CBEC3203 Unit 2

Unit
Networking
Opportunities
in Business
LEARNING OUTCOMES
By the end this unit, you should be able to:
1.
Explain and discuss the processes involved in formulating and

implementing a business IT strategy.
2.
Use a high-level business planning technique (SWOT analysis) to

identify networking and electronic commerce opportunities for a
business.
3.
Identify and explain seven levels of 'integration' required for

both individual businesses and their supply chain partners to
obtain maximum benefit from information and communications
technology (ICT).
4.
Describe the purpose, major components, strengths and

weaknesses of enterprise resource planning (ERP) systems.
5.
Explain what additional functionality needs to be provided with

ERP systems to make them more effective for supply chain
planning (SCP) and supply chain management (SCM), including
the need for greater 'componentization'.
6.
Describe the new application service provider (ASP) IT service

delivery model and forecast its likely impact on electronic
commerce and supply chain management in general, and small
and medium sized enterprises in particular.
UNIT 2 NETWORKING OPPORTUNITIES IN BUSINESS
57
INTRODUCTION
The aim of this unit, Networking Opportunities in Business, is three-fold. First, it
aims to introduce you to how businesses can go about formulating and
implementing IT strategies that can help them take advantage of the
opportunities provided by contemporary networking and electronic commerce
technologies. Second, it aims to explain how various types of integration are
required in order for both individual businesses and their supply chain partners
to obtain maximum benefit from these technologies. Third, the unit aims to
explain how the enterprise resource planning (ERP) solution has enabled large
businesses to achieve the required level of integration during the late 1990s and
how a new IT service delivery channel is likely to make this solution available to
small and medium-sized enterprises (SMEs) in the very near future.
2.1
INTRODUCTION
Business planning, IS planning and IT planning must be integrated. In this unit

you will learn that integration is not just required at the strategic planning and IT
infrastructure levels it is also required at all the levels in between. For example,
a Delphi Group report (The Delphi Group, Jan. 2000, page 3) states that the most
widespread impediment to more wide-scale use of e-business are the difficulties
faced by business in integrating legacy business applications into an e-business
system.
You will learn that the supply chain management (SCM) aspect of electronic
business is completely reliant upon integration. The two main prerequisites for
supply chain management are that supply chain partners should first have their
own integrated applications and then the applications of the different partners
should also be interconnected and integrated. During the late 1990s many large
corporations implemented enterprise resource planning systems in order to both
tightly integrate their different software applications and help implement an IS
strategy that is integrated with business strategy.
In the section on Supply chain management, extended enterprise resource
planning (EERP) systems, small and medium-sized enterprises and the role of
application service providers you will learn how enterprise resource planning
systems need to be further extended in order to improve supply chain
management practices amongst all participants in the supply chain.
Finally, you will also learn of the nature of the emergent application service
provider industry and the tremendous speed at which it is growing. Of particular
importance is the material on how the new application service provider delivery
58
channel will create a new business environment in which top-tier applications

will become within the reach of most small and medium-sized enterprises and
cease to be the exclusive preserve of the very large corporations.
The section on Formulating, implementing and monitoring an IT strategy states
that:
A plan should project future business and technological trends and
incorporate them into the planning process to decide upon an effective and
competitive direction and strategy for the organization. A good plan
correctly predicts future trends and creates policies and plans that take
advantage of them.
It is hoped that the material presented in this unit will help you contribute to
such a planning process.
2.2
GENERAL CATEGORIES OF NETWORKING

OPPORTUNITIES IN A BUSINESS
Introduction
You have already learned that networking is now at the heart of most
contemporary business information systems because it can help reduce an
organizations costs and increase its effectiveness.
This section contains the following introductory sub-sections:
How networks can be used to remove basic business barriers
Business opportunities provided by networking.
The first sub-section briefly outlines the nature of a number of traditional

barriers to business growth and success and explains, in general terms, how
networking can be (and is) used to overcome them.
The second sub-section analyses the material covered in Unit 1 on Changes in the
views of information systems primary contribution to business to reveal four
primary types of opportunity that information systems and technology can
provide to business. It then briefly explains how the exploitation of these
opportunities can provide business benefit in terms of Porters value chain and
competitive forces models (Porter 1985).
2.3
59
HOW NETWORKS CAN BE USED TO

REMOVE BASIC BUSINESS BARRIERS
IT in general, and networking in particular, are now widely used to overcome the
following traditional barriers to business success and growth.
Removing Time Barriers

Networks can move much larger quantities of data at much faster speeds than
most other forms of communication. They can shorten the intervals between the
various critical steps in a business process. This is the essence of contemporary
business approaches such as just-in-time (JIT) manufacturing and other business
operations. Their goal is to shorten the response time to customer demands and
to reduce inventory and its associated costs to a minimum, thus improving the
competitiveness of the business.
Removing Distance Barriers

Networks enable you to communicate with people almost anywhere in the world
as if you were there with them. They can break the geographic barriers that
hinder the managerial control of operations, raise the cost of doing business, and
limit the quality of services and the coverage of potential markets. Many
businesses today operate from several locations and have customers or suppliers
at distant locations. If a business is regional, national, or global in scope, then
networks become a vital component of its business operations.
Telecommunications make it possible to distribute key business activities to
where they are most needed, where they are best performed, or where they best
support the competitive advantage of a business. Networks link remote locations,
and external entities such as suppliers, customers, and consultants. All of these
entities can participate in business activities as if geographic barriers did not
exist. Without networks, multi-national enterprises (MNEs) could not coordinate
the operations they move to distant locations to benefit from lower costs, a better
workforce, or less restrictive government regulations.
Removing Cost Barriers

The use of networks can often significantly reduce the cost of business operations
when compared with other means of information processing and
communications. The use of networks in key business areas can substantially
reduce the cost of production, inventory, distribution, or communications for
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many business firms. Thus, networks have helped companies cut labour costs,
minimize inventory levels, reduce the number of distribution centres, and lower
communications costs.
Removing Structural Barriers

Networks can help a business break structural barriers that inhibit its operations
or limit its drive for competitive advantage. Networks can be used to develop
strategic relationships by establishing new electronic linkages with customers,
suppliers, and other business entities. Corporate networks, and especially
Intranets, can be used to break down departmental barriers within an
organization and empower and enable cross-functional teams and work groups.
Networks can be used to support innovations in the delivery of services, increase
the scope and penetration of markets, and create strategic alliances with
customers, suppliers, and even a firms competitors. For example, automated
teller machines shared by several banks and credit companies placed in
supermarkets and shopping malls break structural barriers between competing
firms and expand the market for innovative financial services. Electronic data
interchange (EDI) networks can create strategic links between a business and its
customers and suppliers. They become business partners, linked together by the
convenience, efficiency, and the cost savings of their EDI network, and
prospective customers for new types of services.
2.4
BUSINESS OPPORTUNITIES PROVIDED BY

NETWORKING
In the sub-section on Changes in views of information systems primary

contribution to business (in Unit 1) we examined how views of the primary
business contribution of information systems and technology to business have
changed over the last 30 years. These changes included improving internal
business processes, providing competitive advantage, providing the primary tool
for business process reengineering (BPR), providing a means of improving
supply chain management (SCM) practices and extending the supply chain to the
consumer, and providing a means of managing knowledge and supporting
virtual organizations (mid-1990s to the present).
An analysis of these differing views reveals four primary types of opportunity
that IST can provide to business. These can be summarized as follows:
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1.
improving internal organizational efficiency by automating business

processes;
2.
increasing
processes;
3.
gaining external competitive advantage;
4.
creating and taking advantage of strategic opportunities by using

information systems and technology to cooperate (rather than compete)
with supply chain partners and customers. Cooperation with domestic
competitors can even be used to gain strategic advantage in the
international arena.
internal
business
effectiveness
by
augmenting
business
In terms of Porters value chain model, (1) and (2) can be viewed as using
information systems and technology to obtain competitive advantage by finding
ways to add more value at one or more of the links in its internal value chain.
(You may recall that Porters value chain model views a firm as a series, or
chain, of basic activities that add value to its products and services and thus add
a margin of value to the firm. As the companys raw materials pass through
each link in the chain, additional value is added to them.)
In terms of Porters competitive forces model, (3) can be viewed as using
information systems and technology to obtain competitive advantage by using
such means as finding ways to change the basis of competition by generating new
products and services, building barriers against new entrants to the industry,
building in switching costs, and changing the balance of power in customer and
supplier relationships.
(4) can be viewed as an extension of growth and alliance strategies. Growth
strategies involve significantly expanding your capacity to produce goods and
services, expansion into global markets, diversifying into new products or
services, or integrating into related products and services. Alliance strategies
include establishing new business linkages and alliances with your customers,
suppliers, competitors, and others. They may also include mergers, acquisitions,
and joint ventures, or other marketing, manufacturing, or distribution
agreements. Todays business giants (e.g. Microsoft Corp.) and massive
multinational enterprises (e.g. the petrochemical and automotive manufacturing
giants) are the results of such strategies.
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ACTIVITY 2.1
Providing examples of different categories of business applications of
networking
This section has outlined a number of ways in which networking can
be used to remove basic business barriers and provide opportunities
for business. These are listed below.
How networks can be used to remove basic business barriers
1.
Removing time barriers
2.
Removing distance barriers
3.
Removing cost barriers
4.
Removing structural barriers
Ways in which firms can take advantage of the different types of

opportunity that information systems and technology and networking
can provide to business
5.
Improving internal organizational efficiency by automating

business processes.
6.
Increasing internal
business processes.
7.
Gaining external competitive advantage.
8.
Creating and taking advantage of strategic opportunities by

using information systems and technology to cooperate (rather
than compete) with supply chain partners and customers.
business
effectiveness
by
augmenting
Provide typical examples of networking applications for each item on

the list. (Note that a single application may be used to exemplify more
than one of the items in the list.)
You should now check your examples with the indicative list given in
the Feedback on self-tests and activities section.
2.5
63
FORMULATING, IMPLEMENTING AND

MONITORING AN IT STRATEGY
Introduction
In the section on Developing contemporary business, IS and IT strategies in Unit
1 you learned that the following factors affect how a business plans to use IT and
networking:
how the business sees itself, what its plans and objectives are, and how it
determines these;
its perception of the environmental threats (and opportunities) to the

achievement of its plans; and
how it sees the technology as being able to contribute to counter these threats,
provide new opportunities and contribute to the achievement of its plans and
objectives.
You also learned about the main contemporary approaches to business, IS, and IT
strategy planning, including the differences between business strategy, IS
strategy and IT strategy and the important relationships and dependencies
between them.
In this section you will study how IT strategies are formulated, implemented and
reviewed/modified.
You are already aware that planning is a top-down process. Long-term general
strategic plans are subsequently broken down into shorter term and more specific
tactical plans. These in turn are subsequently broken down into even shorter term
and much more specific project and action plans.
You will also be aware that the implementation and monitoring of plans is
bottom-up. Individual project and action plans are carried out and during their
execution any divergences between the plan and actuality are monitored and
corrective action taken. If the actual progress of a particular project diverges from
the planned progress to such an extent that it may affect the tactical plan then the
tactical plan itself may have to be modified and so on.
This section contains the following sub-sections:
Formulating IT strategy
Formulating and implementing IT tactical and project plans
Monitoring the implementation of strategic, tactical, and project plans
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Components of an IT strategy
The role of the IT steering committee.
2.5.1
Formulating IT Strategy
Steps in Formulating an IT Strategy

The formulation of an IT strategy, or any type of strategy, essentially consists of
five steps:
1.
identifying and agreeing what the current situation is;
2.
specifying (broadly) and reaching agreement upon what the future situation
should be which, in the case of an IT strategy, may be outlined in business
terms in the IS strategy;
3.
working out and agreeing (in broad or policy terms) what major tasks need
to be undertaken in order to move from the current situation to the desired
future situation;
4.
planning, in broad terms, which organizational groups will be responsible

for the major tasks, when they will be done, and how the necessary
resources will be provided which, in the case of an IT strategy, may also
be partially outlined at a very high level in the IS strategy;
5.
agreeing what policies, standards or constraints should be followed whilst

executing the required tasks which, once again, may also be partially
outlined in the IS strategy.
Good and Bad Strategic Plans

It is important to remember that a strategic plan is not just a financial forecast and
a good plan is not just a financial forecast that turns out to be numerically
accurate. In todays business and IT environment the scope, degree and
frequency of change means that just planning for incremental bottom line
improvements rarely turns out to be a successful strategy. Even if our
organization is currently very profitable it is very unwise to ignore changes that
are currently taking place and, more important, likely to take place in the future.
If we just plan to make minor improvements to what we are doing now, and in
the way that we do it, in order to improve our bottom line by five per cent per
year for the next five years, we are likely to be overtaken by our competitors
especially those who are aware of changing trends and take advantage of them.
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A plan should project future business and technological trends and incorporate
them into the planning process to decide upon an effective and competitive
direction and strategy for the organization. A good plan correctly predicts future
trends and creates policies and plans that take advantage of them.
Strategic Planning Horizons

IS and IT strategic plans will typically cover a period of between three to seven
years. An organizations planning horizon will depend upon factors such as the
IS maturity of the organization, the industry in which the organization operates,
the competitive and technological environment, the organizations vision and
perception of future opportunities and threats, and, above all, the current
financial and competitive health of the organization.
Clearly, an organization that is currently struggling to survive is likely to have a
planning horizon of a few months as opposed to a few years! On the other hand,
a well-established successful global business in an information intensive
industry, such as a major international bank, may have an IT planning horizon of
ten years or more.
It is also important to remember that the purpose of a ten-year strategic plan is
not to provide a detailed task list of everything that needs to be done during the
next ten years. On the contrary, its main purpose is to provide a framework for,
and to guide, subsequent tactical planning, operational planning and day-to-day
decision-making.
2.5.2
Formulating and Implementing IT Tactical and

Project Plans
Formulating IT Tactical Plans

You have already learned that strategic IS and strategic IT planning is normally
followed by tactical planning. IT tactical plans will typically span a period of one
or two years. They will define in more detail (than the strategic IT plan):
the major tasks that need to be undertaken during the planning period;
any dependencies between the tasks;
the organizational groups that will be responsible for the major tasks, when
they will be done, and how they will be resourced;
the policies and standards that should be followed whilst executing the tasks.
66
IT tactical plans will also often define in more detail IT quality and service level
targets that should be met during the planning period. Service level targets
include such things as the level of end-user support provided by the IT
department and the availability levels of the systems.
For example, assume that the 2002 2007 strategic IT plan had said that systems
availability should be improved in order to reduce the amount of business
disruption caused by unscheduled down time. Then the 2002 tactical plan might
specify that the current 97 per cent availability level should be improved to 98.5
per cent by the end of 2002. It would also have to specify precisely how
availability was to be measured and how it would be monitored!
Formulating Project Plans

