1. Copyright © 2014 Pearson Education, Inc. 1 Enterprise systems integrate business activities across the organization and with business partners Chapter 7 - Enhancing Business Processes Using Enterprise Information Systems

2. Copyright © 2014 Pearson Education, Inc. 2 Agenda Supply Chain ERP Exam 1 Project 1

3. Copyright © 2014 Pearson Education, Inc. 3 A Map of Where We Are Societal Level Changes Facilitated By IT How This Influences Firm Positioning Executing Firm Strategy How do we know where we should be? Aligning the firm around the strategic objective

4. Copyright © 2014 Pearson Education, Inc. 4 Chapter 7 Learning Objectives Core Business Processes and Organizational Value Chains Explain core business processes that are common in organizations. Enterprise Systems Describe what enterprise systems are and how they have evolved. Enterprise Resource Planning Describe enterprise resource planning systems and how they help to improve internal business processes. The Formula for Enterprise System Success Understand and utilize the keys to successfully implementing enterprise systems.

5. Copyright © 2014 Pearson Education, Inc. 5 Core Business Processes and Organizational Value Chains Explain core business processes that are common in organizations. Enterprise Systems Describe what enterprise systems are and how they have evolved. Enterprise Resource Planning Describe enterprise resource planning systems and how they help to improve internal business processes. The Formula for Enterprise System Success Understand and utilize the keys to successfully implementing enterprise systems.

6. Copyright © 2014 Pearson Education, Inc. 6 Scenario Break yourselves into small groups for a second You work for a mid-sized manufacturer of bicycles You are responsible for: – Inbound Logistics/Procurement – Operations/Manufacturing – Outbound logistics/Order Fulfillment – Marketing / Sales What information do you need to make your team efficient and effective?

7. Copyright © 2014 Pearson Education, Inc. 7 Scenario (cont.) What types of information needs to flow from one team to the next to make the organization efficient and effective? How do we facilitate this flow of information from one system to the next?

8. Copyright © 2014 Pearson Education, Inc. 8 Scenario (cont.) What type of information flows between teams within your organization & what type of information flows between your organization and your business partners (suppliers & customers)?

9. Copyright © 2014 Pearson Education, Inc. 9 Core Business Processes Four traditional business functions: – Marketing and sales – Supply chain management – Accounting and finance – Human resources Not distinct independent silos, but instead highly interrelated Business processes cross boundaries of business functions.

10. Copyright © 2014 Pearson Education, Inc. 10 This is a problem! Why?

11. Copyright © 2014 Pearson Education, Inc. 11 We want to shift to this!

12. Copyright © 2014 Pearson Education, Inc. 12 Consider an organizational process: Order-to-Cash The processes associated with selling a product or service

13. Copyright © 2014 Pearson Education, Inc. 13 Consider another organizational process: Procure-to-Pay Process The processes associated with procuring goods from external vendors

14. Copyright © 2014 Pearson Education, Inc. 14 Make-to-Stock / Make-to-Order Process The processes associated with producing goods Who has worked at a place that used Make-to-Stock? Who has worked at a place that used Make-to-Order?

15. Copyright © 2014 Pearson Education, Inc. 15 If we are going to consider the integration of departments we would do well to start at the beginning

16. Copyright © 2014 Pearson Education, Inc. 16 Supply Chain What is this “supply chain?” – System of organizations, people, activities, information, and resources involved in moving a product or service from supplier to customer Resembles a river – Start at source – Move downstream

17. Copyright © 2014 Pearson Education, Inc. 17 Supply chain is getting global Consider a Thinkpad computer – CPU: US – LCD: South Korea – Hard drive: Japan – Video Card: Canada – Motherboard: Taiwan – Mouse: Mexico – Assembly: China The efficiency of SC is critical – Supply chain costs constitute as much as 75% of a product’s retailing price.

18. Copyright © 2014 Pearson Education, Inc. 18 Back to first principles What is the objective of the firm? – Maximize profit  = R – C An efficient supply chain allows us to rip waste out of the organization As a result, it is part of the set of activities associated with the creation of value by the firm – This is called the value chain.

