Information Systems PDF

Information Systems Sommario 1. Definitions......................................................................................................................... 1 2. High level models............................................................................................................... 5 3. Low level models.............................................................................................................. 13 3.1 Low level models – process.................................................................................................. 13 3.2 Low level models – data....................................................................................................... 15 3.3 Low level models – organization........................................................................................... 17 3.4 Low level models – Business rules........................................................................................ 17 3.5 Low level models – Technology............................................................................................ 19 4. Organizations.................................................................................................................. 19 5. Strategy........................................................................................................................... 23 6. KPI CSF BSC...................................................................................................................... 27 7. IS..................................................................................................................................... 31 7.1 COBIT.................................................................................................................................. 33 8. ES – ERP – CRM................................................................................................................ 33 8.1 CRM.................................................................................................................................... 35 9. IT Economics.................................................................................................................... 37 9.1 Transaction theory............................................................................................................... 39 9.2 Agency theory...................................................................................................................... 41 9.3 Decision theory.................................................................................................................... 42 9.4 Value of IT in an organization............................................................................................... 45 9.5 IT Governance...................................................................................................................... 46 10. Outsourcing................................................................................................................. 48 10.1 Product functions................................................................................................................. 53 11. Change management................................................................................................... 54 1. Definitions Organization: a group of people that accomplish a set of goals (enterprise, army, church….) Managing resources Implementing business processes Work for profit Business process: set of activities Written by: Dario Marchitelli 1 Executed in a certain order (parallel or sequential) Performed by an organization Deliver a service/product Has defined inputs and outputs Activity: time spent by people doing a task part of a business process Business function: group of people/resources performing similar activities in an organization (sales, marketing, HR …) Application: software that supports an activity/process Software function: function offered by an application to support an activity or part of it Application portfolio: set of applications used by an organization Often a business process can require software functions from many applications, and a function can be required from many business processes. So, it is a many-to-many relationship. Legacy: is an older software that in same way is difficult or expensive to replace and we need to deal with it. Information system: a formal, sociotechnical, organizational system designed to collect, process, store and distribute information. Formal: built and managed with a goal for the organization Sociotechnical: involves the social system (structure and people) with the technical system (technology and process) that interact with each other Technology: computers, networks, applications People: individuals involved into the IS: End users Managers IT professionals An understanding of the people involved is important when designing, implementing, and troubleshooting an IS. Structure: implicit or explicit rules that govern relationships between the people involved in the IS Hierarchy Communication lines Reward mechanisms Functions, divisions Hidden or missing communication lines or user resistance often causes IS failure. IS success: the IS supports the organization goals fulfilling its needs about information processing and supporting efficiency and effectiveness. Written by: Dario Marchitelli 2 IS failure: the IS is never completed, is never used, abandoned, or is working against the organization goals. IS outcomes: On people: o Positive: empowering employees and widening the scope of their responsibilities o Negative: deskilling, loss of responsibility, and the creation of a monotonous working environment On the organization and its future opportunities The four components of an IS are interdependent, changes in one component may affect other components and, if not properly managed, also its outputs. Considering only the technology dimension can cause lack of understanding of systemic relationship and lack of considering information outside the technology component. To adapt to the changing environment an organization (and its IS) need to evolve, there are three levels of organizational change: First-Order Change: Automate A First-Order change only infect