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CHAPTER OVERVIEW
In Part 2 of this book, we walked through Chapters 4, 5, and 6 for a technical tour of
information systems. We change focus in Part 3 to look at the business aspect of
information systems, specifically achieving competitive advantage. Each chapter in Part 3
considers a different aspect of competitive advantage. Chapter 7 focuses on how
organizations use information systems to develop competitive advantage through various
systems. Chapter 8 considers how the information collected in these information systems
can be used to improve business decision making. Chapter 9 then considered the use of
social media and e-commerce in achieving competitive advantage. Each of these aspects
of competitive advantage is important to understanding why competitive advantage
through IS is difficult to develop and maintain. While it may be difficult, it is also very
rewarding for those companies that are able to achieve sustained advantage.
Chapter 7 covers a wide amount of information from functional systems through cross-
functional systems and finally to inter-organizational systems. Because there is a large
amount of material, it is important to focus on a few key themes that are important to you
as an instructor. We believe there are three key themes in this chapter:
What makes the material in this chapter difficult to teach is that many students do not
have the breadth of experience working with information systems within an organization.
Without this experience, the students have difficulty envisioning the constraints placed on
systems by functional areas. We have a suggestion for a discussion that can occur near
the end of the lecture to help students summarize the material being presented to them.
It is focused on competitive advantage and is described later in this section.
In regards to the first issue, it is important to talk about why functional systems are
important. We believe it is more important, however, to talk about why there are
challenges with organizing data and applications in this way. It seems as though every
Introduction to MIS textbook includes a chapter about the various functional systems in a
business. We have found that this type of lecture—one that lists different applications—
provides very little to the student. We have, therefore, tried to limit this discussion.
Instead, we have placed more emphasis on question Q4, which we believe is central to
the learning in the chapter. Students need to realize that locking data within business
functions may limit the effectiveness of the firm.
In regard to the second issue, the marriage between cross-functional systems and industry
standard best practices is a relatively easy one to make. We’ve tried to emphasize that the
cross-functional systems that we consider (CRM and ERP and also SCM if used
exclusively within an organization) are really a collection of best practices. People have
adopted this software because they are looking for the efficiencies that these standard
processes embedded in software can bring. This is the happy side of the marriage. But
there are two costs to consider.
The first cost is that there is the likelihood that the company adopting the software may
have to significantly change their business process. When an organization adopts the
software, they are really saying that “We will have our people and procedures adapt to
conform to the software.” This can be an uneasy transition, as change is often not greeted
favourably within an organization. The second cost is a consideration of competitive
advantage. If other firms adopt the same software (and same business practices) then
where is the competitive advantage of adopting the system? Won’t installing these cross-
functional systems lead to a reduction in competitive advantage? We leave this discussion
to the exercise described below.
This exercise uses the “What do YOU think?” exercise provided at the end of Chapter 7:
“Available Only in Vanilla?” Implementations of ERP that do little or no customization
are often referred to as vanilla implementations. The exercise outlines why companies
choose to do this but asks some interesting questions for discussion. We suggest that near
the end of the lecture, bring up the discussion questions from this exercise. Ask students
what they think and try to get some discussions between students.
One of the best ways of getting discussion is to provide a question and then ask students
to first discuss the questions in groups of three or four. Give them a short time (for
example 2–4 minutes) to discuss the item and then ask for people to talk for the group.
Using small groups first reduces the student’s risk of asking a bad question and also gets
more people talking and thinking about the question. There will always be some students
who do not engage, but this is not a reason to exclude the majority of students who will
learn something from the discussion. These discussions also help to break up a long
lecture and keep the students focused on the material.
The important questions to consider are questions 2, 3 and 4. The important job of the
instructor in this exercise is to get students to think critically about cross-functional
systems. Rather than sitting in a set in the lecture hall absorbing information about the
various functional systems in a business, we should be working to engage students in
thinking about the benefits and costs of running industry standard best practices.
