Information Systems Today: Managing in the Digital World 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

Information Systems Today: Managing in the Digital World 8-2 Learning Objectives

Information Systems Today: Managing in the Digital World 8-3 Learning Objectives

Information Systems Today: Managing in the Digital World 8-4 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

Information Systems Today: Managing in the Digital World 8-5 Legacy System Approach

Information Systems Today: Managing in the Digital World 8-6 Enterprise System Approach

Information Systems Today: Managing in the Digital World 8-7 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 8-8 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

Information Systems Today: Managing in the Digital World 8-9 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 8-10 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

Information Systems Today: Managing in the Digital World 8-11 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

Information Systems Today: Managing in the Digital World 8-12 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

Information Systems Today: Managing in the Digital World 8-13 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)

Information Systems Today: Managing in the Digital World 8-14 Externally Focused Applications – Value System Coordination of multiple value chains

Information Systems Today: Managing in the Digital World 8-15 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

Information Systems Today: Managing in the Digital World 8-16 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

Information Systems Today: Managing in the Digital World 8-17 The Rise of Enterprise Systems Custom applications o Developed exclusively for a specific organization o Designed for particular business needs o Higher development costs

Information Systems Today: Managing in the Digital World 8-18 Evolution of Enterprise Systems Enterprise systems o Organizations start with stand- alone applications o Legacy systems

Information Systems Today: Managing in the Digital World 8-19 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 8-20 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

Information Systems Today: Managing in the Digital World 8-21 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

Information Systems Today: Managing in the Digital World 8-22 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

Information Systems Today: Managing in the Digital World 8-23 Learning Objectives

Information Systems Today: Managing in the Digital World 8-24 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

Information Systems Today: Managing in the Digital World 8-25 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

Information Systems Today: Managing in the Digital World 8-26 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

Information Systems Today: Managing in the Digital World 8-27 Enterprise Resource Planning Data warehouse o Large, centralized data repository o Single place for data storage and access

Information Systems Today: Managing in the Digital World 8-28 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

Information Systems Today: Managing in the Digital World 8-29 Core and Extended ERP Components Core components – support primary internal activities Extended components – support primary external activities

Information Systems Today: Managing in the Digital World 8-30 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

Information Systems Today: Managing in the Digital World 8-31 Learning Objectives

Information Systems Today: Managing in the Digital World 8-32 Customer Relationship Management

Information Systems Today: Managing in the Digital World 8-33 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

Information Systems Today: Managing in the Digital World 8-34 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

Information Systems Today: Managing in the Digital World 8-35 Developing a CRM Strategy More than just software purchase and installation Enterprise-wide changes

Information Systems Today: Managing in the Digital World 8-36 Policy and Business Process Changes Policies and procedures need to reflect customer- focused culture

Information Systems Today: Managing in the Digital World 8-37 Customer Service Changes Customer-focused measures of quality Process changes to enhance customer experience

Information Systems Today: Managing in the Digital World 8-38 Employee Training Changes Employees from all business areas must value customer service and satisfaction

Information Systems Today: Managing in the Digital World 8-39 Data Collection, Analysis and Sharing Changes All aspects of customer experience must be tracked, analyzed and shared Consider ethical concerns

Information Systems Today: Managing in the Digital World 8-40 Architecture of a CRM

Information Systems Today: Managing in the Digital World 8-41 Operational CRM Systems for customer interaction and service o Personalized and efficient customer service o Access to complete information about customer

Information Systems Today: Managing in the Digital World 8-42 Sales Force Automation Component of operational CRM Primary goals o Identification of potential customers o Streamlining of selling processes o Improvement of managerial information

Information Systems Today: Managing in the Digital World 8-43 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

Information Systems Today: Managing in the Digital World 8-44 Advantages of Sales Force Management Systems for Sales Personnel

Information Systems Today: Managing in the Digital World 8-45 Advantages of Sales Force Management Systems for Sales Managers

Information Systems Today: Managing in the Digital World 8-46 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 8-47 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 8-48 Customer Service and Support Second component of operational CRM Automation of traditional “help desk” services Customer interaction center (CIC) 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 8-49 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 8-50 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 8-51 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 8-52 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 8-53 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 8-54 Ethical Concerns with CRM Can personalization get too personal?

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

Information Systems Today: Managing in the Digital World 8-56 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 8-57 Supply Network

Information Systems Today: Managing in the Digital World 8-58 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 8-59 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 8-60 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 8-61 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 8-62 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 8-63 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 8-64 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 8-65 Example: Procurement Portal Automation of business processes between a buyer and multiple suppliers

Information Systems Today: Managing in the Digital World 8-66 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 (steel) (paper) (medical equipment)

Information Systems Today: Managing in the Digital World 8-67 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) oPublishing of financial information

Information Systems Today: Managing in the Digital World 8-68 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 8-69 Use of RFID in Supply Chain Management Pallet of inventory processed through an RFID gate

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

Information Systems Today: Managing in the Digital World 8-71 The Formula for Enterprise System Success 1.Secure executive sponsorship oMost failures due to lack of top-level management support 2.Get help from outside experts oConsultants are specifically trained oImplementation tends to happen faster 3.Thoroughly train users oMost overlooked, underestimated and poorly budgeted expense oTraining can prevent dissatisfaction 4.Take a multidisciplinary approach to implementations oInclude end users from all functional areas in the implementation

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Information Systems Today: Managing in the Digital World 8-73 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 o1 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 8-74 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 8-75 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 8-76 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 8-77 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 8-78 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 8-79 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 8-80 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