learning objectives chapter 5 information systems and...
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John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
Chapter 5
Information Systems and
Business Transformation
Jason C. H. Chen, Ph.D.
Professor of MIS
School of Business Administration
Gonzaga University
Spokane, WA 99258
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices2
Learning Objectives
• List how IT enables business change.
• Identify ways in which IT can impede business
change.
• Understand the problems that are caused by the
functional (silo) perspective of a business.
• Identify how the process perspective keeps the big
picture in view and how IT can be used to facilitate
this perspective.
• Define TQM and BPR, and explain how they are used
to transform a business.
• Explain an enterprise system and how it is used to
implement organizational change.
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices3
Opening Case - Sloan Valve
• Sloan Valve Company, a family-owned global
manufacturer of plumbing products, was launching a range
of new products every year.
• The new product development (NPD) process was both a
_____ process and a _________ asset.
• The process was complex:
– Over 16 functional units involved.
– Slow, taking 18-24 months to bring a new product to market.
• The process of initiating and screening new product ideas
was broken; over 50% of new ideas didn’t make it through.
• No one was accountable for the process.
– Difficult to get a handle on process management and improvement.
– Formation flow was blocked in part because of the organizational
structure.
core strategic
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices4
Opening Case - Sloan Valve (Cont.)
• Management initially invested in an enterprise system to
automate their internal processes.
• Despite successful implementation, the communication
and coordination problems continued.
• Management realized that the enterprise system was
working fine, but the underlying process was broken.
• Top management decided to redesign the process.
• A team spent nine months assessing the current process
and proposing a new end-to-end NPD process.
• The quality, timing, and output of the NPD process greatly
improved.
• Time-to-market was reduced to less than 12 months.
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices5
Opening Case - Sloan Valve – (Q/A)
1. What is NPD? What did Sloan do?
– New Product Development
– Adoption of ERP.
– Process: team included members across the firm; proposed new process of (1) ideation (2) business case development, (3) project portfolio management, (4) product development, (5) product/process validation, (6) launch
2. What was wrong with their Product Development Process?
– Complex and slow; 16 units had to coordinate; took 18-24 months to bring new products to market; >50% of ideas didn’t make it; nobody accountable
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices6
Opening Case - Sloan Valve (Cont.)
3. Did it help?
– Results: Time to market reduced to 12 months, poor ideas
filtered out early; better access to info and customer
feedback; better accountability
4 Are all enterprise system implementations this
successful?
– Other firms: No, some failed, such as: Overstock.com,
Levi Strauss, Avis Europe
2
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices7
Chapter Overview
• This chapter explores the relationship between the
transformation of business and information systems.
• There are three key concepts in this chapter:
– the first is that businesses operate as a set of business
processes, rather than as a set of functions, departments, or
other organizational forms;
– second is that business processes are redesigned using both
radical (reengineering) and incremental techniques: and
– third, IS are used to transform a business (by way of
changing their business processes).
• Two of the major concepts discussed in the chapter are
Integrated Supply Chains and Enterprise Systems.
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices8
Discussion Question
• #1. Why was radical design of business processes
embraced so quickly and so deeply by senior
manager of so many companies? In your opinion,
and using hindsight, was this a benefit for
businesses? Why or why not? (Why BPR
embraced so radically?)
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices9
• Ans: This idea was embraced so quickly because managers realized they needed to change the way they did business and reengineering offered them a roadmap to do that. Reengineering was written up as the method to use to achieve very significant (75% or more) increases in productivity, decreases in costs, and increases in efficiency.
• It was a benefit for businesses in part because even if they didn't achieve the radical objectives they set for themselves, they did realize that changing their operations was not only possible, but also critical if they want to operate at a reasonable cost level. Other managers realized that business processes were the critical unit of business, not function or geographical region. Still other businesses achieved real savings and real productivity gains from the process of reengineering.
• It was not necessarily a benefit to business because the process of reengineering was very disruptive to daily operations. Many people were pulled out of the daily business and put on reengineering teams. Those left in the operations were overloaded, and in many cases, the business was forced to abandon reengineering efforts. This was costly.
Why was radical design of business processes embraced so quickly and so deeply by
senior manager of so many companies? In your opinion, and using hindsight, was
this a benefit for businesses? Why or why not? (Why BPR embraced so radically?)
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices10
Transformation Methodology
Figure 5.extra – Conceptual flow of process design
Current ProcessVision
Change
MeasureNew Process
Why?
