PART III: Next Three Chapters Chapter 7: Structured Processes and Information Systems Discusses structured business processes and ways information systems can improve process quality Chapter 8: Social Media Information Systems Addresses dynamic processes used with social networking applications Chapter 9: Business Intelligence Systems Discusses business intelligence and related information systems

Chapter 7 Structured Processes and Information Systems Jason C. H. Chen, Ph.D. Professor of MIS School of Business Administration Gonzaga University Spokane, WA 99258 chen@jepson.gonzaga.edu

Exclusive private golf and tennis club 1500 memberships Fox Lake Country Club Exclusive private golf and tennis club 1500 memberships 35 full-time and 100+ seasonal employees Business units: Restaurant, pro shop, facilities, new wedding-hosting events Tennis, swimming activities and the pro shop are ignored in the study Hit hard by recession

Fox Lake Country Club Has a Problem Mike, facilities manager Anne, wedding planner Renovation plan interferes with scheduled weddings Could result in lost revenue, unhappy customers, damaged business reputation and costly law suits What are missing and needed for the Fox Lake Country Club. Answer – Structured Processes and “relevant” Information Systems

Study Questions Q1: What are the basic types of structured processes? Q2: How can information systems improve process quality? Q3: How do enterprise systems eliminate problems of information silos? Q4: How do CRM, ERP, and EAI support structured enterprise processes? Q5: What are the elements of an ERP System? Q6: What are the challenges of implementing enterprise systems? Q7: How will service-oriented architecture impact enterprise information systems? Q8: 2022?

Study Elements Four important elements can be summarized in this chapter: 1a. What is “structured processes” and what are the basic types of structured processes? 1b. How can information systems improve process quality? 2. What is “information silos” and how do enterprise systems eliminate problems of information silos? 3a. What are CRM, ERP, and EAI and how do “they” support structured enterprise processes? 3b. What are the elements of an ERP System? 4a. What Are the Challenges When Implementing New Enterprise Systems? 4b. How will service-oriented architecture (SOA) impact enterprise information systems?

Q1. What are Business Process and Business Process Management? Business process: A network of activities that generate value by transforming inputs into outputs ( and to achieve a defined business outcome,) Fig. 7.1 a three-activity process for approving customer orders. Busisness process management (BPM) is a management approach focused on aligning all aspects of an organization with the wants and needs of clients. It is a holistic management approach[1] that promotes business effectiveness and efficiency while striving for innovation, flexibility, and integration with technology. http://en.wikipedia.org/wiki/Business_process_management Dr. Chen, The Trends of the Information Systems Technology TM -7

What are Business Process and Business Process Management? Business process: A set of logically related tasks performed to achieved a defined business outcome Business process management (BPM) is a management approach focused on aligning all aspects of an organization with the wants and needs of clients. It is a holistic management approach[1] that promotes business effectiveness and efficiency while striving for innovation, flexibility, and integration with technology. http://en.wikipedia.org/wiki/Business_process_management Dr. Chen, The Trends of the Information Systems Technology TM -8

What Are the Basic Types of Structured Processes? Fig 7-1 Business Process with Three Activities

Structured vs. Dynamic Processes Structured processes Formally defined, standardized processes that involve day-to-day operations. E.g., accepting a return, placing an order, purchasing raw materials. Dynamic processes Flexible, informal, and adaptive processes that normally involve strategic and less specific managerial decisions and activities. E.g., whether to open a new store location or how best to solve the problem of excessive product returns.

Q/A Which of the following is an example of a dynamic process? A) Samsung accepts a return of a defective television from its dealer. B) Starbucks places an order for coffee beans from its local supplier. C) Amazon.com hires customer service respresentatives to help customers with their online orders. D) Nike uses Facebook and Twitter to generate buzz about its new line of running shoes. Answer:

How Do Structured Processes Differ from Dynamic Processes? Fig 7-2: Structured vs. Dynamic Processes

Different Structured Processes and IS Structured departmental process a structured process that exists to enable departmental employees to fulfill the charter purpose, and goals of a particular organizational unit (see Fig. 7-3&4) Departmental information system an IS that exists o support a departmental process Structured enterprise processes Structured processes that span an organization and support activities in multiple departments. Structured information system Structured ________________ processes Structured processes that span two or more independent organizations. At Fox Lake, the process that are restaurant uses to order supplies and ingredients from its suppliers is an example. Structured Interenterprise information system an IS that exists o support an interenterprise process Interenterprise

Common Departmental Information Systems Fig 7-3: Common Departmental Information Systems

