Using MIS 3e PART 3

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Using MIS 3e
Chapter 7
Business Process Management
David Kroenke
Chapter Preview
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Explore information systems within an organization, extend the
business process discussion from Chapter 3, and work from the
general to the specific.
We begin with an overview of business process management, a
systematic approach that modern businesses use to review and
improve their business processes.
Next, we’ll discuss the three ways of fixing business processes.
Then, we’ll examine the role information systems play in business
processes, and conclude the chapter with specific examples of
information systems.
We’ll survey functional IS and discuss the two most important crossfunctional IS: Customer Relationship Management (CRM) and
Enterprise Resource Planning.(ERP).
MRV has a process problem that has caused Mr. Butterworth to
become “not a happy camper.” We’ll use that example to illustrate
concepts in this chapter
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Study Questions
Q1 Why is business process management
important to organizations?
Q2
Q3
Q4
Q5
Q6
Q7
Q8
How do organizations solve process problems?
What role do information systems play in business processes?
What are the most common functional applications used today?
What are the problems with functional information systems?
What are the functions and characteristics of customer relationship
management (CRM) information systems?
What are the functions and characteristics of enterprise resource
planning (ERP) information systems?
2020?
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Why Is Business Process
Management Important to
Organizations?
• Processing of an order at a typical online retailer. Figure 7-1
shows a Web page for REI
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Why Is Business Process
Management Important To
Organizations?
Tasks for processing an order
Figure 7.2
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Why Is Business Process
Management Important to
Organizations?
• Processing an order crosses departmental
boundaries.
• Credit card processing, shipping, scheduling extend
to other companies.
• Business processes and IS must evolve as business
changes.
• Video
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BPM
• Business Process Management (BPM)
 Systematic process of creating, assessing,
altering business processes.
• Four stages of BPM
1.Create model of business process
components
•
•
Users review and adjust model
“As-is model” documents current process; it is
changed to solve process problems
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Stages of the BPM Cycle
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BPM
2. Create system components

Uses five elements of IS (hardware, software,
data, procedures, people)
3. Implement business process
4. Create policy for ongoing assessment of
process effectiveness

Adjust and repeat cycles
 MRV never designed its processes, had
no assessment program
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Scope of Business Process
Management
Insert Figure 7-4 here
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Functional Processes
• Functional processes involve activities within a single
department or function.
• Examples are accounting, human resources, sales
forecasting, and other processes that are contained
in a single department.
• BPM is easier to accomplish with functional
processes:
 A single department manager has authority over all of the
activities and the resources assigned to them.
 If the department decides to change a business process, the
change and attendant problems are localized within that
manager’s authority.
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Functional Processes
• Problem with functional processes is their
isolation
• Islands of automation, a.k.a, information
silos because they work in isolation from one
another.
• Independent, isolated processes cannot
produce the productivity and efficiency
necessary for many businesses.
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Cross-Functional Processes
• Cross-functional processes involve activities among several
business departments.
• Example: customer relationship management (CRM) is a
process that integrates activities of several departments,
including sales, marketing, operations, accounting, and
customer support.
• Cross-functional processes eliminate, or drastically reduce,
problems of isolated systems and data.
• Example: Before an important sales call, salespeople can use a
CRM system to learn if the customer has any outstanding issues
or problems in customer support. Or, customer support can
know which customers have high volume and justify high levels
of support.
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Cross-Functional Processes
• Process management is more difficult for crossfunctional systems because no manager has
authority over all of the activities and resources
assigned to them.
• BPM for cross-functional processes is shared across
several departments that most frequently need to
resolve conflict via committee and policy.
• CRM and ERP are two most common crossfunctional IS.
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Interorganizational Processes
• Activities that process credit card transactions and
activities at the shipper
• Supply chain management (SCM) processes involve
organizational integration.
 In some cases, SCM company will have
information systems that directly access
processes in your own company.
• Processes much more complex than functional or
cross-functional systems
 Involve different managers and owners
 Problem resolution occurs via negotiation, contracts, and
even litigation.
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Study Questions
Q1 Why is business process management important to
organizations?