Another exercise we can suggest is in returning to cases that were provided previously in
the book to help provide examples. The HELM software in the MIS in Use 2 is a good
example of an industry standard practice. The ICS courier case can also be used to show
the impact of industry standard practices and how they can affect small firms. Ask students
to indicate if these systems are functional or cross-functional and whether the software
developed provided sustained competitive advantage for the companies using the software.
CHAPTER OBJECTIVES
1. Understand how organizations gain a competitive advantage using IS.
2. Know the three fundamental types of information systems within organizations.
3. Understand how functional systems relate to the value chain.
4. Know the basic types of functional systems.
5. Know the problems of functional systems.
6. Understand how industry standard best practices support cross-functional systems
7. Understand cross-functional systems (ERP and CRM) and how they relate to business
process.
8. Understand interorganizational systems including e-commerce and supply chain
management.
CHAPTER OUTLINE
The following three software products were identified through a Google search
for “manufacturing software”:
▪ Alliance/MFG® by Exact Software: Alliance/MFG manages material and
labor through the manufacturing process, helping you control inventory, plan
purchases, and schedule work.
▪ Batchmaster by Best Software: Process manufacturers work from recipes and
formulas, mixing and blending raw materials in batches. This type of
manufacturing is qualitatively different from a discrete manufacturer’s
operation.
▪ IndustriOS by Industrios Software: IndustriOS is an operations software
solution that is fully functional and designed with applications that are
focused on managing your business processes. These include customer and
vendor management, order fulfillment, materials planning and procurement,
production control and scheduling, and inventory control.
As the above brief descriptions demonstrate, these products are quite different
from each other. Alliance/MFG is definitely focused on the manufacturing
process. Batchmaster is focused on a specific type of manufacturing—process
manufacturing. IndustriOS seems to have the broadest definition, extending out to
include vendors and customers as well as outbound logistics.
c. For each vendor, specify the characteristics of a company for which that vendor's
offering would be ideal.
2. Consider Carrie’s Custom Clothing company described at the start of this chapter.
Assume that Carrie uses one system to collect information about her customers, another
spreadsheet to collect information about her suppliers, a Word document to create
her invoices, and some accounting software to record her revenues and expenses.
a. Give an example of some of the problems that Carrie faces by having these
systems act as functional silos.
b. Then, provide some suggestions for how these systems could be combined to add
value to her company.
There is no single answer to these questions. The main point of this exercise is to
see how flexible the students are in addressing the various issues.
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As the diagrams in part a and part b shows, the processes required with non-
distance learning courses and distance learning courses are similar, but the way the
processes are performed is different. When courses are distance learning courses,
the various processes associated with this environment need to be primarily Web-
based and basically self-service for the students. In addition, in some settings,
distance learning courses are not offered on a regular semester/quarter-based
schedule, but are delivered whenever the student enrolls and last as long as it takes
for the student to complete the course requirements.
Student answers will vary depending upon their university affiliation. Universities
will vary in terms of the role that distance learning plays in their strategy, ranging
from an essential core element of the strategy (à la University of Pheonix or
Athabasca University) to a minor or even nonexistent element.
With distance learning classes, it is possible to draw students from anywhere, and
to have courses delivered by faculty from anywhere. This fact enables universities
to create any number of strong niche programs that can attract students without
requiring them to relocate. Similarly, faculty can be attracted to deliver these
programs without the necessity of relocating, or, for that matter, even giving up
their current faculty or professional position.
This is not an easy exercise. It requires the students to do some research, to consider a
company’s business model and then think about what information systems will provide
the company with the best business value. Since this is an introductory class this is a lot
to ask for. But the exercise will make the point of linking business strategy with
information technology strategy and focusing on business value.
As for answers, there are a wide number of possible solutions and the instructor should
not focus necessarily on the one “best” strategy, but rather on making sure that the
students provide justification for their choices and see both the costs and benefits of using
the technology.
1. Create a maximum two-page information sheet that summarizes the company, the
idea, and the system it uses. The summary should include:
a. An introduction to the company (example companies are listed below, but you are
welcome to use another company).
b. Identify, as best you can, the strategy of the company (Note: you can use Porter’s
five forces to understand the company’s industry.)
d. Identify the information systems you think will be most critical to support the
strategy.
