1. Fulfilling Unfulfilled Dreams: The Last Frontier of MIS Byungtae Lee btlee@kgsm.kaist.ac.kr Graduate School of Management KAIST

2. SERI, July 26, 2003  2003, Byungtae Lee KAIST 2 Agenda 1. Introduction 2. MIS and Organization 3. EIS and Why Not? 4. Business Simulations/Games 5. Complexity Theory

3. SERI, July 26, 2003  2003, Byungtae Lee KAIST 3 Business Solution Products n ERP, SCM, CRM etc n Why didn’t we come up with such solutions first? n What’s left then?

4. SERI, July 26, 2003  2003, Byungtae Lee KAIST 4 Executive Information Systems Transactional System MIS/DSS EIS

5. SERI, July 26, 2003  2003, Byungtae Lee KAIST 5 EIS: Unfulfilled Dream n IT experts have sold the concept of “Strategic Information Systems” ever since MIS started for more than 5 decades n Promised but never delivered n A reason why top executives are not interested in MIS

6. SERI, July 26, 2003  2003, Byungtae Lee KAIST 6 Why No EIS? n EIS is not defined well? n EIS may be a hype? n Executives’ problems can not be helped by computer systems? n Ideals can not be realized due to lack of appropriate technologies.

7. SERI, July 26, 2003  2003, Byungtae Lee KAIST 7 Questions? n Do executives need their own information systems? Does EIS Market exist? n Can we define what is and how to make them?

8. SERI, July 26, 2003  2003, Byungtae Lee KAIST 8 Today’s Management n Destructive Technologies and Innovation n Highly Interactive and Empowered Customers (Red Devils) n Globalization and Death of Distance n Winner-takes-all (or Almost if not all) n More Risk and Uncertainty

9. SERI, July 26, 2003  2003, Byungtae Lee KAIST 9 Executives Problems Transactional System MIS/DSS EIS Unstructuredness

10. SERI, July 26, 2003  2003, Byungtae Lee KAIST 10 Why Can Not They Be Helped? n Aggregation of Transactional Data seldom gives information and knowledge that executives search n 5 key problems of Transactional Systems to Executives: l 부족형 l 편재형 l 산재형 l 비유용성 l 비접급성

11. SERI, July 26, 2003  2003, Byungtae Lee KAIST 11 Is Management Science? n Statistics/Forecasting assume continuing fixed environments but today’s management faces destructive technologies n Statistics/Regression deal with “average” behavior of customers but customization and personalization are virtue of today’s strategy n Game Theory and Mathematical Modeling over- simplify the real world n Strategic Consulting produces 2x2 Matrices

12. SERI, July 26, 2003  2003, Byungtae Lee KAIST 12 DSS, Expert Systems, AI n Knowledge Representation n Knowledge Acquisition n World a God (programmer) created l Top-down Approach l Pre-cooked Scenarios l Equation-based approaches l Modelers should know the entire chain of causalities

13. SERI, July 26, 2003  2003, Byungtae Lee KAIST 13 Are You Doing These Oxymoron? Management at Speed of Lights (Bill Gates) Management from Guts (Jack Welch)

14. SERI, July 26, 2003  2003, Byungtae Lee KAIST 14 In the mean time… n CRM promotes customization/ personalization in Products/Services, Prices, Channel, …. n SCM advocates optimization over Business value chains n Capital Market put more pressure to produce immediate results n Management at Speed of Lights

15. SERI, July 26, 2003  2003, Byungtae Lee KAIST 15 What do Top Managers do? n Strategic Analysis n Strategic Planning n Strategic Implementation

16. SERI, July 26, 2003  2003, Byungtae Lee KAIST 16 Strategic Planning Frameworks Competitive Rivalry from Existing Firms Technology Regulatory Environment Changing Social Values Substitutes Suppliers Buyers New Entrants Economic Changes Demographi c Changes

17. SERI, July 26, 2003  2003, Byungtae Lee KAIST 17 Now You Have Discovered …. n Britons are coming…. n They seem stronger… l This is where consulting ends and why big firms fall. n What will you do? l Re-designing products, processes, organization, channels, …… l Continuous Simulation and Chess Games in Minds l On what bases?

