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Management Information Systems for The Information Age

Haag, S., & Cummings, M. (2013). Management information systems for the information age.

New York: McGraw-Hill.

MANAGEMENT INFORMATION SYSTEMS FOR THE INFORMATION AGE

> > Ninth Edition _St~phen-HAAG } Maeve CUMMINGS ] ~·

Define supply chain management (SCM) systems and describe their strategic and competitive opportunities.

Define customer relationship management (CRM) systems and describe their strategic and competitive opportunities.

Explain the significance of enterprise resource planning (ERP) software as the integration of functional software systems.

Define social media and describe a few of its many dimensions that make it important in the business world.

Industry Perspective Frito Lay Goes Green with Its Supply Chain Management Initiatives

Global Perspective American Red Cross and CRM

Industry Perspective eBay Offers End-to-End Solution for Internet Retailers

Industry Perspective I'm on Facebook; Sell Your Products There

XLM/B The World Wide Web and the Internet

• Consumer information

• Demographics

• Bureau of Labor and Statistics

• Gathering competitive intelligence

• Meta data

• Gold, silver, interest rates, and money

• Small Business Administration

• Global statistics and resources

Module 8 is a fast-paced tour of the Web and Internet. The first focus is on learning just enoug about the Web to be an effective surfer. Then, explore the technology infrastructure behind t~ Web that makes it all possible. Finally, conclude with an overview of the options for connecting to the Web and the emerging life of Web 2.0.

ajar Business Initiatives aining Competitive Advantage with IT

TRAGEOUS INDUSTRY NSFORMATION: DEATH

F A TRAVEL AGENT

Chapter 1, we explored the extent to which -ell phones are transforming (i.e., wiping out)

.-room phone revenues for hotels. Hotels are ~ en considered broadly within the context of

- e t ravel and leisure industry segment. So, let's -:ay within that industry and explore another - 0 ch nology-enabled transformation.

Up through the mid-1990s, airline reserva-

: ·ons systems were closely guarded ba r riers to

:: try. If you wanted to book a flight, you had

ne of two options: (1) call an airline directly, or 2) call or visit a travel agent. The travel agency 'ldustry flourished during this time. By offering ot el reservations, rental cars reservations, cruise

oo kings, and much more, the local travel agent

ecame a friendly, one-stop shop for many peo-

le's vacationing needs.

You know what happened next. (In fact, you an probably tell this story without reading

any further.) Al<;>ng came the Web and with it,

eg inn ing in 1996, sites like Priceline, Travelocity,

an d Expedia. The accompanying graph shows - e transformation. At the peak in 1999, there

ere 171,600 travel agents in the United States. y 2004, that had dropped to 115,000. And in ugust 2009, only 95,000 travel agents still sur- ·ved, just barely half the peak total in 1999.

Today, many, but not most, people book their

- avel needs online. Consider these percentages o ked online .

• 57%-car rentals • 43%-airline reservations

• 28%-hotel reservations

• 8%-cruises

Will there be a need for travel agents? Sure. Some

will survive and even thrive by focusing on the personal touch, what many people call customer _. experience management. Others will also survive by focusing on specific niches, say perhaps excur- sions to the north and south poles. (This is a form

of focus as described in Porter's three generic strat-

egies from Chapter 1.) It's rather like hotels losing

in-room telephone charge revenue; they figure out how to make up that lost revenue elsewhere.

Technology is certainly a game changer. Some businesses will win, others will lose. The winners

work diligently to build strategies and major

business initiatives around the use of technology. That's our focus in this chapter. 1

200,000

180,000 Peak: 171,600

160,000

140,000

120,000

100,000

80,000 95,000

60,000

40,000

20,000

0 1994 1999 2004 2009

Questions

1. When you last flew, did you use a travel agent

or go directly to the Web to book your tickets?

2. What is your preferred travel site for travel- ing? What features of it do you like best?

3. Why are airlines fully supportive of moving

reservation systems to the Web and allowing consumers to make reservations for free?

35

36 Chapter 2 • Major Business Initiatives

I Introduction - In almost any study you care to read, research shows that as competition intensifies in an

industry, companies must develop innovative products, services, and business processes to compete and survive. Further, most of these studies point to the use of information technology as a way to help companies separate from the competition and develop a sig- nificant competitive advantage . In Chapter 1, we explored how a company can use tools such as Porter's Five Forces Model and Porter's three generic strategies and the run- grow-transform framework to develop business strategy to address the ever-intensifying competitive environment. In this chapter, we focus on four of the most important IT implementations of business processes companies can use to support their business strategies:

• Supply chain management

• Customer relationship management

• Enterprise resource planning

• Social media

[ Supply Chain Management

I LEARNING OUTCOME 1 Dell Computer's supply chain management system is the envy of the industry. Its

direct model gives the company a huge advantage over any competitor still using a tra- ditional model of selling through retailers. Traditional computer manufacturers build computers and ship them to wholesalers, distributors, or directly to retailers. The com- puters sit in a warehouse or on the retailers ' shelves until somebody comes in and buys them. If you took a look at a typical distribution chain, you would see that there are too many computers in inventory. A distribution chain is simply the path a product or ser- vice follows from the originator of the product or service to the end consumer. Holding onto inventory in a distribution chain costs money, because whoever owns the inventory has to pay for the operation of a warehouse or stores while waiting for someone to buy it. In the retailing of computers, not only does excess inventory cost money to hold, but the computers themselves can become obsolete, requiring retailers to slash prices in an effort to sell older models before the newer ones arrive.

.- Dell's model is different. Dell sells computers directly from its Web site so there

is no inventory in its distribution chain. Dell has enhanced its supply chain as well. It uses i2 supply chain management software to send orders for parts to suppliers every two hours , enabling it to manufacture and deliver exactly what its customers want with little or no inventory in its supply chain. 2 The differences between Dell's " sell, source, and ship" model and the traditional "buy, hold, and sell" model are illustrated in Figure 2.1.

For a company the size of Fo rd Motor Company, with operations all over the world and tens of thousands of suppliers, supply chain management and IT-based supply chain management systems are critical necessities to ensure the smooth flow of parts to Ford factories . Supply chain management (SCM) tracks inventory and information among business processes and across companies. A supply chain management (SCM) system is an IT sys tem that supports supply chain management activities by automat- ing the tracking of inventory and information among business processes and across companies.

Supply Chain Management 37

Holding inventory for a typical computer retailer occurs here

High Selling for a typical computer retailer occurs here

INVENTORY

I.. • • .. '

Low

Selling and sourcing for Dell occur throughout time, keeping inventory low

Most large manufacturing companies use just-in-time manufacturing processes, which ensure that the right parts are available as products in process move down the assembly line. Just-in-time (JIT) is a method for producing or delivering a product or service just at the time the customer wants it. For retailers , such as Target, this means that products customers want to buy are on the shelves when the customers walk by. Supply chain management systems also focus on making sure that the right number of parts or products are available, not too many and not too few. Too many products on hand means that too much money is tied up in inventory and also increases the risk of obsolescence. Too few products on hand is not a good thing either, because it could force an assembly line to shut down or, in the case of retailers , lose sales because an item is not in stock when a customer is ready to buy.

Consider snow blowers in Michigan around the month of November. If a store like Home Depot has too many, it may not be able to sell them all early in the snowy season when most customers buy them. Snow blowers are large and bulky and also cost a con- siderable sum of money. Having too many is an expensive proposition for Home Depot. Likewise, if Home Depot has too few snow blowers on hand and runs out early in the snowy season, a customer looking for a snow blower won't wait for new Home Depot inventory; instead, the customer will go to another store.

Companies with suppliers around the globe often employ inter-modal transporta- tion. Inter-modal transportation is the use of multiple channels of transportation- railway, truck, boat, and so on-to move products from origin to destination. This further complicates the logistics of SCM because companies are required to carefully schedule, monitor, and track parts and supplies as they move among different modes of transporta- tion. Consider that a given train may be carrying 50 or more truck trailers that will each eventually be connected to different trucks. Even purely domestic supply chains often employ inter-modal transportation such as railway lines and carrier trucks.

