CHAPTER 19

Outsourcing in the 21st Century Organization

OUTSOURCING DEVELOPMENT
 
• In the high-speed global business environment, an organization needs to maximize its profits, enlarge its market share, and restrain its ever-increasing costs
• Insourcing (in-house-development) – a common approach using the professional expertise within an organization to develop and maintain the organization's information technology systems
• Outsourcing – an arrangement by which one organization provides a service or services for another organization that chooses not to perform them in-house

• Reasons companies outsource





• Benefits from outsourcing include:
1. Financial savings
2. Increased technical abilities
3. Market agility


• Factors driving outsourcing growth include:
1. Core competencies
2. Rapid growth
3. Industry changes
4. The Internet


DEVELOPING STRATEGIC OUTSOURCING PARTNERSHIP
 
• Business process outsourcing (BPO) – contracting of a specific business task, such as payroll, to a third-party service provider
• BPO is divided into two categories:
1. Back-office outsourcing
2. Front-office outsourcing


SOURCING’S NEW SURGE – OFFSHORING
 
• Offshore outsourcing – using organizations from developing countries to write code and develop systems

• According to Forrester Research, nearly half of all businesses use offshore providers, and two-thirds plan to send work overseas in the near future 

CHAPTER 19

Outsourcing in the 21st Century Organization

OUTSOURCING DEVELOPMENT
 
• In the high-speed global business environment, an organization needs to maximize its profits, enlarge its market share, and restrain its ever-increasing costs
• Insourcing (in-house-development) – a common approach using the professional expertise within an organization to develop and maintain the organization's information technology systems
• Outsourcing – an arrangement by which one organization provides a service or services for another organization that chooses not to perform them in-house

• Reasons companies outsource





• Benefits from outsourcing include:
1. Financial savings
2. Increased technical abilities
3. Market agility


• Factors driving outsourcing growth include:
1. Core competencies
2. Rapid growth
3. Industry changes
4. The Internet


DEVELOPING STRATEGIC OUTSOURCING PARTNERSHIP
 
• Business process outsourcing (BPO) – contracting of a specific business task, such as payroll, to a third-party service provider
• BPO is divided into two categories:
1. Back-office outsourcing
2. Front-office outsourcing


SOURCING’S NEW SURGE – OFFSHORING
 
• Offshore outsourcing – using organizations from developing countries to write code and develop systems

• According to Forrester Research, nearly half of all businesses use offshore providers, and two-thirds plan to send work overseas in the near future 

CHAPTER 15

Chapter 15 : Creating Collaborative Partnerships

TEAMS, PARTNERSHIP AND ALLIANCES
• Organizations create and use teams, partnerships, and alliances to:
– Undertake new initiatives
– Address both minor and major problems
– Capitalize on significant opportunities
 • Organizations create teams, partnerships, and alliances both internally with employees and externally with other organizations


• Collaboration system – supports the work of teams by facilitating the sharing and flow of information





• Organizations form alliances and partnerships with other organizations based on their core competency

Core competency – an organization’s key strength, a business function that it does better than any of its competitors
Core competency strategy – organization chooses to focus specifically on its core competency and forms partnerships with other organizations to handle nonstrategic business processes
• It is just as important for an organization to form teams, partnerships, and alliances with other organizations
• An organization that uses a core competency strategy will focus on its core competency and form partnerships with other organizations to handle nonstrategic business processes
• The most common example of this is outsourcing payroll or accounting functions
• Many organizations want to focus on the marketing and selling of a unique product or service. These organizations do not want to incur the expense of maintaining accounting or tax experts on staff, hence they will outsource these functions to a business partner
• This is a great time to refer back to the opening case
• Discuss how Levi’s core competency is brand-name differentiation and recognition, while Wal-Mart’s core competency is retail cost leadership
• The partnership between these two organizations enables cost-leadership selling of a widely recognized brand name
• Information technology can make a business partnership easier to establish and manage
– Information partnership – occurs when two or more organizations cooperate by integrating their IT systems, thereby providing customers with the best of what each can offer
– The Internet has dramatically increased the ease and availability for IT-enabled organizational alliances and partnerships