Q2 How do organizations solve process problems?
Q3 What role do information systems play in business processes?
Q4 What are the most common functional applications used
today?
Q5 What are the problems with functional information systems?
Q6 What are the functions and characteristics of customer
relationship management (CRM) information systems?
Q7 What are the functions and characteristics of enterprise
resource planning (ERP) information systems?
Q8 2020?
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How Do Organizations Solve
Process Problems?
• Critical for a team to agree on both what is
and what ought to be.
• Must have some notation for documenting
processes and one common standard for
creating process documentation.
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How Do Organizations Solve
Process Problems?
• Dozens of definitions are used by authors, industry
analysts, and software products.
 IBM’S WebSphere Business Modeler uses a
different set of terms. It has activities and
resources, but uses “repository” for facility and
“business item” for data.
 Other business-modeling software products use
other definitions and terms.
• These differences and inconsistencies can be
problematic when two different organizations with two
different sets of definitions must work together.
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How Do Organizations Solve
Process Problems?
• Object Management Group (OMG) created a
standard set of terms and graphical notations
for documenting business processes.
• That standard, called Business Process
Modeling Notation (BPMN), is documented at
www.bpmn.org.
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BPMN Process Diagram of TopLevel Business Processes at MRV
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Business Process Modeling
Notation (BPMN)
• Software industry standardized notation for
BPMN by Object Management Group (OMG)
• BPMN information
Figure 7.6
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Task Assignments: Business
Process with Three Swim Lanes
Figure 7.7
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MRV Assemble & Ship Equipment
Process (As-Is Diagram)
Figure 7.8
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Three Ways of Changing
Business Processes
1. Adding a specialist to each activity in the process
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Three Ways of Changing
Business Processes
2. Changing a process by altering process structure
Figure 7.10
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Three Ways of Changing
Business Processes
• Changing a process by altering process
structure
 MRV—Equipment and Logistics manager
creates an integrated picking list to
minimize travel time and speed up picking
equipment.
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Three Ways of Changing
Business Processes
3. Combination of adding (or reducing) resources
and changing the process
•
Goal of some business process changes is to
enable organization to reduce resources required
to obtain the same result.
•
Changing both resources and process structure is
more complicated and has greater potential, but
will cause the organization more turmoil, and be
more difficult to implement.
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Study Questions
Q1 Why is business process management important to
organizations?
Q2 How do organizations solve process problems?
Q3 What role do information systems play in
business processes?
Q4 What are the most common functional applications used
today?
Q5 What are the problems with functional information systems?
Q6 What are the functions and characteristics of customer
relationship management (CRM) information systems?
Q7 What are the functions and characteristics of enterprise
resource planning (ERP) information systems?
Q8 2020?
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Role of Information Systems in
Business Processes
• IS Roles
 To Implement business process activities
 May be entirely manual, automated, or
mixed information systems
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IS Alternatives for Implementing
the Register Clients Activity
First task—Register Clients
Alternatives:
1. Entirely manual—using word processor to record
data, prepare documents of client roster and special
requests list
2. Use spreadsheet or database application to
accomplish above activities, plus determine trip
availability, collect deposits and trip payments
3. Entirely automated—create Register Client system

Clients use Internet to register and pay for trips.
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Information Systems for
Facilitating Linkages Among
Activities
• Information systems, and database systems in
particular, can play an important role in implementing
activities that link other activities.
• Create database application to track equipment,
location, status
• New activity “Process Equipment Database”
 Updates database from Register Clients, Assemble & Ship,
Restore Equipment activities
 Trip scheduler can reserve special equipment and be
notified if not available
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Process Linkage Problem for MRV
• Mr. Butterworth requested and paid for a private tent. His
request and payment were processed by the Register Clients
activity.
• However, no such tent was available in inventory, and
equipment and logistics manager was supposed to notify trip
scheduler, who was supposed to notify client.
• Tent did exist, but it had been damaged and out for repair. Trip
scheduler did not know it was under repair and allocated it to
Mr. Butterworth.
