Chapter

Information Systems Today: Managing in the Digital World 8-1

8Chapter

Building Organizational Partnerships Using Enterprise Information Systems

“If the Internet turns out not to be the future of computing, we’re toast.”

Larry Ellison, Founder and CEO, Oracle Corporation


Learning Objectives


Enterprise Systems

• Problem:o Information systems growing over time

o Lack of integration

•Different computing platforms

•Difficult to integrate

•Data must be reentered from one system to another

•Same pieces of data stored in several versions


Legacy System Approach


Enterprise System Approach


Supporting Business Activities• Internally focused systems

o Support functional areas, business processes and decision-making within an organization

o New information (value) is added at every step


Externally Focused Systems• Coordinate business activities with customers,

suppliers, business partners and others who operate outside the organization

• Interorganizational systemso Streamline the flow

of information between companies


Internally Focused Systems: Value Chain

• Flow of information through a set of business activitieso Core activities – functional areas that process inputs and

produce outputs

o Support activities – enable core activities to take place


Core Activities

• Inbound logistics activities• Receiving and stocking raw materials, parts and products

• Cisco – delivery of electronic components from suppliers

• Operations and manufacturing activities• Order processing and/or manufacturing of end products

• Dell – component parts assembled to make products

• Outbound logistics activities• Distribution of end products

• Amazon.com – delivery of books to customers


Core Activities (II)

• Marketing and Sales activities•Presale marketing activities (e.g., creating

marketing brochures)

•Amtrak – use of IS to update prices and schedules

• Customer service activities•Postsale activities

•HP – downloads related to purchased products


Support Activities

• Administrative activities•Support of day-to-day operations (for all functional

areas)

• Infrastructure activities• Implement hardware and software needed

• Human resource activities•Employee management


Support Activities

• Technology development activities•Design and development of applications to support

the primary activities

• Procurement activities•Purchasing of goods and services (inputs into the

primary activities)


Externally Focused Applications – Value System

• Coordination of multiple value chains


Externally Focused Applications – Value System

• Information Flows in a Value Systemo Upstream information flow – information received from another

company

o Downstream information flow – information produced by a company and sent to another organization


The Rise of Enterprise Systems• Packaged applications

o Written by third-party vendors

o Used by many different organizations

o Useful for standardized, repetitive tasks

o Cost effective

o E.g., Microsoft Money and Quicken


The Rise of Enterprise Systems• Custom applications

o Developed exclusively for a specific organization

o Designed for particular business needs

o Higher development costs


Evolution of Enterprise Systems• Enterprise

systemso Organizations

start with stand-alone applications

o Legacy systems


Legacy Systems• Each department has its own system

o Infrastructure specific

o Inefficient processes

o Potential for inaccuracies


The Need for Integrated Enterprise Systems• Advantages of integrated systems

o Centralized point of access• Conversion needed

• Enterprise Resource Planning (ERP) vendors offer different moduleso Components that can be selectively implementedo E.g., modules of mySAP business suite


Vanilla Versus Customized Software• Vanilla version

o Modules the version comes with out of the box

o Certain processes might not be supported

• Customizationo Additional software or changes to vanilla

versiono Always needs to be updated with new

versions of vanilla


Best Practices-Based Software• Most ERP vendors build best practices into

their ERP systemso Identify business processes in need of change

o Future updates are smoother if businesses change their business processes to fit with ERP systems

• Is following the best practices always the best strategy?o If companies have competitive advantage from

unique business processes


Learning Objectives


Business Process Management• Systematic and structured improvement approach

o All or part of organization is involved

o Rethinking and redesign of business processes

• Became popular in 1990s

• IS seen as key enabler for radical change

• Process intended to be cross-functional


BPM Steps1.Develop a vision for the organization (specify

business objectives)

2. Identify critical processes that are to be redesigned

3.Understand and measure existing processes as a baseline

4. Identify ways IS can be used for improvement

5.Design and implement a prototype of the new processes


Conditions Leading to a Successful BPM

• Support by senior management

• Shared vision by all organizational members

• Realistic expectations

• Participants empowered to make changes

• The right people participating

• Sound management practices

• Appropriate funding


Enterprise Resource Planning

• Data warehouseo Large,

centralized data repository

o Single place for data storage and access


Choosing an ERP System

• Controlo Centralized control vs. control within specific

business units

o Level of detail provided to management

o Consistency of policies and procedures

• Business requirementso Selection of modules

•Core and extended components


Core and Extended ERP Components• Core components – support primary internal activities

• Extended components – support primary external activities


ERP Limitations

• ERP falls short in communicating across organizational boundaries

• Not well suited for managing value system activitieso Other systems can work with ERP to provide

these capabilities


Learning Objectives


Customer Relationship Management


Customer Relationship Management• Web has changed the business

o Customers have the powero Transactions vs. relationshipso Keeping customers satisfied is key