Figure 2.1 Buy-Hold-Sell versus Sell- Source-Ship

38 Chapter 2 • Major Business Initiatives

Figure 2.2 Walmart's Approach to Buying for Less, Selling for Less, and Growing Revenue

('

STRATEGIC AND COMPETITIVE OPPORTUNITIES WITH SCM

Overall, a tight supply chain management system focuses on squeezing every penny pos- sible out of the supply chain process. Thus, the primary focus of supply chain manage- ment may be described in terms of our discussion in Chapter 1 as

• Overall cost leadership (from Porter's three generic strategies)

• Running the organization (run-grow-transform framework)

Of course, lower costs in the supply chain lead to lower prices for consumers, which in turn increase market share and top-line revenue. Consider Walmart's slogan, "Save Money. Live Better." Its operational model includes buying for less by creating a tight and extremely efficient supply chain management system (see Figure 2.2). That leads to selling for less and thus growing sales. This exhibits the characteristics of overall cost leadership. Walmart buys for less and passes the savings on to consumers, which encour- ages more consumers to buy more at Walmart than at the competition.

A well-designed supply chain management system helps your organization by opti- mizing the following specific supply chain activities:

• Fulfillment- ensuring that the right quantity of parts for production or products for sale arrive at the right time.

• Logistics-keeping the cost of transporting materials as low as possible consistent with safe and reliable delivery.

• Production- ensuring production lines function smoothly because high-quality parts are available when needed.

• Revenue and profit- ensuring no sales are lost because shelves are empty.

• Cost and price-keeping the cost of purchased parts and prices of products at accep table levels.

Cooperation amo ng supply chain partners for mutual success is another hallmark of modern supply chain management systems. For example, many manufacturing

/

Enabled by a tight supply chain management system

FRITO LAY GOES GREEN WITH ITS SUPPLY CHAIN MANAGEMENT INITIATIVES

Frito Lay Canada (FLC) is the nation's largest snack food

manufacturer. Daily, its extensive supply chain network

delivers millions of bags of snack foods to retailers all

over the country.

For the last 10 years, FLC has focused extensively on

optimizing its supply chain management system to cut

costs at every corner. But more importantly, FLC has

focused on making its supply chain management net-

work green. Green initiatives focus on the environment such as by lowering pollution, minimizing carbon foot-

prints, maximizing how many miles tires can be used

before needing to be changed, minimizing fuel con-

sumption, and so on. For its existing trucks, FLC created

green efficiencies by:

• Improving anti-idling mechanisms.

• Creating more efficient cabin heating systems.

• Installing skylights in trailers to reduce the need

for artificial light.

As trucks needed to be replaced, FLC introduced

lighter-weight and more efficient trucks called

Sprinter vehicles. It also began optimizing driving

routes to reduce kilometers driven. Despite total rev-

enue and units delivered all incre~sing from 2005 to

date, FLC has been able to reduce its fleet size by 55 vehicles.

In 2010, FLC announced its latest green supply chain

initiative of using fully electric vehicles. These new

trucks, which produce zero emissions, have a daily

range of approximately 60 kilometers, the needed

range for a typical truck on the majority of routes from

distribution centers. 3

companies share product concepts with suppliers early in the product development cycle. This lets suppliers contribute their ideas about how to make high-quality parts at a lower cost. Such an arrangement is enabled through IT and is usually referred to as an information partnership-two or more companies cooperating by integrating their IT systems, thereby providing customers with the best of what each can offer.

I T SUPPORT FOR SUPPLY CHAIN MANAGEMENT

While the SCM market was pioneered by specialist companies such as i2 and Manugistics, it is now dominated by ERP software providers such as SAP, Oracle/PeopleSoft, SSA Global, and Microsoft (more on ERP later in this chapter). If your career choice takes you into industries that focus on the manufacturing of products and/or the distribution and use of those products (such as hospitality, resort, and tourism management), you will have a great deal to do with SCM software. To learn more about SCM software, we encourage you to visit the sites for some of the best SCM software vendors:

• Consona-www.consona.com

• Epicor-www.epicor.com

• IQMS - www.iqms.com

• N etSuite-www.netsuite.com

• CDC Software- www.cdcsoftware.com

• Sage- www.sageerpsolutions.com

• Microsoft Dynamics-www.microsoft.com/dynamics

• Oracle-www.oracle.com

• Solarsoft- www.solarsoft.com

• SAP-www.sap.com/usa

39

40 Chapter 2 • Major Business Initiatives

• HighJump Software-www.highjump .com

• TECSYS- www.tecsys .com

• JDA-www.jda.com

• Manhattan Associates-www.manh.com

• lntelex- www.intelex.com

Customer Relationship ! 1 Management L Wells Fargo Bank's customer relationship management system tracks and analyzes every

I LEARNING OUTCOME 2

Figure 2.3 Customer Relationship Management (CRM) System

.~

transaction made by its I 0 million retail customers at its branches, at its ATMs, and through its Web-based online banking systems. Wells Fargo has become so good at pre- dicting customer behavior that it knows what customers need even be~ore many of them realize they need it. Wells Fargo's CRM system collects every customer transaction and combines it with personal information provided by the customer. The system is able to provide tailored offerings that will appeal to individual customers (a money-saving sec- ond mortgage, for example) at just the right time. As a result, Wells Fargo sells four more banking products or services per customer than the industry average of 2.2. 4

Acquiring customers and then retaining them are the basic objectives of any organiza- tion, and thus , customer relationship management systems have become one of the hot- test IT systems in business today. A customer relationship management (CRM) system uses information about customers to gain insights into their needs , wants , and behaviors in order to serve them better. Customers interact with companies in many ways, and each interaction should be easy, enjoyable, and error free. Multi-channel service delivery is the term that describes a company's offering multiple ways in which customers can

ANALYTICS

Customer Relationship Management 41

interact with it. E-mail, fax, phone, and the Web are all ways in which most companies mteract with their customers. A fundamental goal of a CRM system, then, is the manage- ment and tracking of all these interactions. The communications within the various chan- nels must be organized and carefully recorded for each customer. If that doesn't happen, ::hen your experience with the company may be less than optimal and you may choose to change companies or perhaps return the product for a refund. It's not uncommon for a customer to change companies after having a negative experience. Thus, the overriding croal of CRM is to limit such negative interactions and provide customers with positive ex.-periences (even delightful ones).

CRM systems (see Figure 2 . .3) typically include such functions as

• Sales force automation

• Customer service and support

• Marketing campaign management

• Analytics

It's important to note that CRM is not just the software. It is a total business objective which encompasses many different aspects of a business including software, hardware , -ervices, support, and strategic business goals. The CRM system you adopt should sup- p ort all these functions and should also be designed to provide the organization with d etailed customer information.

In many cases, companies begin with a sales force automation application and then progress to other functions. Sales force automation (SFA) systems automatically track all the steps in the sales process. The sales process contains many steps, including contact management, sales lead tracking, sales forecasting and order management, and p ro duct knowledge. SFA systems empower sales representatives with information and business intelligence focused on customer buying patterns and needs. They help people at all levels of the organization to forecast future sales. That information is then fed into a supply chain management system to ensure that the right amount of products is avail- able in the right location at the right time. Some of the more robust CRM systems and methodologies, such as at General Motors (see Figure 2.4), focus on creating repeat cus- comers. It is far more expensive to acquire a new customer than it is to retain an existing cus tomer, especially in the automotive retail industry.

Owners Last

Figure 2.4 General Motors Purchase Funnel 5

Aware Consider Shop Buy Owners 1-6 mos. Post Sale

Owners 6 mos .- X yrs .

6 mos. of Ownership

Reenter Market

42 Chapter 2 • Maj or Business Initiatives

...

Customer service and support are functions that support CRM after the sale. These vitally important subsystems of a CRM system enable businesses to provide prompt and effective customer service and accurate and timely product support. Customer service and support functions are definitely multi-channel, attempting to meet the service needs of customers by phone, e-mail, Web, text message, Facebook presence, and so on.

Marketing campaign management helps people within the organization in regard to the marketing campaign life cycle. So, these subsystems help people design campaigns, identify target audiences and their preferred media, create campaign budgets, and deliver marketing campaign assets. Most important, these subsystems help marketing managers measure the extent to which a marketing campaign is successful.

Finally, tightly interwoven into any effective CRM system is analytics. Analytics (the focus of Chapters 3 and 4) are hard-core, numerical data that allow people to analyze operations and processes and make better decisions. "Seat of the pants" or "gut feeling" approaches to the development of CRM activities and processes simply will not work. Businesses today act on quantifiable data that allow them unique insight into the success or failure of their initiatives.

STRATEGIC AND COMPETITIVE OPPORTUNITIES WITH CRM

Overall, a well-designed customer relationship management system focuses on increas- ing revenue by providing delightful experiences for the customer in a variety of ways- tailored product and service offerings, seamless interaction, product knowledge, and so on. Thus, the primary focus of customer relationship management is

• Differentiation and focus (Porter's three generic strategies)

• Growing the organization (run-grow-transform framework)

Of course, customers are willing to pay only so much for these "delightful" interac tions and product selections, so your organization must have a tight supply chain management system in place to ensure an acceptable price.

