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© 2016 John Wiley & Sons, Inc.
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Chapter 5
IT and Business Transformation
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Sloan Valve
What was wrong with their Product Development Process?
What did Sloan do? What is NPD?
Did it help?
Are all enterprise system implementations this successful?

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Complex and slow; 16 units had to coordinate; took 18-24
months to bring new products to market; >50% of ideas didn’t
make it; nobody accountable
New Product Development: Adoption of ERP. Process: team
included members across the firm; proposed new process of (1)
ideation (2) business case development, (3) project portfolio
management, (4) product development, (5) product/process
validation, (6) launch
Results: Time to market reduced to 12 months, poor ideas
filtered out early; better access to info and customer feedback;
better accountability
Other firms: No, some failed, such as: Overstock.com, Levi
Strauss, Avis Europe
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Silo (Functional) Perspective
Specialized functions (sales, accounting, production, etc.
Advantages:
Allows optimization of expertise.
Group like functions together for transfer of knowledge.
Disadvantages:

Sub-optimization (reinvent wheel; gaps in communication;
bureaucracy)
Tend to lose sight of overall organizational objectives.
Executive Offices
CEO
President
Operations
Marketing
Accounting
Finance
Administration
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The Process Perspective
Examples of processes:
Fulfill customer orders
Manufacturing, planning, execution
Procurement (see below)
Processes have:
Beginning and an end
Inputs and outputs
A process to convert inputs into outputs
Metrics to measure effectiveness
They cross functions

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Receive Requirement for Goods/Services
Create and Send Purchase Order
Receive Goods
Pay Vendor
Verify Invoice
Cross-Functional Nature of Business Processes
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How to Manage a Process
Identify the customers of processes (who receives the output?)
Identify the customers’ requirements (how do we judge
success?)
Clarify the value each process adds to the organizational goals
Share this perspective so the organization itself becomes more
process focused
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Comparison of Silo Perspective and
Business Process PerspectiveSilo PerspectiveBusiness Process
PerspectiveDefinitionSelf-contained functional units such as
marketing, operations, financeInterrelated, sequential set of
activities and tasks that turns inputs into
outputsFocusFunctionalCross-functionalGoal
AccomplishmentOptimizes on functional goals, which might be
suboptimal for the organizationOptimizes on organizational
goals, or the “big picture”BenefitsHighlighting and developing
core competencies; functional efficienciesAvoiding work
duplication and cross-functional communication gaps;
organizational effectivenessProblemsRedundancy of information
throughout the organization; cross-functional inefficiencies;

communication problemsDifficult to find knowledgeable
generalists; sophisticated software is needed
Click to edit Master text styles
Second level
Third level
Fourth level
Fifth level
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What do you do when things change?
Dynamic and agile processes
Examples:
Agile: Autos are built with wires and space for options
Dynamic: Call centers route incoming or even outgoing calls to
available locations and agents
Software defined architectures (see chapter 6)
IT is required to pull this off well
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Techniques to Transform a Static Process

Radical process redesign
Also known as business process reengineering
Incremental, continuous process improvement
Including total quality management (TQM) and Six Sigma
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Incremental Change
Total Quality Management
Often results in favorable reactions from personnel
Improvements are owned and controlled
Less threatening change
Six-Sigma is one popular approach to TQM
Developed at Motorola
Institutionalized at GE for “near-perfect products”
Generally regarded as 3.4 defects per million opportunities for
defect (6 std dev from mean)
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Improve-ment
Time
Radical Change
Business Process Reengineering (BPR)
Sets aggressive improvement goals.
Goal is to make a rapid, breakthrough impact on key metrics in
a short amount of time.
Greater resistance by personnel.
Use only when radical change is needed.
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Improve-ment

