Learning Objectives

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Chapter 7Chapter 7Transaction Processing,

Innovative Functional Systems,

CRM & Integration

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Learning Objectives Relate functional areas and business processes to the value chain model.

Identify functional management information systems.

Describe the transaction processing system and demonstrate how it is supported by IT.

Describe the support provided by IT and the Web to each of these functional areas: production/operations, marketing and sales, accounting and finance, and human resources management.

Describe the role of IT in facilitating CRM.

Describe the benefits & issues of integrating functional information systems.

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Case: Integrated Solutions for Building Supply

Problem: Colonial is a small building supply company in Utah. To remain

competitive, they needed a technology to provide information about inventory levels & customer buying trends.

Solution: Colonial purchased an integrated system, point-of-sale (POS) terminals,

hand-held automatic product identification & data collection. Sold items are deducted from the inventory instantly. Purchase orders are sent electronically via the Internet.

Results: Lower costs for data entry labor, reductions in inventory/ storage space,

fast access to information, better customer service, & higher employee satisfaction

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Lessons from the Case

IT supports the routine processes of a retailer, enabling it to be efficient and effective and to satisfy its customers.

The software helped to modernize & redesign the company’s major business processes.

The software supports several business processes, not just one.

The system’s major applications are in logistics. However, the same software vendor provides ready-made accounting, marketing, & operations modules.

IT can be beneficial to a relatively small company.

The integration includes connection to business partners using the Internet.

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Functional Information Systems Traditionally, information systems were designed within each functional

area to increase their internal effectiveness & efficiency.

This may not suit some organizations, because certain processes may involve activities that are performed in several functional areas.

Solution 1: Reengineer the organization. For example, the company can create cross-functional teams, each

responsible for performing a complete business process.

Solution 2: The integrated approach (e.g. Colonial). Keeps the functional departments but creates a supportive information

system to help communication, coordination, and control.

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Functional Departments & the Value Chain

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Characteristics of Functional Information Systems

1. A functional information system consists of several smaller information systems that support specific activities performed in the functional area.

2. The specific IS applications in any functional area can be integrated to form a coherent departmental functional system, or they can be completely independent.

3. Functional information systems interface with each other to form the organization-wide information system.

4. Some organizational information systems interface with the environment.

5. Information systems applications support the three levels of an organization’s activities: operational, managerial, and strategic.

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Transaction Processing Systems

Transaction Processing Systems (TPS) =“the information system that support business processes, mainly accounting & finance transactions, with some sales, personnel, & production activities as well.”

TPS is the backbone of an organization’s information systems. It monitors, collects, stores, processes & disseminates information

for all routine core business transactions. These data are input data to functional information systems

applications, DSS, and CRM.

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Objectives of TPSPrimary goal of TPS = to provide all the information needed by law

and/or by organizational policies to keep the business running properly and efficiently.

Specific objectives of a TPS= to allow for efficient & effective operation of the organization. to provide timely documents and reports. to increase the competitive advantage of the corporation. to provide the necessary data for tactical & strategic systems, such as

Web-based applications. to ensure accuracy & integrity of data & information. to safeguard assets & security of information.

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Activities of TPS

First, data are collected & entered into the computer via any input device.

The system then processes data in one of the following ways:

Batch processing= the firm collects data from transactions as they occur, placing them in groups or batches. The system then processes the batches periodically

Online processing = data are processed as soon as a transaction occurs.

Hybrid system (a combination of batch & online processing) collects data as they occur but process them at specified intervals.

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Benefits of Internet Transaction

Processes Flexibility to accommodate unpredictable growth in processing demand. Cost effectiveness for small dollar amounts. Interactive, automatic billing, enabling companies to offer services to

anyone, not just subscribers. Timely search and analysis of large databases. Ability to handle multimedia data such as pictures and sound effectively

and efficiently. High data throughput to support inquiries requiring massive file size. Fast response time. Effective storage of huge graphics and video databases.