One of the rewards of CRM is competitive advantage through superior performance in CRM functions, in particular:

• Devising more effective marketing campaigns based on more precise knowledge of customer needs and wants.

• Assuring that the sales process is efficiently managed.

• Providing superior after-sale service and support, for example, through well-run call centers .

All the classic goals of CRM- treating customers better, understanding their needs and wants, tailoring offerings in response- are likely to result in buyers choosing your product or service instead of the competition's. Predicting the amount by which the CRM-enabled organization will gain market share, however, can be difficult. But cer- tainly, it is something that can be measured after the fact, thus allowing your organization to understand the true results of better CRM in terms of customers' buying decisions.

IT SUPPORT FOR CUSTOMER RELATIONSHIP MANAGEMENT

Figure 2.5 shows a sample CRM system infrastructure. The front office systems are the primary interface to customers and sales channels; they send all the customer

Customer Relationship Management 43

,, Customers

• Front Office Systems Sales and

Manufacturing OrderTaking

Back Office Systems

Fulfillment Support/

Call Centers

.. Analysis and Reporting Systems (Analytics)

' ,1 Company

Knowledge Workers

information they collect to the database. The back office systems are used to fulfill and support customer orders and they also send all their customer information to the data- base. The CRM system analyzes and distributes the customer information and provides the organization with a complete view of each customer's experience with the business . A typical back office function such as order fulfillment would h ave direct ties to the sup- ply chain management system, creating synergy between the customer relationship man- agement system and the supply chain management system.

There are many systems available today that a company can use that offer CRM func- tionality. CRM is actually one of those industry transformation areas for the IT industry. Originally, organizations bought CRM software systems, brought them in-house, created a hardware infrastructure for them to run on, installed the software, and p rovided tech support. Not so today. Mos t CRM systems are hosted by the software publishers . This is known as SaaS, or software-as-a-service. Software-as-a-service (SaaS) is a delivery model for software in which you pay for software on a pay-per-use basis instead of buy- ing the software outright.

Using SaaS, often associated with cloud computing which we introduced in Chapter 1 and will explore more fully in Chapter 7, your organization doesn't buy a site license; instead you typically pay by the month per user for use of the software. Salesforce.com (www.salesforce.com) was one of the first to offer such a model for CRM software , as was NetSuite (www.netsuite .com). As you can see in Figure 2.6 on the next page, the enterprise version of Salesforce .com 's CRM software is $125 p er month per user.

Why do organizations choose to use a hosted or SaaS software model? The answer lies in the break-even analysis technique you learned in Chapter 1. All the associated cos ts of having software in-house- hardware infrastructure , training, maintenance,

Figure 2.5 A Sample CRM System Infrastructure

44 Chapter 2 • Major Business Initiatives

Figure 2.6 Salesforce.com's Hosted or Saas CRM Software Model

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• Unlimit ed custom apps

• Email integration • Sales teams • Unlimited access to • Email templates &. • Res~time quotes

Outlook, Gmail, Lotus traclo.mg • Territory management 100+ administration • Contract manaaement services I ~

security, tech support, and the like-represent fixed costs. Whether you have 1 or 10,000 customers , those costs remain the same. With SaaS , you pay based on how many sales representatives you have , which to a large extent is determined by how many customers you have. If your customer base grows and you have to add addi- tional sales reps , then you pay by the month for those new people, making your costs variable.

Most all CRM software providers now offer two access methods to their software. Your organization can still buy the software license outright and host it in-house. Many large organizations with thousands of sales reps may choose to do this because it's more economical than the SaaS model. Second , you can use a SaaS model. You sign up and pay for the software as a service. To learn more about some of the better CRM software providers , we encourage you to visit the following (all of these offer a SaaS model:

• lnsideSales-www.insidesales.com • lnfosionsoft- www.infusionsoft.com • Aplicor-www.aplicor.com • SAP-www.sap .com • CDC Software-www.cdcsoftware.com • NetSuite- www.netsuite.com • Zoho-www.zoho .com • Microsoft Dynamics- www.microsoft.com/dynamics • SugarCRM-www.sugarcrm.com • Salesforce.com-www.salesforce.com • SalesBoom- www.salesboom.com • Sage Software-www.sagecrm.com • RightNow Technologies-www.rightnow. com • Oracle-www.oracle.com

AMERICAN RED CROSS AND CRM

Th e American Red Cross (usually referred to as just the

ed Cross) does indeed have customers, perhaps not in

he traditional business sense of selling products and ser-

vi ces to them, but the people who depend on the Red

Cross and its offerings during times of need and disaster.

Recently, the Red Cross chose Salesforce .com 's

hosted CRM solution to manage information related

t o its U.5.-based chapters, external partners, and inqui-

ri es for assistance worldwide. First and foremost, the

software allows the Red Cross to track and manage

information related to its thousands of volunteers all

over the world. Second, the software helps the Red

Cross manage and organize the tens of thousands of

inq uiries and requests for help it receives on an annual

basis. Even after the earthquake in Haiti, Salesforce .

co rn 's CRM system was able to handle the large spike in

requests without any interruption in service.

Within its 35 chapters in the U.S., the software has

been deployed to help the chapters organize and man-

age information related to their volunteers, training

events for volunteers, and all back-office functions . The

software and information for each chapter is literally

rolled up into a master system at Red Cross headquar-

ters so that planners on a national and international

scale can continually assess and identify locations of _. excess capability.

For organizations large or small and for organiza-

tions trying to make money or simply save the world,

hosted software solutions are often the way to go.

Hosted solutions ease the infrastructure and techni-

cal burden for many organizations. For the Red Cross,

it's about spending more money on disaster relief

because it spends less money maintaining in-house

software .6

Enterprise Resource Planning- Bringing IT All Together

To this point, we've considered the major business initiatives supply chain management and customer relationship management individually, focusing on the key strengths and

1 advantages of each. But in the business world , you will deal with the issue of integrating LEARNING OUTCOME 3 them and making them work together. Consider supply chain and customer relation- ship management: They must work together, sharing information. To create tight supply chains that provide the right products and services at exactly the right time, you must know what customers want and when they want it (the province of customer relation- ship management). That brings us to enterprise resource planning systems, also known as enterprise software. An enterprise resource planning (ERP) system is a collection of integrated software for business management, accounting, finance, human resources management, project management, inventory management, service and maintenance, rransportation, e-business, and-yes-supply chain management, customer relationship managemen t, and e-collaboration. It may sound like a long list (and it is), but the central no tion behind an ERP system is that it includes all technology systems and software in your organization.

ERP systems are big business. At the top of the IT spending list is the ERP mar- ·et. For instance, the U.S. federal government spent about $7. 7 billion on ERP prod- ucts and services in fi scal year 2009 , up about 37 percent from 2004 spending of

5. 6 billion. More than 60 percent of the Fortune 1000 companies have installed or are

45

46 Chapter 2 • Major Business Initiatives

Figure 2.7 ERP Vendors

r"'

Vendor/Web Address

SAP www.sap.com

Oracle/PeopleSoft www.oracle .com

In for www.infor.com

Microsoft (Great Plains) www.m icrosoft.com

ERP Specialties/Characteristics

Customer relationship management, financial management, human resource management, and supply chain management

Financial management, human resource management, and supply chain management

Customer relationship management, financial management, human resource management, and supply chain management

Financial management, distribution, manufacturing, project accounting, human resource management, and business analytics

Target Market

Large business

Large business

Large business

Small-to-medium business

in the process of implementing ERP sys tems to support their business activities. T h ese packages implemented by the Fortune 1000 companies run well over the IT budgets for most small-to -medium-size enterprises , and ERP vendors are targeting this untapped market with scaled-back systems suitable for smaller firms by offering simple, cheaper, preconfigured solutions easy to install within budget and time cons traints. For ins tance, Microsoft now offers an ERP solu tion (called Microsoft Great Plains) geared toward the small- to -medium-size company. 7,s

The dominating ERP software suppliers are SAP, Oracle/PeopleSoft, Inf or, and Microsoft (see Figure 2. 7). Together they control more than 70 percent of the multibillion-dollar global market. Each vendor, for historical reasons, has a specialty in one particular module area such as SAP in logistics, Oracle/PeopleSoft in financials, lnfor in manufacturing, and Microsoft in retail management.

