Who is in charge of business technology? Information technology (IT) is the design and implementation of computer-based information systems. The person responsible for such technology in an organization is its chief information officer (CIO). This is typically a position at the same level as the CFO of a firm, for example. As Figure 10.2 shows, the CIO is in charge of overseeing a firm’s information processing, including how the firm’s IT system is designed and developed. Typically, he or she is responsible for making decisions about what hardware and software the company purchases and when it should be updated. In addition, CIOs are involved in creating business and e-business opportunities as well as defining governing policies for the company in areas such as privacy and security.

Figure 10.2

The Many Functions of a CIO

What is a typical decision a CIO has to make? IT demands can pose a financial burden placed on companies trying to stay up to date. The CIO must manage a budget that balances the benefits of technology against the ever-rising costs of upgrading to the latest systems. The full cost of any new piece of technology includes not only the purchase of the software and hardware itself but also potential hardware upgrades required to make the new product useful. For example, suppose a company wants to upgrade its operating system. This requires that the firm buy not only licenses for the operating system software but also memory upgrades for computer systems. In addition, the IT department will need to take time to test the software before deployment, establish a support staff, install the software, and train users on how to interact with the programs.

Sometimes managers feel pressured to upgrade software or hardware because the entire market has switched to a new product or because customers or vendors have already moved to a new version of a program or device. In such circumstances, the CIO must determine whether the new software or hardware will truly make the return on investing in it worthwhile. For example the move to a touch-screen interface in recent versions of Windows required firms to evaluate their hardware and train their employees to use it. Some firms decided not to upgrade to the new operating system because they didn’t think the increases in productivity would offset these costs.

What happens in an IT department? The IT department is comprised of many professionals responsible for everything from hardware components and software programs to networking strategies. Members of this department are also responsible for security in response to both computer virus attacks and emergency recovery from power outages and system failures. In addition, the department keeps all of a firm’s computers, printers, and other equipment operational and current. The IT department manages the design of a company’s networks and databases where information is stored, helps the CIO select appropriate hardware and software programs, and provides training to employees.

Sometimes, IT professionals must create custom software to bridge the gaps between the software available on the market and the needs of a firm. The IT ­department also maintains and manages the use of mobile computing devices in a firm, such as notebook computers, tablets like the iPad, smartphones, and other devices. Finally, the IT department is responsible for ensuring that employees have remote access to computing resources, such as their files and e-mail, when they are working outside the office.

What’s an information system? The main difference between an IT system and an information system (IS), also called a management information system (MIS), is that an MIS is focused on applying IT to solve business and economic problems. For example, the payroll department may need to upgrade to a new accounting system or software package. It is the role of the MIS professionals to investigate the impact of that change on the other technology systems in the company and rate the amount of gain against the cost required for the new software. So, MIS staff bridge the gap between purely technical knowledge and how it will impact a business.

What is the difference between data and information? In common usage, the terms data and information are often used interchangeably, but they have different meanings. Data are the representations of a fact or idea. Data can consist of numbers, words, images, or sounds. Information, however, is data that have been organized or arranged in a way that makes the data useful (see Figure 10.3).

Figure 10.3

The Processing of Data into Useful Information

The extraction of information from raw data is critical to the success of many business enterprises. Businesses try to use all the resources at their disposal to gather raw data. For example, media, credit bureaus, and information brokers often purchase data made public in court proceedings. These data are processed into useful information for that business or later resold to other companies. So, a health club in Massachusetts may request a list of recently divorced women from the family court. The health club’s plan is to process that raw data into a mailing list of a specific target audience for its membership services.

What are databases? Database programs allow businesses to quickly enter data, filter and sort information, and generate reports. Forms can be easily designed so that data can be entered and validated for accuracy. These forms, such as weekly time cards or customer surveys, can be delivered through e-mail and the responses automatically added into tables in the database. The collected data can be queried to create reports that describe specific conditions, such as the ZIP codes of all customers who purchased gardening supplies in the past week.

