case study mis1 (updated 092012)

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CASE CASE CASE CASE STUDY STUDY STUDY STUDY 1.11.11.11.1

LETTERS TO THE DEAD AND OTHER TALES OF DATA DERELICTION

A retailer once launched a targeted customer marketing campaign that had but one tiny flaw: a fifth of

the intended recipients were dead. The letters for them – addressed, with impeccable accuracy, to ‘Dear Mr

Deceased’ – urged them to ‘wake up’ to what the company had to offer.

This mailshot mishap is part of a nightmarish list of corporate data blunders drawn up for the Financial

Times by Detica, a business and information technology consultancy. It includes the tale of the insurance

company that was intrigued to discover the majority of its customers were astronauts – until further

investigations showed that lazy sales staff eager to close deals had simply chosen the first option available

on the pull-down menu of jobs.

Whether grotesque or hilarious, the bloopers have a unifying theme that any business ought to note. As

companies develop ever more sophisticated ways of using data to help win new business and cut costs, the

risk is that they pay too little attention to the quality and organization of the underlying raw information. At

best, this damages efficiency; at worst it can destroy relationships and hamper efforts in crucial areas such

as fighting fraud.

‘Firms have always seen the data as the water that flows around the system’, says Philip Powell,

professor of information management at the University of Bath’s School of Management. ‘They have

invested a lot in the system – the water pipes – without really recognizing the value of the water’.

It is a problem that has come increasingly into focus as technological advances have opened up new

methods of collecting, combining and storing data. Managers have greater quantities of information than

ever before, but are in some ways less well-informed because they do not order it well.

Bill gates, Microsoft chairman, claimed last year that almost a third of information workers’ time was

spent searching for data, costing $18,000 per person per year lost productivity.

Those hundreds of forgone hours are in part a consequence of the explosive growth of the space

available for information storage. While a bulging filing cabinet is a daily reminder of the need for data

discipline, electronic file dumps can grow to gargantuan proportions unseen. They are monitored and

cleansed only by computer experts, rather than by information management professionals applying a

librarian’s discriminating eye.

Information is sometimes duplicated or out of data. A common fault is that companies lack a single

docket on each customer, supplier or employee, instead spreading information across files held in numerous

places by many departments. In the absence of a master copy, updating is done piecemeal, generating

horrors such as the ‘Dear Mr. Deceased’ letters.


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Bridget Treacy , partner at Hunton & Williams, the law firm, says companies are sometimes ignorant of

basic facts about information they hold, who has access to it, and what it is being used for. ‘If people are not

paying attention to it, of course there are going to be blunders’, she says.

A more suitable snare facing companies is their failure to consider the various possible meanings of the

information they gather. The classic example is the sales spike that causes marketing people to sniff an

opportunity, when a risk manager would scent danger. For instance, a customer starting a credit card

splurge might receive an offer for an upgraded deal, when a better response would be to launch an

investigation into card theft and fraud.

In other cases, companies embarrass themselves because their data storage systems have not kept

pace with the complexity of the information they hold. One Detica story concerns an insurer that was unable

to store separate addresses for a couple holding a joint account. When the wife left her violent husband, she

sent her new address to the company, which promptly wrote a confirmation note to her old home, where her

ex-husband was living. The company had to pay to rehouse the ex-wife in a new, undisclosed location.

The need for companies to improve their data management is becoming increasingly urgent as the flow

of information quickens and the uses to which it is put become more complex. Businesses must manage an

increasing amount of ‘unstructured data’, such as voice recordings and pictures.

Above all, the challenge for the companies is to make sure they – and their employees – use

information in ways that make them look clever rather than ignorant, or event heartless. Death, says David

Porter, Detica’s head of security and risk, is the great test of a company’s data deftness. After all, no one

wants to emulate the company personnel department that punctiliously sent out a slew of cheques for £0.00

to its ‘pension leavers’, causing distress to the relatives of all those ‘ who had ‘ left’.

(Michael Peel, FT.com site, published 3 September 2007)

Questions:

1. The case study identifies a number of problems with the way companies store and mange

information. Using your own words, identify and describe these problems.

2. According to the case study, Bill gates has claimed that almost a third of information workers’

time is spent searching for data. Why do you think this is ?

3. What are some of the consequences of relying on inaccurate information ? Refer to the case

study in your answer.

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SUPPLY CHAIN: DEMAND FOR MORE DATA HAS WIDE IMPACT

For US electronics retailer BestBuy, having the right data really matters. Research carried out by the

company found that if a product’s height was wrong by as little as half an inch, customer returns increased

by 3.4 per cent. For a company such as BestBuy, the trend towards flat-screen TVs – which customers often

want to mount on a wall – has turned product descriptions that most shoppers once ignored into a deal-

breaker. It is part of a wider trend for consumers to want to know much more about the products they are

buying. From food to electronic goods, pharmaceuticals to cars, consumers are demanding far more

information on a product’s origins, its ingredients or materials, how it was shipped and even its impact on the

environment. But this information is absent from many companies’ supply chain management systems- or

worse, it is information they simply do not have. The problem is all the more acute because regulators are

asking companies to retain more information about the products they sell, in some cases for six years or

more. But extended supply chains and a growing use of contract manufacturing are making it hard for

companies to say, with certainly, what is in their wares.

‘Senior executives are trying to understand the risks to their business, for example ingredients that can

cause an allergic reaction but are not correctly identified’, says Bryan Larkin, director of strategy for retail

and CPG industries at data synchronization company GXS. ‘Bad data can result in brand damage’.

Improving data quality, on the other hand, can bring immediate benefits to profits. Mr. Larkin, for

example, cites research showing that suppliers to US retailers lost the equivalent of 2 per cent of gross

sales to compliance-related penalties. Typically, data errors cause companies to ship the wrong product or

quantity, or to charge the wrong price. Reducing penalties by half of 1 percentage point in a business with

10 per cent margins means a 5 per cent boost to the bottom line.

Then there is the time taken up resolving both supply disputes and product recalls.’ Handling disputes

takes up a lot of money,’ says Jon Chorley, vice-president for supply chain execution and product lifecycle

management strategy at software vendor Oracle. ‘You also have to be able to track the genealogy of the

products, which means getting that information out of the supply chain’.

Businesses that want to improve data quality face two hurdles, however. The first is how an item is

described and measured. A household chemical could be delivered to a factory in a tanker measured in

gallons, bottled in containers measured in centiliters, packed in cartons by the dozen, transported in 50

cases on a pallet and then sold in a store as a single bottle. Each organization in the supply chain could hold

the correct data for their part of the process, but still be unable to share it with the others.


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The second problem is ensuring that the right parties hold the right level of information. ‘There is a cost

to every piece of information, so you have to understand the value of that information, its granular quality

and frequency’, says Jeff Wacker, futurist at system integrators EDS.’ You need sophistication to ensure

that the information adds value to the decisions being made’.

Manufacturers might not want to share an entire recipe or bill of materials with a retailer, but the retailer

will want to know that the manufacturer can call up that information on a batch-by – batch basic, for example

if there is a product recall or a health scare. Retailers are also under pressure from consumers to provide

more data, either at the point of sale, online or in catalogues. But there is a strong chance that the financial

and technical burden for gathering and storing such data will fail mostly on producers and manufacturers; as

has largely been the case with electronic data interchange and more recently, RFID.

‘Retailers will only do something if they have to’, suggests John Davison, a vice-president at analysts

Gartner. ‘You could improve the operational efficiency of your company, but retailers are most likely to act if

it improves product availability on shelves’.

(Stephen Pritchard, FT.com site, published 19 September 2007)

Questions:

1. ‘Bad data can result in brand damage’. Explain this statement with reference to the case study.

2. The case study discusses a number of problems caused by poor quality information. Identify

and describe these problems with reference to the attributes of information quality.

3. Why do you think customers are starting to want know more about the products they buy ?

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VOLVO TRUCKS’ VALUABLE EARLY WARNING SYSTEM

For any manufacturing company, in-warranty failures represent a significant expense. There is the cost

of the repair or replacement itself, administering the process and, often, a loss of customer good will. But an

efficient warranty system can cut these costs and more. Customer satisfaction is higher if any warranty

issues are handled efficiently and quickly. The manufacturer ties up fewer resources handling the repair,

and goods are turned round more quickly. The product itself can even be improved, if the warranty system

can feed data into both the manufacturing process and suppliers. And a good reputation for handling in-

warranty repairs will even justify a price premium in some marketplaces.

These are some of the benefits identified by Volvo Trucks, the heavy goods vehicle manufacturer,

which created a new quality and warranty analysis tool (QWAT) a year ago. The system is based around

SAS Institute’s Warranty Analytics software and an Oracle relational database. The scale of warranty

operations at Volvo’s trucks division is significant. The company currently builds about 100,000 trucks –

mostly tractor units for semi-trailers or rigs – each year. The standard European warranty on these vehicles

is one year, with some vehicles covered by a 300,000 km warranty.

‘With current production levels, and some good will campaigns, 200,000 to 300,000 trucks could

produce a warranty claim or produce a problem that ends up in the analytics system’, says Micke Rydbeck,

project manager for warranty systems at Volvo Truck Corporation. To add to the complexity, in Europe the

vehicle could be taken to any one of 1000 service points or, in North America, one of 350 sites. Added to

this, the vehicles Volvo produces are simple, commodity items. Within the annual production total, perhaps

as few as two vehicles might be identical, such is the range of variants and configuration options available to

customers.

An in-warranty failure might be the result of a particular, and quite possibly very rare, combination of

components. The new system is much more effective at narrowing down the list of vehicles fitted with a

particular part to those that are most likely to have problems. ’It might not show up as a battery problem on

each and every truck, but only when two parts are used in combination’, says Rydbeck.

The business case for Volvo’s project was based on achieving more efficient warranty claims, reduced

fraud, better reporting and improved recovery of warranty costs from suppliers. The warranty tool acts as a

valuable early warning system, helping to pick up any potential faults before they occur in a truck. Improved

trend analysis is a valuable feature of the new system: previously, quality control staff had to use three main

tools and three data sources in what was still, largely, a manual process. But the earlier the company

identifies a problem, the cheaper it is to fix. Advanced warning allows more vehicles to be examined and


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repaired during regular servicing. This reduces Volvo’s costs but critically, keeps customers’ trucks on the

road for longer.

The system also helps Volvo to give customers a wider range of configuration options without

compromising on the manufacturer’s standards or increasing support costs. ‘ We need to have a situation

where we can produce trucks built to customers’ specifications that still nurture our core values of quality

and safety’, Mr. Rydbeck explains.

Another important part of the analytics-based approach to warranty management is that it helps Volvo’s

design and manufacturing teams react to after-market problems with the trucks, and prioritise design or

production changes. These are all important benefits for Volvo customers. The project has had a significant

impact on Volvo’s after-market costs : cutting them plays a key part in keeping the manufacturer

competitive.

‘Our warranty costs have fallen by 40 to 50 per cent in the past couple of years’, says Mr.Rydbeck. ‘But

it becomes progressively harder to lower these costs and harder to find the problems that cause them. Our

warranty costs are now about the industry average, but were higher’.

He believes that the new warranty management system, and in particular its analytical capabilities, will

allow Volvo Trucks to deliver above- average service to vehicle owners while cutting its prices and

increasing per- vehicle margins.’ If we can reduce our warranty costs, it gives us room to increase our

margins while also being competitive on price’, he says.

Volvo is also using its system to detect unusual or potentially fraudulent warranty claims. The analytics

tool can go through historical claims data and identify claims that need to be checked. Rather than send a

team of auditors to look at a dealer’s books, picking random samples, it can focus on claims that arouse

specific suspicions.

‘During an audit we can focus on three, five or 10 claims that we are really interested in, rather than

picking 20 at random. Dealers are getting the message, and we are at much less risk of fraud now’, says Mr.

Rydbeck.

The system is also being implemented at US truck maker Mack and at Volvo’s bus operations. The next

step for Volvo is to extend the warranty analytics system to key suppliers, a process it started in June this

year. ‘We are opening up the system and showing suppliers information relating to them. Previously we

reported to suppliers twice a year, but now we can show quality information to them and they can improve

products immediately’, says Mr. Rydbeck. ‘Because we can share our information, we can have better

conversation with suppliers’.

(Stephen Pritchard, Financial Times, 19 September 2007)

Questions:

1. What are the benefits of Volvo’s warranty management system ?

2. In general, how does the warranty management system help Volvo to be more competitive ?


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AIRPORT CHECK-IN: BOARD YOUR FLIGHT BY MOBILE PHONE

Ubiquitous and well entrenched as mobile phones may be, some potential uses have yet to catch on

in a big way. Such is the case with mobile check-in at airports. A passenger survey at the end of last year by

the International air Transport Association (lata) found only 2 per cent of respondents had checked in via an

SMS (text message) on their mobile phones. But that number looks certain to rise as more airlines introduce

mobile check-in – those that already have are as enthusiastic about the service as are their passengers. ’To

have your boarding pass on your mobile should be something that really excites the customer’, says Patrice

Quellette, Air Canada’s director of customer service platform, e-commerce.

Last June the airline launched mobile check-in for customers on domestic flights without baggage.

Between one and 24 hours before departure, passengers can enter basic details about themselves and their

flight into their mobile phones, then print out their boarding pass from a self-service kiosk at the airport. In

the next few weeks, Air Canada plans to start pilot testing an ‘E-Boarding passes’ service, in which 2D

barcodes would be sent directly to mobile devices of customers checking in at Montreal for domestic flights.

The customers participating in the pilot would scan their device at airport security and proceed to the gate.

Elsewhere, mobile check-in has inevitably established a foothold in countries where mobile users

have been keen to try innovative or experimental services, pushing the devices beyond simple calling and

texting. Finland and Japan are two good examples. In October 2004 Finnair claimed a first in international

air travel when it launched SMS check-in for frequent fliers. Customer feedback has been extremely

positive, it says, reflecting the fact that the airline takes a proactive approach – it sends a text message and

the customer needs only to reply. On average, says Finnair, about 75 per cent of customers that receive a

message go ahead with the SMS check-in. The system has become the third self-service channel, along

with internet and kiosk check-in, and is now comparable in popularity, with sage falling only when there is

less business travelling.

In Japan, mobile phones can be used as part of Japan Airlines’ ‘Touch and Go’ system, which was

developed in-house for use on domestic routes, and introduced in February 2005. The system allows IC

(integrated circuit) cardholders to board domestic flights without a physical ticket or boarding pass. From

three days before departure and up to one hour before the flight, passengers can make or change a seat

selection and check in via their computer or mobile phone. All relevant data for the booking are recorded

automatically on the IC card, which can then be touched or swiped at machines in front of the airport

security check points and then at the boarding gate. The number of Touch and Go users has been steadily

increasing since the system was introduced, says Ko Yoshida, JAL’s vice-president for domestic marketing

planning, and has already run into millions. Users tend to be individual business travellers.


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At rival airline ANA, check-in via computer or mobile phone has been possible for two years for

domestic flights, and if the phone has an RF (radio frequency) chip it can used to pick up a boarding pass

from a self-service kiosk at the airport. Last August, the airline introduced an enhancement known as Skip,

allowing passengers who have paid for their tickets and reserved their seats – using their computer, mobile

phone or at a travel agent – to skip check-in. One touch of their RF chip-enabled mobile phone, credit card,

ANA Mileage Club or 2D barcode to a sensor at security prints a receipt with the customers on board and a

boarding pass is then printed for final seat number verification. Skip is used by 10,000 – 15,000 customers a

day.

Individual airlines have taken the initiative on these developments and are pushing for an industry

standard that would help widen the usage of mobile check-in, lata says this is a major activity for its

barcoded boarding pass (BCBP) team this year – currently North America, the European Union and Japan

each have a preferred 2D barcode to use on mobile phones for ticketing and other applications, and the

challenge will be to agree one global standard.

There are other obstacles, too. The biggest challenge, says Finnair, is the airport authorities’

requirements for paper boarding passes at the airport service points. ’In Finland, the airport authorities and

customs have accepted our text message confirmation as proof of travel’, says the airline. ‘At most of the

airports in the world that is not the case.

Air Canada, meanwhile, is working with Canadian authorities on its Montreal “E-Boarding passes”

pilot. Talks with authorities about starting the pilot on a limited basis in June were successful, and then

further implementation would be subject to the results of the test and continued working with authorities.

Finnair notes other provisos. Mobile devices must contain the required features by default, removing

the need for customers to install software. Secondly, multimedia message service (MMS) provides a method

to deliver a 2D barcode to a customer but mobile operators need to read – just their pricing policy, says the

airline. It says roaming pricing, in particular, can be ‘a real killer’.