There are also about 50 es tablished and a few more newly emerging smaller and mid- size ERP vendors including third-party d evelopers comp eting for the very lucrative ERP market. There is stiff competition and overlapping pro ducts that are difficult to differen- tiate. T he vendors are continually updating their products and adding new technology- based features. Long-term vision, commitment to service and support, specialty features , experience, and financial strength for research and development are considered the major vendo r qualities for product selection and implementation.

The ERP market has been growing at a rate of more than 30 p ercent p er year and mos t forecasts predict more of th e same. The growth of the ERP marke t has b een boos ted by both business and technical fac tors. With respect to business, the mos t cited reason is globalization, which has fos tered mergers and stimulated the creation of big corpora- tions with high information requirements that the former ind ividual information systems were not able to fulfill. Another factor is general market maturity in developed countries, which has fostered competition among all companies and increased the power of con- sumers , thus forcing enterprises to upgrade the efficiency of their bu siness processes.

Enterprise Resource Planning-Bringing IT AU Together 47

Finally, advances in information and communication technologies have made the devel- opment of ERP systems possible by allowing the database centralization to integrate with a distributed ERP environment.

T HE EVOLUTION OF ERP SYSTEMS

ER P systems replace " islands of information and processes" with a single, packaged -oftware solution that integrates all the traditional enterprise management functions such as financials , human resources , and manufacturing and logistics. Knowing the his- cory and evolution of ERP is essential to understanding its current application and its fu ture developments. To help give you a better perspective, let's review the evolution of ERP systems (see Figure 2.8).

The early stage of ERP was carried out in the 1970s through a system called Materials Requirement Planning (MRP). The focus of the MRP software was on internal produc- cion planning, calculating time requirements components, procurement, and materials planning. The MRP software did not focus on any type of service orientation, but rather was developed to provide the right materials at the right time.

MRP, or "little MRP," represented a huge step forward in the planning process. For che first time, based on a schedule of what was going to be produced, which was sup- p orted by a list of materials that were needed for that finished item, the computer could calculate the total needed and compare it to what was already on hand or committed to arrive. This comparison could suggest an activity-to place an order, cancel orders that were already placed, or simply move the timing of these existing orders. The real signifi- cance of MRP was that, for the first time, management was able to answer the question ·'when?"

The next generation of these systems was introduced by the early 1980s under the name Manufacturing Resources Planning or MRPJJ. MRPII did not mean that MRP was done incorrectly the first time, but rather that it had evolved. MRPII closed the loop with che accounting and financial management systems. MRPII systems crossed the bound- aries of the production functionality and started serving as decision support systems DSS) as well as executive information systems (EIS) (in the modern day many people

refer to implementations of these as digital dashboards). For the first time, a company could have an integrated business system that provided

,-isibility for the requirements of material and capacity. Good information leads to good d ecisions, and therefore these integrated IT systems provided a competitive advantage.

By the time each functional area of a company had developed its own software pro- i;rram, the need for tightly integrating them became obvious. The next major shift during ::he late 1980s and early 1990s was that " time to market" was becoming increasingly

Figure 2.8 Evolution of Enterp rise Resource Planning Systems

DSS & EIS CRM &SCM

I I MRP MRPll ERP ERPll

1970 1980 1990 2000

48 Chapter 2 • Major Business Initiatives

Figure 2.9 Overview of ERP System

.-

short. Lead times expected by the market continued to shorten and customers were no longer satisfied with the service level that was considered world class only a few years earlier.

The need to develop a tightly integrated system that would use data stored in com- mon databases and would be used enterprisewide became the highest priority for IT professionals. No longer was it tolerable to submit a request to the IT department and wait several months to obtain this critical information. This common-database, compa- nywide integrated system appeared at the beginning of the 1990s and was named enter- prise resource planning (ERP).

ERP encompasses all the resource planning for the enterprise including product design, warehousing , material planning, capacity planning, and communication systems. ERP systems help companies become leaner and more agile by integrating the basic transaction programs for all departments , allowing quick access to timely information.

ERP FUNCTIONALITY

In Figure 2.9, an ERP system allows transparent integration of functions, providing flows of information among all areas within the enterprise in a consistently visible man- ner. ERPs allow companies to implement a single integrated system replacing their legacy information systems. A legacy information system (LIS) represents a massive, long-term business inves tment in a software system with a single focus; such systems are often brittle, slow, and nonextensible. ERP systems are configurable information systems packages that seamlessly integrate all the information processes in the company within and across all functional areas- financial, accounting, human resources, supply chain, and customer information. The result is ( 1) integrated information across the board

Order Management Sa les Management

Sales Planning Pricing

Accounts Rece ivab le Accounts Payab le Cash Management

Forecasting General Ledger

Profitability Analysis

Payro ll Personnel Planning

Travel Expenses Training

Inventory Management Material Requirements

Plann ing Production Planning Project Management

Purchasing Shipping

Enterprise Resource Planning-Bringing IT All Together 49

, information , and business intelligence) , (2) one suite of applications , and (3) a · - ed interface across the entire enterprise. An ERP system is required to have the fol-

....-mg characteristics :

• ~odular design comprising many distinct business functions such as financial , manufacturing, and distribution.

• A centralized database that organizes and manages information.

• Integrated functions that provide seamless information flow among them.

• Flexible best practices .

• Functions that work in real time.

• Internet-enabled. 9

Different ERP vendors provide ERP systems with some degree of specialty, but the _ re functions are almost the same for all of them. Some of the core ERP functions found

rhe successful ERP systems are the following:

• Accounting

• Financials

• Manufacturing

• Production

• Transportation

• Sales and distribution

• Human resources

• Supply chain

• Customer relationship

• E-business

You need to realize that ERP systems will not improve organizations ' functionalities Yernight. The high expectation of achieving cost savings (below-the-line initiative) and

sen -ice improvements (leading to above-the-line revenue increases) is very much depen- ent on how good the chosen ERP system fits the organizational functionalities and how ell the tailoring and configuration process of the system matches with the business

culture, the IT culture, the strategy, and the structure of the organization. Overall, an ERP system is expected to improve both back-office and front-office functions simulta-

eously. Organizations choose and deploy ERP systems for many different benefits and reas ons. In many cases the calculation of return on investment (ROI) is weighted against :he many benefits expected.

I t may be a challenge for you to wrap your brain around the concept of an ERP S\-stem without first-hand experience in using one. But consider your school for exam- ple, which to a greater or lesser degree , has some form of an ERP sys tem. When you reITTster for classes, for instance , you may not be able to do so because of outstanding

arking tickets , overdue library books , an unpaid tuition balance , or a host of other rea- "'ons. And if you can register for classes , when you receive your tuition bill, it already mcludes allowances for government loans , scholarships , and the like . This is all possi-

le b ecause your school's individual IT sys tems-that each handle a different function ~ch as registration, parking, tuition financials , and loans and scholarships-are tied :ocrether in the form of an ERP system. Businesses in the private sector (and some pub-

c se ctor ones as well) attempt to do the same thing on a grander scale (see Figure 2.10 on the nex t page). These organizations integrate predictions of customer demands customer relationship management) into an ERP system to drive other functions such - fi nance , manufacturing, inventory, transportation, and distribution (with the latter

50 Chapter 2 • Major Business Initiatives

Figure 2.10 The Integration within an ERP System

,,..

4 jji~ ~ ~ Finance

~ ~ i

~ Manufacturing

Customers Service ~ Suppliers Enterprise System

t Inventory

Human Resources

four being an integral part of supply chain management). Organizations even attempt to predict the acquisition of human resource talent in light of existing human resource attrition and the need for increased human resource capacity based on predicted cus- tomer demands.

ERP SOFTWARE FOR MARKET SIZE

ERP software is " big" software, and by that we mean that it can cost an organization millions of dollars to acquire, install, and operate. But that doesn't mean that small busi- nesses can't take advantage of the power and capability of ERP software. Many ERP vendors choose niches in this expansive market based on the number of seats or users in an organization that will be using an ERP system. Below is a list of ERP software by number of seats.

