1. Chapter 5: Information Systems for the Enterprise
Organizational records track transactions, income, expenses, employees, customers, taxes, assets, and much more, providing a solid backbone for the company’s activities. The records also form the data repository needed to generate the endless reports that stakeholders require, both inside and outside the organization. Fortunately, information systems to support most common business processes are widely available.
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2. Learning objectives Information systems in organizations
Human capital management (HCM)
Supply chain management (SCM)
Customer relationship management (CRM)
Enterprise resource planning (ERP)
The material in this chapter will enable you to:
Explain the role that financial and asset management information systems play in an organization, and the importance of financial reporting.
Define human capital management, identify its major components, and describe several metrics used to quantify aspects of human capital.
Define supply chain management, and describe the metrics, technologies, and information systems that support supply chain processes.
Define customer relationship management and its role in an organization, and describe the metrics and information systems that support it.
5. Explain the importance of ERP systems and describe how they are created, integrated, and implemented.
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3. Finance management Components Integration Workflow
Finance and asset management systems lie at the core of the organization, and companies are held fully accountable for the accuracy of their records. Accounts payable, accounts receivable, procurement, cash management, budget planning, asset management, and the general ledger are modules typically included in a full-featured financial system. The system may also support many other finance-related activities and processes, such as collections, debt management, travel and expense management, installment payments, and contracts management.
Integration among the modules is especially important to avoid inconsistencies. For example, details from accounts receivable and accounts payable transactions should automatically update the general ledger, to streamline reconciliation and consistent reporting. Bridges and interfaces to other systems also improve accuracy.
The integration of these components supports the development of streamlined and paperless workflows in an organization. Humans are part of the workflow, making decisions, approving actions, and confirming steps in the process. All players have real-time access to the same information, so inconsistencies are unlikely.
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4. Reporting and compliance
Exception reporting
Compliance reporting
eXtensible Business Reporting Language (XBRL)
Information systems generate detailed and summary reports on all the organization’s transactions and assets.
Financial systems generate exception reports that automatically tag unusual events and are used to spot fraudulent transactions, including any committed by employees.
Financial systems also carry the major burden of compliance reporting, and must conform to local, national, and international regulations. For example, the Sarbanes-Oxley Act passed in 2002 dramatically enhanced U.S. reporting standards for public companies.
In the United States, electronic reporting is required, relying on eXtensible Business Reporting Language (XBRL). The goal is to develop a common language for financial reporting, one that tags every individual item of data to make it understandable, transparent, and also computer-readable for further analysis. XBRL can help eliminate manual processes, and its improved transparency and standardization are valuable for other stakeholders such as governments, regulators, auditors, investors, and creditors.
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5. Human capital management
Human resources management
Workforce management
Talent management
Human capital management (HCM) encompasses a growing suite of applications with the employee record as the central element.
The human resources management (HRM) module is the core of this system, tracking each employee’s demographic information, salary, tax data, benefits, titles, employment history, dependents, and dates of hire and termination. Some systems also keep track of performance evaluations, professional development, and training.
Workforce management applications draw on data in the core human resource records and add features to keep track of time and attendance, sick leave, vacation leave, and project or task assignments. This module is useful for labor scheduling and workforce planning and for making sure that the proper number of clerks is assigned to specific shifts.
Talent management applications focus on the employee life cycle, beginning with the recruitment phase and extending into performance evaluations, career development, compensation planning, e-learning, and succession planning after retirement or departure.
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6. Human capital metrics Do we have the talent we need?
Can we afford to lose star employees?
How productive are our employees?
Buried in the HCM information system is a wealth of data that can reveal how well the organization is managing and nurturing its human capital.
While metrics to quantify human performance or productivity can be controversial, these metrics are vitally important to an organization. When managers and staff work together to devise metrics that people agree are fair, relevant, and aligned with business goals, everyone knows what to do to improve. They also have a much clearer understanding of the organization’s human capital and how best to deploy it.
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7. Supply chain management
Optimize flow of products from source
to customer
Align supply with demand
Supply chain management (SCM) refers to strategies that optimize the flow of products and services from their source to the customer. Depending on your type of business, the chain can stretch from your supplier’s suppliers all the way to your customer’s customer. The ultimate goal is to align supply with demand so that the right product is delivered to the right place, at just the right time, and at the right price.
