Managing the Digital Firm, Seventh Canadian Edition
CHAPTER 6
Databases and Information
Management
LEARNING OBJECTIVES
After reading this chapter, you will be able to answer the following questions:
1. What are the problems of managing data resources in a traditional file environment, and how
are they solved by a database management system?
2. What are the major capabilities of database management systems (DBMS), and why is a
relational DBMS so powerful?
3. What are some important principles of database design?
4. What are the principal tools and technologies for accessing information from databases to
improve business performance and decision making?
5. Why are information policy, data administration, and data quality assurance essential for
managing the firm’s data resources?
Teaching Suggestions
The essential message of this chapter is the statement that “How businesses store, organize, and
manage their data has a tremendous impact on organizational effectiveness.” Data have now
become central and even vital to an organization’s survival.
The opening vignette, “Banco de Credito del Peru Banks on Better Data Management,”
describes the difficulties the organization experienced trying to provide its managers and
Managing the Digital Firm, Seventh Canadian Edition
Section 6.1 “Organizing Data in a Traditional File Environment”
Introduces basic key terms like field, record, file, database, entity and attribute. Try using a
simple spreadsheet print-out to demonstrate these terms. The section points out the drawbacks
Section 6.2 “The Database Approach to Data Management”
This section introduces students to more file organization terms and concepts. A database
management system is comprised of three components: A data definition language, data
dictionary, and data manipulation language. If you have access to a relational DBMS during
Section 6.3 “Using Databases to Improve Business Performance and Decision Making”
This section focuses on how data technologies are actually used: Data warehouses, data marts,
multidimensional data analysis, and data mining. Regardless of their career choice, students will
probably use some or all of these in their jobs. Data warehouses and data marts are critical for
Managing the Digital Firm, Seventh Canadian Edition
WINDOW ON TECHNOLOGY: BIG DATA, BIG REWARDS
Case Study Questions:
1. Describe the kinds of “big data” collected by the organizations described in this case.
British Library: It collects data from typical library resources like books, periodicals, and
newspapers. In addition, it must store and collect data from Web sites that no longer exist but
must be preserved for historical purposes. Data from over 6 billion searches must also be
stored.
Law enforcement agencies: Collect data on criminal complaints, national crime records, and
public records.
Vestas Wind Energy: Collects data from 43,000 turbines in 66 countries; collects location-
2. List and describe the business intelligence technologies described in this case.
The British Library and Vestas use Hadoop so it can process large amounts of data quickly
and efficiently. Hertz uses sentiment analysis to determine customer satisfaction. Law
enforcement agencies use Web mining techniques to help determine potential criminal acts.
3. Why did the companies described in this case need to maintain and analyze big data?
What business benefits did they obtain?
The British Library is able to maintain historical records of events and provide users with
Managing the Digital Firm, Seventh Canadian Edition
4. Identify three decisions that were improved by using big data.
Vestas used its big data to help find the best places to install its wind turbines. It is able to
manage and analyze location and weather data with models that are much more powerful and
precise. The new technology enables the company to forecast optimal turbine placement in
5. What kinds of organizations are most likely to need “big data” management and
analytical tools? Why?
Section 6.4, “Managing Data Resources”
This section introduces students to some of the critical management issues surrounding corporate
data. Students should realize that setting up the database is only the beginning of the process.
Managing the Digital Firm, Seventh Canadian Edition
WINDOW ON ORGANIZATIONS: CREDIT BUREAU ERRORS—BIG
PEOPLE PROBLEMS
Case Study Questions
1. Assess the business impact of credit bureaus’ data quality problems for the credit
bureaus, for lenders, and for individuals.
Credit bureaus: Credit bureaus sell their information to other companies to use for credit
assessment. Continuing problems of data quality can affect the price they receive for the data
and their business reputation.
2. Are any ethical issues raised by credit bureaus’ data quality problems? Explain your
answer.
Student answers will vary according to their personal experiences and knowledge. Some
issues they may include in their answers are:
• Whose responsibility should it be to fix data problems caused by the bureaus’ faulty
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3. Analyze the management, organization, and technology factors responsible for credit
bureaus’ data quality problems.
Management: Consumers might provide incomplete or inaccurate information on a credit
application. A creditor might submit incomplete or inaccurate information to the credit
Organization: The sheer volume of information being transmitted from creditors to credit
bureaus increases the likelihood of mistakes. The bureaus recognize that their own systems
are responsible for many credit-report errors. Some mistakes occur because of inadequate
4. What can be done to solve these problems?
Management: Creditors and lenders could require more documentation from consumers
who are applying for loans to ensure data is as accurate and complete as possible. Workers in
companies supplying tax and bankruptcy data from court and government records could
Managing the Digital Firm, Seventh Canadian Edition
Review Summary
1. What are the problems of managing data resources in a traditional file environment
and how are they solved by a database management system?