The last, and most detailed, stage in the overall planning process is the creation of
project plans for specific tasks identified in the tactical plan. These projects may
be IS-type projects, such as the development or enhancement of new application
systems; IT infrastructural-type projects, such as implementing a new database
management system or network; service delivery-type projects, such as
implementing new user help-desk services or developing and implementing new
systems development standards, and so on.
The nature, purpose and expected major benefits of each of these projects will
have been identified at the tactical planning stage. The overall time scale,
resourcing, and policy guidelines and standards to be adopted will also have
been determined at this stage. The detailed project planning will involve breaking
the project up into its component stages and activities, specifying how the
activities should be carried out, specifying what deliverables should be produced
for each activity, specifying how the deliverables will be quality assured,
allocating the activities to individuals or groups, and scheduling the stages and
activities taking into account any dependencies between them. If development
standards are in use in the IT department much of this will already have been
pre-specified.
In addition to carrying out these project-type activities the IT department will
also have to carry out routine day-to-day maintenance and support activities.
These will include such things as LAN and Web server administration, routine
back-up procedures, end-user support, etc. The resources required for these
routine activities will have to be taken into account when allocating and
scheduling project work.
2.5.3
67
Monitoring the Implementation of Strategic,

Tactical, and Project Plans
Monitoring the Implementation of Project Plans

As work on the individual tasks that make up a particular project is undertaken,
actual progress made against the planned progress is recorded. The progress
made on individual projects is typically reviewed, by the project manager, on a
weekly or bi-weekly basis.
Monitoring Tactical Plans

The tactical plan will contain a number of separate, but often interdependent,
projects. With certain types of project it is quite common for actual progress to
fall behind the planned progress. If this occurs then additional resources may be
allocated to the project or the planned completion date may be put back.
However, if the latter alternative is chosen and the start of other projects is
dependent upon the completion of this project then clearly their planned start
dates would also have to be put back.
This type of delay would clearly affect the overall tactical plan. As the IT steering
committee is responsible for monitoring the execution of the overall tactical plan,
it is usual for it to receive project progress reports on a monthly or quarterly
basis. The steering committee will normally have the authority to allocate (or
recommend the allocation of) additional resources to a project. They are also
aware of the business impact of deviating from the tactical plan. Consequently,
they are in the best position to decide such things as whether the overall tactical
plan should be put back and modified, in the event of delay on a particular
project, or whether extra resources should be allocated to the project.
Monitoring Strategic Plans

Monitoring the implementation of the strategic plan involves receiving reports as
to the progress made on its tactical plan components and deciding what action to
take in the event of plan slippage etc. However, it also involves a much more
important function ensuring that the strategy remains relevant to the
organizations vision and the external environment.
The strategic plan is based upon assumptions about major trends and changes
that are likely to take place in the business and technological environment. Often
these changes do not occur as expected; slippage in the completion of tactical
plans causes windows of opportunity to be missed, and new unexpected strategic
68
opportunities arise. These factors make it necessary to continually review the

relevance of the strategy and modify it when necessary.
Although strategic plans usually cover a period of several years, they are usually
reviewed and modified annually. An annual strategy review also provides the
opportunity to agree upon the tactical plans for the following tactical planning
period.
2.5.4
Components of an IT Strategy
Determinants of the Components of an Organizations IT

Strategy
Clearly the components of a particular organizations IT strategy will depend
upon its:
business and IS strategies;
current IS and IT situation;
desired future IS and IT situation; and
expectations of future business and IT trends.
Consequently, there is no simple IT strategy blueprint or checklist that is suitable

for all organizations.
Prerequisites for Effective IT Strategic Planning and

Implementation
However, there are some important general actions that even fairly small and
relatively immature businesses can carry out in order to improve their chances
of developing and implementing IT strategies that result in effectively using
innovative IT developments.
These actions include:
Creating an environment that encourages innovation, and thinking of new

ways to solve business problems with IT. This is one of the most critical
developments that a business can make in this area. Without the committed
support of the organizations senior executives, IT innovations will typically
fail to achieve their potential benefits or not occur at all.
Forming an IT steering committee to support development of effective IT

solutions throughout the organization.
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Continuing to train and educate users and IT professional staff in what IT can
do.
Attending local seminars, visiting installations and generally building

awareness of what is happening in the local and international IT community.
The basic purpose of these actions is to create a management team that is skilled
and confident in the application of IT to a wide range of business problems and to
foster a sense of trust and partnership between the IT function and senior user
management.
Possible Contents of an Organizations IT Strategy

As stated at the start of this topic it is not possible to give a definitive checklist of
what an IT strategy should contain. However, for illustrative purposes only, you
can assume that in some circumstances the formulation of an IT strategy may
involve identifying and obtaining agreement upon all or some of the following:
general expectations regarding ITs contributions to the IS strategy and

overall business goals;
an overall plan of what the IT department is to deliver over the next planning
period (typically three to five years);
how the level of service provided by the IT department will be measured

together with major service criteria;
how and to what level the IT department will be funded and resourced;
IT policy guidelines and standards including:
technology justification and procurement policy and guidelines;
make/buy and develop in-house/outsource policy;
systems development and development environment standards;
preferred suppliers/vendors and open or proprietary systems policy

and standards;
computer architecture standards for personal, departmental and

enterprise computer platforms;
network architecture (including topology, protocols, hardware and

software) standards for departmental, corporate, and supply chain
partner networks;
middleware standards including database management systems

(DBMS), online transaction processing (OLTP) monitors, distributed
computing environment (DCE) standard, etc.;
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general applications support software standards and preferred products

including browsers, personal support tools, and office automation
software packages, etc.;
systems security policy and standards.
(You should be aware that although IS and IT strategies are conceptually

different and have different purposes they are often defined and implemented as
a single entity.)
2.5.5
The Role of the IT Steering Committee
In many businesses, and particularly smaller businesses, committees are rarely

used in functions such as marketing, human resources management (HRM), and
production. They are often seen as a waste of time that results in poor
management decisions. Forceful, energetic and knowledgeable management
seems to manage well without formal committees of any sort.
Why, then, do we suggest the need for a steering committee for information
technology? The answer is provided by the nature of IT. It permeates the entire
organization, cutting across functional and departmental boundaries. An IT
steering committee, established at the highest level and ideally reporting directly
to the CEO, should provide a consistency of decision making in IT areas such as
priorities for future investment and quality control of the IT department.
IT steering committees should usually fulfil the following roles, in fairly small as
well as large organizations.
They provide an excellent means by which non-technical senior executives

can assess investment and return on IT.
They allow the development of an IT strategy. This is often stated in the form
of a long-term plan for information technology.
They support the monitoring and control of the strategys attainment. This
often takes the form of annual and medium-term plans, which implement the
long-term plans and establish short-term priorities.
They provide a forum for interdepartmental debate and resolution of

disagreements on IT priorities.
A senior IT committee demonstrates that senior management members are

committed to IT developments and insist that all decisions are taken in a
fairly public manner.
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They provide a single point of contact for external organizations in

connection to all major IT decisions.
They form the approval authority for major proposals.
The basic purpose of the steering committee is not to actually run the IT
department by making every major decision. Instead the committee should
function at a policy and priority level like a board of directors. One of the
biggest benefits of a steering committee is that it can raise the level of awareness
among senior management of IT department plans and activities. In order to do
this the committee needs to meet to receive plans and progress reports from the
IT department on a fairly regular basis quarterly or more frequently.
As the steering committee should focus on the total organization it is important
that its members should include senior executives who have major functional
responsibilities within the organization.
Another function of the steering committee is to agree on new technologies that
should be evaluated or utilized within the organization.
In order to do this it is essential that both the IT manager and other members of
the committee are aware of what new technologies are likely to be available in the
medium term. One possible way of doing this is for the steering committee,
which is primarily responsible for the strategic planning and monitoring of the IT
function, to form a subcommittee specifically to review and assess innovative IT
developments.
Another possible and more usual way, particularly in smaller organizations, is to
leave this task to the IT manager. However, this latter approach has the
disadvantage that the IT manager may not have a sufficiently intimate
knowledge of the business to identify potentially important business
opportunities provided by new technological developments. IT developments
such as Smartcards, the Internet and electronic commerce are good examples of
where the technology is fairly straightforward but the business opportunities and
risks they present are not.
A committee, of the sort outlined above, should be in a position to determine
whether such developments are valuable. The critical management requirement
for such a committee is that it works together within the organizations overall
business planning framework. An IT plan will be of no value if it is developed in
isolation; IT must serve the needs of the business. The business plan and the IT
plan must be carefully intertwined; the business plan determines the technology
required, and the IT plan acts as an enabler for business aims and objectives.
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SELF-TEST 2.1
1.
What are the five main steps that should be taken when formulating
an IT strategy?
2.
Why is it important for those involved in the formulation of IS/IT

strategy to have a good idea of likely future business and
technology trends?
3.
What should be the main determinants of an organizations IT

strategy?
4.
List four important prerequisites for effective IT strategic planning

and implementation.
5.
What are the major roles/functions of an IT steering committee?
2.6
TECHNIQUES FOR IDENTIFYING

NETWORKING AND ELECTRONIC
COMMERCE OPPORTUNITIES DURING THE
STRATEGIC PLANNING STAGE
Introduction
In the topic on Changes in views of information systems primary contribution to
business in Unit 1 we examined how views of the primary business contribution
of information systems to business have changed over the past 30 years. In
summary these were as follows.
Before a company can successfully apply these technologies, it must first analyse
its existing situation and the situation it would like to achieve. This analysis is
needed to:
1.
Understand the organizations goals and objectives, its structure, processes

and procedures, data and interrelationships of people and other
components of the overall system.
2.
Discover opportunities that exist to gain competitive (or cooperative)

advantage, improve business effectiveness or strengthen organizational
efficiency. These opportunities may be strategic, tactical or operational in
nature.
3.
Determine problems within the organization that need solutions.
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You will now study two planning tools and techniques that can be used to
analyse a wide range of business situations. These tools can also be used to
identify potential applications of networking technologies in order to meet
organizational needs and requirements.
The two approaches do not always have to be used separately. They can be used
together to broaden the scope of our competitive analysis.
The two business analysis and planning tools covered in this section are:
the Strengths, Weaknesses, Opportunities and Threats (SWOT) method for

strategic analysis;
the use of Critical Success Factors (CSFs) for identifying direction for
development.
2.6.1
SWOT Analysis
When our business strategy, IS strategy, and IT strategy planning processes are
properly integrated they can open up new business opportunities, help gain
advantage over competitors, increase organizational responsiveness, enhance
current strengths and overcome existing weaknesses.
The use of SWOT analysis presents a framework for the strategic planning
participants to consider and identify the organizations mission, goals and
objectives. Strengths and weaknesses are internal considerations within the
company, which may present opportunities and threats to your competition.
When considering strengths and weaknesses, ask such questions as:
What strengths does our organization have that we can capitalize on, enhance
or use to improve our competitive position?
How can our strengths be used in new ways?
What are the strong points about our current products or services?
What new products or services may be developed based on our strengths?
What weaknesses does the organization have that offer opportunities for
improving efficiency or effectiveness?
What new resources are needed to overcome existing weaknesses?
What changes to existing functions or processes might help in overcoming

these weaknesses?
How may existing weaknesses be turned into strengths?
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As you ask yourself the above questions, think how your answers can help you
to:
mould your mission statement;
frame goals; and
point to objectives.
Thinking this way will help to provide solid future direction for the improvement
of your organization.
In asking the above questions, also ask, How can IT be used to enhance and
leverage existing strengths or overcome existing weaknesses?
A competitors weakness may become an opportunity for your organization.
Similarly, a competitors strength may become a threat to you. Opportunities and
threats are external considerations that concern the marketplace in which you do
business. These may represent strengths and weaknesses in your competition.
When considering them, ask such questions as:
What opportunities or unfilled needs exist in our markets that we do not

currently benefit from?
How may our existing strengths best be used to take advantage of these
opportunities?
How may our existing products or services be used or modified to gain from
these opportunities?
What new products or services are necessary to benefit from these

opportunities?
What weaknesses in our competitors present new opportunities for us?
What threats exist or may arise in our environment or markets?
Which of our competitors presents the greatest threat and why?
Which of our weaknesses may be an advantage to our competitors?
In asking these questions, also ask, How can IT be used to take advantage of
opportunities or nullify threats?
Read the first two subsections of Section 11.2 Strategy Initiation from Chapter 11
of Turban and King (2003) pp. 461 4.
ACTIVITY 2.2
SWOT Analysis
You should now be developing some understanding of the SWOT
analysis method, so it would be beneficial for you to do a short exercise
to consolidate and strengthen that understanding.
Do a simple SWOT analysis for the following short case. You only need
to prepare one item for each area (strength, weakness, opportunity and
threat).
The Sing Lee Manufacturing Group (Hong Kong) has been conducting a
strategic planning exercise. The companys primary products are
childrens toys, mainly for export. During the last five years, Sing Lee
has developed some automated manufacturing techniques that have
enabled the company to reduce material wastage and labour costs. This
has allowed them to successfully compete in the international market,
with a 25 per cent increase in sales as a direct result. One difficulty,
however, has been keeping skilled workers familiar with the new
techniques. After being trained, many stay only a short while and then
leave the firm. The last six months have been particularly stressful
because of increased competition from a Taiwanese manufacturer who is
selling toys to a number of Sing Lees regular North American
customers. The Taiwanese success has been helped by using computer
aided design and computer-aided manufacturing (CAD/CAM)
methods. Their CAD/CAM system downloads files directly from
customers computers anywhere in the world. The competitor then
manufactures to these customers computer-aided design (CAD)
specifications. This has allowed the Taiwanese firm to shorten the
delivery time for a new toy to less than ten days, whereas the industry
average has been about 30 days.
Check your analysis with the answer given in the Feedback on self-tests
and activities section towards the end of this unit.
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2.6.2
Critical Success Factors: Direction for

