management information systems chapter 1 competing in the information age
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section1.1 BusinessDrivenMIS
LEARNING OUTCOMES
1.1Describetheinformationageandthedifferencesamongdata,information,businessintelligence,andknowledge.
1.2Explainsystemsthinkingandhowmanagementinformationsystemsenablebusinesscommunications.
COMPETINGINTHEINFORMATIONAGELO.1.1:Describetheinformationageandthedifferencesamongdata,information,businessintelligence,andknowledge.
Didyouknowthat
ThemovieAvatartookmorethanfouryearstocreateandcost$450million?
LadyGaga'srealnameisStefaniJoanneAngelinaGermanotta?
Customerspay$2.6millionfora30secondadvertisingtimeslotduringtheSuperBowl?
A istheconfirmationorvalidationofaneventorobject.Inthepast,peopleprimarilylearnedfactsfrombooks.Today,bysimplypushingabutton,peoplecanfindoutanything,fromanywhere,atanytime.Weliveinthe ,wheninfinitequantitiesoffactsarewidelyavailabletoanyonewhocanuseacomputer.Theimpactofinformationtechnologyontheglobalbusinessenvironmentisequivalenttotheprintingpress'simpactonpublishingandelectricity'simpactonproductivity.Collegestudentstartupsweremostlyunheardofbeforetheinformationage.Now,it'snotatallunusualtoreadaboutabusinessstudentstartingamultimilliondollarcompanyfromhisorherdormroom.ThinkofMarkZuckerberg,whostartedFacebookfromhisdorm,orMichaelDell(DellComputers)andBillGates(Microsoft),whobothfoundedtheirlegendarycompaniesascollegestudents.
Youmaythinkonlystudentswellversedinadvancedtechnologycancompeteintheinformationage.Thisissimplynottrue.Manybusinessleadershavecreatedexceptionalopportunitiesbycouplingthepoweroftheinformationagewithtraditionalbusinessmethods.Herearejustafewexamples:
Amazonisnotatechnologycompanyitsoriginalbusinessfocuswastosellbooks,anditnowsellsnearlyeverything.
Netflixisnotatechnologycompanyitsprimarybusinessfocusistorentvideos.
Zapposisnotatechnologycompanyitsprimarybusinessfocusistosellshoes,bags,clothing,andaccessories.
Amazon'sfounder,JeffBezos,atfirstsawanopportunitytochangethewaypeoplepurchasebooks.Usingthepoweroftheinformationagetotailorofferingstoeachcustomerandspeedthepaymentprocess,heineffectopenedmillionsoftinyvirtualbookstores,eachwithavastlylargerselectionandfarcheaperproductthantraditionalbookstores.ThesuccessofhisoriginalbusinessmodelledhimtoexpandAmazontocarrymanyothertypesofproducts.ThefoundersofNetflixandZapposhavedonethesamethingforvideosandshoes.Alltheseentrepreneurswerebusinessprofessionals,nottechnologyexperts.However,theyunderstoodenoughabouttheinformationagetoapplyittoaparticularbusiness,creatinginnovativecompaniesthatnowleadentireindustries.
isaworldwhereinterconnected,Internetenableddevicesorthingscancollectand
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fact
informationage
TheInternetofThings(IoT)
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sharedatawithouthumanintervention.AnothertermcommonlyassociatedwiththeInternetofThingsis,whichreferstodevicesthatconnectdirectlytootherdevices.Studentswhounderstandbusiness
alongwiththepowerassociatedwiththeinformationageandIoTwillcreatetheirownopportunitiesandperhapsevennewindustries.Realizingthevalueofobtainingrealtimedatafromconnectedthingswillallowyoutomakebetterinformeddecisions,identifynewopportunities,andanalyzecustomerpatternstopredictnewbehaviors.Ourprimarygoalinthiscourseistoarmyouwiththeknowledgeyouneedtocompeteintheinformationage.Thecoredriversoftheinformationageare:
Data
Information
Businessintelligence
Knowledge(seeFigure1.2)
FIGURE1.2TheDifferencesamongData,Information,BusinessIntelligence,andKnowledge
APPLYYOURKNOWLEDGE
BUSINESSDRIVENDISCUSSION
ViewfromaFlatWorldBillGates,founderofMicrosoft,statedthat20yearsagomostpeoplewouldratherhavebeenaBstudentinNewYorkCitythanageniusinChinabecausetheopportunitiesavailabletostudentsindevelopedcountrieswerelimitless.Today,manyarguethattheoppositeisnowtrueduetotechnologicaladvancesmakingiteasiertosucceedasageniusinChinathanaBstudentinNewYork.Asagroup,discusswhetheryouagreeordisagreewithBillGate'sstatement.