What
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices11
Why Do Organizations Need to
Manage Business Processes?
• Reasons for change
– Improve process _______
– Change in ___________
– Change in business _____________ Market
Product lines
Supply chain
Company policy
Company organization
Internationalization
Business environment
quality
technology
fundamentals
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices12
_______ PERSPECTIVE
VERSES
What are the two Perspectives
for Business Processes?
__________ ___________
PERSPECTIVE
SILO
BUSINESS PROCESS
3
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices13
Silo (Functional) Perspective
• Specialized functions (sales, accounting, production, etc.)
• Advantages:
– Allows optimization of expertise.
– Group like functions together for transfer of knowledge.
• Disadvantages:
– ___-optimization (reinvent wheel; gaps in communication;
bureaucracy)
– Tend to lose sight of overall organizational objectives.
Executive Offices CEO
President
Operations Marketing Accounting Finance Administration
Sub
Fig 5.1 Hierarchical structure
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices14
The Process Perspective
• Process is defined as an __________, sequential set of activities and tasks that turns inputs into outputs, and includes the following:
– Beginning and an end
– Inputs and outputs
– A process to convert inputs into outputs
– Metrics to measure effectiveness
• Examples of processes:
– Fulfill customer orders
– Manufacturing, planning, execution
– Procurement (see below)
• They cross functions
Receive Requirement for Goods/Services
Create and Send Purchase Order
Receive Goods Verify Invoice Pay Vendor
interrelated
Fig 5.2 Sample procurement business process
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices15
Business Process and Work Flow
• A workflow is a sequence of activities that take place in a
process.
• Metrics help to focus managers on the critical dimensions of
the process.
– Throughput, outputs, customer satisfaction, revenue per
output, profit per output, and quality of the output.
• Examples of business processes include customer order
fulfillment, manufacturing, planning and execution, payroll,
financial reporting, and procurement (Figure 5.2).• Advantages:
– Helps avoid or reduce duplicate work.
– Facilitate cross-functional communication.
– Optimize business processes.
• Figure 5.3 shows the cross-functional view of processes as they cross departments (functions).
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices16
Figure 5.3: Cross-Functional Nature of Business Processes
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices17
How to Manage a Process
• Identify the customers of processes (who
receives the output?)
• Identify the customers’ requirements (how
do we judge success?)
• Clarify the value each process adds to the
organizational goals
• Share this perspective so the organization
itself becomes more process focused
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices18
Figure 5.4 Comparison of Silo Perspective and
Business Process Perspective
Silo Perspective Business Process
Perspective
Definition Self-contained functional units
such as marketing, operations,
finance, and so on
Interrelated, sequential set
of activities and tasks that
turns inputs into outputs
Focus
____________________ _________________
Goal
Accomplishment
Optimizes on functional goals,
which might be a suboptimal
organizational goal.
Optimizes on
organizational goals, or
“big picture”
Benefits Highlighting and developing core
competencies; Functional
efficiencies
Avoiding work duplication
and cross-functional
communication gaps;
organizational effectiveness
Problems Redundancy of information
throughout the organization;
cross-functional inefficiencies;
communication problems
Difficult to find
knowledgeable generalists;
sophisticated software is
needed
Functional Cross-functional
4
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices19
RE-ENGINEERING CHANGE MANAGEMENT
RE-ENGINEERING
VISION
PROCESS
RE-DESIGN
PROCESS
SIMULATION
PROCESS
IMPLEMENTATION
IT ARCHITECTURE
& TECHNOLOGY
INFRASTRUCTURE
PLANNING
IT MODELS
SYNCHRO-
NIZED
CURRENT
IMPACT
ANALYSIS
FRONT OFFICE
APPLICATION(S)
STRATEGY DESIGN PROTOTYPE IMPLEMENTATION
APPLICATION
PROTOTYPE
(by Class of
Application)
CLIENT/SERVER
OPERATIONAL
APPLICATION(S)
DATA WAREHOUSE/
DECISION SUPPORT
APPLICATION(S)
IT PROCESS MANAGEMENT
IT R
EP
RE
SE
NT
AT
IVE
SB
US
INE
SS
AN
AL
YS
TS
ST
AG
ES
PR
OC
ES
SA
CT
IVIT
IES
PR
OC
ES
S
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices20
Building Agile and
Dynamic Business Processes
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices21
What do you do when things change?
