IS 340

Management Information Systems

Chapter 7 – Notes

Enhancing Business Processes Using Enterprise Information Systems

I. Case Study – Managing in the Digital World: Amazon.com (They Wrote the Book on Gaining Business Intelligence from Information Systems) – from a garage-based Internet book seller to one of the world’s largest retailers in 12 years.

Innovation! Customer-centric; Attract and Retain Customers!!!

II. Core Business Processes and Organizational Value Chains

Traditionally, four (4) distinct Functional Areas around which firms are organized:

1. Marketing and Sales

2. Supply Chain Management

3. Accounting and Finance

4. Human Resources

However, most business processes cross the boundaries of these functions, so think in terms of the Customer’s point of view; i.e., BE CUSTOMER CENTRIC!!!

A. Core Business Processes

1. Order-to-Cash – the processes associated with selling a product or service

2. Procure-to-Pay – the processes associated with procuring goods from external vendors

3. Make-to-Stock/Make-to-Order – the processes associated with producing goods to place in stock (sales orders will be filled from inventory; a push-based approach), or to fill a specific (already placed/received; a pull-based approach) order

B. Organizational Activities Along the Value Chain

Value Chain – the set of business activities that add value to an end product;

1. Core (Primary) Activities – functional areas in an organization directly related to the product or service

a. Inbound Logistics Activities - activities associated with receiving/stocking raw materials, parts, products

b. Operations and Manufacturing Activities – activities involved in turning raw materials and component parts into final products

c. Outbound Logistics Activities – focused on distribution of finished products

d. Marketing and Sales Activities – facilitates pre-sales activities

e. Customer Service Activities – focuses on post-sales activities

2. Support Activities – activities that enable primary/core activities to take place

a. Administrative Activities – processes and decision-making of day-to-day activities of an organization

b. Infrastructure Activities – focuses on the hardware and software needed to support applications used by primary activities

c. Human Resource Activities – activities related to employee management

d. Technology Development Activities – design and development of applications that support primary business activities

e. Procurement Activities – purchases of goods and services required as inputs to primary activities

C. Connecting Organizational Value Chains

Value System – formed by connecting a firm’s internal value chains with those of external suppliers, business partners, and customers so that information flows between and through the various value chains

1. Upstream Information Flow – information received from another organization

2. Downstream Information Flow – information produced by a firm and sent to another organization

p. 289 – Inset – Ethical Dilemma – Too Much Intelligence? RFID and Privacy – RFIDs can be read by anyone with an RFID reader, so anyone can tell where you bought something, the purchase price, or any other information stored on the RFID tag; some states working on laws to prohibit anyone reading an RFID tag except the firm that placed the tag on the item

III. Enterprise Systems

Packaged Systems – Written for the needs of many different users and organizations

Custom Applications – Designed and developed exclusively for a specific organization; more expensive than packaged systems but focus on problems not addressed by packaged systems

Stand-Alone Systems – focus on needs of a particular user/firm; not intended to communicate with other systems in the organization

Legacy Systems – older systems approaching the end of their useful life, require substantial resources to maintain them. However, it is too expensive or difficult to just replace these systems because many of them are part of a firm’s core systems and are used extensively. (NOTE: COBOL does NOT necessarily mean Legacy! Firms are still developing new systems in COBOL because of what COBOL is/does.)

A. The Rise of Enterprise Systems – Stand-Alone and Legacy systems do their intended jobs well, but incorporating them into enterprise-wide systems provides information to the organization and makes organizational information available to these systems, improves organizational effectiveness and efficiency to facilitate business processes and decision making. Enterprise systems come in a variety of shapes and sizes with differing sets of features and functionality. Managers must be aware of their firm’s needs and the futures of a given enterprise system, then decide if that system is right for their firm.

B. Supporting Business Processes – may be internally or externally focused, increases competitive advantage by streamlining business processes. Competitive Advantage can be accomplished here by integrating multiple businesses processes in ways that enable a firm to meet a wide range of unique customer needs.

Internally Focused Systems – support functional areas and decision-making within the business

Externally Focuses Systems – coordinate business activities with customers, suppliers, business partners outside the organization

Interorganizational Systems (IOS) – communicates across organizational boundaries

1. The Need for Integrated Enterprise Systems – firms can gain competitive advantage by integrating stand alone and legacy systems so that their information is available to the entire organization.

