IBIS-Unit-2 (CONT) :

2.4 Systems for Linking Enterprise-ERP, SCM, CRM & KMS

KNOWLEDGE MANAGEMENT SYSTEMS (KMS)

DIKW Pyramid:

DAIGRAM
Data: Data is dead. It is a meaningless point in space and time. It is out of context. It is without any meaningful
relationship to anything else. Eg: Seven

Information: If we say this model of a car has an inbuilt AC which has the capability to reduce temperature by seven
degree centigrade, a message is composed using data items. It informs a person about the cooling effectiveness of a
car. It is information.

Data arranged in meaningful pattern to provide a context is information. It helps a person form an opinion or
understanding about collection of data items and provides some meaningful information to him.

Knowledge: When one can make judgement based on this information, it is knowledge. He uses his experience, logic,
understanding of weather conditions and cooling effectiveness of various cars and he decides to purchase (or not to
purchase) this car. It depends upon his context, that is, he resides in Shimla or Chennai?

Wisdom: When a pattern exists amidst data and information, the pattern has potential to represent knowledge.
When one can understand the fundamental principles responsible for the pattern, knowledge becomes wisdom.

Dimensions of Knowledge:
1. Knowledge is a firms Asset:

Tangibility

Needs organisational resources for transformation.

‘DMU’ does not apply. ‘Network effect’ works.

2. Knowledge has different Forms:

Knowledge is Tacit/Explicit

Knowledge refers to a Skill/ craft.

Knowledge describes a procedure

Knowledge explains why.

3. Knowledge has a Location:

Knowledge is a cognitive event

Knowledge has a social or individual basis.

Knowledge is sticky, is influenced by culture and has a context.

4. Knowledge is Situational:

Knowledge is conditional.

**What is the 'Network Effect'

The network effect is a phenomenon whereby a good or service becomes more valuable when more people
use it. The internet is a good example. Initially, there were few users of the internet, and it was of relatively
little value to anyone outside of the military and a few research scientists. As more users gained access to the
internet, however, there were more and more websites to visit and more people to communicate with. The
internet became extremely valuable to its users.

Knowledge Management Process:

DAIGRAM
This follows a spiral path. Once existing knowledge is preserved (and stored) and used (disseminated and shared),
one gets into the next phase of enhancing existing knowledge and acquiring new knowledge. Knowledge generation
comprises of knowledge acquisition and synthesis. Whether its creation of new ideas or acquisition of existing once,
its of paramount importance and organisations which have not realised this have completely disappeared.
Knowledge acquisition is the process of acquiring knowledge which is available somewhere, maybe from existing
documents or tacit knowledge (that is utilising the internal sources) or identifying external sources if process or
technology expertise or market intelligence so that this knowledge can either be purchased or hired. This generally
means recruiting the services of known experts or even acquisition of another organisation known to possess that
knowledge.

Knowledge synthesis is the process of putting together either different kinds of information and people to be to
come up with new patterns and ideas. This enables a new approach or understanding to evolve from already
available pockets of information or expertise merely on account of the fact that they are being made to interact
differently or are being viewed in a different way. BCGs Idea Creation Center, *TCSs Innovation Labs and Co-
Innovation Network (COIN) are based on this premise. It has a global network of innovation labs that create an
environment for sophisticated IT research in leading edge technologies; in collaboration with technology partners
and university, research is carried on emerging trends in IT. The themes include mobility, cloud computing, business
analytics, social network.

Knowledge once acquired needs to be preserved. Knowledge storage entails determining the knowledge typology,
knowledge capture, maintaining the knowledge bases and also creating knowledge maps. An organisation uses
various kinds of knowledge and most prominent is to classify knowledge as tacit or explicit. This entails deciding on
the proportion between the two. Tacit knowledge is experiential knowledge and localised in people’s heads while
explicit knowledge is available in some documented form. An organisation needs to analyse how much of current
knowledge it has is tacit and how much is explicit.