Development
Another tool that can be used for analysing an organizations broad business and
IS needs is the critical success factors (CSF) method. In this method, interviews
are conducted with top managers to determine the factors they believe are critical
to the organizations success. Critical success factors are:
The limited number of areas in which results, if they are satisfactory, will ensure
successful competitive performance for the organization. They are the few key
areas where things must go right for the business to flourish.
(Rockart 1979)
The method was originally developed to assist in discovering managements
business data needs. However, it can also highlight opportunities for the
application of networks to business situations. For example, the critical success
factors for the auto industry might include:
styling
quality dealer system
cost control
time to market.
Some or all of these critical success factors may suggest network-based

applications to assist in the successful conduct of the organizations business. To
illustrate, let us take each of the above critical success factors and look at some
networking applications that could apply to them.
1.
Styling: To measure the success of styling you may use a market survey
during initial body design. Gathering responses, feeding them back to
designers, changing the design and gaining additional feedback from
potential customers will help to produce a more acceptable, marketable
design. To speed turnaround in evaluating responses to the survey, the
following could be used:
notebook computers to capture responses;
CAD for design changes;
an Intranet to facilitate information sharing within the design team and

between the design team and marketing.
These could increase the number of iterations as well as the validity and
marketability of the design.
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2.
Quality dealer system: An online order-entry system for new car orders
would help dealers deliver better service to customers and help them
manage their stock of new cars. It would also help the manufacturer
maintain just-in-time manufacturing coordination.
3.
Cost control: A networked system of data terminals on the assembly line

could help track individual vehicle orders as they proceed through the
manufacturing process, thus tracking the timeliness, cost and, ultimately,
the profitability of each vehicle sold.
4.
Time to market: Use of CAD systems networked to market research people

(as we noted above) could shorten the design cycle. Communication of
CAD specifications to suppliers and sub-contractors would speed both the
design cycle and the supplier set-up cycle. The extension of CAD through
networks to automated manufacturing systems and data entry and analysis
systems in a computer integrated manufacturing (CIM) system could
shorten the manufacturing cycle.
As you can see, the critical success factors method can be useful for recognizing
additional networking application opportunities. According to the person who
originally conceived of this concept, John F Rockart, from the Massachusetts
Institute of Technology, critical success factors have a number of prime sources
including:
structure of the particular industry;
competitive strategy, industry position and geographic location;
environmental factors;
temporal factors.
The set of critical success factors determined by the industry structure bears close
attention. For example, critical success factors for the supermarket industry
include product mix, inventory levels, sales promotion and price. The use of in
store point-of-sale terminals connected with a LAN to a sales, stock management,
and replenishment system could greatly improve stock management, maintain a
proper product mix and point to particular sales promotion ideas.
If a companys competitive strategy is lowest price, then a high level of cost
control is necessary. This cost control could be enhanced by an electronic
distribution system using electronic data interchange. Labour for data entry,
mailing, data correction and file maintenance could be considerably reduced as a
result of electronic transaction communication and processing.
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If your company is a small firm in a service industry, the use of mobile phones
may allow you to provide a higher level of service to your clients and, therefore,
strengthen your ability to compete with the bigger firms in the industry.
If a competitor successfully implements a new network application, it is very
likely that this success will begin to change the way business is conducted in the
industry. A key factor that differentiates successful companies is that often they
are the early followers of successful innovators.
Geographical location can offer both competitive advantages and disadvantages
to companies. If your organization is at a considerable distance from some of
your key customers or potential customers, this apparent disadvantage can be
turned around through the appropriate use of communications technology.
Applications such as e-fax, email, file transfer, electronic data interchange, and
Extranets can help build a long-distance relationship that is stronger than some
local firms who didnt think they needed to use such hi-tech applications with
close neighbours.
When the local or international economy is good, most firms do well. It is during
difficult times that innovation and creativity sort out the winners from the losers.
In every recession or depression, there are still firms that grow and prosper, often
at the expense of more complacent companies.
A good example of this is the travel industry. Even in the downturn during the
poor international economy in the late 1980s/early 1990s and the late 1990s,
American Airlines and British Airways continued to prosper, largely due to their
electronic reservation systems. Many other international carriers, however, have
gone bankrupt.
Government dictates on a wide range of issues may impact a firms
competitiveness and, therefore, be a critical success factor for the firms under its
jurisdiction. For example, an increase in local income taxes for companies may be
just the catalyst a company needs to move some of its operations to a country
with lower taxes and lower wages. As mentioned earlier, most multi-national
enterprises now rely heavily on their network to assist in the centralized control
of overseas subsidiaries.
As Rockart pointed out, At the beginning of 1973, virtually no chief executive in
the United States would have listed energy supply availability as a critical
success factor. Following the oil embargo, however, for a considerable period of
time this factor was monitored closely by many executives ... (Rockart 1979).
Fundamental raw materials, energy and other key resources may be more readily
and accurately monitored in volatile markets using international databases and
the Internet.
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Some critical success factors are only important for a short time, and some
opportunities are only available for a limited time. The organizations that
successfully monitor the market place, changing customer tastes and
international trends, and respond more quickly will be the ones to gain
advantage.
Critical success factors are just those factors that are crucial to the success of an
organization's ongoing ability to compete. As we have just seen, critical success
factors can point out new and creative ways of viewing IS strategy and the
potential for putting networking to beneficial use in an organization.
The principle of CSF also applies to EC. In the following reading, you will find
out how the CSFs for EC companies learned from both the successful and
unsuccessful cases.
Read Section 11.6 EC failures and lessons learned from Chapter 11 of Turban
and King (2003) pp. 477 81.
2.7
THE IMPORTANCE OF INTEGRATION
Introduction
In the earlier section on Formulating, implementing and monitoring an IT
Strategy we said that:
It is also very important to remember that the contribution that IS
applications make to the business is determined by the underlying IT
infrastructure. This infrastructure needs to be coherent and integrated. It
needs careful planning to ensure that it is.
In this section you will learn more about what IT infrastructure and
applications integration mean and why most contemporary business responses
to todays business drivers are completely reliant upon integration.
Why is Integration Important?

One of the greatest causes of failure to achieve the potential business benefits of
IT is the lack of integration of IT infrastructure and the lack of integration of
applications. Today, the reason for this is usually a lack of awareness of the
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importance of integration or failure to incorporate integration into the companys

IT strategy.
What is Integration?
In simple general terms, integration is concerned with interconnecting the
different components of a system into a unified and coordinated whole. You have
already learned in Unit 1 and earlier in this unit that IS strategy needs to be
integrated with business strategy, IS strategy needs to be integrated with IT
strategy, and so on.
In this section we are concerned with integration at lower levels. In particular we
are concerned with integration of IT infrastructure and integration of the
information systems and applications that run on that infrastructure.
Even within this restricted scope, the need for integration exists at many levels.
Integration is closely associated with connectivity, interoperability, and open
systems. The following list of questions demonstrates this fact and illustrates the
different levels at which integration needs to be considered.
Are our systems connected to and interoperable with those of our business
partners?
Are our core application systems connected to and interoperable with those of
our Web-based electronic commerce systems?
Are our different application systems properly interconnected and

interoperable with each other?
Are the component parts of each of our applications properly interconnected

and interoperable with each other?
Are our major IT infrastructure components (network, operating systems,

DBMS, etc.) properly interconnected and interoperable with our application
systems?
Are our major IT infrastructure components properly interconnected and

interoperable with each other?
Are the sub-components (e.g. network operating system, LAN topology,

LAN, protocols, network interface cards, etc.) of each of our IT infrastructure
components (e.g. LANs) properly interconnected and interoperable with each
other?
(Note that the Are? in the above questions should really be replaced with Are
they now and will they be in the future?.)
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This section contains the following sub-sections:
The XYZ Company and the need for database and applications integration
Some common business responses to contemporary business drivers that rely

upon systems integration.
The XYZ Company and the Need for Database and

Applications Integration
First let us consider the following hypothetical scenario and the problems that
arise from it.
The XYZ Company Scenario: Part 1

The XYZ Company, a small business that is growing rapidly, decides to buy an
applications package to process the payroll for its 25 employees. The package
maintains a payroll database that contains employee details (payroll number,
name, address, allowances, pay rate, etc.) and weekly pay details (hours worked,
basic pay, overtime pay, allowance payments, etc.) for each employee. The
package is run twice every Friday. Details of the previous weeks new starters,
leavers (with data from New Starter Forms and Employee Leaving Lists
obtained from the Personnel section), allowance changes, and employee pay rate
changes are input every Friday morning. After the morning update an Employee
Details Change Report is printed off for the Personnel Manager. On Friday
afternoon employee weekly time sheet details are entered and the package
updates the payroll database and prints out the payroll and employee pay slips.
The following year the company has grown to 50 employees and the Personnel
Manager buys a personnel package to help with personnel administration and
training. This package maintains a personnel database that contains employee
details (personnel number, name, address, allowances, next of kin details, highest
educational qualification, etc.). It also contains details of each employees job
history and job training history whilst working with the company.
The main personnel updates are now done on Tuesday afternoons and Thursday
afternoons. On Tuesdays details of new employees (that started with the
company the previous day) and leavers (that left the company the previous
Friday) are input. The leaver details are obtained from the same Employee
Leaving Lists that were used by the Payroll Section the previous Friday. The new
starter details are obtained from the New Starter Forms which will be input to
the payroll system the following Friday. On Thursdays the personnel database is
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updated with employee job and training detail changes. Because the Personnel
Manager is responsible for authorizing all changes to employee pay rates and
allowances, these are now also directly input into the personnel system on
Thursdays. A listing of these pay rate and allowance changes is printed off from
the personnel system and passed to the payroll section, which inputs them into
the payroll system on Friday morning.
Obvious Problems Arising from Scenario Part 1

1.
The same New Starter Forms and Employee Leaving Lists are input into
both systems. Therefore, the same source data has to be input twice. This is
a waste of labour resources.
2.
Employee pay rates and allowances changes are now input into the
personnel system, a listing of the changes is printed by the personnel
system, and the data on the listing is then re-keyed into the payroll system.
Therefore, source data that is input into one system has to be re-keyed into
another system. This is a waste of labour resources.
3.
The personnel database is only updated on Tuesdays and Thursdays and

the payroll database is only updated on Fridays. Therefore, neither
database is updated in real-time. The two databases always contain data
that are out-of-date.
4.
The payroll database contains employee details and weekly pay details,
and the personnel database contains employee details and job history and
training history details. Therefore, file space is wasted storing two copies of
employee details common to both systems and processing resources are
wasted updating two copies of the data instead of one.
Less Obvious, But More Serious, Problems Arising from Scenario

Part 1
1.
Different (and un-integrated) applications often use different input

validation and processing rules for the same business process. For example,
the payroll system may check to make sure that a new employees date of
birth is at least 15 years before the value of the date started with the
company that is entered into the system. The Personnel system may not
make this particular check or it may make a different check. Therefore, it
is possible that the two systems store different values for what is supposed
to be the same data. The data held by the two systems is content
inconsistent.
2.
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If we interrogate both databases on Wednesday morning to find out how

many employees we have, we may find that there are 55 according to the
personnel system but only 50 according to the payroll system. This would
be because the details of the five employees that joined the company on
Monday were input into the personnel system on Tuesday but will not be
input to the payroll system until Friday. Because the two databases are
updated at different times, and neither is updated in real-time, the data will
be time inconsistent.
Causes of the Problems Arising from Scenario Part 1

Absence of an enterprise-wide integrated database that is shared by all
applications. The primary cause of the problems is that the two applications each
use a separate database which leads to redundant (duplicated) and inconsistent
data. In fact, the so-called databases described above are not databases. A
database is a logically integrated collection of non-redundant enterprise data that
is shared by many different applications. In addition to storing data, a database
also stores the descriptions of the data and the rules that the data must obey. This
means that the database management system can control the integrity and
consistency of the data that is posted to it. If a database management system is
not used then these checks must be left up to the various applications programs
that access the data. If this is the case there is a very good chance that the
different programs will use different rules, as described above, resulting in loss of
data integrity and consistency.
Lack of business process integration between applications. If a common database
is not used by the different applications then it is virtually impossible for the
different applications to be properly integrated because they do not have access
to each others data. However, even if a common database is used by all the
different applications it does not necessarily mean that the applications will be
integrated from a business process viewpoint. To illustrate what is meant by this
type of business process integration and to demonstrate why it does not
necessarily always occur even when a common database is used, consider the
following hypothetical example.
Assume that the XYZ Personnel Manager must immediately suspend, without
pay or allowances, any employee that is suspected of embezzling from the
company. Let us also assume that when an immediate suspension transaction is
input through the personnel application it updates a field in the employee details
record. If the personnel and payroll applications had been designed and written
in an integrated manner, the payroll application would always check the
immediate suspension field in the employee details record before creating a pay
slip. If the two applications had not been designed and written in an integrated
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manner it is very likely that the payroll application would not have been
designed to carry out this check and that the suspended employee would get
paid.
Lack of shareable real-time data. Even if a common database is used and all the
applications that use it are fully integrated from a business process viewpoint,
problems can still occur if the database is not updated in real-time. Using our
previous immediate suspension example, it would clearly be unsatisfactory if
the Personnel Manager could not input the suspension transaction until two days
after the employee had been suspended! Very large enterprise-wide systems can
consist of hundreds of closely integrated applications and modules. Many of
these modules are completely reliant upon the data created by other modules and
the people who enter the data into those modules.
The XYZ Company Scenario: Part 2

