enterprise

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Chapter 7 Processes, Organizations, and Information Systems

Zev Friedman, the owner of PRIDE Systems, Jared Cooper, general manager, Nicki Jensen, marketing professional, and James Wu, IS professional, are having an introductory meeting at Friedman’s luxurious house on a Saturday morning.

After polite conversation, Zev gets down to business.

“Here’s where Flores went wrong. Doctors don’t care about exercise.” Zev looks around the table as he speaks.

“They say they do.” Nicki’s not sure Zev will tolerate interruption, but it’s not her style to sit back and listen.

“What people say and what they do are two different things. Doctors care about medicine and operations, and some care most about expensive operations. If they cared about exercise, they’d own health clubs.” Zev’s tone is matter of fact; Nicki’s interruption didn’t bother him at all.

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“So we need to figure out who’s got the pain and how much they’ll pay.” Jared, PRIDE Systems’ new general manager, likes Zev’s forthright manner.

“Right. Flores and his group demonstrated this thing works. You can use the cloud and all this exercise gear and mobile devices to collect, integrate, and report exercise data. So, who do we sell it to, and what do we tell ’em to induce them to buy?”

“I talked to a couple of insurance companies, and they’re not promising.” Jared looks at Zev.

“No? Why not?” Zev knows the answer, but he wants to see if Jared does.

“They don’t like exercise. Exercise doesn’t prevent disease. Well, maybe some cardiac diseases, and long term maybe some diabetes, but it doesn’t do anything for cancer or Alzheimer’s. The

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insurance companies think exercise just raises claims due to exercise-induced injury.”

“You’re kidding.” Nicki can’t believe what’s she’s hearing.

“Even worse, to them anyway, when you get in good shape, you last longer when you do get cancer or whatever. So, you live longer on your way out the door, and their care expenses increase.”

“I can’t believe I’m hearing this!” Nicki says what she’s been thinking.

“So, Zev, I’m wondering, do you think there’s any government money in this? Obamacare funds we could tap?” Jared’s looking right at Zev.

“Maybe. I’ll ask some friends. That kind of money is slow to get, and the reporting requirements can be so painful it’s not worth it. But I’ll find out what I can. That won’t help us immediately, though.”

“Well, the real beneficiary of this is the whole system. All the players together.” James speaks up for the first time.

“Young man, you may be right. But let me ask you, how much money does a system own?” Zev is gentle, but privately he’s amazed at James’s naiveté.

“Well, none, Mr. Friedman.” James figures out where this is going.

“Then the system can’t be a buyer, can it? Saying the system gets the benefits might make sense to you techies, but it won’t make sense down at the bank.” Zev is still gentle, but James is squirming.

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Image source: jiris/Fotolia

“How much money does a system own?”

“I see. OK.” James is embarrassed but has the good sense to shut up.

“Well, besides the medical players, there are employers, health clubs, equipment manufacturers, and people who exercise.” Jared is counting on his fingers as he speaks.

“Jared, take a look at those. I suspect employers will respond just as negatively as insurance companies, but maybe not, at least maybe not some. Find out.”

“OK.”

“You have to show the health clubs how PRIDE adds revenue to them, if it does. Same with the manufacturers.” Zev looks at Nicki. “So, Nicki, what have you got to say?”

“Well, I think we should think about selling ads, you know, placing them on our competition sites and clicks. ”

“Go on.”

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“Some sort of an ad revenue model based on use. But for that we need to get our numbers up. We have to get people using PRIDE in large groups. Maybe some events, social media–driven.”

“I like that, but is it real? Let’s find out. Jared, you look into the health clubs and employers. Nicki, you put some meat on your ad revenue idea, and James, you figure out if PRIDE can support, say, 10,000 people spinning at the same time, in the same contest. Questions?”

Everyone looks around the table; no one says a word.

“OK, see you next week.”

