Chapter two - Business Processes

Electronic commerce

(EC or e-commerce) describes the process of buying, selling, transferring, or exchanging products, services, or information via computer networks, including the Internet.

Customer orientation strategy

. Concentrate on making customers happy. Web-based systems are particularly effective in this area because they can create a personalized, one-to-one relationship with each customer. Amazon (www.amazon.com), Apple (www.apple.com), and Starbucks (www.starbucks.com) are classical examples of companies devoted to customer satisfaction.

Operational effectiveness strategy

. Improve the manner in which a firm executes its internal business processes so that it performs these activities more effectively than its rivals. Such improvements increase quality, productivity, and employee and customer satisfaction while decreasing time to market.

Innovation strategy

. Introduce new products and services, add new features to existing products and services, or develop new ways to produce them. A classic example is the introduction of automated teller machines (ATMs) by Citibank. The convenience and cost-cutting features of this innovation gave Citibank a huge advantage over its competitors. Like many innovative products, the ATM changed the nature of competition in the banking industry. Today, an ATM is a competitive necessity for any bank. Another excellent example is Apple's rapid introduction of innovative products.

Competitive forces model

A business framework devised by Michael Porter that analyzes competitiveness by recognizing five major forces that could endanger a company's position.

Business process

A collection of related activities that create a product or a service of value to the organization, its business partners, and/or its customers.

A firm's value chain is part of a larger stream of activities

A firm's value chain is part of a larger stream of activities, which Porter calls a value system. A value system, or an industry value chain, includes the suppliers that provide the inputs necessary to the firm along with their value chains. After the firm creates products, these products pass through the value chains of distributors (which also have their own value chains), all the way to the customers. All parts of these chains are included in the value system. To achieve and sustain a competitive advantage, and to support that advantage with information technologies, a firm must understand every component of this value system.

Business process management (BPM)

A management technique that includes methods and tools to support the design, analysis, implementation, management, and optimization of business processes.

Mass customization

A production process in which items are produced in large quantities but are customized to fit the desires of each customer.

Business process reengineering (BPR)

A radical redesign of a business process that improves its efficiency and effectiveness, often by beginning with a "clean sheet" (i.e., from scratch).

Value chain

A sequence of activities through which the organization's inputs, whatever they are, are transformed into more valuable outputs, whatever they are.

Competitive advantage

An advantage over competitors in some measure such as cost, quality, or speed; leads to control of a market and to larger-than-average profits.

Support activities

Business activities that do not add value directly to a firm's product or service under consideration but support the primary activities that do add value.

In a manufacturing company, primary activities involve purchasing materials, processing the materials into products, and delivering the products to customers. Manufacturing companies typically perform five primary activities in the following sequence:

Inbound logistics (inputs) Operations (manufacturing and testing) Outbound logistics (storage and distribution) Marketing and sales Services

Value system

Includes the producers, suppliers, distributors, and buyers, all with their value chains.

Six Sigma is a popular methodology for BPI initiatives

Its goal is to ensure that the process has no more than 3.4 defects per million outputs by using statistical methods to analyze the process. (A defect is defined as a faulty product or an unsatisfactory service.)

Inputs

Materials, services, and information that flow through and are transformed as a result of process activities

Value chain model

Model that shows the primary activities that sequentially add value to the profit margin; also shows the support activities.

Cross-functional business processes

No single functional area is responsible for a process's execution.

Not only can the IS help monitor a process

Not only can the IS help monitor a process, but it can also detect problems with the process. The IS performs this role by comparing the information with a standard—that is, what the company expects or desires—to determine if the process is performing within expectations. Management establishes standards based on organizational goals.

Differentiation strategy.

Offer different products, services, or product features than your competitors. Southwest Airlines, for example, has differentiated itself as a low-cost, short-haul, express airline. This has proved to be a winning strategy for competing in the highly competitive airline industry.

There are six characteristics of excellent alignment: (Business-information technology alignment).

Organizations view IT as an engine of innovation that continually transforms the business, often creating new revenue streams. Organizations view their internal and external customers and their customer service function as supremely important. Organizations rotate business and IT professionals across departments and job functions. Organizations provide overarching goals that are completely clear to each IT and business employee. Organizations ensure that IT employees understand how the company makes (or loses) money. Organizations create a vibrant and inclusive company culture.