Knowledge capture is the process of actually capturing the knowledge in some form. The mechanism and technology
used would vary depending upon the nature of the organisation. One useful way of modularizing or unitizing
knowledge components is by storing them in the form of knowledge objects. A knowledge object could be anything-
a book, an article, a learning unit from a web based training program, a person. The idea of modularizing knowledge
would be to enable one to combine it in multiple ways to achieve the desired knowledge enrichment objectives.

Once knowledge is captured it needs to be organised into knowledge bases. This can be defined as:

Information+Inter-relationships+ContextualInformation+Adanced Search Capabilities

There is virtual inundation of information. The information overload is so high that the chaos it creates is far higher
than the business advantage it is supposed to provide.

A knowledge map comes to help here. It is something that tells you where to go and what to find. It ensures that you
get only what you want and that you don’t lose your way in the maze. It is basically like the yellow pages which is not
only a compendium of all the contents but which also enables logical classification to be able to navigate through it
and retrieve the required contents quickly.

Knowledge utilization ensures that knowledge permeates across the organisation. And not isolated or held in
individual pockets. Knowledge should be disseminated transferred and shared and ploughed back and technology is
the enabler.

Knowledge management is not about creating a single solution for some specified pre-defined set of problems but it
is about creating an environment both culturally and technologically that enables knowledge sharing to take place.

This brings the concept of knowledge portal which provides a single window tocater to all possible knowledge
requirements of a knowledge worker. Enterprise Knowledge Portal (EKP) blends the concept of Enterprise
Information Portal (EIP) and Enterprise Collaboration Portal (ECP).

Enterprise Information Portal (EIP) is the single window framework for information to knowledge transformation
model solution that establishes the vertical people to information linkage. Enterprise Collaboration Portal (ECP)-
Establishes the horizontal people to people connection. It facilitates communication and collaboration between
distributed personnel through mechanism like videoconferencing, chat, discussion, etc.

TATA Steel launched KM Portal in 1999. It set up community of practice (CoP) in 2001 in 21 areas they being iron
making, steel making, rolling maintenance, mining, waste management, cost engg, energy management, HR, IT and
KM. It created a directory of experts and skills. It encouraged use of KM and also sharing of knowledge; it instituted a
formal reward and recognition system for use and sharing of knowledge. It benefitted in creation of new products,
cost reduction and also reduction in downtime. The culture of the organisation changed from ‘I am an expert’ to ‘I
NEED KNOWLEDGE’. ‘I need help’ and ‘I can also help’. It received MAKE Award (Most Admired Knowledge
Enterprise).

For every country it enters; it is seen as a site of knowledge creation and it becomes a source of expertise elsewhere.
They believe that each new action must benefit from acquired learning elsewhere. And leverage that knowledge by
replicating it throughout the company so that you are not learning in isolation and re-inventing the wheel again and
again.

*TCS Innovation Labs

Tata Consultancy Services (TCS), the flagship information technology enterprise of the Tata group, runs several
innovation centres.

TCS has a global network of innovation labs. They are classified as technology labs, academic alliance labs and
domain labs.

The labs help to build different innovation capabilities for TCS’s businesses.

TCS’ flagship research center, TCS Innovation Labs - TRDDC was established in 1981, when IT had barely emerged as
an industry. Today, TCS has a global network of Technology Labs, Domain Labs and Academic Alliance Labs that
undertakes research in various fieldas of IT Research undertaken in emerging areas in information technology are in
the area of social media, mobility, business analytics and cloud computing (SMAC).

The Innovation Labs are located at: Pune (TRDDC), Delhi, Mumbai, Hyderabad, Chennai, Kolkata, Bengaluru and
Peterborough and Cincinnati.
The various domains in which research is undertaken are: Insurance, Engineering and Industrial Solutions
(EIS),Telecom, Travel and Hospitality, Retail, Banking and Financial Services and    Life Sciences & Pharma. For this,
they have academic alliance with IIT Mumbai and Singapore Management University.

