CHAPTER 15 : OUTSOURCING IN THE 21st CENTURY

Learning Outcomes

1. Describe the advantages and disadvantages of in sourcing, outsourcing, and offshore outsourcing

2. Describe why outsourcing is a critical business decision

OUTSOURCING PROJECTS

- Insourcing (in-house-development) – a common approach using the professional expertise within an organization to develop and maintain the organization's information technology systems 

- Outsourcing – an arrangement by which one organization provides a service or services for another organization that chooses not to perform them in-house

- Reasons companies outsource

- Onshore outsourcing – engaging another company within the same country for services

- Nearshore outsourcing – contracting an outsourcing arrangement with a company in a nearby country

- Offshore outsourcing – using organizations from developing countries to write code and develop systems

-Big selling point for offshore outsourcing “inexpensive good work”

- Factors driving outsourcing growth include:

• Core competencies - Many companies have recently begun to consider outsourcing as a means to fuel revenue growth rather than just a cost-cutting measure. 

- Financial savings

• It is typically cheaper to hire workers in China and India than similar workers in the United States. 

- Rapid growth

• an organization is able to acquire best-practices process expertise. This facilitates the design, building, training, and deployment of business processes or functions.

- Industry changes

• High levels of reorganization across industries have increased demand for outsourcing to better focus on core competencies. 

- The Internet

• The pervasive nature of the Internet as an effective sales channel has allowed clients to become more comfortable with outsourcing. 

- Globalization

• As markets open worldwide, competition heats up. Companies may engage outsourcing service providers to deliver international services

- According to PricewaterhouseCoopers “Businesses that outsource are growing faster, larger, and more profitable than those that do not”

- Most organizations outsource their noncore business functions, such as payroll and IT

Outsourcing Benefits

Outsourcing benefits include:

• Increased quality and efficiency 
• Reduced operating expenses
• Outsourcing non-core processes
• Reduced exposure to risk
• Economies of scale, expertise, and best practices
• Access to advanced technologies
• Increased flexibility 
• Avoid costly outlay of capital funds
• Reduced headcount and associated overhead expense
• Reduced time to market for products or services

Outsourcing Challenges

Outsourcing challenges include:

- Contract length 

• Most outsourcing contracts span several years and cause the issues discussed above

1. Difficulties in getting out of a contract
2. Problems in foreseeing future needs
3. Problems in reforming an internal IT department after the contract is finished

- Competitive edge

• Effective and innovative use of IT can be lost when using an outsourcing service provider

- Confidentiality

• Confidential information might be breached by an outsourcing service provider, especially one that provides services to competitors  

-Scope definition

• Scope creep is a common problem with outsourcing agreements

CHAPTER 14 : CREATING COLLABORATIVE PARTNERSHIPS

Learning Outcomes

1.Identify the different ways in which companies collaborate using technology

2.Compare the different categories of collaboration technologies

3.Define the fundamental concepts of a knowledge management system

4.Provide an examples of a content management system along with its business purpose

5.Evaluate the advantages of using a workflow management system

6.Explain how groupware can benefit a business

Teams, Partnerships, and Alliances

- Organizations create and use teams, partnerships, and alliances to:

• Undertake new initiatives
• Address both minor and major problems
• Capitalize on significant opportunities

- Organizations create teams, partnerships, and alliances both internally with employees and externally with other organizations

- Collaboration system – supports the work of teams by facilitating the sharing and flow of information 

- Organizations form alliances and partnerships with other organizations based on their core competency

• Core competency – an organization’s key strength, a business function that it does better than any of its competitors
• Core competency strategy – organization chooses to focus specifically on its core competency and forms partnerships with other organizations to handle nonstrategic business processes

- Information technology can make a business partnership easier to establish and manage

• Information partnership – occurs when two or more organizations cooperate by integrating their IT systems, thereby providing customers with the best of what each can offer

- The Internet has dramatically increased the ease and availability for IT-enabled organizational alliances and partnerships

