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

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?
© 2016 John Wiley & Sons, Inc. 3

SILO PERSPECTIVE
VERSUS
BUSINESS PROCESS
PERSPECTIVE

Silo (Functional)
Perspective
• Specialized functions (sales, accounting, production, etc.
Executive Offices
CEO
President
Operations Marketing Accounting Finance Administration
• 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.
The Process Perspective
• Examples of processes:
• Fulfill customer orders
• Manufacturing, planning, execution
• Procurement (see below)
Receive
Create and
Requirement
Send Purchase Receive Goods Verify Invoice Pay Vendor
for
Order
Goods/Services
• Processes have:
• Beginning and an end
• Inputs and outputs
• A process to convert inputs into outputs
• Metrics to measure effectiveness
• They cross functions
Cross-Functional Nature of Business
Processes

How to Manage a Process
• Identify the customers of processes (who receives
the output?)
• Identify the customers’ requirements (how do we
judge success?)
• Clarify the value each process adds to the
organizational goals
• Share this perspective so the organization itself
becomes more process focused

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

throughout the organization; generalists; sophisticated
cross-functional inefficiencies; software is needed
communication problems
What do you do when
things change?
• Dynamic and agile processes
• Examples:
• Agile: Autos are built with wires and space for
options
• Dynamic: Call centers route incoming or even
outgoing calls to available locations and agents
• Software defined architectures (see chapter 6)
• IT is required to pull this off well

Techniques to Transform a
Static Process
• Radical process redesign
• Also known as business process reengineering
• Incremental, continuous process
improvement
• Including total quality management (TQM) and
Six Sigma

Incremental Change
• Total Quality Management
• Often results in favorable reactions from personnel
• Improvements are owned and controlled
• Less threatening change
• Six-Sigma is one popular approach to TQM
• Developed at Motorola
• Institutionalized at GE for “near-perfect products”
• Generally regarded as 3.4 defects per million opportunities for
defect (6 std dev from mean)

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
Time

Comparing the Two
Improve-
ment

Key Aspects of Radical
Change Approaches
• Need for quick, major change
• Thinking from a cross-functional process
perspective
• Challenge to old assumptions
• Networked (cross-functional organization)
• Empowerment of individuals in the process
• Measurement of success via metrics tied to
business goals and effectiveness of new processes

Workflow and Mapping
Processes
• Workflow diagrams show a picture of the sequence
and detail of each process step
• Objective is to understand and communicate the
dimensions of the process
• Over 200 products are available to do this
• High-level overview chart plus detailed flow
diagram of the process

BPM
• Information systems tools used to enable information
flow within and between processes.
• Comprehensive, enterprise software packages.
• Most frequently discussed:
• ERP (Enterprise Resource Planning),
• CRM (Customer Relationship Management),
• SCM (Supply Chain Management)
• Designed to manage the potentially hundreds of
systems throughout a large organization.
• SAP, Oracle, Peoplesoft are the most widely used ERP
software packages in large organizations.

BPM Architecture

Standardization vs
Integration
Business Process Standardization
Low High
High Single face to customers High needs for reliability,
Business Process Integration
and suppliers but standards predictability, and sharing;

not enforced internally single view of process
Low Decentralized design; Tasks are done the same way
business units decide how across units, but there is little
to meet customer needs need for business units to
interact
Source: J. Ross “Forget Strategy: Focus IT on your Operating Model,”

MIT Center for Information Systems Research Briefing (December 2005)

Enterprise Systems (Enterprise
Resource Planning or ERP)
• Seamlessly integrate information flows throughout the

company.
• Reflect industry “best” practices.
• Need to be integrated with existing hardware, OSs,
databases, and telecommunications.
• Some assembly (customization) is required
• The systems evolve to fit the needs of the diverse
marketplace.

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

ERP II
• Makes information available to external
stakeholders too
• Enables e-business applications
• Integrates into the cloud
• Includes ERP plus other functions (see Figure 5.8)

ERP and ERP II Functions

Customer Relationship
Management
• Customer Relationship Management (CRM) is a
natural extension of applying the value chain model
to customers.
• CRM includes many management activities
performed to
• obtain,
• enhance relationships with, and
• retain customers.
• CRM can lead to better customer service, which
leads to competitive advantage for the business.

CRM
• Common systems are:
• Oracle
• SAP
• Salesforce.com (web-based cloud system)
• Oracle and SAP integrate into their ERP
systems

Supply Chain Management
(SCM)
• An enterprise system that manages the integrated
supply chain
• Translation: processes are linked across companies
• The single network optimizes costs and
opportunities for all companies in the supply chain
• Every part of the supply chain has the latest
information about sales expected and inventories
from source materials at all stages
• Bullwhip effect occurs when the supplier at each
stage adds a small “buffer” for it’s suppliers in case
demand is higher than expected
Difficulties in Integrated
Supply Chains
• Information integration requires agreement of what
information to share, how to share it, and the
authority to view it.
• Trust must be established
• Planning must be synchronized carefully
• Workflow must be coordinated between partners to
determine what to do with the information they
obtain

Advantages and
Disadvantages
of Enterprise Systems

The Adoption Decision
• The enterprise system sometimes should drive
business process redesign when:
• Just starting out.
• Organizational processes are not relied upon for strategic
advantage.
• Current systems are in crisis.
• It is inappropriate for the enterprise system to drive
business process redesign when:
• Changing an organization’s processes that are relied upon for
strategic advantage.
• The package does not fit the organization.
• There is a lack of top management support.

Managing and Using Information Systems:
A Strategic Approach – Sixth Edition
Keri Pearlson, Carol Saunders,

and Dennis Galletta
© Copyright 2016
John Wiley & Sons, Inc.

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Managing and Using Information Systems:

A Strategic Approach – Sixth Edition

Keri Pearlson, Carol Saunders,

© 2016 John Wiley & Sons, Inc. 3

© 2016 John Wiley & Sons, Inc. 4

Operations Marketing Accounting Finance Administration

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Problems Redundancy of information Difficult to find knowledgeable

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and suppliers but standards predictability, and sharing;

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

© 2016 John Wiley & Sons, Inc. 19

• Seamlessly integrate information flows throughout the

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Keri Pearlson, Carol Saunders,

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