Lecture Organizations & Information Systems

1. 8/30/03 Lecture Organizations & Information Systems

2. 1 of 41 Table of Contents • Definition of ERP • ERP Costs and Benefits • Mutual Impact: ERP and Organization • Org Structure • Culture • Reward System • Business processes Organizations and Information Systems

3. 2 of 41 Definition of ERP A software application which is built around an integrated database and which supports all the major functional areas and business activities of an organization, no matter where its facilities are located. Organizations and Information Systems

4. 3 of 41 Org Structure There are two constraints that affect how we have traditionally designed organizations. • No integrated data • No universal communications Organizations and Information Systems

5. 4 of 41 Org Structure As a result, we created functional organizations, slow communications, and fragmented business processes. CEO VP Logistics VP Manuf-ing VP Marketing VP Finance B A Message / Interaction X Significant communication has to go up before it goes across. Organizations and Information Systems

6. 5 of 41 Org Structure All organizations participate in the end-to-end business processes, but they do not see how it all fits together. CEO VP Manuf-ing VP Logistics VP Marketing VP Finance Design Product Build Product Sell Product Service Product Organizations and Information Systems

7. 6 of 41 Org Structure Pieces of the end-to-end business process are held in stand-alone databases. CEO VP Manuf-ing VP Logistics VP Marketing VP Finance D D S X D S B S B B X D B S X Design Product Build Product Sell Product Service Product Organizations and Information Systems

8. CEO VP Marketing VP Finance 8 of 41 Measures And Rewards To make things worse, each top manager has a different incentive. VP Manuf’ing VP Logistics Keep costs down High employee utilization High machine utilization Sell lots of units Profitability Minimize leased space Units produced X X X X X X ? ? ? ? X X Organizations and Information Systems

9. 9 of 41 Org Structure This difference in incentives creates a phenomenon called “suboptimization,” in which every manager meets his/her objectives, but the overall objectives of the company are not met. CEO Costs Leases Units Sold Employee Utilization Machine Utilization Units Produced Costs Employee Utilization VP Marketing VP Manuf-ing VP Logistics VP Finance Design Product Build Product Sell Product Service Product Organizations and Information Systems

10. 10 of 41 Org Structure Who is responsible for the product end-to-end? CEO Costs Leases Units Sold Employee Utilization Machine Utilization Units Produced Costs Employee Utilization VP Manuf-ing VP Logistics VP Marketing VP Finance Market Share Product Life Cycle Profitability Organizations and Information Systems

11. 11 of 41 Org Structure There are several alternatives to organizational design. • Divisional structure • Hybrid structure • Matrix structure • Teams Organizations and Information Systems

12. Fin Mkt Man HR Fin Mkt Man HR Fin Mkt Man HR Fin Mkt Man HR 12 of 41 Org Structure Divisional by Geography. CEO VP East VP West VP South VP North Organizations and Information Systems

13. Fin Mkt Man HR Fin Mkt Man HR Fin Mkt Man HR Fin Mkt Man HR 13 of 41 Org Structure Divisional by Product CEO VP Product 3 VP Product 4 VP Product 2 VP Product 1 Organizations and Information Systems

14. Mkt Man Log Mkt Man Log Mkt Man Log Recr Ben Pay Train GL AP AR Tax 14 of 41 Org Structure Hybrid solution - mixing functional and divisional. CEO VP HRM VP Product C VP Finance VP Product B VP Product A Organizations and Information Systems

15. 15 of 41 Org Structure The matrix organization combines the features of both functional and divisional organizations. It is frequently used for projects, programs, and products. CEO VP Finance VP Manuf VP Marketing VP Logistics Project 1 Project 2 Project N Organizations and Information Systems

16. 16 of 41 Org Structure The matrix organization, in theory, has advantages. In actuality, it adds enormous demands for communication and coordination on top of the traditional fragmentation of the functional organization. Organizations and Information Systems

17. F F F F F F M M M M M L L L L X X X X X X Team 1 Team 2 Team 3 17 of 41 Org Structure Teams represent a refinement of the matrix organization. CEO VP Marketing VP Manuf VP Logistics VP Finance Organizations and Information Systems