Collaboration Systems

- Collaboration solves specific business tasks such as telecommuting, online meetings, deploying applications, and remote project and sales management

- Collaboration system – an IT-based set of tools that supportsthe work of teams by facilitating the sharing and flow of information

- Two categories of collaboration

1. Unstructured collaboration (information collaboration) - includes document exchange, shared whiteboards, discussion forums, and e-mail
2. Structured collaboration (process collaboration) - involves shared participation in business processes such as workflow in which knowledge is hardcoded as rules

- Collaborative business functions

Collaboration systems include:

• Knowledge management systems
• Content management systems
• Workflow management systems
• Groupware systems

Knowledge Management Systems

• Knowledge management (KM) – involves capturing, classifying, evaluating, retrieving, and sharing information assets in a way that provides context for effective decisions and actions
• Knowledge management system – supports the capturing and use of an organization’s “know-how”

Explicit and Tacit Knowledge

Intellectual and knowledge-based assets fall into two categories

1. Explicit knowledge – consists of anything that can be documented, archived, and codified, often with the help of IT
2. Tacit knowledge - knowledge contained in people’s heads

The following are two best practices for transferring or recreating tacit knowledge

1. Shadowing – less experienced staff observe more experienced staff to learn how their more experienced counterparts approach their work
2. Joint problem solving – a novice and expert work together on a project

Reasons why organizations launch knowledge management programs

KM Technologies

Knowledge management systems include:

• Knowledge repositories (databases)
• Expertise tools
• E-learning applications
• Discussion and chat technologies
• Search and data mining tools

KM and Social Networking

Finding out how information flows through an organization

• Social networking analysis (SNA) – a process of mapping a group’s contacts (whether personal or professional) to identify who knows whom and who works with whom
• SNA provides a clear picture of how employees and divisions work together and can help identify key experts 

Social Networking

Content Management

- Content management system (CMS) – provides tools to manage the creation, storage, editing, and publication of information in a collaborative environment

- CMS marketplace includes:

• Document management system (DMS)
• Digital asset management system (DAM)
• Web content management system (WCM)

Document management system (DMS)

Supports the electronic capturing, storage, distribution, archival,  and accessing of documents

Digital asset management system (DAM)

Similar to DMS, generally works with binary rather than text files, such as multimedia files types.

Web content management system (WCM)

Adds an additional layer to document and digital asset management that enables publishing content both to intranets and to public Web sites

Content Management

Content management system vendor overview

WORKING WIKIS

• Wikis - Web-based tools that make it easy for users to add, remove, and change online content
• Business wikis - collaborative Web pages that allow users to edit documents, share ideas, or monitor the status of a project

Workflow Management Systems

Work activities can be performed in series or in parallel that involves people and automated computer systems

• Workflow – defines all the steps or business rules, from beginning to end, required for a business process
• Workflow management system – facilitates the automation and management of business processes and controls the movement of work through the business process
• Messaging-based workflow system – sends work assignments through an e-mail system
• Database-based workflow system – stores documents in a central location and automatically asks the team members to access the document when it is their turn to edit the document

Groupware Systems

- Groupware technologies

- Groupware – software that supports team interaction and dynamics including calendaring, scheduling, and videoconferencing

VIDEOCONFERENCING

A set of interactive telecommunication technologies that allow two or more locations to interact via two-way video and audio transmissions simultaneously.

WEB CONFERENCING

Blends audio, video, and document-sharing technologies to create virtual meeting rooms where people “gather” at a password-protected Web site.

INSTANT MESSAGING

- E-mail is the dominant form of collaboration application, but real-time collaboration tools like instant messaging are creating a new communication dynamic

- Instant messaging - type of communications service that enables someone to create a kind of private chat room with another individual to communicate in real-time over the Internet

- Instant messaging application 

CHAPTER 13 : E-BUSINESS

Learning Outcomes

1.  Compare e-commerce and e-business

2.  Compare the four types of e-business models
3.  Describe the benefits and challenges associated with e-business
4  Explain the differences among e-shops, e-mails, and online auctions

E-Business

The Internet is a powerful channel that presents new opportunities for an organization to:

1. Touch customers
2. Enrich products and services with information
3. Reduce costs

E-Commerce & E-Business

How do e-commerce and e-business differ?

