Management Information Systems & Business Strategy of the Firm

Introduction

It is generally held that companies are attempting to redesign workflows and business processes in order to achieve substantial productivity breakthroughs. Formulating Enterprise Systems plans should be at the top of management's priorities (Class handout).

Successful Enterprise Systems are not easy to develop and implement. They may require major changes in how business operates internally and with external stakeholders. Sustained success depends on many environmental and fundamental business factors, and especially on the actions and strategies of a company's management team. Thus, developing strategic uses of information technology is a major managerial challenge.

The internet and technological advances in communication speed permit consumers and retailers to communicate with one another rapidly, at any hour, any day of the year. The growth and strengthening of the global economy has fashioned a fast paced environment where an organization must be efficient/provide value to remain competitive. Companies are devoting significant resources to producing or purchasing CRM solutions. Creating software and communication platforms has become so important firms have specialized in producing e-commerce solutions for business-business (B2B) retailers such as SAP.

To succeed in the digital economy, organizations must manage the integration of business, technology, people and processes not only within the enterprise but also across its boundaries. Whereas an enterprise system focuses on internal-enterprise business processes, a supply chain management system facilitates connection to external value chains. Although these systems can bring benefits and competitive advantage to organizations, the management and implementation of these systems pose challenges to organizations. Hence, one aim is to develop an in depth understanding of these issues, and to propose and provide solutions to address these management and organizational issues. What are the key success factors?

Successful businesses develop their own unique style, form and ways of doing business (Fingar, 2000). Their key competencies are the basis of their success and should be leveraged, not obliterated, in the process of developing information systems strategy (Raynor, 1998). Then why have so many CRM implementations failed and why is CRM spending only beginning to slowly increase? How has disappointment turned to satisfaction?

If CRM’s competitive advantage is embedded in its identifying existing customers needs and extending adding value through timelier service and cross promotions to its customers, a corporation can bridge a wide range information with highly tailored marketing (Moro Lectures, 2005).

Traditional MRP, database, SCM, and ERP platforms only consisted of large amounts of data and rapid access to almost any information. CRM has expanded the latitude of these systems. With so many incompatible systems resulting in inefficient CRM applications, Enterprise Application Integration appeared (Rigby, 2005). The rapid development of various systems has made it increasingly difficult for a firm to maintain competitive and unchallenged. Are external and internal applications, that have become as important as to be part of a business strategy, not providing leverage. No, our class handout argues that CRM can still lead to process and strategy re-engineering and, despite implementation problems, theses applications have become standard tools for many large firms. We must address two fundamental questions. First, what are the key success factors in implementing CRM applications? We look at companies that have succeeded by using highly defined projects that are narrow in scope, while taking a disciplined approach to launching CRM applications. Further, does CRM have to be strategic? Does the firm need perfect data? Although a disciplined approach resembles IS planning, it is argued that these processes should be viewed as separate processes. Second, we explore the wider framework of how to manage CRM application implementation by choosing a narrowly defined project. Implicit to these arguments are shifting paradigm models of key market forces and the types of outcomes sought (i.e. value adding through targeted marketing and not cost savings). Given continuously changing IT, identifying the firm’s primary needs and delineating what processes to use from the vast abilities IT brings will lead to a standardization of software platforms that needs to occur in the wider setting to enable firms to keep up with technology.

Research/Discussion

Customer Relationship Management

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Research/Discussion

Customer Relationship Management

Profits and earnings per share were the dominant measurements of a successful corporation in today’s business world. They are not the benchmarks by which investors decide on when investing capital. A unique idea, managing relationships, with a need for that value is the factor that attracts capital investment. Business strategy based on adding value to products and processes is a paradigm shift in business. Attracting customers and creating loyalty has become paramount and cost effective, it costs 10 times more money to find new customers than retain old ones. Sales Force Automation applications attract potential customers by using collected consumer data to create market offerings tailored to a specific individual. CRM applications add value offering post sales service and support functions. Using CRM, each module can access customer interactions throughout the organization, regardless of where, when or how the interactions occurs. Any information that feeds into the chain is part of the systems. Ensuring that the correct data is inputted and filtered by the responsible module is key to reducing errors.

