INTEGRATING FUNCTIONS AND BUSINESS PROCESSES: INTRODUCTION TO ENTERPRISE APPLICATIONS

One of the major challenges facing firms today is putting together data from the systems we have just described to make information flow across the enterprise. Electronic commerce, electronic business, and intensifying global competition are forcing firms to focus on speed to market, improving customer service, and more efficient execution. The flow of information and work needs to be orchestrated so that the organization can perform like a well-oiled machine. These changes require powerful new systems that can integrate information from many different functional areas and organizational units and coordinate firm activities with those of suppliers and other business partners.

Business Processes and Information Systems

The new digital firm business environment requires companies to think more strategically about their business processes, which we introduced in Chapter 1. Business processes refer to sets of logically related activities for accomplishing a specific business result. Business processes also refer to the unique ways in which organizations and management coordinate these activities. A company’s business processes can be a source of competitive strength if they enable the company to innovate better or to execute better than its rivals. Business processes can also be liabilities if they are based on outdated ways of working that impede organizational responsiveness and efficiency.

          Some business processes support the major functional areas of the firm, others are cross-functional. Table 2-6 describes some typical business processes for each of the functional areas.

TABLE 2-6 Examples of Functional Business Processes

          Many business processes are cross-functional, transcending the boundaries between sales, marketing, manufacturing, and research and development. These cross-functional processes cut across the traditional organizational structure, grouping employees from different functional specialties to complete a piece of work. For example, the order fulfillment process at many companies requires cooperation among the sales function (receiving the order, entering the order), the accounting function (credit checking and billing for the order), and the manufacturing function (assembling and shipping the order). Figure 2-12 illustrates how this cross-functional process might work. Information systems support these cross-functional processes as well as processes for the separate business functions.

Systems for Enterprise-Wide Process Integration

FIGURE 2-13 Enterprise application architecture Enterprise applications automate processes that span multiple business functions and organizational levels and may extend outside the organization.

Overview of Enterprise Applications

Let’s look briefly at each of the major enterprise applications to see how they fit into the overall information architecture of the enterprise. We examine enterprise systems and systems for supply chain management and customer relationship management in greater detail in Chapter 11 and cover knowledge management applications in Chapter 12.

OVERVIEW OF ENTERPRISE SYSTEMS

A large organization typically has many different kinds of information systems that support different functions, organizational levels, and business processes. Most of these systems were built around different functions, business units, and business processes that do not “talk” to each other and thus cannot automatically exchange information. Managers might have a hard time assembling the data they need for a comprehensive, overall picture of the organization’s operations. For instance, sales personnel might not be able to tell at the time they place an order whether the items that were ordered were in inventory; customers could not track their orders; and manufacturing could not communicate easily with finance to plan for new production. This fragmentation of data in hundreds of separate systems could thus have a negative impact on organizational efficiency and business performance. Figure 2-14 illustrates the traditional arrangement of information systems.

FIGURE 2-14 Traditional view of systems In most organizations today, separate systems built over a long period of time support discrete business processes and discrete segments of the business value chain. The organization’s systems rarely include vendors and customers.

          Enterprise systems, also known as enterprise resource planning (ERP) systems solve this problem by providing a single information system for organization-wide coordination and integration of key business processes. Information that was previously fragmented in different systems can seamlessly flow throughout the firm so that it can be shared by business processes in manufacturing, accounting, human resources, and other areas. Discrete business processes from sales, production, finance, and logistics can be integrated into company-wide business processes that flow across organizational levels and functions. Figure 2-15 illustrates how enterprise systems work.

FIGURE 2-15 Enterprise systems Enterprise systems integrate the key business processes of an entire firm into a single software system that enables information to flow seamlessly throughout the organization. These systems focus primarily on internal processes but may include transactions with customers and vendors.

          The enterprise system collects data from various key business processes in manufacturing and production, finance and accounting, sales and marketing, and human resources and stores the data in a single comprehensive data repository where they can be used by other parts of the business. Managers emerge with more precise and timely information for coordinating the daily operations of the business and a firmwide view of business processes and information flows.

          For instance, when a sales representative in Brussels enters a customer order, the data flow automatically to others in the company who need to see them. The factory in Hong Kong receives the order and begins production. The warehouse checks its progress online and schedules the shipment date. The warehouse can check its stock of parts and replenish whatever the factory has depleted. The enterprise system stores production information, where it can be accessed by customer service representatives to track the progress of the order through every step of the manufacturing process. Updated sales and production data automatically flow to the accounting department. The system transmits information for calculating the salesperson’s commision to the payroll department. The system also automatically recalculates the company’s balance sheets, accounts receivable and payable ledgers, cost-center accounts, and available cash. Corporate headquarters in London can view up-to-the-minute data on sales, inventory, and production at every step of the process, as well as updated sales and production forecasts and calculations of product cost and availability. Chapter 11 provides more detail on enterprise system capabilities.