•
Notice the linkages about equipment among Register Clients,
Assemble & Ship Equipment, and Restore Equipment activities.
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Process Linkage Problem for MRV
• One solution to this problem: create a
database application to track equipment, its
location, and its status.
• Figure 7-11 shows a new activity, Process
Equipment Database, which processes
updates to the database from Register
Clients, Assemble & Ship Equipment, and
Restore Equipment activities.
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Equipment Database Resource
Completely Automated
Figure 7-11
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Study Questions
Q1 Why is business process management important to
organizations?
Q2 How do organizations solve process problems?
Q3 What role do information systems play in business processes?
Q4 What are the most common functional
applications used today?
Q5 What are the problems with functional information systems?
Q6 What are the functions and characteristics of customer
relationship management (CRM) information systems?
Q7 What are the functions and characteristics of enterprise
resource planning (ERP) information systems?
Q8 2020?
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Most Common Functional
Applications Used Today
• Functional application
 A computer program that supports or automates major
activities in a functional process.
 Few organizations develop own functional applications.
Instead, to reduce costs and risks, most license functional
application software from a vendor and then adapt.
 Adaptation is necessary because organizations structure
their functional processes differently; off-the-shelf functional
application almost never provides a perfect fit.
• Functional information system
 An information system that includes a functional application.
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Common Functional Applications
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Sales and Marketing Applications
• Primary purpose: find prospects and transform them
into customers by selling them something.
• Sales processes also manage customers by selling
existing customers more products.
• Other functional sales processes forecast future
sales.
• Processes exist to manage products and brands.
 Assess effectiveness of marketing messages,
advertising, and promotions and to determine
product demand among various market segments.
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Operations Applications
• Management of finished-goods inventory and
movement of goods from that inventory to the
customer
• Operations applications
 Especially prominent for nonmanufacturers, such
as distributors, wholesalers, and retailers
 In manufacturing companies, many, if not all, of
operations functions are merged into
manufacturing systems.
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Principal Operations Applications
• Order-entry applications
 Record customer purchases
 Obtain customer contact and shipping data
 Verifies customer credit, validates payment
method, and enters the order into a queue for
processing
 Track an order through fulfillment process,
arrange for and schedule shipping, and process
exceptions (such as out-of-stock products)
 Inform customers of order status and scheduled
delivery dates
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Manufacturing Information Systems
• Figure CE11-4
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Manufacturing Information Systems
• Inventory applications support inventory control and inventory
management. In terms of inventory control, inventory
applications track goods and materials into, out of, and between
inventories.
• Inventory-management applications use past data to compute
stocking levels, reorder levels, and reorder quantities in
accordance with inventory policy.
• Just-in-time (JIT) inventory policy
 Seeks to have production inputs (both raw materials and
work-in-process) delivered to manufacturing site just as they
are needed
 Scheduling delivery of inputs to reduce inventories to a
minimum
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Manufacturing Information Systems
• Help allocate inventory and equipment to
manufacturing processes
• To plan materials for manufacturing, it is first
necessary to record the components of
manufactured items
• Bill of materials (BOM)
 A list of materials, and materials within
materials, and materials within materials
within materials, and so forth
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Bill of Materials Example
• Figure CE11-5
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CE11-
Manufacturing-Scheduling Applications
• Materials requirement planning (MRP)
 Application that plans need for materials and
inventories used in manufacturing process
• Manufacturing resource planning (MRP II)
 Includes planning of materials, personnel,
machinery
 Capability to perform “what-if” analyses on
variances in schedules, raw materials
availabilities, personnel, and other resources
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Manufacturing-Scheduling Applications
• Generate master production schedule (MPS)
 Analyzes past sales to estimate future sales
Two philosophies of manufacturing
1. Pull manufacturing process
• Products are pulled through manufacturing by demand.
Produced in response to signals from customers or other
production processes. (Demand-side method, JIT)
2. Push manufacturing process
• Analyze past sales levels, make estimates of future
sales, create master production schedule. Produce and
push into sales (Supply-side method)
3. Combined push and pull systems
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Customer Service Applications
• Order tracking, account tracking, and customer support and
training
• Customers call customer service to ask questions about order
status, to query and report problems with their accounts, and to
receive assistance with product use.
