Chapter 7 Enterprise-Wide Information Systems www.prenhall.com/jessup

Learning Objectives 1. Explain how organizations support business activities by using information technologies 2. Describe what enterprise systems are how they have evolved Explain the difference between internally and externally focused software applications Understand and utilize the keys to successfully implementing enterprise systems.

System Categories Enterprise-wide Systems aka Enterprise Systems, are systems that allow companies to integrate information across operations on a company-wide basis Interorganizational Systems (IOS) Systems that communicate across organizational boundaries who’s goal is to streamline information flow from one company to another

The Value Chain –Internally Focused Used to identify the flow of information through a set of business activities. It identifies two types of activities, primary and support

The Value Chain - Primary Activities Functional areas within an organization that process inputs and produce outputs. These activities may vary widely based on the unique requirements of a company’s industry Primary Activities include: Inbound Logistics – receiving and stocking raw materials, parts, products Operations/Manufacturing – processing orders and raw materials into finished product Outbound Logistics – distribution of the finished product to customers Marketing and Sales – creating demand for the product (pre-sales activities) Customer Service – providing support for the product or customer (post-sales activities)

The Value Chain - Support Activities Support activities are business activities that enable Primary Activities These activities can be unique by industry but are generally more typical across industries Support Activities include: Infrastructure – hardware and software that must be implemented to support applications for primary activities Human Resources – employee management activities: hiring, interview scheduling, and benefits management Technology Development – the design and development of applications that support the organization Procurement – purchase of goods or services that are required as inputs to primary activities

Interorganizational Systems – Across Organizations Example – Order Process and Information Flow

A Value System – Externally Focused A connection of value chains across organizations Allows the flow of information between organizations to support business activities Upstream flow is information received from another organization (i.e. from company A to Company B above) Downstream Flow is information sent to another organization (i.e. from Company B to Company C above)

Options for Enterprise Systems – Packaged vs. Custom Packaged Applications “Off the Shelf” computer applications purchased from a vendor or the company that created the system (i.e. SAP or Ms Dynamics) Packaged Key Characteristics Best Use - standardized, repetitive tasks Cost Effectiveness – lower cost because vendors can create once and then sell many copies to others Organizational Fit – may not be well suited for tasks that are unique to a particular business or industry Maintenance – the vendor makes the changes and then sends the updates to its customer on a periodic basis. The customer does not control this schedule

Options for Enterprise Systems – Packaged vs. Custom Custom Applications “Custom-built” computer applications created by the organization or a third party (e.g. a consulting organization) Custom Key Characteristics Best Use - unique business process to an organization Cost Effectiveness – much higher cost due to the one-time creation of the applications Organizational Fit – excellent as they are designed to fit a specific business process Maintenance – all changes are created and implemented by the organization using the application

Enterprise System Evolution Standalone Systems Integrated Systems (Intraorganizational) (Interorganizational) System Types

Enterprise Systems – Stand-alone or Legacy Stand Alone (Legacy) Systems A single system or groups of systems, designed to each support one or a few business functions (e.g. accounting system or a manufacturing system, etc.) Stand Alone (Legacy) Systems Little or no integration with other organizational systems. If integration exists, it is usually in batch (i.e. the accounting system gets updates from manufacturing system once a day or week Organizational fit may be better than integrated packages due to the focus on one function and that they have been highly modified over time Customization and the age of these systems make them difficult to support due to the complexity, use of older or obscure languages, etc.

