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Using MIS 3e

Chapter 7
Business Process Management
David Kroenke

Chapter Preview
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, 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 of information systems. Well 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. Well 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 managers 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. IBMS 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 MRVEquipment 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 taskRegister Clients Alternatives:
1. Entirely manualusing 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 automatedcreate 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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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 functionscreation 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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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 Childs 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. Marketingmarketing sends messages to target market 2. Customer Acquisitioncustomer prospects order and need to be supported 3. Relationship Managementsupport and resale processes increase value to existing customers 4. Loss/churnwin-back processes categorize customers according to value and attempt to win back high-value customers

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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 costlynew 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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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 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
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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 stipulationcustomers 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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Ethics Guide: Dialing for Dollars, Scenario 2


2. With another customer, you dont 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 companys 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 quarters inventories? Companys MRP II system is scheduling production for next quarter based on this quarters sharply increased sales. Accordingly, it generates a schedule with substantial production increases and schedules workers for production runs.
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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, 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
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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 moneyno 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 vendors 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 vendors warehouse to workshop. Fabricator prepares the slab. Treat stones edges, possibly repolish stone Cut holes for sinks and faucets Installs in clients home

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