• CRMo Corporate-level strategyo Concentrates on the downstream information flow

• To attract potential customers

• Creation of customer loyalty

o Managers need to be able to monitor and analyze factors driving customer satisfaction


Key Benefits of CRM1.Enables 24/7/365 operations

2. Individualized service

3. Improved information

4.Speeds up problem identification/resolution

5.Speeds up processes

6. Improved integration

7. Improved product development

8. Improved planning


Developing a CRM Strategy

• More than just software purchase and installation

• Enterprise-wide changes


Policy and Business Process Changes

• Policies and procedures need to reflect customer-focused culture


Customer Service Changes

• Customer-focused measures of quality

• Process changes to enhance customer experience


Employee Training Changes

• Employees from all business areas must value customer service and satisfaction


Data Collection, Analysis and Sharing Changes

• All aspects of customer experience must be tracked, analyzed and shared

• Consider ethical concerns


Architecture of a CRM


Operational CRM

• Systems for customer interaction and serviceo Personalized and

efficient customer service

o Access to complete information about customer


Sales Force Automation• Component of operational CRM

• Primary goalso Identification of potential customers

o Streamlining of selling processes

o Improvement of managerial information


Sales Force Automation• Supports day-to-day sales activities

o Order processing and tracking

o Contact development, assignment and management

o Customer history preferences

o Sales forecasting and performance analysis

o Sales administration


Advantages of Sales Force Management Systems for Sales Personnel


Advantages of Sales Force Management Systems for Sales Managers


Examples of Sales Measures Tracked by SFA1. Revenue per sales person, per territory, or as

a percentage of sales quota

2. Margins by product category, customer segment, or customer

3. Number of calls per day, time spent per contract, revenue per call, cost per call, ratio of orders to calls

4. Number of lost customers per period or cost of customer acquisition


SFA Provides Improved Understanding of Market Conditions1. Improved understanding of markets, segments

and customers

2. Improved understanding of competitors

3. Enhanced understanding of organization’s strengths and weaknesses

4. Better understanding of economic structure of the industry

5. Enhanced product development

6. Improved strategy development and coordination with the sales function


Customer Service and Support• Second component of

operational CRM• Automation of traditional

“help desk” services• Customer interaction center

(CIC)o Multiple communication

channelso Customer service anytime,

anywhere through any communication channel

o Low support cost


Enterprise Marketing Automation• Third component of an operational CRM

• Comprehensive view of the competitive environment

• Common factors tracked by EMSo Economico Governmental and public policyo Technology and infrastructureo Ecologyo Culturalo Suppliers


Analytical CRM• Analysis of customer behavior and perceptions

• Customized marketingo Up-sellingo Retaining customers

• Key technologies used to create predictive modelso Data miningo Decision support systems

• Continuous data collection and analysis is necessary


Customer Focused Business Processes Addressed by Analytical CRM1. Marketing campaign management and

analysis

2. Customer campaign customization

3. Customer communication optimization

4. Customer segmentation and sales coverage optimization

5. Pricing optimization and risk assessment and management


Customer Focused Business Processes Addressed by Analytical CRM6. Price, quality and satisfaction analysis of

competitors

7. Customer acquisition and retention analysis

8. Customer satisfaction and management

9. Product usage, life cycle analysis, and product development

10. Product and service quality tracking and management


Collaborative CRM• Effective communication with the customer

from the entire organizationo CIC is the key

• Collaborative CRM enhances communication o Greater customer focus

• Understanding of historical and current needs

o Lower communication barriers

• Communication preferences of the customer considered

o Increased information integration

• Customer information shared across the organization


Ethical Concerns with CRM

Can personalization get too personal?


Learning Objectives


Supply Chain Management

• Upstream activities

• Improvement of business processes spanning organizational boundaries

• Adopted by large organizations

• Collaboration with suppliers (supply network)o Ability to compete more effectively in the market placeo Cost reductiono Increased responsiveness to market demands

• Focus on upstream information flowso Acceleration of product developmento Reduction of costs of raw materials procurement


Supply Network


Functions That Optimize the Supply Network (SCM Modules)1. Supply chain collaboration