(Andrew Baxter, FT.com site, published 14 May 2007)

Questions:

1. What are the advantages and disadvantages of mobile check-in ?

2. How does being one of the first companies to adopt technologies such as mobile check-in

confer competitive advantage? Refer to the concepts covered in BIS and Strategic Advantage in

your answer.

3. What barriers are there to the widespread adoption of mobile check-in ?

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IT NEAR ITS LIMITS IN SATISFYING CUSTOMERS

The customer experience used to end at the cash register. Today, that’s where it begins. ‘Woody

Diggs, leader of the global customer relationship management practice for the consultancy Accenture,

quotes this remark to illustrate how customer expectations have changed in recent years. Technology has

played a part in this change and if you look for examples, you will find plenty. Here are three:

The Santiago Bernabeu football stadium in Madrid has installed, in collaboration with Cisco

Systems, an intranet that can control remotely not only the turnstiles and lighting but also the loudspeakers

and security cameras. Epson, the Japanese electronics group, claims a 30 per cent increase in efficiency, a

38 per cent reduction in the cost of handling inquiries and a 1,125 per cent increase in online inquiries after

installing Talisma customer relationship management systems in its European call centres. Alliance 7

Leicester, the UK-based financial services group, worked with a data capture specialist, Digital Vision, to

create a fully automated account switching system, which, it says, has more than doubled the number of

customers switching their current accounts in its favour and achieved operational cost savings of 66 per

cent.

The catch is that it is always easy to find the ones that work; the failures are conveniently kept out of

sight. And customer relationship management (CMR) technology – systems designed to give companies a

single, integrated view of their customers and maintain a mutually beneficial dialogue with them – has a

patchy record of success. Richard Boardman of Mareeba CRM Consulting emphasizes the dichotomy: ‘The

brutal reality is that the majority of CRM projects produce, at best, marginal benefits to the purchaser. Which

isn’t to say’, he adds, ‘that CRM technology doesn’t produce the results; there are also plenty of

organizations enjoying very high returns’. As Spanish football fans, electronics aficionados and British bank

customers can perhaps testify.

CRM is a business problem which technology cannot solve, according to Aki Ratner, chief executive

of the enterprise software group Attunity. He says: ‘It may change the way businesses run, but it does not

address the fact that the knowledge that gives a company competitive edge is not held in structured

databases or processes but within the people who actually run the business. It is people- driven activities,

not process- driven ones, that define the real success of an organisation,’ And there are thousands of ways

to improve the customer experience, many of them involving little technology and little cost. Ed Thompson, a

senior analyst with the Gartner consultancy argues that it is a matter of expectation setting, feedback and

how organisations deal with these issues. He points to the example of Disneyworld, where the introduction

of a simple measuring stick meant an end to the disappointment felt by children who had queued for a

particular ride only to find they were too small to be allowed on board. ‘Another example is Southwest


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airlines in the US, a no-frills, low-cost airline that was looking for ways to improve customer satisfaction. It

discovered that the best way was for its staff to smile. It put in place a smiles programme and found a

positive correlation with its customer satisfaction scores.’ Mr. Thompson concludes: ‘Employees often have

the biggest impact on the customer experience. Ask customers what they want and they will often say

employees that have the power to “step outside the process”. Customer satisfaction scores are driven most

by delivering on the basics that customers expect – like stock on the shelves, clear transparent pricing, good

build quality and innovative design,’ IT only goes so far in helping with that.

Alan Cane, Financial Times, 13 June 2007 (abridged version )

Question:

Explain the quotation in the case study: ‘it is people-driven activities, not process - driven ones,

that define the real success of an organization.’

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CASE CASE CASE CASE STUDYSTUDYSTUDYSTUDY 6.26.26.26.2

RETAIL APPLICATIONS OF TPS BY SAINSBURY’S

This case study of UK retailer Sainsbury’s considers the different ways in which a retailer may make

use of TPS.

The company and its customer service objectives:

� 17,000 commodities

� aim is for no more than five commodities to be unavailable at any one time

� order lead time 24-48 hours

� distribution centres mange deliveries of 11 million cases to 335 stores.

How is Sainsbury’s helped by TPS technology ?

� Improved customer service through more choice, lower prices, better quality of produce and full

shelves.

� Improved operational efficiency by automatic links to suppliers and better information on product

demand and availability.

� Assessment of the effectiveness of product promotions through availability of better information.

� Marketing through customer loyalty schemes.

How does Sainsbury’s use technologies ?

� At the till – EPOS and EFTPOS

� On shelves – auto-price-changing LCDs

� On trolleys – ‘ self-scanning systems’

� At home – direct wine sales from the Internet Barclay Square site

� For banking – TPS are vital to providing customer statements and cash withdrawals

� In the marketing department – the effectiveness of marketing campaigns and loyalty card schemes

can be assessed using information on transactions stored in data warehouses. This type of system

is covered in more detail in Chapter 4


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Questions:

1. Draw a diagram summarizing the links between all the parties who access Sainsbury’s TPS.

2. What benefits will Sainsbury’s gain compared to the time before the introduction of TPS ?

3. Can you think of any problems with using TPS so extensively? What can be done to counter

these problems ?

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LICENSING: HOW BUYERS CAN FLEX THEIR MUSCLES

Software licensing remains a minefield that all users - whether battle-weary or greenhorns - must

pick their way through with care. While IT suppliers like to trumpet the virtues of software asset

management, it can be user fast track to under licensing. And once users are on the back foot, suppliers can

pretty much dictate the terms of the next licence.

Seasoned negotiators encourage users first of all to get to grips with the terms and conditions of the

software licence. The focus should be to negotiate the best possible terms and then to concentrate on

fulfilling their part of the deal.

One caution from independent advisers is to beware the new trend for subscription licences.

Traditionally, licences were bought in perpetuity with a one-off payment. Subscription licences, by contrast,

offer no ownership, just renewal at regular intervals.

This advice is reiterated by the Surrey Police Force, which has just moved from a Microsoft Office of

Government Commerce Enterprise Agreement to the Home Office Master Agreement, designed specifically

for the police and criminal justice sectors.

‘We buy perpetual licences’, says Russell Fowler, ICT technical support manager. ‘The major

disadvantage of a subscription licence is that you never own it. As a result, you are never able to step out of

the agreement. If you want to use a particular product, you have to continue to subscribe – you cannot take

a break from the agreement.

And all users need to be mindful of support clauses. Within subscription licences, support is often

packaged with a ‘right to use’ aspect. Support needs to be measured and prompted by service level

agreement in the same way as an outsourcing contract.

‘The worst mistake is to think that just because you have the right of termination, you do not have to

build in other remedies’, says Kit Burden, partner with law firm DLA Piper Rudnick Gray Cary.

‘Using the “H-bomb” is not a palatable remedy. You need to incentisive suppliers properly to get it

right the first time.’

Case study: Banking on change

Burden recently negotiated a software licence for an investment bank that was procuring an online

trading application. The rate card price of the standard licence - £8.3m – was just the basis for the

negotiation.


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An important consideration was how long the user envisaged using the application. A warning signal

for Burden was that the supplier was offering a five-year licence while his client envisaged using the

software for eight to 12 years.

‘You might have a situation where the user is happily bedded in with the software after five years,

but the supplier is able to pull the rug out from under their feet because the licence is due to terminate at

that point. The danger is that a supplier can lock the user in and then rack up the licensing costs.’

Burden advised the bank to pay extra t secure a ‘perpetual’ licence, and it agreed to pay a further

£2m for this extension. ‘It is vital to get a licence long enough to get the full return on your investment’, he

says.

The other concern was to provide the bank with options to own the code or modifications, should it

later prove commercially expedient to control these. Burden renegotiated the standard licence to gain two

options.

The first option was for his client to identify functionality that it wanted developed from the core

application – spot trading, for example – and to create an exclusive licence for this part of the code.

An ‘uplift’ in price, to be negotiable according to the size of the modification, would take care of this.

The second option would be where the bank needed to take over development of the application as

a strategic move, whether to safeguard the application’s future or to ensure commercial confidentiality. This

option requires access to source code rather than object code.

If the bank ever wants to exercise this option, it will have to stump up an extra £6.8m.

‘For the right application, you may have to pay a substantial sum to get the licence you want’, says

Burden although the business benefit and peace of mind may make it worthwhile.

‘For users contemplating bespoke systems where millions of pounds will be spent on modifying a

core product, not looking at future scenarios is nothing short of criminally negligent’, he says.

Case study: The capacity model

The pattern of server deployment in Trafford NHS Trust is different to that in the private sector and it

follows that the trust prefers a different model of software licensing.

In the 15 years that Roger Fenton, deputy IT manager at Trafford, has been with the trust, it has

gone through three licensing regimes for back-up software. He is responsible for renegotiating and

introducing the most recent model for licensing back-up.

IT resources are assigned throughout the NHS on a project basis, rather than by central provision,

because of the way budget, rather than by central provision, because of the way that software licences need

to be procured.

‘We have upwards of 40 servers running various applications that all need to be licensed and

maintained’, Fenton says.


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He has just moved to a new licensing regime with his back-up supplier, Computer Associates. The

health authority now pays on the basis of total raw storage capacity rather than per server, and the licence

can be scaled up incrementally.

It is a big improvement on the previous regime, both financially and in terms of simplifying and

reducing administration.

‘The price we secured was embarrassingly good’, says Fenton, who states he saved ‘thousands’ on

the previous licensing bill of £40,000.

Savings accrue chiefly because licensing on the basis of capacity, rather than individual servers,

better suits Trafford’s pattern of deployment; as servers proliferated within its project-led culture, server-

based licensing incurred a financial penalty.

This was compounded by the fact that in the per server model, CA charges both for the software

running on the central back-up server, and for ‘agents’ that run on the application servers that are backed

up.

Keeping track of the annual maintenance charges for the separate agent licences was a major

headache. Every additional back-up agent that ran on the application servers had to be licensed, and the

maintenance fee renewed each year.

‘Potentially, we had loads of different licences to maintain, all expiring on different dates’, says

Fenton.

In addition, the overall cost of the model had become unpalatable, ‘In such an environment, each

time we bought a new server, we were talking about another £750 or more in licence fees’, says Fenton. At

the same time, server costs were falling below the £2,000 mark, making licence costs proportionately

greater.

This licensing overhead had accumulated over time, creeping up on the health trust, which, like

other former Unix users, had no previous experience of licensing back-up.

Before moving to Windows, Trafford had used Unix boxes, which have back-up built-in. Each Unix

server came with its own low-capacity tape drive, and applications were accompanied by a script for the

back-up. ‘They were turnkey systems’, says Fenton.

When the trust moved to Windows it initially repeated its approach with the Unix boxes.

‘We used individual tapes for each SQL server. It was a logical extension of what we did with the

Unix boxes. However, as the number of servers and applications mushroomed, managing tapes and back-

up programs for each server became impractical.’

There are some disadvantages to the new approach. The first is having to licence back-up in blocks

of 1 Tbyte.


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‘As you tip over into a new increment you are faced with buying a large chunk of extra capacity that

may be only partially used’, says Fenton.

A further disadvantage is the way that storage capacity is calculated – according to the raw capacity

of the backed-up drives, rather than the capacity actually utilized. The large disc installed in servers may

only be used nominally, while redundant array of independent disc (Raid) storage architectures are

designed to ensure redundancy.

‘Nonetheless, licensing capacity is cheaper and a lot less hassle for us’, says Fenton.

Beware the chamber of horrors

There are certain scenarios that users should avoid at all costs, says outsourcing broker Quantum

Plus. Above all, always remember the golden rule: there is no such thing as a standard contract.

Seemingly innocuous ‘version updates’

Relatively minor updates of the ‘0.1’ variety can incur unadvertised changes to terms and conditions

that have a significant impact on customers. For example, a version update may change the way that the

number of users is calculated or the nature of server licensing.

Obscure charging mechanisms

Be very sure of the supplier’s charging model for a licence. Is it based on the number of users,

servers or even processors ? Seemingly low-cost software can easily be installed in a non-compliant way.

For example, if software costs are processor-based, and the server is a quad processor, the result is under

licensing and a big bill.

Control of media

A number of suppliers of shrink-wrapped software have clauses in the agreement that require users

to show they control the media on which the software is distributed. Examples of control might include a

single point of contract for receipt of a disc, its safe storage, and an approval process for signing it out. A

supplier could cite a lapse in control as breach of contract.

The outsourcing clause

Supplier may try to insert into terms and conditions their right to renegotiate the licence should the

management of a asset be moved to a third party. This can be invoked for an outsourcing contract, even

when the software and server remain onsite. Suppliers may also reserve the right to charge an

administration fee to transfer the licence to the third party. Beware: the transfer fee could run into thousands

of pounds.

Enterprise licence

If you are underlicensed and on the back foot, the balance of power shifts to the supplier, who may

insist you sign up to an enterprise licence. Such a licence may appear to be all-inclusive and cover every


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eventuality, but the reality is that it will likely be accompanied by a hefty three-year or more service and

support charge that adds no value.

Source: www.computerweekly.com/Articles/2006/07/25/217102/licensing-how-buyers-can-flex-their-muscles.htm

Question:

Summaries the main differences between ‘traditional’ software licenses and ‘subscription’

licenses including their respective advantages and disadvantages.

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LASCELLES FINE FOODS

Lascelles Fine Foods (LFFL) is a fictitious example of a long-established company operating in the

food industry. The company has its administrative headquarters in Ashville and manufactures on an

adjacent site. All customer deliveries are from the Ashville-based warehouse. In addition, LFFL purchases

finished and semi-finished food products from other manufactures which it then finishes before resale.

The company has enjoyed steady growth in recent years and is now seeking to capitalize on the

current fashion for quality and healthy food products. LFFL’s turnover is £16 million with net profitability of

6.3 per cent of turnover/ It is hoping to gain a competitive edge by providing quality food products which

meet all present and anticipated quality standards and to this end will be applying for BS5750 accreditation

within the next six months. It is hoping to increase turnover by 10 per cent per year after inflation over the

next five years and increase net profitability to 9 per cent of turnover over the same period.

LFFL’s main operations are divided into four main areas:

- Sales and marketing;

- Warehousing and distribution;

- Manufacturing;

- Finance.

All information recording and internal communication is paper based and relies on range of

preprinted documents which are then used as appropriate.

The sales department

LFFL has a diverse customer base, ranging from small health food shops to major supermarket

chains. Orders can be one of two types: standard orders placed in advance for delivery in a specific week or

priority orders placed for immediate delivery.

Orders are placed either directly through sales office ‘account handlers’ or through field sales

persons (each customer has one sales person). Each customer is allocated an account handler who acts as

the main liaison point within LFFL. Besides receiving orders, the account handler is responsible for cash

collection, ensuring satisfactory progress of the order and handing day-to-day queries. Customers are also

placed into sales categories based on geographic location, volume of business and type of customer (e.g.

specialist store vs supermarket chain). The sales director is apt to change his mind about which category a

customer is in and which category means what.

Order processing


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Once an order is taken, it is recording on a preprinted order form. One copy is retained by the sales

department and two copies are sent to warehousing and distribution.

Warehousing and distribution sort all order forms into date order. When an order is due to be

delivered, products are picked from the warehouse and loaded into the appropriate vehicle.

When an order is delivered, it is accompanied by a consignment note and an invoice. The customer

is required to check the delivery against the invoice and note any errors on the consignment note and if any

errors are noted a corrected invoice is sent to the customer.

Warehousing and distribution

LFFL stores finished products, bought-in products and raw materials in the warehouse. The

warehouse in divided into three areas:

- The general zone, comprising a high-rise bulk storage area with a floor-level picking area;

- The cool zone, comprising low-level storage at 2 to 4oC;

- The frozen zone, with temperatures held to -18oC.

In addition to their role in the order processing cycle, other activities are also performed:

- Internal warehouse movements from high-rise locations to ground-level areas and vice versa;

- Receiving products and raw materials from suppliers and returned products from customers;

- Issuing raw materials to manufacturing in response to submitted requisition forms;

- Receiving finished products from manufacturing and any unused raw materials.

Information about quantities of finished goods and raw materials in stock is recorded in a card file,

which has to be searched manually for the appropriate entry when updating is required.

Manufacturing

Manufacturing ranges in complexity from simple repackaging of bulk-purchased materials to

complex mixing and cooking activities.

Recipes are recorded on 7” by 5” cards and include details of the required ingredients as well as the

processing which is to take place.

