
UPS also uses telecommunication technologies for transmitting data through pagers
and cellular phone networks. The company uses in-house software for tracking
packages, calculating fees, maintaining customer accounts and managing logistics, as
well as software to access the World Wide Web.
UPS has used the same strategy for over 90 years. Its strategy is to provide the “best
service and lowest rates.” One of the most visible aspects of technology is the
customer’s ability to track his/her package via the UPS web site. However,
technology also enables data to seamlessly flow throughout UPS and helps streamline
the workflow at UPS. Thus, the technology described in the scenario enables UPS to
be more competitive, efficient, and profitable. The result is an information system
solution to the business challenge of providing a high level of service with low prices
in the face of mounting competition.
3. What strategic business objectives do UPS’s information systems address?
 Operational excellence: UPS has maintained leadership in small-package
delivery services despite stiff competition from FedEx and the U.S. Postal System
by investing heavily in advanced information technology.
 New products, services, and business models: UPS is now leveraging its
decades of expertise managing its own global delivery network to manage
logistics and supply chain activities for other companies. It created a UPS Supply
Chain Solutions division that provides a complete bundle of standardized services
to subscribing companies at a fraction of what it would cost to build their own
systems and infrastructure. These services include supply chain design and
management, freight forwarding, customs brokerage, mail services, multimodal
transportation, and financial services in addition to logistics services.
 Customer and supplier intimacy: Customers can download and print their own
labels using special software provided by UPS or by accessing the UPS web site.
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UPS spends more than $1 billion each year to maintain a high level of customer
service while keeping costs low and streamlining its overall operations.
 Improved decision making: Special software creates the most efficient delivery
route for each driver that considers traffic, weather conditions, and the location of
each stop. UPS estimates its delivery trucks save 28 million miles and burn 3
million fewer gallons of fuel each year as a result of using this technology.
 Competitive advantage: UPS is leveraging its decades of expertise managing its
own global delivery network to manage logistics and supply chain activities for
other companies. Its Supply Chain Solutions division provides a complete bundle
of standardized services to subscribing companies at a fraction of what it would
cost to build their own systems and infrastructure. In this manner UPS provides a
highly differentiated product that its competitors cannot easily duplicate.
4. What would happen if UPS’s information systems were not available?
Arguably, UPS would not be able to compete effectively without technology. UPS
could not provide the same level of services to its customers at reasonable prices.
From the customers’ perspective, these technologies provide value because they help
customers complete their tasks more efficiently. Customers view UPS’s technology
as value-added services as opposed to increasing the cost of sending packages.
Section 1-3, “What academic disciplines are used to study information systems and
how does each contribute to an understanding of information systems?”
Too often, information systems are thought to be all about hardware and software. Issues
that focus on human behavioral aspects of information systems are overlooked or
minimized. That can lead to disaster. Figure 1-9 may help you explain contemporary
approaches to information systems.
After contrasting the technical and behavioral approaches, you should stress to your
students that the sociotechnical approach does not ignore the technical but considers it as
a part of the organization.
Section 1-4, “How will MIS help my career?” addresses how the chapter’s elements and
information can help in securing a good job as a financial client support and sales
assistant. These types of jobs are becoming more popular as information technology
becomes more important in the workplace.
Review Questions
1-1 How are information systems transforming business and why are they so
essential for running and managing a business today?
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Describe how information systems have changed the way businesses operate and
their products and services.
Wireless communications, including computers and mobile hand-held computing
devices, are keeping managers, employees, customers, suppliers, and business
partners connected in every way possible. Email, online conferencing, the web, and
the Internet, are providing new and diverse lines of communication for all businesses,
large and small. Through increased communication channels and decreased costs of
communication, customers are demanding more of businesses in terms of services
and products, at lower costs. E-commerce is changing the way businesses must attract
and respond to customers. (Learning Objective 1-1: How are information systems
transforming business and why are they so essential for running and managing a
business today? AACSB: Application of knowledge.)
Identify three major new information system trends.
Three information system trends that are influencing the way businesses interact with
employees, customers, suppliers, and business partners include IT innovations, new
business models, e-commerce expansion, management changes, and changes in firms
and organizations.
(Learning Objective 1-1: How are information systems transforming business and
why are they so essential for running and managing a business today? AACSB:
Application of knowledge.)