19. Copyright © 2014 Pearson Education, Inc. 19 Firms in abstract This doing of stuff is called the value chain because it is supposed to transform the value of the inputs into more than the sum of their parts CAPABILITIESRESOURCES DOING STUFF

20. Copyright © 2014 Pearson Education, Inc. 20 Value Chain Value Chain—The set of business activities that add value to the end product. Information flows through a set of business activities. – Core activities—functional areas that process inputs and produce outputs. – Support activities—enable core activities to take place.

21. Copyright © 2014 Pearson Education, Inc. 21 Value Chain Framework

22. Copyright © 2014 Pearson Education, Inc. 22 Externally Focused Applications—Value System Coordination of organizational value chains Information Flows in a Value System – Upstream information flow— information received from another company – Downstream information flow— information produced by a company and sent to another organization

23. Copyright © 2014 Pearson Education, Inc. 23 Enterprise Systems Core Business Processes and Organizational Value Chains Explain core business processes that are common in organizations. Enterprise Systems Describe what enterprise systems are and how they have evolved. Enterprise Resource Planning Describe enterprise resource planning systems and how they help to improve internal business processes. The Formula for Enterprise System Success Understand and utilize the keys to successfully implementing enterprise systems.

24. Copyright © 2014 Pearson Education, Inc. 24 The Rise of Enterprise Systems (Where legacy systems fell short) Stand-alone applications – Not designed to communicate with other system – Variety of computing hardware platforms – Enable departments to conduct daily business activities – Not helpful for other areas in the firm Proprietary systems – From vendors – Not designed to share with other vendors’ systems – Problem of knitting together (hodgepodge portfolio of discordant proprietary applications) – Lack of integration

25. Copyright © 2014 Pearson Education, Inc. 25 Legacy Systems Each department has its own system.  Infrastructure specific  Inefficient processes  Potential for inaccuracies  Too many “rocks in the river”

26. Copyright © 2014 Pearson Education, Inc. 26 Back to the Bicycle Example (Perspective of Operations) A bicycle is a complex thing – Lots of moving parts… How do you know what to order in order to meet your sales? How do you communicate information effectively about what can be sold to sales? How do you ensure that the logistics folks are shipping the right orders at the right time?

27. Copyright © 2014 Pearson Education, Inc. 27 Evolution of ERP – MRP (Materials Resource Planning) – what to order – MRPII (Manufacturing Resource Planning) – automate the ordering of materials and restock – ERP (Enterprise Resource Planning) – automate everything (materials, shipping and receiving, etc.) 70s80s90s00s MRPII MRP ERP

28. Copyright © 2014 Pearson Education, Inc. 28 Enterprise System Approach Integrated suite of business applications for virtually every department, process, and industry

29. Copyright © 2014 Pearson Education, Inc. 29 ERP Challenges What are some of the challenges with implementing an ERP? Why would a company want to do this? Who might resist? Why?

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32. Copyright © 2014 Pearson Education, Inc. 32 Enterprise Resource Planning Who are the largest and most influential ERP vendors?

33. Copyright © 2014 Pearson Education, Inc. 33 Supporting Business Processes Internally focused systems

34. Copyright © 2014 Pearson Education, Inc. 34 Supporting Business Processes Externally focused systems (interorganizational systems)

35. Copyright © 2014 Pearson Education, Inc. 35 Modules of Enterprise Systems Each module in an enterprise system replaces a stand-alone legacy system.

36. Copyright © 2014 Pearson Education, Inc. 36 SAP System: Major Modules R/3 Client / Server FIFinancialAccounting COControlling AM Fixed Assets Mgmt. PSProjectSystem WFWorkflow ISIndustrySolutions MMMaterialsMgmt. HRHumanResources SD Sales & Distribution PPProductionPlanning QMQuality Manage- ment PM Plant Main- tenance

37. Copyright © 2014 Pearson Education, Inc. 37 ERP – To customize or not to customize… Vanilla version – This version contains features and modules that an enterprise system comes with out of the box. – Certain processes might not be supported. Customization – This version contains additional software or changes to vanilla version. – It always needs to be updated with new versions of vanilla. What’s better? Vanilla or Custom? VANILLA IS ALWAYS BETTER UNLESS COMPETITIVE ADVANTAGE HINGES ON CUSTOMIZATION!