Finance

LFFL’s finance department is divided into three areas:

- Accounts payable – when LFFL makes purchases, suppliers will invoice them; LFFL uses a manual

purchase ledge to manager these accounts;

- Financial accounting – management of all monies flowing in and out of the company together with

compliance with legal accounting requirements;


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- Management accounting – internal accounting information necessary to manage the business more

effectively.

The accounts receivable area is handled by the account handlers who use a manual sales ledger

and make a weekly return to the finance department on the state of their customer’s accounts.

Specific business issues

There are a number of specific issues which relate to the activities of each department. These are

detailed below.

Sales

- The status if an order cannot easily be determined without pestering the warehouse.

- Many customer complaints occur due to delivery of wrong products, orders delivered too late,

incomplete orders and faulty products.

- Warehousing does not deliver the most important orders first – small orders are often given priority

over larger orders from major retailers.

- Orders often cannot be delivered on time because manufacturing produces too late and in

insufficient quantity.

Warehousing and distribution

- Many items have a limited shelf life – warehousing often fails to rotate the stock properly.

- Actual stock levels are rarely in step with the recorded stock levels – this may be due to pilfering,

poor update of stock records or both.

- The sales department often accepts priority orders for products which are not in stock.

- Manufacturing bypasses the normal requisition procedures and simply takes raw materials as

required – it also often fails to return unused materials to warehousing.

Finance

- The sales returns from the account handlers are often incomplete.

- There are several bad debts which cannot be recovered – this is attributed to poor credit control

procedures.

- Management accounting is very difficult due to a general lack of accurate information from other

departments.

- Financial accounts are often published late due to lack of accurate information.

Manufacturing

- Warehousing is slow to respond to requests for raw materials, thus necessitating correct procedures

being bypassed (especially when the sales department is applying pressure).


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- Lack of accurate forecasting makes it difficult for production to be planned ahead and adequate

suppliers of raw materials to be secured.

General

- There is a rapid turnover of staff, especially in the sales area where the pressure from customers

can be intense. In addition, field sales personnel are apt to make promises which cannot be kept

and new sales personnel are often thrown in at the deep end with little formal training for their jobs.

- There is a high level of sickness in the warehousing and distribution area, due mainly to inadequate

provision of lifting equipment.

- There is a perceived lack of management and technical support which has resulted in a general

lowering of morale.

Future plans

The managing director, Clive Moor, has indicated that he would like to replace the existing paper-

based systems with ‘computers of some kind’. With such a move, he is hoping to improve on the

communication of information at all levels in the organization. However, Mr. Moor knows little about

computer hardware or applications software except that it seems to cost rather a lot.

In order to proceed with the computerisation programme, Mr Moor has asked the following senior

managers to produce a plan:

- Paula Barlow – Finance director

- Terry Watson – Sales and marketing director

- Peter Jackson – Manufacturing operations director

- Frances Clarke – Warehousing and distribution director

However, these directors have varying degrees of enthusiasm for the project, together with a desire

to minimize the risk of damage or exposure within their own departments. One of the key decisions which

must be made will be how LFFL acquires the necessary applications software. One option will be to hire

relevant IT staff and build bespoke applications, while another will be to purchase off-the-shelf packages.

Yet another option will be for end-users to develop their own applications. This last option may prove

awkward, since there is very little IT expertise among the end-users.

Questions:

1. Which method(s) of business systems software acquisition would you recommend to LFFL ?

Explain and justify your answer.

2. Assuming that LFFL decides to go down the route of purchasing off-the-shelf packages, what

steps do you recommend it takes to ensure that the applications which are selected meet their

requirements ?


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CASE CASE CASE CASE STUDYSTUDYSTUDYSTUDY 7.37.37.37.3

LLOYDS BANK INSURANCE SERVICES APPLIES RAD

When marketing people spot a business opportunity, it is often IT people who have to think and act

the faster.

Systems have to be put in place that meet the stipulated deadline, that work first time, and that fulfil

the expectations of users. Otherwise the opportunity could be lost forever.

That was the situation facing the computer team at Lloyds Bank Insurance Services when a new

product called MUDI (Mortgage Unemployment Disability Insurance) required a telesales quotation system

that had to be fully operational by October 2nd.

Yet it was already mid-August when David Jacklin, IT Development Manager, LBIS, was informed of

the need for new application. It was a moment he remembers well. ‘I faced the classic dilemma of no

available resource within my team and an immovable deadline’, he recalls.

However, in spite of that initial reaction and against some unexpected odds, the race against time

was won. The insurance broker’s objective was achieved with help of a hard-working software house, a

development environment toolset, and a fast-track approach called RAD (Rapid Application Development).

In fact, the entire development took just five weeks.

Reason for the urgency at the LBIS headquarters in Haywards Health, West Sussex was a

government decision to amend the rules relating to the payment of mortgage cover out of social security in

the event of a house-owner being made redundant. This opened a new insurance window which the

company was determined to exploit.

LBIS, a subsidiary of Lloyds Bank and Abbey Life, is a firm of independent brokers dealing in life

assurance, pensions and general insurance. Annual turnover is £100 million and 800 people are employed

at Haywards Health and six regional offices. A significant proportion of the company’s business is generated

through a business unit called Lloyds Bank Insurance Direct.

This is essentially a telemarketing organization based in Bournemouth. About 70 per cent of its

business comes via branches of Lloyds Bank, where advisors take an enquirer’s details and ring LBID for a

quote. The remaining 30 per cent is from people responding to direct mail of advertisement and telephoning

in direct.

A simple version of MUDI was, in fact, available at the bank branches. But there were no facilities for

accurate underwriting and anyone talking up the policy paid a straight £6.50 per £100 of cover (i.e. if the

monthly mortgage payment was £300, the premium was £19.50). The new system would incorporate a


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complex screen replacing the existing simple paper form, providing the flexibility to quote premiums

appropriate to the enquirer ranging from £4.40 to £9.40 per £100 of cover.

But first the new system had to be built. There already existing another application at Bournemouth

– BIQS (Building Insurance Quotations Service) – but this ran under DOS, so what would almost certainly

be a Windows system could not merely be tagged on.

Jacklin and his team had been looking at development toolsets and the RAD concept earlier in the

summer. They had been particularly attracted by a RAD specialist, MDA Computing, and has already met

the Croydon-based soft-ware house at the end of July.

Suddenly, with the new business-critical requirement looming, the need for RAD became urgent.

‘We had no hesitation going back to MDA. They obviously knew what they were talking about and we were

in urgent need of a system’, says Jacklin.

Some of the main attractions of RAD included the delivery of a workable first version within a very

short time-scale, testing that is integrated within the development cycle, flexibility of the specification, and

user involvement throughout the whole process.

Within days, Jacklin and his colleagues had agreed with MDA the RAD methods to be used. The

software house underlined the need for an appropriate development environment, and recommended

Enterprise Developer. This versatile toolset from Symantec had all the advanced features of a second

generation client/server development system, and this was precisely what the LBIS team sought.

Such systems are repository-based and scaleable, and – specially important according to Jacklin –

are driven by business rules so that future changes are easily made as business needs change. MDA

evaluates every tool that comes on to the client/server market and felt that Enterprise Developer offered the

best set of second generation facilities.

Next step was a demonstration of the Symantec toolset at MDA, ‘The demo convinced us. We had

looked at other development tools but they did not seem meaty enough for our needs. And although MDA

had never built anything with Enterprise Developer they were clearly keen to do so.’ Following that demo

and an agreement of project scope, work began on August 24th.

The key requirement was for a front-end system that would enable telesales staff at 30 screens to

capture a caller’s details and generate an immediate MUDI quotation. The system would be in Windows 3.1

and GUI based, essentially a classic PC LAN application. It would run a Compaq server using Novell.

However, MDA’s first task was systems analysis. At the early stage, LBIS had not formulated all

their needs – not even the design of the ‘forms’ that would appear on the screen. So MDA used RAD

techniques to work out what the requirements would be, and spent three days at LBID in Bournemouth

prototyping the forms on screen using Enterprise Developer. The software house also had to allay fears,

among a user-team with little experience of Windows, about mouse-driven systems.


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In order to get the project started, the use of a Watcom database was assumed. However, following

discussions within LBIS, it was decided that f or strategic and operational support reasons the use of Oracle

was preferred.

MDA had to accommodate a new database in already tight development cycle. The ability to adapt

to the fresh circumstances and still deliver the system on time was a big tribute to the software house’s RAD

methods and the Symantec toolset. (In fact, there were minor compatibility problems which disappeared

when LBIS upgraded to Enterprise Developer 2.5 at the beginning of November.)

The system was delivered in the last week of September for final testing in readiness to go live the

following Monday. By then, LBIS’s own technical team had adjusted the BIQS system so that the telesales

people could flip to it from MUDI, depending on the caller’s needs, with a simple keyboard Alt/Tab

depression.

On ‘live’ day, the telesales team processed 200 customer quotations with scarcely a hitch. Jacklin,

MDA and Symantec had every right to feel pleased with themselves. A business need had demanded IT

support, and that support was implemented on time.

Now the end-users, equipped with telephone headsets, enter personal details which affect ratings,

such as sex, post code and occupation, on to a GUI screen. The quotation then appears on the same

screen. There are five other, supporting screens labeled status, comments, letter print, rating and search for

existing customer.

A happy Jacklin concludes, ‘Here was a software house that gave us what we need. They were

always confident they could do something with Enterprise Developer and within time. There was no slippage

despite it being their first real use of the Symantec product and despite the change in database midway

through. I think that says something for Enterprise Developer too. And we went live on the big day.

‘We like RAD and we shall use it again. In a market-oriented organization like LBIS, we always have

a need to react to business changes quickly, and I suspect that within 18 months we could need a system to

handle all six of our insurance products.’

He adds, ‘The system had allowed LBIS to launch a more competitive product than would otherwise

have been possible, and we have sold more than we would have done. It had to be in at the right time or we

would have missed the boat. From a technical point of view, it forced us to go to Windows which was always

our eventual intention. All this, and the system will pay for itself before Christmas!’

Source: www.dsdm.org

Questions:

1. Why and how did the company choose the RAD approach used for this project ?

2. What disadvantages of the RAD method can you identify from the study ?

3. Do you think that Lloyds can be confident that future RAD projects will be successful ?


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USE OF WATERFALL V. AGILE METHODS AT MELLON FINANCIAL

Mellon Financial’s shift to agile software development is part of an emerging trend. ‘Every

investment bank and hedge fund I’ve spoken to is looking at agile’, says Sungard’s Chapman. A relatively

new term, agile development is based on iterative development – developing software in small, manageable

chunks that can be modified as requirements change, yet using a disciplined software delivery mechanism.

Historically, the software development approach used throughout Wall Street has been the ‘waterfall’

method, which calls for strict, lengthy analysis and documentation of requirements. For a one-year project,

for example, three to six months might be spent on needs analysis. ‘The business people are expected to

define 100 percent of their requirements up front before the project even starts’, Chapman says. ‘People get

stuck in this analysis paralysis – they spend months and months trying to define what they want.’

Another three to six months can be devoted to software design, then the actual program finally is

written. ‘Inevitably what happens is requirements change, integration becomes very difficult and all the risky

software development happens at the end of the development effort’, Chapman explains. ‘The waterfall

approach has a horrible track record of delivery.’

Agile software development is designed to delivery software more quickly yet maintain high quality.

In agile methods, every two or four weeks, businesspeople get a small amount of code to review and the

opportunity to change the requirements. ‘Imagine a hedge fund where traditionally a new credit derivatives

trading system would take a year to build using the waterfall approach, with businesspeople writing six

months’ worth of documentation versus using an agile approach, where some of the system is delivered in

two weeks, and it’s OK if you change your mind’, Chapman says. ‘For the hedge funds particularly, agile is

an extraordinarily good fit because the portfolio managers want to get things done quickly.’

But you every project lends itself to short iterations, Chapman concedes. ‘On Wall Street it’s not so

easy because there are a lot of other systems you need to integrate with’, he says. ‘But I think there are

parts of agile you can use on every project to improve it.’

Agile development had three levels: developer, project and enterprise. ‘Nobody on Wall Street is

using agile at the enterprise level’, Chapman says. ‘A lot of education needs to take place within the banks –

it’s going to take some time. But I think every project could gain some benefit from trying to break down the

project into more manageable chunks that can be delivered in a more iterative and agile way.’

Agile methods even improve software quality, Chapman contends, because they emphasize testing.

Agile methods encourage developers to do their own testing. Agile methods encourage developers to do

their own testing, often code and to develop automated testing routines for the programs they deliver.


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‘Agile development approaches and CMMI are compliant with each other – you can use CMM and

CMMI to make agile software development better’, Chapman adds. On the other hand, he asserts, trying to

use CMM and CMMI on top of waterfall development approaches will just weigh projects down with

bureaucracy and paperwork.

Source:

www.wallstreetandtech.com/advancedtrading/showArticle.jhtml?articleID=199601961&cid=RSSfeed_TechWeb

accessed via www.computing.co.uk

Questions:

1. What does the observation that ‘requirements change, integration becomes very difficult and

all the risky software development happens at the end of the development effort’ suggest

about the traditional waterfall approach to software development with respect to system

design?

2. Do you think there are any dangers in trying to take short cuts around the traditional approach

to systems design ?

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ACTIVITY ACTIVITY ACTIVITY ACTIVITY 8.58.58.58.5

DETAILED WEIGHTED ANALYSIS OF AN ERP SOFTWARE DECISION

Table 8.5 shows an analysis for three products from different suppliers that were compared across

many factors to establish which was most suitable. This type of detailed analysis is usually conducted when

a new system costs tens or hundreds of thousands of pounds. The grand total shows that Supplier 3 is the

clear winner.

Table 8.5 - Detailed weighted analysis for ERP soft ware

Decision criteria Weighting

factor Supplier 1 score

Supplier 2 score

Supplier 3 score

A. General functionality

Receive information 70 60 60 60

Verify cut quantity 70 30 40 80

Schedule operations 80 56 56 56

Monitor schedule execution 80 40 40 68

Verify shop data input 80 64 64 64

Verify parts loss reporting 70 28 56 56

Detect labor variances ? 60 30 36 42

Provide real-time status 60 24 19 43

Provide capacity planning ? 70 56 40 50

Calculate incentive pay 70 30 25 35

Provide needed flexibility 80 65 50 55

Verify inventory data entry 60 42 42 42

Provide operation history 60 32 40 42

Provide security 90 30 36 36

A. Subtotal 1000 587 604 729

B. Technical considerations

System reliability 100 56 56 56

Compatibility with other systems 100 56 56 56

Cross-module integration 100 45 70 65


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Implementation time 100 45 70 65

Ease of customisation 100 60 48 56

B. Subtotal 500 262 300 298

C. Other considerations

Cost 60 36 48 54

Service and support 90 45 50 57

Vendor vision 70 25 25 40

Confidence in supplier 80 35 45 65

C. Subtotal 300 141 168 216

Grand total 1800 990 1072 1243

Questions:

1. Review the different categories and the criteria within them. Do you think that the weighting

factors are valid? Are there other factors that might apply for ERP software ?

2. Look in detail at the values for each product. Comment on the basis for deciding on individual

scores.

3. Given possible deficiencies in 1 and 2 above, comment on the suitability of this technique for

making a decision. Would you use it and why? What would you do differently ?

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SEDGEMOOR DISTRICT COUNCIL Quick availability or information increases efficie ncy and reduces costs

Sedgemoor District Council is improving the availability of information online to enhance customer

service, increase the efficiency of accessing information and reduce data management costs. The council is

now in a position to remove its planning department’s legacy data management system (DMS), as it had

complete migrating information to its electronic document and records management (EDRM) system, Trim

Context from Tower Software.

Craig Wilkins, information system manager at Sedgemoor District Council, says archived material for

planning stretches from 1974 to 1995. ‘It was in a proprietary DMS but it has been migrated to our EDRM

system and been made available to the public online’, he says.

‘Dropping the DMS means we can improve efficiency and save about £7,000 annually on

maintenance and server hardware. Making planning documents available online has also reduced the

number of phone calls to the council.’

The aim is to replace paper-based systems and integrate all systems with the EDRM software to

centralise the storage and management of all documents, and to remove legacy DMS applications. ‘We now

have a million records in the EDRM system out of 7.5 million documents. We have a variety of systems

covering 14 different business areas and EDRM will underpin them all to attain availability of information

accurately’, says Wilkins.

‘New documents go into the repository as well as archived data being migrated. We can scan

documents into EDRM and recycle paper documents, reducing storage costs. We also aim to specify

retention policies for data to improve information lifecycle management.’

The council had started to fully integrate its Goss iCM content management system with its EDRM

software to assist in making data available via its web site.