• Small businesses-less than I 00 seats

• Microsoft Dynamics SL (http ://www.microsoft.com/en-us/dynamics/ products/sl-overview.aspx)

• SAP Business One (http://www.sap .com/sme/solutions/businessmanagement/ businessone/index. epx)

• Sage ERP X3 (http ://www.sageerpx3 .com/) • Exact Software EXACT ONLINE Solution (www.exact. com) • Intuit QuickBooks Enterprise (http ://enterprisesuite.intuit. com/ )

• Medium-size businesses-100-500 seats

• Microsoft Dynamics GP or NAV (http ://www.microsoft. com/en-us/ dynamics/products/gp -overview.aspx)

• SAP Business All-In-One (http ://www.sap .com/sme/solutions/ businessmanagement/businessallinone/index.epx)

• Infor ERP Solution (http ://www.infor.com/solutions/erp/) • Epicor ERP Solution for Mid-Sized Businesses (http ://www.epicor.com/

pages/default.aspx) • SYSPRO (http ://americas .syspro.com/) • Sage MAS 90 ERP, MAS 200 ERP, or Accpac Extended Enterprise Suite

(http ://www.sagemas.com/)

E BAY OFFERS END-TO-END SOLUTION FOR INTERNET RETAILERS

any businesses, large and small, want end-to-end

- lutions for Internet retailing. They simply want to

-ook up with an Internet giant offering basically a

.=., II-fledged ERP system that will allow them to run

- e Web-based portion of their business. Amazon has

:.lways been that giant but eBay is growing taller.

180 top brands and retailers including Aeropostale,

Timberland, Mattel, Zales, and Major League Baseball.

GSl's services include order management, fulfillment,

and shipping .

A ccording to John Donahoe, eBay CEO, "The num-

er of retailers, large and small, that have come to

... s saying 'We are grappling with how you deal with

o bi le commerce, we are grappling with how to deal

., a social-commerce world, we are grappling with

ow to do global' has been striking." In response, eBay

recen tly purchased GSI Commerce for $2.4 billion.

Electronic commerce is growing rapidly. In the

U.S . alone last year, e-commerce was expected to top

$176 billion with forecasted growth to $279 billion in

2015. But eBay's auction-style business• revenue growth

has been slower, up only 4.9 percent in 2010. John

realized that eBay growth was not sustainable to the

level of overall e-commerce growth. So, eBay is paying

$29.25 a share for GSI, or a 50+ percent premium, to

acquire a competitive position against Amazon. 10

GSI has created an ERP infrastructure specifically

esign ed for Web-based commerce. It assists more than

• Large businesses (Enterprise Editions )-more than 500 seats

• Microsoft Dynamics AX (http: //www.microsoft.com/en-us/dynamics/ produ cts/ax-overview.aspx)

• Oracle (http: //v·.rww.oracle.com/us/products/applications/ebusiness/index . html)

• SAP (http ://www.sap.com/solutions/business-suite/erp/index.epx) • Agresso Business World ERP Solution (http: //www.unit4.com/products/

agresso-business-world)

Social Media _ -o one can escape the reality, or the hype. Social media is all the rage right now, and prob ably will be for several years . Your technology-based life has most likely been spent iargely within social media. Most people your age visit Facebook numerous times a day, watch several YouTube videos, text messages, and send tweets. These are all examples of so cial media.

Social media is a collection of Web-based and mobile technologies that create true interactivity among users, most usually allowing users to be both creators and consum- ers of content. Social media is fueled by Web 2.0 technologies. The Web 2.0 is the so- called second generation of the Web and focuses on online collaboration, users as both creators and modifiers of content, dynamic and customized information feeds , and many other engaging Web-based services. In Figure 2.11 on the next page, you can see the p rogression of the Web using push versus pull technologies and static versus dynamic information. The early Web , what some people have retrospectively called Web 1. 0, was characterized by pulling static information. That is, you started your Web browser and -earched for (i.e., pulled) information you wanted. Most of that information was built into the Web page you found , making it static.

I LEARNING OUTCOME 4 I

51

52 Chapter 2 • Major Business Initiatives

Figure 2.11 Users become both consumers and creators

The Evolution of the Web Dynamic Information ~ of~otoot

.-

INFORMATION GATHERING •Pull - users research, find ,

request, and retrieve the information they want

•Pu sh - organizations provide users with customized, personalized, and timely information based on each user's individual profile

Pull

Static Information

Push

INFORMATION STATUS

• Static - snap-shot of information, usually built into the actual content of a Web page

• Dynamic - (near) real- time information retrieved from a live database as the Web pagEt is built

T he Web moved quickly then into a short-lived environment of pushing static infor- mation. This ushered in one of the dirtiest four-letter words in Web terminology, spam. In those days, your e-mail box was littered with spam, or junk mail, for everything rang- ing from phony lottery winnings, to sexual performance-enhancing drugs, to diapers, to pet food. The senders had no idea if you needed any of those , but your e-mail address made a list and you were forever on it.

Shortly thereafter, the Web moved into the upper-left quadrant (probably the mid to late 1990s), characterized by pulling dynamic information. This ushered in the explo- sion of, for example, stock-trading Web sites like E*TRADE and Scottrade (online) and travel sites like Expedia and Travelocity. Then, you could search for (i.e. , pull) real-time information about flights and stock quotes. This was the real birth of e-commerce on the Web.

Today, we are in Web 2.0, a time of active participation by consumers. It's also a time when businesses are getting good at pushing dynamic information to you, and it's infor- mation tailored to your needs. These include things like RSS feeds , recommendation engines on Amazon and iTunes, and even Facebook alerting you to people you might want to friend.

It would be impossible to cover every aspect of social media and how the world is using it in this book. Hundreds of books have been written on the subject. Thousands of conferences will be held this year in the United States alone focusing on social media. So, let's briefly explore a few of the many dimensions of social media.

SOCIAL NETWORKING

This is your world, namely that of social networking sites like Facebook. Broadly defined, a social networking site is a site on which you post information about your- self, create a network of friends , read about other people, share content such as photos and videos, and communicate with people. According to its own site, Facebook has more than 750 million users. Of those, 50 percent are on Facebook at least once a day. The average Facebook user has 130 friends. In total, users spend over 700 billion minutes per month on Facebook. In any given minute of any day, there are more than 16 million people on Facebook.11 If you've never been on Facebook (a slim chance) ,

Statcounter Global Stats Top 7 Social Media Sites from Mar 10 to Mar 11

StumbleUpon

Twitter (Brown)

" the student next to you to show you his or her Facebook page. Chances are that - she has one. On Facebook, you basically share everything you want about your -e (stories, videos, photos, thoughts) , make friends and get rid of friends (called ifriending) , connect with other people who have similar interests , follow artists, usi cians, and the like, and even visit the Facebook pages of retailers where you can

· merchandise. Facebookhas only a few competitors but they are not nearly so big (see Figure 2.12).

- aimbleUpon, the closest, is a form of social networking that recommends videos, ho tos , and Web pages to people based on their likes and the likes of other people iillilar to them. Then you have YouTube, a very popular site for sharing and com- en ting on videos. YouTube boasts over 15 billion videos and over 200 million

"ewers (in the U.S.) . Twitter gets a small mention here , although it did announce in ·d-2011 that it was handling over 200 million tweets per day. 12 A " tweet" is a form ~a microblog and allows you to send and receive text messages of roughly 140 char- cers or fewer. Google, in mid-2011, announced its rival to Facebook called Google+. While still in

~ beta stage when we wrote this text, Google has announced a few important features . ....oogle+ will have Sparks, a referral system designed to offer you highly customized

ntent based on your interests. It will also include a feature called Hangouts, which .,- you connect with your Circles (groups of people you've identified) via live video

t. Finally, it will have Huddle, a group messaging service that allows you and multiple ::iends to have a conversation on your phone. We'll have to wait and see if Google can

ccessfully compete against Facebook. T he only real legitimate competitor to Facebook is Linkedln. Linkedln is the profes- nal equivalent of Facebook. While you use Facebook to share your personal life, you uld use Linkedln to share your professional life, including making contacts for po ten- , employment,joining interests groups like international finance, making connections other companies for sales purposes, and so on. In early 2011 , Linkedln announced l it had surpassed 100 million users. 13

Social Media 53

Figure 2.12 The Competitive Space for Social Socializing 14

54 Chapter 2 • Major Business Initiatives

.-

SOCIAL SHOPPING

Shopping, for a lot of people, has always been a social experience-to see what other people are buying and wearing, try to find the same, and perhaps inform others of where the best deals are. Within social media, those are still the same, only greatly amplified and augmented by other activities. Almost all retailers now sell their products and ser- vices on Facebook. On a user's Facebook page, he or she can talk about purchases and even send recommendations to a friend. These are typical shopping activities, but now you can perform them with hundreds or even thousands of friends watching your every move.

Pepsi has developed a unique social shopping experience with its social vending machines. 15 Using one of these machines, you can enter another person's information-cell number, name, and optional message- and then buy them a beverage. The other person receives a code via text message that he or she can use at a Pepsi social vending machine to redeem a beverage. Senders of beverage gifts can even participate in what Pepsi calls "Random Acts of Kindness." In this , the sender sends a beverage to an unknown person, for example, in an area struck by had weather.