Study Questions

Chapter Preview

1 What are the basic types of processes? 2 How can information systems improve process quality? 3 How do information systems eliminate the problems of information silos? 4 How do CRM, ERP, and EAI support enterprise processes? 5 What are the elements of an ERP system? 6 What are the challenges of implementing and upgrading enterprise information systems? 7 How do inter-enterprise IS solve the problems of enterprise silos? 8 2026?

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This chapter explores processes and their supporting information systems within levels of an organization. We will extend the business process discussion from Chapter 3 to investigate three types of processes and the scope of information systems they use. We will also investigate the concept of process quality and explain how information systems can be used to increase it. Then we will discuss how the use of information systems at one level of organization leads to information silos, explain the problems of such silos, and then show how those problems can be solved by information systems at the next level of organization. In particular, we’ll discuss how enterprise systems such as CRM, ERP, and EAI (you’ll learn the meaning of those terms) solve problems caused by workgroup information silos. ERP systems play a particularly important role, and we’ll discuss their purpose and components and the major ERP vendors. Then we’ll survey the major challenges that occur when implementing enterprise systems. We’ll wrap up the chapter by showing how inter-enterprise IS can solve the problems of enterprise-level silos and finally, in 2026, discuss the implications of mobility and the cloud on future enterprise and inter-enterprise IS.

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Q7-1 What Are the Basic Types of Processes? As you learned in Chapter 3 , a business process is a network of activities that generate value by transforming inputs into outputs. Activities are subparts of processes that receive inputs and produce outputs. Activities can be performed by humans only, by humans augmented by computer systems, and by computer systems only.

Figure 7-1 shows a simplified view of a three-activity process for approving customer orders. Each of these activities is, itself, a subprocess of this overall process. You can see that each step—check inventory, check customer credit, and approve special terms—receives inputs and transforms them into outputs. You will learn how to better diagram such processes in Chapter 12 ; for now, just view Figure 7-1 as showing the gist of a typical business process.

Figure 7-1 Business Process with Three Activities

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How Do Structured Processes Differ from Dynamic Processes?

Businesses have dozens, hundreds, even thousands of different processes. Some processes are stable, almost fixed sequences of activities and data flows. For example, the process of a salesclerk accepting a return at Nordstrom, or other quality retail stores, is fixed. If the customer has a receipt, take these steps . . . if the customer has no receipt, take these other steps. That process needs to be standardized so that customers are

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treated consistently and correctly, so that returned goods are accounted for appropriately, and so that sales commissions are reduced in a way that is fair to the sales staff.

Other processes are less structured, less rigid, and often creative. For example, how does Nordstrom’s management decide what women’s clothes to carry next spring? Managers can look at past sales, consider current economic conditions, and make assessments about women’s acceptance of new styles at recent fashion shows, but the process for combining all those factors into orders of specific garments in specific quantities and colors is not nearly as structured as that for accepting returns.

In this text, we divide processes into two broad categories. Structured processes are formally defined, standardized processes that involve day-to-day operations: accepting a return, placing an order, purchasing raw materials, and so forth. They have the characteristics summarized in the left-hand column of Figure 7-2 .

Dynamic processes are flexible, informal, and adaptive processes that normally involve strategic and less structured managerial decisions and activities. Deciding whether to open a new store location and how best to solve the problem of excessive product returns are examples, as is using Twitter to generate buzz about next season’s product line. Dynamic processes usually require human judgment. The right-hand column of Figure 7-2 shows characteristics of dynamic processes.

We will discuss structured processes and information systems that support them in this chapter. We have already discussed one dynamic process, collaboration, in Chapter 2 , and we will discuss another, social media, in Chapter 8 . Some aspects of business intelligence, in Chapter 9 , are also dynamic processes.

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For the balance of this chapter, we will use the term process to mean structured process.

How Do Processes Vary by Organizational Scope?