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8. Supply Chain Operations Reference
Plan
Source
Make
Deliver
Return
The Supply Chain Operations Reference (SCOR) model illustrates five processes that underlie successful management of a next generation supply chain—plan, source, make, deliver, and return.
SCM starts with planning, with the goal of building a fleet-footed, working supply chain that aligns with actual business goals. For example, if the corporate strategy calls for low-cost leadership, the company will favor cost efficiencies for transportation and inventory storage.
Managers then make decisions about sources, and which suppliers to use. Again, the business strategy should guide many choices, such as whether to commit to long-term contracts or encourage frequent and fierce competition among potential suppliers.
The “make” step transforms the resources into something with more value. Supply chain managers track inventory at each stage, fine-tuning the flow so that some parts don’t run short while others are overstocked.
Managers’ keen interest in inventory levels continues through the delivery step, as products are transported to distribution centers and retailers.
Finally, SCM processes returns by customers.
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9. Measuring performance
Visibility
Demand forecast accuracy
Walmart and Dell
Accurate and well-chosen metrics tell how well supply chain decisions are working. Visibility describes how easily managers can track timely and accurate supply chain metrics. SCM information systems use technology-supported collaboration to improve visibility for suppliers and customers.
The SCOR model emphasizes about a dozen metrics that touch on the major characteristics of overall supply chain performance. An important metric is demand forecast accuracy (DFA)—the difference between forecasted and actual demand. Underestimating demand leads to lost sales, and overestimates lead to higher inventory costs. Sophisticated computer models incorporate dozens of variables to predict demand, drawing on data from sources inside and outside the company.
Interventions can reduce supply chain costs, especially by omitting whole segments. For example, Walmart adopted cross-docking, in which goods are unloaded directly from railcars or trucks and immediately packed into smaller trucks ready to head for retailers. No warehousing is needed, and software synchronizes the timing and logistics.
Dell started with a different approach to SCM. While other manufacturers built several models, shipping them first to distributors and then to retailers, Dell eschewed the middle men. A buyer customizes and orders a Dell PC online and then tracks the order until it arrives at the front door, shipped directly from the manufacturer. Dell synchronizes the delivery so all the hardware arrives at the same time.
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10. IS for supply chain Supply chain planning Warehouse management
Transportation management
Manufacturing execution
Global trade management
Supply chain management software evolved as specialized tools and applications, often developed to address one aspect of supply chain in a single industry. For example, supply chain software might include:
• Supply Chain Planning Software to predict demand, synchronize with supply, and optimize the whole network.
• Warehouse Management Software (WMS) to manage and optimize inventories, space allocation, shipments, cross-docking, and other warehouse activities.
• Transportation Management Software (TMS) to optimize shipping, logistics, and fleet routing and scheduling.
• Manufacturing Execution System to manage activities and flow through the manufacturing process.
• Global Trade Management Software to ensure compliance for cross-border transactions for importers and exporters.
Making all these specialized software applications work together is very challenging, but managers need a clear, end-to-end picture of supply chain performance. Increasingly, vendors are building software that combines several SCM applications and share data.
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11. Collaboration and sensing
Internal and external
Electronic data interchange (EDI)
Electronic markets
Radio frequency identification (RFID)
Global positioning systems (GPS)
The secret to excellence in SCM is collaboration, internally among units and externally with partners, suppliers and customers. Firms develop automated bridges to connect their information systems and share data relevant to the supply chain. Since the 1970s, companies have been using electronic data interchange (EDI) to transmit information about orders, inventories, invoices, and other data electronically between partners in a supply chain. A more recent way to share information is through electronic markets, relying on the Internet’s inexpensive communications and open standards for defining data. Buyers can browse products, prices, and stocks for many sellers, electronically placing orders and completing transactions. Buyers benefit considerably because suppliers compete for orders.
Supply chains benefit from sensing technologies that improve visibility during transit and in storage. Commercial shippers use handheld wireless scanners to read barcodes on packages, and upload the tracking number, date, time, and place. When radio frequency identification (RFID) chips are attached to packages, these chips transmit their own data as they pass by readers throughout the supply chain, at seaports, railway stations, and warehouses. Global positioning systems (GPS) are a critical feature of navigation and transportation systems. These devices receive signals from 32 orbiting satellites that transmit time and location data. Location is accurate within a few meters. GPS devices help drivers navigate to their destinations and keep managers informed of their fleet.
