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© 2007 Prentice Hall, Inc.
Understand the differences between functional applications and
integrated cross-departmental process-based systems. Know the features and purposes of functional information systems for human resources, accounting, sales and marketing, operations, and manufacturing. Understand the problems caused by the isolation of functional systems. Understand how value chains and business process redesign led to the development of integrated applications. Know the features and functions of three types of integrated systems: customer relationship management (CRM), enterprise resource planning (ERP), and enterprise application integration (EAI).
History of IS Within Organizations
Calculation Systems The first information system was the calculation system. The first systems computed payroll. . repetitive calculations. and kept track of inventory quantities. balanced accounting records. applied debits and credits to general ledger. Its purpose was to relieve workers of tedious. These systems produced very little information.
These new functional areas added features and functions to encompass more activities and to provide more value and assistance. These systems grew as a natural expansion of the capabilities of systems of the first era. The problem with functional applications is their isolation.Functional Systems Functional systems facilitated the work of a single department or function. Functional applications are sometimes called islands of automation. – General ledger became financial reporting. . – Inventory was merged into operations or manufacturing. – Payroll expanded to become human resources.
Integrated processing requires many departments to coordinate their activities. organizations must achieve the efficiencies of integrated cross-department process-based systems . Most organizations today are a mixture of functional and integrated systems. The objective is to integrate the activities in an entire business process. systems are designed not to facilitate the work of a single department or function. Since these business activities cross department boundaries. Cross-Functional Systems In this era. they are referred to as cross-departmental or cross-functional systems.Integrated. The transition from functional systems to integrated systems is difficult. To successfully compete internationally.
Typical Functional Systems .
Human Resources Systems .
Accounting and Finance Systems .
Sales and Marketing System .
Operations Systems .
Manufacturing Activities Supported by Information Systems .
Just-in-time (JIT) inventory policy seeks to have production inputs (both raw materials and work in process) delivered to the manufacturing site just as they are needed. Inventory applications track goods and materials into. reorder levels. management. An RFID is a computer chip that transmits data about the container or product to which it is attached. Today most systems use UPC bar codes to scan product numbers as items move in and out of inventories. and policy. In the future. and reorder quantities in accordance with inventory policy. and between inventories. By using JIT policy. radio frequency identification tags (RFID) will be in widespread use. . out of. companies are able to reduce inventories to a minimum. Inventory management applications use past data to compute stocking levels.Inventory Systems Information systems facilitate inventory control.
they are limited due to operating in isolation.The Problems of Functional Systems Functional systems provide tremendous benefits to the departments that use them. however. With isolated systems: – – – – Data are duplicated because each application has its own database Business processes are disjointed Lack of integrated enterprise data Inefficiency .
which are networks of business activity that exist within an organization.Competitive Strategy and Value Chains When Michael Porter wrote the now-classic Competitive Advantage in the mid-1980’s his ideas laid the groundwork for solving the problems of isolated information systems. . Porter defined and described value chains. Porter also developed a model of competitive strategies that helps organizations choose which information systems to develop.
Value is stressed rather than cost because an organization that has a differentiation strategy may intentionally raise costs in order to create value. . Margin is the difference between cost and value.The Value Chain Value in the Porter model is the total revenue that a customer is willing to spend for a product or service.
The generic value chain must be adopted to specific business (for example. your university or place where you work). The net result is the total margin of the chain that is the difference between the total value added and the total costs incurred. .Value Chain Model–Primary Activities Each stage of the generic chain primary activities accumulates costs and adds value to the product.
sale.Value Chain Model–Support Activities The support activities in the generic value chain contribute indirectly to production. and service of the product which includes: – – – – Procurement Technology Research Firm infrastructure .
Linkages are important sources of efficiencies and are readily supported by information systems. MRP and MRP II are functional systems that use linkages to reduce inventory costs. .Linkages in the Value Chain Linkages are interactions across value activities.
more efficient. Rather they should create new. or sometimes business process redesign.Business Process Design The idea of the value chain as a network of value-creating activities became the foundation of a movement called business process design. The goal was to take advantage of as many activities of all departments involved in a value chain. . business processes that integrate the activities of all departments involved in a value chain. The central idea is that organizations should not automate or improve existing functional systems.
usually many times. An organization that embarks on a business process design project does not know ahead of time how effective the ultimate outcome will be. Changes in process design may have to take place before the new system (project) is completed. Some businesses were successful in their process design activities. Managers review the results of the analysts’ activity. Greater challenges can occur such as employees resistance to change. and attempt to develop new. The new information systems are developed to implement those new business processes. improved processes. . but many others failed. Highly trained systems analysts interview key personnel from many departments and document the existing system as well as one or more systems alternatives.Challenges of a Business Process Design Process design projects are expensive and difficult.