• Dynamic and agile processes
• Examples:
– _____: Autos are built with wires and space for
options
– _________: Call centers route incoming or even
outgoing calls to available locations and agents
– Software defined architectures (see chapter 6)
• IT is required to pull this off well
Agile
Dynamic
Processes: Using the Internet and _______Technologies
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices22
Techniques to Transform a Static Process
• Incremental, continuous process improvement
– Managers improve business processes through small,
_________ ________.
Choosing a business process to improve.
Choosing a metric by which to measure the business
process.
Enabling personnel to improve the process based on the
metric. HOW?
– Including total quality management (TQM) and Six Sigma
• Radical process redesign
– Also known as business process _____________ (BPR)
– _________ _________
incremental changes
reengineering
Radical changes
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices23
Business Process Transformation
• Organization transformation is a comprehensive organization-wide change initiative that results in change in the “deep structure” of the firm, radically altering strategy, structure, systems, processes, human resource requirements, and core values and beliefs (for the purposes of dynamicand agile processes)
• Two processes:
– incremental and radical change consistent with the change process.
– Business Process ____________
– Business Process ____________Reengineering (BPR)
Re-structuring
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices24
Incremental Change
• Total Quality Management
– Total Quality Management (TQM) is a tool for change that uses
small incremental changes.
• Often results in favorable reactions from personnel
– Improvements are owned and controlled
– Less threatening change
• Six-Sigma is one popular approach to TQM
– Developed at Motorola
– Institutionalized at GE for “near-perfect products”
– Generally regarded as 3.4 defects per million opportunities for defect
(6 std dev from mean)
Time
Improve-ment
5
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices25
Radical Change
• Business Process Reengineering (BPR)
• Sets aggressive improvement goals.
• Goal is to make a rapid, breakthrough impact on key
metrics in a short amount of time.
• Greater resistance by personnel.
• Use only when radical change is needed.
Time
Improve-ment
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices26
Improve-ment
Figure 5.5 Comparison of radical and incremental improvement
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices27
Key Aspects of Radical Change Approaches
• Need for quick, major change
• Thinking from a ______ -functional process
perspective.
• Challenging old assumptions.
• Networked (cross-functional) organizing.
• _____________ of individuals in the process.
• Measurement of success via metrics tied directly to
business goals and the effectiveness of new processes
(e.g., production cost, cycle time, scrap and rework
rates, customer satisfaction, revenues, and quality).
Empowerment
cross
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices28
Deconstruction of the newspaper industry:
BPR
Old newspaper industry value chain
Journalists
Columnists
Editors Printers Distributors Readers
New newspaper industry value chain
_________
Journalists
Columnists
Editors
ReadersInternet
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices29
BPR
Radical Change = New ___________+ ____
Types of
Organizational =
Strategies
Industry
Structure +_________
Strategies +_________
Strategies
organization IT
Competitive Cooperative
Co-opetition
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices30
Risks of Radical Redesign
• Research shows some of the common reasons why
companies fail to reach their goals:
– Lack of senior management support at the right time
and at the right place.
– Lack of coherent communications program.
– Introducing unnecessary complexity into the new
process design.
– Underestimating the amount of effort needed to redesign
and implement the new processes.
– Combining reengineering with downsizing.
________ out of FIVE are related to “Human Elements”FOUR
6
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices31
THE TOOLS FOR CHANGE
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices32
Customer
centric
______ are the customers?
_______are the customers?
Their purchasing ______
_____ to reach them?
What they need/want?
How many they need/want?
When they need/want?
How to reach them?
Demands Products
E-BUSINESS
BUSINESS FOCUS
•SCM
•CRM
•BPR
•ERP
Who
Wherehabits
Supply Chain Management
Customer Relationship Management
Business Process Reengineering
Enterprise Resource Planning
Business Models & Strategies
How
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices33
Six Sigma (6σ )
• Six Sigma is a ________ __________ strategy, originally developed by Motorola (by Bill Smith), that today enjoys widespread application in many sectors of industry.
– A data-driven approach and methodology for eliminating defects
from a process.