COLLABORATION SYSTEMS
• Collaboration solves specific business tasks such as telecommuting, online meetings, deploying applications, and remote project and sales management
• Collaboration allows people, teams, and organizations to leverage and build upon the ideas and talents of staff, suppliers, customers, and business partners
• It involves a unique set of business challenges that:
• Include complex interactions between people who may be in different locations and desire to work across function and discipline areas
• Require flexibility in work process and the ability to involve others quickly and easily
• Create and share information rapidly and effortlessly within a team
• Increasingly, organizations are extending their focus from internal operations like planning and scheduling, enterprise resource planning and sales force automation, toward operations beyond their own four walls with external customers and suppliers
• Collaboration system – an IT-based set of tools that supports the work of teams by facilitating the sharing and flow of information
• Two categories of collaboration
1. Unstructured collaboration (information collaboration) - includes document exchange, shared whiteboards, discussion forums, and e-mail
2. Structured collaboration (process collaboration) - involves shared participation in business processes such as workflow in which knowledge is hardcoded as rules


Collaborative business functions





• Collaboration systems include:


1. Knowledge management system – supports the capturing and use of an organization’s “know-how”
2. Content management system (CMS) – provides tools to manage the creation, storage, editing, and publication of information in a collaborative environment
3. Workflow management system – controls the movement of work through a business process
4. Groupware – software that supports team interaction and dynamics including calendaring, scheduling, and videoconferencing


Knowledge management system
Knowledge management (KM) – involves capturing, classifying, evaluating, retrieving, and sharing information assets in a way that provides context for effective decisions and actions
Knowledge management system – supports the capturing and use of an organization’s “know-how”
• Intellectual and knowledge-based assets fall into two categories
1. Explicit knowledge – consists of anything that can be documented, archived, and codified, often with the help of IT
2. Tacit knowledge - knowledge contained in people’s heads
• The following are two best practices for transferring or recreating tacit knowledge
1. Shadowing – less experienced staff observe more experienced staff to learn how their more experienced counterparts approach their work
2. Joint problem solving – a novice and expert work together on a project


Reasons why organizations launch knowledge management programs





• Knowledge management systems include:
§ Knowledge repositories (databases)
§ Expertise tools
§ E-learning applications
§ Discussion and chat technologies
§ Search and data mining tools

• KM and social networking - Finding out how information flows through an organization
– Social networking analysis (SNA) – a process of mapping a group’s contacts (whether personal or professional) to identify who knows whom and who works with whom
– SNA provides a clear picture of how employees and divisions work together and can help identify key experts

Content Management
• Content management system (CMS) – provides tools to manage the creation, storage, editing, and publication of information in a collaborative environment
• CMS marketplace includes:
– Document management system (DMS)
– Digital asset management system (DAM)
– Web content management system (WCM)

Working wikis
• Wikis - Web-based tools that make it easy for users to add, remove, and change online content
• Business wikis - collaborative Web pages that allow users to edit documents, share ideas, or monitor the status of a project

Workflow Management Systems
• Work activities can be performed in series or in parallel that involves people and automated computer systems
• Workflow – defines all the steps or business rules, from beginning to end, required for a business process
• Workflow management system – facilitates the automation and management of business processes and controls the movement of work through the business process
• Messaging-based workflow system – sends work assignments through an e-mail system
• Database-based workflow system – stores documents in a central location and automatically asks the team members to access the document when it is their turn to edit the document 

CHAPTER 13

E-business

E-BUSINESS
• The Internet is a powerful channel that presents new opportunities for an organization to:
- Touch customers
- Enrich products and services with information
- Reduce costs


• How do e-commerce and e-business differ?
– E-commerce – the buying and selling of goods and services over the Internet
– E-commerce refers only to online transactions
– E-business – the conducting of business on the Internet including, not only buying and selling, but also serving customers and collaborating with business partners
– E-business refers to online transactions, serving customers and collaborating with business partners
E-BUSINESS MODELS



• E-business model – an approach to conducting electronic business on the Internet







Business types
Brick-and-mortar business - operates in a physical store without an Internet presence.
Pure-play (virtual) business - a business that operates on the Internet only without a physical store. Examples include Amazon.com and poplook.com.
Click-and-mortar business – a business that operates in a physical store and on the Internet. Examples include Cala Qisya and Barnes and Noble.