• Many organizations place as much of the customer service
function on Web applications as they can.
• Many organizations allow customers direct access to order
status and delivery information.
• Organizations are increasingly providing product-use support via
user-generated content (see Chapter 8) and employee blogs.
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Human Resource Applications
• Support recruitment, compensation, assessment, development
and training, and planning
• Modern HR applications concern all dimensions of HR activity,
as listed in Figure 7-12
• Recruitment
• Compensation, pensions, bonuses, and so on in liaison with
Payroll
• Training and Development
• Assessment
• Planning functions—creation and publication of organizational
standards, job classifications, and compensation ranges for
classifications, determining future requirements for employees
by level, experience, skill, and other factors
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CE11-
Accounting Applications
• General ledgers show assets and liabilities.
• Financial reporting applications produce financial statements.
• Cost-accounting applications determine marginal cost and
profitability.
• Accounts receivable includes receivables, payments, and
collections.
• Accounts payable systems reconcile payments against
purchasers.
• Cash management is the process of scheduling payments and
planning use of cash.
• Budgeting applications allocate and schedule revenues and
expenses.
• Treasury applications concern management and investment.
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BOM for a Child’s Toy Wagon
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Study Questions
Q1 Why is business process management important to
organizations?
Q2 How do organizations solve process problems?
Q3 What role do information systems play in business processes?
Q4 What are the most common functional applications used
today?
Q5 What are the problems with functional
information systems?
Q6 What are the functions and characteristics of customer
relationship management (CRM) information systems?
Q7 What are the functions and characteristics of enterprise
resource planning (ERP) information systems?
Q8 2020?
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Problems of Functional Processes
1. Data are duplicated because each functional
application has its own database.
 Islands of automation or information silos
2. Business processes disjointed because supporting
applications separated
 Difficult for activities to reconcile data and
increases chances of errors
3. Lack of integrated enterprise information
4. Inefficiency
5. Increased costs due to duplicated data, disjointed
systems, limited information, and inefficiencies
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Problems Created by Islands of
Automation or Information Silos
•
Figure 7-15
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Study Questions
Q1 Why is business process management important to
organizations?
Q2 How do organizations solve process problems?
Q3 What role do information systems play in business processes?
Q4 What are the most common functional applications used
today?
Q5 What are the problems with functional information systems?
Q6 What are the functions and characteristics of
customer relationship management (CRM)
information systems?
Q7 What are the functions and characteristics of enterprise
resource planning (ERP) information systems?
Q8 2020?
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Functions and Characteristics of
CRM Information Systems
• CRM
 Tracks all interactions with customer from prospect through
customer service
 Integrates all primary activities of value chain
• Supports four phases of customer life cycle
1. Marketing—marketing sends messages to target market
2. Customer Acquisition—customer prospects order and need
to be supported
3. Relationship Management—support and resale processes
increase value to existing customers
4. Loss/churn—win-back processes categorize customers
according to value and attempt to win back high-value
customers
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CE12-
Scope of CRM in Value Chain
Activities
CRM integrates primary value chain activities
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Four Phases of the
Customer Life Cycle
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Major Components of
CRM Applications
• Figure CE12-4
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CRM Centered on Integrated
Customer Database
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Study Questions
Q1 Why is business process management important to
organizations?
Q2 How do organizations solve process problems?
Q3 What role do information systems play in business processes?
Q4 What are the most common functional applications used
today?
Q5 What are the problems with functional information systems?
Q6 What are the functions and characteristics of customer
relationship management (CRM) information systems?
Q7 What are the functions and characteristics of
enterprise resource planning (ERP) information
systems?
Q8 2020?
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Functions and Characteristics of
Enterprise Resource Planning
(ERP) Information Systems
1. Integrate primary value chain activities with human resources
and accounting
2. Cross-functional, process view of entire organization
3. Represent ultimate in cross-functional systems

Track customers, process orders, manage inventory, pay
employees, and provide general ledger, payable, receivables, and
necessary accounting functions
4. Outgrowth of MRP II
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ERP Applications and the Value
Chain
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ERP Facts
• Primary ERP users are manufacturing companies.
