1. © 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke Slide 1 Chapter 7 Competitive Advantage with Information Systems within Organizations

2. © 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke Slide 2 Agenda 1.How do organizations gain a competitive advantage using IS inside the organization? 2.What are the three fundamental types of information systems within organizations? 3.How do functional systems relate to the value chain? 4.What are the basic types of functional systems? 5.What are the problems of functional systems? 6.How do cross-functional systems relate to the value chain?

3. © 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke Slide 3 Achieving Competitive Advantage Businesses determine competitive strategies Create processes to achieve strategies Information systems developed to support business processes Help organizations achieve competitive advantage Need to avoid creating systems that are unrelated to organization’s strategy

4. © 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke Slide 4 Fundamental Types of Information Systems within Organizations Calculation systems Functional systems Cross-functional systems

5. © 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke Slide 5 History of IS within Organization

6. © 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke Slide 6 Calculation Systems Relieved workers of repetitive calculations Labor-saving devices Produced little information Examples: systems that computed payroll and wrote paychecks; inventory tracking

7. © 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke Slide 7 Functional Systems Facilitates work of single department or function Functions added to calculation system programs to provide more value Islands of automation Work independently from each other Effective as independent functions Inefficient working in cooperation with other processes across entire business Examples: human resources; financial reporting

8. © 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke Slide 8 Integrated, Cross-Functional Systems Cross-department systems operate across departmental boundaries Increased functionality Process-based systems support complete business processes Integrated processing systems are more efficient Needs clear line of authority, rivalry can subvert

9. © 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke Slide 9 Value Chain Activities Primary activities Relate directly to organization’s customers and products Marketing and sales Inbound logistics Operations and manufacturing Outbound logistics Service and support

10. © 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke Slide 10 Support Activities Primary activities are facilitated by support activities Human resource Accounting and infrastructure Procurement Technology activities

11. © 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke Slide 11 Reorganized Porter’s Value Chain

12. © 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke Slide 12 Basic Types of Functional Systems Marketing and Sales Systems Operations systems Manufacturing systems Human resource systems Accounting systems

13. © 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke Slide 13 Typical Functions

14. © 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke Slide 14 Marketing and Sales Systems Few systems support marketing Product management Assess product marketing efforts Many systems support sales Blog Sales forecasting Used for planning production, managing inventory, financial reporting Customer management Generate follow-on business

15. © 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke Slide 15 Operations Systems Used by non-manufacturing companies such as distributors and retailer Key operations functional systems Order entry ( by employees or web-based) Order management systems (track orders through the fulfillment process, handling back orders, and order changes) Inventory management systems ( analyzes sales activity Customer service (ie Customer Loyalty)

16. © 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke Slide 16 Customer Loyalty Management Process Map

17. © 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke Slide 17 Manufacturing Systems Support production and planning –transformation of material to products Process data about inventories Two Philosophies: Push production planning Organization creates schedule and pushes goods through manufacturing and sales Pull production planning Responds to customer demand Reduction in inventory triggers production One-off producers fall into neither category ( aircraft)

18. © 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke Slide 18 Additional Functional Manufacturing Systems and Technologies Manufacturing scheduling systems Assist organizations to determine optimal methods Manufacturing Operations systems Control manufacturing plants and machines (Robotic production line) Radio-frequency identification tags (RFIDs) Computer chips that transmit data about items Sensors connected to functional systems receive signals and record information

19. © 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke Slide 19 Video Industrial Robotics

20. © 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke Slide 20 Human Resources Systems

21. © 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke Slide 21 Accounting Systems

22. © 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke Slide 22 The Sarbanes-Oxley Act of 2002 (US) Revision of Exchange Act of 1934 Enacted to prevent corporate fraud Requires management: Create internal controls for production of financial statements Issue statement attesting to control activities External auditor must issue opinion on quality of controls Exposes both management and external auditor to financial and criminal liability Implications for Canada

23. © 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke Slide 23 MIS in Use: Sarbanes-Oxley: Boon or Bane? Goal was to upgrade financial reporting Intended to improve trust in financial reports More than 15 percent of IS will be diverted to SOx compliance No one knows exactly what is necessary for compliance Act requires external auditors become more independent Act is vague and is often given broadest possible interpretation Potential for millions of dollars to be wasted in compliance

24. © 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke Slide 24 Functional Systems Problems Systems provide tremendous benefits, but are limited because they operate in isolation Data duplication results from each application having own database Potential lack of data integrity Business processes disjointed across functions Produces lack of integrated enterprise information Limited information available at any one source Inefficient decisions based on limited knowledge Increased costs to organization

25. © 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke Slide 25 Major Problems of Isolated Functional Systems

26. © 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke Slide 26 Cross-Functional Systems and the Value Chain Cross-functional systems designed to overcome problems in functional systems Customer relationship management systems (CRM) Integrates all of the primary business activities Makes the organization customer-centric All customer data stored in single database Enterprise resource management systems (ERP) Integrates primary value chain activities with human resources and accounting Enterprise-wide systems

27. © 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke Slide 27 Further Integration of Business Functions & Processes Customer Relationship Management (CRM) Creating a coherent, integrated view of a firm relationship with its customer Supply Chain Management (SCM) Automation of relationship between firm and its supplier Enterprise Systems (ERP) Integrated enterprise-wide information systems that Coordinates key internal processes of firm, integrating data from manufacturing and distribution Finance, Sale, and human resources

28. © 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke Slide 28 Manages all ways used by firms to deal with existing and potential new customers CRM is both a Business and Technology discipline CRM Uses information system to integrate entire business processes of a firm’s interaction with its customers. Provides end-to-end customer care ( from order receipt through delivery and after sale service and support) Provides a unified view of customer across the company Consolidates customer data from multiple sources (retail stores, phone, e-mail, the Web) and provides analytical tools for answering questions Customer Relationship Management (CRM)

29. © 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke Slide 29 CRM : Customer Relationship Management Systems

30. © 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke Slide 30 Good CRM systems: By consolidating customer data, should be able to answer questions such as What’s the value of particular customers over their lifetime? Who are the most loyal customers? ( costs 6 times more to sell to a new customer than an existing one ) Who are firm’s most profitable customers? ( 80%-90% of the firm’s profit are generated by 10%-20% of its customers ) What do these profitable customers buy? Firms can then use the answers to these questions to acquire new customers.

31. © 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke Slide 31 A CRM Demo MySAP CRM Microsoft Business Solutions: CRM

32. © 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke Slide 32 Traditional View of the Systems Within the business: There are functions, each having its uses of information systems Outside the organization’s boundaries: There are customers and vendors Functions tend to work in isolation CRM and SCM are steps forward in solving this problem

33. © 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke Slide 33 Traditional view of systmes

34. © 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke Slide 34 Enterprise Systems OR (Enterprise Resource Planning [ERP] ) Firm-wide information systems that integrate key business processes so that information can flow freely between different parts of the firm.

35. © 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke Slide 35 Enterprise Systems - ERP

36. © 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke Slide 36 Challenges of Enterprise Systems Difficult to build: Require fundamental changes in the way the business operates Technology: Require complex pieces of software and large investments of time, money, and expertise Inflexibility: because ERPs are integrated it is difficult to make a change in only one part of the business without affecting other parts Decision making: Not the best way for the firms to operate, ERP software may prevent the firm from following their successful business model

37. © 2008 Pearson Prentice Hall, Experiencing MIS, David Kroenke Slide 37 Videos Inside Intel manufacturing SAP