How Do Structured Processes Vary by Scope? Fig 7-4: Scope of Structured Processes

Q2: How Can Information Systems Improve Process Quality? Processes are the fabric of organizations; they are the means by which people organize their activities to achieve the organization’s goals. Two dimensions of process quality: Process __________: ratio of process outputs to inputs. Process ___________: how well a process achieves organizational strategy Ways to improve process quality Change process ___________ Change both efficiency effectiveness Ways to improve process quality (1) Change structure on process to improve “Process efficiency”: Fig. 7-1; might be more efficient if customer credit was done first and inventory was checked second. However, the process will be more costly as the company has to pay for a credit check on customers for which it did not have appropriate inventory. (2) Resources: (Humans and IS) Adding more people to check credit will “decrease” the delays; however, it will also add “cost”.  balance between “effectiveness” and “efficiency” Using “Information Systems”  automated process structure resources

How Can Information Systems Improve Process Quality? 1. Performing an activity Partially automated, completely automated 2. Augmenting human performing activity Common reservation system 3. Controlling process flow Order approval process 1. Performing an activity -- e.g., Amazon.com - check credit card automatically -- GearUp operating cost can be reduced 2. Augmenting human performing activity -- Fox Lake, Anne can use reservation system when she is planning a wedding (timely and accurately) 3. Controlling process flow -- if IS is controlling the order approval proce3ss, then it can ensure that steps are performed in accordance with an established schedule. -- the IS can also be relied upon to make correct process-routing decisions for process that are more complicated than that in Fig. 71.

Q3: What is Information Silo? is a condition that exists when data are isolated in separated information systems. For example, if an organization uses one IS for order processing and a second IS for customer service, the customer data are isolated in two separate systems. Result: the customer service department might provide thousands of dollars of customer support to a customer who has only ordered a few hundred dollars of product. Other Disadvantages: Wasting resources (and then increasing the cost) Data are not integrated, consequently, information might be inconsistent (and inaccurate) and affect the quality of decision making.

Q3: How Do Enterprise Systems Eliminate Information Silo Problems? No organization plans to create information silos. They arise as a consequence of IS that support departmental rather than enterprise-level processes. Specifically, how do Information System Silos arise? Data isolated in islands of automation Different department goals Different personal and workgroup needs Duplicate data as organization grows

Fox Lake Country Club Departmental Goals Fig 7-5: Fox Lake Country Club Departmental Goals

Islands of Automation (Information Silo) [ repeated customers] [ maintenance and problem solving within budget] [one-time event] Fig 7-6: Fox Lake Country Club Departmental IS

Islands of Automation (Information Silo) Information silo (or islands automation) are not a problem until process begin to use and store data about the same entities (or until they duplicate data). At that point they become quite problematic. Fox Lake learned when the wedding events department maintained its own copy of room reservation data that duplicated same data in the facilities department. By storing isolated data, their activities can conflict, as they did. (see Figure 7-7 for a Hospital example)

Examples of Islands of Automation at a Hospital (stop making meals) (clean room) (take-home medication) (issue discharge order) (family to be notified) (prepare patients) much data are not integrated Fig 7-7: Examples of Islands of Automation at a Hospital

What Problems Do Information Silos Cause? (w/credit return of $5,500 by Acct. dept, but, Sales/Marketing dept. do not know) ($32,300=$37,800-$5,500 (IndyMac was acquired by OneWest Bank) ??? $$$ Fig 7-8: Problems Caused by Information Silos

How Do Enterprise Information Systems Eliminate Silos? (shared database, consistent information, quality decision making/services) [1a] [1b] [1c] Fig 7-9: Fox Lake Club Enterprise Reservation System

An Enterprise System for Patient Discharge [1] [2a] [2b] [2c] [3a] [3b] [4a] [4b] [5b] [5a] Enterprise systems like the one in Fig. 7-10 were not feasible until network, data communication, and database technologies reached a sufficient level of capability and maturity in the late 1980s and early 1990s. Fig 7-10: Example Enterprise Process and Information System

BUSINESS VALUE & FOCUS –IS Perspective IS/E-BUSINESS Customer centric SCM CRM BPR ERP Demands Products Value What they need/want? How many they need/want? When they need/want? How to reach them? Who are the customers? Where are the customers? Their purchasing habits How to reach them? HOW TO REACH THEM? IT/INTERNET/E-BUSINESS SCM: Supply Chain Mgt. CRM: Customer Relationship Mgt. BPR: Business Process Reengineering ERP: Enterprise Resources Planning Business Models & Strategies