18. 38 of 41 Job Descriptions Decisions go lower in the organization. Some jobs go away. Other jobs get expanded. CEO Top VP Finance VP Marketing VP Manuf’ing VP Logistics Deleted B C A Mid Worker X Expanded Y Integrated Daabase Organizations and Information Systems

19. 20 of 41 Culture The organization’s culture can fight the implementation and effective use of the ERP. • Fight introduction of third-party software • Refuse to follow the ERP’s business model, insisting that the company’s way is unique and must be continued. Not invented here • ERPs require reengineering of business processes. • But reengineering requires a frank analysis of weaknesses and problems. • Organization does not want to hear the bad news. Shoot the messenger Organizations and Information Systems

20. 21 of 41 Culture Culture vs. ERP (cont.) • ERPs require reengineering of business processes.. • Some paper-based empires will go away. • Other departments will be outsourced. • Middle management will shrink. Empire building • ERP’s integrated database makes all the data more visible and accessible. • Some empires depend on other people not knowing what they do. Cards close to vest Organizations and Information Systems

21. 22 of 41 Culture Culture vs. ERP (cont.) • Integrated database expands jobs. • Integrated database removes excuses. It’s not my job • Organization has a bias against asking questions Work harder, not smarter Organizations and Information Systems

22. 23 of 41 Rewards/Incentives The culture is reinforced by the official and unofficial reward systems. Traditional reward systems contributes to isolation and ERP will suffer Individual goals Individual rewards Machine Utilization Employee Utilization Low Costs Units Sold VP Manuf-ing VP Logistics VP Marketing VP Finance • Cards close to the vest • Empire building • It’s not my job • Not invented here • Shoot the messenger • Risk averse Organizations and Information Systems

23. VP Operations VP Logistics VP Marketing VP Finance 24 of 41 Rewards/Incentives The use of common goals and shared rewards helps to break down the walls between departments. Market share, Profitability, Stock price Cost goals Volume goals Utilization goals New • Cards close to the vest • Empire building • It’s not my job • Not invented here • Shoot the messenger • Risk averse Old Organizations and Information Systems

25. 34 of 41 Costs One large company stated that it spent around $100M on the installation of SAP. Here is a rough estimate of their costs. Organizations and Information Systems

26. 36 of 41 Leadership Democratic and transformational leadership is needed at certain points. At other points, leadership must be autocratic and transactional. Project Startup Democratic Analysis and Design Autocratic Implementation Organizations and Information Systems

27. The vision of having an integrated IS began on the factory floor MRP used inputs of forecast, inventory levels and lead times MRP II incorporated more links to other functions order processing and product costing ERP is viewed as an extension of MRP II provided better visibility of operational data Manufacturing Roots of ERP

28. ERPs Eventually, companies realized that an ERP was needed to truly integrate the organization and allow reengineering of its business processes. • Manufacturing Processes • Design product • Build product • Assemble product • Test product • Order materials • Store materials • HR Processes • Hire • Fire • Pay • Train ERP • Customer Data • Product Data • Location Data • Employee Data • Market Data • Cost Data • Billing Data • Order Data • Production Data • Financial Processes • Pay bills • Collect Bills • Pay taxes • Compute costs • Marketing Processes • Determine price • Sell product • Take an order • Deliver product

29. Has Makes Site Customer Payment Sends Is for Is for Gets Order Invoice Is for Delivery Is on Handles Product Contains Has Cost Part Employee Makes Provides Supplier ERPs An integrated database must be based on a logical model of the company and its data  a data model. Oracle DB2 Informix Sybase SQL Server Adabase

30. Integrated in nature – when data are entered into one of the functions, information in all related functions is changed They are modular in structure. A company can implement all the modules or a subset of them Best of Bread approach: Integrating modules from different vendors. Implementing it is more complex because of the interfaces that need to be established. (EX: Peoplesoft (Oracle) + SAP) Open architecture. Bolt-ons such as DSS can be integrated easily. DSSs offered by ERP vendors are not good enough (Ex: SAP’s APO, datamining) Properties of ERP

31. (The most common reason) (They are very inflexible) (The second most common reason)