Now let us develop the scenario a little further. One year later the company has
grown to 100 employees and the small PC that runs the personnel system is no
longer powerful enough to do the job. A friend of the Personnel Manager tells
him that he can buy an Intel P4 machine for less than a quarter of the price he
paid for his old Pentium II machine three years ago. He also tells him that the
new P4 machine comes with the new Linux 12 operating system instead of the
outdated Windows 2000. The Personnel Manager buys a new Lintel (Linux and
Intel) machine and tries to install his personnel package on it. He is unsuccessful
because that version of the package will only run under the old Windows
operating system and the vendor does not have a Linux version that he can
upgrade to.
Fortunately, the Personnel Managers friend knows of another vendors
personnel package that is very similar, in functionality, to the old one. And this
package will run on the new Lintel machine. So, the Personnel Manager pays a
few thousand dollars for the new package and manages to install it successfully.
However, when he tries to import the data from the old system into the new one
he finds that the old system used a non-standard file structure that cannot be
directly imported into the Lintel system. The only solution he can find to this
problem is to print out all the data from the old system for his staff to re-key it
into the new system.
Six months later the Hong Kong Government introduces MPF legislation that
requires substantial functionality additions to be made to all personnel systems.
As the Government was aware of the problems this may cause small businesses
they engaged a consultancy to develop a new personnel system module that had
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the required additional functionality. This new module could be freely

downloaded over the Web. The consultants had written the module using the HR
Application Program Interface, or HAPI standards (these are imaginary
standards) that were published two years ago, in Dec. 2000, by the Association of
HR Package Vendors (this is an imaginary vendor association). The module was
very well received by Hong Kong business because it could be very easily
integrated with any human resources, personnel, or payroll system that had been
written using the new HAPI standards.
Unfortunately for our Personnel Manager, the vendor of his new personnel
system had not used the HAPI standards. Consequently, he had to pay another
few thousand dollars to get some consultants to modify his non-standard
personnel package.
Causes of the Problems Arising from Scenario Part 2

Interdependence between applications software and IT infrastructure. One type
of integration that is highly undesirable is to have applications software that is
tightly integrated with the IT infrastructure upon which it runs. The fact that the
Personnel Managers original package would not run on his new Lintel platform
meant that his original investment was lost and he had to buy a new package.
Companies grow and IT infrastructure components (hardware, database
management systems, operating systems, etc.) become progressively cheaper,
more powerful and sophisticated. Growth means that companies need to be able
to increase the capacity of their systems in order to cater for increases in the
number of users, transactions, etc. To do this they need to be able to add new
hardware and upgrade their database management systems and operating
systems etc. without having to make any changes to their applications software.
Company growth, coupled with rapidly occurring developments in IT, often
results in it being advantageous for companies to migrate some or all of their
applications from an outdated IT infrastructure to a more modern one. It is,
therefore, essential that companies are able to change and upgrade their IT
infrastructure without having to change or throw away their applications
software.
Using application packages that do not provide open application program
interfaces (APIs). The business environment changes with increasing rapidity.
This means that the functionality of the systems that support the business must
also continually be changed with increasing rapidity. It is essential that
companies are able to easily and quickly modify both the functionality and
configuration of their applications software without having to change their IT
infrastructure or rewrite their applications software. It should be possible to
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quickly add new modules (functional components) to an application without it

having any effect upon the functionality of the existing component and without
the necessity of having to rewrite any of the existing application.
When a standard organization, industry group, or even a single software vendor
publishes standard specifications of how one piece of software can be interfaced
with another, the specifications are referred to as application program interfaces
or APIs. A very simple analogue of application program interface standards is
provided by implementations of the OSI hardware interfacing (layer 1) standards.
If a vendor manufactures a mouse with a plug that complies with the USB
interface standard, it can easily be connected to any other vendors PC that has a
standard USB port. If the mouse has a plug that conforms to the PS/2 interface
standard, it can easily be connected to any other vendors PC that has a standard
PS/2 port. If the mouse has a non-standard plug it cannot be easily connected to
any other vendors PC that provides standard ports! Microsoft application
program interfaces provide a good example of vendor specific application
program interfaces. Microsoft publishes details of its application program
interfaces standards. This allows third party software vendors to write new
applications that will seamlessly integrate with Windows and Microsofts other
applications. In addition to allowing third party modules to be easily bolted
onto the original product, application program interfaces also protect the original
application from being affected (corrupted or caused to crash) by the new
module. In the above scenario the vendor of the Personnel Managers package
had not used the HAPI standards when the package was written. Consequently,
even though the new provident fund module had been written using the HAPI
standards, it was not possible to bolt it onto the package.
Summary of Important Integration Requirements

Arising from the Analysis of the Scenario
A shareable enterprise-wide integrated database. This is required so that each
application can have immediate access to the data it requires much of which
will have been created by other applications. A proper database also stores the
descriptions of the data and the rules that the data must obey so that the DBMS
can control the integrity and consistency of the data that is posted to it.
Business process integration between applications. All applications need to be
integrated from a business process viewpoint so that there are no broken event
process chains.
A shareable real-time database. Very large enterprise-wide systems can consist of
hundreds of closely integrated applications and modules. Many of these modules
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are completely reliant upon the data created by other modules. Consequently
data that is created by one application must become immediately available to
other applications.
Independence between applications software and IT infrastructure. Applications
software must be insulated from the underlying IT infrastructure upon which it
runs. This is necessary to enable companies to change and upgrade their IT
infrastructure without having to change or throw away their applications
software.
Application packages should be componentized and constructed with open
application program interfaces. Application packages must have standard and
open application program interfaces so that the company using the package can
easily plug in new modules without having any effect upon the functionality of
the existing component and without the necessity of having to rewrite any of the
existing application. New modules may be written by third-party vendors or
the companys own IT staff.
2.8
SOME COMMON BUSINESS RESPONSES

TO CONTEMPORARY BUSINESS DRIVERS
THAT RELY UPON SYSTEMS INTEGRATION
In Unit 1 you were presented with an extract from Callon (1996) that described
some of the typical organizational responses to contemporary business drivers. In
short, contemporary business drivers such as global competition, shorter product
cycles, greater customer input and demand for higher quality products with
improved customer service at an equal or lower price have created new
challenges for manufacturers. For example, manufacturers are responding by
taking greater responsibility for retailers inventory and responding to the
customers demands for greater responsiveness with immediate order fulfillment
and just-in-time delivery. They also have to reduce cost from their operations,
seek reductions from their suppliers, and generate new revenue opportunities to
maintain or improve their own profit outlook.
We will now examine the nature of some of these responses in a little more detail
and from an integration viewpoint. In particular we will examine the following
responses:
improving the timeliness, flexibility, and responsiveness of manufacturing

and supporting services operations;
adopting a Total Quality Management (TQM) ethos and approach;
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improving business processes by Business Process Reengineering (BPR);
adding value to the supply chain by the adoption of supply chain

management (SCM) practices;
leveraging organizational knowledge by facilitating

employee empowerment, and knowledge management.
2.8.1
group
working,
Improving the Timeliness, Flexibility, and

Responsiveness of Manufacturing and
Supporting Operations
In order to reduce the time to bring new products to market, improve quality and
reduce costs, manufacturing methods and manufacturing planning techniques
and methodologies have developed significantly over the last 25 years. The
automotive industry in general, and the Japanese automotive industry, in
particular, has been at the forefront of these developments. In this topic we will
first examine some contemporary approaches to manufacturing (MRP, MRPII,
and JIT) and then look at the provision of supporting services with particular
emphasis on the need for tight integration of the information systems that
underpin them.
Master Production Scheduling (MPS). Central to manufacturing planning (at the
tactical level of, say, 12 months) is the master production scheduling process.
Basically this process involves the planning of production (for a period) to satisfy
current and forecast orders.
Materials Requirements Planning (MRP). At the next, more detailed, level of
production planning, the master production scheduling provides the input to the
materials requirements planning process. During the materials requirements
planning process, items planned at the master production scheduling level are
exploded, using bills of materials (BOMs), to produce the detailed time-phased
material, labour production capacity (plant) requirements.
Materials Requirements Planning II (MRPII). This is a relatively new production
planning methodology that has evolved from material requirements planning
during the mid-1980s. The materials requirements planning II methodology is
centered on the use of pull planning to make the product just before it is needed.
The basic planning logic is essentially reverse scheduling. This basic logic is
cascaded through every planning step, saying, If this is when the material is
needed, then the previous production activity needs to be started this much
earlier. The methodology is now well supported by a number of software
application packages. At the heart of an MRPII package is a planning module that
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acts as a sophisticated calculator that applies planning constants production rates,

lead-times, etc. to reverse schedule every required manufacturing step. The
MRPII package will also determine what amounts of what materials and other
resources will be required when and where.
In the past (and today), one of the main weaknesses of manufacturing systems
was a lack of integration. Some of the stages and processes were computerized
or automated and some were not. In addition many of the systems that were used
to automate individual design and manufacturing stages were not well
integrated. This problem of lack of integration in manufacturing systems is often
referred to as islands of automation.
One of the results of this islands of automation problem was that the detailed
behaviour of the overall manufacturing system was unpredictable. In particular,
many of the planning constants that are required for input to the MRPII packages
could not be accurately determined. Usually the planning constants that are not
known exactly are overestimated or overcompensated for. This
overcompensation leads, in turn, to making more than is necessary and doing it
earlier than necessary!
In order to prevent this overcompensation problem, all aspects of both the
manufacturing process itself and the manufacturing planning process need to be
fully integrated as shown in Figure 2.1 below.
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Figure 2.1: Required integration of levels of manufacturing planning
Note that at the strategic planning level, the MPS will also be based upon the
overall business plan and sales forecasts.
Just-in-time (JIT) production. Just-in-time is a business goal not a methodology or
an applications package. The JIT goal is to eliminate all resources that do not add
value (i.e. waste) from the supply chain. In terms of the firms internal
manufacturing systems it is an attempt to reduce to a minimum the planning
constants lot sizes, set-up times, lead-times, scrap, unnecessary steps, etc.
The goal is to have planning constants that are at their physical (minimum)
limits. In order to achieve this goal, the company first must have perfect
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knowledge of, and confidence in, its own planning data, and secondly it must
also have the same confidence in the data provided by its external business
partners. For example, if a supplier promises to be able to make a delivery within
24 hours of receiving an order from the company, the company needs to be
certain that the supplier can and will fulfill the promise. In order to have
confidence in its own data, the companys own internal systems need to be
tightly integrated and real-time. In order to have confidence in its suppliers data,
the companys internal systems should ideally be closely integrated with those of
its suppliers.
The need for integration of supporting service applications. We have already
seen from the previous figure that inbound logistics applications, such as the
ordering, receipt and management of raw materials, needs to be closely
integrated with the manufacturing and materials management applications.
Similarly, the outbound logistics applications, such as sales support, shipping
and after-sales service, also need to be tightly integrated with the core
manufacturing and materials management functions.
Applications that support the core business functions will also obviously have to
be integrated with financial functions such as accounts receivable and general
ledger.
An important note on the need for integration in non-manufacturing industries.
The above topic has mainly concentrated on the responses that have been made
by manufacturing industries in order to improve the timeliness, flexibility, and
responsiveness of their operations. Hopefully it is obvious that other types of
industry must develop similar types of response to improve the timeliness, etc. of
the services they produce. Obviously, integration will play an equally important
part in these industries.
What type of integration does this response require?
The types of integration required include:
a shareable enterprise-wide integrated database;
business process integration between applications;
a shareable real-time database;
independence between applications software and IT infrastructure;
application packages that are constructed with open application program

interfaces.
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2.8.2
Adopting a Total Quality Management (TQM)

Ethos and Approach
Total quality management (TQM) is essentially a philosophy or organizational

ethos that integrates a focus on the customer, a focus on work processes, and a
focus on continuous organizational learning and improvement. Total quality
management has been used for many years. It was originally developed in the
US, and the Japanese were the first to see its benefits and apply it successfully in
the 1970s.
In many contemporary businesses, compliance with quality management
standards is now an important factor in producing high-quality products and
improving competitiveness. In fact, in many of Hong Kong and southern Chinas
major export industries, overseas customers will not place supply contracts
unless their suppliers are ISO 9000 certified. The childrens toy industry and
electronic components industry provide good examples.
The ISO 9000 quality standards specify that the quality management system
should be integrated with virtually all processes in the enterprise, from design of
the product and ensuring the quality of the materials bought in from suppliers to
the provision of after-sales service.
What type of integration does this response require? Clearly this type of response
requires a very high degree of business process integration between a very large
number of different applications. This in turn requires a very large shareable
enterprise-wide integrated database which needs to be updated in real-time so
that data created by one application becomes immediately available to all other
applications.
2.8.3
Improving Business Processes by Business

Process Reengineering (BPR)
You have already learned that Hammer and Champy (1993) defined business
process reengineering (BPR) as
the fundamental rethinking of and radical redesign of business processes
to achieve dramatic improvements, such as cost, quality, service and speed
and that information systems and technology are regarded as the primary enabler
of business process reengineering. You have also learned that today the idea of
instituting a programme of permanent improvements to business processes using
incremental (as opposed to radical) business process reengineering is gaining
popularity.
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Business process reengineering often involves using IT to reduce the number of

steps required for a business process and to add value to and to tightly integrate
those that remain. Thus, one of the results of business process reengineering is
often improved integration between the steps in a business process.
If an organization is following the radical redesign approach to business process
reengineering this usually requires radical changes to the functionality of the
existing computer applications. If the organization is following the incremental
approach to business process reengineering this usually means that the
supporting computer applications, as well as the associated manual procedures
and workflows, must continually be changed.
What type of integration does this response require? Business process
reengineering often results in improving business process integration by
changing existing computer applications and implementing new ones. In order to
be able to do this, especially on a continual basis, it is important that the
applications are constructed of components that have standard and open
application program interfaces, so that the company can easily plug in new
modules without having any effect upon the functionality of the existing
components, and without the necessity of rewriting any of the existing
application. It is also important that the applications software is insulated from
the underlying IT infrastructure so that the company can change and upgrade its
IT infrastructure without having to change or throw away its applications
software.
2.8.4
Adding Value to the Supply Chain by the