2. Collaborative design

3. Collaborative fulfillment

4. Collaborative demand and supply planning

5. Collaborative procurement

6. Production planning

7. Supply chain event management

8. Supply chain exchange

9. Supply chain performance management


SCM architecture• SCM modules support two functions

o Supply chain planning - development of resource plans to support production

o Supply chain execution - execution of supply chain planning


Supply Chain Planning• Four types of plans are developed

1. Demand planning and forecastingo Examination of historic data

2. Distribution planningo Delivering products to consumerso Warehousing, delivering, invoicing and payment collection

3. Production schedulingo Coordination of activities needed to create the

product/serviceo Optimization of the use of materials, equipment and labor

4. Procurement planningo Development of inventory estimates


Supply Chain Execution• Management of three key elements

1. Product flowo Flow of product from supplier to consumero Automation of product returns

2. Information flowo Complete removal of paper documentso Access to current information at all times

3. Financial flowo Automatic flow of payments


Developing an SCM Strategy• SCM efficiency and effectiveness need to be

balancedo Efficiency – cost minimization

o Effectiveness – customer service maximization


Emerging SCM Trends• Enterprise portals – B2B marketplace

o Access point to proprietary information

o Productivity gains and cost savings

• Distribution portalso Products from single

supplier to many buyers

• Procurement portalso Procurement of

products between single buyer and multiple suppliers


Example: Distribution Portal• Automation of business

processes between supplier and multiple customerso Before transaction

o During transaction

o After transaction

• Trading exchangeso Equilibrium between

buyers and sellers

o Vertical markets


Example: Procurement Portal• Automation of business processes between a buyer

and multiple suppliers


Trading Exchanges• Small companies don’t have funds for SCM• Trading exchanges provide a solution

o Operated by third-party vendorso Revenue model

• Commission for each transaction• Usage and association fees• Advertising

o Many buyers and many sellers can come togethero Popular trading exchanges

• www.scrapsite.com (steel)• www.paperspace.com (paper)• www.sciquest.com (medical equipment)


Key Technologies for Enhancing SCM

• Extensible Markup Language (XML)o Specifies rules for tagging elements

o Specifies how information should be interpreted and used

o Customizable

o XML variations

•Extensible Business Reporting Language (XBRL)o Publishing of financial information


Radio Frequency Identification• Replacement for standard bar codes

• Transceiver and antenna

• Diverse usage opportunities

• Line-of-sight reading not necessary

• RFID tags can contain more information than bar codes

• Scanning can be done from greater distance

o Passive tags – range of few feet

o Active tags – hundreds of feet


Use of RFID in Supply Chain ManagementPallet of inventory processed through an RFID gate


Learning Objectives


The Formula for Enterprise System Success1. Secure executive sponsorship

o Most failures due to lack of top-level management support

2. Get help from outside expertso Consultants are specifically trainedo Implementation tends to happen faster

3. Thoroughly train userso Most overlooked, underestimated and poorly budgeted

expenseo Training can prevent dissatisfaction

4. Take a multidisciplinary approach to implementationso Include end users from all functional areas in the

implementation

End of Chapter Content


Opening Case: CRM and Major League Baseball• Major League Baseball Advanced Media (MLBAM)

o Services MLB.com (since 2001)o Focus on the customero Services

• Team merchandise

• Live audio and videoo 1 million subscriberso $12-16 million revenue/year

• Fantasy baseball

• Mobile content for cell phones

• Game tickets for all 30 MLB teams

o All services very successful


Outsourcing Your McDonald’s Order

• McDonald’s – One of America’s success storieso Founded in 1948 in San Bernardino, Californiao $20 billion businesso 31,000 locations

• Outsourcing the drive-througho All stores already had an

Internet connectiono Orders processed overseaso Entered into the queuing systemo Food quality remains the same


Larry Ellison, Founder and CEO, Oracle Corporation

• Referred to as “the other software billionaire” o Oracle second to Microsoft in

software sales

• “If the Internet turns out not to be the future of computing, we’re toast,”

Ellison said early in his career


Misusing CRM Data• 2000

o 10,000 pounds of meat potentially infected with mad cow disease distributed in Washington State

o QFC grocery chain sued for not informing customers of a recall

• 2004o Albertsons’ misused CRM data

o Pharmaceutical companies paid Albertson’s to ask their customers to switch to more expensive drugs

o Privacy Rights Clearinghouse sued Albertsons


Targeting or Discriminating? Ethical Pitfalls of CRM

• CRM can be called a marketer’s dreamo Getting to know customerso Maximizing the benefits gained from customerso Customer segmentationo Target marketing

• Companies need to develop ethical principles of CRM useo Establish how data will be usedo Inform customers about the use of datao Refrain from stepping over the ethical/unethical line


Three-Dimensional Fabrication

• Fabbing – three-dimensional (3D) printingo 2 printer heads

• First lays down a fine powder• Second head is a gluing agent• With each pass of the heads one layer of the model is done• Prototype made in hours vs. days

• Fast production of prototypes that are o 3-Do Usableo With moving parts

• Hewlett-Packard (HP) – leadero 3-D HP printers now available for $1,000


RFID on the Rise• Market for RFID is exploding

o Expected growth from $2.7 billion (2006) to $12.3 billion (2010)

o Supply chain elements will account for majority of the growth


The Comics Industry: Digital Distribution to the Rescue

• 1998 – Marvel Comics goes bankrupto The largest player in the industry

o Creator of 5,000 comic book characters

o Other smaller companies were no longer in business

• Transition to big screen and digital media saved the comicso Marvel.com

• 30 older comics online

• 82% of users also buy in the stores

o Japanese companies deliver comics to cell phones

• $400 million yearly revenues

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