E-BUSINESS BENEFITS AND CHALLENGE
• E-Business benefits include:
- Highly accessible
- Increased customer loyalty
- Improved information content
- Increased convenience
- Increased global reach
- Decreased cost


• E-business challenges include:
- Protecting consumers
- Leveraging existing systems
- Increasing liability
- Providing security
- Adhering to taxation rules


• There are numerous advantages and limitations in e-business revenue models including:
- Transaction fees
- License fees
- Subscription fees
- Value-added fees
- Advertising fees


MASHUPS
• Web mashup - a Web site or Web application that uses content from more than one source to create a completely new service. A Web mashup is a Web site or Web application that uses content from more than one source to create a completely new service. The term is typically used in the context of music; putting Jay-Z lyrics over a Radiohead song makes something old become new. The Web version of a mashup allows users to mix map data, photos, video, news feeds, blog entries and so on.
– Application programming interface (API) - a set of routines, protocols, and tools for building software applications

– Mashup editor - WSYIWYGs (What You See Is What You Get) for mashups

CHAPTER 12

Integrating the Organization from End to End – Enterprise Resource Planning

ENTERPRISE RESOURCE PLANNING (ERP)
• At the heart of all ERP systems is a database, when a user enters or updates information in one module, it is immediately and automatically updated throughout the entire system


The Evolution of ERP





INTERGRATING SCM, CRM and ERP
• SCM, CRM, and ERP are the backbone of e-business
• Integration of these applications is the key to success for many companies
• Integration allows the unlocking of information to make it available to any user, anywhere, anytime
Integration Tools
• Many companies purchase modules from an ERP vendor, an SCM vendor, and a CRM vendor and must integrate the different modules together
– Middleware – several different types of software which sit in the middle of and provide connectivity between two or more software applications
– Enterprise application integration (EAI) middleware– packages together commonly used functionality which reduced the time necessary to develop solutions that integrate applications from multiple vendors


Enterprise Resource Planning (ERP)
• ERP systems must integrate various organization processes and be:

Flexible – must be able to quickly respond to the changing needs of the organization
Modular and open – must have an open system architecture, meaning that any module can be interface, with or detached whenever required without affecting the other modules. Some organizations will begin with buying two modules, such as accounting and sales, and then will add modules, such as CRM and SCM, as they gain confidence in their current modules. (Implementing in small pieces or phases – companies do not want to buy the entire ERP and spend years implementing twenty different modules to find that it doesn’t meet their need)
Comprehensive – must be able to support a variety of organizational functions for a wide range of businesses
Beyond the company – must support external partnerships and collaboration efforts

CHAPTER 11

 Building a Customer-Centric Organization – Customer Relationship Management

CUSTOMER RELATIONSHIP MANAGEMENT
• CRM enables an organization to:
- Provide better customer service
- Make call centers more efficient
- Cross sell products more effectively
- Help sales staff close deals faster
- Simplify marketing and sales processes
- Discover new customers
- Increase customer revenues


Recency, Frequency, and Monetary Value
• Organizations can find their most valuable customers through “RFM” - Recency, Frequency, and Monetary value
- How recently a customer purchased items (Recency)
- How frequently a customer purchased items (Frequency)
- How much a customer spends on each purchase (Monetary Value)


The Evolution of CRM
• CRM reporting technology – help organizations identify their customers across other applications
• CRM analysis technologies – help organization segment their customers into categories such as best and worst customers
• CRM predicting technologies – help organizations make predictions regarding customer behavior such as which customers are at risk of leaving





Using Analytical CRM to Enhance Decisions
• Operational CRM – supports traditional transactional processing for day-to-day front-office operations or systems that deal directly with the customers
• Analytical CRM – supports back-office operations and strategic analysis and includes all systems that do not deal directly with the customers