18. SERI, July 26, 2003  2003, Byungtae Lee KAIST 18 New EIS n Chess Board for Business Simulations n Separation real agents from virtual ones n Interactions between Virtual and Real Agents n Agent Technology and Visualization

19. SERI, July 26, 2003  2003, Byungtae Lee KAIST 19 Business Simulation and Complexity Theories n Seamless Interaction between Virtual (passive) and Real (proactive) Agents n Bottom-Up Approach n Treat Agents Individually (by types) n Paradigm Shift from Reductionism of 20’th Century Sciences n Completely different from Business Games as you may know it

20. SERI, July 26, 2003  2003, Byungtae Lee KAIST 20 Learning by Doing Without cost of mistakes Real World Environment Explore, Experiment, Learn, Analyze, Test Predict Implement, Assess Behavior modeling, demographics, and calibration Data collection, association, trends, and parameter estimation Time Compression Near exact replica of the “real” world SEAS architecture Supports millions of Artificial agents Decision Support Loop Synthetic Environment The user(s) can seamlessly switch between real and virtual worlds through an intuitive user interface. SCM ERP CRM Data Warehouse Simulation Loop

21. SERI, July 26, 2003  2003, Byungtae Lee KAIST 21 CRM and IT enables us to capture Out channels DNA’s extracted from data In channels Environmental Sensors The combination of human decision makers (for depth) with artificially intelligent agents (for breadth) allows unmatched flexibility, realism and detail.

22. SERI, July 26, 2003  2003, Byungtae Lee KAIST 22 전통적 마케팅의 실패 n 4P: Product, Price, Promotion and Place n Product l USP (Unique Selling Points) l Copycat Economy n Price l Price War n Promotion l Battle for Eyeballs n Place l No time for Shopping

23. SERI, July 26, 2003  2003, Byungtae Lee KAIST 23 shopbot

24. SERI, July 26, 2003  2003, Byungtae Lee KAIST 24 Posted Price Market

25. SERI, July 26, 2003  2003, Byungtae Lee KAIST 25 정보 비대칭성의 상실 전 보험 비교 견적 역경매 시장

26. SERI, July 26, 2003  2003, Byungtae Lee KAIST 26 Buyers’ Market: 소비자 권력의 증대

27. SERI, July 26, 2003  2003, Byungtae Lee KAIST 27 안티 사이트

28. SERI, July 26, 2003  2003, Byungtae Lee KAIST 28 Game of Eyeballs and Ears – 광고에 대한 면역 Other Consumer Messages (all media) Total Internet Consumer Messages Commercial and Internet Messages per Day per Person (US) 20 years ago, 80 percent of a target audience in many countries could be reached with one 30-second, off-peak television spot Reaching the same audience today often requires between 200 and 300 prime-time TV spots. 440 650 2,560 3,000 19852000

29. SERI, July 26, 2003  2003, Byungtae Lee KAIST 29 Where Is Money? n Decline of Purchasing Prices Source: HBR,1999

30. SERI, July 26, 2003  2003, Byungtae Lee KAIST 30 Installed Vs. New Purchase

31. SERI, July 26, 2003  2003, Byungtae Lee KAIST 31 (40)(30)(20)(10)0 0 20 40 60 80 100 1020304050 Revenue change (%) Customer satisfaction indices Revenue growth 04080120160200 0 20 40 60 80 100 Customer satisfaction indices Profit 240 Profit 고객만족  수익성 012345 0 20 40 60 80 Customer satisfaction indices 100 Revenue

32. SERI, July 26, 2003  2003, Byungtae Lee KAIST 32 R² =.82 미국 보험 산업 예시 Customer Retention Rate *Claims and expenses as a percent of premium income 0 50 100 150 200%

33. SERI, July 26, 2003  2003, Byungtae Lee KAIST 33 고객당 수익성 추이 예시 Customer Retention

34. SERI, July 26, 2003  2003, Byungtae Lee KAIST 34 Customer payback point Customer Lifetime Profit : Amazon.com Acquisition cost

35. SERI, July 26, 2003  2003, Byungtae Lee KAIST 35 CRM 다행히 IT 산업의 발전이 은행 서비스를 더욱 발전시켰고, 은행의 생산성 향상에 크게 … 그러나 은행의 고객층이 천차만별이라는 점을 간과해서는 안 된다. 즉 인터넷을 사용할 수 있는 고객과 단순히 현금지급기 (ATM) 만 쓸 수 있는 고객, 아니면 지점을 찾아야 하는 고객 등 데이비드 엘든 ( HSBC 회장, 2002.11.03 조선일보 )

36. SERI, July 26, 2003  2003, Byungtae Lee KAIST 36 Financial impact of CRM Source: eLoyalty

37. SERI, July 26, 2003  2003, Byungtae Lee KAIST 37 Progressive Insurance ( 미국 ) n GPS/ 위성통신을 통한 보험 가입자의 운행 기록 수집, 위험 평가 n 우수 운전자에게 25-50% 보험료 할인 n 온라인 채널 /CRM 부가가치를 소비자와 공유 l 많은 조직, 프로세스의 개선 및 기술 개선 l 보상 청구 5 년 전에 비해 50% 단축 l 보상 청구의 57% 는 9 일 이내의 해결

