Managing and Using Information Systems:

Managing and Using Information Systems:
A Strategic Approach – Sixth Edition
Keri Pearlson, Carol Saunders, and Dennis Galletta
© Copyright 2016 John Wiley & Sons, Inc.

Chapter 5 IT and Business Transformation

Sloan Valve
•What was wrong with their Product Development Process?
•What did Sloan do? What is NPD?
•Did it help?
•Are all enterprise system implementations this successful?
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© 2016 John Wi ley & Sons, Inc.

Silo (Functional) Perspective
• Specialized functions (sales, accounting, production, etc.
• Advantages: • Allows optimization of expertise. • Group like functions together for transfer of knowledge.
• Disadvantages: • Sub-optimization (reinvent wheel; gaps in communication;
bureaucracy) • Tend to lose sight of overall organizational objectives.
Executive Offices CEO
Operations Marketing Accounting Finance Administration
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The Process Perspective
• Examples of processes: • Fulfill customer orders • Manufacturing, planning, execution • Procurement (see below)
• Processes have: • Beginning and an end
• Inputs and outputs • A process to convert inputs into outputs • Metrics to measure effectiveness
• They cross functions
Receive Requirement for Goods/Services
Create and Send Purchase Order
Receive Goods Verify Invoice Pay Vendor
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Cross-Functional Nature of Business Processes
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How to Manage a Process
• Identify the customers of processes (who receives the output?)
• Identify the customers’ requirements (how do we judge success?)
• Clarify the value each process adds to the organizational goals
• Share this perspective so the organization itself becomes more process focused
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Comparison of Silo Perspective and Business Process Perspective
Silo Perspective Business Process
Definition Self-contained functional units such as marketing, operations,
Interrelated, sequential set of
activities and tasks that turns
inputs into outputs
Focus Functional Cross-functional
Optimizes on functional goals,
which might be suboptimal for
the organization
Optimizes on organizational
goals, or the “big picture”
Benefits Highlighting and developing core competencies; functional
Avoiding work duplication and
cross-functional communication
gaps; organizational
Problems Redundancy of information throughout the organization;
cross-functional inefficiencies;
communication problems
Difficult to find knowledgeable
generalists; sophisticated
software is needed

What do you do when things change?
•Dynamic and agile processes
•Examples: • Agile: Autos are built with wires and space for
options • Dynamic: Call centers route incoming or even
outgoing calls to available locations and agents • Software defined architectures (see chapter 6)
•IT is required to pull this off well
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Techniques to Transform a Static Process
•Radical process redesign • Also known as business process reengineering
•Incremental, continuous process improvement • Including total quality management (TQM) and
Six Sigma
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Incremental Change • Total Quality Management
• Often results in favorable reactions from personnel • Improvements are owned and controlled • Less threatening change
• Six-Sigma is one popular approach to TQM • Developed at Motorola • Institutionalized at GE for “near-perfect products”
• Generally regarded as 3.4 defects per million opportunities for defect (6 std dev from mean)
Improve- ment
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Radical Change
• Business Process Reengineering (BPR)
• Sets aggressive improvement goals.
• Goal is to make a rapid, breakthrough impact on key metrics in a short amount of time.
• Greater resistance by personnel.
• Use only when radical change is needed.
Improve- ment
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Comparing the Two
Improve- ment
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Key Aspects of Radical Change Approaches
• Need for quick, major change
• Thinking from a cross-functional process perspective
• Challenge to old assumptions
• Networked (cross-functional organization)
• Empowerment of individuals in the process
• Measurement of success via metrics tied to business goals and effectiveness of new processes
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Workflow and Mapping Processes
• Workflow diagrams show a picture of the sequence and detail of each process step
• Objective is to understand and communicate the dimensions of the process
• Over 200 products are available to do this
• High-level overview chart plus detailed flow diagram of the process
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• Information systems tools used to enable information flow within and between processes.
• Comprehensive, enterprise software packages.
• Most frequently discussed: • ERP (Enterprise Resource Planning), • CRM (Customer Relationship Management), • SCM (Supply Chain Management)
• Designed to manage the potentially hundreds of systems throughout a large organization.
• SAP, Oracle, Peoplesoft are the most widely used ERP software packages in large organizations.
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BPM Architecture
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Standardization vs Integration
Business Process Standardization
Low High
B u
si n
e ss
P ro
ce ss
te gr
at io
High Single face to customers and suppliers but standards not enforced internally
High needs for reliability, predictability, and sharing; single view of process
Low Decentralized design; business units decide how to meet customer needs
Tasks are done the same way across units, but there is little need for business units to interact
Source: J. Ross “Forget Strategy: Focus IT on your Operating Model,” MIT Center for Information Systems Research Briefing (December 2005)
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Enterprise Systems (Enterprise Resource Planning or ERP)
• Seamlessly integrate information flows throughout the company.
• Reflect industry “best” practices.
• Need to be integrated with existing hardware, OSs, databases, and telecommunications.
• Some assembly (customization) is required
• The systems evolve to fit the needs of the diverse marketplace.
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ERP Advantages and Disadvantages
Advantages Disadvantages • Represent “best practices”
• Modules throughout the organization communicate with each other
• Enable centralized decision-making
• Eliminate redundant data entry
• Enable standardized procedures in different locations
• Enormous amount of work
• Require redesign of business practices for maximum benefit
• Require customization if special features are needed
• Very high cost
• Sold as a suite, not individual modules
• Requires extensive training
• High risk of failure
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• Makes information available to external stakeholders too
• Enables e-business applications
• Integrates into the cloud
• Includes ERP plus other functions (see Figure 5.8)
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ERP and ERP II Functions
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Customer Relationship Management
• Customer Relationship Management (CRM) is a natural extension of applying the value chain model to customers.
• CRM includes many management activities performed to
• obtain, • enhance relationships with, and • retain customers.
• CRM can lead to better customer service, which leads to competitive advantage for the business.
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•Common systems are: • Oracle • SAP • (web-based cloud system)
•Oracle and SAP integrate into their ERP systems
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Supply Chain Management (SCM)
• An enterprise system that manages the integrated supply chain
• Translation: processes are linked across companies
• The single network optimizes costs and opportunities for all companies in the supply chain
• Every part of the supply chain has the latest information about sales expected and inventories from source materials at all stages
• Bullwhip effect occurs when the supplier at each stage adds a small “buffer” for it’s suppliers in case demand is higher than expected
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Difficulties in Integrated Supply Chains
• Information integration requires agreement of what information to share, how to share it, and the authority to view it.
• Trust must be established
• Planning must be synchronized carefully
• Workflow must be coordinated between partners to determine what to do with the information they obtain
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Advantages and Disadvantages of Enterprise Systems
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The Adoption Decision
• The enterprise system sometimes should drive business process redesign when:
• Just starting out.
• Organizational processes are not relied upon for strategic advantage.
• Current systems are in crisis.
• It is inappropriate for the enterprise system to drive business process redesign when:
• Changing an organization’s processes that are relied upon for strategic advantage.
• The package does not fit the organization. • There is a lack of top management support.
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Managing and Using Information Systems:
A Strategic Approach – Sixth Edition
Keri Pearlson, Carol Saunders, and Dennis Galletta
© Copyright 2016 John Wiley & Sons, Inc.

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