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Business Process Management

David Kroenke

Using MIS 3eChapter 7

Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 7-2

Explore information systems within an organization, extend thebusiness process discussion from Chapter 3, and work from thegeneral to the specific.

We begin with an overview of business process management, asystematic approach that modern businesses use to review andimprove their business processes.

Next, well discuss the three ways of fixing business processes. Then, well examine the role information systems play in business

processes, and conclude the chapter with specific examples ofinformation systems.

Well survey functional IS and discuss the two most important cross-functional IS: Customer Relationship Management (CRM) andEnterprise Resource Planning.(ERP).

MRV has a process problem that has caused Mr. Butterworth tobecome not a happy camper. Well use that example to illustrateconcepts in this chapter

Chapter Preview


Q1 Why is business process managementimportant 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 relationshipmanagement (CRM) information systems?

Q7 What are the functions and characteristics of enterprise resource

planning (ERP) information systems?Q8 2020?

Study Questions


Processing of an order at a typical online retailer. Figure 7-1shows a Web page for REI

Why Is Business ProcessManagement Important to

Organizations?

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Tasks for processing an order

Figure 7.2

Why Is Business Process

Management Important ToOrganizations?


Processing an order crosses departmentalboundaries.

Credit card processing, shipping, scheduling extendto other companies.

Business processes and IS must evolve as businesschanges.

Video

Why Is Business ProcessManagement Important to

Organizations?


Business Process Management (BPM)

Systematic process of creating, assessing,altering business processes.

Four stages of BPM

1.Create model of business processcomponents

Users review and adjust model As-is model documents current process; it is

changed to solve process problems

BPM


Stages of the BPM Cycle

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2. Create system components Uses five elements of IS (hardware, software,

data, procedures, people)

3. Implement business process4. Create policy for ongoing assessment of

process effectiveness Adjust and repeat cycles

MRV never designed its processes, hadno assessment program

BPM


Insert Figure 7-4 here

Scope of Business ProcessManagement


Functional processes involve activities within a singledepartment or function.

Examples are accounting, human resources, salesforecasting, and other processes that are containedin a single department.

BPM is easier to accomplish with functionalprocesses:

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 thatmanagers authority.

Functional Processes


Problem with functional processes is theirisolation

Islands of automation, a.k.a, informationsilos because they work in isolation from one

another.

Independent, isolated processes cannotproduce the productivity and efficiencynecessary for many businesses.

Functional Processes

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Cross-functional processes involve activities among severalbusiness departments.

Example: customer relationship management (CRM) is aprocess that integrates activities of several departments,including sales, marketing, operations, accounting, andcustomer 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 issuesor problems in customer support. Or, customer support canknow which customers have high volume and justify high levelsof support.

Cross-Functional Processes


Process management is more difficult for cross-functional systems because no manager has

authority over all of the activities and resourcesassigned to them.

BPM for cross-functional processes is shared acrossseveral departments that most frequently need toresolve conflict via committee and policy.

CRM and ERP are two most common cross-functional IS.

Cross-Functional Processes


Activities that process credit card transactions andactivities at the shipper

Supply chain management (SCM) processes involveorganizational integration.

In some cases, SCM company will haveinformation systems that directly accessprocesses 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, andeven litigation.

Interorganizational Processes


Q1 Why is business process management important toorganizations?



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 customerrelationship management (CRM) information systems?

Q7 What are the functions and characteristics of enterpriseresource planning (ERP) information systems?

Q8 2020?

Study Questions

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Critical for a team to agree on both what isand what ought to be.

Must have some notation for documentingprocesses and one common standard forcreating process documentation.

How Do Organizations Solve

Process Problems?


Dozens of definitions are used by authors, industryanalysts, and software products.

IBMS WebSphere Business Modeler uses adifferent set of terms. It has activities andresources, but uses repository for facility andbusiness item for data.

Other business-modeling software products use

other definitions and terms.

These differences and inconsistencies can beproblematic when two different organizations with twodifferent sets of definitions must work together.

How Do Organizations SolveProcess Problems?


Object Management Group (OMG) created astandard set of terms and graphical notationsfor documenting business processes.

That standard, called Business ProcessModeling Notation (BPMN), is documented atwww.bpmn.org.

How Do Organizations Solve

Process Problems?