• E-commerce – the buying and selling of goods and services over the Internet (online transactions)
• E-business – the conducting of business on the Internet including, not only buying and selling, but also serving customers and collaborating with business partners (online transactions, serving customers and collaborating with business partner)

E-Business

Industries Using E-Business

E-Business Models
E-business model – an approach to conducting electronic business on the Internet

Business-to-Business (B2B)

- Electronic marketplace (e-marketplace) – interactive business communities providing a central market where multiple buyers and sellers can engage in e-business activities

Electronic marketplace (e-marketplace)

1. Electronic marketplaces, or e-marketplaces, present structures for conducting commercial exchange, consolidating supply chains, and creating new sales channels
2. Their primary goal is to increase market efficiency by tightening and automating the relationship between buyers and sellers
3. Existing e-marketplaces allow access to various mechanisms in which to buy and sell almost anything, from services to direct materials

Business-to-Consumer (B2C)

Common B2C e-business models include:

• e-shop – a version of a retail store where customers can shop at any hour of the day without leaving their home or office
• e-mall – consists of a number of e-shops; it serves as a gateway through which a visitor can access other e-shops

Business-to-Consumer (B2C)

• Brick-and-mortar business- operates in a physical store without an Internet presence. Eg: Bata.
• Pure-play business- a business that operates on the Internet only without a physical store. Examples include fashionvalet.com. 
• Click-and-mortar business– a business that operates in a physical store and on the Internet .Eg: Hijabs by Hanami

Consumer-to-Business (C2B)

• Priceline.com is an example of a C2B e-business model
• The demand for C2B e-business will increase over the next few years due to customer’s desire for greater convenience and lower prices

Consumer-to-Consumer (C2C)

Online auctions

• Electronic auction (e-auction) - Sellers and buyers solicit consecutive bids from each other and prices are determined dynamically
• Forward auction - Sellers use as a selling channel to many buyers and the highest bid wins
• Reverse auction - Buyers use to purchase a product or service, selecting the seller with the lowest bid

C2C communities include:

• Communities of interest - People interact with each other on specific topics, such as golfing and stamp collecting
• Communities of relations - People come together to share certain life experiences, such as cancer patients, senior citizens, and car enthusiasts
• Communities of fantasy - People participate in imaginary environments, such as fantasy football teams and playing one-on-one with Michael Jordan

E-Business Benefits

E-Business benefits include:

- Highly accessible

• Businesses can operate 24 hours a day, 7 days a week, 365 days a year

- Increased customer loyalty

• Additional channels to contact, respond to, and access customers helps contribute to customer loyalty

-  Improved information content 

• In the past, customers had to order catalogs or travel to a physical facility before they could compare price and product attributes. Electronic catalogs and Web pages present customers with updated information in real-time about goods, services, and prices

- Increased convenience

• E-business automates and improves many of the activities that make up a buying experience

- Increased global reach

• Businesses, both small and large, can reach new markets

- Decreased cost 

• The cost of conducting business on the Internet is substantially smaller than traditional forms of business communication

E-Business Challenges

 E-business challenges include:

- Identifying Limited Market Segments

• The main challenge of e-business is the lack of growth in some sectors due to product or service limitation.

- Managing Consumer Trust

• Internet marketers must develop a trustworthy relationship to make that initial sale and generate customer loyalty.

- Ensuring Consumer Protection

• Implement Internet Security, protect from misuse of customer information.

- Managing Consumer Trust

• Companies that operate online must obey a patchwork of rules about which customers are subject to sales tax on their purchase and which are not.