Bartab, an initiative of Wehtab, offers a similar service for purchasing an alcoholic drink for a person at a bar or restaurant. As the sender of the drink gift, you pay $1 and provide the person's information. That person receives a coupon via e-mail through Facebook that he or she can then show the wait staff at a bar or restaurant to receive the drink. The receiver of the gift drink must pay the establishment $1 when redeeming the coupon.

And then there are social shopping services like those of Groupon. Groupon, and many other daily-deal type social shopping services, offers 50 percent to 90 percent dis- counts on products and services from a business for a short period of time. The goal is to get hundreds or thousands of people to take advantage of the deal. Groupon takes a cut of the money, the business gets tremendous exposure within Groupon's membership , and the business drives a lot of traffic to its location (virtual or physical).

SOCIAL PLAYING

Playing games within social media has been a strong trend for several years, and no doubt gaming mechanics and concepts will find their way into traditionally nongame environ- ments such as education. We refer to these game systems as MMORPGs, or massively multiplayer online role-playing games, games in which thousands or perhaps millions of people play and interact in a robust virtual world. World of Warcraft and Second Life are two well-known examples.

World of Warcraft boasts over 11 million users and is the largest MMORPG. 16 In it, each player controls an avatar in a fantasy world of science-fiction type monsters , uberwarrio rs, and other types of mythical creatures. Each player completes quests , a series of tasks or steps in a mission. What truly makes these games "social" is the fact that it' s more than just a game. Users can virtually gather and meet in groups; they can trade treasures they've earned in the game; they can spend real dollars to buy Wo W gold and then use that gold in the game to buy better equipment for an avatar. This truly is a robust virtual world, complete with the characteristics of a free-enterpris e economy.

Second Life is similar in many respects. Second Life isn't a game but rather a vir- tual world in which you can live a virtual life. You have an avatar. You can buy and sell property, both residential and commercial. You can open a business to sell products and services. Like Wo W gold, Second Life has currency called Linden dollars. You use these in the game and can convert them into real cash.

~zynga·

Finally, there is Zynga, a social network game developer. Its portfolio of popular social etwork games includes:

• Cityville

• Empires & Allies

• Farmville

• Frontierville

• Mafia Wars ,

• Zynga Poker

• Words with Friends

" · e World of Warcraft, Second Life, and most other social gaming environments, each ~ Zynga's games offers a virtual world, complete with an economy for buying, selling, d trading virtual goods. Zynga offers a total of 58 different games, many exclusively ough Facebook. As of June 2011, over 270 million people were playing Zynga games

::a Facebook. 17

OCIAL "SAVING THE WORLD"

- tainability and the triple-bottom-line are both important in today's business envi- nment.Just as you read about Frito Lay Canada earlier and its desire to be more eco-

-endly with its fleet of trucks in supply chain management, all organizations are seeking . -s to build sustainable practices and processes that address the needs of the three Ps:

eople, Plant, and Profit. (These are the "triple" in triple-bottom-line and considered to rhe three pillars of sustainability.)

Social Media 55

Figure 2.13 Virtual Games for Social Playing

56 Chapter 2 • Major Business Initiatives

Figure 2.14 Help Save the Planet at Volkswagen's Fun Theory

.-

Thefuntheory com This site is dedic" ted to the tho~t that somethi~ as simple as fun !i the easiest wav to chanie people's

beh4vlour fo r t he better . Be it fur y ounelf, fur the enviromnent, or for ..om ethin1 entirely diffi!:re nt , the

only thin& th.\t m«tten: is tM.t it's chanie for the better .

H<>nM • Fun tt.-ry owoul • finol;sh • Show C>WO•d .,,.,,1~,. •

5ttl1PW\'olksw1pwe theflm~·

bod.....,, DL~.~~.QH.

li~-~1hi10J1(~KloQI,. Bottle Bank Arcade- TheFunTheory com [ Rohghe ..

1"'"'~-.: .. ~ -

® An iflili<ili¥• of Volhwog..,

The Speed Camera Lottery

The winnin1 idea of the fun theory award, submitt ed by Kev in Richardson, USA . Cdn we s:et more people t oobey thespeed limitby mo.kini It fun to do ? This w4s the question l<evln's idea answered and !twas"° 1ood that Volkswaze n , together with The Swedish Nltional SCleiety for Ro.d Safety, <lctu.s.lly made this lnnov11 tive idea"' reality in Stockholm ,SWeden.

Bottle Bank Arcade Mach ine

To achieve this , there is an emerging aspect to social networking that encourages people to create sustainable ideas. Many organizations have turned these into games , complete with prize money for the top innovators. Some of the more popular are:

• The Pepsi Refresh Project-contests in the areas of education, arts and music, and communities. Pepsi provides funding for the winners to implement their ideas.

• Toyota Ideas for Good-contests that require entrants to apply existing Toyota technologies to other environments (nonautomotive) for the betterment of people or the planet. For example, one contest winner applied Toyota' s crash-test dummy technology to the head injuries that can occur in football to design better helmets and shoulder pads.

• Volkswagen Fun Theory- contests to change the behavior of people for the betterment of society in general (See Figure 2.14.) One entrant overlaid a piano keyboard on a set of stairs, with each step playing a musical note when stepped on. This encouraged people to take the stairs instead of a nearby escalator.

• TOMS One-for-One- buy a pair of shoes and TOMS will give away a pair to a person in need. Also, buy a pair of sunglasses and TOMS will pay for the surgery to repair the sight of an individual in a third-world country.

• Epic Win- a proposition by Jane McGonigal that all the world's problems should be converted into social-media typ e games. Gamers would compete to solve a problem,just as they compete in World of Warcraft, for example, to complete a quest.

SOCIAL LOCATIONING

Social locationing is an interesting phenomenon. Also called location-based services, social locationing is the use of a mobile device and its location (as determined by GPS) to check into locations such as businesses and entertainment venues, find friends and their locations, and receive rewards and take advantage of "specials" based on loca- tion. Popular social locationing systems include Geoloqi, Facebook Places, SCVNGR, Google Latitude, Foursquare, and Gowalla.

l' M ON FACEBOOK; SELL YOUR PRODUCTS THERE

er 750 million people have Facebook pages. And

an y of them think it inconvenient to leave their

=ac ebook world and go shop on a retailer's Web site.

any social media gurus believe that shopping on

· etailer Web sites will soon become a thing of the

ast. According to Janet Fouts, a social media coach,

Ex pecting people to come to your Web site is expect-

g them to make an extra effort. They're already on

include more than content; they are building entire

stores on Facebook. Express, an apparel chain, is a good

example. On its Facebook page it sells its entire line.

Inventory calculators keep counts up-to-date and can

inform customers of stockouts and backorders.

=ace book." Fouts goes on to explain, "It's social net-

·or ks like Facebook that are the center of people's

es. It's where their friends are. It's where they play

;;ames. And it's increasingly becoming where they

5 op."

Retailers have not ignored this trend. In droves,

· etailers are beefing up their Facebook pages to

Think of selling on Facebook as the ultimate in

convenience for a generation glued to their mobile

devices and their Facebook pages. The old adage of

"location, location, location" still ho Cls true but with

a slight difference. Now, retailers are setting up shop

at the customer's location, and that's Facebook to a

great extent. In the physical world large retail malls are

located in densely populated areas. Well, Facebook has

750 million people. It makes sense to build your shop

there. 18

Foursquare is the most popular. In it, you check into a location (i.e., business, school, c-c.) using your smartphone. If you check in more consistently than anyone else, you become the Mayor, which may entitle you to discounts and other special deals . You can CTeate a circle of friends, enabling them to see where you always are.

:\1ost social locationing systems allow you to explore the area around you. You can search for different types of restaurants, read others' reviews of entertainment events , IDd explore the physical world around you in many other ways via your smartphone.

T hese types of systems have come under close scrutiny because of the amount of ::nformation they provide about a person. Other people can see instantly when you check

at a location. Well, if you're there, you're not at home. And there have been reported ~ ories of criminals using locationing systems to determine when a home is empty (by

owing that you have checked in someplace else). You can easily figure out the rest f that scenario. Still others are concerned that companies like Foursquare are gather-

.nu too much information about a person, namely their locationing habits. To be sure, e will probably see more and more legislation aimed at limiting the amount of private ormation these systems capture and share.