2. Choose one of the following companies (or ask your professor if you can choose a
different company):
a. Zipcar (www.zipcar.com)
b. Avelle (www.bagborrowandsteal.com)
d. Dell (www.dell.ca)
Originally, the company thought the software was the problem but later the company
recognized it was the data, procedures, and people that were the real issues.
2. What do you think is the most important component in the success of DPT’s ERP in
the second implementation?
The most important factor was the experience and knowledge provided by Eric. This
was the catalyst for understanding more deeply the data and procedures the company
would have to adopt to effectively use the system.
3. What role does Eric Dang play in the ERP implementation? What skills do you think
are most important for Eric’s success?
Eric Dan played the role of business analyst, as well as some elements of project
manager for the project. (Students will learn more about these roles in chapter 10 and
11). The most important skills were the analytical ones that focused attention on the
business processes and documented the various processes the company would use
with the new ERP system. Also important were the technical skills that helped Eric
understand the database and other technical details in the application. But the
business analysis skills were the most critical.
4. Do you think that DPT had to fail in its initial ERP implementation before it
succeeded? That is, do you think it is necessary for companies to understand clearly
what can go wrong before they fully commit to the project? Justify your answer.
I would argue that yes, the first system had to fail before the company was willing to
take the project seriously. Since the company had little experience with ERP, it was
likely impossible for people in the company to estimate the real effort needed to
successfully implement the ERP. The company might also have been able to acquire
the necessary knowledge by hiring consultants who had experience with ERP
implementation, but again the need to document business processes and make
implementation decisions unique to the company would have required significant
effort from internal employees.
There are numerous advantages to this technology. Aside from the obvious reduction
in labour costs the system allows continuous harvesting of cotton, which can be
critical given short harvesting windows. More importantly, the newest technology
marries location-based services in at least two ways. For example, during harvesting,
the picker calculates the yield from the land. This information allows for a calculation
of the right amount of fertilizer or pesticide, rather than guessing.
Knowing where the cotton came from and what pesticides or fertilizers were used
could allow farmers to charge higher prices for certain types of organic cotton. This
information could also be used to track back to other problems or opportunities for
suppliers.
2. How does this technology allow John Deere to compete against lower-cost
manufacturers and producers?
This technology allows John Deere to compete by changing the dimensions from
simply costs to information. The advanced technology would also allow the machines
to diagnose problems and to schedule service or maintenance before failure. Since
machine failure is one of the largest risks (next to crop failure and market risk) that a
farmer faces, all activities that can reduce this risk are worth considering.
3. Are there any other advantages to using this technology? What adaptation and
extensions would increase the advantage? (Hint: Radio-frequency tags can be
inserted into each bundle to track harvesting information and pinpoint where the
cotton came from, identifying, for example, if the cotton qualifies as organic.)
RFID and yield information could be used by farmers when conducting experiments
using new forms or strains of cotton. For example, a farmer could allocate a new
variety of cotton to a few selected sections of the farm and then evaluate objectively
the results rather than accept manufacturer or supplier claims. The farmer could also
have contingent or partnership arrangements. If a form of cotton did not provide a
certain yield, a farmer could receive a rebate, or if it produced a higher yield, the
supplier could share in the increase through a performance-linked bonus.
Goals
▪ Reinforce the importance of inherent processes in ERP and other licensed software
and the expense and challenges of variances from those processes
▪ Introduce possible longer-range consequences of adapting to vendors’ inherent
processes
▪ Demonstrate an example of long-range thinking
Warning: Before using this exercise, ensure the students understand what an ERP system
is and how much it integrates the organization’s activities. It may be a good idea to start
with a review of ERP systems.
Are organizations that enforce the standard ERP blueprint for their industry condemning
themselves to industry-wide uniformity? I don’t know if this problem is real or not. But,
Even more worrisome, once ERP systems are solidly integrated into the organization, will
they stifle creativity? Employees already complain that they are forced to do silly things
because the “software requires them to.” Will the software mean that it is a waste of time
to develop improved ways of doing business, because the improved way is incompatible
with the “always-enforced” ERP way?