Rather than using CRM to transform an entire business, organizations should direct investment towards solving specific customer issues within the series of activities of the customer relationship cycle from segmenting and targeting the market to wooing customers back. Aviall, a component distributor of airplane parts and Kimberly-Clark an Brother International have adopted a healthy skepticism. These firms disregard overblown claims that the ultimate payback from CRM is a “real-time” enterprise and focus on the aspects of customer relationships that truthfully relay on perfect information. These cases illustrate how successful smaller CRP projects have been springboards to solving additional problems (Rigby, 2005).

These cases illustrate that there is a time and place for CRM, and that unilateral application of IT to magically solve everything, somehow, is not cost effective. The lack of clearly defined CRM strategies and support structures has burned organizations.

Contemporary business strategy must realize how to filter the large data warehouses and integrate certain data into marketing and customer service strategy. In essence, the Enterprise System is inherent to creating effective CRM in today’s competitive market. How has technology affected business? It may appear to be a rhetorical question but we must then ask why are corporations making so many errors implementing CRM. 2004 estimates reveal that in the past 10 years, 300 billion was invested in ERP systems worldwide and that investment will grow to 79 billion annually. Although some companies claim reduced cycle time, improved financial management and obtained information faster through ES systems, ES systems in general still have a high failure rate (Songini, 2004). CRM software varies tremendously from firm to firm and the technology is continuously changing. Many executives do not have the backgrounds to understand IT. Rigby argues it is better that business management do not strive to understand what technology can do, but to think about what you want the technology to do for you.

CRM and ES software and models have only started to mature, yet they have a long way to go (Rigby, 2005). ERP, ES and CRM concepts, capability or process maturity are continually being utilized in many aspects of organizations as a means of assessment and as part of a framework for improvement (Fraser, 2002). ES and CRM programming have started to standardize and become easier to configure as firms shift from EDI platforms to internet based platforms (Rigby, 2005).

The proliferation of ERP/SCM platforms in the 1990’s is the result of viewing IT as a ‘magic wand’ that produces efficiencies. Many businesses rapidly sought CRM systems to take full advantage of the “power” of Information Technology to transform their entire enterprise without understanding/identifying their current issues with their customer relationship cycle.

Managing CRM - Do Firms Need Perfect Data?

Early attraction to CRM lay in its ability to disseminate real-time information giving knowledge-based marketers, salespeople and managers a clear picture of what is happening in their market. Perfect information is costly. Expensive systems that are finely tuned are required to collect and disseminate changing information quickly. Despite the hype, few firms need perfect information in their customer relationships. If a customer does not value these processes, why pay for them. Real-time information should be driven by real-time opportunities. Thus, companies must distinguish between activities that demand perfect information.

Managing CRM Planning - Planning

Justin Carter proposes “accountability” for IT ensures planning is truly business based. Organizations achieve accountability by approaching the formulation of technology based systems as an investment decision. Focusing attention on the cost/benefit of implementing a system delegates responsibility to relevant managers. Viewing the CRM systems as an investment underscores the need to yield a positive return at an accepted level of risk. Thus, assessing the costs, risks and benefits will directly links CRM to planning. The ERP does not become part of a business strategy just a quantifiable goal. Secondly, as an investment, the CRM plan must cover all investments that will contribute returns. Lastly, delegating responsibility for planning CRM requires coordination. An ERP/ES and IS plan will facilitate coordination in an organization (Carter, 1995).

Traditionally, CRM planning has focused on the development costs of software and hardware. The majority of CEO’s felt their CRM platforms did not produce significant returns (Dixon, 1999). Without a framework to create and assess CRM plans, less obvious investments such as support, maintenance, and staff reactions to IT, businesses were unable to properly “invest” in CRM and “realize” large returns (Dixon, 1999 & Carter, 1995). Returns cannot arise from IT investments alone, returns arise from business (Carter, 1995).

Moreover, developing a new CRM, a sociotechnical entity, is a form of organizational change affecting work processes, management and the organization.

Data Mining

Artificial intelligence is making a comeback to the mainstream of corporate technology. Designed to leverage the capabilities of humans rather than replace them, today’s AI technology enables an extraordinary array of applications that forge new connections among people, computers, knowledge, and the physical world. AI-enabled applications are at work in information distribution and retrieval, database mining, product design, manufacturing, inspection, training, user support, and complex resource management. Indeed, for anyone who allocates resources, designs products, uses the Internet, develops software, or operates in any of a score of other capacities and arenas, AI technologies already may be providing competitive advantage.