Adoption of Supply Chain Management
Practices
The finished goods and services that the end consumer (people or businesses)
buys are the result of a multi-link (or multi-stage) supply chain (or production
stream) in which raw materials are progressively converted into finished
products. It is now becoming widely accepted that the effectiveness of an
organizations overall supply chain, including the operations of its business
partners both upstream and downstream, will be a major determinant of its
competitiveness and survival in the global marketplace.
Consequently, supply chain management is seen as being of increasing
importance. Supply chain management is an industry strategy where business
partners jointly commit to work closely together to bring greater value to their
customers for the least possible overall supply chain cost. However, in order to
reap the full benefits of supply chain management, it is usually necessary for the
94
organizations to integrate an appropriate IT structure into their operations,

particularly electronic commerce enabling technologies.
The importance of supply chain management in the contemporary business
world cannot be over-stated. The automotive industry has long realized the
importance of supply chain management. Without it, techniques such as
inventory-less just-in-time (JIT) manufacturing would not be possible.
If a manufacturer uses inventory-less just-in-time manufacturing techniques, he
or she must rely completely upon his or her suppliers to deliver the exact
materials required, in the exact quantities required, exactly when they are
required and exactly where they are required. However, it would obviously be
very difficult, or impossible, for a supplier of, for example, spark plugs to be able
to fulfil an order for 15,000 spark plugs to be delivered at 10.00 am tomorrow if
he or she had no idea that the order was going to arrive until 11.00 am the
previous day.
Suppliers need to plan their production in advance in just the same way as other
manufacturers. Suppliers may also use just-in-time production techniques and
have their own master production scheduling (MPS) and materials requirements
planning (MRP) systems. In order for a manufacturer to use just-in-time
techniques, the manufacturers master production scheduling, materials
requirements planning and other production planning systems must be closely
integrated with those of his or her suppliers.
Figure 2.2 below shows the type of information interchange sequence between a
manufacturer and supplier that would be required to support the manufacturers
just-in-time production system (and the production systems of the supplier).
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Figure 2.2: Information interchange required for just-in-time production
You should note the information interchange sequence shown above is highly
simplified. You should also be aware that many large manufacturers have a very
large number of suppliers. For example, General Motors has more than 30,000!
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It is easy to see why it is usually necessary for organizations to integrate

appropriate IT (particularly electronic commerce) into their operations in order to
reap the full benefits of supply chain management. Clearly, it would not be
possible for a major manufacturer to engage in the type of information
interchange, as outlined above, with several thousand suppliers unless the
process was automated most probably by the use of electronic data interchange
(EDI).
In todays business environment, nearly all businesses have a need to improve
their supply chain management practices to speed up their materials ordering
and replenishment capabilities, in order to meet demands from their own
customers for faster and more flexible deliveries.
The Hong Kong textile and apparel industry provides a good example of this
trend. The textile and apparel industrys main customers are the major national
retail chains in the US and Europe. In the past these major retail chains negotiated
contract with their suppliers on a seasonal, or annual, basis.
For example, a UK retail chain may place an order for 5,000 summer dresses, of
particular sizes and styles, to be delivered at the start of each month from March
to August in a particular year. Typically, these contracts would be negotiated
several months before the first delivery was required.
This type of contracting allows plenty of time for the supplier to arrange sources
of raw materials and plan production etc. However, today the retail chains are
demanding that their suppliers should be able to provide last minute and
within season replenishment instead of just using the traditional pre-season
ordering approach. This means that Hong Kongs textile suppliers, and their
suppliers who are often on the mainland, must now be much more flexible and
responsive to rapidly changing end customer demand.
What type of integration does this response require? For this response each
partner needs to have a high degree of business process integration between its
own internal core applications. Each organizations systems also need to be
connected to and interoperable with those of their business partners. If the Web is
used for interconnecting the partners systems then each partners core application
systems need to be connected to and interoperable with their Web-based
electronic commerce systems.
2.8.5
97
Leveraging Organizational Knowledge by

Facilitating Group Working, Employee
Empowerment, and Knowledge Management
Increased globalization has resulted in the formation of many workgroups whose

members are geographically separated. The worldwide recession and downsizing
of the 1990s forced increased attention to be paid to information worker
productivity. Increased competition imposed change on organizations, making
them flatter and more flexible, and more reliant on the output of work teams that
are empowered or effectively self-managed.
One of the most effective ways of empowering employees is to make the
knowledge they need to do their job, or even to determine what their job should
be, readily available to them. Additionally, the continuing shift towards
knowledge-based industries is making it imperative for many organizations to
consider better ways of knowledge management.
Because of these factors, knowledge management systems are receiving special
attention from many organizations. Knowledge management systems attempt to
help organizations manage their accumulated knowledge in a better way so that
knowledge learned on past projects can be accessible to all, regardless of where
they are located. Knowledge management systems are needed to coordinate and
organize information so that the appropriate knowledge is shared with the
appropriate people.
Obviously, knowledge management is of critical importance in the knowledge
intensive industries such as hardware/software development and support,
financial services, medicine, and other science and technology based industries.
Less obviously, it is also of critical importance in virtually every industry!
Knowledge about any organizations sales prospects, customers, products,
processes, suppliers, competitors, etc. is critical to the success of any business.
The sum total of the knowledge held by past and present employees and held in
all of the organizations files is the most important asset that any organization
possesses if it can be collated and made available to those who need it.
A number of technological developments have taken place over the last 15 years
that go part of the way to providing the technological components of a
knowledge management infrastructure. These include developments in WAN
and LAN infrastructure, database technology, multi-user applications,
groupware, and most important of all Intranets.
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For example, developments in database technology have been used to create data
warehouses where the data from all of the organizations different, and
previously incompatible, databases can be collated and stored. This mass of
diverse operational data can then be flexibly summarized and searched for
associations (e.g. What are our three most profitable sales outlets and what else
do they have in common?) by means of online analytical processing (OLAP)
tools. A particularly hot topic at the time of writing this unit is customer
relationship management (CRM) systems. A data warehouse is the core element
of most CRM systems.
Data warehouses, despite their current popularity and importance, are only a
very small step towards an enterprise-wide knowledge management system.
First they only contain copies of the data that have originally been captured by
the different, and often unintegrated, operational systems. Sometimes this
internal operational data is supplemented by data from external sources. In the
case of customer relationship management systems this may be data obtained
from external agencies and demographic and marketing surveys, for example.
However, data warehouses contain data, not knowledge. Additionally the scope
of the data they contain is restricted to what is captured by the organizations
operational systems. Clearly, they do not contain the masses of unstructured data
and knowledge that exist in the filing cabinets and on the desks and in the heads
of the organizations employees!
You can experience some of the subtle differences between data and knowledge
by using the Web to compare a computer vendors (e.g. Dells) online reference
material with its FAQ pages and customer discussion groups. If you have a
problem with a computer you have just bought, you can consult the reference
material and it will provide you with a lot of data but it is unlikely to help you
identify the cause of your problem or solve it. However, if you consult the FAQ
pages and customer discussion group pages it is very likely that another
customer has already had your problem and has posted a message explaining
how to get around it.
The concept of supply chain management and the last paragraph raise two other
very important issues about knowledge management systems. Supply chain
management is based upon the premise of cooperation between partners in the
supply chain. This suggests that supply chain management could be improved if
the knowledge management systems of the different organizations in the supply
chain were interconnected. The last paragraph suggests that it may be worth
organizations helping their customers to create their own knowledge
management systems which are interconnected to those of the company, and
those of their suppliers, and so on. In fact, several computer vendors that have
customer discussion and newsgroups on the Web expect their component
suppliers to closely monitor the comments posted by their customers. Monitoring
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customer feedback in this way often helps component suppliers to become aware
of design and manufacturing faults and to rectify them much more quickly than
using conventional means.
The academic literature often refers to interconnected and integrated knowledge
management systems as knowledge networks. However, how we go about
creating knowledge networks has not yet been fully explained! At a very
superficial level, all of the organizations structured operational data need
integrating with environmental data from external sources. These in turn need
integrating with the combined knowledge of workgroups and individual
employees both past and present. If we consider knowledge networks, the
knowledge bases of business partners and their customers need to be integrated
and accessible to those who need it. At present the Web appears to provide the
best technology to do this. However, exactly how the Web can be used to support
knowledge management and knowledge networks is beyond the scope of this
unit.
SELF-TEST 2.2
1.
The introductory part of this section pointed out that integration

is closely associated with connectivity, interoperability and open
systems, and identified seven levels at which an organization
needs to consider integration. What were these seven levels of
integration?
2.
During the analysis of the XYZ Company scenario you learned of

three important requirements for effective integration. List and
explain them.
100 UNIT 2 NETWORKING OPPORTUNITIES IN BUSINESS
2.9
ACHIEVING INTEGRATION &

FUNCTIONALITY AND REENGINEERING
THE ORGANIZATION BY THE USE OF
ERP PACKAGES
Introduction
The last section outlined a number of responses that organizations are making in
response to contemporary business drivers and the types of information systems
and electronic commerce applications that were being used to drive and support
these responses. The section also highlighted the critically important part played
by integration in the effectiveness of these responses. We now start this section
by summarizing all the important integration requirements covered in the
previous section into just three broad categories.
External integration. This requires both applications and infrastructure
connectivity between different business partners systems. Open Web and
Internet technology have the ability to provide this infrastructure connectivity.
Internal integration. This requires that the organizations Web-based electronic
commerce systems are closely integrated with its core application systems and
that the different core applications are tightly integrated from a business process
viewpoint. It also incorporates the requirement that applications should, ideally,
be built with standard application program interfaces so that new functionality
can be easily and safely added. This is sometimes referred to as
componentization.
Infrastructure integration. This incorporates integration between IT infrastructure
and applications as well as integration between the different infrastructure
components. It also incorporates the very important requirement that the IT
infrastructure layer should be effectively insulated, or independent, from the
applications layer so that either can be changed without necessitating expensive
and disruptive changes being made to the other.
In the rest of this section you will learn what modern Enterprise Resource
Planning (ERP) systems are and how they can provide an organization with a
very comprehensive range of internally integrated and off-the-peg (i.e.
readymade) applications.
2.9.1
101
Introduction to ERP (Enterprise Resource

Planning) Systems
According to the ERP Fans website an ERP is:

A software solution that addresses the enterprise needs taking the
process view of an organization to meet the organizational goals tightly
integrating all functions of an enterprise.
ERP Fans (1999), Slide 8
Although this is a somewhat cryptic definition, it does get across the idea that an
ERP system should both tightly integrate the different software applications and
help implement an IS strategy that is integrated with business strategy.
International Data Corporation (IDC) defines ERP software as:
applications that cover a combination of financial management, human
resource management, distribution/materials management, and
manufacturing and production management functions.
They go on to say that:
These applications are often referred to as the Integrated Enterprise
Applications or Enterprise Resource Planning (ERP) applications.
Consistent with business process re-engineering and supply-chain
integration initiatives, the four applications mentioned are usually
considered together during the corporate buying decision, particularly in
business process-intensive industries such as manufacturing. IDC regards
products which have applications that at least include three of the four
mentioned functions in one integrated package in their brand name as
integrated enterprise or ERP applications.
(IDC, August 1999)
It is important to be aware, even at this introductory stage, that ERP packages
provide more than just a (very large) number of applications tightly integrated
around a common database. They also provide a common interface to all the
applications and business engineering and implementation tools.
2.9.2
Reasons for the Adoption of ERP Systems in the

1990s
In the late 1990s many large organizations that were mature users of IT (i.e. they
had legacy systems that their business was completely reliant upon) faced a
number of immediate problems. These immediate problems included the

following.
The organizations present IT infrastructure was very mixed and largely

unintegrated. It also contained components that were virtually obsolete and
very difficult to maintain for example, legacy mainframe systems and the
applications that ran on them.
There was no common enterprise-wide database and the present applications

are built around several incompatible functional or divisional databases that
prevented effective business integration of the applications. This problem was
particularly acute for businesses that had grown by mergers and acquisitions
because with each new acquisition the business inherited applications and
systems that were incompatible with its own.
The applications software did not meet current business needs.
The applications software was constructed in such a way (from non-standard

components, without application program interface standards, etc.) that it
was very difficult and expensive to maintain and enhance.
Many of the applications were not Y2K compliant and, in Europe, many
could not cater for the new Euro currency that was about to be introduced. To
remediate these problems would have taken a massive amount of expensive
development effort that would have brought no real business benefit to the
organization.
Multi-national enterprises had always faced the problem of tailoring their

systems in each country to deal with the local language, currency, accounting
conventions, and taxation laws. They had also always had the problem of
integrating and consolidating the data from their various business units in
different countries. However, these problems were exacerbated in the 1990s
with the increasing speed at which different governments were introducing
new legislation that required modifications to be made to existing
applications. Changes to taxation, transfer pricing, health and safety, and
environmental protection legislation inevitably mean that the organizations
systems must be changed to be able to show that it is complying with the new
legislation.
The implementation of a modern ERP system, including both applications and IT

infrastructure, offered the promise of an immediate, if expensive, solution to
these problems. In particular ERP systems could provide the following solutions.
the latest technology including an integrated multi-tier enterprise-wide clientserver (EWCS) environment;
103
applications software that provides comprehensive business functionality
based upon industry best practice;
applications and infrastructure that are built from standard components with
open interfaces that can be easily modified and enhanced when business
requirements inevitably change;
complete integration of systems across the various divisions and functions of

the business units as well as across the enterprise as a whole;
applications that are specifically tailored for different countries (currencies,

languages, legislation, etc.) and that have automatic consolidation facilities
built in.
It is, therefore, not surprising that many organizations opted for an ERP system
solution to their problems and that the 1990s became the decade of Enterprise
Resource Planning.
However, the introduction of an ERP system can do much more than solve the
immediate problems encountered in the 1990s. ERP systems are also designed to
facilitate business engineering (BE). Business engineering emphasizes
organizational flexibility as opposed to just the automation of existing business
processes. One of the ways in which it attempts to do this is by providing an
easy-to-use and information-rich environment that can enhance individual and
team creativity. The aim of business engineering is the creation of a business
environment that produces product, service and staff innovation, as well as the
delivery of shorter development cycles, improved quality and improved
customer service. The adoption of the business engineering approach can shift an
organization from the industrial age paradigm, which views the business from
an internally oriented production focus, to the information age paradigm, which
views the business from an externally oriented service and customer (and
supplier/business partner) relationship focus.
Whether or not the organizations that introduced ERP systems at the end of the
20th century to solve the immediate problems of the 1990s will make full use of
business engineering to reengineer themselves to meet the challenges of the 21st
century remains to be seen.
SELF-TEST 2.3
1.
What is an ERP system?
2.
During the mid- to late 1990s many large organizations, which

were mature users of IT, were facing a number of immediate
problems that made an ERP solution attractive. What were these
immediate problems?
3.
The implementation of a modern ERP system, including both

applications and IT infrastructure, offered organizations a
number of immediate solutions to the above problems. What
were these (five) solutions?
4.
It is claimed that the introduction of an ERP system can do much

more than solve the immediate problems encountered in the
1990s because it is designed to facilitate business engineering.
What is the business engineering approach and what are its main
aims?
2.10
SUPPLY CHAIN MANAGEMENT,