the technical system, it occurs with the introduction of an IT innovation that modifies how an existing process is performed and it’s the easiest to envision, justify and manage. Second-Order Change: Informate A Second-Order change affect the people, it modify the way individuals perform processes and the manner in which they interact with the technology change. It occurs when the information intensity of the process being performed changes substantially due to the introduction of new IT. To manage such a change the organization need to provide appropriate training and overcome the human tendency to resist change. Third-Order Change: Transform A Third-Order change affect the structure: o Technology: a change in the way the organization selects, uses and manages technology o People: a change in the reporting and authority structure of the organization o Process: a novel way of task accomplishment or a new set of task Managing it requires significant managerial and executive involvement. The technical system is made of several applications that read/write on several databases that contains master data (list of entities: products, customers, suppliers) and transactional data (sales, invoices). This interconnections generates the integration problem related to data or applications that need to cooperate. Written by: Dario Marchitelli 3 The 5th dimension for IS is time, year by year the tecnology trends and devices evolve, when this happens people often show a certain resistance to change. Technology innovations have a cost and have a certain learning curve that usually is different from the expected. There are different issues when dealing with time: Application portfolio: in big organizations is quite difficult to make a census of present applications with their goals, the AP knowledge helps to evaluate the IS and define acquisitions/changes of applications Integration of data and applications Legacy software: when the IS is too old it can happen that the development environment, the documentation, the source code or the vendor are unavailable, this can lead to expensive and risky substitutions. [FACTORY + WAREHOUSE EXAMPLE] An IS is needed to: Transfer information (real time) Document (past and present): o All the steps must be recorded answering the questions who, what, when and also why because we need to understand more when something goes wrong o Documentation of the flow: instructions for the activities to be performed Monitor (past and present): summary data for the Management Control Loop (managers) When we create an IS the technology must be decided after analyzing the process: Flow: list of activities to be performed when something happens Data: entities and events that we need to record into the IS Business rules When choosing the technology we have two choises: Use a different application for each piece of structure (production, warehouse, purchase office, accounting…) Use one overall db with a single application that has all the functions needed In the example analyzed the information flow is parallel to a physical flow, in other cases there’s no physical flow at all (bank, insurance). IT Dimension The IT dimension has two main parts: Application Model: describes the software architecture and the software programs: o Presentation Layer: an IS communicates with the user through a GUI and different inputs. This layer can change a lot without touching the business process. o Business Rules Layer: represent the logic driving the processing of data entered in the IS through the Presentation layer. Written by: Dario Marchitelli 4 If the process changes surely this layer changes while the data layer remains stable. Can be defined using the code or with Drools o Data Layer: database Technological Model: describes the hardware architecture. The typical architecture that is always assumed is 3-tiers and client- server but can also have only two tiers (fat to thin client). A processing architecture must satisfy a few basic quality requirements: Response time: the interval between the request and the display of the response Scalability: the work load a system is able to sostain Availability: percentage of time the system is working 2. High level models The control loop model has 4 parts: Input: the capture or collection of raw data from within the organization and its external environment for processing in an information system Output: The distribution of processed information to the people and the activities that will use it Process: the conversion, manipulation and analysis of raw input into a more meaningful form Feedback: the output is used to evaluate and correct the inputs This model gives a view of the context and the environment, organizations (and the related IS) are influenced with 5 types of actors: Customers Suppliers Stakeholder Competitors Regulatory agencies (including law system) The CRASO (Customer Request Activity organiSation Output) model shows the activities, the actors doing activities and the assets treated by them. The customer is always the start and the end of the loop. The CRASO model can be: Written by: Dario Marchitelli 5 Mono- Mono-functional: organizational: involves only one involves only one business function organization (exceptional case) Inter-functional: involves many business functions in the same organization that can have differend SI and DB Inter-organizational: involves many organizations The Anthony’s model (pyramid model) mixes the hierarchical levels into the organization and the business functions putting them into a pyramid, where at each intersection different IS functions are needed. The organizational level is represented by horizontal strips (example for a retail company): Operational level: composed by the employees that work day by day and with repetitive activities. (Implement a sale, replenish products on shelves) Knowledge level: composed by knowledge and data workers that design new products/services on the present/future time frame (the number of emplyees depends on the complexity of the product/service). This level is present only in organizations that need designing. Management level: composed by middle managers that control and plan the activities of the operational level, working on