32. Successful companies involved their heavy end users through out the implementation process instead of providing training at very end viewed ERP system as a business solution not an IT solution analyzed their operations thoroughly before the implementation and identified any discrepancy between current practices and ERP system (business processes and rules such as the those used in case of credit violation, pricing, and inventory sourcing) formed implementation teams Dedicated teams in large firms Knowledge transfers

34. Lecture End

35. Quiz Start

36. 1 of 19 An ERP is built around what? 1 Stand-alone files 2 Cobol programs 3 Integrated database 4 Multiple separated databases 5 Microsoft Office 3 0 Organizations and Information Systems

37. 2 of 19 An ERP supports all the major ______________ areas of an organization. 1 Functional areas 2 Investors 3 Information systems 4 Equipment 5 Directors 1 0 Organizations and Information Systems

38. 3 of 19 An ERP can support the activities of an organization, no matter where its _________ are located. 1 Software 2 Regulators 3 Governments 4 Investors 5 Facilities 5 0 Organizations and Information Systems

39. 4 of 19 One of the two constraints that affect how we have traditionally designed organizations. 1 Lack of qualified employees 2 Lack of integrated data 3 Lack of organizational levels 4 Lack of telephones 5 Lack of calculators 2 0 Organizations and Information Systems

40. 5 of 19 One of the two constraints that affect how we have traditionally designed organizations. 1 Lack of qualified employees 2 Lack of functional organizations 3 Lack of organizational levels 4 Lack of universal communications 5 Lack of calculators 4 0 Organizations and Information Systems

41. 6 of 19 If you do not have an integrated database and network, you tend to get what kinds of organizations? 1 Streamlined 2 Flat 3 Virtual 4 Functional 5 Process-based 4 0 Organizations and Information Systems

42. 8 of 19 What can we say about stovepipe organizations when they participate in a business process? 1 They have a clear understanding of how it all fits together 2 They see the high degree of integration in the activities They can see outside their walls and understand the impact they have on other departments 3 4 They do not have an end-to-end view of the process 5 They see all the parts functioning together 4 0 Organizations and Information Systems

43. 9 of 19 Traditionally, the fragmented processes in stovepipe organizations were supported by what types of information systems? 1 Integrated 2 Stand-alone 3 Systems with separate file systems 4 Non-redundant 5 Systems connected by batch interfaces 2 0 Organizations and Information Systems

44. 10 of 19 How does an organization’s incentive system fight against integrated business processes? 1 Each top manager could have a different incentive 2 Each top manager participates in a bonus pool 3 All top managers work with common goals 4 All top managers get rewarded for the group Each top manager is rewarded for cooperating with the others 5 1 0 Organizations and Information Systems

45. 11 of 19 The situation where every manager meets his/her objectives, but the overall objectives of the company are not met. 1 Maximizing 2 Goal achieving 3 Variance analysis 4 Underachieving 5 Suboptimization 5 0 Organizations and Information Systems

46. 12 of 19 One way to structure a divisional type of organization. 1 By business function 2 By product line 3 By functional activities 4 By supervisory levels 5 By information system 2 0 Organizations and Information Systems

47. CEO VP Product A VP HRM VP Finance VP Product B About 6 13 of 19 What kind of organization do you see here? 1 Functional 2 Divisional 3 Geographical 4 Hybrid 5 Networked 4 0 Organizations and Information Systems

48. 14 of 19 This type of organizational structure is frequently used for projects, programs, and products. 1 Matrix 2 Functional 3 Divisional 4 Geographical 5 Hierarchical 1 0 Organizations and Information Systems

49. 15 of 19 Why is it important to understand an organization’s culture when implementing an ERP? 1 Management culture leads to sponsorship of the opera 2 Some ERPs are for gentlemen only If there is no culture, employees will not appreciate what they get 3 Management culture can create attitudes and behaviors that are hostile to the new way of doing business 4 5 An ERP requires a very high cultural level 4 0 Organizations and Information Systems

50. 16 of 19 Why do many middle managers depart the organization when an ERP is installed? 1 Their new job becomes too complex to handle The system now performs their functions of communication and data distribution 2 3 They want to start a second career 4 They are afraid of their new responsibilities 5 The company wants them to transfer to other divisions 2 0 Organizations and Information Systems