As volumes of data multiply, the council has also installed a storage area network to support EDRM.

‘We are scanning documents into the EDRM system and populating the back-office systems with metadata.

We are having to key in metadata manually but the aim is to automate this process, perhaps through a

barcode system, although there is a question over how much metadata a barcode can contain’, says

Wilkins.

Recently the council received confirmation that it is likely to be one of the first local authorities to

comply with the Code of Connection requirements for connecting onto GCSx, part of the Government

Connect programme to provide a common infrastructure for secure electronic transactions between local


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and central government. Other benefits include making council reports, agendas and minutes available

online – and using Goss software in conjunction with EDRM to ensure the correct document versions are

published online in each service area. The ultimate goal is for the EDRM system to make information readily

available to support customer services through all access channels – the internet, face to face and by

telephone, says Wilkins.

Lisa Kelly, Computing, 11 Oct 2007,

www.computing.co.uk/computing/analysis/2200923/case-study-sedgemoor-district

Questions:

1. Given the intangible nature of some of the benefits from the new information systems, how

might the council have gone about making the investment decision ?

2. Analyse the initiation part of the project in terms of the internal and external factors driving the

systems acquisition process.

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PUTTING AN ALL-INCLUSIVE PRICE TAG ON SUCCESSFUL IT

Failure to derive the expected benefits from IT systems is legendary. Yet organizations still fail to

recognize or accept why this occurs and generally do little to address the root cause in any meaningful way.

The first place to look is the application of the Return on Investment (ROI) tool as the arbiter for

benefits delivery and the subsequent plans for implementing the systems. An ROI is required by most

organizations, but the tool is often applied without fully understanding all of the cost components (full

disclosure)

By definition, IT projects tend to focus on dealing with the technical issues. It is these that get

measured as the cost side of the change – usually the cost of hardware and software with some allowance

for training. Typically, costs are grossly underestimated (often 40 per cent or more) by failing to consider

precisely those factors that are needed to deliver the return.

ROI is a technical measure talking expected returns and expected costs to determine the worth of

the investment. The key word is ‘expected’. The reality, of course, is that the ROI calculation is no more than

a forecast, based upon someone’s view of the costs and benefits. Realising the benefits forecast is where

the hard work arises, there is often a drastic underestimate of the efforts required to ‘make it happen’. The

underestimates are generally in:

- ensuring compliance with the business strategy;

- aligning the people with the processes the business is changing to;

- ensuring that behaviours are commensurate with the required new ways of working.

This assumes processes are being changed – otherwise where are the benefits coming from?

Which means there is an implicit assumption that people somewhere will be doing something differently. It is

the need to ensure and facilitate this change that generates a high proportion of the total project costs. By

including these costs some projects start to appear unprofitable. This, of course, is generally not in the

interests of any systems suppliers. It may, however, stop some projects from getting off the ground and

avoid some of the overspending we have seen in the past. If the way things are done in the business is

being changed the there is a need to understand what that change means. There is a range of

implementation approaches taken by companies including:

- simple ROI and the ‘stuff it at ‘em’ approach that follows the principles of ‘if we tell them what to do

and give them a bit of training then they’ll make it work’;


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- a considered approach that defines real business need and vision but then fails to communicate this

through to the ‘what’s in it for me’ messages and thereby does not connect with the users;

- development of a system that involves some users early and is well communicated to staff, but is not

properly aligned to the organisation’s strategy and owned by specific, accountable people in the

business.

Quite often, once the decision to invest is made, technology projects are devolved to the IT

department who are then responsible for overseeing through delivery and implementation. Often these

technically focused people are poorly qualified to understand and business nuances and may not have the

required communications skills. Over and above this, who looks at the changes required in human

behavior? Who is addressing the motivational issues that will get the right people doing the right things?

A framework can be proposed to improve chances of success. This is based around the simple

model of People, Process and Technology (PPT) with the added element of environment or context (PPTE).

Context is the first parameter to get right. How does the development proposed relate to the business

strategy? What is the desired outcome for the development, in business benefit terms, so that we know what

is to be delivered and why? After thinking through the application needs and functions, the next useful

question is how is it to be delivered? This should be viewed as problem that the business deals with rather

than abdicating it to the IT group.

Costs can then be assessed in outline for the whole PPTE model. This may include some scenario

planning work fully to appreciate the different ways that the system may work, and identify the best options,

prior to getting the technologists involved. A full disclosure ROI can then be calculated that takes all benefits

and PPTE costs into account. This should include all of the people costs for effective change, from

ownership and visions through stakeholder buy-in, to positive, user-led adoption. Decisions to proceed are

now likely to be better informed and can be done on all fronts of process, technology and people readiness,

perhaps with the ‘go’ decision requiring people readiness to be assured.

Truer costs will be understood and the full implications of benefits will emerge. The business’s

responsible project owner will now have a budget that allows them to plan from concept to execution with

holistic consideration of all PPTE elements. This will give positive adoption of systems that are pulled

through by users who expect what they get and get what they expect. They will ‘pull’ the system through

rather than having it shoved at them.

Ron Barker, Financial Times, 30 May 2007

Question:

Discuss the difficulties in estimating the costs and benefits of an IT project.

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LESSONS FOR BUSINESS FROM THE PUBLIC SECTOR

Stephen King, the thriller writer, might be hard pressed to top some of the horror stories generated

by public sector information technology project. That’s an exaggeration, of course, but only just.

Take the UK’s Child Support Agency, charged with tracing absent fathers and forcing them to pay

child maintenance. The agency is in the process of being abolished, the consequence of an IT foul-up which

meant a government watchdog discovered that costs were eating 70p of each £1 it collected and that it had

a backlog of 300,000 cases. The system, developed by EDS, the US group, at a cost to date of about

£539m is through to have 52 critical faults of which 14 cannot be easily corrected. The CSA has had to

process thousands of cases manually because of system failures. The CSA story is chilling, not least

because of its human implications, but it is almost normal for an industry in which, according to analysts, an

IT project is more likely to be unsuccessful than successful and the bigger the project, the more likely it is to

fail.

There is no real difference between public and private sector projects in this respect. Public sector

failures, however, are more visible and attract media attention more easily. Here is Sir Andrew Turnbull, now

Baron Turnbull, the former UK cabinet secretary, the man with ultimate responsibility for government IT,

talking on the subject before leaving office: ‘There have been plenty of projects, large and small, that have

come in on time and to budget. Of course, you don’t tend to get headlines announcing “Government project

completed on time and to budget. No major problems encountered. Improved services delivered”. The

media inevitably focuses on those projects at the other and of the spectrum.’

This view resonates with Malcom George, executive director, government relations, for EDS in

Europe. He says public sector projects are on a scale rarely seen in the commercial sector and that scrutiny

tends to highlight failure. Successes, such as EDS’s Oyster card payment scheme with London Transport

rarely attract plaudits. Mr George says the most important lesson the commercial world could learn from the

public sector concerned the benefits of sharing pool of knowledge of what makes projects work and what

does not. Competition militated against such sharing, he said.

It is true that successful public sector projects rarely attract standing ovations. In 2002, the UK

government’s Swansea-based Vehicle and Driver Licencing Agency (DVLA) initiated a project to enable

British drivers to license their vehicles either online or by telephone. At present, most drivers renew their

licences at a post office. The system was built in collaboration with IBM at a cost of £30m. At the peak, 80

IBM staff and 20 DVLA IT specialists were involved. Today, two years after completion on time and budget

3m drivers have used the system successfully and it is attracting users at the rate of 400,000 a month. It can


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be counted as an unqualified success. But it was not a simple project. A licensing authority has to be sure a

vehicle is insured, has passed its roadworthiness test and that payment has been made before a licence

can be issued. The DVLA database had to be linked to the motor industry insurance and roadworthiness

database. And a payment engine with links to the banks had to be created. Julie Palmer, the Vehicle

Programme Manager in charge of the project, says it was important that DVLA and IBM shared the same

vision: ‘To the outside world, we looked like a single team.’ The ground rules were agreed at the start: these

included the degree to which risks were shared and the rules covering change management, the most

critical issue in any big project. Andrew Rhodes, planning and performance manager, pointed to the efforts

made at the beginning to ensure that what was delivered was what customers wanted: ‘The secret in

defining a product your customers will want to use. We could simply have mirrored the existing paper

process but we redefined it in a way that not only met our needs but also out customers’ expectations of

ease of use.’

Nevertheless, there are significant numbers of projects that have lost their way. The Standish Group

in the US has been at the forefront in analyzing and classifying these failures: its 1995 report is regarded as

a classic. Its lasted survey of 9,000 IT projects, more than half of them in the US, suggests that 29 per cent

were successful, 53 per cent were late and/or over budget or with less than optimal functionality and 18 per

cent were cancelled or never used. More recently, the Standish Group’s methodology has been queried,

does it select for failure?, but the fact remains that the rate of failure of big projects is unacceptably high.

Why do IT projects founder? And what can the business world learn? Among the most important is a

failure to align project objectives and the organisation’s strategic priorities, an example being a US

insurance group that took three years to finish a one year marketing project, only to find the product in

question was being sold. A second reason is a lack of ‘ownership’ of a project by senior management. This

comes up time and again in studies: a project needs a champion at senior level who is responsible for

bringing the scheme to fruition on time and to budget. Third, some projects are simply too large to be

managed effectively. More recently, there has been a trend to tackle automation in small steps, linking

successful projects together to create a seamless whole as a final stage.

These issues are underlined by Graham Kemp, in charge of public sector business for Sun

Microsystems in the UK, whose customers include the health service, the Inland Revenue and the Home

Office. He says communication is critical: ‘I think that when projects fail, it is because the rigour around

communications or review and inspection is not what it could be.’ ‘For those engaged in the project, it is

fundamental that all stakeholders are excellent communicators.’ Not engaging all the stakeholders in the

aims and objectives of a project is frequently quoted as a cause of failure. The DVLA licensing project

involved representatives of everybody affected at each stage. Mr Kemp points to the importance of

established and proven methods of project management such as Prince2, a methodology which takes as its

starting point the business case for a project and provides guidance at each stage. He also stresses the

importance of ‘Gateway’ reviews, in which independent scrutineers assess high-risk projects at critical

stages in planning, procurement and implementation, rating them red, amber or green. ‘The proper review

mechanisms have to be in place’, Mr Kemp says. ‘The projects led by governments are sometimes just too


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big. If they were segmented, then some risks could be mitigated by people with appropriate competences.

Projects and subprojects would be more manageable.’ So the public sector patient is responding to

treatment, if not yet out of intensive care. Is the private sector taking the same medicine? And would we

kmow? ‘The private sector keeps its mistakes to itself’, Mr Kemp notes.

Alan Cane, FT.com site, published 4 October 2006 (abridged)

Questions:

1. What reasons does the case study indicate are responsible for project failure ?

2. What steps can be taken to reduce the risk of project failure ?

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AGILE DEVELOPMENT CAN MAKE BUSINESS QUICK AND LIGHT

But ICT must communicate its benefits if managers a re to accept it

Agile software development can prevent organizations becoming locked into yesterday’s ideas and

business strategies, but it makes some managers nervous, experts told New Zealand Computer Society

members at a recent NZCS meeting.

Agile software development is one way IT can guard against becoming an anchor weighing down

changing businesses, according to developer Shane Hastie. Rigid specifications and inflexible development

techniques can lock organizations into yesterday’s ideas and also inhibit commercial evolution. Management

can appreciate the benefits of agile development techniques – but only if these benefits are communicated

properly, he says.

Hastie, who is chief knowledge engineer at Software Education Associates, was one of two

developers who addressed a well-attended NXCS’ birds of a feather’ session on agile development, held in

Wellington earlier this month.

Fellow presenter Stephen Hilson, who currently works for Telecom, says both general and ICT

managers are nervous about the less structured nature of agile methods, especially when it comes to

mission-critical disciplines, such as telecommunications.

Telecom fits agile practices around a skeleton of more conventional waterfall-style development –

starting with a complete specification and working through design, coding and testing stages linearly, says

Hilson.

The essence of agile development is the creation of small pieces of a program, a process that can

sometimes lead to a realization that the original design of that part of the program either won’t work or

should be revised. This results in iterative redesign and re-coding, independently of other parts of the

development.

Superficially, this process looks unstructured, but requirements’ churn’ is actually a fact of

applications development life, the speakers say. In an agile environment, realizing work is off-track often

means that only a little work has to be thrown away, says Hastie.

In contrast, a misconceived design, based on a monolithic specification, could mean throwing away

much more, with major impact on the project schedule. This is important in resource-constrained New

Zealand, he says. And, if the completion target is hard to see at times, agile techniques can at least ‘deliver

enough to keep the business moving forward’.


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The speakers acknowledge that, with agile development, the final product can be quite different from

that originally planned. But it tends to be more aligned with the business’ needs at the time of completion –

rather than its needs at the start, which may now be outdated.

If management and users are involved, they will understand the logic of the way the ICT team

chooses to develop.

‘Two of the most important factors are a high level of customer involvement and chief executive

support. If you have those, you will succeed no matter what technique you’re using’, says Hastie.

The essence of agile development has been known for 10 to 15 years, and recognised as good

practice, Hastie says. The essentials are programming with teams of peers, quick turnaround of small

modules, close contact with customers, and a daily ‘stand-up’, where developers report on the work they

have accomplished since the last meeting, as well as what they plan to do next and any obstacles they have

encountered.

Agile methods – branded as such around 2001 – ‘pull all these good practices together’.

Adapted from an article by Stephen Bell, 13 August 2007.

http:// computerworld.co.nz/news.nsf/devt/943AA253F4D6EADFCC257333000EAF06

Question:

What do the differences between the traditional waterfall model and agile development methods

suggest about their respective applicability to the strategic alignment of business and IS/IT strategies ?

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CASE STUDY 14.1CASE STUDY 14.1CASE STUDY 14.1CASE STUDY 14.1

WHY DO PUBLIC-SECTOR PROJECTS FAIL ?

Back in the spring of 2007 a doctor application system which was supposed to match junior doctors

to specialist training posts was shelved by ministers. Doctors complained that the system – the medical

training application service (MTAS) – was profoundly flawed and that many juniors had been unfairly

treated. The reorganization of training and the application process meant that 30,000 doctors were chasing

just 32,000 posts in a system poorly thought through. Astonishingly research suggests that one in five

doctors have even considered suicide, such is the depth of the fiasco.

And the story didn’t end there. The MTAS site has also allegedly been the subject of two security

breaches, which caused the opposition to call for the resignation of the then-health secretary, Patricia

Hewitt.

But in the world of public sector technology initiatives, this story was the most recent in a long line of

blunders. One of the most troubled technology outsourcing cases was that of the now defunct Child Support

Agency. The outsourced IT system was at the root of the agency’s problems. An investigation by the

National Audit Office (NAO) found that ‘go live’ of the system had been authorized, despite the CSA and its

supplier being aware that there were 52 defects within the system. The NAO branded the project, ‘one of the

worst public administration scandals of modern times’.

These and other examples of outsourcing have been very damaging to public sector organizations

for a range of reasons. There is of course the waste of money and other resources. Public sector

organizations are effectively answerable to taxpayers – wanton waste of public funds does not bode well for

good relations. These public sector technology catastrophes also attract a good deal of negative publicity –

this can do serious amounts of damage to the organisation’s reputation and dent stakeholder and taxpayer

confidence in the ability of the organization to do a good job. Just look at the CSA – the situation

deteriorated to such an extent that the entire organization was scrapped.

The fact that public sector technology and outsourcing projects go wrong so regularly means we

aren’t surprised by these failures anymore. Public sector projects are so tainted by their poor track record,

expectations are set very low and they now have little to live up to. So why do these failures keep

happening?

There needs to ne an element of realism when looking at major technology projects. The sheer

scale of the larger projects means that inevitably there will be problems along the way. The problem with

many of these initiatives is that the parameters of the project and contract provisions are tightly defined and

the contracts are not managed effectively by the same team through the project lifecycle. When a problem is

encountered often the first reaction of the public sector is to seek to avoid any blame.


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History has taught us that errors and mistakes should be expected and factored in to the way that

contracts and projects are managed. A shift away from the blame culture to an environment where

successful delivery is valued above all else is required in order to increase the probability of problems being

detected at an early enough stage for them to be dealt with appropriately in a way that works for the supplier

and the public sector.

Problems often arise around the cost issue. Cost is often cited as a major driver in technology and

outsourcing projects. Whilst it is undoubtedly important, public sector organizations have to be wary they are

not blinded in the quest for squeezing as much value for money as possible out of the supplier. This

procurement – led approach to technology and outsourcing cab be problematic as it leaves very little scope

for innovation in the project and makes it much more difficult to cope with problems when they arise.