the near future time frame (limited number of employees). (review of sales, monitor emplyees) Written by: Dario Marchitelli 6 Strategic level: composed by seniors and high managers that takes key decisions on future (1-10 people). (decide type of offer and products and opening/closing of new shops) The necessity and importance of an IS depends on each level Operational level: o Information intensity of product (IO): level of information needed to describe the product (A PC has a higher IO than a water bottle) o Information intensity of process (IP): level of information needed to describe the process (How to build a bottle? How to build a PC?) Higher are the IO and IP for an organization more useful is the implementation of an IS. Management level: the IS supports the management control loop (MCL) so the goal definition, the analysis of results and the corrective actions. For the goal definition, budget goals per expense type and per function are often used, but there are also goals related to item produced and item quality. Strategic level: the IS is needed for analyzing customers (profiling), products (dependability) and performance (dashboard), this kind of data can be provided by BI and DW. While in the operational level the IS has a continuous use and simple, current, huge information, in the management one it has a periodic use, but it needs aggregated and historical information. For each level are defined the kind of applications needed: Strategic level: o Executive support system (ESS) o Decision support system (DSS) Management level: o Management information system (MIM) Knowledge level: o Knowledge work system (KWS) Operational level: o Office automation system (OAS) o Transaction processing systems (TPS) As shown in the figure for each level, the Anthony’s model, describes the activities for which the IS is needed. The business functions are represented as vertical sections: Sales and Marketing: o Marketing: ▪ Identify the customers ▪ Determine what they need or want ▪ Plan and develop products/services to meet their needs ▪ Advertise and promote these products/services o Sales: Written by: Dario Marchitelli 7 ▪ Contact customers ▪ Sell products/services ▪ Take orders ▪ Follow up on sales Manufacturing and Production: o Plan, develop and maintain production facilities o Establish production goals o Acquire, store and keep available production materials o Schedule equipment, facilities, materials and labor required Finance and accounting: o Finance: ▪ Manage the financial assets, such as cash, stocks, bonds and other investment in order to maximize the return ▪ Borrow money with the best conditions o Accounting: ▪ Maintain and manage the firm’s financial records/receipts, disbersements, payroll, general ledger to account for the flow of funds. Was invented by Luca Pacioli who invented “partita doppia” which tracks debit and credit. There are three types of accounting: Sectional: towards customers and suppliers (incomes and expenses) Institutional: towards stakeholders and law (taxes and balance) Management accounting: towards internal structure (cost of producing a product) Human resources: o Understand what skills are needed o Identify potential emplyees o Maintain complete records on employees o Create programs to develop employees skills o Compute salaries o Evaluation and compensation system o Outplacement The T model is a model that has an horizontal part common for every kind of organization and a vertical part specific for the business sector/domain. There are three kind of processes: Support processes: IT, HR, accounting , finance and firm infrastructure, is not visible for the final customer (goal: provide services to the organization and comply with law obligations) Managerial processes: strategic planning, BI and management control (loop) Written by: Dario Marchitelli 8 (goal: lead the organization) Primary processes: produce and provision the products/services (goal: serve the customers) Primary processes for each business domain: Manufacturing: companies designing and producing individual items in large quantities (different from process industry that produces quantities of substances) Models used: o Value chain (Porter): the value is what a customer is willing to pay for a product, to create this value the organization must follow multiple activities performed in succession, as a chain o Planning/execution model: describes vertical phases (inbound logistics, operations and outbound logistics) and their lower level processes ▪ Planning: Time planning Strategic analysis ▪ Execution: Process and product data Order management Material management Physical operations We can put togheter process types and phases: The product/process data can be modeled using: ▪ PLM tools: product lifecycle management (storage, retrival and processing) ▪ Bill of Materials (BoM): list of component for each product Common acronyms and functions: Written by: Dario Marchitelli 9 ▪ CAD CAM systems: product design (knowledge level) ▪ PLM (Product Lifecycle Management): store and process designs (VCS, git) ▪ Planning (Manufacturing Resource Planning): from product data and customer orders to orders for the suppliers ▪ Execution (CIM Computer Integrated Manufacturing): control the manufacturing starting from the product data ▪ SCM (Supply Chain Management) ▪ CRM (Customer Relationship Management) Process industries: are organization related to process materials (oil, petrol) that have two primary processes: production and maintenance of plants o Inbound logistics: raw material, spare parts and maintenance material supply o Operations: plant supervision, process control and machinery maintenance o Outbound logistics: product distribution and sale The main issues for this kind of organizations are: o Simple supply processes (just raw substances) o Absent product design processes o Importance of maintenance of facilities o Importance of process control (safety, strategic products, environment) o Importance of coordination of multi-plant productions Telecom operators: have three primary processes: network, service and workforce management: o Operations: ▪ Network: plan, design and maintain network ▪ Service: design, activation and delivery of services ▪ Workforce: Plan and execute jobs Procure and store spare parts Manage technical documentation o Marketing and sales: ▪ Marketing and sales per customer type (business or retail customers) (website, call center and shops) ▪ Billing: strictly connected with backend that activates SIMs o After sales service: complaints, technical support (website, call center and shops) The main issues for this kind of organizations are: o There are two customer/product categories (single person and big organizations) Written by: Dario Marchitelli 10 o Strict link between process (network management) and product: call data records for billing, see prepaid cards and real time billing o IT has a key role o Continuous innovation in product and process (billing modes and new products) The eTom framework is a scheme of processes for Telco organizations. Utilities: organizations that supply natural resources/energy, they have three roles: o Production of resources: production and extraction o Trading of resources (Enel, Sorgenia) o Network for distribution (Terna) And three processes: o Service management (trading role): buy/sell resource, offers, bill, design and market service o Network management (network role): core network, last mile and meters o Workforce management The value chain is similar to Telco: o Operations: ▪ Service: activation and delivery of services ▪ Network/workforce: meters and lines management o Marketing and sales: ▪ Marketing and sales per customer type (business or retail customers) ▪ Billing o After sales service: complaints, technical support The main issues for this kind of organizations are: o Little innovation of product o Some innovation of process (digital meter connected, solar production…) o Process control (network monitoring and control) o Little customer turnover o Manage retail and business customer classes Banks and insurances: the main process for both is service management: o Banks: account and investment management, mortgages, loans o Insurance: vehicles, life, pension plan and health plans The value chain is: o Inbound logistics: managing cash flow from the customers o Operations: ▪ Service: activation and delivery of services o Marketing and sales: ▪ Marketing and sales per customer type (business or retail customers) o After sales service: complaints, technical support Written by: Dario Marchitelli 11 The main issues for this kind of organizations are: o Banks: ▪ Customer segmentation: divide business, individuals, SMEs and private banking ▪ Products: accounts, financial services (loan, mortgages and investments) ▪ Data replication: often customer data replicated among units o Insurances: ▪ IS for local agency and for the main site ▪ Data replication: life, vehicles, buildings… Retail: the two main process are: o Procurement-inbound logistics o Stores management The value chain is: o Inbound logistics: products supply, procurement o Operations: stores management, supervision, control o Marketing and sales: ▪ Billing ▪ Campaign management, advertising The main issues for this kind of organizations are: o Large number of stores, suppliers and customers o Perishable goods (food) o Simple process, big volumes, small margins Issues in common for all service provider (banks, insurances, telco operators, utilities, retail): o Large number of customers (QoS compromised) o Multichannel interaction (web, mobile, desk, call center) o String competition, need to understand the customer (CRM,BI) Health: several needs and actors: o Patient: manage and share medical data among all actors (EPR Electronic Patient Record, standard HL7 for patient description and treatment descriptions) o Private and public care centers (hospitals, labs): ▪ Logistics: patients, drugs, doctors, nurses and medical equipment ▪ Administration: payments, reimbursements, communications and maintenance ▪ Medical data: results of treatments, analyses o Private and public entities paying services (national health system and private insurances) o Medical devices: are embedded systems that can be source of medical data Public administration: several different entities, interactiong with citizens and companies that can be local, regional, national entities: o Transport ▪ Public infrastructure management (roads, bridges, tunnels, traffic lights) ▪ Registry of vehicles, ships, planes Written by: Dario Marchitelli 12 ▪ Registry of driving licence o Land and estates: cadaster, building and monitoring o Tax: collection and monitoring o Health (see above) o Security: police, army, fire departments, identity management o Agriculture, rivers, forests The main issues for this kind of organizations are: o Management process often absent o Support processes more automated o Primary process: ▪ Services to citizens and companies ▪ Political processes at different levels (design, discuss, approve, promulgate laws ▪ Lack of reference frameworks (AGID) o Basic horizontal services (SPID, PagoPA, IOApp, PEC), in Italy are missing a digital signature service and public cloud The segmentation is the concept of separating the software, that an organization is selling, in different software modules dividing them by business function and domain. There are 2 types of segmentation: Segmentation by vendor: is made by organizations who produces the software (SAP, Oracle) Segmentation by integrator: is private and made by organizations that integrate different softwares to a merged solution, customizing and parameterizating applications The PICK chart is a graphic representation that divides the possible process improvements in four different categories: Possible: easy improvements with small payoff Implement: easy improvements with high payoffs (quick-win), first to implements Challenge: big and difficult improvements with high payoffs Kill: difficult improvements with low payoff, better to discard It helps in effectively select the best improvements for the organization. 