• Six Sigma seeks to identify and remove the causes of defects
and errors in manufacturing and business processes. It uses a
set of quality management methods, including statistical
methods, and creates a special infrastructure of people within
the organization who are experts in these methods. • Processes that operate with "six sigma quality" over the short
term are assumed to produce long-term defect levels below _____ defects per million opportunities (DPMO) or Six standard deviations.3.4
business management
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices34
Sigma levels– further information
Short-term sigma levels correspond to the following long-term DPMO values (one-sided):
• One Sigma
– 690,000 DPMO = 31% efficiency
• Two Sigma
– 308,000 DPMO = 69.2% efficiency
• Three Sigma
– 66,800 DPMO = 93.32% efficiency
• Four Sigma
– 6,210 DPMO = 99.379% efficiency
• Five Sigma
– 230 DPMO = 99.977% efficiency
• Six Sigma
– 3.4 DPMO = 99.9997% efficiency
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices35
Workflow and Mapping
Processes
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices36
Workflow and Mapping Processes
• Workflow is a way to look at a _____-functional
process.
• Workflow diagrams show a picture of the sequence and
detail of each process step
• Objective is to understand and communicate the
dimensions of the process
• Over 200 (software) products are available to do this
• High-level overview chart plus detailed flow diagram
of the process
cross
7
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices37
Business Process Management - BPM
• Information systems tools used to enable information
flow within and between processes.
• Comprehensive, enterprise software packages.
• Most frequently discussed:
– ERP (Enterprise Resource Planning),
– CRM (Customer Relationship Management),
– SCM (Supply Chain Management)
• Designed to manage the potentially hundreds of
systems throughout a large organization.
• SAP, Oracle, Peoplesoft are the most widely used
ERP software packages in large organizations.
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices38
Figure 5.6 Sample BPM architecture.
Source: Adapted from www.appian.com
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices39
FIGURE 5.X Another Sample BPM Architecture: Appian EnterpriseJohn Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
40
Process Integration vs. Standardization
Processes are the way organizations deliver goods and services to customers. Designing,
building and executing processes is one of the roles of management.
Low
High
Low
High
____________ design; business
units decide how to meet customer
needs
The business is focused on process
__________, usually creating a single
face to customers and suppliers but
does not usually impose process
standards on operating units.
__________ design; high needs for
reliability, predictability, and
sharing; single view of process
Bu
siness P
rocess In
teg
ratio
n
Business Process Standardization
The business is focused on process
______________ in which tasks are
done the same way across units, but
there is little need for business units
to interact.
The level of process integration and standardization defines the necessary IS capabilities
and ultimately the investment the firm will need to make in IS.
Companies make two important choices in the design of their operations: 1) how
standardized their BP should be across operational units (business units, region, function,
market segment), and 2) how standardized their BP should be across those units.
Decentralized
Centralizedintegration,
standardization
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices41
Enterprise Systems
(Enterprise Resource Planning or ERP)
• Seamlessly __________ information flows throughout the
company (e.g., with SCM, CRM etc.)
• Reflect industry “best” practices.
• Need to be integrated with existing hardware, OSs, databases,
and telecommunications.
• Some assembly (customization) is required
• The systems evolve to fit the needs of the diverse marketplace
• _____________:
– Use a social IT platform to solicit, discuss, and prioritize new ideas.
– Anyone in the community can add an idea, then the entire community
can discuss, comment, and rate the idea.
– Managers then have a wealth of ideas along with community input,
to use as input into the innovation process.
Crowdsourcing
integrate
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices42
ERP and ERP II• Two of the largest vendors of enterprise systems are German-based SAP and
California-based Oracle (EnterpriseOne).
• Designed to help large companies manage the fragmentation of information stored
in hundreds of individual desktop, department, and business unit computers across
the organization.
– require long-term relationships with software vendors.
– are evolving as the systems continue to change to fit the needs of the diverse
marketplace.
– ERP should not be implemented if the system is based on a cultural model that conflicts
with the local customs and that can not easily be accommodated by the ERP.
• ERP II:
– makes company information immediately available to external stakeholders
(e.g., customers and partners).
– enables e-business by integrating business processes with the enterprise and its
trading partners.
– Integrating the cloud calls into question the design of some business processes.
– Include ERP plus other functions (e.g., social and collaboration features) (see
Figure 5.8)
8
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices43
ERP and ERP II Functions
Fig 5.7 Enterprise systems and the processes they automateJohn Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
44
Customer Relationship Management
• Customer Relationship Management (CRM) is a natural extension of applying the value chain model to customers.
• CRM includes many management activities performed to
– obtain,
– enhance relationships with, and
– retain customers
• CRM can lead to better customer service, which leads to competitive advantage for the business.