• First and most successful vendor of ERP software is SAP.
• More than 12 million people used SAP in over 91,000 SAP
installations. Worldwide, SAP has over 47,000 different
customers (2008).
• Oracle is a second major ERP vendor.
• ERP vendors provide software and predesigned databases,
predefined procedures, and job descriptions for organizationwide process integration.
• Beware: Some vendors misapply the term ERP to their systems.
There is no truth-in-ERP-advertising group to ensure that all of
the vendors that claim ERP capability have anything remotely
close to it.
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ERP Characteristics
• Entire organization is a collection of interrelated
activities and cross-functional processes
• Formal approach based on documented, tested
business models
• Process blueprint documents each process with
diagrams using standard symbols
• Centralized database
• Can be slow to implement
• Very costly—new hardware and software, developing
new procedures, training employees, converting data,
and other developmental expenses
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ERP Characteristics
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Example of SAP Ordering
Process
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Benefits of ERP
•
•
•
•
•
•
•
Efficient business processes that are effective
Inventory reduction
Lead-time reduction
Improved customer service
Greater real-time insight into organization
Higher profitability
No data inconsistency problems due to integrated
database
• Business process blueprints tested in hundreds of
organizations
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CE12-
How Is an ERP System
Implemented?
1. Model current business processes “as is”
2. Identify relevant ERP blueprint processes
3. Compare as-is process models with relevant
blueprints and note differences
4. Find ways to eliminate differences
5. Prepare detailed plan
6. Train users on new processes, procedures, use of
ERP features and functions
7. Conduct simulation to test new system
8. Convert data, procedures, personnel to new system
9. Follow phased system conversion approach
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ERP Implementation
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Study Questions
Q1 Why is business process management important to
organizations?
Q2 How do organizations solve process problems?
Q3 What role do information systems play in business processes?
Q4 What are the most common functional applications used
today?
Q5 What are the problems with functional information systems?
Q6 What are the functions and characteristics of customer
relationship management (CRM) information systems?
Q7 What are the functions and characteristics of enterprise
resource planning (ERP) information systems?
Q8 2020?
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Q8 2020?
• By 2020, most organizations and software vendors
will design their processes and applications using
SOA service-oriented architecture (SOA).
• SOA: A design philosophy in which every activity is
modeled as an encapsulated service, and exchanges
among those services are governed by standards.
There are three key terms in that definition—service,
encapsulation, and standards. Consider each.
1. Service is a repeatable task that a business needs to perform.
MRV has following services:
 Check space available on a river trip
 Enroll client on a river trip
 Bill client’s credit card
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Non-SOA Business Model:
Uses Titles, Not Services
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SOA Showing Two Services
Figure 7-13
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Encapsulation
• Encapsulation places the logic in one place, which is
exceedingly desirable.
• All other services know to go to that one place for
that service.
• Even more important if the managers of the credit
department decide to change how they make credit
authorizations.
• As long as structure and meaning of customer credit
data and credit authorization data do not change,
Process Credit Order is completely isolated from
changes in Authorize Credit or any other service in
the Credit Authorization Process.
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Standards
• Data, and more generically, messages, are exchanged among
services using standardized formats and techniques.
• In the past, the programmers of Process Credit Order program
would meet with programmers of the Authorize Credit program
and design a unique, proprietary means for exchanging data via
this interface. Such a design is expensive and time consuming.
• Computer industry developed standard ways for formatting
messages, for describing services, and standard protocols for
managing exchanges among services. Those standards
eliminated the need for proprietary designs and expanded scope
and importance of SOA.
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Ethics Guide: Dialing for Dollars
• Assume you are a salesperson.
• It has been a bad quarter. So, vice president of sales
has authorized a 20 percent discount on new orders.
• Only stipulation—customers must take delivery prior
to end of quarter so accounting department can book
the order for this quarter.
• VP says “Start dialing for dollars, and get what you
can. Be creative.”
