5

Chapter

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

1
Learning Objectives

2
Learning Objectives

3
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

4
Legacy System Approach

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Enterprise System Approach

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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

Information Systems Today: Managing in the Digital World 7

Externally Focused Systems
• Coordinate business activities with customers,
suppliers, business partners and others who operate
outside the organization

• Interorganizational
systems
o Streamline the flow
of information
between companies

8
Internally Focused Systems: Value Chain
• Flow of information through a set of business activities
o Core activities – functional areas that process inputs and
produce outputs
o Support activities – enable core activities to take place

Information Systems Today: Managing in the Digital World 9

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

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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

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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

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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)

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Externally Focused Applications – Value
System
• Coordination of multiple value chains

14
Externally Focused Applications – Value
System
• Information Flows in a Value System
o Upstream information flow – information received from another
company
o Downstream information flow – information produced by a company
and sent to another organization

15
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

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The Rise of Enterprise Systems
• Custom applications
o Developed exclusively for a specific
organization
o Designed for particular business needs
o Higher development costs

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Evolution of Enterprise Systems
• Enterprise
systems
o Organizations
start with stand-
alone
applications
o Legacy systems

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Legacy Systems
• Each department has its own system
o Infrastructure specific
o Inefficient processes
o Potential for inaccuracies

Information Systems Today: Managing in the Digital World 19

The Need for Integrated Enterprise
Systems
• Advantages of integrated systems
o Centralized point of access
• Conversion needed
• Enterprise Resource Planning (ERP) vendors
offer different modules
o Components that can be selectively implemented
o E.g., modules of mySAP business suite

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Vanilla Versus Customized Software
• Vanilla version
o Modules the version comes with out of the
box
o Certain processes might not be supported
• Customization
o Additional software or changes to vanilla
version
o Always needs to be updated with new
versions of vanilla

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

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Learning Objectives

23
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

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BPM Steps
1. 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
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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
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 Enterprise Resource Planning

• Data warehouse
o Large,
centralized data
repository
o Single place for
data storage and
access

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Choosing an ERP System
• Control
o Centralized control vs. control within specific
business units
o Level of detail provided to management
o Consistency of policies and procedures
• Business requirements
o Selection of modules
• Core and extended components
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Core and Extended ERP Components
• Core components – support primary internal activities
• Extended components – support primary external
activities

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ERP Limitations
• ERP falls short in communicating across
organizational boundaries
• Not well suited for managing value
system activities
o Other systems can work with ERP to provide
these capabilities

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Learning Objectives

31
Customer Relationship Management

32
Customer Relationship Management
• Web has changed the business
o Customers have the power
o Transactions vs. relationships
o Keeping customers satisfied is key
• CRM
o Corporate-level strategy
o 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
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Key Benefits of CRM
1. 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
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Developing a CRM Strategy
• More than just
software
purchase and
installation
• Enterprise-wide
changes

35
Policy and Business Process Changes

• Policies and
procedures need
to reflect
customer-
focused culture

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Customer Service Changes

• Customer-focused
measures of
quality
• Process changes
to enhance
customer
experience

37
Employee Training Changes

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

38
Data Collection, Analysis and Sharing
Changes
• All aspects of
customer
experience must
be tracked,
analyzed and
shared
• Consider ethical
concerns
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Architecture of a CRM

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Operational CRM
• Systems for customer
interaction and
service
o Personalized and
efficient customer
service
o Access to complete
information about
customer

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Sales Force Automation
• Component of operational CRM
• Primary goals
o Identification of potential customers
o Streamlining of selling processes
o Improvement of managerial information

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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

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Advantages of Sales Force Management Systems
for Sales Personnel

Information Systems Today: Managing in the Digital World 8-44

Advantages of Sales Force Management
Systems for Sales Managers

Information Systems Today: Managing in the Digital World 8-45

Examples of Sales Measures Tracked by
SFA
1. 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
Information Systems Today: Managing in the Digital World 8-46
SFA Provides Improved Understanding of
Market Conditions
1. 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
Information Systems Today: Managing in the Digital World 8-47
Customer Service and Support
• Second component of
operational CRM
• Automation of traditional
“help desk” services
• Customer
(CIC)
interaction center
o Multiple communication
channels
o Customer service anytime,
anywhere through any
communication channel
o Low support cost
Information Systems Today: Managing in the Digital World 8-48
Enterprise Marketing Automation
• Third component of an operational CRM
• Comprehensive view of the competitive
environment
• Common factors tracked by EMS
o Economic
o Governmental and public policy
o Technology and infrastructure
o Ecology
o Cultural
o Suppliers

Information Systems Today: Managing in the Digital World 8-49

Analytical CRM
• Analysis of customer behavior and perceptions
• Customized marketing
o Up-selling
o Retaining customers
• Key technologies used to create predictive
models
o Data mining
o Decision support systems
• Continuous data collection and analysis is
necessary
Information Systems Today: Managing in the Digital World 8-50
Customer Focused Business Processes
Addressed by Analytical CRM
1. 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
Information Systems Today: Managing in the Digital World 8-51
Customer Focused Business Processes
Addressed by Analytical CRM
6. 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

Information Systems Today: Managing in the Digital World 8-52

Collaborative CRM
• Effective communication with the customer
from the entire organization
o 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
Information Systems Today: Managing in the Digital World 8-53
Ethical Concerns with CRM

Can personalization get too personal?