Enterprise Systems - Legacy System Example Legacy (stand-alone) Systems – information is not readily shared between systems (i.e. Inbound Logistics inventory information shared with Operations)

Enterprise Resource Planning Integrated Packages (Enterprise Resource Planning) Richly functional systems designed to support many organizational functions (e.g. accounting and finance) ERP Key Characteristics Internally focused systems designed to support the internal operations of the organization Highly integrated systems sharing a common data warehouse for information sharing across functions, using real-time updates Organizational fit may be less for individual departments but the integrated sharing of information usually outweighs these issues Usually packaged applications supported by the vendor utilizing a common user interface Customization is discouraged but these systems have the flexibility to support other outside applications using the common data repository and interfaces

Enterprise Systems – Integrated System Example Integrated Systems – Information is stored in a single data repository and can be accessed and updated by all functional systems (e.g. Operations)

Choosing an ERP System - Issues ERP Systems are: Supplied by multiple vendors including SAP, Baan, Oracle, etc., with each having their own unique features and structures Packaged systems that are following a one size-fits all strategy which means they may not support all functions as well as a custom system Similar but are also different. They should be selected based on factors including control, business requirements, and best practices

Choosing an ERP System – Selection Factors Control refers to where the power lies related to computing and decision support systems (centralized vs. decentralized) in selecting systems, developing policies and procedures, etc. (who will decide?) Business Requirements refers to the system’s capabilities and how they meet organizational needs through the use of software modules or groups of business functionality (what do you need?) Best Practices refers to the degree to which the software incorporates industry standard methods for doing business which can cause a need for significant business processes reengineering (how much change is required?)

ERP Capabilities – SAP Example

Enterprise Systems – Integrated (Interorganizational) Integrated Packages Richly functional systems designed to support externally focused functions (Upstream – Supply Chain Management and Downstream – Customer Relationship Management) Integrated Packages Highly integrated with internal systems (ERP) through the use of interfaces and specialty software Organizational fit for these systems is very high as they are highly specific to the function they support These are usually packaged applications that are supplied and supported by the ERP vendor or other third party system integrators Customization or modifications are also discouraged to minimize support cost but the applications are highly tailorable with configuration options

Customer Relationship Management Objective Applications that help organizations attract new business and attract and encourage repeat business Functions There are two primary functions in CRM systems: Sales – tools designed to assist in presales activities such as marketing and prospecting (e.g. Sales Force Automation) Service – tools that help with the post-sales aspects of the business (e.g. call center technology, analytics) Sources There are two primary sources of CRM systems: CRM Software Vendors – Siebel, FirePond, Onyx, E.Piphany ERP Vendors – SAP, Baan, Oracle, etc.

Supply Chain Management Objective Applications that accelerate product development and reduce cost associated with procuring raw materials, components, and services from its suppliers Supply Chain – the suppliers that an organization purchases from directly Supply Network – the suppliers that an organization purchases from directly and its suppliers Sources There are two primary sources of SCM systems. These systems are built to tightly integrate with ERP systems SCM Software Vendors – Agile, Ariba, I2, Manugistics, Commerce One, etc. ERP Vendors – SAP, Baan, Oracle, etc

SCM – Example of a Supply Network

Supply Chain Management Benefits Supply Chain Management applications can help organizations to gain competitive advantage and provide substantial payback in several ways by: Streamlining workflow and increasing employee productivity (i.e. efficiently managing business travel, time, and expenses by collaborating with suppliers in realtime) Accelerating product development (i.e. enabled by the ability of organizations to swiftly react to market conditions) Streamlining cost and creating efficiencies across the supply network (i.e., supporting contract negotiation and measuring effectiveness of those agreements)

SCM – Example of SAP SCM Offering SAP is the ERP market leader. They also offer SCM applications whose capabilities including the following:

Recommendations for Enterprise System Implementation Success Secure Executive Sponsorship The highest level support is required to obtain resources and make and support difficult reengineering decisions Get Help from Outside Experts Implementation success is enabled by deep application experience and access to supporting tools and methods Thoroughly Train Users Training in organization, business process, and application functions is critical to success and must be reinforced Take a Multidisciplinary Approach to Implementations Enterprise systems span the entire organization and as such require input and participation from all functions

Recommendations for Enterprise System Implementation Success (Contd.) Several ERP implementation failures have been reported. To be successful and organizations must also have: A shared organizational vision Participants empowered to reengineer Sound management practices A project champion An understanding of BPR and accept minimum customization Monitoring and evaluation of performance ERP failures can be tracked back to the lack of one or more of these factors in implementation!