2. What are the major capabilities of DBMS and why is a relational DBMS so powerful?
3. What are some important database design principles?
4. What are the principal tools and technologies for accessing information from databases
to improve business performance and decision making?
5. Why are information policy, data administration, and data quality assurance essential
for managing the firm’s data resources?
Key Terms
The following alphabetical list identifies the key terms discussed in this chapter. The page
number for each key term is provided.
Analytic platform 186
Attribute 175
Data governance 193
Data inconsistency 176
Data manipulation language 181
Data mart 185
Data mining 188
Data quality audit 194
Field 175
File 175
Normalization 183
Online analytical processing
(OLAP) 180
Primary key 178
Program-data dependence 176
Record 175
Managing the Digital Firm, Seventh Canadian Edition
Review Questions
1. What are the problems of managing data resources in a traditional file environment
and how are they solved by a database management system?
List and describe each of the components in the data hierarchy.
Figure 6–1 shows a sample data hierarchy. The data hierarchy includes bits, bytes, fields,
records, files, and databases. Data is organized in a hierarchy that starts with the bit, which is
Define and explain the significance of entities, attributes, and key fields.
• Entity is a person, place, thing, or event on which information is obtained.
• Attribute is a piece of information describing a particular entity.
• Key field is a field in a record that uniquely identifies instances of that unique record so that it
List and describe the problems of the traditional file environment.
Problems with the traditional file environment include data redundancy and confusion,
program-data dependence, lack of flexibility, poor security, and lack of data sharing and
availability. Data redundancy is the presence of duplicate data in multiple data files. In this
situation, confusion results because the data can have different meanings in different files.
Define a database and a database management system and describe how it solves the
problems of a traditional file environment.
A database is a collection of data organized to service many applications efficiently by
storing and managing data so that they appear to be in one location. It also minimizes
2. What are the major capabilities of DBMS and why is a relational DBMS so powerful?
Name and briefly describe the capabilities of a DBMS.
A DBMS includes capabilities and tools for organizing, managing, and accessing the data in
the database. The principal capabilities of a DBMS include data definition language, data
dictionary, and data manipulation language.
• The data definition language specifies the structure and content of the database.
Define a relational DBMS and explain how it organizes data.
The relational database is the primary method for organizing and maintaining data in
List and describe the three operations of a relational DBMS.
In a relational database, three basic operations are used to develop useful sets of data: Select,
project, and join.
• Select operation creates a subset consisting of all records in the file that meet stated
criteria. In other words, select creates a subset of rows that meet certain criteria.
3. What are some important database design principles?
Define and describe normalization and referential integrity and explain how they
contribute to a well-designed relational database.
Normalization is the process of creating small stable data structures from complex groups of
data when designing a relational database. Normalization streamlines relational database
Managing the Digital Firm, Seventh Canadian Edition
Define and describe an entity-relationship diagram and explain its role in database design.
Relational databases organize data into two-dimensional tables (called relations) with
columns and rows. Each table contains data on an entity and its attributes. An entity-
4. What are the principal tools and technologies for accessing information from databases
to improve business performance and decision making?
Define a data warehouse, explaining how it works and how it benefits organizations.
A data warehouse is a database with archival, querying, and data exploration tools (i.e.,
statistical tools) and is used for storing historical and current data of potential interest to
managers throughout the organization and from external sources (e.g., competitor sales or
market share). The data originate in many of the operational areas and are copied into the
Define business intelligence and explain how it is related to database technology.
Powerful tools are available to analyze and access information that has been captured and
organized in data warehouses and data marts. These tools enable users to analyze the data to
see new patterns, relationships, and insights that are useful for guiding decision making.
Managing the Digital Firm, Seventh Canadian Edition
Describe the capabilities of online analytical processing (OLAP).
Data warehouses support multidimensional data analysis, also known as online analytical
processing (OLAP), which enables users to view the same data in different ways using
multiple dimensions. Each aspect of information represents a different dimension.
Define data mining, describing how it differs from OLAP and the types of information
it provides.
Data mining provides insights into corporate data that cannot be obtained with OLAP by
Explain how text mining and Web mining differ from conventional data mining.
