Part 3: Achieving Competitive Advantage

Chapter 7

Competitive Advantage and

Business Processes

Copyright © 2016 Pearson Canada Inc.

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 Running Case
 Carrie ran the school’s clothing store and learned
about materials, suppliers, and printing/embroidering
on all sorts of textiles
 Her excellent customer service has paid off as she has
lost very few clients and continues to grow her list of
happy clients
 The problem is that her list is growing longer than she
can keep in her head as the volume of orders is too
much to keep track of
 She is starting to think about some systems to help
her company grow and store information
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 Study Questions
1. What are the fundamental ways of achieving
competitive advantage?
2. What are business functions and functional systems?
3. How can business processes be improved?
4. What are the challenges of implementing business
process changes?
5. What is the importance of industry standard
processes?
6. What are ERP systems?
7. What are CRM systems?
8. What are SCM systems

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 What are the fundamental ways of
achieving competitive advantage?

 Recall from Chapter 3, there are two basic

ways to develop competitive advantage
through systems:
 Changing the product: By introducing new
products or services or enhancing current
products or services
 Business processes: Organizations use
technology to help lock in customers, reduce
costs, and create entry barriers for competitors in
the market

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 How information systems can affect
competitive advantage

 By making the primary and support activities

in an organization more productive than
those of competitors
 Increased productivity is realized when
business processes within the organization
become more effective and more efficient
 True for commercial companies as well as for
non-profit organizations and government

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 What are business functions and
functional systems?
 Reorganized Porter Value Chain Model shows the
scope and purposes of different types of information
systems within the organization

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 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
 Facilitated by support activities
 Human resource
 Accounting and infrastructure
 Procurement
 Technology activities

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 Reorganized Porter Value Chain Model and
Its Relationship to Functional Systems

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 Functional Silos and Cross-Functional
Systems

 Functional silos: Systems designed to work

independently of one another
 Functional systems are inter-related in reality
 Purchasing influences inventory, which
influences production, which influences
customer satisfaction, which influences future
sales
 Decisions that are appropriate for only single
business function may be inefficient for an
entire business process
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 Integrated, Cross-Functional Systems

 Cross-departmental systems operate across

departmental boundaries
 Transition from functional systems to integrated
cross-functional systems is difficult
 Integrated processing needs many departments
to coordinate activities
 Interorganizational systems are cross-functional
systems used by two or more related companies
 Most organizations today have a mixture of
functional and integrated systems

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 Separate Functional Systems

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 Typical Functional Systems

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 Why Are Functional Systems Changing?

 Functional 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
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 Major Problems of Isolated Functional
Systems

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How can business processes be improved?

 Recall from Chapter 2 that business processes

are supported by information systems
 Recall from Chapter 3 that IT often enables
firms to innovate and make significant change
 Besides technology, business processes can
also be improved by:
 Adding resources, such as adding more workers
 Adding increased specialization
 Changing/eliminating nonproductive activities

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 Using Technology to Improve Business
Processes

 Using IT to improve business process requires

understanding of where improvements are possible
 Business process design (redesign) idea
 Organizations should not simply automate or improve
existing functional systems
 “Paving the cowpath” – the process of making efficient
what already exists – it makes things easier but change
how they are done
 Establish more efficient business processes that
integrate the activities of all departments involved in
a value chain
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 Integrating Functional Systems:
EAI and ERP

 Enterprise Application Integration (EAI)

 An approach to combining functional systems,
which uses layers of software as a bridge to
connect different functional systems together
 Enterprise Resource Planning (ERP)
 A second approach to combining functional
systems
 Main design principle – one central database is
combined with a set of standard processes built
on top of the database to ensure integration
between functional area
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 Enterprise Application Integration

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 Enterprise Resource Planning

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 What are the challenges of implementing
business process changes?

 Process design projects are expensive and

difficult; three reasons for this are:
 There is a lot of detailed work to be done to
determine what to change and make an effective
decision
 Hard to estimate the business value that will
emerge from business process changes
 Many people like change but do not want to
change
 May take a long time
 Very expensive and outcomes are uncertain
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What is the importance of industry standard
processes?
 Many early business process design projects failed
because they were tailor-made
 Software vendors designed integrated applications,
with built-in industry standard processes
 Integrate activities across departments
 Save costs of new process design
 Examples: Oracle, Salesforce.com, Microsoft, or SAP
 Problems:
 Industry standard processes may be very different from
existing processes in the organization
 May require the organization to change substantially

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 What are ERP systems?