EXTENDED ERP (EERP) SYSTEMS, SMALL
AND MEDIUM-SIZED ENTERPRISES, AND
THE ROLE OF APPLICATION SERVICE
PROVIDERS
Introduction
We have previously said that supply chain management requires the
interconnection of the systems and applications of all partners in the supply
chain. Usually upstream links are suppliers and the final downstream link is the
customer or consumer. Thus extended supply chain management (ESCM)
involves both business-to-business (B2B) electronic commerce and business-toconsumer (B2C) electronic commerce.
We have also said that very large trading partners such as automobile
manufacturers and their component suppliers have already been practising
supply chain management for a number of years. These large organizations have
been able to afford to implement internal ERP systems and link them to those of
their partners via relatively complex and expensive electronic data interchange
(EDI) networks.
105
In the past small and medium-sized enterprises were not able to afford to
implement their own integrated ERP systems, nor were they able to afford to use
traditional EDI networks. Similarly, the final link in the supply chain, the end
customer, was rarely connected to the electronic supply chain. And, if they were,
they were connected by means of proprietary systems and networks that often
locked them into their supplier.
Clearly, the availability of the Internet and relatively low-cost and open
Internet/Web technology has already dramatically changed this situation
particularly in the B2C arena.
This section contains the following sub-sections.
Required extensions to the functionality of ERP systems
Electronic commerce extended ERP (EERP) systems
The need for planning capability and intelligence
The emergent application service provider (ASP) industry
What is an application service provider (ASP)?
How fast is the newly emergent application service provider industry

emerging?
What do application service providers mean for small and medium-sized

enterprises?
The BT Business Manager example
What has made the ASP delivery model possible?
The first sub-section briefly examines how ERP systems need to be extended in
order to improve supply chain management practices amongst all participants in
the supply chain. One fairly obvious requirement in this area is to include Webbased electronic commerce components in ERP packages. Web-based
components such as product catalogues, shopping carts, etc. are clearly required
to support B2C electronic commerce. Indeed, such components are now widely
available from a number of third party vendors. However, the challenge in this
area is to ensure that the Web-based components are tightly and seamlessly
integrated with the internal applications components.
For example, when a customer inputs an order for a customized PC via the Web,
the system should be able to immediately inform the customer when the PC can
be delivered to his or her home. This means that the Web-based ordering
component must be integrated with the internal manufacturing planning
components and the external systems of the component suppliers (so that any
components required to fulfil the order can be automatically ordered). To a large
extent ERP vendors have responded well to this challenge and now include Webbased electronic commerce components with their products. This new breed of
Web-electronic-commerce-enabled ERP systems is sometimes referred to as
extended ERP systems or EERP systems.
The first sub-section also examines another aspect of ERP systems that needs
improving in order to improve supply chain management. Todays ERP systems
store masses of internal transactions data but they do not have the intelligence to
sift through that data and make intelligent suggestions. Neither do they have
the ability to proactively search for information from external sources and
incorporate it into their decision-making processes.
A prerequisite of supply chain management is supply chain planning (SCP).
Supply chain planning requires a company and its supply chain partners to take
into account data derived from the whole of the supply chain and not just the
data from their own internal systems. Also, day-to-day supply chain
management requires that companies need to be able to rapidly and intelligently
assess the likely impact of their day-to-day decisions both within their own
organization and across the entire supply chain.
Supply chain management requires that the internal applications of all supply
chain partners are interconnected. Therefore, an obvious prerequisite of supply
chain management is that supply chain partners first have their own integrated
application systems. In most industries, many of the links in the supply chain are
made up of small and medium-sized enterprises that cannot afford to implement
or manage and maintain sophisticated ERP systems. This is a major impediment
to industry-wide supply chain management.
Tremendous improvements in implementation options have been made over the
last two or three years including ASAP, Ready-to-Run R/3, etc. For example, the
average implementation time and consultancy time required for the pilot ASAP
implementations, quoted in the last section, were only about four months and 160
consultancy days respectively. However, despite these dramatic improvements,
the resources required for an R/3 implementation, not to mention the cost of the
required software and hardware, are still well beyond the means of most small
and medium-sized enterprises.
The last three sub-sections deal with a recent and important development in the
way in which businesses, particularly small and medium-sized enterprises, can
gain access to or implement ERP, and other, packages. This new applications
software delivery channel is the emergent application service provider (ASP)
industry. Application service providers will make top-tier applications software,
such as R/3, affordable and manageable for small and medium-sized enterprises.
107
In these last three sub-sections you will learn about the nature of the emergent
application service provider (ASP) industry and the tremendous speed at which
it is growing. You will also learn, by means of a specific example, of how small
and medium-sized enterprises will benefit from the new ASP delivery channel.
Finally, you will learn how the evolution and convergence of networking and
applications architectures that you have already studied in this unit have led to
the emergence of the ASP business model and a new industry.
2.10.1
Required Extensions to the Functionality of

ERP Systems
Electronic Commerce Extended ERP (EERP) Systems

In 1997 and 1998 several authorities were suggesting that the functionality of ERP
systems needed extending to encompass the consumer end of the supply chain
over the Web.
The need to integrate Web-based electronic commerce applications with
integrated internal applications is also identified in a recent Delphi Group report
(The Delphi Group, Jan. 2000). This report states that:
A new business model is emerging in the Web-driven environment that
has descended across the corporate world. Unlike e-commerce, e-business
does not only focus on the front-end of the traditional business
automating consumer transactions but automates and webifies the
entire value chain, linking partners and customers under a single
automated system.
The Delphi report documents the results of research carried out in late 1999 in
which they collected the views of over 600 professionals from a range of
industries on the current state of e-business development in their organizations.
According to the report the most widely cited impediment to more wide-scale
use of e-business was the challenge of integrating legacy business applications
into an e-business system.
Not surprisingly, during 1998 and 1999 the ERP vendors added a substantial
number of webified electronic commerce components to their ERP products.
Release 4 of SAP R/3, for example, now incorporates a wide variety of such
components including a product configurator (which allows customers who buy
their products over the Internet to customize their configuration), Web product
catalogues, electronic shopping carts, etc.
The Accelerated High Tech solution, referred to earlier, which was preconfigured
by Deloitte Consulting/ICS (SAPs partner in this venture) uses many of the new
Web-based electronic commerce components that are now available in Release 4.0
of R/3.
The Need for Planning Capability and Intelligence

ERP systems have traditionally excelled at integrated online transaction
processing (OLTP) applications. Todays EERP systems can now integrate
internal OLTP applications with Web-based external electronic commerce
applications.
However, they are still fairly poor at enterprise-wide business planning as we
now understand the term. The reason that ERP systems were originally called
ERP systems is mainly historical. Contemporary ERP systems (such as Baan and
R/3) evolved from the MRP/MRPII (Material Requirement Planning) packages
of the 1970s and 1980s. When the packages were extended to incorporate other
functions such as logistics, financials and human resources management, the
label MRPII was no longer appropriate. The word enterprise then became used
instead of the word material and the packages became called ERP packages.
However, although most contemporary ERP systems incorporate production
planning functions, none of them actually possess comprehensive enterprise or
inter-enterprise (supply chain) planning functions.
The management reports generated by ERP systems give planners statistics
(costs, financial performance etc.) about what happened inside the company in
the past by summarizing the data captured by the OLTP applications in much the
same way as the old MIS systems of the 1970s did. Admittedly, a contemporary
ERP system can rapidly summarize enterprise-wide data whereas the old MISs
often just summarized the data from one or two applications.
The ERP of the future will need to be intelligent and proactive rather than being
just a passive information provider.
For example, R/3 will currently notify you when a particular stock item reaches
reorder level and, if you wish, you can get R/3 to provide you with the details of
the different suppliers you have supply agreements with for that stock item.
Then, if you wish, you can obtain details of each potential suppliers supply
contract including how much you are contracted to purchase per period, how
much you have purchased, prompt settlement discounts etc. Then, if you wished,
you could find out from the system each potential suppliers past delivery quality
and delivery promptness record for the particular stock item you wish to order.
And so on, and so on.
109
However, R/3 will not automatically take all of these and other relevant variables
into account and suggest who is the most appropriate supplier to place the order
with. In short, although R/3 has a mass of data to hand, it does not have the
intelligence to identify and assess all the relevant variables and come up with a
suitable suggestion or decision. The purchasing clerk who is the user in this
scenario may have the intelligence to assess all the relevant data but usually
would not have the time to do so!
So far we have only considered internal data. Another requirement of the ERP of
the future is that it should be extended to external data sources. For example, we
could extend our purchasing scenario and suggest the future intelligent ERP
should also be capable of automatically searching the Web to find alternative
suppliers capable of supplying the stock item that we require and assessing their
suitability against our companys requirements. Intelligent agent software,
which is capable of this type of searching and evaluation, has been on the market
for several years.
At an enterprise-wide level the planning functions of an ERP system need to be
able to pull data from every step of the supply chain, providing a clear, global
picture of where the enterprise has been, where it is now and, most important of
all, where it is heading. Supply chain planning (SCP) requires a company and its
supply chain partners to take into account data derived from the whole of the
supply chain, including customer demand patterns, and not just the data from
their own internal systems. Similarly, day-to-day supply chain management
requires that companies need to be able to rapidly assess the likely impact of their
day-to-day decisions across the entire supply chain and not just within their own
organization.
2.10.2
The Emergent Application Service Provider

(ASP) Industry
What is an Application Service Provider (ASP)?

An application service provider (ASP), in essence, is a third-party service firm
which installs (and often customizes) and remotely hosts a pre-packaged
software application on its own centrally located servers and then allows its own
clients to access and make use of that package. In exchange for accessing the
application, the clients have to pay the application service provider rental-like
payments.
The ASP Industry Consortium, a coalition of companies formed in May 1999 to
promote and educate the industry, provides the following definition:
An application service provider manages and delivers application capabilities to

multiple entities from data centers across a wide area network.
ASPs give customers a viable alternative to procuring and implementing complex
systems themselves. In some cases, ASPs even provide customers with a
comprehensive alternative to building and managing internal information
technology operations. ASP customers also are able to control more precisely the
total cost of technology ownership through scheduled payment schemes.
The ASP Industry Consortium (May 1999)
An application service provider acts as an intermediary between an independent
software vendor (ISV) and its own clients in much the same way as a property
management company acts as an intermediary between a landlord and the tenant
of a serviced apartment. The application service provider and its clients do not
own the application package. The independent software vendor owns the
package and leases usage of the package to the application service provider,
which in turn rents it to its own clients. Because the end client rents the
application instead of owning it, he or she is relieved of the responsibilities
associated with the initial installation and ongoing maintenance of the package.
The end client expects the application service provider to undertake these
responsibilities in much the same way as a tenant in a serviced apartment expects
a property management company to undertake similar responsibilities.
There is, of course, a major difference between an application service provider
and a property manager. If the property manager only has an apartment to rent,
he or she can only rent it to one tenant. The application service provider can rent
the usage of a single applications package to any number of different clients.
There is also a major difference between a conventional purchase of software
from a software vendor and the purchase of an apartment from its owner. When
you buy an apartment, the ownership of the apartment passes to you. However,
as you may already be aware, when you buy software from a software vendor the
actual ownership of the software does not actually pass to you. All you really
purchase is the right to use the software. For example, you cannot (legally) re-sell
the software to anyone else. So even when you make a conventional purchase of a
software package you do not own it but you do get the responsibility of installing
it and need your own hardware on which to install it!
Figure 2.3 below shows the relationships and revenue flow between the
independent software vendor, application service provider and end clients.
111
Figure 2.3: Relationships and revenue flow between the independent

software vendor, application service provider and end clients
Under the new ASP model, all the end client organization needs to run the
application are network connections to the application service providers data
centre and PCs running a Java enabled browser (or thin-client network
computers (NCs)). The end client does not need to have its own application
servers and database servers on which to load its own applications software and
data, because these are provided by the application service provider in its remote
data centre. The network connections can be provided by a conventional ISP and
the network can be the public Internet.
There are many other variations from the simple model presented in the figure
above. For example, the network connections and a virtual private network could
be provided by a value added network (VAN) provider. Another model is
provided by BT (British Telecom) in the UK, which has extended its ISP services
to include ASP services. It is also possible that more intermediaries are
introduced into the model. For example, in the US, the application service
provider Corio leases its data centre infrastructure from and out sources its data
centre operations to Concentric Networks and Exodus Communications. Yet
another alternative is for the number of intermediaries to be reduced by the
independent software vendor fulfilling the application service provider role itself
by providing its own applications hosting and rental service (SAP and J D
Edwards, for example, now do this).
How Fast is the Newly Emergent Application Service Provider

(ASP) Industry Emerging?
The application service provider (ASP) industry is a relatively new industry. The
ASP market is, at present, only one small portion of the overall application
outsourcing market and the high-end ERP applications market is only one small
segment of the overall ASP market. Cherry Tree reports that IDC estimates that
the growth in this high-end enterprise applications segment of the overall ASP
market will grow from $150 million in 1999 to $2 billion by 2003. This represents
a compounded annual growth rate of over 90 per cent. The prospects for the ASP
market are generating considerable interest and commitment from many sectors
of the IT industry. These sectors include established telcos, IPSs, ISVs, and IT
service providers as well as the newly created application service providers
themselves.
The ASP Industry Consortium was formed in May 1999 with an initial
membership list of 25 technology companies. By January 2000, membership had
grown to more than 350 companies. The leading players (including PCCW) in all
the above IT industry sectors are now members of the consortium (The ASP
Industry Consortium, Jan. 2000).
2.10.3
What Do Application Service Providers Mean

for Small and Medium-Sized Enterprises?
The BT 'Businessmanager' Example

Here we will look at just one example of what the new ASP model may mean for
small and medium-sized enterprises. On March 18 1999, BT made its first
application service provider offering (ASP News Review, March 1999). This
offering is the first of a series planned by BT as part of its newly launched online
application rental service. The service is called BusinessManager, and aims to
offer high-end applications, including ERP, for rent to small and medium-sized
enterprises. In particular BT is targeting organizations with between 20 and 500
employees.
113
BTs First Offering Was, in Fact, a Customized (by BT) Version of

the SAP
R/3 financials and HR (particularly the Payroll component) modules. BT has
created a template-based implementation of the package designed to require only
a few days configuration before it is ready for use. According to BT they have
basically taken the SAP software and transformed it to make it really adapted to
the needs and requirements of small and medium-sized enterprises (ASP News
Review, March 1999).
BT charges US$ 200 per user per month for its R/3 rental package and a one-off
US$ 2,500 implementation fee. The implementation process takes ten days and
the fee covers installation of the ISDN or other connection, consultancy to prepare
the implementation, and user training.
All other costs are absorbed into the quarterly rental, which varies according to
the specific number of applications, users and sites that the customer opts to
include in the service. A 400-employee company renting the payroll and
financials components (as customized by BT) for 15 users on a single site would
pay a price of US$ $620 per user per quarter. The total turnaround time from
confirmation of order to going live is six weeks, according to BT (ASP News
Review, March 1999).
In this example the application service provider has invested its own time and
effort into creating an AP R/3 customization that is designed to have mass
market appeal. Other ERP delivery models also exist such as the Deloitte/ICS
SAP Accelerated High Tech customization of R/3 that is aimed at a specific
niche (the build-to-order computers, peripherals and equipment (CPE) market).
Many other approaches are currently being used and many more will
undoubtedly appear in the future.
As stated in the introduction to this section, the resources required to implement
and run top-tier applications were well beyond the means of most small and
medium-sized enterprises when traditional delivery channels were used.
However, the new application service provider delivery channel, as the above BT
example shows, has dramatically changed this situation. Top-tier applications
will shortly be within the reach of most small and medium-sized enterprises.
What Has Made the ASP Delivery Model Possible?