• Common systems are:
– Oracle
– SAP
– Salesforce.com (web-based cloud system)
• ________ IT is increasingly integrated into CRM solutions.Social
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
INTEGRATED
SUPPLY CHAINS
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices46
Wal-Mart
• What is the “core/type “ for the Wal-
Mart?
– Grocery
– Manufacturing
– or ??
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices47
What is a Supply Chain (network)?
Five Flows and Competition
• SCP and SCE in the supply chain
Material Flows Product/Service Flows
P E O P L E F L O W S
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices48
What is a Supply Chain Management
(Network)
• A supply chain is a network of enterprise system that
are involved, through _________ and __________
linkages, in the different processes and activities that
produce value in the form of products and services
delivered to the ultimate consumer.
• A supply chain has three flows:– Information,
– Goods/materials, and
– Payment (money)
• Difficulties in Integrated Supply Chains– _______ must be established so the partners can solve
higher-level issues that may arise
upstream downstream
Trust
9
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices49
Fig. 5-Extra: Advantages and Disadvantages
of Enterprise Systems
Advantages Disadvantages
Represent “best practices” Allow modules throughout
the organization to communicate with each other (with efficiency)
Enable centralized decision making
Eliminate redundant data entry
Enable standardizedprocedures in different locations
Require enormous amount of work
Require redesign of business practices for maximum benefit
Have very high cost Are sold as a suite, not
individual modules (more expensive)
Require organizational changes
Have high risk of failure49
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices50
The Adoption Decision
• The enterprise system sometimes should drive business process redesign when:
– Just starting out.
– Organizational processes are not relied upon for strategic advantage.
– Current systems are in crisis.
• It is inappropriate for the enterprise system to drive business process redesign when:
– Changing an organization’s processes that are relied upon for strategic advantage.
– The package does not fit the organization.
– There is a lack of top management support.
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices51
Challenges for Integrating
Enterprise Systems Between Companies
• Deciding _____to share, _____to share it, and
_____ to do with it ______ the sharing takes place.
• Agreeing on security and encryption or other
measures to protect data integrity and ensure that
only authorized parties have access.
• The complexity of the integration can be reduced
by insisting on standards—either at the industry
level or at the system level.
• The increasing use of ______-based systems with
standard interfaces makes the integration easier.
cloud
what howwhenwhat
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices52
Summary on Processes
• To improve process quality and
organization’s productivity processes should
be organized and linked __________ the
entire enterprise and __________ with a
centralized _________.
throughout
integrated
database
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices53
THE CONNECTED CORPORATION:
THE FUTURE OF ERP
• Data points where SCM, CRM, and ERP integrate.
• Lines between SCM, CRM, and ERP will continue to blur
– Internet – continue to help organizations integrate data and
process across functional departments
– Interface – customizable employee browsers
– Wireless technology – support a mobile workforce
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices54
Summary
• IS can enable or impede business change.
• You must look at business process to understand the rule IS plays in business transformation.
• TQM or BRP are normally used to make changes to business processes.
• ERP systems can be used to affect organizational transformation.
• Information systems are useful tools to both enable and manage business transformation.
10
John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices55
7. Tesco, the U.K. retail grocery chain, used their CRM system to generate
annual incremental sales of £100 million. Using a frequent-shopper card, a
customer got discounts at the time of purchase and the company got
information about their purchases, creating a detailed database of customer
preferences.
Tesco then categorized customers and customized discounts and mailings,
generating increased sales and identifying new products to expand their
offerings. At the individual stores, data showed which products must be priced
below competitors, which products had fewer price-sensitive customers, and
which products must have regular low prices to be successful. In some cases,
prices are store-specific, based on the customer information.
The information system has enabled Tesco to expand beyond groceries to
books, CDs, DVDs, consumer electronics, flowers, and wine. The chain also
offers services such as loans, credit cards, savings accounts, and travel
planning.
a) What can Tesco management do now that they have a CRM that they
could not do prior to the CRM implementation?
b) How does this system enable Tesco to increase the value provided to
customers?John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices
56
• 7. Ans:
• a) Tesco can implement differentiated pricing
strategies based on detailed information about price
elasticity. Previously, management did not possess this
level of detailed information.
• b) The benefit to customers is that coupons and
discounts can be targeted to their unique preferences.
Rather than getting bombarded with sales
announcements unrelated to their interests, this
approach would be a welcomed change. Logically,
both Tesco and its customers would benefit from this
new system.