Describe the characteristics of a digital firm.
 Significant business relationships with customers, suppliers, and employees
are digitally enabled and mediated.
 Core business processes are accomplished through digital networks spanning
the entire organization or linking multiple organizations.
 Key corporate assets—intellectual property, core competencies, and financial
and human assets—are managed through digital means.
 They sense and respond to their environments far more rapidly than traditional
firms.
 They offer extraordinary opportunities for more flexible global organization
and management, practicing time-shifting and space-shifting. (Learning
Objective 1-1: How are information systems transforming business and why
are they so essential for running and managing a business today? AACSB:
Describe the challenges and opportunities of globalization in a “flattened” world.
Customers no longer need to rely on local businesses for products and services. They
can shop 24/7 for virtually anything and have it delivered to their door or desktop.
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Companies can operate 24/7 from any geographic location around the world. Jobs can
just as easily move across the state or across the ocean. Employees must continually
develop high-level skills through education and on-the-job experience that cannot be
outsourced. Business must avoid markets for goods and serves that can be produced
offshore much cheaper. The emergence of the Internet into a full-blown international
communications system has drastically reduced the costs of operating and transacting
business on a global scale. (Learning Objective 1-1: How are information systems
List and describe six reasons why information systems are so important for
business today.
Six reasons why information systems are so important for business today include:
(1) Operational excellence.
(2) New products, services, and business models.
(3) Customer and supplier intimacy.
(4) Improved decision making.
(5) Competitive advantage.
(6) Survival.
Information systems are the foundation for conducting business today. In many
industries, survival and even existence without extensive use of IT is inconceivable,
and IT plays a critical role in increasing productivity. Although information
technology has become more of a commodity, when coupled with complementary
changes in organization and management, it can provide the foundation for new
products, services, and ways of conducting business that provide firms with a
strategic advantage. (Learning Objective 1-1: How are information systems
1-2 What is an information system? How does it work? What are its management,
organization and technology components? Why are complementary assets essential
for ensuring that information systems provide genuine value for organizations?
Define an information system and describe the activities it performs.
An information system is a set of interrelated components that work together to
collect, process, store, and disseminate information to support decision making,
coordination, control, analysis, and visualization in an organization. In addition to
supporting decision making, information systems may also help managers and
workers analyze problems, visualize complex subjects, and create new products.
(Learning Objective 1-2: What is an information system? How does it work? What
are its management, organization and technology components? Why are
complementary assets essential for ensuring that information systems provide genuine
value for organizations? AACSB: Application of knowledge.)
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List and describe the organizational, management, and technology dimensions of
information systems.
 Organization: The organization dimension of information systems involves
issues such as the organization’s hierarchy, functional specialties, business
processes, culture, and political interest groups.
 Management: The management dimension of information systems involves
setting organizational strategies, allocating human and financial resources,
creating new products and services and re-creating the organization if
necessary.
 Technology: The technology dimension consists of computer hardware,
software, data management technology, and networking/telecommunications
technology. (Learning Objective 1-2: What is an information system? How
does it work? What are its management, organization and technology
components? Why are complementary assets essential for ensuring that
information systems provide genuine value for organizations? AACSB:
Distinguish between data and information and between information systems
literacy and computer literacy.
 Data are streams of raw facts representing events occurring in organizations or
the physical environment before they have been organized and arranged into a
form that people can understand and use.
 Information is data that have been shaped into a form that is meaningful and
useful to human beings.
 Information systems literacy is a broad-based understanding of information
systems. It includes a behavioral as well as a technical approach to studying
 In contrast, computer literacy focuses primarily on knowledge of information
technology. It is limited to understanding how computer hardware and
software works. (Learning Objective 1-2: What is an information system?
How does it work? What are its management, organization and technology
components? Why are complementary assets essential for ensuring that
information systems provide genuine value for organizations? AACSB:
Analytical thinking.)
Explain how the Internet and the World Wide Web are related to the other
technology components of information systems.
The Internet and World Wide Web have had a tremendous impact on the role that
information systems play in organizations. These two tools are responsible for the
increased connectivity and collaboration within and outside the organization. The
Internet, World Wide Web, and other technologies have led to the redesign and
reshaping of organizations. They have helped transform the organization’s structure,
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scope of operations, reporting and control mechanisms, work practices, work flows,
and products and services. (Learning Objective 1-2: What is an information system?