cost of designing new processes itself. In most cases. but the inherent processes in the software. the inherent processes will save the organization the substantial. sometimes staggering. when business licenses cross-departmental software. – Such change will be disruptive to ongoing operations and very disturbing to employees. the organization must conform its activities to those processes. a business application from Siebel Systems. expense. and agony of process design. the processes for using the software are built-in or inherent processes. – Licensing an integrated application not only saves the organization the time. . it also enables the organization to benefit immediately from the tried and tested cross-departmental processes. Licenses – To some. If the software is designed well.Benefits of Inherent Processes When an organization acquires. say. the primary benefit is not the software. Disadvantage – The inherent processes may be very different from existing processes and thus require the organization to change substantially.
and other solicitations. . The difference between CRM systems and traditional functional applications is that CRM addresses all activities and events that touch the customer and provides a single repository for data about all customer interactions. Some CRM systems include activities that occur at the customer’s site. CRM systems store all customer data in one place and thus make it possible to access all data about the customer. selling.Customer Relationship Management Customer relationship management (CRM) is the set of business processes for attracting. Additionally. The components for each stage of the customer life cycle are: – Solicitation – Lead Tracking (presale) – Relationship management (postsale) Information systems that support solicitation include email applications and organizational Web sites. and supporting customers. catalog. managing. some information systems support traditional direct mail.
The Customer Life Cycles Source: Douglas MacLachlan. . University of Washington.
product descriptions. – Web addresses are easy to promote and remember. – Many Web sites require customer name and contact information before releasing high-value promotional material. use cases. and other solicitation materials can be provided easily. – The cost of distributing these materials via the Web is substantially less than the cost of creating and distributing printed materials. – Once a target prospect is on the Web site. .Organizational Web Site in CRM Organizational Web site is an increasingly important solicitation tool. success stories.
CRM Centered on Integrated Customer Database .
Enterprise Resource Planning Enterprise resource planning (ERP) integrates all of the organization’s principal processes. and the primary ERP users are manufacturing companies. headquartered in Germany).. . The first and most successful vendor of ERP software is SAP (SAP AG Corp. ERP is an outgrowth of MRP II manufacturing systems.
ERP applications include a comprehensive set of inherent processes for all organizational activities. fraught with challenge. ERP is based on formally defined procedures.ERP Characteristics ERP takes a cross-functional. functional applications to an ERP system is difficult. SAP defines this set as the process blueprint and documents each process with diagrams that use a set of standardized symbols. not only because of the need for new hardware and software. The switch to an ERP system is very costly. the system cannot operate effectively. organizations must adapt their processing to the ERP blueprint. With ERP. organizational data are processed in a centralized database. or even correctly. the entire organization is considered a collection of interrelated activities. but also due to the costs of: – Developing new procedures – Training employees – Converting data – Other developmental expenses . process view of the entire organization. tested business models. If they do not. and can be slow. ERP is a formal approach that is based on documented. With ERP systems. The process of moving from separated.
ERP-based organizations often find that they can produce and sell the same products at lower costs due to: – Smaller inventories – Reduced lead times – Cheaper customer support . it is not necessary to maintain large buffer stocks. With better planning. many organizations find they can reduce their inventory dramatically. ERP helps organizations reduce lead times. sometimes no longer than a few hours or a day. Items remain in inventory for shorter periods of time. Data inconsistency problems are not an issue because all ERP data are stored in an integrated database. By taking an organization-wide view.ERP Benefits The processes in the business blueprint have been tried and tested over hundreds of organizations. Organizations that convert to ERP do not need to reinvent business processes. The processes are always effective and often very efficient.
The company needs to conduct a simulation test of the new system to identify problems. the next step is to implement the system. all ERP projects must have full support of the CEO and executive staff. procedures. and personnel to the new ERP system. and use of the ERP system features and functions. Managers and analysts compare these processes to the ERP blueprint processes and note the differences. The organizations compare the ERP models to the models developed based on their current practices. The organization must convert its data. procedures. Before implementation starts. Once the differences between the as-is processes and the blueprint have been reconciled. . Organizations that are adopting ERP must review those models and determine which ones are appropriate to them. Because so much organizational change is required. The company must then find ways to eliminate the differences by either: – Changing the existing business process to match the ERP process – Altering the ERP system SAP blueprint contains over a thousand process models.Implementing an ERP System The first task is to model the current business processes. users must be trained on the new processes.