What appears to be the cheapest deal is often the worst as frequently the service will be

compromised or the final cost will spiral because it was unrealistic in the first place. Of course as a spender

of public funds those in the public sector feel an obligation to get the best deal but nailing the supplier to the

wall financially can often backfire. End users need to realize that any mentality of ‘the cheapest wins’ means

that the more realistic suppliers will be missing out on contracts.

Problems in technology and outsourcing deals can often arise when there are unclear lines of

responsibility both within the public sector and between the public sector and the supplier. Drafting a

contract with clear responsibilities and then managing it appropriately deals with the responsibility between

the public sector and the supplier. However, it does not deal with the constant reorganization that takes

place at central and local government level or the constant churn of ministers and officials on projects.

With this sort of fundamental change, is it any wonder that there is not a great track record of

successful delivery of major technology projects? Failures are often attributed to the supplier but as in any

relationship it takes two to tango. A blame culture often comes to the fore when things go wrong, with the

end user blaming the supplier as operations were not executed to their satisfaction and the supplier blaming

the end user because they were negotiated right down on costs.

Problems worsen as the two parties are more concerned with absolving themselves of wrongdoing

than they are with rectifying the issues. Since differences or disputes are inevitable in relation to large-scale

technology projects, mediation and adjudication – which exist as legal mechanisms for resolving disputes –

should be more widely utilized. Adjudication is a particularly useful dispute – resolution process for obtaining

swift results which has yet to find favour on large-scale technology projects.

From all the press reports that circulate about these problematic projects, it would seem that they

invariably involve the same circle of suppliers. This understandably begs the question, why on earth do

public sector organizations keep selecting them? One of the major problems in the public sector today is the

lack of competition amongst suppliers.

The principle reason behind this is the protracted and complex tendering process that suppliers have

to go through. Far from these being an alleged ‘inner circle’, organizations really are limited when picking a


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vendor for projects of this size. More choice would be likely to mean better service. But with such hurdles to

overcome how can smaller, quality suppliers compete in the public sector market? And how can end users

avoid the obvious choice?

Public sector organizations need to take a more strategic approach to outsourcing. They need to

ensure they have a dedicated team that manages the process full time, constantly reviewing existing

contracts and looking for improvements and innovations. Instead of using a ‘one-stop shop’ supplier the

public sector should look to use specialist suppliers for different aspects of a project. This gives smaller

companies a chance of a contract but also gives the end user access to.

Unfortunately the need for an ‘intelligent client’ is often overlooked – with the very expertise the

public sector needs to manage its IT suppliers being outsourced to those suppliers. Public organizations

shouldn’t be held to ransom by a private organization. If they spread the work and therefore knowledge

between a range of suppliers or keep some knowledge in-house then this won’t happen.

The public sector boom of technology outsourcing definitely set to continue but public sector bodies

need to learn lessons from their private peers. Successful delivery needs to be valued within the public

sector more than simply not being to blame for problems. The key to successful delivery is to have continuity

of personnel throughout the project lifecycle; a sensible, balanced contract managed appropriately; effective

dispute resolution; and the retention of an ‘intelligent client’ on the public sector side.

Paul Bentham, July 2007, www.silicon.com/publicsector/0,3800010403,39167934,00.htm

Questions:

1. Public-sector information systems projects have had a chequered history. Is the national

programme for IT proving to be any different from some of the flascos that have preceded it ?

2. The national programme for IT involves a substancial increase in outsourcing. What are the

likely benefits and risks associated with this approach ?

3. Could the COBIT methodology be applied in this context ?

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CASE CASE CASE CASE STUDY STUDY STUDY STUDY NNNN....00001111

AN ENTERPRISE ARCHITECTURE FOR A U.S. INTELLIGENCE AGENCY

Author: Mary Hain Hain Communications

Filed: December 2002

For more information on Conquest, Inc. please check:

http://daffy.conquestnet.cncdsl.com

Note. C4ISR was the original name for

the Dept. of Defense architectural

framework. C4ISR is defined as

Command, Control, Communications,

Computers, Intelligence, Surveillance,

and Reconnaissance framework,

developed under the auspices of the

C4ISR Integration Task Force (ITF)

Integrated Architectures Panel.

In 1996 the US Congress mandated that U.S. government agencies

develop enterprise architectures that established standards for software

development and integration. Most US agencies are still working on this

assignment. This case study considers an enterprise architecture developed

under that program.

Problem

Conquest, Inc., is a consultancy that develops solutions for federal and

commercial customers. In 1999, Conquest began working with a major

federal intelligence agency that collects, synthesizes and analyzes

information, then distributes it to other agencies. The client’s goal was to

develop an enterprise architecture that would help them improve their

technology planning at the enterprise level. The agency faced a simple, if

challenging, goal: defining current technology programs and future

technology development so that it could (1) make better decisions about

systems acquisition or development and (2) use it as a capital planning

system for making budget decisions.

The agency faced several formidable challenges because of the size

and complexity of its operations. Islands of “stovepipe” systems could not

intercommunicate, were not reusable and were costly to replace. Data was

not easily interchangeable because information was being captured in

incompatible formats and assigned different meanings. Information to build

an enterprise architecture and create models for the various operational

pieces was inconsistent or unavailable. Systems did not support a

coordinated set of processes that in turn supported overall agency goals.

Some systems performed redundant functions.

Regulatory pressures also drove some aspects of the project. The

Clinger- Cohen Act (1996) and recent Office of Management and Budget

(OMB) mandates require that agencies be accountable for technology

expenditures to secure funding. The agency was required to support the

Dept. of Defense Architectural Framework (DoDAF) (formerly C4ISR), a


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standard framework that the DoD had mandated affiliated agencies use. The

DoDAF was a brand new guideline when the project began and the first

version left a lot of latitude for interpretation.

As enterprise architecture experts, Conquest plays a key role acting as

a lead contractor for product and view definitions and functional knowledge.

Conquest acts as part of a larger team offering domain insight/experience as

well as modeling/enterprise architecture experience. At the start of the

project, the contractors worked with the agency to understand some unique

requirements for its architecture, including:

- Developing a new business approach that incorporated enterprise-

wide business requirements and technology needs into an integrated way to

run the business.

- Adopting a systems engineering approach that interpreted and

implemented the Dept. of Defense’s standard DoDAF. (Note: The DoDAF

features three different views: systems, operational and technical.)

- Integrating multiple architectural efforts into one enterprise

architecture, including those that had been built and were in the process of

being built by internal departments as well as customer groups. The team

had to secure the feedback and approval of the owners of these subordinate

efforts.

- Although not an initial requirement, concordance between diagrams

quickly emerged as a vital piece of the requirements.

Conquest began its involvement by focusing on the functional analysis

of the core mission. They talked with domain experts (data gatherers,

information manipulators and information producers) as well as system

architects and agency management. Architects began by developing the

approach to modeling the enterprise, reviewing and selecting the appropriate

tools and methods and then architecting the models by interpreting DoDAF

guidelines and agency goals.

In the end, Conquest recommended a comprehensive modeling strategy

for building the architecture by defining which views were to be used, in

which order, which diagram types and architectural elements to include, how

to achieve concordance and how to interpret the DoDAF framework

guidelines. Conquest also defined the “to be” architecture. In addition, the

customers and subject matter experts were encouraged to examine and

appraise the models.


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For more information on the various

U.S. Government architecture

initiatives, please check: www.cio.gov

and then select architectures.

For more information on Popkin

Software's System Architect product,

please check: www.popkin.com. For

specific information on Popkin's

Support for government frameworks,

select Federal Systems on the Popkin

site.

Solution

Conquest architects needed a tool that could be easily customized to

meet DoDAF requirements and could help them understand how the various

processes and systems fit together. After an extensive evaluation, Conquest

and the architecture team chose Popkin’s System Architect as the primary

enterprise modeling tool. System Architect offers complete support for

DoDAF operational, systems and technology views to produce the required

government framework deliverables. System Architect offers integrated

support for DoDAF, the Treasury Enterprise Architecture Framework (TEAF),

Federal Enterprise Architecture Framework (FEAF), Zachman framework

and IDEF (Integrated Computer-Aided Manufacturing (ICAM) DEFinition).

”System Architect helps users understand how all the pieces of this

complex environment fit together through building a comprehensive

enterprise architecture,” said Tom Dalpini, senior architect, Conquest Inc.

“We were able to choose the best modeling approach for the goals we were

trying to achieve because the tool was so flexible in supporting a wide variety

of modeling techniques.”

System Architect’s built-in flexibility enables Conquest to easily

customize the views to the unique needs of the agency. For example, using

System Architect’s USRPROPS (user properties) feature, architects can add

fields or attributes for any diagram or object and add nonstandard

architecture elements to a diagram (such as observations for a diagram).

Most importantly, System Architect’s built-in concordance allows team

members to update individual models and have confidence that the changes

are reflected throughout the architecture. To help users share data and

views, System Architect supports a server-based central repository. In

addition, diagrams can be exported from System Architect into PowerPoint,

Word or Excel for review and approval.

”System Architect makes it easy to document how information flows

within an organization,” said Dalpini. “An enterprise architecture in a strong

modeling tool like System Architect offers an ideal communication vehicle for

the many people involved-contractors and internal business process and IT

teams-to communicate, collaborate and keep the organization on track.”

Benefits

More than two years into this multi-year project, the agency has already

benefited from the implementation of an enterprise architecture. The


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For more information on this case,

contact: [email protected]

standard DoDAF has facilitated consistent comparisons, including a glossary

of terms with definitions to ensure a common understanding. The

architecture has helped the agency’s sub-organizations coordinate

technology initiatives. Modeling helps facilitate feedback from throughout the

agency so that comments can be more easily incorporated into the

development process. Participants can more easily see and understand the

potential impact of changes.

Conquest’s architecture design helped the agency begin to understand

its future operations and processes. Model-driven architecture helped

facilitate communication by graphically representing vast amounts of data

into discrete views that could be reviewed and understood across different

organizational groups and business areas. Modeling also encouraged

collaboration between groups, helping them identify redundant and non-

mission enhancing activities, and driving significant cost savings. To help

federal agencies jumpstart their development process, Popkin now offers an

integrated DoDAF option for System Architect.

The agency views the project as a wise long-term investment. The

architecture has been embraced by its sub-organizations and customers,

fostering communications and a shared drive to meet business goals. In the

long term, the architecture will enable the agency to make better budget

decisions on current and future technology programs. Eventually, groups will

need to show how their technology fits into the enterprise architecture before

receiving funding. Conquest will continue to play a key role in the entire life of

the architectural effort, providing leadership in the areas of modeling the

business and providing functional expertise.

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CASE CASE CASE CASE STUDY STUDY STUDY STUDY NNNN....00002222

CAN INFORMATION SYSTEMS SAVE U.S. STEEL?

In capacity U.S. Steel (USS) is the largest integrated steel producer in North America and the largest in

the United States. Headquartered in Pittsburgh, Pennsylvania, it can produce about 27 million tons annually.

The world's largest steel maker, Europe's Arcelor, produces more than 40 million tons annually, while South

Korea's POSCO, the second largest, produces about 30 million tons. In fiscal 2003 U. S. Steel's total

revenue was $9.3 billion. Its third largest customer is the Ford Motor Company, an automobile manufacturer

that requires an immense amount of steel.

In 1996, Ford viewed USS as the worst in performance amongst its leading suppliers, and it threatened

to turn elsewhere for its steel supplies despite their 70-year relationship. "We were in danger of losing Ford's

business," explained Gene Trudell, USS's CIO. "It was that serious." Ford's biggest complaint, among many,

was that it was not notified when its steel shipments would arrive, leaving Ford unable to operate efficiently.

To USS, Ford's threat was a wakeup call causing it to examine its whole production cycle.

USS identified a number of challenges beyond its notification system. It knew it needed to lower

production costs, including its cost per ton of steel and the number of hours per person required to produce

a ton, as well as the costly size of its steel inventory. It had to return to profitability, and to accomplish that it

needed to increase its share of the high-end steel market. Internally it needed to centralize management of

the various USS businesses and factories and their information infrastructures, which in 1996 were locally

controlled.

USS's major problems were reflected in its order-taking process. Orders were often manual, very

imprecise, and filled with errors. Moreover, once an order arrived, USS was unable to track it during

processing. Processing began when one of its four plants transformed the raw materials in steel coils, which

were then sent to USS's processors to be turned into finished products. USS has over 120 processors (35 to

40 of which work on Ford products). A single piece of steel might be processed by up to five different

processors as they treat, shape, and finish the products. The reason for the complexities is that these orders

require blending and shaping of the materials, including manipulating such characteristics as heat and

tensile strength. USS was unable to follow each order as it was processed and delivered.

One problem was that each processor had its own tracking and order systems, and each assigned its

own inventory codes, making tracking impossible for USS. In addition, each processor communicated its

processing data to USS over a dialup system. When the data arrived, they then had to be manually

translated into a format that could be used by USS's own system before the information could be sent to the

customer. This translation took about 90 minutes per message. It was a very expensive and inefficient

system, and it left USS's customers without enough information for their own production planning. USS did

send advanced shipping notices (ASNs) to customers notifying them of the arrival time, but the ASNs often


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arrived after the steel, too late to benefit the customers. Late made customers such as Ford more inefficient.

Some Ford plants are only 20 minutes away from the processors. If a truckload of steel arrived without an

ASN, Ford employees would have to record the delivery information manually, a process requiring excess

labor while increasing errors. The tracking system's inadequacies also created forecasting and inventory

problems, forcing the company to hold too much inventory, which in turn raised USS's costs even higher. It

needed to modernize its order taking tracking, and inventory systems.

USS moved rapidly to solve these problems. One objective was to enable customers to enter orders

electronically so that they would be accurate. Using the Web, customers now can specify the product,

quantity, price, composition, size, thickness, and even delivery date for their orders. To achieve all of this,

the system had to handle information of production limitations such as metallurgical rules and production

capabilities. It even had to calculate cost and delivery date. All of this had to be done rapidly so the

customer knew cost and dates immediately after entering the order. USS even connected DecisionExpress

software from LiveCapital to speed up credit authorization, enabling USS to reduce uncollectible debts while

approving most orders.

To track orders, USS developed an event-driven system that recorded each step in processing an

order, automatically triggering the next step when the current step was finished, including the steps

performed by the external processors. The new system even triggered ASNs and the delivery of the order.

One benefit was that USS was able to handle processor messages in 12 minutes rather than 90. Both USS

and the customers knew exactly where the supplies were and how the processing was proceeding. USS

now found that when customer orders and ASNs were correct, its customers were more likely to give the

steel company repeat orders. "You need a way to differentiate your business," said Tom Zielinsky, senior

director of IT strategy at competitor Weirton Steel, "and I think you can do that with repeatability of customer

orders." David Sherwin, USS directory of order fulfillment, agreed, saying "Everyone was producing the

same steel; how to fulfill orders would be different.".

All of this required very complex software, much of it home grown. In addition to information about

price, quantity, and delivery date, an order must capture information on each steel product's composition,

size, and thickness. USS used order fulfillment and data management software supplied by the Oracle

Corporation, a product configuration system from Concentra, plus its own software for capturing very

complex business rules and procedures for handling the intricate mix of product specifications and prices for

customers. The business rules "required thousands of hours of interviews and logic revisions," because

"much of the knowledge was resident in the minds of our metallurgical engineers," explained Trudell. When

the system was completed, USS's need to revise orders dropped by two-thirds while greatly reducing order-

taking staff time.

USS replaced its order fulfillment system with i2 Technologies' Factory Planner forecasting software,

which the programmers connected to their order system. They also connected three homegrown systems,

including iTrac, which tracks orders as they go to processors or customers and an automatic order

generation system for repeat customers called MIGS (Mechanical Item Generation System). MIGS reduced


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inventory by improving the forecasting of demand for finished goods at the customer's location. When MIGS

was first used, it reduced inventories from 33,500 to 24,000 tons. The system has been upgraded and is

now called MOGS (Mechanical Order Generation System). U.S. Steel now keeps only 20 days of inventory

on hand to meet demand, while it required 33 days of inventory on hand in five years ago.

Overall, this whole system, known as continuous flow manufacturing, made the company the vanguard

of the industry. According to Michael Shanahan a consultant to USS from the Boston Consulting Group, the

sweep of these order tracking and inventory systems for a continuous flow manufacturing business such as

steel is "astonishing." These systems can go from the shop, through U.S. Steel's own production facilities

and third-party service centers to customer, managing the entire supply chain through a single integrated

system.