During the past 30 years, both applications software architecture and IT
architecture infrastructure have been evolving along separate but converging
paths as shown in Figure 2.4 below.
Figure 2.4: Architectural convergence leading to the emergence of application service

providers
The old IT infrastructures based upon proprietary mainframe-centric IT

architectures have now given way to the new network-centric infrastructures
based upon open client-server architecture and network standards. The old
applications software infrastructure that resulted in in-house developed, custom
coded, monolithic and non-portable applications has given way to a new
architecture for applications.
This new applications architecture is based upon the construction of reusable and
re-configurable components as opposed to use once (albeit for quarter of a
century) and throw away monoliths (yesterdays legacy applications). The new
115
architecture results in ultra portability and interoperability. Yesterday,

applications portability referred to being able to port (move) an application from
one computer platform to another. This type of portability is now taken for
granted and is provided by all client-server IT infrastructures. Today, portability
refers to being able to run any component of an application on any hardware
component anywhere in a distributed network at any time. It also refers to being
able to easily mix and match components of different applications to rapidly
create new applications.
Contemporary Internet technology evidences the convergence of these two
strands of IT evolution. The infrastructure of the Internet is based upon an open
client-server architecture (e.g. HTTP on the servers and browser on the clients)
and network standards (TCP/IP). Contemporary applications are constructed
from components with open and stable interfaces that can be readily
reassembled. Suns Java Beans or Enterprise Beans provide an example. The
components themselves can be transmitted over the network to execute on
whatever network component is most suitable. Java applets provide an
example.
In this unit you were first introduced to how a business can go about formulating
and implementing IT strategies that can help them take advantage of the
opportunities provided by contemporary networking and electronic commerce
technologies.
You then learned of the various levels of integration that are required in order for
both individual businesses and their supply chain partners to be able to obtain
maximum benefit from these technologies.
Towards the end of the unit you learned how the new application service
provider delivery channel will create a new business environment in which toptier applications will become within the reach of most small and medium-sized
enterprises and cease to be the exclusive preserve of the very large corporations.
This glossary provides definitions for some key words and phrases used in this
study unit.
When a definition in this glossary contains terms that are shown in inverted
commas ( ) it indicates that those terms are also defined in this glossary. You
may need to refer to their definitions to fully understand the definition that
contains them.
Accelerated High
Tech
A pre-configured out-of -the box R/3 system

targeted at a computer, peripheral and equipment
manufacturers who provide their customers with
a build-to-order sales delivery channel.
Application Service
Provider (ASP)
A company that offers businesses (or individuals)

access over the Internet to application programs
and related services that would otherwise have to
be located on their own personal or enterprise
computers.
Bill of Materials
(BOM)
The list of different materials (components and

sub-components) and quantities required to
manufacture a particular end product.
Business Engineering
(BE)
BE enables companies to become more customerfocused and responsive to changes in the market
by reshaping the business structure and business
activities around value-added process chains. The
BE approach implements change by a holistic
redefinition of the company structure and
operations in an integrated and processorientated way (rather than by the automation of
the separate functions within a business).
Business-to-Business
(B2B)
A term applied to that sub-set of EC that is used

to conduct business between different businesses.
Compare with business-to-consumer (B2C).
Business-toConsumer
(B2C)
A term applied to that sub-set of EC that is used

to conduct business between a business and its
customers who are the end consumers or the
general public. Compare with business-tobusiness (B2B).
Competitive
Advantage
Developing products, services, processes, or

capabilities that give a company a superior
business position relative to its competitors and
other competitive forces.
117
Competitive Forces
Model
According to Porters competitive forces model a

firm must be able to confront five main
competitive forces: (1) rivalry of competitors
within its industry; (2) threats of new entrants; (3)
threats of substitutes; (4) the bargaining power of
customers; and (5) the bargaining power of
suppliers.
Componentization
This refers to an approach to the construction of

software that involves the building of selfcontained modules that have open and standard
APIs so that other modules can be easily plugged
into them or interconnected. This allows rapid
changes to be made to the software package, by
the addition of new components, without having
any effect upon the functionality of the existing
components.
Computer-Aided
Design
and Computer-Aided
Manufacturing
(CAD/CAM)
The term refers to the use of both CAD and

CAM techniques in an integrated manner.
Compare with CAM and CIM.
Computer-Aided
Manufacturing
(CAM)
The term refers to the use of computerized

manufacturing techniques such as the use of
electronic numerically controlled machines and
robots. Compare with CAD/CAM and CIM.
Computer Integrated
Manufacturing (CIM)
The term refers to the use of CAD/CAM

techniques integrated with other computerized
techniques such as MRP. Compare with CAM,
CAD/CAM and MRP.
Critical Success
Factors (CSFs)
These are, according to Rockart, The limited

number of areas in which results, if they are
satisfactory, will ensure successful competitive
performance for the organization. They are the
few key areas where things must go right for the
business to flourish. Critical success factors can
be used to identify critical information
requirements which can, in turn, be used for
identifying directions for IS development.
Data Warehouse
Data warehouse systems are used to collate and

store copies of the data from all of the
organizations
different,
and
previously
incompatible, databases. The data collected in the
data warehouse database can then be flexibly
summarized and searched for associations (e.g.
what are our three most profitable sales outlets
and what else do they have in common?) by
means of OLAP tools.
Distributed
Computing
Environment (DCE)
Standards
A term used to describe a group of standards that

can be used to facilitate interoperability of the
components (particularly data and applications)
in heterogeneous or mixed platform distributed
computing environments. The Open Group
Architectural Framework (TOGAF) provides an
example of DCE standards.
Enterprise Resource
Planning Systems
(ERP Systems)
Large tightly integrated software packages that

include applications that cover a combination of
financial
management,
human
resource
management, distribution/materials management,
and manufacturing and production management
functions.
Enterprise-wide
Client-server
(EWCS) Architecture
It can provide enterprise-wide infrastructure

integration.
Event-driven Process
Chains (EPCs)
An interconnected group of several business or

system events (e.g. customer places order), several
human or computer processes (e.g. check
customers credit rating), and the control flows
and logic that interconnect them. EPCs are often
used to depict the components of higher level
business processes that can be customized when
implementing an ERP system.
Extended ERP (EERP)

Systems
ERP systems that have been extended to include

Web-based EC components so that the core
internal functions of the ERP system can be
integrated with those of the enterprises supply
chain partners (and customers) over the Web.
119
Extended Supply
Chain Management
(ESCM)
Ordinary supply chain management (SCM)

requires the interconnection of the systems and
applications of all partners in the supply chain.
ESCM involves creating final downstream links,
usually over the Internet, to the customer or
consumer. Thus, ESCM involves both businessto-business (B2B) and business-to-consumer
(B2C) EC.
FAQ (Frequently
Asked Questions)
Page
Many news groups and websites that provide

customer support have FAQ pages. These contain
both questions that are commonly asked by news
group subscribers/customers seeking support
and answers to those questions.
Human Resources
Management (HRM)
An umbrella term that includes business

functions
such
as
payroll,
personnel
administration, training, succession planning,
recruitment etc.
Independent
Software
Vendor (ISV)
Within the context of the ASP business model

the ISV is the owner of the software package that
the ASP rents to its own clients. The ISV usually
leases the usage of the package to the ASP for a
lease fee and a share of the rental revenue stream
earned by the ASP.
Industry Best Practice
The best way of doing things from a business

process viewpoint. BE is based upon the central
idea that industry best practice business processes
can be captured in models that represent the
standard business processes and objects that are
applicable to nearly all the businesses in that
industry. These best practice blueprints can then
be modified or configured to meet the needs of
individual companies.
IS maturity
IS maturity stage theory is based upon the idea

that organizations usually progress through a
number of stages in the way in which they view,
use, and control their IT function. Organizations
that are at the more advanced stages are regarded
as being more mature than those who are at
earlier stages.
ISO 9000
A series of International Standards Organization

quality management standards. If a business
institutes a quality management system that
complies with these standards it can apply for ISO
9000 accreditation. The standards specify that the
quality management system should be integrated
with virtually all processes in the enterprise from
design of the product and ensuring the quality of
the materials bought in from suppliers to the
provision of after sales service. See total quality
management (TQM).
IT Steering
Committee
The IT steering committee is responsible for the

formulation of IT policy and the monitoring of IT.
It is required to provide a consistency of decision
making in IT areas such as priorities for future
investment and quality control of the IT
departmental activities. Ideally it should report
directly to, or be chaired by, the CEO.
Just-In-Time (JIT)
A manufacturing (or any other business

operation) goal that aims to shorten the response
time to customer demands and to reduce
inventory and its associated costs to a minimum,
thus improving the competitiveness of the
business.
Knowledge
Management
Systems
Knowledge management systems attempt to help

organizations
manage
their
accumulated
knowledge in a better way so that knowledge
learned can be accessible to all, regardless of
where they are located. Knowledge about any
organizations
sales
prospects,
customers,
products, processes, suppliers, competitors, etc., is
critical to the success of any business. The sum
total of the knowledge held by past and present
employees and held in all of the organizations
files is the most important asset any organization
possesses if it can be collated and made
available to those who need it. This is the purpose
of a knowledge management system.
121
Knowledge Networks
Interconnected and integrated knowledge

management systems. Knowledge networks
require the knowledge bases of business partners
and their customers to be integrated and
accessible to those who need any of the combined
knowledge they contain. At present the Web
appears to provide the best technology to do this.
Master Production
Schedule (MPS)
Creating this basically involves the planning of

production (for a period of a year or so) to satisfy
current and forecast orders. The MPS is central to
manufacturing planning (at the tactical level of,
say, one to two months).
Materials
Requirements
Planning (MRP)
This takes place after the creation of the MPS.

During the MRP process the products that were
scheduled to be manufactured at the MPS level
are exploded, using BOMs, to produce the
detailed time-phased material, labour, and
production capacity (plant) requirements.
Materials
Requirements
Planning II (MRPII)
This is a relatively new production planning

methodology that evolved from MRP during the
mid-1980s. It is based on the use of pull planning
to make the product just before it is needed.
MRPIIs basic planning logic is essentially reverse
scheduling. The MRPII methodology is now well
supported by many application packages used by
manufacturing businesses.
Multi-national
Enterprise (MNE)
An enterprise that operates in more than one

country. MNEs often locate operations in different
countries to gain access to foreign markets and to
benefit from lower costs, a better workforce, or
less restrictive government regulations.
Ready-to-Run R/3
An R/3 implementation option that SAP

introduced, in conjunction with its hardware/
software vendor partners, in 1998. When using
this implementation option companies can select
hardware systems with a preinstalled, preconfigured R/3 system (similar to the ASAP
sandbox) together with the necessary underlying
operating systems, DBMS, and network hardware

& software. This option is aimed at the potential
customers who require new client/server
computer systems and networks and particularly
at smaller businesses that wish to reduce their
technical consulting costs.
Small and MediumSized Enterprises
(SMEs)
The precise definition of an SME varies slightly

from country to country. For example, in Europe a
SME is defined as being an enterprise that has
fewer than 250 employees and has either an
annual turnover of less than 40 million euro or a
balance sheet valuation of less than 27 million
euro.
Supply Chain
Management (SCM)
An industry strategy that aims to add greater

value throughout all links in the supply chain.
This usually requires EC collaboration between
trading partners throughout the supply chain in
order to improve the flow of goods, information
and funds.
Supply Chain
Planning (SCP)
The planning phase that should precede day-today SCM. SCP requires a company and its
supply chain partners to take into account data
derived from the whole of the supply chain,
including customer demand patterns, and not just
the data from their own internal systems.
SWOT Analysis
Strengths, Weaknesses, Opportunities and

Threats analysis: a technique used in strategic
analysis that provides a framework for the
strategic planning participants to consider and
identify the organizations mission, goals and
objectives.
Thin-client Network
Computer (NC)
A networked thin-client computer. A pure NC is

essentially just a powerful display terminal with
its operating system, browser applications and
data being down-loaded from a server on the
network when required. In the ASP model the
NC can also be a normal PC just running a Java
enabled browser. The PC client does not need to
123
have its own application servers and database

servers, from which to load its applications
software and data, because these are provided by
the ASP in a remote data centre which can be
accessed over the Internet.
Total Quality
Management (TQM)
This is essentially a philosophy or organizational

ethos that integrates a focus on the customer, a
focus on work processes, and a focus on
continuous
organizational
learning
and
improvement. TQM has been used for many
years. It was originally developed in the US and
the Japanese were the first to see its benefits and
apply it successfully in the 1970s. See ISO 9000.
Value Chain
Porters value chain model views a firm as a

series, or chain, of basic activities that add value
to its products and services and thus add a
margin of value to the firm. As the companys
raw materials pass through each link in the
chain, additional value is added to them.
ASP News Review, March 1999, BT packages SAP for SMEs

<http://www.aspnews.com/News990318BT.htm>
Callon, J D (1996) Competitive Advantage Through Information Technology

(International Edition), New York: McGraw-Hill.
Cherry Tree & Company (Oct. 1999) Application Service Providers (ASP)
Spotlight Report <http://www.cherrytreeco.com>
ERP Fans (1999), ERP Presentation <http://www.erpfans.com/>
Hoovers Online, Feb. 2000, Company Capsules