Resources

People and equipment that perform process activities

Cost leadership strategy.

Produce products and/or services at the lowest cost in the industry. An example is Walmart's automatic inventory replenishment system, which enables Walmart to reduce inventory storage requirements. As a result, Walmart stores use floor space only to sell products, and not to store them, thereby reducing inventory costs.

Entry barrier

Product or service feature that customers expect from organizations in a certain industry; an organization trying to enter this market must provide this product or service at a minimum to be able to compete.

Social Responsibility

Social issues that affect businesses and individuals range from the state of the physical environment to company and individual philanthropy, to education. Some corporations and individuals are willing to spend time and/or money to address various social problems.

Strategic information systems

Systems that help an organization gain a competitive advantage by supporting its strategic goals and/or increasing performance and productivity.

Business environment

The combination of social, legal, economic, physical, and political factors in which businesses conduct their operations.

Support activities consist of the following:

The firm's infrastructure (accounting, finance, management) Human resources management Product and technology development (R&D) Procurement Each support activity can be applied

Digital divide

The gap between those who have access to information and communications technology and those who do not.

As work progresses in this sequence, value is added to the product in each activity. Specifically, the following steps occur:

The incoming materials are processed (in receiving, storage, and so on) in activities called inbound logistics. The materials are used in operations, where value is added by turning raw materials into products. These products are prepared for delivery (packaging, storing, and shipping) in the outbound logistics activities. Marketing and sales sell the products to customers, increasing product value by creating demand for the company's products. Finally, the company performs after-sales service for the customer, such as warranty service or upgrade notification, adding further value.

Outputs

The product or a service created by the process

Customer satisfaction

The result of optimizing and aligning business processes to fulfill customers' needs, wants, and desires.

Productivity

The result of optimizing each individual's work processes.

Cost reduction

The result of optimizing operations and supplier processes.

Quality

The result of optimizing the design, development, and production processes.

Cycle and fulfillment time reduction

The result of optimizing the manufacturing and logistics processes.

Differentiation

The result of optimizing the marketing and innovation processes

business process improvement (BPI)

The result was a less radical, less disruptive, and more incremental approach

Make-to-order

The strategy of producing customized products and services.

Business-information technology alignment

The tight integration of the IT function with the strategy, mission, and goals of the organization.

Primary activities

Those business activities related to the production and distribution of the firm's products and services, thus creating value.

BPM initially helps companies improve profitability by

decreasing costs and increasing revenues.

BPM can reduce costs

increase customer satisfaction, and ensure compliance with rules and regulations.

E-business

is a somewhat broader concept. In addition to the buying and selling of goods and services, e-business also refers to servicing customers, collaborating with business partners, and performing electronic transactions within an organization.

A competitive strategy

is a statement that identifies a business's approach to compete, its goals, and the plans and policies that will be required to carry out those goals (Porter, 1985).1 A strategy, in general, can apply to a desired outcome, such as gaining market share. A competitive strategy focuses on achieving a desired outcome when competitors want to prevent you from reaching your goal. Therefore, when you create a competitive strategy, you must plan your own moves, but you must also anticipate and counter your competitors' moves.

Globalization

is the integration and interdependence of economic, social, cultural, and ecological facets of life, made possible by rapid advances in information technology.

Organizational social responsibility or Individual social responsibility

Efforts by organizations to solve various social problems.

Specifically, ISs play a vital role in three areas:

Executing the process Capturing and storing process data Monitoring process performance

One critical social problem is the state of the physical environment. A growing IT initiative, called green IT, is addressing some of the most pressing environmental concerns. IT is instrumental in organizational efforts to "go green" in three areas.

Facilities design and management. Organizations are creating more environmentally sustainable work environments. Many organizations are pursuing Leadership in Energy and Environmental Design (LEED) certification from the U.S. Green Building Council, a nonprofit group that promotes the construction of environmentally-friendly buildings. One impact of this development is that IT professionals are expected to help create green facilities. Carbon management. As companies try to reduce their carbon footprints, they are turning to IT executives to develop the systems needed to monitor carbon throughout the organization and its supply chain, which can be global in scope. Therefore, IT employees need to become knowledgeable about embedded carbon and how to measure it in the company's products and processes. International and U.S. environmental laws. IT executives must deal with federal and state laws and international regulations that impact everything, from the IT products they buy to how they dispose of them, to their company's carbon footprint.