 Enterprise Resource Planning (ERP)

 Support all the primary business processes as
well as the human resource and accounting
support processes
 Enterprise-wide systems that integrate sales,
order, inventory, manufacturing, and customer
service activities
 ERP systems provide software, pre-designed
databases, procedures, and job descriptions for
organization-wide process integration

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 Characteristics of ERP

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 Benefits of ERP

 Efficient business processes

 Inventory reduction
 Lead-time reduction
 Improved customer service
 Greater, real-time insight into organization
 Higher profitability

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 What are CRM systems?
 Cross-functional systems are developed to
overcome problems in functional silos
 Customer Relationship Management (CRM)
systems
 Support the business processes of attracting, selling,
managing, delivering, and supporting customers
 Direct value chain activities that involve the customer
 Integrates four phases of the customer life cycle:
marketing, customer acquisition, relationship
management, and loss/churn
 All customer data stored in single database

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 The Customer Life Cycle

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 Purpose of Relationship Management

 To maximize the value of the existing

customer
 Two types of applications for RM applications
 Sales Management applications
 support sales to existing customers
 Ensures that sales management has sufficient
information to prioritize and allocate sales time and
efforts
 Integrated CRM applications
 store data in a single database
 CRM processes can be linked to one another

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 CRM Components

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 Integrated CRM Applications

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 What are SCM systems?

 Supply chain management (SCM) systems are

interorganizational systems that enable companies
to efficiently handle the flow of good from suppliers
to customers
 A supply chain is a network of organizations and
facilities that transforms raw materials into products
delivered to customers
 Involves customers, retailers, distributors, manufacturers,
suppliers, transportation companies, warehouses,
inventories, and some means for transmitting messages
and information among the organizations involved

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 Supply Chain Relationships

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 Supply Chain Example

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Supplier Relationship Management

1. Supplier Relationship Management (SRM)

2. Inventory
3. Customer Relationship Management (CRM)

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Supplier Relationship Management (SRM)

 Business process for managing all contacts

between an organization and its suppliers
 Supplier is any organization that sells
something to the organization that has the
SRM application
 Supports both the in-bound logistics primary
activity and the procurement support activity
 Support basic business processes
 source, purchase, and settle

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 Summary of SRM Processes

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 Benefits of Information Systems on Supply
Chain Performance

 Reduce costs of buying and selling

 Increase supply chain speed
 Reduce size and cost of inventories
 Improve delivery scheduling—enable just-in-
time inventory

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 MIS in Use
Yes We Can: Lesson Learned in ERP
Implementation at DPT
 Digital Payment Technologies (DPT) is a leader in the
design, manufacture, and distribution of parking
management technologies for the North American
parking industry
 DPT needed enterprise resource planning software
but the core team at the company had little time or
resources to make it happen
 Eric Dang led a team of people to stabilize Navision
system, and the system started providing useful and
accurate information
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 MIS in Use Questions
1. Consider the five components of an information system provided
in Figure 1-1 in Chapter 1. Which of these components was the
reason for the lack of success in the first round of ERP
implementation at DPT?
2. What do you think is the most important component in the
success of DPT’s ERP in the second implementation?
3. What role does Eric Dang play in the ERP implementation?
What skills do you think are most important for Eric’s success?
4. Do you think that DPT had to fail in its initial ERP
implementation before it succeeded? That is, do you think it is
necessary for companies to understand clearly what can go
wrong before they fully commit to the project?
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 What Do YOU Think?
Available Only in Vanilla?
 Designing business processes is difficult, time
consuming, and very expensive
 ERP blueprints consist of hundreds or thousands of
different business processes
 Most organizations choose to modify their processes
to meet the blueprint rather than the other way around
 Installing the software vanilla
 basic software with no custom features
 How will organizations gain a competitive advantage if
they all use the same business processes?

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 What Do YOU Think?

1. In your own words, explain why an organization

might choose to change its processes to fit the
standard blueprint. What advantages does it accrue
by doing so?
2. Explain how competitive pressure among software
vendors will cause the ERP solutions to become
commodities. What does this mean to the ERP
software industry?
3. If two businesses use exactly the same processes
and exactly the same software, can they be different
in any way at all? Explain why or why not
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 What Do YOU Think?

4. Explain the statement that an ERP software

vendor can be a conduit to transfer innovation.
What are the consequences to the innovating
company? To the software company? To the
industry? To the economy?
5. Such standardization might be possible in
theory, but since worldwide there are so many
different business models, cultures, people,
values, and competitive pressures, can any
two businesses ever be exactly alike?

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