How does it work? What are its management, organization and technology
components? Why are complementary assets essential for ensuring that information
systems provide genuine value for organizations? AACSB: Analytical thinking.)
Define complementary assets and describe their relationship to information
technology.
Complementary assets are those assets required to derive value from a primary
investment. Firms must rely on supportive values, structures, and behavior patterns to
obtain a greater value from their IT investments. Value must be added through
complementary assets such as new business processes, management behavior,
organizational culture, and training. (Learning Objective 1-2: What is an information
system? How does it work? What are its management, organization and technology
components? Why are complementary assets essential for ensuring that information
systems provide genuine value for organizations? AACSB: Application of
knowledge.)
Describe the complementary social, managerial, and organizational assets
required to optimize returns from information technology investments.
Table 1-2 lists the complementary social, managerial, and organization assets
required to optimize returns from information technology investments. Here are a few
of them:
Organizational assets:
 Supportive culture that values efficiency and effectiveness
 Appropriate business model
 Efficient business processes
 Decentralized authority
Managerial assets:
 Strong senior management support for technology investment and change
 Incentives for management innovation
 Teamwork and collaborative work environments
Social assets:
 The Internet and telecommunications infrastructure
 IT-enriched educational programs raising labor force computer literacy
 Standards (both government and private sector) (Learning Objective 1-2:
What is an information system? How does it work? What are its management,
organization and technology components? Why are complementary assets
essential for ensuring that information systems provide genuine value for
organizations? AACSB: Application of knowledge.)
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1-3 What academic disciplines are used to study information systems and how does
each contribute to an understanding of information systems?
List and describe each discipline that contributes to a technical approach to
A technical approach to information systems emphasizes mathematically-based
models to study information systems and the physical technology and formal
capabilities of information systems. Students should know the differences between
computer science (theories of computability, computation methods, and data storage
and access methods), management science (development of models for decision
making and managerial practice), and operations research (mathematical techniques
for optimizing organizational parameters such as transportation, inventory control,
and transaction costs). (Learning Objective 1-3: What academic disciplines are used
to study information systems and how does each contribute to an understanding of
information systems? AACSB: Application of knowledge.)
List and describe each discipline that contributes to a behavioral approach to
A behavioral approach to information systems focuses on questions such as strategic
business integration, behavioral problems of systems utilization, system design and
implementation, social and organizational impacts of information systems, political
impacts of information systems, and individual responses to information systems.
Solutions to problems created by information technology are primarily changes in
attitudes, management, organizational policy, and behavior. (Learning Objective 1-3:
What academic disciplines are used to study information systems and how does each
contribute to an understanding of information systems? AACSB: Application of
knowledge.)
Describe the sociotechnical perspective on information systems.
A sociotechnical perspective combines the technical approach and behavioral
approach to achieve optimal organizational performance. Technology must be
changed and designed to fit organizational and individual needs and not the other way
around. Organizations and individuals must also change through training, learning,
and allowing technology to operate and prosper. (Learning Objective 1-3: What
academic disciplines are used to study information systems and how does each
contribute to an understanding of information systems? AACSB: Application of
knowledge.)
Discussion Questions
1-4 Information systems are too important to be left to computer specialists. Do you
agree? Why or why not?
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Student answers to this question will vary.
1-5 If you were setting up the web site for a Major League Baseball team, what
management, organization, and technology issues might you encounter?
1-6 What are some of the organizational, managerial, and social complementary
assets that help make UPS’s information systems so successful?
Hands-On MIS Projects
This section gives students an opportunity to analyze real world information systems
needs and requirements. It provides several exercises you can use to determine if students
are grasping the material in the chapter.
Management Decision Problems
1-7 Snyder’s of Hanover: The financial department uses spreadsheets and manual
processes for much of its data gathering and reporting. Assess the impact of this
situation on business performance and management decision making.
 Data entry errors from repetitive entry
 No information available on-demand
 Late reporting of critical decision-making information
 Time consuming
(Learning Objective 1-2: What is an information system? How does it work? What are its
management, organization and technology components? Why are complementary assets
essential for ensuring that information systems provide genuine value for organizations?