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Case: Taxis in Singapore Taxis in Singapore are tracked by a global positioning system (GPS). This

provides users with an instant fix on the geographical position of each taxi.

Customer orders are usually received via telephone, fax & e-mail. Frequent users enter orders from their offices or homes by keying in a PIN number.

The system completely reengineered the taxi order processing.

The transaction time for processing an order is much shorter.

The system increased the capacity for taking incoming calls by 1,000%.

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Production & Operations Management (POM)

The Production and Operations Management (POM) function in an organization is responsible for the processes that transform inputs into useful outputs.

Four IT-supported POM topics be discussed:

In-house logistics and material management. Planning production/operations. Automating design work and manufacturing. Computer-integrated manufacturing (CIM).

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In-House Logistics & Material Management

Logistics Management deals with ordering, purchasing, inbound logistics (receiving), and outbound logistics (shipping) activities.

All of these activities can be supported by information systems. For

example, many companies today are moving to some type of e-procurement

Inventory management determines how much inventory to keep. Three costs play important roles in inventory decisions:

cost of maintaining inventories cost of ordering (a fixed cost per order) cost of not having inventory when needed.

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Planning Procedures/ Operations

Material Requirements Planning (MRP) = The software that facilitates the plan for acquiring (or producing) parts, subassemblies, or materials.

Manufacturing Resource Planning (MRP II) = connects the regular MRP to other functional areas. In addition to the output similar to that of MRP, MRP II determines the

costs of parts and the cash flow needed to pay for parts.

Just-in-time (JIT) = an approach that attempts to minimize waste of all kinds (space, labor, materials, energy, and so on) and continuously

improve processes and systems.

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Planning Procedures/ Operations (cont.)

The management of a project is complicated by the following characteristics:

Most projects are unique undertakings, and participants have little prior experience in the area.

Uncertainty exists due to the long completion times.

There can be significant participation of outsiders, which is difficult to control.

Extensive interaction may occur among participants.

Projects often carry high risk but also high profit potential.

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Automated Design Work & Manufacturing

Computer-aided design (CAD) is a system that enables industrial drawings to be constructed on a computer screen & stored, manipulated & updated electronically.

Computer-aided engineering (CAE) software enables designers to analyze the design and determine whether it will work the way the designer thought it would.

Computer-Aided Manufacturing (CAM) encompasses computer-aided techniques that facilitate planning, operation & control of a production facility.

Enhanced product realization (EPR) is a Web-based, distributed system that allows manufacturers to make product modifications anywhere in the world in as few as five days.

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Computer-Integrated Manufacturing (CIM]

Computer-integrated manufacturing (CIM)

is a philosophy about the implementation of various integrated computer systems in factory automation.

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Computer-Integrated Manufacturing (CIM]

Computer-integrated manufacturing (CIM) has three basic goals;

Simplification of all manufacturing technologies & techniques.

Automation of as many of the manufacturing processes as possible by the integration of many information technologies.

Integration and coordination of all aspects of design, manufacturing & related functions via computer hardware and software.

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The CIM Model

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Channel Systems CHANNEL SYSTEMS are all the systems involved in the process of getting a

product or service to customers & dealing with all customers’ needs.

FOUR MAIN CHANNEL SYSTEM ACTIVITIES:

The Customer is King/ Queen.

Telemarketing.

Distribution channels.

Marketing management.

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The Customer is King/ Queen

Innovative products & services and superb customer service are becoming a necessity for many organizations. For example;

Customer Profiles and Preference Analysis.

Prospective Customer Lists & Marketing Databases.

Mass Customization. Personalization.

It is essential for companies today to be aware of their customers and treat them like royalty.

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Telemarketing & Online Shopping Lately, telemarketing has been moving to cell phones, using Short

message service (SMS), which consists of messages you can receive on your cell phone.

A telemarketing process can be divided into five major activities, all of which are supported by IT & can be done on the Web, even in a wireless environment. Advertisement and reaching customers Order processing Customer service Sales support Account management

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Distribution Channels Organizations can distribute their products & services through several

available delivery channels. A company may use its own outlets or distributors. The company

also needs to decide on the delivery mode (trains, planes, trucks).