Customer Relationship Management Success Factors
• CRM success factors include:
1. Clearly communicate the CRM strategy – ensuring that all departments and employees understand exactly what CRM means and how it will add value to the organization is critical to the success of the implementation
2. Define information needs and flows – the organization must understand all of the different ways that information flows into and out of the organization to implement a successful CRM system. If the organization misses one of the information flows, such as a customer service Web site, then none of that information from that Web site will be integrated into the CRM system and the company will not have a complete view of its customers
3. Build an integrated view of the customer – the CRM system must support the organization's strategies and goals
4. Implement in iterations – avoid the big-bang approach and implement in small, manageable, pieces
5. Scalability for organizational growth – ensure the system can support the organization's future growth

CHAPTER 10

Chapter 10 : Extending the Organization – Supply Chain Management

SUPPLY CHAIN MANAGEMENT
• The average company spends nearly half of every dollar that it earns on production
• In the past, companies focused primarily on manufacturing and quality improvements to influence their supply chains
• The supply chain has three main links:
1. Materials flow from suppliers and their “upstream” suppliers at all levels
2. Transformation of materials into semifinished and finished products through the organization’s own production process
3. Distribution of products to customers and their “downstream” customers at all levels


• Organizations must embrace technologies that can effectively manage supply chains





• Supply chain management improves ways for companies to find the raw components they need to make a product or service, manufacture that product or service, and deliver it to customers


Plan – This is the strategic portion of supply chain management. A company must have a plan for managing all the resources that go toward meeting customer demand for products or services. A big piece of planning is developing a set of metrics to monitor the supply chain so that it is efficient, costs less, and delivers high quality and value to customers.


Source – Companies must carefully choose reliable suppliers that will deliver goods and services required for making products. Companies must also develop a set of pricing, delivery, and payment processes with suppliers and create metrics for monitoring and improving the relationships.


Make – This is the step where companies manufacture their products or services. This can include scheduling the activities necessary for production, testing, packaging, and preparing for delivery. This is by far the most metric-intensive portion of the supply chain, measuring quality levels, production output, and worker productivity.


Deliver – This step is commonly referred to as logistics. Logistics is the set of processes that plans for and controls the efficient and effective transportation and storage of supplies from suppliers to customers. During this step, companies must be able to receive orders from customers, fulfill the orders via a network of warehouses, pick transportation companies to deliver the products, and implement a billing and invoicing system to facilitate payments.



Return – This is typically the most problematic step in the supply chain. Companies must create a network for receiving defective and excess products and support customers who have problems with delivered products.







Information Technology’s Role in the Supply Chain

• IT’s primary role is to create integrations or tight process and information linkages between functions within a firm







Factors Driving SCM







Visibility
• more visible models of different ways to do things in the supply chain have emerged. High visibility in the supply chain is changing industries, as Wal-Mart demonstrated


• Supply chain visibility – the ability to view all areas up and down the supply chain
• Bullwhip effect – occurs when distorted product demand information passes from one entity to the next throughout the supply chain
• Supply chain visibility allows organizations to eliminate the bullwhip effect
• To explain the bullwhip effect to your students discuss a product that demand does not change, such as diapers. The need for diapers is constant, it does not increase at Christmas or in the summer, diapers are in demand all year long. The number of newborn babies determines diaper demand, and that number is constant.
• Retailers order diapers from distributors when their inventory level falls below a certain level, they might order a few extra just to be safe
• Distributors order diapers from manufacturers when their inventory level falls below a certain level, they might order a few extra just to be safe
• Manufacturers order diapers from suppliers when their inventory level falls below a certain level, they might order a few extra just to be safe
• Eventually the one or two extra boxes ordered from a few retailers becomes several thousand boxes for the manufacturer. This is the bullwhip effect, a small ripple at one end makes a large wave at the other end of the whip.


Consumer behavior
• companies must respond to demanding customers through supply chain enhancements


• Companies can respond faster and more effectively to consumer demands through supply chain enhances
• Demand planning software – generates demand forecasts using statistical tools and forecasting techniques


Competition
• increased competition makes any organization that is ignoring its supply chain at risk of becoming obsolete


• Supply chain planning (SCP) software– uses advanced mathematical algorithms to improve the flow and efficiency of the supply chain
• Supply chain execution (SCE) software – automates the different steps and stages of the supply chain


Speed
as the pace of business increases through electronic media, an organization's supply chain must respond efficiently, accurately, and quickly

• Three factors fostering speed

CHAPTER 8

Chapter 8 : Accessing Organizational Information - Data Warehouse

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Data Warehouse – logical collection of information gathered from many different operational databases that supports business analysis activities and decision making activities

Extraction, transformation and loading – a process that extracts information from internal databases, transforms the information using a common set of enterprise definitions, and loads the information into a data warehouse.