KNOWLEDGE MANAGEMENT STRATEGY:

Knowledge strategy:

Every organisation must have a knowledge strategy in place. This would enable an organisation to identify its
strategic direction and also the mode of implementation of the strategy. Some firms choose to automate knowledge
management while some follow a people centered approach. The choice of approach is dependent upon the nature
of the business and its business strategy. The two strategies are: codification and personalisation strategy.

Codification Strategy: This is also called people to document strategy. Codification strategy is centred around
computer systems. In this approach, knowledge is documented, codified and stored in data warehouses from where
it can be accessed and used easily by anyone in an organisation. This method re-uses codified knowledge through
high quality, reliable and fast information system implementation.

Organisations that adopt this strategy invest heavily in information technology, provide training to employees in
groups through computer based training and reward employees for use of knowledge and also for contributing to
knowledge.

Organisations that follow codification strategy have the following characteristics:

 These organisations provide similar products and services to its customer

 Such organisations deal in work that demands high skill but low creativity
 Business and marketing strategies of such firms are based on analysis of specific knowledge
 The ratio of operational staff to leaders is very high
 These organisations have similar operating characteristics over locations and functions

Personalisation Strategy: This is also called people to people strategy. This is centred around people with indepth
knowledge which they have developed through study and experience. They share this knowledge through person to
person interaction. Computer is used to help people communicate knowledge and not store knowledge. In other
words, information technology is simply an enabler to create a link between people and create a network between
different persons in disparate locations. Personalisation strategy canalizes individual expertise for providing
creativity and analytically rigorous advice on high level strategic problems. Organisations that follow this strategy,
invest moderately in information technology, they train employees through one-to-one mentoring and reward
individuals for sharing knowledge.

Organisations that follow codification strategy have the following characteristics:

 These organisations provide differentiated products and services to its customer

 Such organisations deal in work that demands high creativity but low skill
 Business and marketing strategies of such firms are based on intuition and feel
 The ratio of operational staff to leaders is less
 These organisations have high diversity in operating characteristics over locations and functions.
Systems for Linking Enterprise:
In an organisation, there exists various information systems. Different information systems at different levels or
functional areas, act as ‘islands of information’. They often do not exchange information very well. For instance
accounts or finance may well very well defined and robust information system that fulfil their needs but cannot
collect information from manufacturing or marketing. For instance, sales and marketing may also have well defined
and robust information system that serve their needs but cannot collect information from manufacturing which
could have helped it perform better. This gives rise to disjointed information systems. Disjointed information
systems are information systems that do not work together and therefore do not produce a coherent picture of the
entire organisation. Therefore all functions need to be integrated together. Data must be shared across all
departments and across the organisation. THEREFORE FUNCTIONS MUST BE INTEGRATED AND DATA MUST BE
SHARED ACROSS THE ENTIRE ORGANISATION. This gave rise to enterprise applications. Enterprise applications share
the same data anywhere it is needed in an organisation. Three major enterprise applications for our discussion
include:

(i) Enterprise Systems or Enterprise Resource Planning (ERP) Systems: Enterprise Systems are used to
bridge the communication gap between all departments and all users of information within a company.
If production department enters data about its process, the data is available to accounting, sales, and
also HR. This is because a new production process has financial implications; the new production process
may entail requirement of training of employee, etc. If sales marketing is planning a new advertising
campaign; it would push up sales and therefore it has implications for manufacturing which would need
to produce more. Therefore every data is important for everyone (every functional area) and therefore
should be viewable by all departments. Therefore Information is a vital resource and it should enable to
reduce cost all through the organisation.
The major objective is to have functional integration; data integration throughout the organisation is the
key. Therefore data is consolidated from departments and divisions, throughout the business, including
key processes and are immediately made available to the users.