machinetomachine(M2M)
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Dataarerawfactsthatdescribethecharacteristicsofaneventorobject.Beforetheinformationage,managers
manuallycollectedandanalyzeddata,atimeconsumingandcomplicatedtaskwithoutwhichtheywouldhavelittleinsightintohowtoruntheirbusiness.Lackingdata,managersoftenfoundthemselvesmakingbusinessdecisionsabouthowmanyproductstomake,howmuchmaterialtoorder,orhowmanyemployeestohirebasedonintuitionorgutfeelings.Intheinformationage,successfulmanagerscompile,analyze,andcomprehendmassiveamountsofdatadaily,whichhelpsthemmakemoresuccessfulbusinessdecisions.
APPLYYOURKNOWLEDGE
BUSINESSDRIVENMIS
WhoReallyWonthe2014WinterOlympics?Ifyouwerewatchingthe2014WinterOlympics,Ibetyouwereexcitedtoseeyourcountryanditsamazingathletescompete.AsyouwerefollowingtheOlympicsdaybyday,youwereprobablycheckingdifferentwebsitestoseehowyourcountryranked.Anddependingonthewebsiteyouvisited,youcouldgetaverydifferentanswertothisseeminglyeasyquestion.OntheNBCandESPNnetworks,theUnitedStatesrankedsecond,andontheofficialSochieOlympicwebsite,theUnitedStatesrankedfourth.Thesimplequestionofwhowonthe2014WinterOlympicschangessignificantly,dependingonwhomyouasked.
Inagroup,takealookatthefollowingtwochartsandbrainstormthereasonseachinternationallyrecognizedsourcehasadifferentlistingforthetopfivewinners.Whatmeasurementiseachchartusingtodeterminethewinner?Whodoyoubelieveisthewinner?Asamanager,whatdoyouneedtounderstandwhenreadingorlisteningtobusinessforecastsandreports?
WinterOlympics2014MedalRankingAccordingtoNBCNews
Rank Country Gold Silver Bronze Total
1 RussianFed 13 11 9 33
2 UnitedStates 9 7 12 28
3 Norway 11 5 10 26
4 Canada 10 10 5 25
5 Netherlands 8 7 9 24
WinterOlympics2014MedalRankingAccordingtoOfficialSochieOlympicWebsite
Rank Country Gold Silver Bronze Total
1 RussianFed. 13 11 9 33
2 Norway 11 5 10 26
3 Canada 10 10 5 25
Data
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4 UnitedStates 9 7 12 28
5 Netherlands 8 7 9 24
Figure1.3showssalesdataforTony'sWholesaleCompany,afictitiousbusinessthatsuppliessnackstostores.Thedatahighlightcharacteristicssuchasorderdate,customer,salesrepresentative,product,quantity,andprofit.ThesecondlineinFigure1.3,forinstance,showsthatRobertaCrosssold90boxesofRufflestoWalmartfor$1,350,resultinginaprofitof$450(notethatProfit=SalesCosts).Thesedataareusefulforunderstandingindividualsaleshowever,theydonotprovideusmuchinsightintohowTony'sbusinessisperformingasawhole.Tonyneedstoanswerquestionsthatwillhelphimmanagehisdaytodayoperationssuchas:
FIGURE1.3Tony'sSnackCompanyData
Whoaremybestcustomers?
Whoaremyleastprofitablecustomers?
Whatismybestsellingproduct?
Whatismyslowestsellingproduct?
Whoismystrongestsalesrepresentative?
Whoismyweakestsalesrepresentative?
WhatTonyneeds,inotherwords,isnotdatabutinformation.
Informationisdataconvertedintoameaningfulandusefulcontext.Havingtherightinformationattherightmoment
intimecanbeworthafortune.Havingthewronginformationattherightmoment,ortherightinformationatthewrongmoment,canbedisastrous.Thetruthaboutinformationisthatitsvalueisonlyasgoodasthepeoplewhouseit.Peopleusingthesameinformationcanmakedifferentdecisionsdependingonhowtheyinterpretoranalyzetheinformation.Thusinformationhasvalueonlyinsofarasthepeopleusingitdoaswell.
Information
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Tonycananalyzehissalesdataandturnthemintoinformationtoansweralltheprecedingquestionsandunderstandhowhisbusinessisoperating.Figures1.4and1.5,forinstance,showusthatWalmartisRobertaCross'sbestcustomerandthatRufflesisTony'sbestproductmeasuredintermsoftotalsales.Armedwiththisinformation,Tonycanidentifyandthenaddresssuchissuesasweakproductsandunderperformingsalesrepresentatives.
