Chapter 8 Notes: Processes, Organizations, and Information Systems

Organizational Scope of Business Processes

  • Scope levels and examples
    • Workgroup/Functional
    • Example: Customer ordering from Amazon
    • Characteristics: Support one or more workgroup processes; 10–100 users; procedures often formalized; problem solutions within group; workgroups can duplicate data; somewhat difficult to change
    • Enterprise
    • Example: Selling to a customer (includes customer ordering and order fulfillment/delivery)
    • Characteristics: Support one or more enterprise processes; 100–1,000+ users; procedures formalized; problem solutions affect enterprise; eliminate workgroup data duplication; difficult to change
    • Inter-enterprise
    • Example: Amazon charges a customer’s credit card for the purchase, must interact with VISA
    • Characteristics: Support one or more inter-enterprise processes; 1,000+ users; systems procedures formalized; problem solutions affect multiple organizations; can resolve problems of duplicated enterprise data; very difficult to change
  • A Business Process with multiple Sub/Related Processes
    • Customer Purchasing Process: Functional scope
    • Billing/payment Process: Inter-enterprise scope with VISA
    • Order fulfillment/delivery Process: Functional scope
    • Selling Process: Enterprise scope

Processes can be structured or dynamic

  • Structured
    • Supports operational and structured managerial activities
    • Standardized; Usually formally defined and documented
    • Exceptions are rare and not well tolerated
    • Process structure changes slowly and with organizational agony
    • Examples: Customer returns, order entry, purchasing, payroll, etc.
  • Dynamic
    • Supports strategic and less structured decisions and activities
    • Less specific, fluid; Usually informal
    • Exceptions are frequent and expected
    • Adaptive processes that change structure rapidly and readily
    • Examples: Collaboration; social networking; ill-defined, ambiguous situations
  • Framework examples
    • Government – Highly Structured
    • Start-up – Dynamic

Process Metrics and Improvement

  • Process efficiency
    • Definition: Ratio of outputs to inputs
    • Mathematical: Efficiency = \frac{Outputs}{Inputs}
  • Process effectiveness
    • Definition: How well a process achieves organizational strategy
  • How to improve processes
    • Change process structure
    • Change process resources
    • Change both
  • Improving processes
    • Apply the above changes to enhance efficiency and effectiveness

Applications: CRM, ERP, and EAI

  • CRM – Customer Relationship Management
    • Manages all aspects of customer and marketing information
  • ERP – Enterprise Resource Planning
    • Integrated, single IT system for the entire organization
    • Characterized by a central data store
  • EAI – Enterprise Application Integration (referenced in context)
  • CRM, ERP, and EAI together
    • They form a suite of applications, a database, and a set of inherent processes
    • They manage all interactions with customers through the four phases of the customer life cycle
    • Phases: Marketing, customer acquisition, relationship management, loss/churn
    • Effect: Supports a customer-centric organization

CRM and ERP: What they do in practice

  • CRM applications focus on managing customer interactions and marketing information across the customer life cycle
  • ERP applications focus on integration across the organization to enable real-time updates
  • The combination enables enterprise-wide visibility and coordinated processes

CRM Programs and Vendors

  • Top CRM sellers
    • Salesforce.com
    • SAP AG
    • Oracle
    • Microsoft Dynamics (integrates with Office)
  • Other noted programs
    • Zoho CRM (freeware)
    • Snapforce (CRM/KM for small businesses)
    • SugarCRM (small business oriented)

ERP Applications and Vendor Landscape (illustrative elements)

  • ERP is a suite of applications; the primary purpose is integration; integration allows real-time updates
  • Elements of ERP system include: an integrated suite, common data model, cross-functional processes
  • Notable vendor insights (historical perspective)
    • SAP: Led ERP success with client-server hardware; largest vendor; comprehensive solution; expensive; older technology; migrating to cloud; strong CRM position
    • Oracle: In-house and acquired products (PeopleSoft, Siebel); expensive; strong tech base; large customer base; flexible SOA; cloud solutions; competitive with SAP
    • Infor ERP: Privately held; many solutions not fully integrated; specialized for manufacturing and supply chain; evolving with 3D printing
    • Microsoft Dynamics: Four products (AX, Nav, GP, SL); AX/Nav broad; SL waning; large VAR channel; integration with Office; limited cross-product integration; Azure hosting considerations
    • Sage: ERP/CRM/financial systems; cloud and mobile adapted; cost-effective; broad product suite
  • Modern vendor landscape (illustrative 2023 data)
    • SAP – Market Share: ~20%; Revenue ≈ $30.87B; Market leader; expensive; gold standard for ERP; cloud migration and CRM strength
    • Oracle – Market Share: ~14%; Revenue ≈ $42.44B; cloud and SOA; strong competition with SAP
    • Microsoft Dynamics – Market Share: ~9%; Revenue ≈ $3.40B; Dynamics 365 as SaaS; AX used in manufacturing; Office integration challenges with other products
    • Infor – Market Share: ~7%; Revenue ≈ $3.20B; many non-integrated solutions; manufacturing/supply chain focus; 3D printing evolution
    • Epicor – Market Share: ~4%; Revenue ≈ $0.90B; targeted at mid-sized companies; customizable solutions
  • Notes on vendor landscape
    • These figures illustrate the competitive ERP market and the trade-offs among cost, integration, and breadth of functionality