Enterprise software: Enterprise software allows every functional area to share every process and every
piece of data. A company can select specific process in specific areas but eventually everything a
company does is shared across all lines.
The software uses predefined processes and company has to adapt itself to the software. The software is
designed around the best practice for the particular function. The company benefits by using most
successful solutions in a particular industry to help achieve the objective. Software helps to automate
many steps based on best industry practices, help employee remember all steps in a process, and help
employee provide data to all those who need it.
The major benefits are: it leads to better decision making with a view of performance across all
functional areas; more efficient business process; a more uniform organisation, a more disciplined
approach to business throughout the firm irrespective of physical location or organisation structure.
The major disadvantages are: It is difficult and expensive to modify the software because change in one
process may disrupt other dependent processes.
It is time consuming to install hardware and software; it demands training of employee; it demand
reworking of business processes and it also demand a huge investment of capital.
Enterprise applications are often costly to implement. Therefore companies who do not have resources
can achieve some amount of information integration by using intranet and extranets. Intranet and
extranets use Internet Technology and Standards to assemble information from various systems and
present it to the users in a web page format. Extranets make portions of private corporate intranets
available to outsiders. Both these tools make it easy for the companies to disseminate information
through a standard platform that require very little work to maintain. It is a low cost method to connect
internal employees with each other or external users to company information.

(ii) Supply Chain Management (SCM) Systems: A supply chain extends upstream to bring within purview
suppliers (and suppliers’ suppliers) and extends downstream to bring within purview the retailers,
distributors, dealers along with all internal functions like purchasing, production, packaging, marketing
and sales all in a chain or in a single system. It is convenient to break it into three entities:
Upstream-the supplier who deals with the manufacturer and its suppliers
 Downstream- the distributor and those that deliver products to the customer
Internal organisation- all the departments that cooperate to convert raw material into finished products.
As there are many suppliers upstream and many retailers downstream with which it keeps a link;
therefore, it creates a web or network of relationships. AND INFORMATION IS THE GLUE THAT BINDS
THEM TOGETHER. If any wrong information is generated by any entity in the supply chain, it has a
cascading effect. Lack of information or wrong information can disrupt working of every member of the
chain. A kink” in the chain can have far reaching effects.

Bull Whip Effect is a common phenomenon found in the supply chain. This was propounded by Jay
Forrester in the year 1961 in his book ‘Industrial Dynamics’. Bull Whip Effect to a trend of larger and
larger swings in inventory in response to customer demand. This is an observed phenomenon in forecast
driven supply chain. Also called Forrester Effect, the oscillating demand magnification upstream of a
supply chain is reminiscent of a cracking whip; hence the name Bullwhip Effect.

The amplified order variability is because of behavioural or operational causes for the bullwhip effect.
The major causes are:

(i) Demand Forecast Updating: Every member of the supply chain makes a forecast and the forecast
is based on immediate customer demand. And his forecast is based on his perception of what
the future would be. It is a reflection of his thought process which largely is influence by whether
he i risk averse or risk taker. The more the constraints, the longer the lead time the more the
operational bottlenecks; greater would be the forecast.
(ii) Order Batching: As and when demand is received, the retailer does not place an order. He places
order at the end of a week or month, whatever the case must be. This accumulation of order
creates spikes and troughs in the supply chain. And these swings rise as one moves upward in
the supply chain. This periodic ordering amplifies variability and contributes to the bullwhip
effect.
(iii) Price Fluctuations: Forward buy arrangement exists in the supply chain. Forward buy or buying in
advance takes place because of trade deals or consumer discounts. One stocks for the future
period. Forward buy is dangerous for the supply chain as it depicts a false picture of the supply
chain.
(iv) Rationing and Gaming: When demand exceeds supply, manufacturer rations supply.
Manufacturer allocates supply as per order received. The customer (retailer) is aware of this and
he games the rationing. When demand cools, suddenly orders disappear and cancellations pour
in. This over-reaction in anticipation of shortage contributes to the BW effect.

There are various ways to mitigate these effects and that is through sharing of information.