Cases

Although it is possible to use CRM to manage the entire customer relationship process/cycle: targeting markets, initial purchase, after sales service, subsequent purchases, cross promotions, the following cases illustrate how examining customer relationship cycle should be the focus of CRM.

Avirall

Organizational Background

Avirall is an aircraft parts distributor. CEO Paul Fulchino sought to reengineer the parts supplier into a “supply chain management service” to the aviation industry. He sought to be the preferred partner of both OEM’s, commercial and military fleet owners. One could argue that his strategy was consolidation of markets and used a narrow CRM project to specifically address customer cycle issues.

Setting the Stage

A few steps were involved in the planning and implementing a small CRM. When Paul sat down to assess his strategy, he realized he had core problems and a number or actors were involved, internal and external staff. Avirall did not have the information to expand into a global supplier. In addition, cumbersome sales processes hampered sales and service operations. Existing IT systems had increased workloads as mangers had to input more order information into the database instead of making calls. Once more, staff reps were not trained to use the system that upset customers that had their calls routed to wrong locations and increased costs, as quotes did not use accurate cost data. Avirall realized that a better-trained workforce was a strategic necessity to implementing flawless delivery of his aggressive plan.

Liaising with marketing and a technology heads resulted in dedicating initial CRM outlays to this critical challenge. Instead of a full-scale CRM system, Avirall focused on staff training, order entry, and call centre applications to seamlessly coordinate customer information from outside sales staff to inside customer support staff.

This narrow focus enabled Avirall’s staff to acclimate to the software quickly without feeling overwhelmed. Attaining goals in stages enabled staff to take ownership of the systems and gather momentum for the new systems.

Staff appreciated the efficiency the systems brought, “there’s nothing more frustrating than spending time taking the order, having the customer wait an additional 15 minutes to realize that there is a credit issue”. All relevant issues are on the computer screen. The system provided timely and relevant information at the right cost.

Staff were motivated to make more calls since they knew they could provide instantaneous quotes on customized orders using 1 screen and 10 steps as opposed to 11 screens and 50 steps. Calls increased and Avirall’s customer base increased 35%.

Kimberly-Clark

Kimberly-Clark, one of the largest consumer packaged-goods company, runs thousands of promotions every year to individual retailers but cannot gauge the effectiveness of them. Kimberly-Clark has aggregate numbers on trade promotions and cannot break them down by individual retailer, product, or shipment. Marketing at Kimberly-Clark could only gauge overall ROI. Kimberly-Clark needs to know where its huge spending on marketing is paying off, customer loyalty; shelf space and sales discounts may be going to waste.

Again, executives sought a small customized CRM system to collect and analyse data to improve the entire customer relationship cycle. The result: A real-time impact of sales and profit during promotions integrated into sales and planning with customers. Business Planner, their software, can be used in the field to design specific promotional packages for specific retailers within broader marketing plans. Key account reps create scenarios and instantly access financial results while working directly with retailers.

Business Planner enables retailers and vendors to collaborate and create promotions on-line. It also provides real-time marketing research of local consumer behaviour online. Data mining integrates promotional spending with scanner and financial information.

Staff Training programs, led by company executives, created 2,300 specific marketing plans that raised sales and re-directed 30 million dollars of advertising spending. Kimberly-Clark can now measure the effect of a flyer in the Sunday newspaper. Focusing on a company’s pain points enabled Kimberly-Clark to get a CRM program back on track (Rigby, 2005). Again, CRM was not used to re-engineer the business, but to simply improve the service offered to customers.

CRM and Re-engineering

The steps involved in designing an information system plan are similar to those one would use to create a business plan. Identifying your core competencies is translated to identifying issues in CRM downstream which moves thought from strategy to the full range of activities and values customers want. Firms can execute their business strategies and systems plans without CRM.

Academic literature argues that CRM can re-engineer a process and although this is true, any business that fundamentally changes its structure after applying CRM has not sat down to identify its key processes and business strategy. Implicit to this argument is that, again, employing CRM and then realizing you have an advantage means that the firm has used technology prior to sitting down and analyzing its business strategy. In essence, the firm is relying on technology to fix the business.

