enterprise

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Q7-8 2026? Within the next 10 years, ERP vendors and customers will have sorted out the problems of cloud-based ERP. In what is coming to be known as the hybrid model , ERP customers will store most of their data on cloud servers managed by cloud vendors and store sensitive data on servers that they manage themselves. Governmental agencies, financial analysts, and accountants will have defined standards against which organizations can be monitored for appropriate compliance. By the way, if you graduate as an accountant or financial analyst, this is interesting work in which you could be involved early in your career.

Mobility, however, will still present problems in 2026. Workers in the warehouse, loading dock, and shipping department will all carry mobile devices that enable them to process ERP and other enterprise applications from wherever they happen to be. Managers, decision makers, and other knowledge workers will have similar applications on their own phones or other mobile devices, devices that they can access from work, other offices, the street, or home.

However—and it’s an enormous however—mobile devices are subject to severe security threats. It is one thing for criminals steal data about the past. As we learned from the Sony Entertainment data loss in late 2014, data loss is aggravating and embarrassing and damages the innocent. No one on the outside knows for sure, but it appears that Sony paid the hackers handsomely to call off the data releases. So, that loss was

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expensive in direct payoff as well as in the disruption of business operations.

Figure 7-20 Designing a Future ERP System

Source: Tom Wang/Fotolia

Consider, however, what would happen if some criminal, perhaps a malicious insider, were to infiltrate an ERP system. It would be possible to wreak havoc in, say, supply chain orders and inventories or in the operation of machinery on the factory floor. The hacked organization would have to shut down its ERP system, and thus its company, to sort out the mess. But allowing users mobile access to the ERP system will enable organizations to make significant improvements in process quality. So, in the next 10 years, organizations must engage in a delicate balancing act between risk

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of loss and improvement to processes. We will discuss such trade-offs further in Chapter 10 .

Consider also the effect of the Internet of Things. Future users of ERP systems will be not just people but also devices and machines. ERP vendors are adapting their software to the particular requirements of 3D printing. In the future, when a salesperson enters an order, he or she may be starting a machine to make that part on demand. In addition, factory automation will also add to process quality improvements. Inventory- picking robots are one example, but self-driving cars and trucks are likely to have an even larger effect. And within the next 10 years, machines will be able to employ the ERP system to schedule their own maintenance. For example, on the factory floor a milling machine will be able to order a replacement for a dull cutter, one possibly made by a 3D printer. Machines will schedule both routine and emergency maintenance for themselves, thus carrying factory automation to a new level.

As we have stated many times so far, the future belongs not to those who specialize in existing methods, technology, and processes but rather to those who can find and implement innovative applications of emerging trends. Technology’s effect on enterprise systems will be widespread because enterprise systems are widespread. Many opportunities will occur in the early years of your career.

Security Guide One-Stop Shopping

In this chapter, you’ve learned how the problems of information silos shown in Figure 7-5 can be eliminated by increasing the scope of information systems: Workgroup-induced silos can be eliminated by developing enterprise IS, and enterprise-induced silos

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can be eliminated by developing inter-enterprise IS. Nowhere in this discussion, however, have we thought about security.

In fact, while removing information silos does have the advantages discussed, moving data into a single, centralized facility creates a potential security problem. Namely, fraudsters can find all the data they want in one convenient location. It’s one-stop shopping. So, data integration can make organizations more vulnerable.

On the other hand, centralizing data in one location enables the organization to focus security measures on a single resource. The IS support staff need not manage security over several, possibly many, distributed databases, but rather can focus security management on a single database. So, assuming appropriate security management, the two factors counterbalance one another: Risk of loss is higher, but security against such loss can be focused and ultimately result in less actual risk.

Consider how a large-scale integrated IS like the PRIDE system discussed at the start of this chapter can create unique security concerns. To start, for the purpose of this guide, let’s assume that client privacy is appropriately protected. Clients only share the data with each of the PRIDE entities (employers, health clubs, equipment manufacturers, insurance companies, and healthcare providers) that they want to.

Even with that assumption, however, there are significant privacy and security issues. Clients, personal trainers, and healthcare providers need to see a client’s complete exercise data. This means, however, that competing personal trainers (and health clubs) view data on their competitors’ practices. Is this a problem? It’s likely to be perceived as a problem even if there is no real danger, and that perception could limit PRIDE sales and use.

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This example underlines some of the management problems of inter-enterprise IS. Unlike an enterprise system, where everyone works for the same employer and, except for inter-departmental rivalry, has the same incentive to protect data, an inter-enterprise system can connect competitors with different incentives and agendas. This fact not only increases security risk, it takes away one of the major ways of dealing with security flaws: procedures. In an enterprise system, it’s possible for the organization to set up manual procedures that compensate for security weaknesses in programs or data controls. However, in an inter-enterprise system, if system users compete, they may have an incentive not to follow the compensating procedures.

Sources: © zentilia/Shutterstock and © andreiorlov/Fotolia

PRIDE’s use of the cloud brings up another important security concern, one that exists at both the enterprise and inter-enterprise

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levels: How secure is the cloud vendor? The more important the information you store, the more attractive a target you become for attackers. The simplest example of this comes in the form of bitcoins .