_-._!rain, these are just a few of the many dimensions of social media and social network- u . o doubt, you use social media to network in other ways we haven' t mentioned ere. You probably visit social media sites like shopkick, IMVU, Cafe World , Mall -o rld , and Yelp. Almost every commercial on TV is uploaded to You Tube to get more

_ews. Many companies, in TV commercials and other media assets , now advertise eir Facebook pages instead of their own Web sites. You may h ave used social media uather information on potential colleges and universities to attend. The business rld is frantically moving into the social media space hoping to avoid FOMO, the fear

57

58 Chapter 2 • Majo r Business Initiatives

SUMMARY: STUDENT LEARNING OUTCOMES REVISITED

('

1. Define supply chain management (SCM) systems and describe their strategic and competitive opportunities. A supply chain management (SCM) system is an IT system that supports supply chain management by automating the tracking of inventory and information among business processes and across companies. Strategic and competitive opportunities for SCM systems include:

• Overall cost leadership (Porter) , running the organization (RGT framework) • Fulfillment-right quantity of parts or products at the right time • Logistics- low cost of transporting materials • Production- ensuring production lines run smoothly • Revenue and p rofit- no sales are lost • Cost and price-keeping part costs down and product prices at acceptable

levels

2. Define customer relationship management (CRM) systems and describe their strategic and competitive opportunities. A customer relationship management (CRM) system uses information about customers to gain insights into their needs, wants, and behaviors in order to serve them better. Strategic and competitive opportunities for CRM systems include:

• Differentiation and fo cus (Porter) and growing the organization (RGT frame - work)

• Devising more effective marketing campaigns • Assuring the sales process is efficiently managed • Providing superior after-sale service and support

3. Explain the significance of enterprise resource planning (ERP) software as the integration of functional software systems. An enterprise resource planning (ERP) system is a collection of integrated software for business management, accounting, finance , project management, SCM, e-collaboration, and a host of other business functions. The basic goal of an ERP system is to provide ( 1) integrated information (data, information, and business intelligence), (2) one suite of applications, and (3) a unified interface across the enterprise. An ERP system replaces legacy systems and seamlessly integrates all functional software systems within an organization.

4. Define social media and describe a few of its many dimensions that make it important in the business world. Social media is a collection of Web -based and mobile technologies that create true interactivity among users, most usually allowing users to be both creators and consumers of content. A few of its dimensions include:

• Social networking- gathering with friends and family on social networking sites like Facebook and sharing everything about your life.

• Social shopping-technology-enabled shopping through sites like Groupon and buying other people gifts through the likes ofBartab and Pepsi social vending machines.

• Social playing-participating in large, multi-user games or MMORPGs, which provide a large robust economy complete with a variety of commerce activities.

Closing Case Study One 59

• Social "saving the world"-competing in contests to address important issues regarding the environment and the betterment of people and their behavior.

• Social locationing, or location-based services-using a mobile device and its location (as determined by GPS) to check into locations such as businesses and entertainment venues, find friends and their locations, and receive rewards and take advantage of"specials" based on location.

Coca-Cola Is Everything: SCM, CRM, ERP, Social Media, You Name It

If we told you that Coca-Cola had operating units in

50 countries around the world, you probably wouldn't

be surprised. If we told you that Coca-Cola had been in

business for almost 125 years, you probably wouldn't

be surprised. So, you tell us ... how many different

beverages does Coca-Cola produce? 100? 500? 2,000?

A re you surprised yet? Worldwide, Coca-Cola produces

an amazing 2,800 different beverages.

When an organization is that big, has that sort of

w orldwide presence, and boasts what is perhaps the

most well-known brand ever, you can bet that a multi-

t ude of IT systems are constantly churning in the back-

ground, not only keeping the organization running,

but also keeping it running ahead of the competition.

To support internal collaboration efforts, Coke

cr eated something it calls its Common Innovation

Fr amework, a Web-based system that combines project

management capabilities with business intelligence.

Using the Innovation Framework, anyone from any of

t he operating units worldwide can search for, find, and

apply concepts: strategies, development successes, and

marketing approaches that have been used elsewhere

in the organization. For example, when introducing

Georgia teas in Australia, the Coke people Down Under

can research what marketing strategies worked well in

related countries such as New Zealand. As Jean-Michel

A res, Coke CIO, explains it, "Once you've aggregated

t hat pipeline of innovation, the object is to assess

and prioritize the best allocation of resources in the

organization ."

Beyond internal employees, Coke is reaching out

w ith new and innovative IT steps. Recently, it rolled

ou t a new line of software services based on hundreds

of business processes to its extended family of bot-

tl ers. These software services each perform a specific

co mmon business function and run within SAP's ERP

software and are delivered by Coke's IBM-hosted data

centers. The goal is to create a standardized business

and technology platform across all Coke bottlers, most

of which are independent franchises. (There are some

partly owned by Coke .) If Coke and all its bottlers are

speaking the same language, so to speak, and using

the same technology, then supply chain management

applications will be the more efficiently streamlined.

Standardization in this case equates to saving money by

reducing expenses associated with supply chain activities.

And even beyond its extended family of bottlers,

Coke is using social media technology to create loyalty

and engage more with its customers. Its award-winning

Web site, My Coke Rewards at www.mycokerewards.

com , is the second most popular consumer packaged-

goods site, behind only www.kraftfoods.com . My Coke

Rewards attracts some 300,000 visitors per day. Offering

everything from magazine subscriptions to electron-

ics as prizes (just look under your bottle cap), My Coke

Rewards has reconnected Coke with its loyal drinkers.

The site has teamed up with pop culture crazes such

as American Idol, soccer, and auto racing to bring even

more consumers into the fold. You can even find Coke-

labeled songs through iTunes. Over 32 million people

"like" Coke on Facebook. 19

Questions

1. Why is standardization so important in supply

chain management? Coke is developing its own

set of software services for bottlers to use. Do

you think Coke charges the bottlers for these

software services? Why or why not?

2. How is My Coke Rewards an example of a

switching cost? How can a switching cost not

have a monetary penalty associated with it?

60 Chapter 2 • Major Business Initiatives

3. What sort of business intelligence could Coke

gather from its My Coke Rewards Web site?

How could it use this information for customer

relationship management activities?

4. Visit Coca-Cola's Facebook page. Can you buy

Coke products there? What social media tools

are present that allow you to communicate

with Coca-Cola?

5. Now, visit Pepsi's Facebook page. Compare and

contrast it to Coca-Cola's Facebook page. Which

has more eye appeal? Which seems to have

more activity? Why do you think this is true?

The Business of Social Media and Making the ROI Case

So, what does social media mean for a business? How

can a business take advantage of social media? How

can a business measure the benefits of its social media

strategy and quantify its return on investment (ROI)?

These are the very questions with which businesses are

wrestling. Social media as a business tool is still very

much in its infancy. Some businesses, oddly enough,

haven't yet taken the leap into the social media space.

However, by 2012, eMarketer predicts that 88 percent

of all businesses with at least 100 employees will use

social media within their marketing strategies.

Let's look first at how to measure the ROI of a

social media strategy. Return on investment (ROI) is

another great financial tool for you to learn; it sim-

ply compares benefit to cost. There are definitely costs

associated with a social media strategy. Just a few of

those would include hiring a person to keep content

fresh on a Facebook page, hiring a person to provide

timely responses on a company blog, hiring a Twitter jockey (a person who focuses on the use of Twitter to

communicate with customers, sponsors, business part-.- . ners, and the like) to send company tweets about spe-

cials and new products/services, and so on. Below are

some ways to measures the benefits of a social media

strategy.

1. Bottom Line Revenues-This is a key indicator.

After implementing a social media strategy, can

you tie increases in revenue to that strategy?

If you create a Facebook page for selling your

products/services, what revenue are you now

driving through your Facebook page? Have

revenues through other outlets (your Web

site and your physical store) stayed the same

or declined by the amount you now receive

through your Facebook page?

2. More Analytics-Social media represents

another customer touch point. At each touch

point, you can gather invaluable information

for making better decisions. After visiting your

company blog, to what sites do your customers

go? How long do your customers spend on your

Facebook page looking at but never buying

your products? For those who have friended

you on Facebook, how many have subsequently

purchased something? How many are repeat

customers? How many people tweet "bad"

things about your company? Is that increasing

or decreasing?

3. Increased Traffic-An important goal of social

media is to drive traffic to your organization .

After starting an extensive Twitter campaign

(with tweets including your Web site or

Facebook address), how much more traffic are

you now seeing? After creating a Facebook

presence, how many people are going from

your Facebook page to your Web site to buy

merchandise?