38. Copyright © 2014 Pearson Education, Inc. 38 Capabilities of SAP’s ERP System

39. Copyright © 2014 Pearson Education, Inc. 39 Best Practices-Based Software Most ERP vendors build best practices into their ERP systems. – Identify business processes in need of change – Future updates are smoother if businesses change their business processes to fit with ERP systems. Is following the best practices always the best strategy? – If companies have competitive advantage from unique business processes, forcing best practices may actually hurt.

40. Copyright © 2014 Pearson Education, Inc. 40 Time for a Break Today we talked about business processes alignment – Why it is important – How IT can help in the process

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42. Copyright © 2014 Pearson Education, Inc. 42 Recap Before the break we talked about business processes alignment – Why it is important – How ERP can help in the process Now we will cover some more nuts and bolts of ERP

43. Copyright © 2014 Pearson Education, Inc. 43 Enterprise Resource Planning Core Business Processes and Organizational Value Chains Explain core business processes that are common in organizations. Enterprise Systems Describe what enterprise systems are and how they have evolved. Enterprise Resource Planning Describe enterprise resource planning systems and how they help to improve internal business processes. The Formula for Enterprise System Success Understand and utilize the keys to successfully implementing enterprise systems.

44. Copyright © 2014 Pearson Education, Inc. 44 Enterprise Resource Planning (ERP) Systems Enterprise Resource Planning—Applications that integrate business activities across departmental boundaries. ERP evolved during the 1990s from material/manufacturing requirements planning packages. – Recall the discussion of MRP and MRPII Emphasis has since shifted from “resources” and “planning” to “enterprise.” Integrate legacy information on a company-wide basis

45. Copyright © 2014 Pearson Education, Inc. 45 THE GOAL OF ERP Standardize and integrate the processes of the organization to facilitate the organization of the firm around the core competency. Everything that is not part of this core competency, the silver bullet, the differentiating edge, should be standardized. The firm is not a beautiful and unique snowflake

46. Copyright © 2014 Pearson Education, Inc. 46 The benefits are clear. But, this is a very hard thing to do.

47. Copyright © 2014 Pearson Education, Inc. 47 Glorious Failures Abound 1999 Hershey – SAP R/3 – 100 million dollar kiss – Launched just before Halloween. Bankruptcy 2000 Nike – 400 million dollar upgrade – 20% Stock dip 2005 – 2008 (Waste Management Corp) – 100 million dollar upgrade… still in court

48. Copyright © 2014 Pearson Education, Inc. 48 Glorious Successes Abound Unilever Kraft Foods Accenture CSX Wal-mart General Electric

49. Copyright © 2014 Pearson Education, Inc. 49 This is not easy! Consider the scenario at Dominos pizza. Look deep into the eyes of the person next to you… and take a minute to discuss barriers to success What do you think stands in the way? I would argue – The hardest technical aspect is data integration – The hardest thing to change is people

50. Copyright © 2014 Pearson Education, Inc. 50 Integrating Data to Integrate Applications Central information repository – ERP replaces stand- alone applications – Modules based on Common database Similar application interfaces

51. Copyright © 2014 Pearson Education, Inc. 51 Example ERP Screen An ERP system can provide employees with relevant, up-to-date information.

52. Copyright © 2014 Pearson Education, Inc. 52 Core and Extended ERP Components Core components—support primary internal activities. Extended components—support primary external activities.

