8 Steps to Info Systems Happiness
Before you go looking for an ERP solution, you must define an information systems architecture for your company. Follow these eight steps and turn that IT frown upside down.
Today's news is filled with stories about the unrealized promise of enterprise applications—applications that have failed to deliver the expected return on investment; millions of dollars invested in software that cannot be rolled out; and even corporations blaming software vendors for failing to meet revenue targets. Did the software company under-deliver on the corporation's requirements? Did the corporation fail to adequately define its actual requirements?
What's important here is not who's to blame, but how to avoid something similar happening to you. But how?
Instead of "making do" with one of the numerous off-the-shelf enterprise applications—which we will see is a misnomer—the answer lies in first defining an information systems architecture for your company. This definition provides a detailed blueprint that reflects your company's unique business processes, functions, behaviors, and goals, as well as the expected ROI of implementing such an architecture.
By way of a case study example, this article takes you through the process of creating a "system of systems" that can meet the current and future needs of any company, regardless of size or industry.
1. Define Your Business Objectives
The first step in creating an information systems architecture is to clearly define the business objectives of your company—in essence, asking yourself "for what purpose does the business exist?"
For this case study, a leading consumer goods company we shall call Smiling Face Inc., applied the thinking of business guru Theodore Levitt. "The purpose of business is to create and keep a customer. To do that you have to produce goods and services that people want and value, at prices and under conditions that are reasonably attractive relative to those offered by others, to a proportion of customers large enough to make those prices and conditions possible," Levitt wrote in his 1986 book The Marketing Imagination.
While over-simplified, this concept leads us to the next stage: managing marketplace dynamics in pursuit of those business goals.
2. Determine Market Challenges
No company operates in a vacuum. To meet business objectives, companies must overcome many market challenges.
Smiling Face had to differentiate its products in an increasingly crowded marketplace. Furthermore, even though its customers expected perfect inventory accuracy, Smiling Face was confronted by increasing time compression across the supply chain and pressure to create inventory that seldom paused vs. inventory that seldom moved.
This analysis led to defining Smiling Face's core marketing challenge: managing the 4Ps (Product, Price, Promotion, Place) in the context of the 4Cs (Company, Consumer, Channel, Competitors). This is the systemic issue that Smiling Face had to overcome. However, a wide variety of functions within the company, and their unique behaviors, had to be taken into consideration and managed when developing an information systems architecture. In addition, key issues had to be viewed from a number of different perspectives.
Smiling Face had to take into consideration its packaging and raw material suppliers on the manufacturing side, sales partners (retail customers), and supply partners. This clarified the need for both supplier relationship and customer relationship management systems.
Another finding from this process was the realization that the true customer was the end consumer and the retailer was really a sales partner. As such, Smiling Face required systems that did not just push product onto the retailer, but actually helped the retailer sell through to the consumer.
This conclusion had a significant impact on how the supporting information systems would be developed.
3. Create Business Structures
Examining this challenge from the perspective of the 4Ps of marketing, it becomes clear that different internal business groups have different goals and objectives.
At Smiling Face, the marketing and sales groups were totally driven by increasing market share and volume. In contrast, the manufacturing and logistics groups were driven by reducing operating costs, developing quality products, and the need to be the lowest-cost provider in the marketplace.
Finally, general management and finance were driven by maximizing shareholder value and market leadership. Cross-functional tension is normal but should be managed. The only way to manage these three disparate sets of business goals and behaviors is to create distinct business templates—or, more accurately, business structures—that enable requirements to be isolated by function.
These three business structures apply to virtually any type of organization in any industry: demand performance, demand fulfillment, and demand creation.
The next step was to determine how these business structures define the processes (and systems to support them) in order to meet Smiling Face's business objectives.
The demand creation structure, which is essentially the company's product strategy—often referred to as the demand chain—takes product from concept development through to the consumer via sales channels—for example, retailers.
The demand fulfillment structure, which was really the company's channel strategy or its supply chain, ensures the optimization of raw material use and product manufacturing, warehousing, and distribution.
The demand performance structure represents the company's financial strategy or value chain, whereby financial management processes monitor and manage the effectiveness of the entire organization.
Together, these three structures help the company efficiently and profitably run its business from operations, marketing, manufacturing, logistical, and shareholder standpoints.
Understanding the different business structures that govern corporate behavior is imperative in building an integrated systems architecture for logistics technology. These structures define how the functions and processes act separately and in concert across the functional "silos" that the information system must support.
4. Map Business Processes
Once all business processes have been evaluated, they must be mapped. Fortunately, automated tools such as Visio are readily available and make process mapping fast and efficient.
The Supply Chain Council's Supply Chain Operations Reference (SCOR) model also is a helpful tool. The model defines the major operations within the demand fulfillment structure—Plan, Source, Make, Deliver—and breaks them down into subsequent levels of detail that can be assembled based on a particular company's specific activities and processes.
To build a sufficiently detailed information systems architecture, a similar level of detail to the SCOR model is required for the demand creation and demand performance business structures.
As such, Smiling Face developed high-level maps for the demand creation structure covering the Plan, Create, Market, and Sell processes.
