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Managing and Using Information Systems: A Strategic Approach – Sixth Edition

Keri Pearlson, Carol Saunders, and Dennis Galletta

Chapter 5 IT and Business Transformation

Sloan Valve

What was wrong with their Product Development Process?

What did Sloan do? What is NPD?

Did it help?

Are all enterprise system implementations this successful?

Complex and slow; 16 units had to coordinate; took 18-24 months to bring new products to market; >50% of ideas didn’t make it; nobody accountable

New Product Development: Adoption of ERP. Process: team included members across the firm; proposed new process of (1) ideation (2) business case development, (3) project portfolio management, (4) product development, (5) product/process validation, (6) launch

Results: Time to market reduced to 12 months, poor ideas filtered out early; better access to info and customer feedback; better accountability

Other firms: No, some failed, such as: Overstock.com, Levi Strauss, Avis Europe

SILO PERSPECTIVE VERSUS BUSINESS PROCESS PERSPECTIVE

Silo (Functional) Perspective

Specialized functions (sales, accounting, production, etc.

Advantages:

Allows optimization of expertise.

Group like functions together for transfer of knowledge.

Disadvantages:

Sub-optimization (reinvent wheel; gaps in communication; bureaucracy)

Tend to lose sight of overall organizational objectives.

Executive Offices CEO President

Operations

Marketing

Accounting

Finance

Administration

The Process Perspective

Examples of processes:

Fulfill customer orders

Manufacturing, planning, execution

Procurement (see below)

Processes have:

Beginning and an end

Inputs and outputs

A process to convert inputs into outputs

Metrics to measure effectiveness

They cross functions

Receive Requirement for Goods/Services

Create and Send Purchase Order

Receive Goods

Pay Vendor

Verify Invoice

Cross-Functional Nature of Business Processes

How to Manage a Process

Identify the customers of processes (who receives the output?)

Identify the customers’ requirements (how do we judge success?)

Clarify the value each process adds to the organizational goals

Share this perspective so the organization itself becomes more process focused

Comparison of Silo Perspective and

Business Process Perspective

	Silo Perspective	Business Process Perspective
Definition	Self-contained functional units such as marketing, operations, finance	Interrelated, sequential set of activities and tasks that turns inputs into outputs
Focus	Functional	Cross-functional
Goal Accomplishment	Optimizes on functional goals, which might be suboptimal for the organization	Optimizes on organizational goals, or the “big picture”
Benefits	Highlighting and developing core competencies; functional efficiencies	Avoiding work duplication and cross-functional communication gaps; organizational effectiveness
Problems	Redundancy of information throughout the organization; cross-functional inefficiencies; communication problems	Difficult to find knowledgeable generalists; sophisticated software is needed

Click to edit Master text styles

Second level

Third level

Fourth level

Fifth level

What do you do when things change?

Dynamic and agile processes

Examples:

Agile: Autos are built with wires and space for options

Dynamic: Call centers route incoming or even outgoing calls to available locations and agents

Software defined architectures (see chapter 6)

IT is required to pull this off well

Techniques to Transform a Static Process

Radical process redesign

Also known as business process reengineering

Incremental, continuous process improvement

Including total quality management (TQM) and Six Sigma

Incremental Change

Total Quality Management

Often results in favorable reactions from personnel

Improvements are owned and controlled

Less threatening change

Six-Sigma is one popular approach to TQM

Developed at Motorola

Institutionalized at GE for “near-perfect products”

Generally regarded as 3.4 defects per million opportunities for defect (6 std dev from mean)

Time

Improve-ment

Radical Change

Business Process Reengineering (BPR)

Sets aggressive improvement goals.

Goal is to make a rapid, breakthrough impact on key metrics in a short amount of time.

Greater resistance by personnel.

Use only when radical change is needed.

Time

Improve-ment

Comparing the Two

Improve-ment

Key Aspects of Radical Change Approaches

Need for quick, major change

Thinking from a cross-functional process perspective

Challenge to old assumptions

Networked (cross-functional organization)

Empowerment of individuals in the process

Measurement of success via metrics tied to business goals and effectiveness of new processes

Workflow and Mapping Processes

Workflow diagrams show a picture of the sequence and detail of each process step

Objective is to understand and communicate the dimensions of the process

Over 200 products are available to do this

High-level overview chart plus detailed flow diagram of the process

BPM

Information systems tools used to enable information flow within and between processes.

Comprehensive, enterprise software packages.

Most frequently discussed:

ERP (Enterprise Resource Planning),

CRM (Customer Relationship Management),

SCM (Supply Chain Management)

Designed to manage the potentially hundreds of systems throughout a large organization.

SAP, Oracle, Peoplesoft are the most widely used ERP software packages in large organizations.

BPM Architecture

Standardization vs Integration

		Business Process Standardization
		Low	High
Business Process Integration	High	Single face to customers and suppliers but standards not enforced internally	High needs for reliability, predictability, and sharing; single view of process
	Low	Decentralized design; business units decide how to meet customer needs	Tasks are done the same way across units, but there is little need for business units to interact

Source: J. Ross “Forget Strategy: Focus IT on your Operating Model,”

MIT Center for Information Systems Research Briefing (December 2005)

Enterprise Systems (Enterprise Resource Planning or ERP)

Seamlessly integrate information flows throughout the company.

Reflect industry “best” practices.

Need to be integrated with existing hardware, OSs, databases, and telecommunications.

Some assembly (customization) is required

The systems evolve to fit the needs of the diverse marketplace.

ERP Advantages and Disadvantages

Advantages	Disadvantages
Represent “best practices” Modules throughout the organization communicate with each other Enable centralized decision-making Eliminate redundant data entry Enable standardized procedures in different locations	Enormous amount of work Require redesign of business practices for maximum benefit Require customization if special features are needed Very high cost Sold as a suite, not individual modules Requires extensive training High risk of failure

ERP II

Makes information available to external stakeholders too

Enables e-business applications

Integrates into the cloud

Includes ERP plus other functions (see Figure 5.8)

ERP and ERP II Functions

Customer Relationship Management

Customer Relationship Management (CRM) is a natural extension of applying the value chain model to customers.

CRM includes many management activities performed to

obtain,

enhance relationships with, and

retain customers.

CRM can lead to better customer service, which leads to competitive advantage for the business.

CRM

Common systems are:

Oracle

SAP

Salesforce.com (web-based cloud system)

Oracle and SAP integrate into their ERP systems

Supply Chain Management (SCM)

An enterprise system that manages the integrated supply chain

Translation: processes are linked across companies

The single network optimizes costs and opportunities for all companies in the supply chain

Every part of the supply chain has the latest information about sales expected and inventories from source materials at all stages

Bullwhip effect occurs when the supplier at each stage adds a small “buffer” for it’s suppliers in case demand is higher than expected

Difficulties in Integrated Supply Chains

Information integration requires agreement of what information to share, how to share it, and the authority to view it.

Trust must be established

Planning must be synchronized carefully

Workflow must be coordinated between partners to determine what to do with the information they obtain

Advantages and Disadvantages of Enterprise Systems

The Adoption Decision

The enterprise system sometimes should drive business process redesign when:

Just starting out.

Organizational processes are not relied upon for strategic advantage.

Current systems are in crisis.

It is inappropriate for the enterprise system to drive business process redesign when:

Changing an organization’s processes that are relied upon for strategic advantage.

The package does not fit the organization.

There is a lack of top management support.

Managing and Using Information Systems: A Strategic Approach – Sixth Edition

Keri Pearlson, Carol Saunders, and Dennis Galletta