• You identify your top customers to offer the discount
deal.
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Ethics Guide: Dialing for Dollars,
Scenario 1
1.With one customer, you say they may take full
delivery now and return unsold inventory next quarter.
• Customer wants this stipulated on purchase order.
 Accounting will not book full sales amount with stipulation.
• So, salesperson agrees to send an email with
stipulation.
 Accounting books full amount.
• Significant amount of unsold product probably will
be sent back next quarter for refund.
Q: Is it ethical to write an agreement to take back
product in an email?
Q: What would the boss do if he finds out?
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777
Ethics Guide: Dialing for Dollars,
Scenario 2
2. With another customer, you don’t offer discount, but
agree to post 80 percent of sale due this quarter with
the 20 percent credit posted next quarter.
 Accounting books full price now, takes off 20
percent next quarter.
 Will hurt sales next quarter
Q: Is it ethical to offer the discount?
Q: How would it affect company’s balance sheet?
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Ethics Guide: Dialing for Dollars,
Scenario 3
3. Sell product to fictitious company owned by relative
 Accounting books full sale this quarter.
 All merchandise returned next quarter for refund.
Q: Is this ethical?
Q: Is this legal?
Q: What impact do your sales activities impact next quarter’s
inventories?
 Company’s MRP II system is scheduling production for next
quarter based on this quarter’s sharply increased sales.
Accordingly, it generates a schedule with substantial
production increases and schedules workers for production
runs.
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779
Guide: The Flavor-of-the-Month
Club
• Management programs are often introduced
into organizations using:
 Kick-off meetings
 Change management experts to explain programs
 HR amends annual review to include changes
• Then, it’s forgotten
 Senior management seems to forget about it
 Program loses support and new one is introduced
 Employees grow more cynical with each failed
program
 Employees want change from bottom-up, not
imposed from top-down
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Guide: ERP and the Standard,
Standard Blueprints
• ERP packages
 Software contains inherent processes that integrate hundreds
or thousands business processes
 Customized to particular industries
• Benefits
 Saves time identifying needed processes
 Saves money—no software development needed if firm
adapts to standard blueprint of ERP package
• Organizations adapt its processes to standard
blueprint
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Guide: ERP and the Standard,
Standard Blueprints
Issues:
• If all firms in an industry use same business
processes, how can a firm gain competitive
advantage?
• How will innovation occur?
• Does “commoditized” standard blueprint prevent
sustaining a competitive advantage?
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Active Review
Q1 Why is business process management important to
organizations?
Q2 How do organizations solve process problems?
Q3 What role do information systems play in business processes?
Q4 What are the most common functional applications used
today?
Q5 What are the problems with functional information systems?
Q6 What are the functions and characteristics of customer
relationship management (CRM) information systems?
Q7 What are the functions and characteristics of enterprise
resource planning (ERP) information systems?
Q8 2020?
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Case Study 7:
Process Cast in Stone
Selection and purchase
1. Client (homeowner) hires architect who either draws plans or
hires specialized kitchen architect.
2. Client usually walks through stone vendor’s warehouses, often
accompanied by interior designer or kitchen architect.
3. Stone vendor employees place chips of slabs in which the client
expresses interest into little boxes.
4. Write name of client or decorator in indelible ink on side of
selected stone or stones to reserve them
5. After final selection, the name is crossed out on slabs not
purchased.
6. Purchased slabs are set aside for shipping.
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Case Study 7:
Process Cast in Stone
Construction process
• Contractor selects a stone fabricator.
• Fabricator moves slabs from stone vendor’s
warehouse to workshop.
• Fabricator prepares the slab.
 Treat stone’s edges, possibly repolish stone
 Cut holes for sinks and faucets
• Installs in client’s home
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All rights reserved. No part of this publication may be reproduced, stored in a
retrieval system, or transmitted, in any form or by any means, electronic,
mechanical, photocopying, recording, or otherwise, without the prior written
permission of the publisher. Printed in the United States of America.
Copyright © 2011 Pearson Education, Inc.
Publishing as Prentice Hall
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