In February 2014, Mt. Gox, the largest bitcoin exchange at the time, lost about 850,000 bitcoins valued at $460 million. Mt. Gox declared bankruptcy and wouldn’t, or couldn’t, explain where all the bitcoins and cash had gone. Essentially, bitcoins represented a large cloud-based monetary system that was supposed to replace national currencies. It was, and still could be, a revolutionary idea.

The downside of Mt. Gox was that its very nature made it a perfect target. It was centrally located and accessible from anywhere, and it had a very large sum of money that could be electronically stolen. Hackers from around the world would never stop trying to steal from Mt. Gox. Gold is hard to steal because it’s so heavy. But bits are light and easy to transport. Healthcare records, personal identities, financial records, and credit card information are all in digital form now, too.

The fall of Mt. Gox should cause one to wonder about the security of cloud storage. Most of the time, we don’t even know the physical location of cloud data, let alone how well the data center is secured, who works there, what procedures and policies are in place, and so on. We will return to this question in Chapter 10 ; for now, just understand that this issue exists.

Discussion Questions 1. Summarize why security risk is higher for integrated

databases than for information silos. Describe a factor that can compensate for this increased risk.

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2. Using PRIDE as an example, explain how users’ incentives to protect data differ between an enterprise system and an inter- enterprise system. How does the use of security procedures differ between the two types of system?

3. Suppose you are a health club owner and you are approached by a PRIDE salesperson who says, “The PRIDE database is located in an XYZ cloud facility,” where XYZ is the name of a large, reputable company, such as Amazon, Oracle, Microsoft, or IBM. You ask about data security, and the salesperson says, “You and I don’t know anything about their security, but it has to be better than the security you have on that server you’re operating in the closet down the hallway.” How do you respond?

4. If you were a personal trainer at a health club, explain the value to you of having competitors’ data about clients you share. Explain the value to you of obtaining, if you can, data about competitors’ PRIDE clients who you have never trained.

5. Suppose you are a personal trainer at a health club and you are approached by a PRIDE salesperson who says, “Our system’s security ensures that no one can see your clients’ data.” How do you respond?

�. Suppose the salesperson in question 5 says, “Only others who are coaching the same clients as you can see your client data.” How can you verify the truth of this statement?

7. Suppose that a personal trainer at a health club uses a trivial password, such as dog. One of that health club’s members watches the personal trainer sign in, obtains that password, and later steals all of the data on the clients who use that club.

a. Who is responsible for the data theft? b. How do you respond if you are the personal trainer

using the trivial password?

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c. If you are the club owner, how will you likely learn about this theft? How do you respond when you do learn of it?

d. If you are a participating healthcare provider, how will you likely learn about this theft? How do you respond when you do learn of it?

e. If you are a client who is using this system, whom do you hold accountable, and why?

�. Where was Mt. Gox physically located? Is the physical location of where your data is being stored important? Why or why not?

Guide ERP and the Standard, Standard Blueprint

Designing business processes is difficult, time consuming, and very expensive. Highly trained experts conduct seemingly countless interviews with users and domain experts to determine business requirements. Then even more experts join those people, and together this team invests thousands of labor hours to design, develop, and implement effective business processes that meet those requirements. All of this is a very high-risk activity, prone to failure. And it all must be done before IS development can even begin.

ERP vendors such as SAP have invested millions of labor hours into the business blueprints that underlie their ERP solutions. Those blueprints consist of hundreds or thousands of different business processes. Examples are processes for hiring employees, acquiring fixed assets, acquiring consumable goods, and custom “one-off” (a unique product with a unique design) manufacturing, to name just a few.

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Additionally, ERP vendors have implemented their business processes in hundreds of organizations. In so doing, they have been forced to customize their standard blueprint for use in particular industries. For example, SAP has distribution-business blueprints that are customized for the auto parts industry, for the electronics industry, and for the aircraft industry. Hundreds of other customized solutions exist as well.

Even better, the ERP vendors have developed software solutions that fit their business-process blueprints. In theory, no software development is required at all if the organization can adapt to the standard blueprint of the ERP vendor.

As described in this chapter, when an organization implements an ERP solution, it identifies any differences that exist between its business processes and the standard blueprint. Then the organization must remove that difference, which can be done in one of two ways: It changes business processes to fit the standard blueprint; or the ERP vendor or a consultant modifies the standard blueprint (and software solution that matches that blueprint) to fit the unique requirements.

In practice, such variations from the standard blueprint are rare. They are difficult and expensive to implement, and they require the using organization to maintain the variations from the standard as new versions of the ERP software are developed. Consequently, most organizations choose to modify their processes to meet the blueprint, rather than the other way around. Although such process changes are also difficult to implement, once the organization has converted to the standard blueprint, they need no longer support a “variation.”

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Sources: Magdalena Kucova/Fotolia

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So, from a standpoint of cost, effort, risk, and avoidance of future problems, there is a huge incentive for organizations to adapt to the standard ERP blueprint.