Conventional data mining focuses on data that has been structured in databases and files.
Text mining concentrates on finding patterns and trends in unstructured data contained in text
Describe how users can access information from a company’s internal databases
through the Web.
Conventional databases can be linked via middleware to the Web or a Web interface to facilitate
user access to an organization’s internal data. Web browser software on a client PC is used to
5. Why are information policy, data administration, and data quality assurance essential
for managing the firm’s data resources?
Describe the roles of information policy and data administration in information
management.
An information policy specifies the organization’s rules for sharing, disseminating,
acquiring, standardizing, classifying, and inventorying information. Information policy lays
Explain why data quality audits and data cleansing are essential.
Data that is inaccurate, incomplete, or inconsistent create serious operational and financial
problems for businesses because they may create inaccuracies in product pricing, customer
accounts, and inventory data, and lead to inaccurate decisions about the actions that should
Managing the Digital Firm, Seventh Canadian Edition
Hands-On MIS Projects
Management Decision Problems
1. Global Process Management: data warehouse was full of inaccurate and redundant data
gathered from numerous transaction processing systems. The design team assumed all users
would enter data the same way. Users actually entered data in multiple ways. Assess the
potential business impact of these data quality problems. What decisions have to be made
and steps taken to reach a solution?
2. Industrial supply company: the company wants to create a single data warehouse by
combining several different systems. The sample files from the two systems that would
supply the data for the data warehouse contain different data sets.
1. What business problems are created by not having these data in a single standard format?
2. How easy would it be to create a database with a single standard format that could store
the data from both systems? Identify the problems that would have to be addressed.
Managing the Digital Firm, Seventh Canadian Edition
3. Should the problems be solved by database specialist or general business managers? Explain.
4. Who should have the authority to finalize a single company-wide format for this
information in the data warehouse?
Owners and managers are the only ones who have the authority to finalize the format for
Improving Operational Excellence: Building a Relational Database for Inventory Management
Software skills: Database design, querying and reporting
Business Skills: Inventory Management
This exercise requires that students know how to create queries and reports using information from
multiple tables. The solutions provided here were created using the query wizard and report wizard
capabilities of Access. Students can, of course, create more sophisticated reports if they wish.
1. Prepare a report that identifies the five most expensive bicycles. The report should list the
2. Prepare a report that lists each supplier, its products, quantities on hand, and associated
4. Write a brief description of how the database could be enhanced to further improve
management of the business. What tables or fields should be added? What additional reports
would be useful?
Improving Decision Making: Searching Online Databases for Overseas Business Resources
Software skills: Online database
Business Skills: Researching services for overseas operations
Managing the Digital Firm, Seventh Canadian Edition
The Internet is a valuable source of databases where users can search for services and products in
areas or countries that are far from their own locations. Your company is located in Calgary,
1. List the companies you would contact to interview on your trip to determine whether
they can help you with functions you think are vital to establishing your office.
Start by searching for Canadian government Department of Foreign and International Trade
(DFAIT) (http://www.international.gc.ca/commerce/index.aspx?menu_id=12&menu=L) for
2. Rate the databases you used for accuracy of name, completeness, ease-of-use, and
general helpfulness.
3. What does this exercise tell you about the design of databases?
Students may not understand that the World Wide Web is one massive data warehouse, but in
CASE STUDY: ASKING THE CUSTOMER BY ASKING THE DATABASE
1. Why would a customer database be so useful for the companies described in this case?
What would happen if these companies had not kept their customer data in databases?
Managing the Digital Firm, Seventh Canadian Edition
Monster uses personalized email, direct mail, social engagement, and prioritized
telemarketing using IBM’s Unica enterprise marketing management tools. The database
Diapers.com began its business without any historical data upon which it could mine its best,
most profitable customers. Rather, it relied on first-hand knowledge of pregnant women and
what products they are most interested in. Over time, the company gathered sales data and
demographic information about its customers and began using predictive analytics to
calculate how much each buyer will spend over that person’s lifetime as a customer. The
2. How did better data management and analytics improve each company’s business
performance? Give examples of two decisions that were improved by mining these
customer databases.
Monster’s sales force targets prioritized telemarketing follow-up calls to customers who have
opened and clicked on more than one email knowing that the customer is probably more
receptive to a sales pitch because he has shown interest in the company’s services.
3. Are there any ethical issues raised by mining customer databases? Explain
your answer.
Sometimes companies can learn too much about customers and end up making them feel
their privacy has been compromised. That’s what happened when Target mined its data so