BPMN Process Diagram of Top-Level Business Processes at MRV

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Software industry standardized notation forBPMN by Object Management Group (OMG)

BPMN information

Business Process Modeling

Notation (BPMN)

Figure 7.6


Figure 7.7

Task Assignments: BusinessProcess with Three Swim Lanes


Figure 7.8

MRV Assemble & Ship Equipment

Process (As-Is Diagram)


1. Adding a specialist to each activity in the process

Three Ways of ChangingBusiness Processes

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Figure 7.10

Three Ways of Changing

Business Processes2. Changing a process by altering process structure


Changing a process by altering processstructure

MRVEquipment and Logistics managercreates an integrated picking list to

minimize travel time and speed up pickingequipment.

Three Ways of ChangingBusiness Processes


Three Ways of Changing

Business Processes3. Combination of adding (or reducing) resources

and changing the process

Goal of some business process changes is toenable organization to reduce resources requiredto obtain the same result.

Changing both resources and process structure is

more complicated and has greater potential, butwill cause the organization more turmoil, and bemore difficult to implement.




Q3 What role do information systems play inbusiness processes?

Q4 What are the most common functional applications usedtoday?




Q8 2020?

Study Questions

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IS Roles

To Implement business process activities

May be entirely manual, automated, ormixed information systems

Role of Information Systems inBusiness Processes

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First taskRegister Clients

Alternatives:

1. Entirely manualusing word processor to recorddata, prepare documents of client roster and special

requests list2. Use spreadsheet or database application to

accomplish above activities, plus determine trip

availability, collect deposits and trip payments

3. Entirely automatedcreate Register Clientsystem

Clients use Internet to register and pay for trips.

IS Alternatives for Implementingthe Register ClientsActivity


Information systems, and database systems inparticular, 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 Equipmentactivities

Trip scheduler can reserve special equipment and benotified if not available

Information Systems for

Facilitating Linkages AmongActivities

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Mr. Butterworth requested and paid for a private tent. Hisrequest and payment were processed by the Register Clientsactivity.

However, no such tent was available in inventory, andequipment 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 toMr. Butterworth.

Notice the linkages about equipment among Register Clients,Assemble & Ship Equipment, and Restore Equipmentactivities.

Process Linkage Problem for MRV

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One solution to this problem: create adatabase application to track equipment, itslocation, and its status.

Figure 7-11 shows a new activity, ProcessEquipment Database, which processesupdates to the database from RegisterClients, Assemble & Ship Equipment, and

Restore Equipment activities.

Process Linkage Problem for MRV


Figure 7-11

Equipment Database ResourceCompletely Automated





Q4 What are the most common functionalapplications used today?




Q8 2020?

Study Questions


Functional application

A computer program that supports or automates majoractivities in a functional process.

Few organizations develop own functional applications.Instead, to reduce costs and risks, most license functionalapplication software from a vendor and then adapt.

Adaptation is necessary because organizations structuretheir functional processes differently; off-the-shelf functionalapplication almost never provides a perfect fit.

Functional information system

An information system that includes a functional application.

Most Common FunctionalApplications Used Today

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Common Functional Applications


Primary purpose: find prospects and transform theminto customers by selling them something.

Sales processes also manage customers by sellingexisting customers more products.

Other functional sales processes forecast futuresales.

Processes exist to manage products and brands.

Assess effectiveness of marketing messages,advertising, and promotions and to determineproduct demand among various market segments.

Sales and Marketing Applications


Management of finished-goods inventory andmovement of goods from that inventory to the

customer

Operations applications

Especially prominent for nonmanufacturers, suchas distributors, wholesalers, and retailers

In manufacturing companies, many, if not all, ofoperations functions are merged into

manufacturing systems.

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 forprocessing

Track an order through fulfillment process,

arrange for and schedule shipping, and processexceptions (such as out-of-stock products)

Inform customers of order status and scheduleddelivery dates

Principal Operations Applications

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Figure CE11-4

Manufacturing Information Systems


Inventory applications support inventory control and inventorymanagement. In terms of inventory control, inventoryapplications track goods and materials into, out of, and betweeninventories.

Inventory-management applications use past data to computestocking 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 andwork-in-process) delivered to manufacturing site just as theyare needed

Scheduling delivery of inputs to reduce inventories to aminimum



Help allocate inventory and equipment tomanufacturing processes

To plan materials for manufacturing, it is firstnecessary to record the components ofmanufactured items

Bill of materials (BOM)

A list of materials, and materials withinmaterials, and materials within materialswithin materials, and so forth



Figure CE11-5

Bill of Materials Example

CE11-

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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 materialsavailabilities, personnel, and other resources

Manufacturing-Scheduling Applications


Generate master production schedule (MPS) Analyzes past sales to estimate future sales

Two philosophies of manufacturing1.Pull manufacturing process

Products are pulled through manufacturing by demand.