<http://www.hoovers.com/co/capsule/>
IDC International Data Corporation, 5 August 1999, News Release: IDC

Survey Reveals Winners and Losers in Asias ERP Software Markets:
Regional Markets Poised for Rapid Growth in 2000.
Laudon, K C and Laudon, J P (1996) Management Information Systems:

Organization and Technology (International Edition), 4th edn, New
Jersey: Prentice-Hall.
Porter, M (1985) Competitive Advantage, Free Press, New York.
Rockart, J F (1979) Chief executives define their own data needs, Harvard
Business Review, March April 1979: 81 93.
The ASP Industry Consortium (May 1999) ASP Industry Consortium To

Foster Understanding Of and Guidelines For New Multi-Billion Dollar
Market.
The ASP Industry Consortium (Jan. 2000) Executive Members and Associate
Members and About Us.
The Delphi Group (Jan. 2000): e-active: How the Leading Edge of e-businesses
are Transforming Themselves and Their Industries (Executive Summary
of the full e-Business Research Report), page 3. THE DELPHI GROUP
100 City Hall Plaza Boston, MA 02108-2106 617 247-1511
(www.delphigroup.com)
<http://www.eaijournal.com/PDF/DelphiB2B_1.pdf>
Self-test 2.1
1.
What are the five main steps that should be taken when formulating an IT
strategy?
Identifying and agreeing what the current situation is.
Specifying (broadly) and reaching agreement upon what the future

situation should be.
Working out and agreeing (in broad or policy terms) what major tasks
need to be undertaken in order to move from the current situation to the
desired future situation.
Planning, in broad terms, which organizational groups will be

responsible for the major tasks, when they will be done, and how the
necessary resources will be provided which, in the case of an IT
125
strategy, may also be partially outlined at a very high level in the IS

strategy.
2.
Agreeing what policies, standards or constraints should be followed

whilst executing the required tasks.
Why is it important for those involved in the formulation of IS/IT strategy

to have a good idea of likely future business and technology trends?
IS/IT strategy formulation needs to project future business and
technological trends and incorporate them into the planning process to
decide upon an effective and competitive direction and strategy for the
organization. A good plan correctly predicts future trends and creates
policies and plans that take advantage of them.
3.
4.
What should be the main determinants of an organizations IT strategy?
Business and IS strategies
Current IS and IT situation
Desired future IS and IT situation
Expectations of future business and IT trends
List four important prerequisites for effective IT strategic planning and

implementation.
Creating an environment that encourages innovation, and thinking of

new ways to solve business problems with IT.
Forming an IT steering committee to champion and support

development of effective IT solutions throughout the organization.
Continuing to train and educate users and IT professional staff in what

IT can do.
Building awareness, in both user management and IT staff, of what is

happening in the local and international IT community.
The basic purpose of these actions is to create a management team that is

skilled and confident in the application of IT to a wide range of business
problems and to foster a sense of trust and partnership between the IT
function and senior user management.
5.
What are the major roles/functions of an IT steering committee?
To provide a forum for non-technical senior executives to assess

investment and return on IT.
To develop IS/IT strategy.
To monitor and exercise high-level control of the implementation of the

strategy.
To provide a forum for interdepartmental debate and resolution of

disagreements on IT priorities.
To publicly demonstrate that senior management members are

committed to IT developments.
To provide a single point of high-level contact for external organizations

in connection to all major IT decisions.
To act as final approval authority for major IS/IT proposals.
Self-test 2.2
1.
2.
The introductory part of this section pointed out that integration is closely
associated with connectivity, interoperability, and open systems and
identified seven levels at which an organization needs to consider
integration. What were these seven levels of integration?
Integration between an organizations systems and those of its business

partners.
Integration between an organizations core application systems and

those of its Web-based electronic commerce systems.
Integration between an organizations different application systems.
Integration between the component parts of each of the applications

systems.
Integration between the major IT infrastructure components and the

application systems.
Integration between the major IT infrastructure components.
Integration between the sub-components of each of the IT infrastructure

components.
During the analysis of the XYZ Company scenario you learned of three
important requirements for effective integration. List and explain them.
127
Business process integration between applications. All applications need

to be integrated from a business process viewpoint so that there are no
broken event process chains. In order to achieve this it is necessary to
have a shareable real-time enterprise-wide integrated database so that
each application can have immediate access to the data it requires much
of which will have been created by other applications.
Independence between applications software and IT infrastructure.

Applications software must be insulated from the underlying IT
infrastructure upon which it runs. This is necessary to enable companies
to change and upgrade their IT infrastructure without having to change or
throw away their applications software.
Application packages should be constructed with open application

program interfaces (APIs). Application packages must have standard and
open APIs so that the company using the package can easily plug in new
modules without having any effect upon the functionality of the existing
component and without the necessity of having to rewrite any of the
existing application.
Self-test 2.3
1.
What is an ERP system?

A tightly integrated and packaged group of software applications that cover
a combination of financial management, human resource management,
distribution/materials management, and manufacturing and production
management functions (plus methodologies and tools for customizing the
package to the needs of the specific user organization).
2.
During the mid- to late 1990s many large organizations that were mature
users of IT were facing a number of immediate problems that made an ERP
solution attractive. What were these immediate problems?
The organizations present IT infrastructure was very mixed, largely

unintegrated and contained components that were virtually obsolete
and very difficult to maintain, for example, legacy mainframe systems
and the applications that ran on them.
There was no common enterprise-wide database and the applications

were built around several incompatible functional or divisional
databases that prevented effective business integration of the
applications.
The applications software did not meet current business needs.
3.
4.
The applications software was constructed in such a way (from

nonstandard components, without APIs, etc.) that it was very difficult
and expensive to maintain and enhance.
Many of the applications were not Y2K compliant and, in Europe, many
could not cater for the new Euro currency that was about to be
introduced. To remediate these problems would have taken a massive
amount of expensive development effort that would have brought no
real business benefit to the organization.
Many governments were continually introducing new legislation (e.g.

taxation, transfer pricing, health and safety, environmental protection,
etc.) that required modifications to be continually made to existing
applications.
The implementation of a modern ERP system, including both applications

and IT infrastructure, offered organizations a number of immediate
solutions to the above problems. What were these (five) solutions?
The latest technology including an integrated multi-tier EWCS

environment.
Applications software that provides comprehensive

functionality based upon industry best practice.
Applications and infrastructure that are built from standard

components with open interfaces that can be easily modified and
enhanced when business requirements inevitably change.
Complete integration of systems across the various divisions and

functions of the business units as well as across the enterprise as a
whole.
Applications that are specifically tailored for different countries

(currencies, languages, legislation, etc.) and that have automatic
consolidation facilities built in.
business
It is claimed that the introduction of an ERP system can do much more than
solve the immediate problems encountered in the 1990s because it is
designed to facilitate business engineering. What is the business
engineering approach and what are its main aims?
Business engineering emphasizes organizational flexibility as opposed to
just the automation of existing business processes. The aim of business
engineering is the creation of a business environment that produces
product, service and staff innovation, as well as the delivery of shorter
development cycles, improved quality and improved customer service. The
129
adoption of the approach can shift an organization from the industrial age
paradigm, that views the business from an internally oriented production
focus, to the information age paradigm that views the business from an
externally oriented service and customer (and supplier/business partner)
relationship focus.
Activity 2.1
How networks can be used to remove basic business barriers:
1.
Traditional examples include the EDI networks that link automobile

manufactures to their global supplier networks and support JIT
manufacturing.
A more contemporary example is provided by firms like Dell Computers,
which uses both supply-side EDI networks and Web-enabled customer-side
sales and ordering systems to dramatically shorten the response time to
customer demands.
2.
Traditional examples include the global OLTP networks such as the global
ATM and credit card networks used by the banking industry.
A more contemporary example is provided by Web-based electronic
storefronts that allow small (or large) electronic retailers to reach diverse
geographical markets (without needing to have a physical presence or
bricks and mortar stores in those locations).
3.
Again, traditional examples include the EDI networks that link automobile
manufactures to their global supplier networks and support JIT
manufacturing. An important advantage of the JIT manufacturing approach
is that it reduces inventory and its associated costs to a minimum, and thus
reduces the overall operating costs of the business.
Again, a more contemporary example is provided by Web-based electronic
store-fronts that allow a small retailing operation to operate without the
costs of setting up, maintaining, or staffing bricks and mortar retail stores
in those locations.
4.
A good traditional example is provided by Hong Kongs EFTPOS network

that established electronic linkages between customers, merchants, and
banks. The EFTPOS network breaks structural barriers between competing
firms (particularly the banks) and creates and expands the market for
innovative financial services.
Today, corporate inter-networks, especially Intranets, can be used to break

down departmental barriers within an organization and empower and
enable cross-functional teams and work groups. Extranets can similarly be
used to break down barriers between workgroups that are composed of
members from different organizations.
Ways in which firms can take advantage of the different types of
opportunity that information systems and technology and networking can
provide to business.
5.
The traditional OLTP networks, first developed in the 1970s and still very
much in use today, provide good examples. Consider banking ATM
networks. The cost of an ATM transaction is much lower (to the bank) than
the equivalent transaction carried out by a bank clerk in a branch. In terms
of Porters value chain banking, ATM networks add more value
(particularly customer service) to the outbound logistics link in the banks
internal value chains.
6.
Any networking application that increases the effectiveness of a business

process falls into this category. Two types within this category are of
particular importance.
First, there are networking applications that both help integrate internal
business processes and remove unnecessary steps and in doing so improve
the effectiveness of the overall process. (You will learn later in this unit that
ERP systems fulfil this function).
Second, there are networking applications that make knowledge and
information more readily available to knowledge workers and thus help
add value to the business processes they are involved with. Intranets and
Extranets provide good examples.
7.
Using information systems and technology and networking to change the

basis of competition by generating new products and services, building
barriers against new entrants to the industry, building in switching costs,
and changing the balance of power in customer and supplier relationships
can all be viewed as ways of obtaining competitive advantage. Classical
examples of networking applications that have achieved all of these include
Citibanks first ATM network and American Airlines SABRE reservation
system.
It is important to note that the competitive advantage gained by the
innovative use of IT does not last forever! For example, Citibanks ATM
131
network no longer provides them with any real competitive advantage as

virtually every other bank now has its own ATM network.
8.
Hong Kongs EFTPOS network, described in 4 above, also provides an

example of the establishment of business linkages and alliances amongst
customers, suppliers (merchants), and competitors (the banks) to create and
expand the market for financial services.
Activity 2.2
SWOT analysis applied to the Sing Lee Manufacturing Group could produce the
following results:
Strength: The company has refined its manufacturing process, and the
increase in cost effectiveness may be used to market its products more
aggressively.
Weakness: The companys culture appears to lack loyalty and sufficient

success motivation, seen in the problematic turnover of experienced staff.
Opportunity: The company may use its new strength in flexible

manufacturing and automation to integrate this with CAD/CAM and
electronic file transfer to gain a cost and price advantage over competitors.
This is a good example of competitive necessity. This upgrade path will move
them to full CIM.
Threat: The Taiwanese competitor has used CAD/CAM technology with

electronic file transfer to tie into customer product specifications, thereby
improving service and speed. Already there has been a negative impact on
sales and the customer base.
NOTE: A full SWOT analysis will normally reveal several (e.g. between three and
eight) major elements under each SWOT category.

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Unit

Explain and discuss the processes involved in formulating and

Use a high-level business planning technique (SWOT analysis) to

Identify and explain seven levels of 'integration' required for

Describe the purpose, major components, strengths and

Explain what additional functionality needs to be provided with

Describe the new application service provider (ASP) IT service

UNIT 2 NETWORKING OPPORTUNITIES IN BUSINESS

Business planning, IS planning and IT planning must be integrated. In this unit

UNIT 2 NETWORKING OPPORTUNITIES IN BUSINESS

channel will create a new business environment in which top-tier applications

GENERAL CATEGORIES OF NETWORKING

How networks can be used to remove basic business barriers

Business opportunities provided by networking.

The first sub-section briefly outlines the nature of a number of traditional

UNIT 2 NETWORKING OPPORTUNITIES IN BUSINESS

HOW NETWORKS CAN BE USED TO

Removing Time Barriers

Removing Distance Barriers

Removing Cost Barriers

UNIT 2 NETWORKING OPPORTUNITIES IN BUSINESS

Removing Structural Barriers

BUSINESS OPPORTUNITIES PROVIDED BY

In the sub-section on Changes in views of information systems primary

UNIT 2 NETWORKING OPPORTUNITIES IN BUSINESS

improving internal organizational efficiency by automating business

gaining external competitive advantage;

creating and taking advantage of strategic opportunities by using

UNIT 2 NETWORKING OPPORTUNITIES IN BUSINESS

Removing time barriers

Removing distance barriers

Removing cost barriers

Removing structural barriers

Ways in which firms can take advantage of the different types of

Improving internal organizational efficiency by automating

Gaining external competitive advantage.

Creating and taking advantage of strategic opportunities by

Provide typical examples of networking applications for each item on

UNIT 2 NETWORKING OPPORTUNITIES IN BUSINESS

FORMULATING, IMPLEMENTING AND

its perception of the environmental threats (and opportunities) to the

Formulating and implementing IT tactical and project plans

Monitoring the implementation of strategic, tactical, and project plans

UNIT 2 NETWORKING OPPORTUNITIES IN BUSINESS

The role of the IT steering committee.

Steps in Formulating an IT Strategy

identifying and agreeing what the current situation is;

planning, in broad terms, which organizational groups will be responsible

agreeing what policies, standards or constraints should be followed whilst

Good and Bad Strategic Plans

UNIT 2 NETWORKING OPPORTUNITIES IN BUSINESS

Strategic Planning Horizons

Formulating and Implementing IT Tactical and

Formulating IT Tactical Plans

any dependencies between the tasks;

UNIT 2 NETWORKING OPPORTUNITIES IN BUSINESS

Formulating Project Plans

UNIT 2 NETWORKING OPPORTUNITIES IN BUSINESS

Monitoring the Implementation of Strategic,

Monitoring the Implementation of Project Plans

Monitoring Tactical Plans

Monitoring Strategic Plans

UNIT 2 NETWORKING OPPORTUNITIES IN BUSINESS