(i) Demand Forecast Updating- Electronic point of sale (EPOS) is used to capture information and EDI
linkage is used between various entities to share information. As such actual demand information is
viewable by all thus reducing the forecasting error. Also by adopting Vendor Managed inventory,
wherein the vendor is aware of the actual stock at retailer level, the BW effect is mitigated. Further,
adopting Consumer Direct (eliminating intermediaries) and selling directly to consumer is another
method of mitigating the effect as was done by Dell.
(ii) Order Batching: Adopting Continous Relenishment Program (CRP) and supplying on a daily basis
removes demerits of order batching. Adopting JIT philosophy and also using small sized wagons helps.
(iii) Price Fluctuations: Reducing frequency of discounts as well as sharing information about everyday low
pricing (EDLP) and other discount schemes (Wednesday Bazaar of Big Bazaar, or seasonal discounts, etc)
help manufacturer understand the reasons for increased sales and reduces the BW effect.
(iv) Rationing and Gaming: Allocation based on past records of orders help in such instances.
Supply Chain Management allows a company to integrate data and information with suppliers and retailer to reduce
costs. It creates a form of inter-organisational system that creates a seamless system for buying raw material,
producing goods, and finally packing to send to the retailers shelf.

SCM Software can provide information up and down the supply chain enabling everyone to see the same piece of
information (customer order) so that everyone engages in better planning and better forecasting. Finally demand
plan gets converted to sales plan, sales plan gets converted to manufacturing plan, Manufacturing plan gets
converted to sourcing or procurement plan; SO ONE PLAN WORKS ALL ACROSS THE SUPPLY CHAIN. SCM planning
systems enables firm to generate demand forecast, develop better demand [plans, develop sourcing and
manufacturing plans, co-ordinate change in information, co-ordinate activities with supply chain partners thus
minimizing costs all through the supply chain.

The islands of information that exist within an organisation can also exist in the supply chain. The internal
collaboration that an organisation can generate through intranets can be extended to supply chain partners through
extranets. Supplier can log on to the company’s extranet site and see next week production schedule so that he can
plan his supply schedule.

Business benefits are: Match demand with supply, reduced inventory, reduced costs, increased responsiveness, and
increased sales.

So from a push based supply chain company moves to a pull based supply chain. The timing of orders determines
whether it is a pull or a push based system.

In a push system, production takes place in anticipation of orders.

In a pull system, production takes place in response to customer orders.

In a push system, demand is known.

In a pull system, demand is not known.

Push system, is a speculative process.

Pull system, is a re-active process.

In a push system, we build to stock.

In a pull system, we build to order.

Survey undertaken by Retailers Association of India (RAI) indicate that:

SCM Software implemented:

Implemented in less than 50% of stores-19% of retailers

Implemented in more than 50% of stores-52% of retailers

Not in use-17% of retailers

Planning to implemented in next 3 years- 13% of retailers

Customer Relationship Management: Customer Relationship Management (CRM) is a customer centric business
approach that entails that a customer has a 360 degree knowledge and vision about the customer. For instance the
company has knowledge about when (time-afternoon-lunch break or evening after office hours) he visits the store,
what products he purchases (grocery or garments or utensils etc), in what volume, national brands or private brands,
what assortments (combination of products) etc. Focus has shifted from identifying customer as a transaction to
recognising life time value of customer. (Life time value refers to the present value of future income stream that
would be generated by the customer. The cost of acquiring a customer is six times more than the cost of retaining a
customer. Therefore CRM should be a company-wide initiative.

The behavioural traits of consumers are of gripping interest to the marketer which allows them to tailor and target
offer for individual customer.

Customers often say that they are satisfied; yet they deflect. So companies cannot afford to ignore the customer.
They use a 20-80 principle; and focus on the 20 percent of customers who generate maximum revenue for them.
Most companies fail to make all departments “customer centric”. The goal is to optimize customer satisfaction and
customer retention; and maximize revenue and profits.