Produced in response to signals from customers or otherproduction processes. (Demand-side method, JIT)

2.Push manufacturing process Analyze past sales levels, make estimates of future

sales, create master production schedule. Produce andpush into sales (Supply-side method)

3.Combined push and pull systems

Manufacturing-Scheduling Applications


Order tracking, account tracking, and customer support andtraining

Customers call customer service to ask questions about orderstatus, to query and report problems with their accounts, and toreceive assistance with product use.

Many organizations place as much of the customer servicefunction on Web applications as they can.

Many organizations allow customers direct access to orderstatus and delivery information.

Organizations are increasingly providing product-use support viauser-generated content (see Chapter 8) and employee blogs.

Customer Service Applications


Support recruitment, compensation, assessment, developmentand 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 withPayroll

Training and Development

Assessment

Planning functionscreation and publication of organizationalstandards, job classifications, and compensation ranges forclassifications, determining future requirements for employeesby level, experience, skill, and other factors

Human Resource Applications

CE11-

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General ledgers show assets and liabilities.

Financial reporting applications produce financial statements.

Cost-accounting applications determine marginal cost andprofitability.

Accounts receivable includes receivables, payments, andcollections.

Accounts payable systems reconcile payments againstpurchasers.

Cash management is the process of scheduling payments andplanning use of cash.

Budgeting applications allocate and schedule revenues andexpenses.

Treasury applications concern management and investment.

Accounting Applications


BOM for a Childs Toy Wagon






Q5 What are the problems with functionalinformation systems?



Q8 2020?

Study Questions


1. Data are duplicated because each functionalapplication has its own database.

Islands of automation or information silos

2. Business processes disjointed because supportingapplications separated

Difficult for activities to reconcile data andincreases chances of errors

3. Lack of integrated enterprise information

4. Inefficiency

5. Increased costs due to duplicated data, disjointedsystems, limited information, and inefficiencies

Problems of Functional Processes

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Figure 7-15

Problems Created by Islands of

Automation or Information Silos







Q6 What are the functions and characteristics ofcustomer relationship management (CRM)information systems?


Q8 2020?

Study Questions


CRM Tracks all interactions with customer from prospect through

customer service

Integrates all primary activities of value chain

Supports four phases of customer life cycle1. Marketingmarketing sends messages to target market

2. Customer Acquisitioncustomer prospects order and needto be supported

3. Relationship Managementsupport and resale processesincrease value to existing customers

4. Loss/churnwin-back processes categorize customersaccording to value and attempt to win back high-valuecustomers

Functions and Characteristics of

CRM Information Systems

CE12-55


CRM integrates primary value chain activities

Scope of CRM in Value ChainActivities

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Four Phases of the

Customer Life Cycle


Figure CE12-4

Major Components ofCRM Applications


CRM Centered on Integrated

Customer Database








Q7 What are the functions and characteristics ofenterprise resource planning (ERP) informationsystems?

Q8 2020?

Study Questions

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1. Integrate primary value chain activities with human resourcesand 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, andnecessary accounting functions

4. Outgrowth of MRP II

Functions and Characteristics of

Enterprise Resource Planning(ERP) Information Systems


ERP Applications and the ValueChain


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 SAPinstallations. Worldwide, SAP has over 47,000 differentcustomers (2008).

Oracle is a second major ERP vendor.

ERP vendors provide software and predesigned databases,predefined procedures, and job descriptions for organization-wide process integration.

Beware: Some vendors misapply the term ERP to their systems.There is no truth-in-ERP-advertising group to ensure that all ofthe vendors that claim ERP capability have anything remotelyclose to it.

ERP Facts


Entire organization is a collection of interrelatedactivities and cross-functional processes

Formal approach based on documented, testedbusiness models

Process blueprintdocuments each process withdiagrams using standard symbols

Centralized database

Can be slow to implement

Very costlynew hardware and software, developingnew procedures, training employees, converting data,and other developmental expenses

ERP Characteristics

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ERP Characteristics


Example of SAP OrderingProcess


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

Benefits of ERP

CE12-67


1. Model current business processes as is

2. Identify relevant ERP blueprint processes

3. Compare as-is process models with relevantblueprints and note differences

4. Find ways to eliminate differences5. 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

How Is an ERP SystemImplemented?