Manufacturing Industry Value Chain Product and Service Flow Support Activities Administrative and Other Indirect Value Added Firm as a value chain – describe the firm as a set of interrelated activities (value chain). -- Every firm is a collection of activities performed to design, produce, market, develop, and support its product. -- it is a reflection of its history, 2) its decision making, and 3) its approach to implementing its decisions and 4) underlying economic of the activities themselves. Primary activities are those involved in taking the raw materials and developing the products and services for the customers. There are five generic sets of primary activities. Support activities can be divided into four generic categories. Though firms in the same industry may have similar value chains, the value chains of competitors often differ. First of all, the value chains help the firm deliver products and services to its customers. From the customer’s point of view, the value delivered by a firm (to the customers) depends on the superiority of its products or service relative to the price paid by the customer. The value appropriated by the firm, on the other hand, depends on the value created by the customers, but in relationship to the firm’s cost structure. In general, the value appropriated should exceed the opportunity cost of capital. Research and Development Engineering Production and Manufacturing Marketing Sales and Distribution Service Primary Activities N

How do functional systems relate to the value chain? Porter’s value chain model from Chapter 3 is reorganized to show primary and support activities from a customer’s perspective, beginning with Marketing and Sales on the left, to Service and Support on the right. Competitive Advantage (Value) Chapter 3. Reorganized Porter Value Chain Model

Q4: How Do CRM, ERP and EAI Support Enterprise Processes? Business Process Reengineering (BPR) BPR means radically changing how people work - changing business policies and controls, systems and technology, organizational relationships and business practices, and reward programs. Integrated data, enterprise systems create stronger, faster, more effective linkages in value chains Difficult, slow, and exceedingly expensive Key personnel determine how best to use new technology Requires high-level and expensive skills and considerable time

Deconstruction of the newspaper industry: BPR Old newspaper industry value chain Journalists Editors Printers Distributors Readers Columnists New newspaper industry value chain Journalists Columnists Editors Readers _____

BPR Radical Change = New organization + IT Types of Organizational = Strategies Industry Structure + Competitive Strategies + Cooperative Strategies

Emergence of Enterprise Application Solutions. The process quality benefits of enterprise-wide systems became apparent; however, as applications became more and more complex, in-house development costs became infeasible. The organizations began to look more favorably on the idea of licensing pre-existing applications with “Inherent processes”: Predesigned procedures for using software products Based on “industry best practices” Three categories of enterprise applications emerged: Customer relationship management (CRM) Enterprise resource planning (ERP) Enterprise application integration (EAI)

Customer Relationship Management (CRM) Suite of applications, a database, and a set of inherent processes Intended to support customer-centric organization Integrates all primary activities of value chain Manage all interactions with customer though four phases of customer life cycle: (Fig. 7-11) Marketing—marketing sends messages to target market Customer Acquisition—customer prospects order and need to be supported Relationship Management—support and resale processes increase value to existing customers Loss/churn—win-back processes categorize customers according to value and attempt to win back high-value customers

Four Phases of Customer Life Cycle Figure 7-11 depicts the four phases of the customer life cycle and shows how a CRM system integrates them into three major processes: solicitation, lead-tracking, and relationship management. Fig 7-11: The Customer Life Cycle

CRM Applications Customer Relationship Management (CRM) systems store data in a single database and link CRM processes to one another. Fig 7-12: CRM Applications

A Marketing Strategy – showing the 4 P’s of a Marketing Mix Product Place C Price Promotion Q: ask students how to sell (promote) a new product. Then try to direct the answers cover this 4P’s Summary Overview (Exhibit 2-8) Production and marketing work together to create utility: the power to satisfy human needs. There are five kinds of economic utility. Key Issues Form utility: provided when someone produces something tangible. Task utility: provided when someone performs a task for someone else. Time utility: having the product available when the customer wants it. Place utility: having the product available where the customer wants it. Discussion Question: Can you think of examples of businesses that excel in providing time and place utility? Possession utility: obtaining a good or service and the right to use or consume it.

People, Process and Technology Start with People Petouhoff (CRM, Anton)

Customer Relationships Petouhoff (CRM, Anton)

Enterprise Resource Planning (ERP) a suite of applications called modules, a database, and a set of inherent processes for consolidating business operations into a single, consistent, computing platform. An ERP system is an information system based on ERP technology. ERP systems are not for every organization. Companies still have problem associated with information silos. Companies should choose enterprise application integration (EAI) to solve their problem (see next topic).