FIGURE1.4Tony'sDataSortedbyCustomerWalmartandSalesRepresentativeRobertaCross
FIGURE1.5InformationGainedafterAnalyzingTony'sData
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A isadatacharacteristicthatstandsforavaluethatchangesorvariesovertime.Forexample,inTony'sdata,priceandquantityorderedcanvary.Changingvariablesallowsmanagerstocreatehypotheticalscenariostostudyfuturepossibilities.Tonymayfinditvaluabletoanticipatehowsalesorcostincreasesaffectprofitability.Toestimatehowa20percentincreaseinpricesmightimproveprofits,Tonysimplychangesthepricevariableforallorders,whichautomaticallycalculatestheamountofnewprofits.Toestimatehowa10percentincreaseincostshurtsprofits,Tonychangesthecostvariableforallorders,whichautomaticallycalculatestheamountoflostprofits.Manipulatingvariablesisanimportanttoolforanybusiness.
BusinessIntelligenceisinformationcollectedfrommultiplesourcessuchassuppliers,customers,
competitors,partners,andindustriesthatanalyzespatterns,trends,andrelationshipsforstrategicdecisionmaking.BImanipulatesmultiplevariablesandinsomecasesevenhundredsofvariables,includingsuchitemsasinterestrates,weatherconditions,andevengasprices.TonycoulduseBItoanalyzeinternaldata,suchascompanysales,alongwithexternaldataabouttheenvironmentsuchascompetitors,finances,weather,holidays,andevensportingevents.Bothinternalandexternalvariablesaffectsnacksales,andanalyzingthesevariableswillhelpTonydetermineorderinglevelsandsalesforecasts.Forinstance,BIcanpredictinventoryrequirementsforTony'sbusinessfortheweekbeforetheSuperBowlif,say,thehometeamisplaying,averagetemperatureisabove80degrees,andthestockmarketisperformingwell.ThisisBIatitsfinest,incorporatingalltypesofinternalandexternalvariablestoanticipatebusinessperformance.
Abigpartofbusinessintelligenceisanareacalled ,whichextractsinformationfromdataandusesittopredictfuturetrendsandidentifybehavioralpatterns.Topmanagersusepredictiveanalyticstodefinethefutureofthebusiness,analyzingmarkets,industries,andeconomiestodeterminethestrategicdirectionthecompanymustfollowtoremainprofitable.Tonywillsetthestrategicdirectionforhisfirm,whichmightincludeintroducingnewflavorsofpotatochipsorsportsdrinksasnewproductlinesorschoolsandhospitalsasnewmarketsegments.
Knowledgeincludestheskills,experience,andexpertise,coupledwithinformationandintelligence,thatcreatea
person'sintellectualresources. areindividualsvaluedfortheirabilitytointerpretandanalyze
variable
Businessintelligence(BI)
predictiveanalytics
KnowledgeKnowledgeworkers
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information.Today'sworkersarecommonlyreferredtoasknowledgeworkersandtheyuseBIalongwithpersonalexperiencetomakedecisionsbasedonbothinformationandintuition,avaluableresourceforanycompany.
APPLYYOURKNOWLEDGE
BUSINESSDRIVENETHICSANDSECURITY
TheInternetofThingsIsWideOpenForEveryone!IoTistransformingourworldintoalivinginformationsystemaswecontrolourintelligentlightingfromoursmartphonetoadailyhealthcheckfromoursmarttoilet.Ofcourse,withallgreattechnologicaladvancescomeunexpectedrisks,andyouhavetobepreparedtoencountervarioussecurityissueswithIoT.Justimagineifyourdevicesarehackedbysomeonewhonowcanshutoffyourwater,takecontrolofyourcar,orunlockthedoorsofyourhomefromthousandsofmilesaway.WearejustbeginningtounderstandthesecurityissuesassociatedwithIoTandM2M,andyoucanbesurethatsensitivedataleakagefromyourIoTdeviceissomethingyouwillmostlikelyencounterinyourlife. (FormoreinformationaboutIoT,refertotheOpeningCaseStudy.)
Inagroup,identifyafewIoTdevicesyouareusingtoday.ThesecanincludefitnesstrackersthatreporttoyouriPhone,sportsequipmentthatprovidesimmediatefeedbacktoanapp,orevensmartvacuumcleaners.IfyouarenotusinganyIoTdevicestoday,brainstormafewyoumightpurchaseinthefuture.HowcouldacriminalorhackeruseyourIoTtostealyoursensitivedata?Whatpotentialproblemsorissuescouldyouexperiencefromthesetypesofillegaldatathefts?WhatmightbesomeofthesignsthatsomeonehadaccessedyourIoTdataillegally?Whatcouldyoudotoprotectthedatainyourdevice?