that’s then and this is now. and when accounting calls your brother-in-law for a credit check. it generates an MPS that calls for the substantial production increases and schedules workers for the production run. but you think. and you have finally made quota. schedules the material requirements with the inventory application. which increases raw materials purchases to meet the increased production schedule.” “OK. “but I want you to stipulate the return option on the purchase order” so she increases her order. and accounting books the full amount. Using your customer management system. The only stimulation is that customers must take delivery prior to the end of the quarter so that accounting can book orders. unknown to you. your brother-in-law returns the product. “how about if we agree to take back the inventory you don’t sell next quarter?” By doing this. he cooperates with your scheme You then sell $40. A week into the next quarter. – – – – You set up a new account. you increase your current sales and commission. Accordingly.000 of product to the fictitious company and ship the product to your brother-inlaw’s garage. you identify your top customers and present the discount offer to them. she says. Even with these additional orders. The first customer balks at increasing her inventory: – – – – “I just don’t think we can sell that much”. In desperation. your company’s MRP II system is scheduling production. – – – . The MRP system. The VP of Sales has authorized a 20 percent discount on new orders. The additional product is likely to come back next quarter. in turn. “Hey. you respond. Meanwhile.”. The MPS software program is scheduling production based on your sales activities and other salespeople and finds a sharp increase in product demand. you decide to sell product to a fictitious company that is “owned” by your bother-in-law. you’re still under quota.Ethics Guide–Dialing for Dollars Suppose you are a salesperson and your company’s sales forecasting system predicts that your quarterly sales will be substantially under quota. Accounting books the revenue in the quarter. “Well”. and you also help your company make its quarterly sales projections.
engineering. however. Many organizations have found that implementing such change is the most difficult part of IS implementation. threatens self-efficacy. To be willing to change. require employees to change. Another reason employee resist change is fear of the unknown. employees understand the need for change. all changes make work harder. Change. Change management is a blend of business. especially those that cross departmental boundaries. Employees resist change for several reasons: Change requires adapting to a new situation or system. Employees want to hear about the necessity for change from both the CEO and their immediate boss. methods. Of those factors. When employees feel confident. not easier. for a while. and techniques that enable successful organizational change. The top obstacle to successful change is employee resistance. The concept of self-efficacy means that people believe that they have the knowledge and skills necessary to be successful at their new job. they will be unwilling to devote the extra energy and work required. two emerged as most important: – – Bosses’ behavior and communication Frequent two-way communication . sociology. and psychology that strives to understand the dynamics of organizational change and to develop and communicate theories. Unless. and.Problem Solving Guide–Thinking about Change New information systems. Self-efficacy breeds success. they bring more and more of their natural abilities to the problems they face. Siebel Systems identified a number of key factors in successful change management. employees need to understand the importance of and need for the new system or project.
– The organization must protect data assets from loss due to natural disaster or other catastrophic loss. – Ensure that appropriate roles are defined for application users and that permissions and passwords are set to enforce those roles. backup. and even functional applications that span several business activities. Databases that support ERP. all of the applications in the ERP suite will be unavailable and the entire organization can become paralyzed. increase organizational vulnerability.Security Guide–Centralized Vulnerability With ERP and other multifunction systems. Further. However. and recovery become critical. The goal of such controls is to promote appropriate separation of duties and authorities. a centralized database enables authorized users to obtain integrated information. and recovery become critical. backup. these measures may result in undesirable side effects: – First. Because of this increased vulnerability. security is expensive. security. in the event of a catastrophic data loss. There are several types of controls and procedures that can be put in place such as: – Ensure that appropriate security measures exist to protect the organizational network and organizational databases. a centralized database also makes it easier for unauthorized users and criminals to obtain the same integrated information. increased security always means reduced flexibility. – Because of this increased vulnerability. – Second. . security. However.
every organization tends to implement the standard ERP blueprint. ERP vendors such as SAP have invested millions of labor hours into business blueprints that underlie their ERP solutions. there is a huge incentive for organizations to adapt to the standard ERP blueprint. acquiring consumable goods. Highly trained experts conduct seemingly countless interviews with users and domain experts to determine business requirements. Most organizations choose to modify their processes to meet the blueprint. From a standpoint of cost. In theory. rather than the other way around. and if. effort. time consuming. Standard Blueprint Designing business processes is difficult. every software company develops essentially the same ERP features and functions. Example. processes for hiring employees. and very expensive.Reflections Guide–ERP and the Standard. then won’t every business come to look just like the other business? How will organizations gain a competitive advantage if they all use the same business processes? How will a company distinguish itself? Does the use of “commoditized” standard blueprints mean that no company can sustain a competitive advantage? . SAP was the only true ERP vendor. risk. over time. All of this is fine as far as it goes. and avoidance of future problems. etc. These blueprints consist of hundreds or thousands of different business processes. but it introduces a nagging question: – – – – If. Because of the competitive pressure across the software industry. over time. all of these products are beginning to have the same sets of features and functions. no software development is required at all if the organization can adapt to the standard blueprint of the ERP vendor. ERP vendors have developed software solutions that fit their business-process blueprints. but other companies have developed and acquired ERP solutions as well.
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