Processes are used at three levels of organizational scope: workgroup, enterprise, and inter- enterprise. In general, the wider the scope of the process, the more challenging the process is to manage. For example, processes that support a single workgroup function, say, accounts payable, are simpler and easier to manage than those that support a network of independent organizations, such as a supply chain. Consider processes at each of these three organizational scopes.

Figure 7-2 Structured Versus Dynamic Processes

Workgroup Processes

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A workgroup process exists to enable workgroups to fulfill the charter, purpose, and goals of a particular group or department. A physicians’ partnership is a workgroup that follows processes to manage patient records, issue and update prescriptions, provide standardized postsurgery care, and so forth.

Figure 7-3 lists common workgroup processes. Notice that each of these processes is largely contained within a given department. These processes may receive inputs from other departments, and they may produce outputs used by other departments, but all, or at least the bulk of, the processes’ activities lay within a single department.

A workgroup information system exists to support one or more processes within the workgroup. For example, an Operations department could implement an IS to support all three of the operations processes shown in Figure 7-3 . Or an Accounting department might implement two or three different IS to support the accounting processes shown. Sometimes, workgroup information systems are called functional information systems . Thus, an operations management system is a functional information system, as are a general ledger system and a cost accounting system. The program component of a functional information system is called a functional application .

General characteristics of workgroup information systems are summarized in the top row of Figure 7-4 . Typical workgroup information systems support 10 to 100 users. Because the procedures for using them must be understood by all members of the group, those procedures are often formalized in documentation. Users generally receive formal training in the use of those procedures as well.

When problems occur, they almost always can be solved within the group. If accounts payable duplicates the record for a particular supplier, the

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accounts payable group can make the fix. If the Web storefront has the wrong number of items in the inventory database, that count can be fixed within the storefront group.

(Notice, by the way, that the consequences of a problem are not isolated to the group. Because the workgroup information system exists to provide a service to the rest of the organization, its problems have consequences throughout the organization. The fix to the problem can usually be obtained within the group, however.)

Two or more departments within an organization can duplicate data, and such duplication can be very problematic to the organization, as we discuss in Q7-3. Finally, because workgroup information systems involve multiple users, changing them can be problematic. But, again, when problems do occur, they can be resolved within the workgroup.

Figure 7-3 Common Workgroup Processes

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Enterprise Processes Enterprise processes span an organization and support activities in multiple departments. At a hospital, the process for discharging a patient

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supports activities in housekeeping, the pharmacy, the kitchen, nurses’ stations, and other hospital departments.

The Ethics Guide on pages 266–267 demonstrates how one person’s actions can affect an entire company.

Enterprise information systems support one or more enterprise processes. As shown in the second row of Figure 7-4 , they typically have hundreds to thousands of users. Procedures are formalized and extensively documented; users always undergo formal procedure training. Sometimes enterprise systems include categories of procedures, and users are defined according to levels of expertise with the system as well as by level of authority.

The solutions to problems in an enterprise system involve more than one workgroup or department. As you will learn in this chapter, a major advantage of enterprise systems is that data duplication within the enterprise is either eliminated altogether or, if it is allowed to exist, changes to duplicated data are carefully managed to maintain consistency.

Because enterprise systems span many departments and involve potentially thousands of users, they are difficult to change. Changes must be carefully planned and cautiously implemented and users given considerable training. Sometimes users are given cash incentives and other inducements to motivate them to change.

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CRM, ERP, and EAI are three enterprise information systems that we will define and discuss in Q7-4.

Figure 7-4 Characteristics of Information Systems

Inter-enterprise Processes Inter-enterprise processes span two or more independent organizations. For example, the process of buying a healthcare insurance policy via a healthcare exchange (see Case Study 7 , pages 288–290) involves many insurance companies and governmental agencies. Each of these organizations has activities to fulfill, all of which are affected by laws, governmental policy, and competitive concerns of the insurance companies.

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Inter-enterprise information systems support one or more inter- enterprise processes. Such systems typically involve thousands of users, and solutions to problems require cooperation among different, usually independently owned, organizations. Problems are resolved by meeting, by contract, and sometimes by litigation.