ImaginethatTonyanalyzeshisdataandfindshisweakestsalesrepresentativeforthisperiodisCraigSchultz.IfTonyconsideredonlythisinformation,hemightconcludethatfiringCraigwasagoodbusinessdecision.However,becauseTonyhasknowledgeabouthowthecompanyoperates,heknowsCraighasbeenoutonmedicalleaveforseveralweekshence,hissalesnumbersarelow.Withoutthisadditionalknowledge,Tonymighthaveexecutedabadbusinessdecision,deliveredanegativemessagetotheotheremployees,andsenthisbestsalesrepresentativesouttolookforotherjobs.
Thekeypointinthisscenarioisthatitissimplyimpossibletocollectalltheinformationabouteverysituation,andyetwithoutthat,itcanbeeasytomisunderstandtheproblem.Usingdata,information,businessintelligence,andknowledgetomakedecisionsandsolveproblemsisthekeytofindingsuccessinbusiness.Thesecoredriversoftheinformationagearethebuildingblocksofbusinesssystems.
THECHALLENGEOFDEPARTMENTALCOMPANIESANDTHEMISSOLUTION
LO1.2:Explainsystemsthinkingandhowmanagementinformationsystemsenablebusinesscommunications.
Companiesaretypicallyorganizedbydepartmentorfunctionalareasuchas:
Accounting:Records,measures,andreportsmonetarytransactions.
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Finance:Dealswithstrategicfinancialissues,includingmoney,banking,credit,investments,andassets.
Humanresources:Maintainspolicies,plans,andproceduresfortheeffectivemanagementofemployees.
Marketing:Supportssalesbyplanning,pricing,andpromotinggoodsorservices.
Operationsmanagement:Managestheprocessofconvertingortransformingresourcesintogoodsorservices.
Sales:Performsthefunctionofsellinggoodsorservices(seeFigure1.6).
FIGURE1.6DepartmentsWorkingIndependently
Eachdepartmentperformsitsownactivities.Salesandmarketingfocusonmovinggoodsorservicesintothehandsofconsumerstheymaintaintransactionaldata.Financeandaccountingfocusonmanagingthecompany'sresourcesandmaintainmonetarydata.Operationsmanagementfocusesonmanufacturingandmaintainsproductiondatahumanresourcesfocusesonhiringandtrainingpeopleandmaintainsemployeedata.Althougheachdepartmenthasitsownfocusanddata,nonecanworkindependentlyifthecompanyistooperateasawhole.Itiseasytoseehowabusinessdecisiononedepartmentmakescanaffectotherdepartments.Marketingneedstoanalyzeproductionandsalesdatatocomeupwithproductpromotionsandadvertisingstrategies.Productionneedstounderstandsalesforecaststodeterminethecompany'smanufacturingneeds.Salesneedstorelyoninformationfromoperationstounderstandinventory,placeorders,andforecastconsumerdemand.Alldepartmentsneedtounderstandtheaccountingandfinancedepartments'informationforbudgeting.Forthefirmtobesuccessful,alldepartmentsmustworktogetherasasingleunitsharingcommoninformationandnotoperateindependentlyorinasilo(seeFigure1.7).
FIGURE1.7DepartmentsWorkingTogether
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TheMISSolutionYouprobablyrecalltheoldstoryofthreeblindmenattemptingtodescribeanelephant.Thefirstman,feelingtheelephant'sgirth,saidtheelephantseemedverymuchlikeawall.Thesecond,feelingtheelephant'strunk,declaredtheelephantwaslikeasnake.Thethirdmanfelttheelephant'stusksandsaidtheelephantwaslikeatreeoracane.Companiesthatoperatedepartmentallyareseeingonlyonepartoftheelephant,acriticalmistakethathinderssuccessfuloperation.
Successfulcompaniesoperatecrossfunctionally,integratingtheoperationsofalldepartments.Systemsaretheprimaryenablerofcrossfunctionaloperations.A isacollectionofpartsthatlinktoachieveacommonpurpose.Acarisagoodexampleofasystem,sinceremovingapart,suchasthesteeringwheeloraccelerator,causestheentiresystemtostopworking.