Information Systems Today: Managing in the Digital World 8-54

Learning Objectives

Information Systems Today: Managing in the Digital World 8-55

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 place
o Cost reduction
o Increased responsiveness to market demands
• Focus on upstream information flows
o Acceleration of product development
o Reduction of costs of raw materials procurement

Information Systems Today: Managing in the Digital World 8-56

Supply Network

Information Systems Today: Managing in the Digital World 8-57

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
Information Systems Today: Managing in the Digital World 8-58
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

Information Systems Today: Managing in the Digital World 8-59

Supply Chain Planning
• Four types of plans are developed
1. Demand planning and forecasting
o Examination of historic data
2. Distribution planning
o Delivering products to consumers
o Warehousing, delivering, invoicing and payment collection
3. Production scheduling
o Coordination of activities needed to create the
product/service
o Optimization of the use of materials, equipment and labor
4. Procurement planning
o Development of inventory estimates
Information Systems Today: Managing in the Digital World 8-60
Supply Chain Execution
• Management of three key elements

1. Product flow
o Flow of product from supplier to consumer
o Automation of product returns
2. Information flow
o Complete removal of paper documents
o Access to current information at all times
3. Financial flow
o Automatic flow of payments
Information Systems Today: Managing in the Digital World 8-61
Developing an SCM Strategy
• SCM efficiency and effectiveness need to be
balanced
o Efficiency – cost minimization
o Effectiveness – customer service maximization

Information Systems Today: Managing in the Digital World 8-62

Emerging SCM Trends
• Enterprise portals – B2B marketplace
o Access point to proprietary information
o Productivity gains and cost savings
• Distribution portals
o Products from single
supplier to many
buyers
• Procurement portals
o Procurement of
products between
single buyer and
multiple suppliers
Information Systems Today: Managing in the Digital World 8-63
Example: Distribution Portal
• Automation of business
processes between
supplier and multiple
customers
o Before transaction
o During transaction
o After transaction
• Trading exchanges
o Equilibrium between
buyers and sellers
o Vertical markets

Information Systems Today: Managing in the Digital World 8-64

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

Information Systems Today: Managing in the Digital World 8-65

Trading Exchanges
• Small companies don’t have funds for SCM
• Trading exchanges provide a solution
o Operated by third-party vendors
o Revenue model
• Commission for each transaction
• Usage and association fees
• Advertising
o Many buyers and many sellers can come together
o Popular trading exchanges
• www.scrapsite.com (steel)
• www.paperspace.com (paper)
• www.sciquest.com (medical equipment)
Information Systems Today: Managing in the Digital World 8-66
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

Information Systems Today: Managing in the Digital World 8-67

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
Information Systems Today: Managing in the Digital World 8-68
Use of RFID in Supply Chain
Management
Pallet of inventory processed through an RFID gate

Information Systems Today: Managing in the Digital World 8-69

Learning Objectives

Information Systems Today: Managing in the Digital World 8-70

The Formula for Enterprise System
Success
1. Secure executive sponsorship
o Most failures due to lack of top-level management support
2. Get help from outside experts
o Consultants are specifically trained
o Implementation tends to happen faster
3. Thoroughly train users
o Most overlooked, underestimated and poorly budgeted
expense
o Training can prevent dissatisfaction
4. Take a multidisciplinary approach to implementations
o Include end users from all functional areas in the
implementation
Information Systems Today: Managing in the Digital World 8-71
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 customer
o Services
• Team merchandise
• Live audio and video
o 1 million subscribers
o $12-16 million revenue/year
• Fantasy baseball
• Mobile content for cell phones
• Game tickets for all 30 MLB teams
o All services very successful
Information Systems Today: Managing in the Digital World 8-73
 Outsourcing Your McDonald’s
Order
• McDonald’s – One of America’s success stories
o Founded in 1948 in San Bernardino, California
o $20 billion business
o 31,000 locations
• Outsourcing the drive-through
o All stores already had an
Internet connection
o Orders processed overseas
o Entered into the queuing system
o Food quality remains the same

Information Systems Today: Managing in the Digital World 8-74

 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
Information Systems Today: Managing in the Digital World 8-75
 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
• 2004
o 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
Information Systems Today: Managing in the Digital World 8-76
 Targeting or Discriminating? Ethical
Pitfalls of CRM
• CRM can be called a marketer’s dream
o Getting to know customers
o Maximizing the benefits gained from customers
o Customer segmentation
o Target marketing
• Companies need to develop ethical principles
of CRM use
o Establish how data will be used
o Inform customers about the use of data
o Refrain from stepping over the ethical/unethical line
Information Systems Today: Managing in the Digital World 8-77
 Three-Dimensional Fabrication
• Fabbing – three-dimensional (3D) printing
o 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-D
o Usable
o With moving parts
• Hewlett-Packard (HP) – leader
o 3-D HP printers now available for $1,000
Information Systems Today: Managing in the Digital World 8-78
 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

Information Systems Today: Managing in the Digital World 8-79

 The Comics Industry: Digital
Distribution to the Rescue
• 1998 – Marvel Comics goes bankrupt
o 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 comics
o 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
Information Systems Today: Managing in the Digital World 8-80