Data are often duplicated among organizations; such duplication is either eliminated (as will be done with PRIDE) or carefully managed. Because of their wide span, complexity, and use by multiple companies, such systems can be exceedingly difficult to change. Supply chain management (discussed in the International Dimension, pages 502–519) is the classic example of an inter-enterprise information system. We will study inter- enterprise PRIDE examples throughout the remaining chapters of this text.

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Q7-2 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. As such, process quality is an important, possibly the most important, determinant of organizational success.

The two dimensions of process quality are efficiency and effectiveness. Process efficiency is a measure of the ratio of process outputs to inputs. If an alternative to the process in Figure 7-1 can produce the same order approvals/rejections (output) for less cost or produce more approvals/rejections for the same cost, it is more efficient.

Process effectiveness is a measure of how well a process achieves organizational strategy. If an organization differentiates itself on quality customer service and if the process in Figure 7-1 requires 5 days to respond to an order request, then that process is ineffective. Companies that provide customized manufacturing might make their processes more effective by using 3D printing.

2

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How Can Processes Be Improved?

Organizations can improve the quality (efficiency and/or effectiveness) of a process in one of three ways:

Change the process structure. Change the process resources. Change both process structure and resources.

Change the Process Structure In some cases, process quality can be changed just by reorganizing the process. The order approval process in Figure 7-1 might be made more efficient if customer credit was done first and inventory was checked second. This change might be more efficient because it would save the cost of checking inventory for customers whose credit will be denied. However, that change would also mean that the organization would pay for a credit check on customers for which it did not have appropriate inventory. We will investigate such changes further in Chapter 12 . For now, just note that process structure has a strong bearing on process efficiency.

Changing process structure can also increase process effectiveness. If an organization chooses a cost-leader strategy, then that strategy might mean that no special terms should ever be approved. If the process in Figure 7- 1 results in the authorization of orders with special terms, then eliminating the third activity will make it more effective (most likely it will save on operational costs as well).

Change Process Resources

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Business process activities are accomplished by humans and information systems. One way to improve process quality is to change the allocation of those resources. For example, if the process in Figure 7-1 is not effective because it takes too long, one way to make it more effective is to identify the source of delays and then to add more resources. If delays are caused by the check customer credit activity, one way to increase process effectiveness is to add more people to that activity. Adding people should decrease delays, but it will also add cost, so the organization needs to find the appropriate balance between effectiveness and efficiency.

Another way to shorten the credit check process would be to use an information system to perform the customer credit checks. Depending on the development and operational costs of the new system, that change might also be less costly and therefore more efficient.

Change Both Process Structure and Process Resources Of course, it is possible to improve process quality by changing both the process’s structure and resources. In fact, unless a structure change is only a simple reordering of tasks, changing the structure of a process almost always involves a change in resources as well.

How Can Information Systems Improve Process Quality?

Information systems can be used to improve process quality by:

Performing an activity.

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Augmenting a human who is performing an activity. Controlling data quality and process flow.

Performing an Activity Information systems can perform the entirety of a process activity. In Figure 7-1 , for example, the check credit activity could be entirely automated. When you purchase from Amazon or another major online retailer, information systems check your credit while your transaction is being processed. Reserving a seat on an airline is done automatically; all of the reservation activity is done by an information system. (Except, of course, the passenger’s activities: When making a reservation, you must choose the seat from available locations, but your time is free to the airline.)

Augmenting a Human Performing an Activity A second way that information systems can improve process quality is by augmenting the actions of a human who is performing that activity. Consider the process of managing patient appointments. To schedule an appointment, patients call the doctor’s office and talk with a receptionist who uses an appointment information system. That information system augments the appointment creation activity.

Controlling Data Quality Process Flow A third way that information systems can improve process quality is by controlling data quality and process flow.