USS created a subsidiary called USS Engineers and Consultants (now called UEC Technologies) in

1969 to generate additional revenue from the technology and services USS developed I-house. UEC's

principal products are an order-fulfillment system for businesses in the metals, glass, and pulp and paper

industries; a set of supply chain software toolsets jointly marketed with i2 Technologies that can help other

steel companies manage their suppliers; and a tool to help companies set up an extranet for customers to

place orders, check status, exchange electronic contract documents, and provide shipping information. To

maintain USS's competitive edge, UEC sells technology that is one generation behind what USS actually

uses. According to UEC President Chris Navetta, the venture has been highly profitable.

USS has continued to upgrade itself. One example is Mon Valley Works, one of its four plants, which is

located on the Monongahela River valley 10 miles south of Pittsburgh. It was originally built in 1875 and

upgraded several times since, the last project occurring from 1998 to 2000. This was a $36 million project

that replaced the computer controls and the mechanical equipment, including, for example, its laser sensors

that are central to current steel making. The plant's output had been boosted from 270 tons per hour to 335

tons per hour. It had needed 9,300 steel workers to tend the blast furnaces and presses, but that has been

reduced to only 2,100 in this half-mile long plant. In 2001, the U.S. Department of Energy's Office of

Industrial Technologies named Mon Valley Works the "Plant of the Year."

Has U.S. Steel's use of information technology solved its problems? The company's systems

investments have definitely helped the company streamline operations, consolidate purchasing and raw

material sourcing, and support customers from its various facilities. The company has become very efficient,

as shown by the time it takes to produce a ton of steel. USS requires about three person hours for one ton

while in Germany it is 4 hours (a 33 percent increase), Japan 4.5 hours, and POSCO 4.8 hours (a 63

percent increase). Although countries like India need 34 person hours, their hourly labor rate is much lower.

And still, USS's labor costs remain higher than competitors such as POSCO.

Many observers claim that one reason is that USS spends $40 per ton for retiree health care costs.

New labor agreements with the United Steelworkers of America have enabled U.S. Steel to reduce the cost

structure of its domestic business and reduce employee headcount from 28 ,000 to 22,000 as of December

31, 2003. According to Daniel Ikenson, the senior trade analyst at the Cato Institute, a conservative


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Washington, D.C., think tank, "U.S. Steel's biggest problem is it doesn't have the same economies of scale

that its foreign competitors have." Ikenson says U.S. Steel is quite efficient but is simply not large enough to

equal its foreign competitors.

Another issue for USS is that Nucor and other innovative U.S. steel makers use scrap steel as

inexpensive raw material forcing USS to make higher-grade steel from coal and iron, the type of steel used

in automobiles and skyscrapers. USS has stated it would like to combine with Bethlehem Steel, National

Steel, and maybe even Weirton Steel, but only if the U.S. government takes over about $10 billion of their

cost of benefits. These "mini-mills" oppose this because they are non-unionized and don't have the medical

and pension expenses of the bigger companies. Dan Dimicco, Nucor's CEO, said that the U.S. Steel

proposals are "nothing more than an attempt to get the government to help a couple of companies at the

expense of the rest of the U.S. steel industry and the taxpayers."

Comparison with South Korea's POSCO might further help explain USS's problems. In the nineteenth

and early twentieth centuries, U.S. steel companies located themselves near the sources of iron and coal.

However half the cost of producing a $210 ton of steel today is for purchasing and shipping raw materials,

while energy is 6 percent, labor 6 percent, and the remaining costs of 38 percent are for such factors as

maintenance, information technology, and administration. Today companies locate themselves on Atlantic,

Pacific, and Mediterranean coastlines to reduce their largest single cost.

In 1966, as South Korea was attempting to modernize and rise out of third world status, its government

decided to establish a steel industry, even though it has almost no domestic iron or coal. It invested $296

million (U.S.), eventually named the company POSCO, and situated the factory at Pohang on its Pacific

coastline to keep its costs low. Pohang has the harbor depth to handle the largest container ships. South

Korea later built a second production facility nearby. It built very modern facilities, and then 18 years later

upgraded them. In 1999, according to Sang-Boo Yoo, POSCO's chairman, the company undertook a $247

million project, named Process Innovation. Its purpose was to enable the company to use the Internet for all

aspects of the company' activities, including booking and monitoring its fleet of 44 ships. In 2000 POSCO

became the largest steel producer in the world, although it was surpassed in 2001 when Arcelor was

created by merging three large European companies.

POSCO's costs are about $175-$180 per ton versus $240 a ton at USS and about $210 a ton by

Arcelor. Its advantages are its seaport location, and its late start, enabling it to start with more modern

equipment and information technology. Frank Voelker, CEO of Alstom Power Conversion, who has worked

on botha POSCO and USS systems, says USS's are every bit as good as POSCO's and better than most of

its competitors. But USS cannot do anything about its lack of a seaside location because of the high cost of

moving its facilities. "I'd love to have a seaport paid for by the government, just like POSCO," but it would

cost too much, said Usher.

During the past few years, U.S. Steel benefited from strong global economic conditions and surging in

demand in the United States, China, and other countries. But the steel industry is very cyclical. What will


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happen when demand cools down, as it inevitably will do? Will U.S. Steel's systems and processes be

enough to keep it competitive in the global marketplace?

Sources : http://xnet3.uss.com/corp/customer/about_Steeltrack. htm , accessed February 26, 2005; U.S. Form 10K

for Year Ending 2004, www.ussteel.com, accessed April 12, 2005; Lehman Brothers Equity Research, "United States Steel

Corp," February 16, 2005; "Suddenly Steel Has Industrial Strength," Business Week, October 18, 2004; Mel Duvall, "U.S.

Steel: Selling Tech—or Selling Out?" Baseline, June 18, 2002; John McCormick and Mel Duvall, "U.S. Steel Tries Tech

Alchemy," Baseline, June 17, 2002; Mel Duvall, "U.S. Steel: Why the Red Ink?" Baseline, June 17, 2002; Mel Duvall,

"POSCO: The Next Big Steel," Baseline, June 17, 2002; Kim S. Nash, "Enterprise Servers: HP's Alpha Division," Baseline,

June 17, 2002; John McCormick, "At U.S. Steel, New Computers Revive Old Plant," Baseline, June 15, 2002; Sean Gallagher,

"Gotcha! Managing Continuous Flow Manufacturing," Baseline, June 15, 2002.

Questions:

1. Summarize U.S. Steel's current competitive situation.

2. How are information systems related to the way U.S. Steel runs its business? What role is

played by supply chain management systems?

3. What management, organization, and technology factors were responsible for USS's inability to

compete with other steel manufacturers?

4. Describe how USS has responded to its global and American competition.

5. How helpful were information systems in addressing USS problems?

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CASE CASE CASE CASE STUDY STUDY STUDY STUDY N.03N.03N.03N.03

NESTLE USA INSTALLS SAP

Author: Paul Harmon Executive Editor, BP Trends Newsletter

Filed: November 2002

A good example of a company that has used ERP packages to reorganize

their business processes is provided by the U.S. subsidiary of Nestle SA, a

Swiss food conglomerate. Nestle USA was created in the late Eighties and early

Nineties via acquisitions. In 2002 it included seven divisions which collectively

sold such popular brands as Alpo, Baby Ruth, Carnation Instant Breakfast,

Coffee-Mate, Nescafe, Nestle Toll House, PowerBar, Stouffer’s Lean Cuisine,

SweeTarts and Taster’s Choice. The company employees some 16,000

employees and earned about $8 billion in revenues.

In the mid-Nineties the various companies that make up Nestle SA were all

operating as independent units. In 1997 a team studying the various company

systems concluded that, collectively, the companies were paying 29 different

prices for vanilla – which they all purchased from the same vendor. The study

wasn’t easy, since each company had a different number or name for vanilla,

and purchased it via completely different processes. Just isolating vanilla and

then determining a common unit price required a considerable effort.

In 1997, Nestle USA decided that it would standardize all of the major

software systems in all of its divisions. A key stakeholder team was set up to

manage the entire process. By March 1998, the team had its plan. It decided it

would standardize on five SAP modules – purchasing, financials, sales and

distribution, accounts payable and accounts receivable. In addition, the

stakeholder team decided to implement Manugistics’ supply chain module. The

team considered SAP’s supply chaining module, Advance Planner and Optimizer

or APO, but it was brand new in 1997, and decided to go with the better known

Manugistic’s module that was specifically designed to work with SAP modules.

Before even beginning to implement SAP modules, people from the

divisions were gathered and spent 18 months examining data names and

agreeing on a common set of name. Vanilla, for example, would henceforth be

code 1234 in every division.

Somewhere along the line, the project to install SAP modules also became

a Y2K program. By moving to standard software that was guaranteed to be free

of bugs associated with date problems that might occur when applications

started dealing with dates subsequent to December 31, 1999, the company


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hoped to avoid any Y2K problems. Unfortunately, this placed a deadline on the

entire implementation effort – it had to be done before January 1, 2000.

As the various SAP applications began to roll out to the divisions, the

stakeholder team managing the entire effort began to get lots of unpleasant

feedback. Jeri Dunn, the VP and CIO of Nestle USA, explained that in hindsight,

they had completely underestimated the problems involved in changing division

cultures or modifying established business processes. By the beginning of 2000,

the rollout was in serious trouble. The workers didn’t understand the new SAP

modules and they didn’t understand how the outputs they were now getting

would help them do their jobs or manage the processes for which they were

responsible.

It was at a major meeting in early 2000 that Dunn was given responsibility

for the project. Among the other conclusions reached by this executive

committee meeting, was the Y2K deadline would be ignored. Hence forth, they

would figure out the implementation requirements for each SAP module and then

let that specification guide their schedule. They decided that it was relatively

easy to install SAP modules, but that it was very hard to change business

processes and to win the acceptance of the people responsible for assuring

those processes operated correctly. They also decided that much more care

needed to be taken to determine just how the SAP modules would interact with

the processes and applications that would remain in place.

At the same time that Dunn took over, a new director of Process Change

has hired and a process manager (VP) for the supply chain was promoted to

help Dunn on the remainder of the project. In most cases, the team now began

to focus on modeling processes and defining process requirements and then

creating a plan to install the SAP modules. Several installations were delayed for

months or years to accommodate groups that were not prepared for the process

changes required. As we go to press, the Nestle transition is coming to an end.

The company spent approximately $200 million on the transition. Dunn claims

that the project has already paid for itself. The new planning processes, for

example, make it possible to project Nestle USA-wide demand more accurately

and to save significant inventory and redistribution costs. The VP for Nestle

USA’s supply chain, Dick Ramage estimates that supply chain improvements

have accounted for a major portion of the $325 million that Nestle has already

saved as a result of the SAP installation.

Dunn says she’s happy with the SAP applications and very happy that all of

the companies are now using the same basic processes. Still, in an article on the


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transition in CIO magazine in May of 2002, Dunn claimed that if she had it to do

over again, she’d “focus first on changing business processes and achieving

universal buy-in, and then and only then on installing the software.”

Nestle USA’s use of ERP applications, and their problems are typical of

most large companies that have elected to rely on ERP applications to drive

major changes. The company embraces the ERP applications in hopes that they

can organize and standardize their software applications and databases across

departments and divisions. Most large companies have started on this path and

found that it takes much longer and is more painful than they had hoped. Few

have completed their ERP transitions. The problem lies in the fact that the ERP

applications aren’t a solution. They are a tool to use in changing business

processes. This isn’t something that IT can do by itself. The transition must be

conceptualized as a business process transition and guided by business

managers. The ERP applications must be installed as part of the overall

business process redesign effort, not as an independent activity. Used in an

appropriate manner, ERP applications offer a powerful tool to aid in business

process redesign.

For further information on this case, check an article by Ben Worthen,

"Nestle's ERP Odyssey" in CIO magazine, May 15, 2002. pg. 62-70.

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CASE CASE CASE CASE STUDY STUDY STUDY STUDY N.04N.04N.04N.04

SHOPKO AND PAMIDA: SYSTEMS TRIUMPH OR TRAGEDY?

ShopKo, a regional discount merchandise retail chain headquartered in Green Bay, Wisconsin, has

about 140 stores in larger Midwestern cities, and 221 Pamida stores serving rural areas in the Midwest,

Mountain, and Pacific Northwest regions. ShopKo focuses on popular higher-margin categories such as

casual apparel, health and beauty items, and housewares. Sales totaled $3.18 billion for the fiscal year

ending in January 2005, and the company was recently acquired by a private company affiliate of Goldner,

Hawn, & Morrison Inc.

ShopKo has been an intensive user of applications to improve decision making about inventory levels,

sales performance, store layout, and selection of merchandise. One of its most powerful tools has been a

system to determine prices and timing of apparel markdowns. Traditionally companies that sell apparel have

four product cycles a year, one for each of the seasons. However such companies now face serious

competition from companies like Gap that now operate on rapidly changing product cycles, often bringing in

new product lines every two to four weeks. One of the growing problems ShopKo had to address was what

to do with the excess (or overstocked) merchandise when a cycle ends.

At the end of a season (or cycle), companies have faced two problems. One is the need to empty its

shelves in time for the arrival of the new cycle products (bathing suits do not sell well in the winter while fur

coats are not in demand in the summer). The other problem is getting rid of the overstocked items at the

highest possible price in an attempt to minimize losses in revenue. Traditionally the method ShopKo (and

most other clothing retailers) used to determine clearance prices for overstocked items was to set each

product price based upon clearance prices of similar products in past years. On average it found it needed

to lower prices four times to clear the overstock at the end of a cycle, selling as much at each price as

possible before lowering the price again. However, it always faced the calendar in addition to the customers'

willingness to purchase at each price. Mike Martin, ShopKo's director of business alignment and planning,

explains, "The first few markdowns buyers tend to take are very conservative. So they [Shopko] end up

taking too many markdowns to clear [merchandise] out."

This markdown strategy proved to be costly as the number of cycles per year increased. The clearance

price for each item was the same in every store throughout the entire chain. However, specific items were

more popular and sold better in some stores than in others. Also, traditionally markdown timing was always

the same for all stores, and yet seasonal changes can differ from store to store based on local geography

and culture. The result was that the company could have set higher markdown prices in stores where the

demand was higher or the cycle lasted a little longer. Moreover, a clothing markdown usually means a


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manual price change on each clothing item, and the staff time required to change the prices can be very

costly. Four markdowns per item is very expensive.

ShopKo had made substantial information systems investments and one was a system to help the

company optimize prices during markdowns. ShopKo implemented Markdown Optimizer from Spotlight

Solutions in Mason, Ohio, which helps companies price leftovers so that the products will sell faster and with

a better profit at each store. The software enables companies to price a product according to season,

geography (specific store location), local tastes, and past demand, by analyzing historical pricing and sales

data. It is proving very useful in helping stores get rid of the leftovers in time to make space for incoming

products of the next cycle. This type of computer systems is similar to the yield management software

developed by the airlines. This software determines the best prices for its seats at any given time. The goal

is to fill the plane at the best total price possible.

ShopKo's CIO, Paul Burrows expressed his understanding that "The more you sell during the first

markdown, the fewer you have left even if you have to take a second markdown." ShopKo's weekly sales

data are stored in its merchandise data warehouse, and its computer system automatically feeds the data

into Markdown Optimizer. Each piece of data contains the specific store, item number, and date for each

item sold. Markdown Optimizer automatically stores the previous recommendation for each item in each

individual store so that it can evaluate past results and then produce recommendations for the closeout of

the current cycle. In 2001, ShopKo ran a pilot on the new product and the results were excellent. For the

leftovers the pilot showed a 25 percent increase in its gross margin from previous years, while its payroll

costs fell by 24 percent and the percentage of unsold goods at the end of each cycle fell from seven percent

to two percent. Burrows was most pleased, claiming that a 15 percent increase would mean a $15 million

growth in net profit.

In 1999, ShopKo purchased Pamida, a general merchandise retail chain focused on small towns such

as Crete, Nebraska, (25 miles southwest of Lincoln, population 6000+) and Belle Fourche, South Dakota

(Butte County, population about 4,000). With headquarters in Omaha, Nebraska, Pamida's slogan is

"Bringing smaller communities what they want." ShopKo's aim in purchasing Pamida was to increase its

presence in the small towns where competition from retailing powerhouses such as Wal-Mart and Target

was not as strong. Pamida was the only major retail store in most of these small towns, and its strategy was

to compete by maintaining a high in-stock rate rather than by becoming the lowest price competitor. Pamida

relies on information systems to execute that strategy, and its SEC filing stated, "Pamida's information

technology strategy is aimed at providing the customer with . . . merchandise which is always available as

advertised." When ShopKo purchased Pamida, the chain had a total of about 180 stores, although that

number increased to 229 stores in 16 states when ShopKo purchased the P.M. Place chain of 49 small town

Midwestern stores in May 2000 and merged it into Pamida.