For the demand performance business structure, it mapped the Plan, Invest, Measure and Return processes. As organizations have grown and evolved, functions within those organizations have expanded and become more specialized. As a result, "functional silos" and hierarchical "command and control" organizational structures have been unintentionally created to pass information sequentially up and through the functions. The information, however, often becomes untimely, distorted, and myopic.
While Smiling Face's business silos could not be eliminated, the company could define process integration touch points based on their role in the business structure governing their behavior: demand creation, demand fulfillment, or demand performance.
5. Determine Critical Success Factors
By defining the silos' process requirements in relation to the business structures they support, and bringing in senior functional managers from across Smiling Face, it was possible to identify the overall critical success factors (CSF) for the company to achieve profitable growth.
It was also possible to correlate the critical success factors with the benefits and business impact that improvements—based on the strategic deployment of information technology—would bring to the organization.
The critical success factor analysis drives the financial analysis that determines the ROI associated with implementing new systems. It also defines the business applications and supporting technologies that are required.
Clearly, Smiling Face needed some type of documentation that it could present to various software vendors outlining its application requirements. This documentation enables the company to determine the best applications and vendors, as well as the implementation priorities.
But first, Smiling Face had to determine the ROI of any implementation to decide if it was worthwhile.
6. Calculate Return on Investment
Armed with these critical success factors, Smiling Face asked senior managers across the organization to ascertain the financial performance that they felt could be realistically achieved if the tools and technology were deployed to deliver these capabilities.
For example, the sales group was asked to estimate the financial impact on sales if technology could improve the shelf fill rate, promotional fund effectiveness, overall product assortment, and the ability to manage voids and stockouts. The group forecast a 10-percent increase in sales.
After visiting all groups across the organization, Smiling Face found that while the deployment of technology to meet a single function's requirements would not have a dramatic financial impact on the corporation, when looked at holistically, the impact of an integrated enterprise system would be significant—a 30 percent return on capital employed when fully implemented.
7. Develop a Demand Management System Architecture
All previous steps culminate in the intelligent Demand Management System architecture required for Smiling Face to achieve its business objectives, taking into consideration its business processes, structures, functional silos, and behaviors.
Clearly, a lot of different and best-of-breed technologies would have to be deployed from different vendors to meet the company's business objectives, as no vendor or application was up to the task.
This was no surprise. The traditional ERP system model no longer works because it suggests a single-system approach to the requirements of the extended enterprise operating in an inter-enterprise industry market structure. Responding to changes in a multi-tier, multi-dimensional, interdependent market would require a "system of systems" beyond the scope and capability of any one vendor to support.
Much of the current criticism and time-to-implement issues facing large ERP vendors seem to bear this out. Likewise, current trends in enterprise systems and collaborative commerce point to, along with the prominent role of traditional ERPs, a rise in the accompanying best-of-breed systems extending through the demand fulfillment and demand creation structures, and filling in the gaps between functions and companies.
This was proven when Smiling Face called in numerous ERP vendors. While the traditional ERP system is strongly focused on manufacturing and financial applications, it was clear that there was little or no support of sales and marketing (demand creation) or product delivery and deployment (demand fulfillment) activities.
At the time Smiling Face was looking for an ERP vendor, systems to support demand creation were sadly lacking, with the exception of sales force automation. In today's marketplace, there is increasing growth among best-of-breed supply chain management vendors and the emergence of Customer Relationship Management (CRM), Supplier Relationship Management (SRM), eBusiness applications, product lifecycle management, and other systems that clearly advance the notion of best-of-breed applications to meet specific operating environments.
8. Vendor Selection & Implementation
Based on the resulting information systems architecture Smiling Face developed, the company found that selecting its vendors and applications was not as daunting a task as first thought, and that the systems could be justified with tangible financial results.
Using the resulting information systems architecture as a roadmap, Smiling Face was also able to prioritize the rollout of the different applications comprising its enterprise solution.
In addition, it was able to negotiate a unique deal with the ERP vendor selected as the "backbone" to its architecture. The vendor agreed to enter into an ongoing relationship. It also agreed to develop the applications—at reduced cost—Smiling Face did not have, but needed to meet its future requirements.
Tips for Developing Your Own IS Architecture
As you plan the process of developing your own information systems architecture, take the following into consideration:
- Make sure your architecture is driven by the goals and objectives of your business, not technology.
- Realize that there will likely be three very different business structures that will drive behavior and technology requirements in your organization.
- Be aware that even though those structures will require very different systems and applications, they have to be able to communicate with one another based on an exception or event-driven—not data-driven—business process integration.
- Make sure you clearly define the business processes, activities, and information required to execute the processes within your organization. Measure the financial impact holistically, not individually.
- Never assume one vendor can meet all your business and technology requirements.
- Create a cross-functional Business Information Systems Task Force made up of senior executives. Meet regularly.
Through the process of building an information system architecture you will be able to determine your exact technology needs for your business to achieve its goals. You will also be able to ascertain priorities, resulting costs, and the return on investment that will be realized.
Furthermore, you'll have a framework for adapting your technology to any changes in your business structure over time. With your company's success depending on the technology choices you make, it is prudent to complete the process of defining your information systems architecture before you evaluate vendors and products.
A contractor would never try to build a house without a detailed master plan, so why would you tackle selecting an enterprise system without the same level of detail and planning?