4. More and Better Relationships-Business is

about relationships. Has your social media

strategy allowed your organization to create

relationships with new customers, suppliers,

and business partners? How often do you

use social media to engage these people in

conversations? (This is a surrogate measure for

the quality of the relationship. The more you

talk to someone the better the relationship.)

5. Increased Brand Awareness-Brand awareness

growth can be an important focus for social

media efforts. How many new customers

did you gain after creating a social media

presence? How many people are talking about

your organization via Twitter? How many

views on YouTube are you getting for your

infomercials?

For your social media efforts to be successful, you

u st carefully determine your social media strategy.

ow, strategy will be different for each organization,

ut below we list a few steps to success using social

edia that any organization can follow.

1. Clearly Identify Goals and Objectives-Of course, this is true for any business initiative . As

Yogi Berra once said, "If you don't know where

you're going, you might end up someplace

else." Explicitly identify your goals; don't say

"increase in sales," but rather say "increase in

sales by 10 percent."

2. Think Quality, Not Quantity-Again, another solid truism for any business initiative. Quality

will create deep and meaningful relationships

with customers and business partners, and that

translates into long -term, sustainable profits.

3. Build Compelling Social Media-Present important information in eye-appealing and

eye-catching ways. Use images to tell your

story. Don't blog or tweet if you have nothing

new to say; find something new to say and

reach to your audience in a compelling way

with your message.

4. Use Social Media as a Market Research Tool- Gather feedback using the many Web 2.0

technologies. If you're the only one talking,

the communication is a one-way street. Enable

KEY TERMS AND CONCEPTS

Back office system, 43 Cu stomer relationship management (CRM)

system, 40 Distribution chain, 36 ent erprise resource planning (ERP) system, 45 Fro nt office system, 42 Information partnership, 39 Int er-modal transportation, 37 Just-in-time, 37 eg acy information system (LIS), 48

M assively multiplayer online role-playing game (MMORPG), 54

Key Terms and Concepts 61

your customers to talk back and share their

experiences, likes, and dislikes.

5. Take Advantage of Analytics-Gather hard

data on every social media communication.

Even if your organization doesn't currently use

some of that data, store it for future use. Data

is king-don't ever throw it away. 20• 21

Questions

1. Let's suppose your current annual sales are

$1 million . You implement a social media • strategy and begin generating $200,000 in

revenue through your Face book page. At the

end of the year, your sales are still $1 million.

Was your social media strategy successful? Why

or why not?

2. Every social media strategy costs money to implement, and we listed a few of those costs

in this case study. Create a more comprehensive

list of social media strategy costs. Briefly

describe each cost and identify it as either a

fixed cost or a variable cost.

3. Suppose you have a successful business with a well -liked product. One day something goes

wrong and you ship 100,000 defective products.

Almost the entirety of your customer base is

disgruntled. What social media strategy would

you employ to help? Why? Would you be

better off just "waiting for it to blow over" or

even "sticking your head in the sand"?

4. In the case study, we listed five steps to success. Identify two others and briefly describe them.

Multi -channel service delivery, 40 Sales force automation (SFA)

systems, 40 Social locationing (location-based

services), 56 Social media, 51 Social networking site, 52 Software-as-a-service (SaaS), 43 Supply chain management (SCM), 36 Supply chain management (SCM) system, 36 Twitter jockey, 60 Web 2.0, 51

62 Chapter 2 • Major Business Initiatives

• SHORT-ANSWER QUESTIONS

1. Why is the traditional buy-hold-sell inventory model an expensive and potentially risky one?

2. What is the role of a supply chain management (SCM) system?

3. How does SCM fit into Porter's three generic

strategies?

4. What are the typical functions in a CRM

system?

5. How does CRM fit into the RGT framework?

6. What is the difference between front-office

and back-office systems?

- ---· ASSIGNMENTS AND EXERCISES

1. WALMART'S SCM SYSTEM Walmart is famous

for its low prices, and you may have experienced

its low prices first-hand. At least, you have

probably seen its motto, "Always Low Prices-

Always." One of the biggest reasons Walmart is

able to sell at prices lower than almost everyone

else is that it has a superefficient supply chain. Its

IT-enabled supply chain management system is

the envy of the industry because it drives excess

time and unnecessary costs out of the supply

chain. So, because Wal mart can buy low, it sells

low. As a matter of fact, if your company wants

to sell items to Walmart for it to sell in its stores,

you will have to do business with it electronically.

If your company can't do that, Wal mart won't

buy anything from you. Log on to Walmart's

Web site (www.walmart.com ), search for supplier

information, and find out what Walmart's

requirements are for its suppliers to do business

with it electronically. Prepare a brief summary of

its requirements for presentation in class.

2. REAL WORLD APPLICATIONS In the chapter

we mentioned that many CRM installations

have been less than successful. On the other

hand, there are many satisfied users of CRM

applications . Log on to the Internet and find

at least three examples of companies that are

getting real business benefits from their CRM

systems. Prepare a report on the results they

are getting and the ways they achieved them.

One place to start your search is at www.

searchcrm .com . Another good source is the

Web sites of CRM application software vendors

Siebel and Salesforce .com (www.siebel.com

and www.salesforce.com). At least one of your

7. What is an enterprise resource planning (ERP)

system?

8. What is software-as-a-service? What are its

advantages?

9. What is the relationship between social media

and Web 2.0?

10. What are massively multiplayer online role-

playing games (MMORPGs)?

11. What are some popular social locationing

systems?

examples must be from a site other than the

three mentioned.

3. ERP FOR THE SMALL BUSINESS Most major

ERP vendors have been focusing on selling

multimillion dollar installations of their

software to very large organizations. That is

shifting in focus somewhat as ERP vendors

realize that the small-to-medium-size business

market is probably just as large. Search the

Internet for ERP vendors that focus on small-to -

medium s"ize bus.messes. A'1so, searc'n tm open- source ERP software. Prepare a short report fo r

class presentation and offer the vendors that

you found and their Web site addresses.

4. SET UP A BLOG Connect to any of the many

sites that offer blog services and create a blog.

The content doesn't really matter; simply go

through the steps to create a blog . Which blog

site did you choose to use and why? What is

the registration process? How can you advertise

your blog to other people? Why must biogs be

constantly updated with new content?

5. START LOCATIONING WITH FOURSQUARE Sign

up for the services of the social locationing

service Foursquare. (After completing this

assignment, you can delete your account

immediately.) Do some playing around to

learn the features of the system, check in at

a few places, and wander around (virtually) .

What deals or specials did you find near your

location? What is the concept of a Mayor?

What privileges do Mayors have? How can you

add friends? Do you have to upload a photo?

What's your overall view? Is social locationing

good or bad?

DISCUSSION QUESTIONS

1. Do you think your school would benefit from

installing a customer relationship management

(CRM) system? How might it benefit you as a

student? How could it benefit your school?

2. In the run-grow-transform (RGT) framework,

the third component is transformation,

or enabling your organization to operate

in entirely new ways. Of the three major

business IT applications we discussed in this

chapter (supply chain management, customer

relationship management, and social media),

which one(s) do you believe most support

organizational transformation? Justify your

answer.

3. We noted that it is extremely difficult to

measure the success of a CRM system prior

CHAPTER PROJECTS

GROUP PROJ ECTS

• Executive Information System Reporting:

Political Campaign Finance (p. 288)

• Developing an Enterprise Resource Planning

System: Planning, Reporting, and Data Pro-

cessing (p. 299)

• Evaluating the Next Generation: Dot-Com

ASPs (p. 301)

• Building a Scheduling Decision Support Sys-

tem: Airline Crew Scheduling (p. 306)

• Assessing the Value of Supply Chain Manage-

ment: Optimizing Shipments (p . 309)

Chapter Projects 63

to its implementation and use. Why do you

believe this is so? What can organizations

do to develop measures of success before

implementing a CRM system?

4. In 10 years, will Facebook still be ~o popular

and so dominant? What competitors/might /

overtake it? What are substitute product~ to

social networking sites like Facebook? /

5. Do you think ERP software is available through

the software-as-a-service (SaaS) model? Do

some research and find out? What were the

results of your research? If ERP is available

through Saas, who are the leading providers

in this space? Who benefits more from SaaS-

delivered ERP, small businesses or large

businesses? Justify your answer.

E-COMMERCE PROJECTS

• Consumer Information (p. 310)

• Meta Data (p. 311)

• Demographics (p . 312)

• Bureau of Labor and Statistics (p. 312)

• Gathering Competitive Intelligence (p. 313)

• Gold, Silver, Interest Rates, and Money

(p. 316)

• Global Statistics and Resources (p. 316)

• Small Business Administration (p. 319)