Multidimensional analysis and data mining

Cube – common term for the representation of multidimensional information

Data mining – process of analyzing data to extract information  not offered by the raw data alone

Information cleansing or scrubbing – a process that weeds out and fixes or discards inconsistent, incorrect and incomplete information

-          Contact information in an operational system

-          Standardizing customer name from operational system 

-          Information cleansing activities

-          Accurate and complete information

CHAPTER 7

 STORING ORGANIZATIONAL INFORMATION

What is INFORMATION

Information is stored in databases.

Database – maintains information about various types of objects (inventory), events (transactions), people (employees), and places (warehouses)

Database models include:

Hierarchical database model – information is organized into a tree-like structure (using parent/child relationships) in such a way that it cannot have too many relationships

Network database model – a flexible way of representing objects and their relationships

Relational database model – stores information in the form of logically related two-dimensional tables

Entity – a person, place, thing, transaction, or event about which information is stored

The rows in each table contain the entities

Attributes (fields, columns) – characteristics or properties of an entity class

The columns in each table contain the attributes

Primary keys and foreign keys identify the various entity classes (tables) in the database:

Primary key – a field (or group of fields) that uniquely identifies a given entity in a table

Foreign key – a primary key of one table that appears an attribute in another table and acts to provide a logical relationship among the two tables

 Database advantages from a business perspective include:

Increased flexibility

Increased scalability and performance

Reduced information redundancy

Increased information integrity (quality)

Increased information security

A well-designed database should :

Handle changes quickly and easily

Provide users with different views

Have only one physical view

--Physical view – deals with the physical storage of information on a storage device

Have multiple logical views

--Logical view – focuses on how users logically access information

A database must scale to meet increased demand,  while maintaining acceptable performance levels

Scalability – refers to how well a system can adapt to increased demands

Performance – measures how quickly a system performs a certain process or transaction

Information integrity – measures the quality of information

Integrity constraint – rules that help ensure the quality of information

Relational integrity constraint

Business-critical integrity constraint

Databases offer several security features including:

Password – provides authentication of the user

Access level – determines who has access to the different types of information

Access control – determines types of user access, such as read-only access

Database management systems (DBMS) – software through which users and application programs interact with a database.

Data-driven Web sites – an interactive Web site kept constantly updated and relevant to the needs of its customers through the use of a database.

 Integration – allows separate systems to communicate directly with each other :

Forward integration – takes information entered into a given system and sends it automatically to all downstream systems and processes

Backward integration – takes information entered into a given system and sends it automatically to all upstream systems and processes

CHAPTER 6

 VALUING ORGANIZATIONAL INFORMATION

ORGANIZATIONAL INFORMATION

• ·         Information is everywhere in an organization
• ·         Employees must be able to obtain and analyze the many different levels, formats and granularity of organizational information to make decisions
• ·         Successfully collecting, compiling, sorting and analyzing information can provide tremendous insight into how an organization is performing
• ·         Levels, formats and granularity of organizational information

THE VALUE OF TRANSNATIONAL AND ANALYTICALLY INFORMATION

• ·         Transaction information verses analytically information
  
  
  
  
  
  THE VALUE OF TIMELY INFORMATION

  
  

  ·         Timeliness is an aspect of information that depends on the situation

  §  Real-time information – immediate, up-to-date information

  §  Real-time system – provides real-time information in response to query requests

  
  

  THE VALUE OF QUALITY INFORMATION

  
  

  ·         Business decisions are only as good as the quality of the information used to make the decisions

  ·         You never want to find yourself using technology to help you make a bad decision faster

  
  

  
  

  UNDERSTANDING THE COSTS OF POOR INFORMATION

  
  

  ·         The four primary sources of low quality information include;

  
  