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12. Customer relationship management
Customer retention
Profitability
Revenue
Listening to customers
Customer relationship management (CRM) consists of the technologies and processes an organization uses to build relationships with its current and prospective customers. Some common objectives are improving customer retention, improving profitability, growing revenue, and listening to customers.
Customer retention. Attracting new customers is often more difficult and expensive than retaining existing ones, and the new customer may be less profitable than the old. Strategies for improving retention stress customer satisfaction, loyalty rewards, and perks for returning customers.
Profitability. Finding ways to reduce the costs of serving each customer—without also diminishing customer satisfaction—is another important CRM goal. For example, a customer who calls FedEx to ask what happened to her package costs FedEx $2.40 to answer, but the same query submitted to the company’s website costs FedEx just pennies to answer.
Revenue. CRM strategies to grow revenue often include finding new customers and markets, as well as earning more revenue from existing customers through tactics such as cross-selling and upselling.
Listening to customers. When customers answer one of your surveys, CRM software can easily capture and analyze what they say. But some systems can also do sentiment analysis, with software that scans text comment boxes, blogs, or other user-generated content and employs algorithms to classify opinions as pro, con, or neutral.
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13. CRM technologies E-mail marketing Sales force automation
Customer service and support
marketing is a major focus for CRM applications. For example, JangoMail offers marketing software that connects to the company’s database to personalize each message. E-marketing information systems also provide extensive tracking capabilities, with detailed reports regarding messages bounced, which were opened or forwarded on to another address, and that customers clicked on a web address in the message.
Sales force automation systems boost performance of an organization’s sales reps by helping them track and manage their accounts, contacts, leads, and to-do lists. Some systems also help salespeople develop proposals and quotes for their clients and assist managers in evaluating the success of their sales teams. For mobile sales reps, access to CRM applications via the web and by smartphone is essential.
CRM can help organizations make major improvements in customer service and support and reduce costs. The click-to-chat feature is widely used to interact with customers having login problems or other issues. Online knowledge bases and support sites let customers help themselves. Call center software can queue calls, let callers know the approximate waiting time, offer menu options for call routing, and retrieve customer data based on the caller’s information so agents can quickly find answers.
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14. Enterprise resource planning
Support back office business processes
Modules and applications
Enterprise resource planning (ERP) systems support back office business processes for retailers, universities, hospitals, government agencies, and many other organizations. Modules typically include financials and asset management, human resources management, and manufacturing. Increasingly, ERPs add CRM, SCM, and many other applications. For example, SAP’s Business Suite offers electronic document management, RFID and barcode tracking, event management, product design, business intelligence, and data mining.
Specialized ERPs are being developed for particular industries. For example, ERPs for higher education include modules to manage admissions, grades and academic records, registrations, student advising and degree tracking, financial aid, grants, scholarships, fundraising, and campus portals. These are bundled with the human resources and financial systems so they can all share data.
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15. Integration strategies
Suite
Best of breed
Middleware
Some ERP products are built from the ground up, so they are engineered with a single architectural foundation. All the components have similar user interfaces and the back-end database shares common data elements. Some vendors enhance their ERPs through mergers or acquisitions, so integration must be added later.
Organizations may also implement a more limited ERP from one vendor but select “best of breed” software for managing customer relationships, supply chain, or some other aspect of their operations. In these cases, the integration effort is often done by in-house IT staff. The bridges that attempt to connect different components that might be running on different operating systems are created with software called middleware. This software allows one application to access data in another system’s database, and it synchronizes data across multiple systems.
These different approaches have advantages and disadvantages. The engineered suite offers solid integration on the backend and consistent user interfaces throughout. However, the individual modules may lack all the rich features users want. Also, switching costs are higher for ERPs in which all the modules are so interdependent. Integrated ERP systems can be more difficult to modify to meet changing business needs. For the best of breed approach, organizations must pay close attention to master data management, because the same information will appear in more than one system.
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16. Implementation issues
Complexity
Process change
Location differences
Research shows more than 70% of ERP implementations go over budget and take longer than expected. An alarming number fail altogether. Some studies report failure rates as high as 51%.
The engineered suite can be breathtakingly complex to implement because the tightly integrated modules are difficult to launch in phases, one at a time. Instead, organizations use the “big bang” approach, going live with all the core modules at the same time.
ERP requires people throughout the organization to change the way they handle processes, so extensive training before going live is key. The ERP’s way of dealing with any particular process may be quite different from the organization’s old way of doing things.