Despite its strategy, Pamida had a too many out-of-stock items. To make it worse, many key products

were in warehouses even though they were not on store shelves. In addition, the company's gross margin

was too low and falling. ShopKo wanted to expand the number of Pamida stores in small towns. Pamida's


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solution was to consolidate its five warehouses into three and modernize its inventory management systems

to increase stores' ability to keep their shelves stocked. The plan execution began early in 2000 with the

Lebanon (Indiana) Distribution Center Project to convert the Lebanon distribution center servicing 107 of

Pamida's 229 stores, to a full-service warehouse. The concept was to transform the warehouse from a flow-

through facility (where goods arrive at the warehouse and are immediately shipped to the stores) to a full-

service distribution center (where inventory is stored so that it can be shipped to the stores immediately

when needed). The warehouse was expanded from 200,000 square feet to 418,000 square feet, but the

warehousing software was neither updated nor replaced.

Initially, the new inventory management system created serious bottlenecks in Pamida warehouses,

causing Pamida's earnings to decline in the first nine months of 2001 and its corporate parent ShopKo to

lose $6.7 million in overall revenue. Pamida's old warehouse management information system came from

Catalyst, International, and the company had never updated the software, which was several versions

behind. According to Dan Trew, Catalyst's vice president of product strategy, "We have made significant

enhancements in the configurability of the product, things we couldn't do when Pamida was [originally

installing] its system," and so the system was out-of-date and inadequate. The software made it difficult to

lay out and run a full-service center in the most logical and efficient manner. "It's not real flexible so the

processes at the distribution center had to conform to the system," said Pamida's CIO Dan Nicklen. Newer

versions of warehouse management software can handle full-service distribution centers much more easily.

Nicklen said Pamida's warehouse management software was not updated when the rest of the

warehouse was modernized because the software had been working fine under the old distribution system.

Pamida had the support of ShopKo's management in making technology investments to become more

effective, but chose to continue using the old warehouse software. Instead, Pamida focused on a three-year

program to replace all of its major mainframe systems and software, including new merchandising software

from Retek Information Systems.

The product supply shortage became even more serious as the 2000 holiday season approached. The

estimated loss in sales for the 107 stores served by the Lebanon distribution center was $5 million, lagging 5

percent behind sales for the remaining 122 stores in the chain. Shareholders filed several class-action

lawsuits, charging that management had not revealed the seriousness of the distribution center problems,

partly to keep its stock prices up until November 2000, when it could no longer hide the problem. The

quarterly report released that month showed gross margins of 20.8 cents in that quarter versus 26.3 cents

previously.

Pamida partly blamed the problem on the previous owners, "Our resources were stretched thin," said

Nicklen. "Under our previous owners we were always under funded." But there were also other problems.

Certainly Pamida management turnover contributed, with the CEO, Steve Fishman, leaving in July 1999,

and a new COO arriving early in 2000. ShopKo also had a major management turnover when CEO William

Podany resigned as chairman in May 2001. Moreover, the task of merging P.M. Place with Pamida in the

spring of 2000 placed a heavy burden on the company.


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Pamida eventually turned around its distribution center and became fully functional by the end of 2001.

ShopKo felt confident enough in Pamida's new distribution system to close a smaller warehouse in Missouri

to consolidate distribution at its Indiana and Nebraska centers.

Sources: "Success Story: ShopKo," MicroStrategy Inc.,2005; Associated Press, "ShopKo Agrees to Be Sold to Private

Firm," April 8, 2005; Carolyn Abate, "Going Once, Going Twice... Sold!" Smart Business, May 1, 2002; Edward Cone,

"Pamida's Distribution Debacle," Baseline, January 1, 2002. Meridith Levinson, "Everything Must Go," CIO, May 1, 2002;

Meridith Levinson, "They Know What You'll Buy Next Summer (They Hope)" CIO, May 1, 2002; and Bob Tedeschi, "The Price

is Right," Smart Business, May 1, 2002.

Questions:

1. Evaluate the role of information systems in the way ShopKo and Pamida run their business.

How important are they?

2. Evaluate the importance of Pamida's distribution center consolidation project on for both

Pamida and ShopKo. What management, organization and technology factors prevented

Pamida's new distribution center from working successfully?

3. Are ShopKo and Pamida using information systems effectively? Why or why not? How much

value do their systems provide to the business?

4. If you were the CEO of ShopKo, how would you have addressed the problem? If you were the

CEO of Pamida when it was purchased by ShopKo, would you have recognized the problem?

Explain. How would you have solved the problem?

5. What management challenges does this case study illustrate? Explain your answer.

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CASE STUDY N.05CASE STUDY N.05CASE STUDY N.05CASE STUDY N.05

CUSTOMER RELATIONSHIP MANAGEMENT (CRM) IN BANKING: A CASE STUDY OF ICICI BANK

Focus on ICICI Bank’s Initiatives

The use of Customer Relationship Management (CRM) in banking has gained importance with the

aggressive strategies for customer acquisition and retention being employed by banks in today’s competitive

milieu. This has resulted in the adoption of various CRM initiatives by these banks to enable them achieve

their objectives.

The steps that banks follow in implementing Customer Relationship Management (CRM) are:

• Identifying CRM initiatives with reference to the objectives to be attained (such as increased number

of customers, enhanced per-customer profitability, etc.),

• Setting measurable targets for each initiative in terms of growth in profits, number of customers, etc.

and

• Evaluating and choosing the appropriate Customer Relationship Management (CRM) package that

will help the company achieve its CRM goals (a comparison of pay-offs against investments could

be carried out during the evaluation exercise).

Customer Relationship Management (CRM) has been deployed in retail banking. The challenges in

managing customer relations in retail banking are due to the multiple products being offered and the diverse

channels being used for the distribution of the products. Customer expectation from banks can be summed

up as: “ Any time anywhere service, personalized offers, and lower payouts”.

Aggressive marketing and promotions on the part of the banks have resulted in most customers

happily switching loyalties to enjoy better privileges, thereby making the task of retaining them more difficult

for the banks.

The use of Customer Relationship Management (CRM) in banking has been essentially done for the

following purposes:

• Targeting customers : It is necessary for banks to identify potential customers for approaching them

with suitable offers. The transactional data that is generated through customer interactions and also

by taking into account the profile of the customer (such as the lifecycle stage, economic background,

family commitments, etc.) needs to be collated into one database to facilitate its proper analysis.

For example, a customer interacts with the banks for savings accounts, credit cards, home loans,

car loans, demat accounts, etc. the data generated through all these services needs to be


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integrated to enable effective targeting. After the integration is done, a profitability analysis of the

customer needs to be undertaken to acquire an understanding of the profit-worthiness of the

customer before targeting him with new offers.

• Sales reference material : A consolidated information database on all products, pricing, competitor

information, sales presentations, proposal templates and marketing collateral should be accessible

to all the people concerned. These prove to be very helpful in Sales Force Automation (SFA)

wherein the salesperson gets instantaneous access to all relevant material as and when it is

required (especially when he/she is in a meeting with a client.)

• Consistent interface with customers : The communication to customers from various departments

like sales, finance, customer support, etc. should be consistent and not contradictory. Therefore, all

departments should be privy to a unified view of the customer to enable a consistent approach.

Removal of inconsistencies is necessary to ensure that customers are not harassed and frustrated

owing to poor internal co-ordination. This is bound to enhance customer satisfaction. The contact

centres used to interface with customers should ensure consistency in customer interaction,

irrespective of the medium used for the interaction such as telephone, Internet, e-mail, fax, etc.

Banks can use the data on customers to effectively segment the customers before targeting them.

Proper analysis of all available data will enable banks to understand the needs of various customer

segments and the issues that determine “value” for that segment. Accordingly, suitable campaigns can be

designed to address the issues relevant for that segment and to ensure higher loyalty from these

customers. When data analysis is done in the right manner, it helps in generating opportunities for cross-

selling and up-selling.

Read More: Customer Relationship Management in the Banking Sector

ICICI Bank’s CRM Initiatives

ICICI Bank has to manage more than 13 million customers. The bank has over 550 branches, a

network of 2025 ATMs, multiple call centres, Internet banking and mobile banking. Its customers often use

multiple channels, and they are increasingly turning to electronic banking options. Business from the

Internet. ATMs and other electronic channels now comprises more than 50 per cent of all transactions.

In the process of making its business grow to this level, ICICI Bank has distinguished itself from other banks

through its relationship with customers.

The Teradata solution focuses on a Customer Relationship Management (CRM) platform.

Information from various legacy and transaction systems is fed into a single enterprise called wide data

warehouse. This allows the bank to generate a single view of its customers. The warehouse has the

capability to integrate data from multiple sources comprising Oracle and flat files. The Behaviour Explorer

enables profiling of customers and querying on various parameters. These enable the bank staff create

suitable campaigns for targeting individual customers on the basis of their requirements.

The logistics in the system have also led to other benefits like interactive reports, unearthing cross-selling

opportunities as well as finding out about the channel usage undertaken by a segment. The data access

was facilitated through the use of Cognos Power Cubes.


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The Benefits of CRM

• Customers’ usage pattern : ICICI’s CRM data warehouse integrates data from multiple sources and

enables users to find out about the customer’s various transactions pertaining to savings accounts,

credit cards, fixed deposits, etc. The warehouse also gives indications regarding the customer’s

channel usage.

• New product development : Analysis at ICICI guide product development and marketing

campaigns through Behaviour Explorer, whereby customer profiling can be undertaken by using ad

hoc queries. The products thus created take into account the customer’s needs and desires,

enabling the bank to satisfy customers through better personalization and customization of services.

• Central data management : The initial implementation of CRM allowed ICICI to analyse its

customer database, which includes information from eight separate operations systems including

retail banking, bonds, fixed deposits, retail consumer loans, credit cards, custodial services, online

share trading and ATM.

Some Noteworthy CRM Initiatives of ICICI Bank

Mobile ATMs : Customers of ICICI Bank can access their bank accounts through mobile ATMs.

These ATMs are kept in vans and parked at locations that have a high traffic of bank customers such as the

commercial areas in a city or upmarket residential areas ICICI Bank now provides standard ATM facilities

through ATM vans. This facility has been tried at Mumbai, Chandigarh and various places in Kerala during

specified timings.

Bulk Deposits : The ICICI Bank’s Bulk Deposit ATMs enable customers to deposit large amounts at

one time. Unlike conventional ATMs, which are able to accept only 30 notes at a time, these ATMs allow

the deposit of huge amounts. The Bulk Deposit ATM is available in Mumbai’s Vashi sector branch office of

ICICI. The bulk deposit facility can be availed of by select customers who need to deposit huge amounts of

cash. ICICI Bank issues a special card called the `Deposit Only Card’ to facilitate this service. This card

allows for deposit transactions only. The service is further facilitated by the provision of special bags at

ATMs in which a customer can put his money. After the deposit slip is filled, the bag can be inserted in the

ATM. The transaction slip is then generated by the ATM as an acknowledgement of the deposit. ICICI

Bank also has cash pick-up service for business customers under the business banking segment.

ATMs for the visually challenged : ICICI Bank has launched ATMs with special voice-guided

systems, which guide a visually challenged person to access ATMs without any help. The jack on the

terminal enables headphones to be connected to it and voice commands enable the customer to transact

business. Customers may choose a suitable language to get voice commands. After the language

selection is done, the customer is guided to ensure that the ATM card is inserted in the right slot and

thereafter, guidance is provided for entering the PIN by using the keypad. A raised button is provided on

number 5 to enable users to identify the numbers easily through touch. The slot for cash collection has such

raised `pips’ that enable easy identification through touch.

Other Services through ATMs : Apart from the usual transactions involving the bank, some other

services can also be availed of by ICICI Bank customers. These include:


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• Prepaid mobile recharge

• Buying and renewing Internet packs (such as those of TATA Indicom Internet service provider and

Sify).

• Making donations for Tirupati Tirumala Devasthanams, Nathdwara temple and Shri Mata

Vaishnodevi shrine.

• Mutual fund transactions, and

• Bill payments

Mobile phone as a Virtual Wallet : The mobile phone has been transformed into a virtual wallet – a

new innovation in mobile commerce. On September 19, 2005, Airtel, ICICI Bank and VISA announced the

launch of mChq – a revolutionary new service – which is a credit card using the mobile phone. This is the

first mobile-to-mobile payment option which enables Airtel customers and ICICI Bank Visa cardholders to

pay for their purchases with their Airtel Mobile phones. The service has eliminated the need for carrying

physical cash for making a purchase and also the problems associated with the point of sale (POS) terminal

since the mobile phone services as a secure POS and a payment mechanism.

Social Events : ICICI Bank organized the largest domestic invitational amateur golf event for HN1

(high-net-worth individuals) customers. This nation-wide golf tournament had over one lakh high-net-worth

clients of ICICI Bank’s private banking division participating in the event.

Mobile Banking Benefits : Mobile banking enables the customer to avail of many facilities by just

sending an SMS. These facilities, which are currently offered free of cost, are as follows:

• Locating ATM

• Locating branch

• Locating drop box

• Alert facilities like salary credit, account debit/credit, cheque bounce, etc., and

• Queries on banking, cards and demat account

Questions

1. Explain the initiatives take by ICICI Bank to promote Customer Relationship Management

(CRM).

2. Discuss the benefits of the initiatives taken by ICICI Bank to promote Customer Relationship

Management (CRM).

3. What should be the core elements of CRM that ICICI bank in your opinion should follow,

besides what they are already following to make themselves a distinct bank from their

competitors

4. Outsourcing CRM is one activity that most organizations follow. Is it a viable option. Give your

views keeping in mind the cost involved in implementing CRM and enhancing business also.

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CAN DSS HELP MASTER CARD MASTER THE CREDIT CARD BUSINESS ?

Credit (change) cards have been very big business for several decades. In 2001, over $30 trillion in

payments for goods and services were charged using credit cards. The cards have made life easier for

many people because they do not need to carry large amounts of cash for most purchases. Many people

also use the cards as a way to borrow money because they need only pay a small percentage of the amount

they owe each month, although they are usually charged very high interest rates for the unpaid balance. The

interest goes to the issuing bank, making credit cards a very profitable service for them. However, the credit

card industry is intensely competitive, highly fragmented, and growing at a rate of 3 to 4 per year, making

those profits difficult to achieve.

Visa and MasterCard are associations of banks that issue the credit cards. They market their cards,

often several different cards, and provide support for the transactions, making networks available to collect

and use the data. The most popular credit card has been Visa, with 44.5 percent of the business in 2001,

while MasterCard is number two with 31.6 percent. Being very much second to Visa, MasterCard is trying to

overtake it. While it had been number two since the beginning, MasterCard began to emerge from “its

doldrums” in 1997, according to Robert Selander, MasterCard’s CEO. It began to realize it might really be

able to overtake Visa and become number one. To reach that goal, MasterCard needed to present itself so

that potential user will choose a MasterCard rather than a Visa. It also had to spur the bank issuers to

promote MasterCard cards rather than those of their competition.

In 1998, when MasterCard had only 28.8 percent of the credit card charge volume while Visa’s was

over 50 percent, MasterCard decided it needed a new computer center, partially to handle all the data as

the company’s business expanded as a result of its drive to overtake Visa. It also foresaw growth as a result

of its change in strategy. The company’s new strategy required a system that would be able to keep a

record of every transaction of every customer for three years. The strategy included ways MasterCard and

its member banks could use that data to increase their credit card business. MasterCard wanted to increase

its daily volume of 30 million transactions in 1977. At the time it had three separate computer centers on four

floors in the suburbs of St. Louis, Missouri, and it wanted to consolidate the computer centers while


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enlarging the new center so that it would be able to handle both the current volume and the planned volume

as it expanded. At that time it was storing nearly 50 terabytes (50 trillion numbers and letters) of data,

including the dollar amount, merchant, location, and card number. MasterCard also planned to add other

data fields, such as ZIP codes, to make the data more useful. However, to protect MasterCard users, it did

decide not to include demographic data such as incomes and ages.

Nonetheless, “The credit card business lives and dies by data”, said Ted Iacobuzio, director of

consumer credit research for the consulting and research firm, TowerGroup.