AACSB: Analytical thinking.)
1-8 Dollar General Corporation: Wants to keep costs as low as possible so it does not
use an automated method for keeping track of inventory at each store. What decisions
have to be made before investing in an information system solution?
 Determine business problems—mismanagement of inventory, too little or too
much inventory, no ability to track inventory.
 Lack of an information system to manage inventory is actually increasing
costs rather than decreasing them.
 What is the exact problem the company wants to solve—reduce costs.
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(Learning Objective 1-1: How are information systems transforming business and why
are they so essential for running and managing a business today? AACSB: Analytical
thinking, Application of knowledge.)
Improving Decision Making: Using Databases to Analyze Sales Trends:
Software skills: Database querying and reporting
Business skills: Sales Trend Analysis
1-9 This exercise helps students understand how they can use database software to
produce valuable information from raw data. The solutions provided here were created
using the query wizard and report wizard capabilities of Microsoft Access. Students can,
of course, create more sophisticated reports if they wish, but most information can be
obtained from simple query and reporting functions. The main challenge is to get students
to ask the right questions about the information.
 Which products should be restocked?
 Which stores and sales regions would benefit from a promotional campaign
and additional marketing?
 Which times of the year should products be offered at full price?
 Which times of the year should products be discounted?
The answers to these questions can be found in the Microsoft Access File named:
MIS16ch01_solutionfile.mdb
(Learning Objective 1-2: What is an information system? How does it work? What are its
management, organization and technology components? Why are complementary assets
essential for ensuring that information systems provide genuine value for organizations?
AACSB: Analytical thinking.)
Improving Decision Making: Using the Internet to Locate Jobs Requiring
Information Systems Knowledge
Software skills: Internet-based software
Business skills: Job searching
1-10 In addition to having students research jobs in their chosen career field, it may be
quite interesting to have them research jobs in other career fields so they can see that
virtually every job and/or career requires information systems skills.
(Learning Objective 1-3: What academic disciplines are used to study information
systems and how does each contribute to an understanding of information systems?
AACSB: Written and oral communication, Analytical thinking, Reflective thinking,
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Collaboration and Teamwork Project
1-11 In MyLab MIS, you will find a Collaboration and Teamwork Project dealing
with the concepts in this chapter. You will be able to use Google Drive, Google Docs,
Google Sites, or other open source collaboration tools such as Zarafa to complete
the assignment.
Case Study: Did Information Systems Cause Deutsche Bank to Stumble?
1-12 Identify the problem described in this case study. What people, organization,
and technology factors contributed to this problem?
People: The Commodity Futures Trading Commission (CFTC) charged that Deutsche
Bank submitted incomplete and untimely credit default swap data, failed to properly
supervise employees responsible for swap data reporting, and lacked an adequate
business continuity and disaster recovery plan.
Organization: The CFTC complaint also alleged that Deutsche Bank’s system outage
and subsequent reporting problems occurred in part because Deutsche Bank failed to
have an adequate business continuity and disaster recovery plan and other appropriate
supervisory systems in place. The bank is now struggling with seismic changes in the
banking industry, including recent regulatory change.
Technology: The CFTC complained that on April 16, 2016, Deutsche Bank’s swap data
reporting system experienced a system outage that prevented Deutsche Bank from
reporting any swap data for multiple asset classes for approximately five days. Deutsche
Bank’s subsequent efforts to end the system outage repeatedly exacerbated existing
reporting problems and led to the discovery and creation of new reporting problems.
Swap data reported before and after the system outage revealed persistent problems with
the integrity of certain data fields, including numerous invalid legal entity identifiers.
U.S. regulators have identified Deutsche Bank’s antiquated technology as one reason
why the bank was not always able to provide the correct information to the agency.. Poor
information systems may have even contributed to the 2008 financial crisis. Banks often
had trouble untangling the complex financial products they purchased and sold to
determine their underlying value.
(Learning Objective 1: Why are information systems so essential for running and
managing a business today? AACSB: Analytical thinking, Reflective thinking.)
1-13 What was the role of information technology at Deutsche Bank? How was IT
related to the bank’s operational efficiency, decision-making capability and business
strategy?