One of the major benefits of information systems is to control data quality. The IS can not only ensure that correct data values are being input, it can

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also ensure that data are complete before continuing process activities. The cheapest way to correct for data errors is at the source, and it avoids the problems that develop when process activities are begun with incomplete data.

Information systems also have a role in controlling process flow. Consider the order approval process in Figure 7-1 . If this process is controlled manually, then someone, say, a salesperson, will obtain the order data from the customer and take whatever actions are needed to push that order through the three steps in the order process. If the salesperson gets busy or is distracted or away from work for a few days, or if there are unexpected delays in one of the activities, it is possible for an order to be lost or the approval unnecessarily delayed.

If, however, an information system is controlling the order approval process, then it can ensure that steps are performed in accordance with an established schedule. The information system can also be relied upon to make correct process-routing decisions for processes that are more complicated than that in Figure 7-1 . SharePoint workflows, discussed in the context of collaboration in Chapter 2 , can be used to automate structured processes.

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Q7-3 How Do Information Systems Eliminate the Problems of Information Silos? An information silo is the condition that exists when data are isolated in separated information systems. For example, consider the six workgroups and their information systems in Figure 7-3 . Reflect on these information systems for a moment, and you’ll realize that each one processes customer, sales, product, and other data, but each uses that data for its own purposes and will likely store slightly different data. Sales, for example, will store contact data for customers’ purchasing agents, while Accounting will store contact data for customers’ accounts payable personnel.

It’s completely natural for workgroups to develop information systems solely for their own needs, but, over time, the existence of these separate systems will result in information silos that cause numerous problems.

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What Are the Problems of Information Silos?

Figure 7-5 lists the major problems caused by information silos at the workgroup level, in this case, between the Sales and Marketing department and the Accounting department. First, data are duplicated. Sales and Marketing and Accounting applications maintain separate databases that store some of the same customer data. As you know, data storage is cheap, so the problem with duplication is not wasted disk storage. Rather, the problem is data inconsistency. Changes to customer data made in the Sales and Marketing application may take days or weeks to be made to the Accounting application’s database. During that period, shipments will reach the customer without delay, but invoices will be sent to the wrong address. When an organization has inconsistent duplicated data, it is said to have a data integrity problem.

Additionally, when applications are isolated, business processes are disjointed. Suppose a business has a rule that credit orders over $15,000 must be preapproved by the Accounts Receivable department. If the supporting applications are separated, it will be difficult for the two activities to reconcile their data, and the approval will be slow to grant and possibly erroneous.

In the second row of Figure 7-5 , Sales and Marketing wants to approve a $20,000 order with Ajax. According to the Sales and Marketing database, Ajax has a current balance of $17,800, so Sales and Marketing requests a total credit amount of $37,800. The Accounting database, however, shows Ajax with a balance of only $12,300 because the accounts receivable application has credited Ajax for a return of $5,500. According to

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Accounting’s records, a total credit authorization of only $32,300 is needed in order to approve the $20,000 order, so that is all the department grants.

Sales and Marketing doesn’t understand what to do with a credit approval of $32,300. According to its database, Ajax already owes $17,800, so if the total credit authorization is only $32,300, did Accounting approve only $14,500 of the new order? And why that amount? Both departments want to approve the order. It will take numerous emails and phone calls, however, to sort this out. These interacting business processes are disjointed.

Figure 7-5 Problems Created by Information Silos

A consequence of such disjointed activities is the lack of integrated enterprise information. For example, suppose Sales and Marketing wants to know if IndyMac is still a preferred customer. Assume that determining whether this is so requires a comparison of order history and payment

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history data. With information silos, that data will reside in two different databases and, in one of them, IndyMac is known by the name of the company that acquired it, OneWest Bank. Data integration will be difficult. Making the determination will require manual processes and days, when it should be readily answered in seconds.