E-Business Benefits and Challenges

There are numerous advantages and limitations in e-business revenue models including: 

• Transaction fees
• License fees
• Subscription fees
• Value-added fees
• Advertising fees

Mashups

- Web mashup - a Web site or Web application that uses content from more than one source to create a completely new service

• Application programming interface (API) - a set of routines, protocols, and tools for building software applications
• Mashup editor - WSYIWYGs (What You See Is What You Get) for mashups

CHAPTER 12: INTEGRATING THE ORGANIZATION FROM END TO END - ENTERPRISE RESOURCE PLANNING

Learning Outcomes

1.Describe the role information plays in enterprise resource planning systems

2.Identify the primary forces driving the explosive growth of enterprise resource planning systems

3.Explain the business value of integrating supply chain management, customer relationship management, and enterprise resource planning systems

Enterprise Resource Planning (ERP)

- At the heart of all ERP systems is a database, when a user enters or updates information in one module, it is immediately and automatically updated throughout the entire system.

- ERP systems automate business processes

Bringing the Organization Together

- ERP – The organization before ERP

- ERP – bringing the organization together

The Evolution of ERP

Integrating SCM, CRM, and ERP

- SCM, CRM, and ERP are the backbone of e-business

- Integration of these applications is the key to success for many companies

- Integration allows the unlocking of information to make it available to any user, anywhere, anytime

- SCM and CRM market overviews 

-  General audience and purpose of SCM, CRM and ERP

Integration Tools

- Many companies purchase modules from an ERP vendor, an SCM vendor, and a CRM vendor and must integrate the different modules together

  *Middleware – several different types of software which sit in the middle of and provide connectivity between two or more software applications 

  *Enterprise application integration (EAI) middleware – packages together commonly used functionality which reduced the time necessary to develop solutions that integrate applications from multiple vendors

- Data points where SCM, CRM, and ERP integrate

Enterprise Resource Planning (ERP)

ERP systems must integrate various organization processes and be:

1. Flexible - must be able to quickly respond to the changing needs of the organization
2. Modular and open - must have an open system architecture, meaning that any module can be interface, with or detached whenever required without affecting the other modules. 
3. Comprehensive - must be able to support a variety of organizational functions for a wide range of businesses
4. Beyond the company - must support external partnerships and collaboration efforts

CHAPTER 11 : BUILDING A CUSTOMER-CENTRIC ORGANIZATION – CUSTOMER RELATIONSHIP MANAGEMENT

Learning Outcomes

1. Compare operational and analytical customer relationship management
2. Identify the primary forces driving the explosive growth of customer relationship management
3. Define the relationship between decision making and analytical customer relationship management
4. Summarize the best practices for implementing a successful customer relationship management system

Customer Relationship Management (CRM)

- CRM enables an organization to:

• Provide better customer service
• Make call centers more efficient
• Cross sell products more effectively
• Help sales staff close deals faster
• Simplify marketing and sales processes
• Discover new customers
• Increase customer revenues

Recency, Frequency, and Monetary Value

- Organizations can find their most valuable customers through “RFM” - Recency, 

Frequency, and Monetary value

§How recently a customer purchased items (Recency)

§How frequently a customer purchased items (Frequency)

§How much a customer spends on each purchase (Monetary Value)

The Evolution of CRM

- CRM reporting technology – help organizations identify their customers across other 

applications

- CRM analysis technologies – help organization segment their customers into categories 

such as best and worst customers

- CRM predicting technologies – help organizations make predictions regarding customer 

behavior such as which customers are at risk of leaving

-Three phases in the evolution of CRM include reporting, analyzing, and predicting

The Ugly Side of CRM

Customer Relationship Management’s Explosive Growth

- CRM Business Drivers

- Forecasts for CRM Spending (in billions)

Using Analytical CRM to Enhance Decisions

- Operational CRM – supports traditional transactional processing for day-to-day front

office operations or systems that deal directly with the customers

- Analytical CRM – supports back-office operations and strategic analysis and includes all 

systems that do not deal directly with the customers

- Operational CRM and analytical CRM

Customer Relationship Management Success Factors

- CRM success factors include:

1. Clearly communicate the CRM strategy
2. Define information needs and flows
3. Build an integrated view of the customer
4. Implement in iterations
5. Scalability for organizational growth

CHAPTER 10 : EXTENDING THE ORGANIZATION - SUPPLY CHAIN MANAGEMENT

Learning Outcomes

1. List and describe the components of a typical supply chain
2. Define the relationship between decision making and supply chain management
3. Describe the four changes resulting from advances in IT that are driving supply chains
4. Summarize the best practices for implementing a successful supply chain management system

Supply Chain Management

- The average company spends nearly half of every dollar that it earns on production

-In the past, companies focused primarily on manufacturing and quality improvements to 

influence their supply chains

Basics of Supply Chain

- The supply chain has three main links:

1.Materials flow from suppliers and their “upstream” suppliers at all levels

2.Transformation of materials into semifinished and finished products through the 

organization’s own production process

3.Distribution of products to customers and their “downstream” customers at all levels

- Organizations must embrace technologies that can effectively manage supply chains

 Plan

§A company must have a plan for managing all the resources that go toward meeting

customer demand for products or services.

Source

§Companies must carefully choose reliable suppliers that will deliver goods and

services required for making products. 

Make

§This is the step where companies manufacture their products or services. This can 

include scheduling the activities necessary for production, testing, packaging, and 

preparing for delivery.

Deliver (Logistic)

§Companies must be able to receive orders from customers, fulfill the orders via a 

network of warehouses, pick transportation companies to deliver the products, and 

implement a billing and invoicing system to facilitate payments.

Return

§This is typically the most problematic step in the supply chain. Companies must 

create a network for receiving defective and excess products and support customers 

who have problems with delivered products.

Information Technology’s Role in the Supply Chain

- Factors Driving SCM

          Visibility

- Visibility – more visible models of different ways to do things in the supply chain 

have emerged.  High visibility in the supply chain is changing industries, as Wal-Mart 

demonstrated

- Supply chain visibility – the ability to view all areas up and down the supply chain

- Bullwhip effect – occurs when distorted product demand information passes from 

one entity to the next throughout the supply chain

- Supply chain visibility allows organizations to eliminate the bullwhip effect

§To explain the bullwhip effect to your students discuss a product that demand does 

not change, such as diapers.  The need for diapers is constant, it does not increase at 

Christmas or in the summer, diapers are in demand all year long.  The number of 

newborn babies determines diaper demand, and that number is constant.

§Retailers order diapers from distributors when their inventory level falls below a 

certain level, they might order a few extra just to be safe

§Distributors order diapers from manufacturers when their inventory level falls below a 

certain level, they might order a few extra just to be safe

§Manufacturers order diapers from suppliers when their inventory level falls below a 

certain level, they might order a few extra just to be safe

§Eventually the one or two extra boxes ordered from a few retailers becomes several 

thousand boxes for the manufacturer.  This is the bullwhip effect, a small ripple at one 

end makes a large wave at the other end of the whip.

Consumer Behavior

- Companies can respond faster and more effectively to consumer demands through 

supply chain enhances

- Once an organization understands customer demand and its effect on the supply 

chain it can begin to estimate the impact that its supply chain will have on its 

customers and ultimately the organizations performance

- Demand planning software – generates demand forecasts using statistical tools 

and forecasting techniques

Competition

- Supply chain planning (SCP) software– uses advanced mathematical algorithms 

to improve the flow and efficiency of the supply chain

- Supply chain execution (SCE) software – automates the different steps and 

stages of the supply chain

- SCP and SCE both increase a company’s ability to compete

- SCP depends entirely on information for its accuracy

- SCE can be as simple as electronically routing orders from a manufacturer to a 

supplier

- SCP and SCE in the supply chain

Speed

- Three factors fostering speed

Supply Chain Management Success Factors

- SCM industry best practices include:

1.Make the sale to suppliers

2.Wean employees off traditional business practices

3.Ensure the SCM system supports the organizational goals

4.Deploy in incremental phases and measure and communicate success

5.Be future oriented