The issue of the extent to which CRM is driven by ES or ES driven by information systems bewilders many executives and obscures the use of databases and CRM. Rigby argues that executives should not need to understand technology, simple ask it to do what they want. The argument makes some sense but it is dangerous given that is requires executives not fear IT or look at it as a magic wand; executives must be proactive and plan their strategy first.

Conclusion

Given the brew of various business challenges, businesses and academics must realize that CRM is not a buffing tool for company performance. CRM should only be applied to vital processes to maintain the company’s competitive edge, those that distance it from its competitors. A non-strategic target makes retooling business structure impossible. paradigm shift in creating business models has come. It is not that technology is changing how businesses do business; it is that information systems have changed what business seeks to sell. The measure of returns, while important, is not the way to compete. It is what you are selling. A new paradigm model for business has been created for an industrial service and knowledge based industries. It should be noted that various countries possess different industrial stages as they progress from tertiary to manufacturing to service to knowledge. In addition, these countries with various industries have integrated as technology has moved manufacturing offshore. Thus, businesses must adopt the correct business model given their industry, that is, a manufacturer must run his business differently that a knowledge firm despite that they work together to produce a specific good. An analogy would be Ford designing cars and not producing them while contracting-out all of the manufacturing of cars.

Creating new information systems for an organization requires more than innovative missions, visions, and approaches. Firms, especially digital firms, require systems planning and systems analysis based on a broader view of the organization, a view that includes business strategy extended beyond accounting boundaries (Value). Firms must now coordinate their business strategies and information systems plans through electronic relationships with suppliers, distributors, and customers (Fingar, 2000). Both, Noy’s and Raynor’s frameworks are better viewed as a circulatory framework. This clarifies how the IS and business strategy are linked to mission, vision, and key compentencies. The circular framework purposefully enables executives to better understand that although these facets are steps in a process, it does not matter whether the chicken or the egg came first. Further, the notion of a circular framework addresses the needs for clarity at the managerial level despite the interrelatedness of values and mission concepts. Together, Noy and Raynor illustrate the how the mechanics of formulating an information system support business strategy in achieving vision and mission.

References

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Carter, J (1995). Ensuring Information Systems Is Truly Business Led in Computer Audit Update, April 1995.

Chan, J (2005). Enterprise Information Systems Strategy and Planning in the Journal of American Academy of Business, Cambridge. Vol.2.

CxNetworks Inc. (2000) i2 Technologies and Cemtec Sign Strategic Alliance. Business Wire. San Diego, U.S.A., p2822.

Fingar, P. (2000). Component-based frameworks for e-commerce in Association for Computing Machinery. Communications of the ACM. New York: Vol.43, Iss. 10, pp.61-67.

FedEx (2000) FedEx Makes Returning Online Purchases Simpler and More Convenient This Holiday Season; Web-Based Labels, Drop off Network Promise to Improve Shopping Experience. Business Wire, Memphis, U.S.A. p.2045.

Fraser, P (2002). The use of maturity models.grids as a tool in assessing product development capability IEEE International Engineering Management Conference, Cambridge, 19-20 August 2002.

Howell, D (2000) Clicks and Bricks to coexist in Mall Based Kiosks. Dsn Retailing Today, New York. Volume 39. Issue 18, p. 6.

Howell, D (2000) Home Depot Launches e-tailing in select Western Markets. Dsn Retailing Today, New York. Volume 39. Issue 18, p. 10,112.

Noy, Eli (1998). Total Business Strategy-The Missing Link in Long Range Planning, Vol.31, No. 6, pp. 927-932

Raynor, Michael (1998). That Vision Thing: Do We Need It? in Long Range Planning, Vol. 31, No. 3, pp. 368-376.

Visa U.S.A., Yahoo (2000) Visa U.S.A. and Yahoo! Expand E- Commerce Marketing Relationship. Business Wire, Santa Clara U.S.A., p.0054.

Class Handouts

76-514

chapter 3, 2005

Information Systems Today, Prentice Hall, 2005

Websites

Songini, M (2004). Ford Abandons Oracle Procurement System Switches Back to Mainframe Apps, Computerworld, August 24, www.computerworld.com/softwaretopics/erp/story/0,10801,95404,00.html