Initially, SAP was the only true ERP vendor, but in the meantime other companies have developed and acquired ERP solutions as well. Because of competitive pressure across the software industry, all of these products are beginning to have the same sets of features and functions. ERP solutions are becoming a commodity.

All of this is fine, as far as it goes, but it introduces a nagging question: If, over time, every organization tends to implement the standard ERP blueprint, and if, over time, every software company develops essentially the same ERP features and functions, then won’t every business, worldwide, come to look just like every other business, worldwide? How will organizations gain a competitive advantage if they all use the same business processes?

If every auto parts distributor uses the same business processes, based on the same software, are they not all clones of one another? How will one distinguish itself? How will innovation occur? Even if one parts distributor does successfully innovate a business process that gives it a competitive advantage, will the ERP vendors be conduits to transfer that innovation to competitors? Does the use of “commoditized” standard blueprints mean that no company can sustain a competitive advantage?

Discussion Questions 1. Explain in your own words why an organization might choose

to change its processes to fit the standard blueprint. What advantages accrue by doing so?

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2. Explain how competitive pressure among software vendors will cause the ERP solutions to become commodities. What does this mean to the ERP software industry?

3. If two businesses use exactly the same processes and exactly the same software, can they be different in any way at all? Explain why or why not.

4. Explain the following statement: An ERP software vendor can be a conduit to transfer innovation. What are the consequences to the innovating company? To the software company? To the industry? To the economy?

5. In theory, such standardization might be possible, but worldwide, there are so many different business models, cultures, people, values, and competitive pressures, can any two businesses ever be exactly alike?

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Active Review Use this Active Review to verify that you understand the ideas and concepts that answer the chapter’s study questions.

Q7-1 What are the basic types of processes?

Define structured and dynamic processes and compare and contrast them. Define workgroup processes, enterprise processes, and inter-enterprise processes and explain their differences and challenges. Define those same levels of information systems. Define functional systems and functional applications.

Q7-2 How can information systems improve process quality?

Name, define, and give an example of two dimensions of process quality. Name and describe three ways that organizations can improve process quality. Name and describe three ways that information systems can be used to improve process quality.

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Q7-3 How do information systems eliminate the problems of information silos?

Define information silo and explain how such silos come into existence. When do such silos become a problem? Describe the two types of silos in Figure 7-6 and explain the meaning implied by the two arrows.

Q7-4 How do CRM, ERP, and EAI support enterprise processes?

Define business process reengineering and explain why it is difficult and expensive. Explain two major reasons why developing enterprise information systems in-house is expensive. Explain the advantages of inherent processes. Define and differentiate among CRM, ERP, and EAI. Explain how the nature of CRM and ERP is more similar to each other than that of EAI.

Q7-5 What are the elements of an ERP system?

Describe the minimum capability of a true ERP product. Explain the nature of each of the following ERP solution components: programs, data, procedures, and training and consulting. For each, summarize the work that

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customers must perform. List the top five ERP vendors in decreasing order of market share.

Q7-6 What are the challenges of implementing and upgrading enterprise information systems?

Name and describe five sources of challenges when implementing enterprise systems. Describe why enterprise systems management must be collaborative. Explain two major tasks required to identify requirements gaps. Summarize the challenges of transitioning to an enterprise system. Explain why employees resist change and describe three ways of responding to that resistance. Discuss the challenges that new technology poses for enterprise systems.

Q7-7 How do inter-enterprise IS solve the problems of enterprise silos?

Describe information silos that exist among healthcare providers, health clubs, and individuals with regard to patient exercise data. Describe problems that those silos create. Explain how the system shown in Figure 7-19 will solve the problems caused by those silos. Define distributed systems and explain the benefits of SOA using Web services when implementing such systems.

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Q7-8 2026?

Describe how the cloud, mobility, and the Internet of Things will affect enterprise systems in the next 10 years. Explain how these factors will create opportunities for business professionals. Explain how they will create opportunities for you!

Using Your Knowledge with PRIDE

Knowledge of this chapter will help you understand the fundamental value offered by solutions like PRIDE; namely, the elimination of the problems of enterprise-level information silos. As you now know, silos caused by workgroup processes can be eliminated (or managed, in the case of EAI) with enterprise systems. Similarly, silos caused by enterprise processes can be eliminated with inter-enterprise systems like PRIDE. Also, the knowledge of this chapter prepares you to understand the difficulty of adapting and of managing inter-enterprise systems. Finally, Figure 7-19 helps you understand how mobile devices and a cloud database can be used to implement an inter-enterprise system.

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Key Terms and Concepts Bitcoins Business process reengineering Customer life cycle Customer relationship management (CRM) system Data integrity Distributed systems Dynamic processes Enterprise application integration (EAI) Enterprise information system Enterprise processes Enterprise resource planning (ERP) ERP system Functional application Functional information systems Hybrid model Industry-specific solutions Information silo Inherent processes Inter-enterprise information systems Inter-enterprise processes Modules Process blueprints Process effectiveness Process efficiency

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Self-efficacy Stored procedure Structured processes Train the trainer Trigger Workgroup information system Workgroup process

MyMISLab™

To complete the problems with the , go to EOC

Discussion Questions in the MyLab.