Failures are common when an ERP developed in one country is marketed to businesses in other locations. Language problems are just one obstacle, and best practices might also be different.
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17. Software-as-a-service
Subscription-based
ERP advantages and disadvantages
The drive to lower implementation costs is pushing vendors toward offering ERPs as software-as-a-service (SaaS) products, in which companies pay subscription fees to access the vendor’s software remotely, via the web. Small and medium businesses with limited IT budgets are especially interested in this model because they can usually get up and running more quickly, and don’t need their own data center.
Although SaaS has many advantages, security and privacy are significant concerns. CEOs are reluctant to house their most valuable assets on servers in the cloud, especially when other companies might be sharing the same servers. SaaS solutions also may not be as easy to implement as we might think. Although IT staff don’t install and maintain servers and software, people must configure the software, prepare data for migration, manage the implementation, and train everyone on the new procedures. Interfaces with other systems may also be needed to synchronize data.
Despite the implementation hurdles, the ERP, to integrate finance and human resources is becoming a near necessity for most organizations. Once in place, it can dramatically enhance operational efficiencies and reduce costs. A key ingredient is that the organization’s employees actually change the way they work to take best advantage of the integrated system.
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18. Summary Information systems in organizations
Human capital management (HCM)
Supply chain management (SCM)
Customer relationship management (CRM)
Enterprise resource planning (ERP)
The four major categories of information systems that support business processes include finance and asset management, human capital management (HCM), supply chain management (SCM), and customer relationship management (CRM).
Human capital management systems include core human resources functionality, along with other modules that support a broader range of employee-related applications.
Supply chain management supports processes that optimize the flow of products and services from their source, through the company and to the customer.
Customer relationship management revolves around customer records, to improve retention, increase profitability, grow revenue, and listen to customer sentiments. CRM software applications are useful in marketing, sales force automation, and customer service and support.
5. Enterprise Resource Planning (ERP) systems integrate two or more of the applications that support major business processes common to most organizations, especially finance and human resources. ERPs incorporate functionality for CRM, SCM, manufacturing processes, analytics, and other business requirements.
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19. Human Services case Washington, DC Human Services
Different agencies, separate information systems
Information gaps, lack of follow-up
CRM software
Funding and privacy challenges
Banita Jacks and her daughters fell through one crack after another in the maze of government funded human services in the District of Columbia. Jacks sought help at least 23 times from 11 different agencies, but their separate information systems made it impossible for any of them to obtain a complete understanding of the family’s desperate plight. Federal marshals finally visited their row house, where the mother had been living with her dead daughters’ bodies for over seven months.
The poorly integrated systems left giant information gaps that hampered agencies trying to help. For example, Child and Family Services received an anonymous hotline tip that the mother must be neglecting the girls, but since the agency didn’t have any home address, no caseworker followed up. Other agencies had an address, but their systems didn’t track the complaint. Information wasn’t shared, and service workers who handled the family’s requests rarely followed up.
The real problem was in the information systems. The agencies need the same kind of customer-centric systems that private industries have when they install customer relationship management (CRM) software. CRM efforts in this arena face significant challenges that go beyond those a company encounters when implementing a CRM and a coordinated approach to customer service. First, lawmakers must approve the project and provide funding. Another challenge involves privacy. Privacy advocates object to legislation that allows widespread access to so much personal information because it impinges on confidentiality.
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20. Mandarin Oriental case
40 properties in 25 countries
Unique properties, consistent performance standards
Global approach to talent, 10,000 colleagues on four continents
Talent management system
Assess performance, determine career path and training
A major goal for the Mandarin Oriental Hotel Group is to recruit, train, and retain the most productive people in the hospitality industry. The company has over 40 properties in more than 25 countries. Although each property takes on its own personality to match the local market, the company strongly believes in establishing clear standards and performance indicators for every position and job function.
To ensure that every hotel contributed to its reputation for unsurpassed customer satisfaction, the company needed a global approach to its talent. With over 10,000 colleagues speaking many different languages in Asia, Europe, the Americas, and North Africa, the company implemented a specialized talent management system called Profile from the software company Success Factors.
Profile provides the building blocks to assess colleague performance throughout the organization, and determine career development paths and training needs. Staff and managers can input information about performance, and can add notes about development plans so colleagues know what they should do to move ahead. The system also supports succession planning, because every individual’s capabilities and career progression are more transparent.
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21. Chapter