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ERP Implementation









Q8 2020?

Study Questions


By 2020, most organizations and software vendorswill design their processes and applications using

SOA service-oriented architecture (SOA).

SOA: A design philosophy in which every activity ismodeled as an encapsulated service, and exchangesamong those services are governed by standards.There are three key terms in that definitionservice,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 clients credit card

Q8 2020?


Non-SOA Business Model:Uses Titles, Not Services

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Figure 7-13

SOA Showing Two Services


Encapsulation places the logic in one place, which isexceedingly desirable.

All other services know to go to that one place forthat service.

Even more important if the managers of the credit

department decide to change how they make creditauthorizations.

As long as structure and meaning of customer creditdata and credit authorization data do not change,Process Credit Orderis completely isolated fromchanges in Authorize Creditor any other service inthe Credit Authorization Process.

Encapsulation


Data, and more generically, messages, are exchanged amongservices using standardized formats and techniques.

In the past, the programmers of Process Credit Orderprogramwould meet with programmers of the Authorize Creditprogramand design a unique, proprietary means for exchanging data viathis interface. Such a design is expensive and time consuming.

Computer industry developed standard ways for formattingmessages, for describing services, and standard protocols formanaging exchanges among services. Those standards

eliminated the need for proprietary designs and expanded scopeand importance of SOA.

Standards


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 stipulationcustomers must take delivery priorto 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 discountdeal.

Ethics Guide: Dialing for Dollars

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1.With one customer, you say they may take fulldelivery 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 withstipulation.

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 backproduct in an email?

Q: What would the boss do if he finds out?

Ethics Guide: Dialing for Dollars,

Scenario 1

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2. With another customer, you dont offer discount, butagree to post 80 percent of sale due this quarter withthe 20 percent credit posted next quarter.

Accounting books full price now, takes off 20percent next quarter.

Will hurt sales next quarter

Q: Is it ethical to offer the discount?

Q: How would it affect companys balance sheet?

Ethics Guide: Dialing for Dollars,Scenario 2

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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 quartersinventories?

Companys MRP II system is scheduling production for next

quarter based on this quarters sharply increased sales.Accordingly, it generates a schedule with substantialproduction increases and schedules workers for productionruns.

Ethics Guide: Dialing for Dollars,

Scenario 3

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Management programs are often introducedinto organizations using: Kick-off meetings Change management experts to explain programs HR amends annual review to include changes

Then, its 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

Guide: The Flavor-of-the-MonthClub

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ERP packages Software contains inherent processes that integrate hundreds

or thousands business processes

Customized to particular industries

Benefits

Saves time identifying needed processes

Saves moneyno software development needed if firmadapts to standard blueprint of ERP package

Organizations adapt its processes to standardblueprint

Guide: ERP and the Standard,

Standard Blueprints


Issues:

If all firms in an industry use same businessprocesses, how can a firm gain competitive

advantage?

How will innovation occur?

Does commoditized standard blueprint preventsustaining a competitive advantage?

Guide: ERP and the Standard,Standard Blueprints









Q8 2020?

Active Review


Selection and purchase

1. Client (homeowner) hires architect who either draws plans orhires specialized kitchen architect.

2. Client usually walks through stone vendors warehouses, oftenaccompanied by interior designer or kitchen architect.

3. Stone vendor employees place chips of slabs in which the clientexpresses interest into little boxes.

4. Write name of client or decorator in indelible ink on side ofselected stone or stones to reserve them

5. After final selection, the name is crossed out on slabs notpurchased.

6. Purchased slabs are set aside for shipping.

Case Study 7:Process Cast in Stone

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Construction process

Contractor selects a stone fabricator.

Fabricator moves slabs from stone vendors

warehouse to workshop.

Fabricator prepares the slab.

Treat stones edges, possibly repolish stone

Cut holes for sinks and faucets

Installs in clients home

Case Study 7:

Process Cast in Stone


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mechanical, photocopying, recording, or otherwise, without the prior writtenpermission of the publisher. Printed in the United States of America.

Copyright 2011 Pearson Education, Inc.Copyright 2011 Pearson Education, Inc.Publishing as Prentice HallPublishing as Prentice Hall

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