McGraw-Hill/Irwin ©2008 The McGraw-Hill Companies, All Rights Reserved CHAPTER 2 STRATEGIC DECISION MAKING Opening Case Revving Up Sales at Harley-Davidson STRATEGIC DECISION MAKING Opening Case Revving Up Sales at Harley-Davidson

2-2 Chapter Two Overview SECTION DECISION-MAKING SYSTEMS –Decision Making –Transaction Processing Systems –Decision Support Systems –Executive Information Systems SECTION ENTERPRISE SYSTEMS –Enterprise Systems –Supply Chain Management –Customer Relationship Management –Business Process Reengineering –Enterprise Resource Planning

2-3 Chapter Two Overview Decision-enabling, problem-solving, and opportunity-seizing systems

McGraw-Hill/Irwin ©2008 The McGraw-Hill Companies, All Rights Reserved SECTION 2.1 DECISION- MAKING SYSTEMS

2-5 LEARNING OUTCOMES 1.Explain the difference between transactional information and analytical information. Be sure to provide an example of each 2.Define TPS, DSS, and EIS and explain how an organization can use these systems to make decisions and gain competitive advantages 3.Describe the three quantitative models typically used by decision support systems

2-6 LEARNING OUTCOMES 4.Describe the relationship between digital dashboards and executive information systems 5.Identify the four types of artificial intelligence systems

2-7 DECISION MAKING Reasons for the growth of decision-making information systems –People need to analyze large amounts of information –People must make decisions quickly –People must apply sophisticated analysis techniques, such as modeling and forecasting, to make good decisions –People must protect the corporate asset of organizational information

2-8 DECISION MAKING Model – a simplified representation or abstraction of reality IT systems in an enterprise

2-9 TRANSACTION PROCESSING SYSTEMS Moving up through the organizational pyramid users move from requiring transactional information to analytical information

2-10 TRANSACTION PROCESSING SYSTEMS Transaction processing system (TPS) - the basic business system that serves the operational level (analysts) in an organization Online transaction processing (OLTP) – the capturing of transaction and event information using technology to (1) process the information according to defined business rules, (2) store the information, (3) update existing information to reflect the new information Online analytical processing (OLAP) – the manipulation of information to create business intelligence in support of strategic decision making

2-11 DECISION SUPPORT SYSTEMS Decision support system (DSS) – models information to support managers and business professionals during the decision-making process Three quantitative models used by DSSs include: 1.Sensitivity analysis – the study of the impact that changes in one (or more) parts of the model have on other parts of the model 2.What-if analysis – checks the impact of a change in an assumption on the proposed solution 3.Goal-seeking analysis – finds the inputs necessary to achieve a goal such as a desired level of output

2-12 DECISION SUPPORT SYSTEMS What-if analysis

2-13 DECISION SUPPORT SYSTEMS Goal-seeking analysis

2-14 DECISION SUPPORT SYSTEMS Interaction between a TPS and a DSS

2-15 EXECUTIVE INFORMATION SYSTEMS Executive information system (EIS) – a specialized DSS that supports senior level executives within the organization Most EISs offering the following capabilities: –Consolidation – involves the aggregation of information and features simple roll-ups to complex groupings of interrelated information –Drill-down – enables users to get details, and details of details, of information –Slice-and-dice – looks at information from different perspectives

2-16 EXECUTIVE INFORMATION SYSTEMS Interaction between a TPS and an EIS

2-17 Digital Dashboards Digital dashboard – integrates information from multiple components and presents it in a unified display

2-18 Artificial Intelligence (AI) Intelligent system – various commercial applications of artificial intelligence Artificial intelligence (AI) – simulates human intelligence such as the ability to reason and learn

2-19 Artificial Intelligence (AI) The ultimate goal of AI is the ability to build a system that can mimic human abilities

2-20 Types of AI

2-21 Artificial Intelligence (AI) Four most common categories of AI include: 1.Expert system – computerized advisory programs that imitate the reasoning processes of experts in solving difficult problems 2.Neural Network – attempts to emulate the way the human brain works –Fuzzy logic – a mathematical method of handling imprecise or subjective information

2-22 Artificial Intelligence (AI) Four most common categories of AI include: 3.Genetic algorithm – an artificial intelligent system that mimics the evolutionary, survival-of- the-fittest process to generate increasingly better solutions to a problem 4.Intelligent agent – special-purposed knowledge-based information system that accomplishes specific tasks on behalf of its users

2-23 Data Mining Data-mining systems sift instantly through information to uncover patterns and relationships Data-mining systems include many forms of AI such as neural networks and expert systems

2-24 OPENING CASE QUESTIONS Revving Up Sales at Harley-Davidson 1.How does Talon help Harley-Davidson employees improve their decision-making capabilities? 2.Identify a few key metrics a Harley-Davidson marketing executive might want to monitor on a digital dashboard 3.How can Harley-Davidson benefit from using decision support systems in its business

McGraw-Hill/Irwin ©2008 The McGraw-Hill Companies, All Rights Reserved SECTION 2.2 ENTERPRISE SYSTEMS

2-26 LEARNING OUTCOMES 6.Describe the four basic components of supply chain management 7.Explain customer relationship management and the benefits it can provide an organization 8.Define enterprise resource planning and explain its importance to an organization 9.Identify how an organization can use business process reengineering to improve its business

2-27 ENTERPRISE SYSTEMS Organizations can undertake high-profile strategic initiatives including: –Supply chain management (SCM) –Customer relationship management (CRM) –Business process reengineering (BPR) –Enterprise resource planning (ERP)