Figure 7-6 Information Silos as Drivers

This leads to the fourth consequence: inefficiency. When using isolated functional applications, decisions are made in isolation. As shown in the fourth row of Figure 7-5 , Sales and Marketing decided to redouble its sales effort with IndyMac. However, Accounting knows that IndyMac was foreclosed by the FDIC and sold to OneWest and has been slow to pay. There are far better prospects for increased sales attention. Without

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integration, the left hand of the organization doesn’t know what the right hand of the organization is doing.

Finally, information silos can result in increased cost for the organization. Duplicated data, disjointed systems, limited information, and inefficiencies all mean higher costs.

How Do Organizations Solve the Problems of Information Silos?

As defined, an information silo occurs when data is stored in isolated systems. The obvious way to fix such a silo is to integrate the data into a single database and revise applications (and business processes) to use that database. If that is not possible or practical, another remedy is to allow the isolation, but to manage it to avoid problems.

The arrows in Figure 7-6 show this resolution at two levels of organization. First, isolated data created by workgroup information systems are integrated using enterprise-wide applications.

Second, today, isolated data created by information systems at the enterprise level are being integrated into inter-enterprise systems using distributed applications (such as PRIDE). These applications process data in a single cloud database or connect disparate, independent databases so that those databases appear to be one database. We will discuss inter- enterprise systems further in Q7-7.

For now, to better understand how isolated data problems can be resolved, consider an enterprise system at a hospital.

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An Enterprise System for Patient Discharge

Figure 7-7 shows some of the hospital departments and a portion of the patient discharge process. A doctor initiates the process by issuing a discharge patient order. That order is delivered to the appropriate nursing staff, who initiates activities at the pharmacy, the patient’s family, and kitchen. Some of those activities initiate activities back at the nursing staff. In Figure 7-7 , the enterprise process (supported by the IS) is represented by a dotted blue line.

Figure 7-7 Example Enterprise Process and Information System

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Prior to the enterprise system, the hospital had developed procedures for using a paper-based system and informal messaging via the telephone. Each department kept its own records. When the new enterprise information system was implemented, not only was the data integrated into a database, but new computer-based forms and reports were created. The staff needed to transition from the paper-based system to the computer- based system. They also needed to stop making phone calls and let the new information system make notifications across departments. These measures involved substantial change, and most organizations experience considerable anguish when undergoing such transitions.

Eliminating information silos is not without security risk; for more information, see the Security Guide on pages 280–281.

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Q7-4 How Do CRM, ERP, and EAI Support Enterprise Processes? Enterprise systems like the one in Figure 7-7 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. At that point, many organizations began to develop enterprise systems.

The Need for Business Process Engineering

As they did so, organizations realized that their existing business processes needed to change. In part, they needed to change to use the shared databases and to use new computer-based forms and reports. However, an even more important reason for changing business processes was that integrated data and enterprise systems offered the potential of substantial improvements in process quality. It became possible to do things that had been impossible before. Using Porter’s language (Chapter 3 , pages 85–87), enterprise systems enabled the creation of stronger, faster, more effective linkages among value chains.

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For example, when the hospital used a paper-based system, the kitchen would prepare meals for everyone who was a patient at the hospital as of midnight the night before. It was not possible to obtain data about discharges until the next midnight. Consequently, considerable food was wasted at substantial cost.

With the enterprise system, the kitchen can be notified about patient discharges as they occur throughout the day, resulting in substantial reductions in wasted food. But when should the kitchen be notified? Immediately? And what if the discharge is cancelled before completion? Notify the kitchen of the cancelled discharge? Many possibilities and alternatives exist. So, to design its new enterprise system, the hospital needed to determine how best to change its processes to take advantage of the new capability. Such projects came to be known as business process reengineering , which is the activity of altering existing and designing new business processes to take advantage of new information systems.