A CRM system provides end-to-end customer care from receipt of orders to delivery. It collects customer
information, consolidates information, provides this to all touch points in the organisation and caters to customers
that gives maximum profits. The various benefits are;

(i) Customer pays less price

(ii) Company gets maximum sales
(iii) Bank-If at banks, a customer has more than one loan accounts; he gets benefit of reduced interest rates.
(iv) Bundling of products: At restaurants, bundling of food item; eg-value meals or ‘combo’ offers. Customer
pays less and company sells more. Both parties benefit.
(v) Cross-selling of products: Sell an additional product.
(vi) Up-selling of products: Convince customer to buy an upgraded version of the product.
(vii) Down-selling of products: Avoid chances of no sale by suggesting a less expensive product.

CRM Software comes in different sizes and complexities and modules. Recent versions have a Partner
Relationship Management Module and others have a Employee Relationship Management Module in it. This
helps company ascertain how the employee interacts with the customer and enables the company to assess the
performance of the employee objectively, and also helps in devising a performance based compensation system.

There are three kinds of CRM in an organisation:

Operational CRM: CRM implementation in the back-office for transaction and order fulfilment is an example of
operational CRM. It includes everything a company should provide those employees who interface directly with
the customer.

Eg: sales force, call center, support activities.

Analytical CRM: Managers and decision makers use analytical CRM to help improve business performance.

Analytical CRM uses data from operational CRM and help identify a smaller target customer group.

This target group are most profitable customer and company focuses its efforts on these customers. And it is
able to determine the life time value of the customer. By measuring the Customer Life Time Value (CLTV);
company can calculate customer profitability and which customer therefore it should cater to.

Collaborative CRM: Implementation of CRM in customer interaction channels. Eg: call center, web, email.

e-CRM-A Collaborative Approach: This is based on the premise that the cost of an agent responding to queries
over the web is close to 30 times less than over the phone. Eg: A company specializing in sale of stationary
through its web portal. Through placement of orders, it is able to track a company placing orders and time span
required for the stationary to be depleted; and before this occurs, the company’s sales personnel contacts the
customer. Here, the chances of closing sales are very high. The company has been able to anticipate timing of
need and knows exactly what the customer requires.
 The business value of CRM: It leads to a better understanding of the customer, better decision making in product
line, better marketing campaign, reduce customer churn rate, and identify which customer are more profitable.

Survey undertaken by Retailers Association of India (RAI) indicate that:

Customers look for personalised seamless and distinctive experience from retailers.

Retailers with multiple brands are looking at integrating cross-brand customer and sales data to get a single view of
their customer and leveraging it across its brand portfolio.

Around 50% of retailers uses integrated CRM software for marketing efforts to engage with customers on a one-to-
one basis.

CRM Software implemented:

Implemented in less than 50% of stores-11% of retailers

Implemented in more than 50% of stores-58% of retailers

Not in use-23% of retailers

Planning to implemented in next 3 years- 08% of retailers

CUSTOMER LOYALTY CARDS:

Implemented in less than 50% of stores-17% of retailers

Implemented in more than 50% of stores-60% of retailers

Not in use-10% of retailers

Planning to implemented in next 3 years- 14% of retailers

CASE FACTS- THE RAYMOND SHOP

Chain of retail stores selling brands like Raymond, Park Avenue, Parx, and Color Plus

One of the pioneers of Indian retail

Oldest textile manufacturer and retailer

Implemented CRM:-Initially on a manual basis; team was formed to survey prospective customers and the existing
customers.

The process was cumbersome. The customer was apprehensive about giving personal details and it was also
cumbersome for the surveying team.

Implemented CRM using IT:

The implementation time: 3 months

Called: “Premium Circle”

Customer using it: “Premium users” and they were given a premium card

Principle was: Availibility, Scalability and Reliability

Coverage: 265 out of 365 shops (72%)

A central repository of information was created about the premium customers whose details are accessible at any
retail outlet where the system has been implemented.

Result: Customer choice was studied and new product line introduced according to choice. This lead to increased
footfall, repeat visits, increased customer satisfaction and increased revenue.