Distribution Channels Management. Once products are in the distribution channels, firms need to monitor and track them to guarantee customer satisfaction.

Improving Sales at Retail Stores. Using information technology, it is possible to improve sales by reengineering the checkout process.

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Marketing ManagementMany marketing management activities are supported by computerized information systems. Some

areas where this is being done include;

Pricing of Products or Services.

Salesperson Productivity.

Productivity Software (Sales automation software)

Product-Customer Profitability Analysis.

Sales Analysis and Trends. 

New Product, Service, and Market Planning.

Web-Based Systems in Marketing.

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Managing Accounting & Finance Systems

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Managing Accounting & Finance Systems

An accounting/finance information system is responsible for: Gathering the raw data necessary for the accounting/finance TPS Ttransforming the data into information Making the information available to users

Many packages exist to execute routine accounting transaction processing activities. Some software packages are integrated, e.g. MAS 90 and MAS 200

The accounting/finance TPS also provides a complete, reliable

audit trail of all transactions transmitted through the network.

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Financial Planning & Budgeting

Appropriate management of financial assets is a major task in financial planning and budgeting.

Financial and Economic Forecasting. Knowledge about the availability and cost of money is a key

ingredient for successful financial planning.

Planning for Incoming Funds. Funds for organizations come from several sources. Using the information generated by financial and economic

forecasts, the organization can build a decision support model for planning incoming funds.

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Investment ManagementInvestment management is a difficult task for the following reasons:

1. There are thousands of investment alternatives.

2. Investment decisions are based on economic and financial forecasts, which are frequently unreliable.

3. The investment environment includes opportunities in other countries, providing both high potential rewards and high risks.

4. Investments made by many organizations are subject to complex regulations and tax laws.

5. Investment decisions need to be made quickly & frequently.

6. Several multiple and conflicting objectives exist in making investments, including high yield, safety, and liquidity.

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CASE: Equity Portfolios at Daiwa Securities

Daiwa Securities of Japan is one of the world’s largest and most profitable multinational securities firms.

They believe that identifying mispricings in the stock markets holds great profit potential.

Daiwa uses leading-edge computerized quantitative analysis which compares stock price performance of individual companies to that of other companies in the same market sector.

The recommendations are generated by a system called MATLAB.

MATLAB attempts to minimize the risk of the portfolio yet maximize its profit.

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Access to Financial & Economic Reports

Internet search engines for

finding financial data.

To cope with the large amount of financial online data, investors use three supporting tools:

Internet directories and yellow pages.

Software for monitoring, interpreting,

analyzing financial data, & alerting management.

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Control & AuditingSpecific forms of financial control are;

Budgetary controls

Internal and External audits

Financial Ratio Analysis

Profitability Analysis &Cost Control

Product Pricing

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Managing Human Resource Systems

Developments in Web-based systems increased the popularity of human resources information systems (HRISs) as of the late 1990s.

Initial HRIS applications were mainly related to transaction processing systems.

However, in the last decade we have seen considerable computerization activities in the managerial and even strategic areas.

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HRISs & Recruitment Using the Web for Recruitment. With millions of resumes

available online, companies are trying to find appropriate candidates on the Web.

Position Inventory. Large organizations need to fill vacant positions frequently. An advanced intranet-based position inventory system keeps the position inventory list current & matches openings.

Employee Selection. To expedite the testing and evaluation process and ensure consistency in selection, companies use information technologies such as expert systems.

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Human Resources Maintenance & Development

Performance Evaluation. Once digitized, evaluations can be used to support many decisions, ranging from rewards to transfers to layoffs.

Training and Human Resources Development. IT can support the planning, monitoring, and control of training and retraining activities by using workflow applications. Intelligent computer-aided instruction (ICAI) and application of

multimedia support for instructional activities. Training can be improved using Web-based video clips & virtual

reality.