Enterprise Resource Planning (ERP) ERP systems include the functions of CRM systems, it also include accounting, manufacturing, inventory, and human resource applications. Fig 7-13: ERP Applications

Pre-ERP Information System: Bicycle Manufacturer Even if parts can be obtained, until the order is entered into the finished goods database, purchasing is unaware of the need to buy new parts. Even if parts can be obtained, until the order is entered into the finished goods database, purchasing is unaware of the need to buy new parts. For Manufacturing – until the new order is entered into the manufacturing plan, the production department doesn’t know that it needs to increase manufacturing. Fig 7-17: Pre-ERP Information Systems

Pre-ERP Information System: Bicycle Manufacturer Information Silos (not integrated DB) Fig 7-17: Pre-ERP Information Systems

ERP Information System In ERP system, all activity is processed by ERP application programs and consolidated data are stored in a centralized ERP database. For example, when sales is confronted with the opportunity to sell 1,000 bikes, the information that it needs to confirm that the order, schedule, and terms are possible can be obtained from the ERP system immediately. Fig 7-18: ERP Information Systems

EAI Automatically Makes Data Conversions Among Different Systems “Virtual Integrated Database” MRP: Manufacturing (Materials) Resource Planning T/F: Enterprise application integration is a suite of applications, a database, and a set of inherent processes for consolidating business operations into a single, consistent, computing platform. Answer: Fig 7-20: Design and Implementation for the Five Components

Enterprise Application Integration (EAI) Enterprise Application Integration (EAI) is a suite of software applications that integrates existing systems by providing layers of software that connect applications together. EAI does not contain centralized database. EAI does the following: Connects system “islands”. Enables communicating and sharing data. Provides integrated information. Leverages existing systems – leaving functional applications as is, but providing an integration layer over the top. Enables a gradual move to ERP.

MRP: Manufacturing Resource Planning

MRP: Manufacturing Resource Planning

Q5: What Are the Elements of an ERP System? Integrate primary value chain activities with application programs, databases, procedures, training and consulting that integrate: Supply chain Manufacturing CRM Human Accounting

ERP Application Programs An ERP solution consists of the following: ERP application programs Set configuration parameters ERP databases Initial database design included Trigger program code Stored procedure code ERP process blueprints ERP consulting and training

S A P Company Originated in Walldorf, Germany 1972 What is SAP? Systems Company Originated in Walldorf, Germany 1972 Applications Products... in data processing SAP AG was founded in 1972 by 4 former IBM employees. The company headquarters are based in Walldorf, a small German town close to Heidelberg, where the university is a continuous source of employees at SAP. Many of the gurus behind this phenomenal system known as R/3 come from this university. The company name, SAP is a German acronym, but loosely translates in English to Systems, Applications, and Products in data processing. After the introduction of SAP R/3 in 1992, SAP AG has become the world’s leading vendor of standard application software.

SAP Ordering Business Process Fig 7-21: SAP Ordering Business Process

What Companies Are the Major ERP Vendors? Fig 7-22: Characteristics of Top ERP Vendors

Q6: What Are the Challenges When Implementing New Enterprise Systems? Implementing new enterprise systems (CRM, ERP, or EAI) is challenging, difficult, expensive, and risky. It is not unusual for enterprise system projects to be well over budget and a year or more late. The expense and risks arise from four primary factors: Collaborative management Requirements gaps Transition problems Employee resistance due to threats to self-efficacy

Benefits of ERP Efficient business processes that are effective Inventory reduction Lead-time reduction Improved customer service Greater real-time insight into organization Higher profitability No data inconsistency problems due to integrated database Business process blueprints tested in hundreds of organizations

Service-Oriented Architecture (SOA) Q7. How Will Service-Oriented Architecture (SOA) Impact Enterprise Information Systems? Service-Oriented Architecture (SOA) is a software design philosophy in which activities are organized into modules of functionality called Web services that are requested and delivered over the Internet using SOA standards. Web service Encapsulated software service provided anywhere over the Internet Service description documents how to use service, and publishes description using Web Service Description Language (WSDL) Services delivered via XML, SOAP, REST, et al. Used by SAP, Oracle ERP

Fig 7-24: Using Enterprise Application SOA Services

THE CONNECTED CORPORATION: THE FUTURE OF ERP Data points where SCM, CRM, and ERP integrate. Lines between SCM, CRM, and ERP will continue to blur Internet – continue to help organizations integrate data and process across functional departments Interface – customizable employee browsers Wireless technology – support a mobile workforce

Q8: 2022? Islands of Automation, Version 2.0 Storing of data in various places in the iCloud, while other versions of data stored in corporate data in SAP Version 2.0 silos more isolated and less secure than previous silos

End of Chapter 7