As the amount of data grows, how is it managed? Data are stored in database management systems (DBMSs). DBMSs are collections of tables of data that organize the data and allow people to analyze and run reports on those data. As companies begin to store vast amounts of data in database systems separate from their production databases, data warehouses are created. These can hold petabytes of transaction data. (A single petabyte can hold more than 13 years’ worth of high-definition television video.) Sometimes, subsets of data are created to isolate one product or one department. These smaller data sets are called data marts. Exploring and analyzing the data mart to uncover relationships and patterns in the data that can help a business is referred to as data mining. Data mining can be used in many ways. For example, suppose a supermarket uses data mining to help decide whether to restock a product that isn’t selling well. If data mining reveals that the few people who typically buy the product are among the supermarket’s most profitable customers, it’s probably worthwhile to keep the product in stock to retain their business. New advances in hardware and software are making data mining a larger part of business decision making.

What is “Big Data”? The availability of gigantic data sets for analysis to improve business has only recently become inexpensive and reliable. It is now possible to gather free, public information, like the page view statistics for all articles in Wikipedia, hour by hour. The use of very large data sets and special software tools that can extract information from them is named Big Data analysis. Companies are using Big Data analysis to find new trends. Merck has used it to spot specific genetic traits in cancer survivors. The company Evolv uses more than 500 million data points, measuring things like gas prices, unemployment rates, and social media usage, to help clients like Xerox predict when an employee is most likely to leave his or her job.

Does Big Data create threats to our privacy? Now that very large data sets can produce useful information, there is new value in collecting the billions of clicks, purchases, and behaviors of consumers. Data brokers are companies that gather and sell this kind of information. It might include tracking a person’s usage of social media or phone networks or purchase histories—both data that are publicly available and data collected from marketing efforts like surveys or loyalty programs. Software systems then combine pieces of data to make certain inferences or guesses about you—whether you like sports or whether you have children.

There is growing concern about the impact of this trade in information and how to best protect the kind of data people want to maintain, such as private medical status or credit standing. While your medical records are private, if you purchase specific medications or search for certain terms online, that can be a clue that you have a health-related issue. For example, recently a health insurance company bought data on 3 million members’ purchases to check for things like the purchase of plus-sized clothing. Legal restrictions governing the collection and use of data are becoming more popular. The proposed Consumer Privacy Bill of Rights is one attempt at detailing legislation to define what is permitted in the digital age.

What kinds of tools are used to analyze business data? Businesses can easily collect and store large amounts of data, but turning them into useful information, or “business intelligence,” is a challenging task. Several software systems help in this regard:

• A decision support system (DSS) is a software system that enables companies to analyze collected data so they can predict the impact of business decisions. A DSS can also retrieve data from external sources and display results tied to business decision making.

• An executive information system (EIS) is a software system that is specially designed for the needs of management. This system can consolidate and summarize the transactions within an organization by using both internal and external sources. The terms DSS and EIS are sometimes used interchangeably, but usually an EIS has a more graphical interface compared to a DSS, which often uses spreadsheets and can show only one department or product at a time.

• An online analysis package (OLAP) is a software application designed to help people combine multiple pieces of information to get a clear picture of the state of a business. For example, OLAPs are often used for tasks such as reporting sales, budgeting, and forecasting figures. OLAP products in the marketplace include MS Analysis Services, the open-source product Openi (pronounced “open eye”), and Jedox software.

What kinds of questions can business intelli­gence software answer? Business intelligence software can further assist managers by helping them analyze not only the financial state of the firm but also answer other questions, such as the following:

• Who are my top 10 revenue-generating customers?

• What factors (e.g., regions, products, or customers) are the greatest contributors to bad debt?

• Which vendors have unpaid invoices, and how much money do these vendors owe?

• How many days’ worth of inventory is in each warehouse?

• Which plants have completed the highest number of work orders on time?