Unfortunately, business process reengineering is difficult, slow, and exceedingly expensive. Business analysts need to interview key personnel throughout the organization to determine how best to use the new technology. Because of the complexity involved, such projects require high- level, expensive skills and considerable time. Many early projects stalled when the enormity of the project became apparent. This left some organizations with partially implemented systems, which had disastrous consequences. Personnel didn’t know if they were using the new system, the old system, or some hacked-up version of both.

The stage was set for the emergence of enterprise application solutions, which we discuss next.

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Emergence of Enterprise Application Solutions

When the process quality benefits of enterprise-wide systems became apparent, most organizations were still developing their applications in- house. At the time, organizations perceived their needs as being “too unique” to be satisfied by off-the-shelf or altered applications. However, as applications became more and more complex, in-house development costs became infeasible. As stated in Chapter 4 , systems built in-house are expensive not only because of their high initial development costs, but also because of the continuing need to adapt those systems to changing requirements.

In the early 1990s, as the costs of business process reengineering were coupled to the costs of in-house development, organizations began to look more favorably on the idea of licensing preexisting applications. “Maybe we’re not so unique, after all.”

Some of the vendors who took advantage of this change in attitude were PeopleSoft, which licensed payroll and limited-capability human resources systems; Siebel, which licensed a sales lead tracking and management system; and SAP, which licensed something new, a system called enterprise resource management.

These three companies, and ultimately dozens of others like them, offered not just software and database designs. They also offered standardized business processes. These inherent processes , which are predesigned procedures for using the software products, saved organizations from the expense, delays, and risks of business process reengineering. Instead, organizations could license the software and obtain, as part of the deal,

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prebuilt processes that the vendors assured them were based on “industry best practices.”

Despite the clear benefits of inherent processes and ERP, there can be an unintended consequence. See the Guide on pages 282–283 and consider that risk.

Some parts of that deal were too good to be true because, as you’ll learn in Q7-5, inherent processes are almost never a perfect fit. But the offer was too much for many organizations to resist. Over time, three categories of enterprise applications emerged: customer relationship management, enterprise resource planning, and enterprise application integration. Consider each.

Customer Relationship Management (CRM)

A customer relationship management (CRM) system is a suite of applications, a database, and a set of inherent processes for managing all the interactions with the customer, from lead generation to customer service. Every contact and transaction with the customer is recorded in the CRM database. Vendors of CRM systems claim that using their products makes the organization customer-centric. Though that term reeks of sales hyperbole, it does indicate the nature and intent of CRM packages.

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Figure 7-8 The Customer Life Cycle

Source: Used with permission from Professor Douglas MacLachlan, Foster School of Business, University of Washington.

Figure 7-8 shows four phases of the customer life cycle : marketing, customer acquisition, relationship management, and loss/churn. Marketing sends messages to the target market to attract customer prospects. When prospects order, they become customers who need to be supported. Additionally, relationship management processes increase the value of existing customers by selling them more product. Inevitably, over time the organization loses customers. When this occurs, win-back processes categorize customers according to value and attempt to win back high- value customers.

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Figure 7-9 CRM Applications

Figure 7-9 illustrates the major components of a CRM application. Notice that components exist for each stage of the customer life cycle. As shown, all applications process a common customer database. This design eliminates duplicated customer data and removes the possibility of inconsistent data. It also means that each department knows what has been happening with the customer at other departments. Customer support, for example, will know not to provide $1,000 worth of support labor to a customer that has generated $300 worth of business over time. However, it will know to bend over backward for customers that have generated hundreds of thousands of dollars of business. The result to the customers is that they feel like they are dealing with one entity, not many.

Figure 7-10 ERP Applications

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CRM systems vary in the degree of functionality they provide. One of the primary tasks when selecting a CRM package is to determine the features you need and to find a package that meets that set of needs. You might be involved in just such a project during your career.

Enterprise Resource Planning (ERP)

Enterprise resource planning (ERP) is 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. As shown in

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Figure 7-10 , ERP systems include the functions of CRM systems but also incorporate accounting, manufacturing, inventory, and human resources applications.

The primary purpose