Elements of ERP Systems (summary from Q7-5)

  • Core components typically include:
    • Company-wide ERP capabilities spanning finance, HR, manufacturing, supply chain, CRM, etc.
    • A centralized data model and real-time data updates across modules
    • Integrated business processes that cross-functional boundaries
  • Practical implications
    • Choosing an ERP involves evaluating total cost of ownership, scalability, cloud vs on-premises, and alignment with business processes

Market Share and Revenue Snapshot (top vendors)

  • SAP: Market share ~20%, Revenue ≈ $30.87B
  • Oracle: Market share ~14%, Revenue ≈ $42.44B
  • Microsoft Dynamics: Market share ~9%, Revenue ≈ $3.40B
  • Infor: Market share ~7%, Revenue ≈ $3.20B
  • Epicor: Market share ~4%, Revenue ≈ $0.90B

Importance of Managing Customers

  • Cost of customer acquisition vs retention
    • It costs between 4 to 10 times more to get a new customer than to keep an existing one
    • Source: Kingwell, Ian, LinkedIn (2015)
  • Customer base concentration
    • 65% of a given company’s business comes from existing customers
  • Profit impact of retention
    • A 5% increase in customer retention results in a 25% to 95% increase in profit
  • Revenue concentration
    • 20% of customers generate 80% of revenue

Subcategories of Marketing

  • Business to Consumer (B2C)
    • Generally large number of clients/potential clients
    • Consumers decide based on multiple factors including price and personal preferences
  • Business to Business (B2B)
    • Generally a smaller number of clients
    • Purchases are more rational; objective is business utility
  • Consumer to Consumer (C2C)
    • Direct selling between end users
    • Examples: yard sales, eBay

Category of Goods – Consumer (Encyclopedia Britannica)

  • Consumer Marketing categories by life cycle and use-case
    • Non-durable: immediate or near-immediate consumption; < 3 years
    • Examples: food, clothing, gasoline
    • Durable: 3 to 5 year life cycle
    • Examples: cars, electronics, appliances
    • Capital: 5+ year life cycles
    • Examples: house, investment property

Category of Goods – Organizations (Assets and Inventory)

  • Capital: fixed, long-term assets used in operation
    • Examples: Office buildings, warehouses, factories, heavy equipment, IT infrastructure
  • For sale/resale: goods purchased or produced to be sold to customers
    • Examples: groceries, clothing, automobiles
  • MRO (Maintenance, Repair, and Operations): goods and services to run and maintain the business
    • Examples: Office supplies, company autos for employees, repairs to capital goods (limited)

Customer Motivation (BBB.org)

  • Key motivational factors driving customer behavior:
    • Convenience
    • Value/utility (rational or irrational)
    • Personal Attention
    • Ease of buying
    • Trust
    • Community

The Customer Life Cycle

  • Source: The Customer Life Cycle (used with permission, Foster School of Business)
  • Concept: A lifecycle approach to managing customer relationships across stages from awareness to advocacy
  • Note: The lifecycle emphasizes ongoing engagement, measurement, and optimization of customer interactions across marketing, sales, and service
  • Practical takeaway: Align CRM and ERP capabilities to support lifecycle phases and customer-centric processes

Context and Connections

  • Foundational principles
    • Data is a strategic asset; central data stores enable integrated processes across functions
    • Real-time updates and cross-functional visibility improve decision making and efficiency
    • Structured vs dynamic processes highlight the need for flexible governance and adaptability in organizations
  • Real-world relevance
    • Large enterprises rely on integrated CRM/ERP suites to manage customer interactions, operations, and supply chains in a coordinated way
    • Selection of ERP/CRM solutions involves trade-offs among cost, integration depth, and cloud readiness

Notes on Ethics and Practical Implications (implicit in content)

  • Centralization of customer data raises governance, privacy, and security considerations
  • Integration across departments and trading partners requires clear process ownership and data stewardship
  • Migration to cloud-based ERP/CRM solutions involves data sovereignty, compliance, and change management considerations