  §  Online customers intentionally enter inaccurate information to protect their privacy

  §  Information from different systems have different entry standards and formats

  §  Call center operators enter abbreviated or erroneous information by accident or to save time

  §  Third party and external information contains inconsistencies, inaccuracies and errors

  
  

  ·         Potential business effects resulting from low quality information include;

  
  

  §  Inability to accurately track customers

  §  Difficulty identifying valuable customers

  §  Inability to identify selling opportunities

  §  Marketing to nonexistent customers

  §  Difficulty tracking revenue due to inaccurate invoices

  §  Inability to build strong customer relationships

  
  

  
  

  UNDERSTANDING THE BENEFITS OF GOOD INFORMATION

  
  

  ·         High quality information can significantly improve the chances of making a good decision.

  ·         Good decisions can directly impact an organization’s bottom line.

CHAPTER 4 : MEASURING THE SUCCESS OF STRATEGIC INITIATIVES

CHAPTER 4 : MEASURING THE SUCCESS OF STRATEGIC INITIATIVES

Measuring Information Technology’s Success

Key performance indicator-measures that are tied to business drivers

Metrics are detailed measures that feed KPIs

Performance metrics fall into the nebulous area of business intelligence that is neither technology, nor business centered, but requires input from both IT and business professionals.

Benchmarking-Baselining Metrics

Benchmarking- a process of continuously measuring system results

-       Comparing those results to optimal system performance(benchmark values)

-       Identifying steps and procedures to improve system performance.

The Interrelationships of Efficiency and Effectiveness IT Metrics

o   Throughput

o   Transaction speed

o   System availability

o   Information accuracy

o   Web traffic

o   Response time

Efficiency IT metrics

§  Throughput- the amount of information that can travel through a system at any point.

§  Transaction speed- the amount of time a system takes to perform a transaction.

§  System availability- the number of hours a system is available for users.

§  Information accuracy- the extent to which a system generates the correct results when executing the same transaction numerous times.

§  Web traffic- includes a host of benchmarks such as the number of page views, the number of unique visitors, and the average time spent viewing a web page.

§  Response time- time it takes to respond to user interactions such as a mouse click

The Interrelationships of Efficiency and Effectiveness IT Metrics

Effectiveness IT metrics focus on an organization’s goals, strategies, and objectives and include:

-       Usability

-       Customer satisfaction

-       Conversion rates

-       Financial

Security is an issue for any organization offering products or services over the internet

It is inefficient for an organization to implement internet security, since it slows down processing

-       However, to be effective it must implement internet security

-       Secure internet connections must offer encryption and Secure Sockets Layers (SSL denoted by the lock symbol in the lower right corner of a browser)

Metrics for Strategic Initiatives

ü  Web site metrics

ü  Supply chain management (SCM) metrics

ü  Customer relationship management (CRM) metrics

ü  Business process reengineering (BPR) metrics

ü  Enterprise resource planning (ERP) metrics

Web site Metrics

Ø  Abandoned registrations

Ø  Abandoned shopping cards

Ø  Click-through

Ø  Conversion rate

Ø  Cost-per-thousand

Ø  Page exposures

Ø  Total hits

Ø  Unique visitors

Supply Chain Management Metrics

ü  Back order- an unfilled customer order. A back order is demand against an item whose current stock level is insufficient to satisfy demand.

ü  Customer order promised cycle time- the anticipated or agreed upon cycle time of a purchase order. It is a gap between the purchase order creation date and the requested delivery date.

ü  Customer or actual cycle time- the average time it takes to actually fill a customer’s d purchase order. This measure can be viewed on an order or an order line level.

ü  Inventory replenishment cycle time- measure of the manufacturing cycle time plus the time included to deploy the product to the appropriate distribution centre.

ü  Inventory turns (inventory turnover)- the number of times that a company’s inventory cycles or turns over per year. It is one of the most commonly used supply chain metrics.

Customer Relationship management metrics

Customer relationship management metrics measure user satisfaction and interaction and include:

-       Sales metrics

-       Service metrics

-       Marketing metrics

BPR and ERP Metrics

-       The balanced scorecard enables organizations to measure and manage strategic initiatives.