Time
Comparing the Two
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Improve-ment
Key Aspects of Radical Change Approaches
Need for quick, major change
Thinking from a cross-functional process perspective
Challenge to old assumptions
Networked (cross-functional organization)
Empowerment of individuals in the process
Measurement of success via metrics tied to business goals and
effectiveness of new processes
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Workflow and Mapping Processes

Workflow diagrams show a picture of the sequence and detail of
each process step
Objective is to understand and communicate the dimensions of
the process
Over 200 products are available to do this
High-level overview chart plus detailed flow diagram of the
process
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BPM
Information systems tools used to enable information flow
within and between processes.
Comprehensive, enterprise software packages.
Most frequently discussed:
ERP (Enterprise Resource Planning),
CRM (Customer Relationship Management),
SCM (Supply Chain Management)
Designed to manage the potentially hundreds of systems
throughout a large organization.
SAP, Oracle, Peoplesoft are the most widely used ERP software
packages in large organizations.
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BPM Architecture
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Standardization vs IntegrationBusiness Process
StandardizationLowHighBusiness Process
IntegrationHighSingle face to customers and suppliers but
standards not enforced internallyHigh needs for reliability,
predictability, and sharing; single view of
processLowDecentralized design; business units decide how to
meet customer needsTasks are done the same way across units,
but there is little need for business units to interact
Source: J. Ross “Forget Strategy: Focus IT on your Operating
Model,”
MIT Center for Information Systems Research Briefing
(December 2005)
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Enterprise Systems (Enterprise Resource Planning or ERP)
Seamlessly integrate information flows throughout the
company.
Reflect industry “best” practices.
Need to be integrated with existing hardware, OSs, databases,
and telecommunications.
Some assembly (customization) is required
The systems evolve to fit the needs of the diverse marketplace.
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ERP Advantages and
DisadvantagesAdvantagesDisadvantagesRepresent “best
practices”
Modules throughout the organization communicate with each
other
Enable centralized decision-making
Eliminate redundant data entry
Enable standardized procedures in different locationsEnormous
amount of work
Require redesign of business practices for maximum benefit
Require customization if special features are needed
Very high cost
Sold as a suite, not individual modules
Requires extensive training
High risk of failure

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ERP II
Makes information available to external stakeholders too
Enables e-business applications
Integrates into the cloud
Includes ERP plus other functions (see Figure 5.8)
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ERP and ERP II Functions
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Customer Relationship Management
Customer Relationship Management (CRM) is a natural

extension of applying the value chain model to customers.
CRM includes many management activities performed to
obtain,
enhance relationships with, and
retain customers.
CRM can lead to better customer service, which leads to
competitive advantage for the business.
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CRM
Common systems are:
Oracle
SAP
Salesforce.com (web-based cloud system)
Oracle and SAP integrate into their ERP systems
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Supply Chain Management (SCM)
An enterprise system that manages the integrated supply chain

Translation: processes are linked across companies
The single network optimizes costs and opportunities for all
companies in the supply chain
Every part of the supply chain has the latest information about
sales expected and inventories from source materials at all
stages
Bullwhip effect occurs when the supplier at each stage adds a
small “buffer” for it’s suppliers in case demand is higher than
expected
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Difficulties in Integrated Supply Chains
Information integration requires agreement of what information
to share, how to share it, and the authority to view it.
Trust must be established
Planning must be synchronized carefully
Workflow must be coordinated between partners to determine
what to do with the information they obtain
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Advantages and Disadvantages

of Enterprise Systems
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The Adoption Decision
The enterprise system sometimes should drive business process
redesign when:
Just starting out.
Organizational processes are not relied upon for strategic
advantage.
Current systems are in crisis.
It is inappropriate for the enterprise system to drive business
process redesign when:
Changing an organization’s processes that are relied upon for
strategic advantage.
The package does not fit the organization.
There is a lack of top management support.
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Summary
After you have listened to this lecture and read Chapter 5 of
your text
Go to Discussion Board 6 and answer the discussion prompt
Finally complete Quiz 5
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