I posed this question to a PeopleSoft salesperson who said the answer lay with business
intelligence applications of the data generated by the ERP system. “Organizations can
gain a competitive advantage,” he said, “by reporting and mining the data that we
generate in their databases.” Is that answer credible? If the information created by the
business intelligence system can be applied in the context of the existing ERP or other
system, then his answer may have merit. But what if the information created indicates the
need for a change to a system that cannot be changed because of the structure of an
existing ERP system?
Side effect: When an organization requests a feature change in the ERP system, that
action may mean that every other customer of that vendor, and ultimately the entire
industry, will have that change. Thus, the competitive advantage will be unsustainable.
What to do? No organization today that can benefit from ERP would choose not to
implement it. But, having done so, has the organization entered a conformity trap?
1. The vendors would say that customers should adapt because the standard blueprint,
the inherent processes, are the “best-of-class solutions.” They also know that
variances are expensive and difficult to maintain. Life for the vendor and for the IS
department is a lot easier if the company converts to the standard process.
▪ What does the organization lose by converting to the standard blueprint?
▪ What are the costs of that conversion (also consider non-monetary costs)?
2. Ask the marketing students what causes products to become commodities. Software is
no different. (This point, by the way, opens the door to talk about careers in software
sales, marketing, and support. These are great, high-paying jobs, and this class is the
first step toward one.) The process: no vendor can allow another vendor to have a
competitive advantage, so they all copy the features and functions from one another.
Ultimately, like cans of tomatoes on the grocery shelf, they all look the same.
3. This is the key question, and I don’t know a definite answer. The answer may come
down to the issue of whether they can be better in the execution of the inherent
processes in the software.
▪ If a company executes the standard blueprint better than its competitors, will that
give it a competitive advantage?
▪ Is it possible for a company to engage in a differentiation strategy if all companies
use the same inherent processes?
▪ Consider Lowe’s and Home Depot. They have the same business processes. What
will make one better than the other? If they’re both using the same ERP package,
the differentiation won’t be in IS innovation.
4. Such transfer of innovation happens when a company has an exception to the ERP
system for which it asks the ERP vendor to program supporting software. If the
exception represents an improved process, the ERP vendor can put it into its new
software versions. Voila! The ERP vendor has been a conduit of innovation from one
company to an industry.
Ultimately, this phenomenon is beneficial to the industry and the economy. That may
be small consolation to the company that cannot maintain its competitive advantage.
Then again, innovation should be a continuous process. As Rudyard Kipling wrote,
“They copied all they could follow, but they couldn’t copy my mind, and I left ‘em
sweating and stealing a year and a half behind.” (The Mary Gloster, 1894)
5. It is probably not possible for two companies ever to be completely alike, but they
may be close enough to make sustainable competitive advantages difficult, if not
impossible. Example: Lowe’s versus Home Depot. One way to teach this is to play
devil’s advocate (or, depending on your views, an honest critic). Say something like:
▪ This essay is much ado about nothing. It has no real issue; the points it makes are
hair-splitting, unrealistic, theoretical, and vapid. We’re wasting our time.
See how the students respond. If they take an opposing position, continue in this vein.
If they don’t, ask them if they think they’ve wasted their time by considering this
essay. To me, thinking about something that might be important and concluding that
it is not important is hardly a waste of time.
Wrap Up
▪ From time to time, it’s worth thinking about the long-range consequences of
technology trends. In this case, we find that adapting to industry-wide inherent
processes may create competitive advantages but—at least for interdepartmental
processes—those advantages may not be sustainable.
▪ By the way, most medium to large-scale companies have a person called the CTO, or
chief technology officer. You’ll learn more about that person in Chapter 10. One of
the key roles of that person is to think about the longer-range consequences of
technology use. The job of CTO is fascinating, and it is one that some of you might
want to consider.
Edinburgh:
Printed by W. and R. Chambers.