Business Innovation Through Information Technology

1. Business Innovation Through Information Technology ERP, CRM, & SCM

2. The Holistic View of IT Organization Processes Strategy Bus. Task Relationship Processes Jobs Beliefs Business ORG Incentives IT IS Development IT Investment Portfolio Architecture Business Needs Policies Technology SDLC Project Mgn’t Technology IS Management Technology Hardware Software Information Network “Emerging” Own Source Manage

3. Firm Infrastructure Human Resource Management Technology & Development Procurement Inbound Logistics Outbound Logistics Operations Marketing & Sales Service Value Chain Support Activities Primary Activities • Processes: Activities that the firm has value enabled • Reduce cost & cycle time • Improve quality • Improve service Source: Michael Porter 1985

4. What’s the core of ERP? • It’s not resources, it’s not planning, but it is enterprise • It is back office software • It’s a common platform for taking the customer order and processes through invoice and revenue • Order processing with customer history, inventory levels, and credit info. • Manufacturing planning • Inventory Management • Purchase order processing/management • Cost accounting • Financials • Human resources • Integrated set of software programs that run off a single database • Enables internal departments to better share information and communicate • Started in discrete manufacturing and moved on. • Other industries • Some have implemented modulus like order management or finances • Other have their own industry specific back office systems

5. Enterprise Resource Planning (ERP) Source: Davenport • Focus on cross-functional activities • Task-driven processes • Common operational database • Reducing legacy systems

6. ERP Implementation & Issues • Who has done it • 60% of multi-national firms had implemented ERP by 19992 • General survey - 38% had implemented, 26% were implementing according to CIO survey of 10/07/01 • Implementations cost & time • Average cost $15 million (can run as high as 2-3% of revenue)13 • Highest - $300 million • Lowest - $400,000 • Total cost of ownership for heads-down user - $53,000 • Takes on average 21 months to install with benefits starting to accrue after 31 months3 • Why so long and cost so much? • Simultaneous process redesign of multiple functional areas within the firm • Need to adapt processes to the capabilities of the software • Median annual savings - $1.6 million13 • Many reported problems • Hershey Foods, Nike, Whirlpool • Agilent Technologies, August 19, 2002 Reports that ERP installation problems cost them • $105 million in revenue for the quarter • $70 million in operating profit 3. Hitt, Wu, Xiaoge 13. Meta Survey of 63 companies in 1998 reported by Hitt, Wu, Xiaoge and CIO Magazine

7. Application Heterogeneity Built over The Years Mfg. 390 Dist. Sales AS/400 390 390 Marketing 390 PC Server Unix Data Warehouse Unix PC Server Unix PC Server AS/400 PC Server 390 AS/400 Unix Some Shared Infrastructure Some Servers, Possibly a data center or two, Network? Desktop platforms, e-mail Many point to point connections (only 2 sources shown here) Change one - Broad impact on internals of many other systems Systems are complex and increasingly fragile

8. ERP was also a Technology Fix Mfg. 390 Dist. Sales AS/400 Data Warehouse 390 390 PC Server Marketing Unix Unix 390 390 PC Server PC Server PC Server AS/400 Unix AS/400 Unix New ERP Application becomes extension to Infrastructure Shared Infrastructure Network, Some Servers, Possibly a data center or two Reduce # of Legacy Systems Build Common Operational Database Reduce Maintenance and Future Development

9. General ERP Benefits12 • Improved information flow across sub-units through standardization and integration of activities • Enable centralization of administrative activities such as account payables and payroll • Reduced IS maintenance costs and increased the ability to deploy new IS functionality • Enable a transformation from inefficient business processes toward accepted best of practice processes • Often resulting in • Improved information to customers • Reduced cycle times • On-time completion rates 12. Gattiker and Goodhue (2000)

10. Customers ERP Value Chain ERP Suppliers Enterprise Enterprise

11. What is CRM? • CRM is a technology-enabled business strategy whereby companies leverage increased customer knowledge to build profitable relationships, based on optimizing value delivered to and realized from their customers17 • Typically includes • Data Warehousing – capturing and management of customer information • Automating front-office functions – typically including • Sales(force automation) – Lead/opportunity identification & tracking, access to information, analysis and reporting, configurators • Marketing – campaign management & e-marketing • Customer service (Call center effectiveness) – Voice response units, call routing, linking caller info with call, link to ERP system, problem resolution • eCustomer service • Channel linkage • Hard to separate CRM front-office functions from e-business • ERP built a base before the Web • CRM is growing along with the Web • When discussing CRM it is very important to understand the functions being discussed, where the investments are being made, and associated returns or lack thereof 17.The CRM Forum

12. Customers ERP & CRM Value Chain ERP CRM Suppliers Enterprise Enterprise

13. Customer Relationship Management • Who has or is implementing 1 • 40% of high tech, aerospace, retailing, & utilities (US & Europe) • 66% of US telecom • >50% of US financial services, pharmaceutical, & transportations • Highly complex installations can cost $100 million and take 3 years • Results • 35% of respondents said met expectations 2 • 20% of US retail banks have raised profitability as a result 3 • AMR Research 2001 • IDC Study 2001 • Mc Kinsey Productivity Study 2001

14. MGI Study

15. Supply Chain Management (SCM) • Supply chain planning • Forecasting • Materials & capacity planning • Transportation planning • Facilities planning • Scheduling • Sourcing • Logistics coordination - Execution • Forward • Reverse • Software focus • Complex analytical tools • Inter-organizational transactions • Collaboration

16. Customers Enterprise Systems Value Chain ERP SCM CRM Suppliers Enterprise Enterprise

17. SCM Benefits and Issues • Benefits • Costs – inventory, people, prices paid, returns, physical assets • Cycle time – design, order fulfillment • Quality • Issues – Same as ERP & CRM

18. What’s Behind the Problems with Enterprise Systems? • Business ownership • Process changes • Software complexity • Long cycle times • Clean-up vs. new value • Managing inputs vs. outcomes

19. Enterprise Systems - Where They fit, What They Fix from an IT Viewpoint Process breakage Labor intensive Slow and Time intensive Fragile Difficult to integrate Slow, Hard, & Expensive to change Vendor Customers SCM Mfg. Dist. 390 CRM Vendor Sales AS/400 Data Warehouse Customers 390 390 PC Server Marketing Unix Unix 390 390 PC Server PC Server PC Server AS/400 Unix AS/400 Unix New ERP Application becomes extension to Infrastructure Shared Infrastructure TCP/IP Network, Web Application Servers, Middleware, Security, Pervasive PCs, Rationalized Information, Collaboration Capabilities, Analytics, Privacy Management

20. DBMS Legacy Application ApplicationProcessing ApplicationProcessing Networking: Three-Tier Client/Server Distributed computing Database Server Server Client Client Client

21. DBMS Legacy Applications ERP Applications Browser Web ApplicationServer Front-ending Enterprise Systems Distributed computing ERP Database User Friendly Applications Server Server Client Client Client