38. SERI, July 26, 2003  2003, Byungtae Lee KAIST 38 CAPITAL ONE CRM capabilities CRM offerings l Continuous testing and learning s 45,000 tests per year s For every product offering s For every process change l 1,200 CRM 담당직원 l 미 전체 1/7 가계에 대한 방대한 정보 수집 l Innovation to match customers’ changing needs s 55% of current offering did not exist 6 months ago s 95% did not exist 2 years ago 34 백만 고객에게 34 백만 상품 제공 s Credit card s Auto finance s Catalogs s Mortgage s Telecom service (long-distance, mobile) l For in-bound calls s Predict reasons for the call s Route the call to the most appropriate call operator s Provide best options for complaint calls s Predict cross-sell options CRM impact *?*? CAPITAL ONE ( 미국 )* 고객수 1998 년 16.7 백만에서 2001 년 34 백만으로 성장 불만고객 50-60% 잔류 결정 57% 신규 고객 1 년 내에 다른 상품 구매 (Up-sale, Cross-Sale)

39. SERI, July 26, 2003  2003, Byungtae Lee KAIST 39 CRM Scope – Not every CRM is good for you 개인화 중심의 CRM 개인화 중심의 CRM 전략 중심의 CRM 전략 중심의 CRM 아마존, 야후의 개인화 중심의 CRM 은 고객의 특성에 맞는 차별적인 제품과 서비스를 제공하는 논리를 디자인해야 한다 아마존, 야후의 개인화 중심의 CRM 은 고객의 특성에 맞는 차별적인 제품과 서비스를 제공하는 논리를 디자인해야 한다 고객 접점 중심의 CRM 고객 접점 중심의 CRM 영업사원 중심 CRM – SFA 서비스 중심의 CRM (CTI 또는 인터넷 중심 ) 은 역시 수십 - 수백억의 비용이 들어 고객 서비스 강화를 목적으로 한다 영업사원 중심 CRM – SFA 서비스 중심의 CRM (CTI 또는 인터넷 중심 ) 은 역시 수십 - 수백억의 비용이 들어 고객 서비스 강화를 목적으로 한다 데이터 베이스 중심의 CRM 데이터 베이스 중심의 CRM Data warehouse 구축은 수십 - 수백억의 비용이 든다 Data warehouse 구축은 수십 - 수백억의 비용이 든다 분석 중심의 CRM 분석 중심의 CRM Data mining 장기적인 관계를 통한 Cross-selling Up-selling 지향 Data mining 장기적인 관계를 통한 Cross-selling Up-selling 지향

40. SERI, July 26, 2003  2003, Byungtae Lee KAIST 40 Best customers Other customers HouseholdsAnnual variable contribution Fully-costed contribution (50%) 0% 50% 100% 150% Not All Customers Are Kings …

41. SERI, July 26, 2003  2003, Byungtae Lee KAIST 41 Customer Portfolio n Customers: Return and Risk n Marketing and Demarketing – on What bases? With what gut? Low Return High Low Risk High

42. SERI, July 26, 2003  2003, Byungtae Lee KAIST 42 Best Mix and Match - Very Complex System Problem 지주회사 은행 Service Bank Product Bank Sales Bank 신용카드증권.. High Net Worth Affluent 고객 Mass Affluent Mass 고객 Sub-prime Accounts Branch ARS ATM Internet Mobile TV 은행 보험 신용카드 증권

43. SERI, July 26, 2003  2003, Byungtae Lee KAIST 43 서비스 영업 기회 신규 고객화 및 기존 고객 활성화 마케팅 고객 DB Customer Creation Customer Development Customer Retention 고객관점 기능관점 고객 정보의 지속적 축적 영업

44. SERI, July 26, 2003  2003, Byungtae Lee KAIST 44 Demo n From Analytical CRM to Product/Service/Marketing Strategies n Demo Demo

45. SERI, July 26, 2003  2003, Byungtae Lee KAIST 45 Beyond Repast J2EE Biz. Logic Layer (Engine) Presentation Layer Persistence Layer Environment RDBMS SQL 을 이용한 분석 Tool 분석 문서 시뮬레이션 환경 설정 시뮬레이션 환경 설정 : 기초 데이터 Application Layer rule Detector Effector Human Agent Relational Database Management System input output

46. SERI, July 26, 2003  2003, Byungtae Lee KAIST 46 Challenges n Something Very New n Poor Knowledge Management n Causality (Business Model) l Control l Explanation

47. SERI, July 26, 2003  2003, Byungtae Lee KAIST 47 Vision of Next EIS-SAP Industry 1Problem Domain 1 …..Problem Domain m Industry 2 ….. Industry n

48. Q & A Thank You