2-28 Enterprise Application Architecture

2-29 SUPPLY CHAIN MANAGEMENT Supply Chain Management (SCM) – involves the management of information flows between and among stages in a supply chain to maximize total supply chain effectiveness and profitability

2-30 SUPPLY CHAIN MANAGEMENT Four basic components of supply chain management include: 1.Supply chain strategy – strategy for managing all resources to meet customer demand 2.Supply chain partner – partners throughout the supply chain that deliver finished products, raw materials, and services. 3.Supply chain operation – schedule for production activities 4.Supply chain logistics – product delivery process

2-31 SUPPLY CHAIN MANAGEMENT Wal-Mart and Procter & Gamble (P&G) SCM

2-32 SUPPLY CHAIN MANAGEMENT Effective and efficient SCM systems can enable an organization to: –Decrease the power of its buyers –Increase its own supplier power –Increase switching costs to reduce the threat of substitute products or services –Create entry barriers thereby reducing the threat of new entrants –Increase efficiencies while seeking a competitive advantage through cost leadership

2-33 SUPPLY CHAIN MANAGEMENT Effective and efficient SCM systems effect on Porter’s Five Forces

2-34 CUSTOMER RELATIONSHIP MANAGEMENT Customer relationship management (CRM) – involves managing all aspects of a customer’s relationship with an organization to increase customer loyalty and retention and an organization's profitability Many organizations, such as Charles Schwab and Kaiser Permanente, have obtained great success through the implementation of CRM systems

2-35 CUSTOMER RELATIONSHIP MANAGEMENT CRM is not just technology, but a strategy, process, and business goal that an organization must embrace on an enterprisewide level CRM can enable an organization to: –Identify types of customers –Design individual customer marketing campaigns –Treat each customer as an individual –Understand customer buying behaviors

2-36 CUSTOMER RELATIONSHIP MANAGEMENT CRM overview

2-37 BUSINESS PROCESS REENGINEERING Business process – a standardized set of activities that accomplish a specific task, such as processing a customer’s order Business process reengineering (BPR) – the analysis and redesign of workflow within and between enterprises –The purpose of BPR is to make all business processes best-in-class

2-38 BUSINESS PROCESS REENGINEERING Reengineering the Corporation – by Michael Hammer and James Champy - recommends seven BPR principles

2-39 Finding Opportunity Using BPR A company can improve the way it travels the road by moving from foot to horse and then horse to car BPR looks at taking a different path, such as an airplane which ignore the road completely

2-40 Finding Opportunity Using BPR Progressive Insurance mobile claims process

2-41 Finding Opportunity Using BPR Types of change an organization can achieve, along with the magnitudes of change and the potential business benefit

2-42 ENTERPRISE RESOURCE PLANNING Enterprise resource planning (ERP) – integrates all departments and functions throughout an organization into a single IT system so that employees can make decisions by viewing enterprisewide information on all business operations Keyword in ERP is “enterprise”

2-43 ERP SOFTWARE ERP functions offered by all ERP vendors include: –Finance, accounting, sales, marketing, human resources, operations, and logistics ERP vendors differentiate themselves by offering unique components including: –CRM, SCM, and BI According to Gartner, the average failure rate for an ERP project is 66 percent

2-44 Finding The Right ERP Solution Successful ERP projects share 3 attributes 1.Overall fit Off the rack Off the rack and tailored to fit Custom made 2.Proper business analysis Successful companies spend up to 10 percent of the project budget on a business analysis 3.Solid implementation plans A plan is needed to monitor the quality, objectives, and timelines

2-45 OPENING CASE QUESTIONS Revving Up Sales at Harley-Davidson 4.Evaluate the HOG CRM strategy and recommend an additional benefit Harley- Davidson could provide to its HOG members to increase customer satisfaction 5.Describe how Harley-Davidson’s SCM system, Manugistics, could improve its business operations 6.Provide an illustration of Harley-Davidson’s SCM system including all upstream and downstream participants

2-46 CLOSING CASE ONE Consolidating Touchpoints for Saab 1.How has implementing a CRM system enabled Saab to gain a competitive advantage? 2.Estimate the potential impact to Saab’s business if it had not implemented a CRM system 3.What additional benefits could Saab receive from implementing a supply chain management system?

2-47 CLOSING CASE ONE Consolidating Touchpoints for Saab 4.Model Saab’s supply chain 5.How is Saab’s CRM implementation going to influence its SCM practices?

2-48 CLOSING CASE TWO Made-to-Order Businesses 1.What role does supply chain management and customer relationship management play in a mass customization business strategy? 2.How can Lands’ End use its CRM system to improve its business? 3.How can Nike use a CRM system to improve its customer relations? 4.Why is Nike’s supply chain management system critical to its Nike iD order fulfillment process?

2-49 CLOSING CASE TWO Made-to-Order Businesses 5.Choose one of the examples above and explain how an ERP system could help facilitate the mass customization effort 6.Choose one of the examples above and explain how the company is attempting to gain a competitive advantage with mass customization 7.Identify one other business that could benefit from the use of mass customization. Explain why this business would need customer relationship management and supply chain management systems to implement a mass customization business strategy

2-50 CLOSING CASE THREE Delta Airlines Plays Catch-Up 1.What business risks would Delta be taking if it decided not to catch up with industry leaders in using IT to gain a competitive advantage? 2.What competitive advantages can an airline gain by using DSS and EIS? 3.What other industries could potentially benefit from the use of yield management systems?

2-51 CLOSING CASE THREE Delta Airlines Plays Catch-Up 4.How can American and United use customer information to gain a competitive? 5.What types of metrics would Delta executives want to see in a digital dashboard? 6.How could Delta use supply chain management to improve its operations?