While both Visa and MasterCard had already been warehousing so much data, they were both

moving toward providing reports to their member banks. MasterCard’s goal was to give its members (the

banks) direct access to their customers’ data as well as tools to analyze all of this data, all in order to

persuade the banks to choose MasterCard over Visa. For example, if banks could use MasterCard tools to

improve their analysis of the profitability of the cards in their portfolios or gain more customers and

transactions to process, they would be inclined to push MasterCard more often. Such analysis could help

banks determine the types of customers that were most profitable or find ways to appeal to more potential

MasterCard customers. Many banks issue both Visa Cards and MasterCard cards (sometimes several of

each), and if the banks can use this information from MasterCard while Visa does not have or make

available such information, the MasterCard company can gain a strategic advantage. For example, in 2001,

MasterCard persuaded Citigroup, the largest issuer of credit cards, to push MasterCard over Visa so that 85

percent of its credit cards came from MasterCard versus only 15 percent from Visa. J. P. Morgan Chase

likewise was convinced to use MasterCard for 80 percent of the cards it issued.

MasterCard hoped it could persuade banks to use these data if they could see value (increased

profit) in the process. Joseph Caro, MasterCard’s vice president of Internet technology services, said that

“little percentages” can be very profitable to banks. In one case, a bank was requiring its merchants to verify

the whole process by using the telephone to call in one transaction out of 50 for approval (rather than using

a telecommunications method), while most banks were requiring only one transaction in 500. Because call-

ins cost about $3 each, that bank could save $300,000 a year by switching over to the one in 500 method.

Another bank was turning down one one transaction out of five because so many call-ins were timing out.

The bank was able to discover that most of the customers turned down were actually creditworthy. By

changing its set up, the bank would be able to eliminate thousands of unnecessary lost transactions.

About 28,000 banks and financial service companies issue MasterCard credit cards. To draw these

customers into using its credit card transaction data, MasterCard needed not only to make each bank’s data

available to them, but it also needed to make available appropriate analytic software. MasterCard assigned

35 full-time developers to the task of identifying and creating software tools to accomplish this task. Drawing

on Business Objects Web Intelligence software in 2001, these developers created and programmed 27 tools

for the banks to use. (These tools are not free and they are not available to merchants.) One of

MasterCard’s new tools, called the Business Performance Intelligence, is for operational reporting and

includes a suite of 70 standard reports that banks can use to analyze their daily, weekly, or monthly

transaction. The banks can then compare the results from one market (such as a United States state or

region, or a single country) with that of another market. MasterCard also works with individual banks to


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create their own custom reports, enabling them to concentrate on their own issues and concern. Subscribing

banks access the MasterCard business intelligence system via a secure extranet.

The developers also created MarketScope, which are applications that have the goal of helping

banks and merchants work together to generate more purchases from the merchants if they are paid for by

MasterCard. One example they give is to enable Wal-Mart stores to determine how many MasterCard

holders spend $25 or more on sporting goods in January and February. Then, MasterCard’s vice president

of systems development, Andrew Clyne, suggested that Wal-Mart could send these card-holders the right to

obtain tickets to their closest major league baseball team based upon future sporting goods purchase

above a certain dollar minimum. lacobuzio said that such a strategy should appeal to state and regional

banks. However, he believes it is likely that national and international banks would have already developed

and are using their own analytical software. But even they would have a use for MasterCard’s software as a

kind of benchmark against which to measure the effectiveness of their own systems.

Moreover, despite the increasing volume, the processing was much faster. As Caro said, “If we can

do thing faster, little percentages start moving in our direction.”

Visa, however, is not sitting still, and is managing about 100 trillion terabytes of data for its clients.

Until recently, it mainly supplied the data online or on disks to its bank customers, who used their own

software and computers to analyze the data. Recently, Visa started to run analyses for the banks on its own

computers. In May 2002, Visa also introduced a Web service called Resolve Online to help banks deal with

disputed payments and is working on providing banks with online analytic tools. “If MasterCard is ahead of

the game in any of this”, says Iacobuzio, Visa “will have it in six months”.

MasterCard’s new data storage site, which was opened in May 2002, is also in St. Louis, in a single

525,000-square – foot building. The complex, which was built on open land, cost MasterCard $135 million.

The changeover to the new site happened over a weekend with almost no problem, despite the purchases

of about $4 billion each day.

Questions

1. Analyze MasterCard using the competitive forces and value chain models. Briefly summarize

the problems that MasterCard was facing before 1998 that caused it to change its business

strategy.

2. Describe the new business strategy MasterCard developed. What is the role of information

systems in its new strategy?

3. What kind of decision-support systems did MasterCard develop? How are they related to its

business strategy?

4. Has MasterCard’s strategy been successful? Can MasterCard hold on to its strategic

advantage? Explain your answer.

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MANAGEMENT INFORMATION SYSTEM AT DELL

Management information system involves the information system and the organization. MIS begins

where computer science ends. Computer scientists deserve accolades for developing and delivering even

more advanced forms of information technology: hardware technology; software technology; and network

technology. Yet because no technology implements itself, there is more to MIS than just information

technology. MIS has dimensions. The four interrelated dimensions of MIS are as follows: First, MIS involves

not just information technology, but also its instantiation; second, MIS involves, as reactive and inextricable

elements, both an information system and its organizational context; third, MIS involves information

technology as a form of intellectual technology; and fourth, MIS involves the activities of a profession or

corporate function which are integral to the essence of what MIS is (Currie & Galliers, 1999).

Dell Computer Corporation: Company Background

Dell Computer Corporation is a major manufacturer of personal computers, computer peripherals,

and software. Among the leading producers of computers in the world, Dell sells its products directly to

customers through the Internet and mail-order catalogs rather than through retail outlets. The company is

based in Round Rock, Texas. At Dell Computers, customers are brought into the product planning and

manufacturing processes, with all employees encouraged having contact with customers. Through effective

collaboration across boundaries, ideas can be shared about product designs and value propositions. The

result is faster and more customer-focused product and service innovation. To produce the capacity for this,

considerable attention must be placed on organizational structures, processes, skills and culture. Such

elements may need a radical overhaul in established companies (Dennis & Harris, 2002). Dell was founded

in 1984 by Michael Dell. In 1983, during his freshman year at the University of Texas, he bought excess

inventory of RAM chips and disk drives for IBM personal computers from local dealers. He resold the

components through newspaper advertisements at prices far below retail cost. By 1984, his sales totaled

about $80,000 a month. In April 1984, Dell dropped out of school to launch his company (Ford, Honeycutt, &

Simintiras, 2003).

The new company soon began manufacturing its own IBM-compatible computers under the name

PCs Limited. Because Dell sold computers directly to users through advertisements in magazines and

catalogs, the company could price its machines lower than those sold through retail stores. Sales reached

nearly $6 million during the company’s first year, climbing to $34 million the following year. By 1987, Dell

was the leading mail-order computer company in the United States. In that year, it created a sales force to

target large corporations and began adding international offices to capture the direct-mail market outside the

United States (Ford, Honeycutt, & Simintiras, 2003). While the company continued to grow rapidly; Dell

experienced a series of setbacks that hurt profits. In 1990, the company began selling computers through


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retail stores, an effort it abandoned in 1994. In 1991, Dell launched a line of notebook computers, but quality

problems and inadequate production planning forced the company to stop selling for a year. In 1994, Dell

launched a new line of notebook computers and expanded efforts to increase overseas sales. Dell also

began focusing on the market for servers, which used the computers to run local area networks. By the late

1990s, Dell was firmly in place as the world’s number one direct seller of computers. More than 50 percent

of the company’s computer sales transactions took place via its website, which generated worldwide sales in

excess of $40 million a day (Ford, Honeycutt, & Simintiras, 2003).

Information Processing Tools

Information processing or Data processing is the analysis and organization of data. It is used

extensively in business, engineering, and science and an increasing extent in nearly all areas in which

computers are used. Businesses use data processing for such tasks as payroll preparation, accounting,

record keeping, inventory control, sales analysis, and the processing of bank and credit card account

statements. Engineers and scientists use data processing for a wide variety of applications, including the

processing of seismic data for oil and mineral exploration, the analysis of new product designs, the

processing of satellite imagery, and the analysis of data from scientific experiments (Thierauf, 1978).

Data processing is used extensively in business, engineering, and science and to an increasing

extent in nearly all areas in which computers are used. Data processing is divided into two kinds of

processing: database processing and transaction processing. A database is a collection of common records

that can be searched, accessed, and modified, such as bank account records, school transcripts, and

income tax data. In database processing, a computerized database is used as the central source of

reference data for the computations. Transaction processing refers to interaction between two computers in

which one computer initiates a transaction and another computer provides the first with the data or

computation required for that function. Most modern data processing uses one or more databases at one or

more central sites (Thierauf, 1978).

Transaction processing is used to access and update the databases when users need to

immediately view or add information; other data processing programs are used at regular intervals to

provide summary reports of activity and database status. Examples of systems that involve all of these

functions are automated teller machines, credit sales terminals, and airline reservation systems (Thierauf,

1978).

The information processing tools that Dell uses include computers, the internet, maps,

spreadsheets, models, and databases. For the operational level of Dell, the most appropriate tool for

information processing is maps. Through the said information processing tool, decisions on how to operate

the organization can be initialized and made. Maps can be used to determine which country/place

information will be acquired from, it can also assist in determining the demographic level of people and

information will be gathered. Maps can be in the form of charts that can also provide necessary information.

The information gathered in turn can assist in helping to decide how an organization will be operated. For

the tactical level of Dell, the most appropriate tool for information processing is databases. Through the said

information processing tool, the records that can assist in finding out the strength and weakness of the


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company can be used to determine the tactic that will be used by the organization. For the strategic level of

Dell, the most appropriate information processing tool is the internet or World Wide Web. Through the

internet, trends and strategies by other companies can be known. After analyzing the trends and strategies

used by other companies, an appropriate strategy can be formulated to use by the organization.

Inventory control systems

Individual businesses need, first and foremost, an efficient inventory control system. This implies the

minimum amount of inventory that will provide the consumers with what they need whenever and wherever

they need it. Effectiveness of the inventory system means basically having an inventory mix that is most

likely successful in satisfying consumer needs (Samli & Sirgy, 1995). The inventory control systems used by

Dell is up to date and reliable to prevent problems to arise. The inventory system of Dell makes sure that

anything the consumer need will be available to them at any given time. It is also what the company uses to

know if certain products are still available or misuse of the inventory system may cost problems to the

company.

Conclusion

Management information system involves the information system and the organization. Dell benefits

a lot from the management information system. The system helps the company create strategies that will

help the company conquer any problems and threats from competitors. The system also assists the

company in processing the needed information. Management Information Systems also helps a company to

create or update its inventory control system.

Recommendations

Since the MIS of a company is a vital part of its operations and its survival in the modern world, it

must be well updated and it must compete well with MIS’s competitors. The MIS of a company should be

created from high standards so that it can be of stiff competition against its counterparts. The MIS system

should help the company to achieve its goals and assist the company in reaching its potential.

Questions

1. Comment on the MIS in Dell and suggest the positives and negatives of MIS in Dell?

2. The dell directly sells its computers to the customer whether it will give them good and reliable

information or they are lacking in information system due to this move?

3. Develop the information flow diagram for dell and suggest some improvement in the same.

4. MIS is a combination of Management, Information and System otr of the three parts of the

information system in which area does the Dell lacking?

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SIEBEL’S SOLUTION FOR TATA MOTORS

TATA Motors is India’s foremost, and the only fully integrated automobile manufacturer. Established

in 1945 as TATA Engineering & Locomotive Company (TELCO), to manufacture locomotives and other

engineering products, the company is today among the world’s top 10 producers of commercial vehicles.

TATA Motors was also previously known as TATA Engineering. It is today one of the biggest and most

prominent companies in the TATA group, with an annual revenue of $1.8 billion in 2001-02. Today TATA

motors’ vehicles run in more than 70 countries.

TATA Motors use a manual dealer management system, where every dealer managed details. With

legacy-based systems, the environment produced inconsistent data, making interpretations difficult and

resulting in inefficient planning for capacity and spare parts. The basic challenge was to provide a Dealer

Management System (DMS) solution. All in all, TATA Motors required a standardised solution that would

provide them with: Increase in sales and profitability by easy management. Improved accuracy of dealer-

captured information. Collaboration between vehicle manufacturers and dealers. A strong feedback

mechanism and interface for communicating with customers.

India’s largest and only fully integrated auto maker, and Siebel Systems, Inc. (NASDAQ: SEBL), a

leading provider of business applications software, Tata has deployed Siebel Automotive, a customer

relationship management (CRM) solution, to enhance customer service, strengthen dealer relationships,

and improve operational efficiency and effectiveness.

According to K. R. Sreenivasan, head, CRM and dealer management system, Tata Motors, “Within

the first year of implementing the Siebel’s solutions, we have seen improvements in customer satisfaction,

revenue and operating cost reductions through productivity improvements, and these benefits are expected

to increase further over time. This is helping us become truly customer-centric, since we can draw upon

real-time, centralised customer and vehicle data and respond better to our customer and dealer needs.”

Tata Motors, a flagship company of the Tata Group, is the world’s fifth-largest medium and heavy

commercial vehicle manufacturer and produces more than 150 commercial vehicle models with a range of

light, medium, to heavy-duty trucks, buses, and tractor-trailers with revenues exceeding $3.5 billion and is

the second-largest player in the domestic passenger car market in India The company works through a

network of dealers located across the country to sell its vehicles. In recent years, this number has expanded

by 50 per cent to its current pool of 250 dealer organisations.

The Siebel CRM solution will enable Tata Motors to gather feedback on products to improve design

or manufacturing quality as well as measure the effectiveness of marketing campaigns and programmes.

The automaker selected Siebel Automotive because of its partner management capabilities to handle its

large dealer network, the solution’s zero-footprint web-based architecture and user-friendly interface-critical

to support thousands of salespeople with various skill levels.


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Tata Motors is currently in the first part of a three-phase deployment. Once the current phase is

completed, the company plans to deploy marketing, call centre, business analytics, and captive finance

modules. This will allow Tata Motors to better understand customer needs and requirements, improve its

responsiveness to service requests and problem resolution, initiate more proactive contacts with customers,

add support for new products and services, and streamline dealer financing processes. The ease of

integration between CRM solution and Tata Motors’ dealer management and ERP systems was also a

critical factor in the company’s decision process. The company says that Tata Motors has already seen

improvements in a number of areas, including:

• Improved demand forecasting, planning, logistics management, and inventory management

• Overall reduction in quality-related costs due to faster product performance feedback

• Improved workflow and escalation of customer grievances for faster resolution

• Increased revenue growth from both higher vehicle sales and a rise in the company’s after-sales

parts business

Ultimately, Tata Motors intends to create an open portal for customer self-service, enabling car

buyers to manage product configuration and place orders online.

“The cyclical nature of automotive demand, together with competition from new entrants in the

market, has made it difficult for automotive companies to achieve their growth and globalisation goals,” says

John Gray, general manager, Automotive, Siebel Systems. “By enabling Tata Motors to manage,

synchronise, and coordinate interactions with its dealers and customers, Siebel Automotive provides the

company with an ideal platform for getting closer to its customers while strengthening its position as a world-

class automotive brand,” adds.

Siebel Automotive, a comprehensive suite of business applications, provides a single, 360-degree

view of the customer to all who need it; facilitates coordination between Tata and its dealers; and enables

Tata to track each vehicle throughout its life cycle. Siebel Automotive has been closely integrated with a

wide array of back-office applications, including applications for inventory management, fulfilment, and parts

location. Pricing and tax calculations can be adjusted for each dealer’s requirements. In addition,

comprehensive sales and reporting functionality built into Siebel Automotive enables Tata to distribute sales

targets to its dealers and roll up sales numbers across the country.

Siebel, incidentally, pioneered the industry-specific application model and today delivers 23 industry

applications and more than 100 industry-specific solution sets. These solutions, which include Siebel

Automotive, enable companies to establish a single, enterprise-wide view of their customers and execute

key customer-facing business processes more efficiently and effectively.

Questions

1. “The most important point in selecting any software is the expected cost and benefits which one

derive from it but, it is easy to quantify cost but hard to calculate benefits”. Explain this in the

case of Tata motors.

2. Explain the role Siebel play in the success of Tata motors ?


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3. “Effective and efficient communication is most important in the success of information system”.

Explain how 360 degree view of the customer increase efficiency of Tata motors ?

4. “Control of MIS is difficult if you outsource your information system to the vendor”. Do you

agree. Why or why not ?

� �

case study mis1 (updated 092012)

Documents

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defense architectural

risky software

public sector

public sector

install sap

customer satisfaction

detailed weighted