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It turns out that Deutsche Bank, like other leading global financial companies, had
undergone decades of mergers and expansion. When these banks merged or acquired
other financial companies, they often did not make the requisite (and often far-reaching)
changes to integrate their information systems with those of their acquisitions. The effort
and costs required for this integration, including a need for coordination across many
management teams, were too great. So, the banks left many old systems in place to
handle the workload for each of their businesses. This created what experts call
“spaghetti balls” of overlapping and often incompatible technology platforms and
software programs. These antiquated legacy systems were designed to handle large
numbers of transactions and sums of money, but they were not well suited to managing
large bank operations. They often did not allow information to be shared easily among
departments or provide senior management with a coherent overview of bank operations.
(Learning Objective 2: What is an information system? How does it work? What are its
people, organizational, and technology components? AACSB: Analytical thinking,
Reflective thinking, Application of knowledge.)
1-14 Was Deutsche Bank using technology effectively to pursue its business
strategy? Explain your answer.
No, Deutsche Bank was not using technology to pursue its business strategy.
Individual teams and traders each had their own incompatible platforms. The bank
employed a deliberate strategy of pitting teams against each other to spur them on, but
this further encouraged the use of different systems because competing traders and teams
were reluctant to share their data. Yet the bank ultimately had to reconcile the data from
these disparate systems, often by hand, before trades could be processed and recorded.
(Learning Objective 2: What is an information system? How does it work? What are its
people, organizational, and technology components? AACSB: Analytical thinking,
Reflective thinking, Application of knowledge.)
1-15 What solution for Deutsche Bank was proposed? How effective do you think it
will be? Explain your answer.
The solutions that Deutsche Bank is pursuing can be effective in resolving the many
problems associated with its technology and organizational structure.
In July 2015, John Cryan became Deutsche Bank’s CEO. He has been trying to reduce
costs and improve efficiency, laying off thousands of employees. He is focusing on
overhauling Deutsche Bank’s fragmented, antiquated information systems, which are a
major impediment to controlling costs and finding new sources of profit and growth.
Cryan noted that the bank’s cost base was swollen by poor and ineffective business
processes, inadequate technology, and too many tasks being handled manually. He has
called for standardizing the bank’s systems and procedures, eliminating legacy software,
standardizing and enhancing data, and improving reporting.
1-16

In February 2015, Deutsche Bank announced a 10-year, multibillion-dollar deal with
Hewlett-Packard (HP) to standardize and simplify its IT infrastructure, reduce costs, and
create a more modern and agile technology platform for launching new products and
services. Deutsche Bank is migrating to a cloud computing infrastructure where it would
run its information systems in HP’s remote computer centers. HP will provide computing
services, hosting, and storage. Deutsche Bank will still be in charge of application
development and information security technologies, which it considers proprietary and
crucial for competitive differentiation.
Deutsche Bank is withdrawing from high-risk client relationships, improving its control
framework, and automating manual reconciliations. To modernize its IT infrastructure,
the bank will reduce the number of its individual operating systems that control the way a
computer works from 45 to four, replace scores of outdated computers, and replace
antiquated software applications.
Thousands of applications and functions will be shifted from Deutsche Bank’s
mainframes to HP cloud computing services. Automating manual processes will promote
efficiency and better control. These improvements are expected to reduce “run the bank”
costs by 800 million euros. Eliminating 6,000 contractors will create a total savings of 1
billion euros. Deutsche Bank has also opened four technology centers to work with
financial technology startups. In March 2017, the bank opened a new center in New York
to work with financial technology startups to improve its technology.
(Learning Objective 1: How are information systems transforming business and why are
they so essential for running and managing a business today? AACSB: Analytical
thinking, Reflective thinking, Application of knowledge.)
MyLab MIS
Go to the Assignments section of your MyLab MIS to complete these writing
exercises.
1-16 What are the strategic objectives that firms try to achieve by using information
systems? For each strategic objective, give an example of how a firm could use
information systems to achieve the objective.
View rubrics in MyLab MIS.
1-17 Describe three ways in which information systems are transforming how
business is conducted.
View rubrics in MyLab MIS.
1-17

For an example illustrating the concepts found in this chapter, view the
videos in MyLab MIS.
1-18

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