A computer program or a
collection of programs. It is a
precise set of instructions
that tells hardware what to
The physical components of
information technology. This
can include the computer
itself, plus peripherals such as
storage devices, input
devices like mice and
keyboards, output devices
like monitors and printers,
networking equipment, etc.
Understanding Software: A
Primer for Managers
After studying this section you should be able to:
1. Recognize the importance of software and its implications for the ﬁrm and strategic decision
2. Understand that software is everywhere; not just in computers, but also cell phones, cars, cam-
eras, and many other technologies.
3. Know what software is and be able to diﬀerentiate it from hardware.
4. List the major classiﬁcations of software and give examples of each.
We know computing hardware is getting faster and cheaper, creating all sorts of exciting and disruptive
opportunities for the savvy manager. But what’s really going on inside the box? It’s
makes the magic of computing happen. Without software, your PC would be a heap of silicon, wrapped
in wires encased in plastic and metal. But it’s the instructions—the software code—that enable a com-
puter to do something wonderful, driving the limitless possibilities of information technology.
Software is everywhere. An inexpensive cell phone has about 1 million lines of code, while the av-
erage car contains nearly 100 million
. In this chapter we’ll take a peek inside the chips to understand
what software is. There are a lot of terms associated with software: operating systems, applications, en-
terprise software, distributed systems, and more. We’ll deﬁne these terms up front, and put them in a
managerial context. A follow-up chapter, “Software in Flux”, will focus on changes impacting the soft-
ware business, including open source software, software as a service (SaaS), and cloud computing.
These changes are creating an environment radically diﬀerent from the software industry that existed
in prior decades—confronting managers with a whole new set of opportunities and challenges.
Managers who understand software can better understand the possibilities and impact of techno-
logy. They can make better decisions regarding the strategic value of IT, and the potential for
technology-driven savings. They can appreciate the challenges, costs, security vulnerabilities, legal and
compliance issues, and limitations involved in developing and deploying technology solutions. In the
next two chapters we will closely examine the software industry and discuss trends, developments and
economics—all of which inﬂuence decisions managers make about products to select, ﬁrms to partner
with, and ﬁrms to invest in.