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Human Resources Planning & Management

Personnel Planning. Large companies develop qualitative and quantitative workforce planning models, which can be enhanced if IT is used to collect, update, and process the information.

Labor–Management Negotiations. Some companies have developed computerized DSS models that support negotiations. These models can simulate financial & other impacts of fulfilling any demand

made by employees and provide answers to queries in seconds.

Benefits Administration. Using computers for benefits selection can save a tremendous amount of labor and time. Some companies have automated benefits enrollments.

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Customer Relationship Management

Customer relationship management (CRM) is an approach that recognizes that customers are the core of the business and that the company’s success depends on effectively managing relationships with them.

Customer service is a series of activities designed to enhance the level of customer satisfaction.

Relationship marketing is the “overt attempt of exchange partners to build a long-term association, characterized by purposeful cooperation and mutual dependence on the development of social, as well as structural, bonds” (Mowen & Minor, 1998).

E-Service is customer service that is performed on the Web, sometimes automatically.

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CRM in Action

According to Seybold and Marshak (1998) there are five steps in building IT-supported CRM. These are:

1. Make it easy for customers to do business with you.2. Focus on the end customer for your products and services.3. Redesign your customer-facing business processes from

the end customer’s point of view.4. Wire your company for profit: design a comprehensive,

evolving electronic business architecture.5. Foster customer loyalty. In e-Commerce, especially, this is

the key to profitability.

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Information Technology in CRM

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Customer Service on the Web

Providing Search and Comparison Capabilities.

Providing Free Products and Services.

Providing Technical and Other Information and Service.

Allowing Customers to Order Customized Products and Services Online.

Letting Customers Track Accounts or Order Status

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Tools for Customer Service

Personalized Web Pages

FAQs

Tracking Tools

Chat Rooms

E-mail and Automated Response

Help Desks and Call Centers

Troubleshooting Tools

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Justifying CRM programs

Response time. Site availability. Download time. Timeliness.

Security and privacy. Fulfillment. Return policy. Navigability.

One way to determine how much customer service to provide is to compare your company against a set of standards known as metrics.

Metrics to evaluate Web-related customer service:

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CRM Failures A large percentage of failures have been reported in CRM.

Some of the big issues are;

Failure to identify and focus on specific business problems.

Lack of active senior management (non-IT) sponsorship.

Poor user acceptance, which can occur for a variety of reasons such as unclear benefits and usability issues.

Trying to automate a poorly defined process.

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Partner Relationship Management

Partnership Relationship Management (PRM) refers to all of the efforts made to apply CRM to all types of business partners.

Specific functions of PRM applications:

Partner profiles Centralized forecasting Partner communications Group planning Lead management E-mail/ Web-based alerts Targeted information distribution Messaging Connecting the extended enterprise Price lists Partner planning Community bulletin boards

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Case: Integrated Server System at Europcar

Problem: Europcar Internet, the largest European-based car rental agency, combined 55

different mainframe and minicomputer systems into a single client/server center known as Greenway.

The 55 independent systems needed to be integrated.

Solution: Key business processes were all integrated into Greenway. Customer-related benefits include (1) faster service (2) reservation desks linked to

airline reservation systems, and (3) corporate customers managed from one location.

Results: By 2000, Europcar expanded to 100 countries worldwide.

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Managerial Issues Integration of functional

information systems. Integration of existing stand-alone functional information systems is a major problem for many organizations.

Priority of transaction processing. Transaction processing may not be an exotic application, but it deals with the core processes of organizations.

The customer is king/queen. In implementing IT applications, management must remember the importance of the customer, whether external or internal.

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Managerial Issues (cont.)

Finding innovative applications. Tools such as Lotus Notes, intranets, and the Internet enable the construction of many applications that can increase productivity and quality.

System integration. Although functional systems are necessary, they may not be sufficient if they work independently.

Using the Web. Web-based systems should be considered in all functional areas. They are effective, inexpensive & user friendly.

Ethical Issues. Many ethical issues are related to the code of ethics followed in CRM and privacy policies.