Beforejumpingintohowsystemswork,itisimportanttohaveasolidunderstandingofthebasicproductionprocessforgoodsandservices. arematerialitemsorproductsthatcustomerswillbuytosatisfyawantorneed.Clothing,groceries,cellphones,andcarsareallexamplesofgoodsthatpeoplebuytofulfilltheirneeds. aretaskspeopleperformthatcustomerswillbuytosatisfyawantorneed.Waitingtables,teaching,andcuttinghairareallexamplesofservicesthatpeoplepayfortofulfilltheirneeds(seeFigure1.8).
FIGURE1.8DifferentTypesofGoodsandServices
system
Goods
Services
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istheprocessbywhichabusinessprocessesrawmaterialsorconvertsthemintoafinishedproductforitsgoodsorservices.Justthinkaboutmakingahamburger(seeFigure1.9).First,youmustgatheralloftheinputsorrawmaterialssuchasthebun,patty,lettuce,tomato,andketchup.Second,youprocesstherawmaterials,sointhisexampleyouwouldneedtocookthepatty,washandchopthelettuceandtomato,andplacealloftheitemsinthebun.Finally,youwouldhaveyouroutputorfinishedproductyourhamburger! istherateatwhichgoodsandservicesareproducedbasedontotaloutputgiventotalinputs.Givenourpreviousexample,ifabusinesscouldproducethesamehamburgerwithlessexpensiveinputsormorehamburgerswiththesameinputs,itwouldseeariseinproductivityandpossiblyanincreaseinprofits.Ensuringtheinput,process,andoutputofgoodsandservicesworkacrossallofthedepartmentsofacompanyiswheresystemsaddtremendousvaluetooverallbusinessproductivity.
FIGURE1.9Input,Process,OutputExample
Production
Productivity
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SystemsThinkingisawayofmonitoringtheentiresystembyviewingmultipleinputsbeingprocessedor
transformedtoproduceoutputswhilecontinuouslygatheringfeedbackoneachpart(seeFigure1.10). isinformationthatreturnstoitsoriginaltransmitter(input,transform,oroutput)andmodifiesthetransmitter'sactions.Feedbackhelpsthesystemmaintainstability.Forexample,acar'ssystemcontinuouslymonitorsthefuellevelandturnsonawarninglightifthegaslevelistoolow.Systemsthinkingprovidesanendtoendviewofhowoperationsworktogethertocreateaproductorservice.Businessstudentswhounderstandsystemsthinkingarevaluableresourcesbecausetheycanimplementsolutionsthatconsidertheentireprocess,notjustasinglecomponent.
FIGURE1.10OverviewofSystemsThinking
isabusinessfunction,likeaccountingandhumanresources,whichmovesinformationaboutpeople,products,andprocessesacrossthecompanytofacilitatedecisionmakingandproblemsolving.MISincorporatessystemsthinkingtohelpcompaniesoperatecrossfunctionally.Forexample,tofulfillproductorders,anMISforsalesmovesasinglecustomerorderacrossallfunctionalareas,includingsales,orderfulfillment,shipping,billing,andfinallycustomerservice.Althoughdifferentfunctionalareashandledifferentpartsofthesale,thankstoMIS,tothecustomerthesaleisonecontinuousprocess.Ifonepartofthecompanyisexperiencingproblems,however,then,likethecarwithoutasteeringwheel,theentiresystemfails.Iforderfulfillmentpackagesthewrongproduct,itwillnotmatterthatshipping,billing,andcustomerservicedidtheirjobsright,sincethecustomerwillnotbesatisfiedwhenheorsheopensthepackage.
SystemsthinkingFeedback
Managementinformationsystems(MIS)
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MIScanbeanimportantenablerofbusinesssuccessandinnovation.ThisisnottosaythatMISequalsbusinesssuccessandinnovation,orthatMISrepresentsbusinesssuccessandinnovation.MISisatoolthatismostvaluablewhenitleveragesthetalentsofpeoplewhoknowhowtouseandmanageiteffectively.ToperformtheMISfunctioneffectively,almostallcompanies,particularlylargeandmediumsizedones,haveaninternalMISdepartment,oftencalledinformationtechnology(IT),informationsystems(IS),ormanagementinformationsystems(MIS).Forthepurposeofthistext,wewillrefertoitasMIS.
MISDepartmentRolesandResponsibilitiesMISasadepartmentisarelativelynewfunctionalarea,havingbeenaroundformallyforabout40years.Jobtitles,roles,andresponsibilitiesoftendifferfromcompanytocompany,butthemostcommonaredisplayedinFigure1.11.Althoughmanycompaniesmaynothaveadifferentindividualforeachofthesepositions,theymusthavetopmanagerswhotakeresponsibilityforalltheseareas.
FIGURE1.11TheRolesandResponsibilitiesofMIS
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