2. Improving Business Processes Through Enterprise Systems – ERP systems are available in a variety of types and may support different business processes; firms can choose to purchase/use only the modules that they need for their particular purposes

a. Vanilla vs. Customized Software

1. Vanilla Version – the system as it works right out of the box with no changes

2. Customized – the system after being customized to a user’s particular needs

b. Best Practices-Based Software – incorporating an industry’s best practices into the ERP system

c. Business Process Management –

1. Business Process Management (BPM) – a systematic structured improvement of an organization by critically examining, rethinking, and redesigning business processes to achieve dramatic improvements in various measures, e.g., quality, cost, etc.

2. Business Process Reengineering (BPR) – the previous name for BPM (according to the authors, who have a habit of renaming things when nobody else does)

NOT IN TEXT: components of Business Process Reengineering (BPR) – changing the way a business “does what it does”

1. Restructuring – small changes; doing the same as before, but doing it better

2. Reverse Engineering – taking a product or process apart to see what it is/how it works; 2 key ideas: Understanding (to use now) and Documentation (for future reference)

3. Re-Engineering – big changes; doing what you did in a completely new way; may lead to new products or services

Continuous Process Improvement (CPI) – making small changes all the time (rather than large changes every once in awhile)

Total Quality Management (TQM) – managing the Quality of your product/service; there is a definite Cost to Quality and you need to manage that quality to manage your Costs; (TQM is NOT the quality of a firm’s Management)

IV. Enterprise Resource Planning (ERP) – applications that integrate business activities across departmental boundaries

A. Integrating Data to Integrate Applications – ERP makes data available to all areas of the organization (as opposed to Stand-Alone systems)

B. Choosing an ERP System – ERP systems are different, choose one that fits your needs

1. ERP Control – control of business processes may be centralized or distributed to the business units

2. ERP Business Requirements – which ERP components does a firm want to implement?

a. ERP Core Components – support the firm’s important Internal activities

1. Financial Management – accounting, financial reporting, performance management, corporate governance

2. Operations Management – simplify, standardize, and automate business processes to improve collaboration and decision-making

3. Human Resources Management – employee recruitment, assignment tracking, performance reviews, etc.

b. ERP Extended Components – support the firm’s External activities, specifically CRM and Supply Chain Management

C. Enabling Business Processes Using ERP Core Components – ERP is usually implemented in a series of modules that build up the ERP core components

1. Order-to-Cash – processes related to selling goods or services

2. Procure-to-Pay – acquiring the goods to be sold

3. Made-to-Stock/Made-to-Order – making goods to be shelved for later sale/making goods in relation to a specific order already placed and waiting to be filled

4. Other Business Processes – any of a number of industry-specific business processes

D. ERP Installation (and Configuration) – widely underestimated as each installation must account for the firm’s specific business rules (how that individual firm does business); each firm is different!

E. ERP Limitations – difficulties in communication across organizational boundaries

V. The Formula for Enterprise System Success – the main objective of Enterprise Systems is to create Competitive Advantage by streamlining business activities

A. Secure Executive Sponsorship – the primary reason for ERP Systems failure is a direct result of lack of Top Management Commitment/Support!

B. Get Help from Outside Experts – ERP is complex, experienced users/consultants are a big help; be sure to train users to work on their own when consultants have gone away

C. Thoroughly Train Users – most often overlooked, underestimated, and poorly budgeted; very important

D. Take a Multidisciplinary Approach to Implementations – Enterprise systems affect the entire organization, are cumbersome/expensive/difficult; but the potential payoffs are huge! Involve all areas if the firm; for CRM & SCM include critical personnel in other organizations.

E. Look Beyond ERP – although ERP can have huge payoffs, it is very complex and quite expensive. Because of its complexity, some organizations fear losing their ability to respond quickly to changing business requirements. Another idea is a Service-Oriented Architecture (SOA)

1. Service-Oriented Architecture (SOA) – where business processes are broken down into individual components designed to achieve desired results for the customer, allowing the organization to react quickly to changing business requirements.

2. Reusability – a service should be usable in many different applications

3. Interoperability – a service should work with any other service

4. Componentization – a service should be simple and modular