53. Copyright © 2014 Pearson Education, Inc. 53 ERP Core Components Financial Management – accounting, financial reporting, performance management, corporate governance Operations Management – simplify, standardize, and automate business processes for inbound/outbound logistics, product development, manufacturing, sales and service Human Resource Management – employee recruitment, assignment tracking, performance reviews, payroll, regulatory requirements

54. Copyright © 2014 Pearson Education, Inc. 54 Human Resources Management

55. Copyright © 2014 Pearson Education, Inc. 55 Order-to-Cash

56. Copyright © 2014 Pearson Education, Inc. 56 Procure-to-Pay

57. Copyright © 2014 Pearson Education, Inc. 57 Production

58. Copyright © 2014 Pearson Education, Inc. 58 ERP Installation Configuration of the ERP systems is performed during any ERP implementation. System must be configured to reflect business processes and associated business rules. Organizations have to make countless decisions on how to configure thousands of database tables to fit the business’s needs. Organizations hire experienced business analysts or outside consultants to assist with implementation.

59. Copyright © 2014 Pearson Education, Inc. 59 ERP Limitations Thoughts? – ERP falls short in communicating across organizational boundaries. – They tend to be not well suited for managing value system activities. – Other systems can work with ERP to provide these capabilities.

60. Copyright © 2014 Pearson Education, Inc. 60 The Formula for Enterprise System Success Core Business Processes and Organizational Value Chains Explain core business processes that are common in organizations. Enterprise Systems Describe what enterprise systems are and how they have evolved. Enterprise Resource Planning Describe enterprise resource planning systems and how they help to improve internal business processes. The Formula for Enterprise System Success Understand and utilize the keys to successfully implementing enterprise systems.

61. Copyright © 2014 Pearson Education, Inc. 61 The Formula for Enterprise System Success 1.Secure executive sponsorship. – Most failures are due to lack of top-level management support. 2.Get help from outside experts. – Consultants are specifically trained. – Implementation tends to happen faster. 3.Thoroughly train users. – Training is the most overlooked, underestimated, and poorly budgeted expense. – Training can prevent dissatisfaction. 4.Take a multidisciplinary approach to implementations. – Include end users from all functional areas in the implementation. 5.Initiate evolving the ERP Architecture. Lets talk about user resistance to change for a second

62. Copyright © 2014 Pearson Education, Inc. 62 How do we mitigate user resistance? Two Key Properties – Perceived Usefulness – Perceived Ease of Use How can we manipulate user PU and PEOU? – Performance Expectancy – Effort Expectancy – Social Influence – Facilitating Conditions Ok, how do we get this done?

63. Copyright © 2014 Pearson Education, Inc. 63 Two Ways 1) Training 2) Socialization

64. Copyright © 2014 Pearson Education, Inc. 64 Performance Expectancy User education – Why is this good for the firm? – Why is this good for the business unit? – Why is this good for the employee?

65. Copyright © 2014 Pearson Education, Inc. 65 Effort Expectancy User Education – How much effort were you expending before? – How much effort will you be expending now? Learning Curves – Users hate relearning systems How mad were you when Windows went to the ribbon? How mad were you when Facebook went to the timeline? – Learning new methods is horrid – Keys – make users feel empowered and confident “ “To improve is to change, to perfect is to change often” – Winston Churchill” – Frank Underwood

66. Copyright © 2014 Pearson Education, Inc. 66 Social Influence Buy-in from management Buy-in from gatekeepers Buy-in from the general user base

67. Copyright © 2014 Pearson Education, Inc. 67 Facilitating Conditions What do users know? What do they not know? What do they need to know? Make information easy to find  Ease of Use Don’t make users feel impotent  Empower Them! Make it easy to find information and ensure users are not scared to get it

68. Copyright © 2014 Pearson Education, Inc. 68 Critical Thinking: Project 1

69. Copyright © 2014 Pearson Education, Inc. 69 Project 1 Grades should be posted soon Three parts – CRM Strategy – Mostly familiarization with tools that are available – Decision Support – Without simulating out the data, would you initially suspect an X-box model would be the most profitable? – Business Intelligence – From here on out the objective is to determine where waste (opportunities) can be eliminated (found) as a result of data The purpose of this project is to get your hands dirty a little.

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71. Copyright © 2014 Pearson Education, Inc. 71 Recap Today we went deeper into ERP – Both benefits and potential pitfalls How to enable success – Data – People