OVERVIEW OF SUPPLY CHAIN MANAGEMENT SYSTEMS

Supply chain management (SCM) systems are more outward facing, focusing on helping the firm manage its relationship with suppliers to optimize the planning, sourcing, manufacturing, and delivery of products and services. These systems provide information to help suppliers, purchasing firms, distributors, and logistics companies coordinate, schedule, and control business processes for procurement, production, inventory management, and delivery of products and services.

          Supply chain management systems are one type of interorganizational system because they automate the flow of information across organizational boundaries. A firm using a supply chain management system would exchange information with its suppliers about availability of materials and components, delivery dates for shipments of supplies, and production requirements. It might also use the system to exchange information with its distributors about inventory levels, the status of orders being fulfilled, or delivery dates for shipments of finished goods. You will find examples of other types of interorganizational information systems throughout this text because such systems make it possible for firms to link electronically to customers and to outsource their work to other companies.

          Table 2-7 describes how firms can benefit from supply chain management systems. The ultimate objective is to get the right amount of their products from their source to their point of consumption with the least amount of time and with the lowest cost. Supply chain management systems can be built using intranets, extranets, or special supply chain management software.

TABLE 2-7 How Information Systems Facilitate Supply Chain Management

          Figure 2-16 illustrates the supply chain management systems used by Haworth, a world-leading manufacturer and designer of office furniture described in the Window on Technology. Haworth needed to synchronize manufacturing and distribution activities to cut costs and boost efficiency by having material flow continuously from multiple manufacturing centers to multiple distribution centers. It implemented new systems for warehouse management and transportation management. These systems enable Haworth to deliver multipart shipments requiring assembly in the correct sequence, accommodate shipping volumes that can vary by a factor of 10 from one day to the next, and handle last-minute changes in customer orders.

FIGURE 2-16 Haworth’s supply chain management systems Customer orders, shipping notifications, optimized shipping plans, and other supply chain information flow among Haworth’s Warehouse Management System (WMS), Transportation Management System (TMS), and its back-end enterprise systems and other corporate applications.

OVERVIEW OF CUSTOMER RELATIONSHIP MANAGEMENT SYSTEMS

Instead of treating customers as exploitable sources of income, businesses are now viewing them as long-term assets to be nurtured through customer relationship management. Customer relationship management (CRM) systems focus on coordinating all of the business processes surrounding the firm’s interactions with its customers in sales, marketing, and service to optimize revenue, customer satisfaction, and customer retention. The ideal CRM system provides end-to-end customer care from receipt of an order through product delivery.

         In the past, a firm’s processes for sales, service, and marketing were highly compartmentalized, and these departments did not share much essential customer information. Some information on a specific customer might be stored and organized in terms of that person’s account with the company. Other pieces of information about the same customer might be organized by products that were purchased. There was no way to consolidate all of this information to provide a unified view of a customer across the company. CRM systems try to solve this problem by integrating the firm’s customer-related processes and consolidating customer information from multiple communication channels— telephone, e-mail, wireless devices, or the Web—so that the firm can present one coherent face to the customer (see Figure 2-17).

FIGURE 2-17 Customer relationship management (CRM) Customer relationship management systems examine customers from a multifaceted perspective. These systems use a net of integrated applications to address all aspects of the customer relationship, including customer service, sales, and marketing. Siebel Systems customer relationship management software provides a single point through which users can manage and evaluate marketing campaigns across multiple channels, including e-mail, telephone, direct mail, the Web, and wireless messages.

         Good CRM systems provide data and analytical tools for answering questions such as these: What is the value of a particular customer to the firm over his or her lifetime? Who are our most loyal customers? (It can cost six times more to sell to a new customer than to an existing customer.) Who are our most profitable customers? What do these profitable customers want to buy? Firms can then use the answers to these questions to acquire new customers, provide better service and support to existing customers, customize their offerings more precisely to customer preferences, and provide ongoing value to retain profitable customers.

The value of a firm’s products and services is based not only on its physical resources but also on intangible knowledge assets. Some firms perform better than others because they have better knowledge about how to create, produce, and deliver products and services. This firm knowledge is difficult to imitate, unique, and can be leveraged into long-term strategic benefit. Knowledge management systems collect all relevant knowledge and experience in the firm and make it available wherever and whenever it is needed to support business processes and management decisions. They also link the firm to external sources of knowledge.

         Knowledge management systems support processes for acquiring, storing, distributing, and applying knowledge, as well as processes for creating new knowledge and integrating it into the organization. They include enterprise-wide systems for managing and distributing documents, graphics, and other digital knowledge objects, systems for creating corporate knowledge directories of employees with special areas of expertise, office systems for distributing knowledge and information, and knowledge work systems to facilitate knowledge creation. Other knowledge management applications are expert systems that codify the knowledge of experts in information systems that can be used by other members of the organization and tools for knowledge discovery that recognize patterns and important relationships in large pools of data. Table 2-8 provides examples of knowledge management systems, and Chapter 12 describes these knowledge management applications in detail.

TABLE 2-8 Knowledge Management Systems in the Organization