3. Low level models 3.1 Low level models – process The easiest way of representing business processes is by using free text, but is difficult to have a clear distinction between the processes. Written by: Dario Marchitelli 13 Another way a little bit more structured is by using a table that has four columns: process name, input/output of the process and description. Each one of the processes are represented by a row, but there could be overlapping between them. The business process lifecycle is composed by: Process identification and process discovery: modeled using text, tables, CRASO, Anthony and T Model Process analysis and process redesign: modeled using BPMN and other high level models Process implementation and process monitoring and controlling: performed using BPMN, low level models, programming languages The BPMN (Business Process Modeling Notation) is a graphical representation for specifying business processes that we can use as a model, but more importantly as an enactment of the process than can be executed by a process engine. A BPMN has four types of core elements: Activity (or Task): a task to be performed Sequence: order of the tasks Event: o Start event: triggers a new process instance by generating a token that traverses the sequence flow o End event: signals that a process instance has completed and consumes a token Gateway: o XOR: act as a condition, the token can take only one way o AND: create parallel flows for every branch, cloning the toxen o OR: create different parallel flows depending on different conditions Attention: Every gateway should have a closing There are different naming conventions for BPMN: Every event and task must have a name Tasks: a verb followed by business object name and possibly a complement (Renew Licence via Agency) Message events: an item followed by past participle (Invoice received) Avoid generic verbs such as handle and record Label each XOR-split with a condition An activity can invoke a subprocess and this is optimal in two cases: To decompose a large model To reuse a shared subprocess A task or a subprocess can be repeated, this repetition can be made in parallel and in sequence. There are different type of tasks: Manual task: executed by person, with no software tools Written by: Dario Marchitelli 14 User task: executed by person with software tool Service task: completely automated Message send/receive task A pool contains a single, complete process. The flow cannot cross a pool but can communicate with other pools using asynchronous messages. A pool contains different lanes which are units of the same organisational entity that share a common system to communicate. Other organizations are considered as a black box and are represented by an empty pool because is not a relevant information for us. An artifact is a way we can use to connect the BPMN with the Data Model, in fact they represent data required or produced by any activity. Using artifacts out diagram could become messy, so instead of using them, we connect the BPMN to the Data Model associating the name of the classes into the UML to the name of the events or activities into the BPMN. 3.2 Low level models – data The Unified Modeling Language (UML) standardized by the OMG capture the main concepts of the IS and the relationships between them. An object is the model of an item characterized by attributes, can perform certain operations and receive massages. A class is the description of a set of objects that have common properties. An attribute is an elementary property of classes and associate to each object a certain value. The purpose of this model is to represent the concept and not other things like the system or the software classes. Usually a class in a conceptual model can be: Phisical entities: Person, Car Roles: Employee, Director, Doctor Social / legal / organizational entities: University, Company Events: Sale, Order, Request, Claim, Call Time intervals: Car rental, Booking, Course, Meeting Written by: Dario Marchitelli 15 Geographical entities: City, Road, Nation Reports, summaries: Weather report, Bank, Account statement A link is a relationship between two objects, we use it when a property cannot be represented on one object only. An association represent a set of links between objects of different classes. There can be more than one association between two classes. It is possible to associate a name to an end of the association, this label is called role. Roles become useful when dealing with recursive associations that are relationships of a class to itself. Style suggestions: For class names use singular nouns For association names use verbs For attributes specifying the type is not needed Multiplicity describes the maximum and the minum number of links in which an object of a class can participate and should be specified for each class partecipating in an association. An aggregation is an association where one object B is part of another object A but object B can exist without being part of A. A composition instead specify that B can’t exist without specifying A. An association class allows to attach attributes to an association. Instead of an association class we could also use a whole new class that has its own attributes and two relationships towards the other two classes. B is a specialization of A if the objects described by B have the same properties of the objects described by A and also others attributes. In this case A is a generalization of B. DO NOT: Use plural for classes Forget multiplicities Forget roles / association classes, when needed Use class as an attribute Use attributes that represent many objects Written by: Dario Marchitelli 16 Use transient relationships that represent events that are not interesting, because they can clutter the diagrams (student “exits” the or “enters” the class phisically) Specify the id related to an associated class Use loops in relationships Model classes related to the implementation of the system 3.3 Low level models – organization An organization is divided in different parts called Organizational unit (OU) and we can use two different kind of models: Inter organizational: o List the organizations involved o CRASO model Intra organizational o Organizational chart: In this model at each node corresponds a differente OU and a line represent that the lower node is a part of the upper one. This chart can be used also to represent roles in an organization where the top nodes commands and controls the down nodes. It is also possible to mix roles and OU into the same organizational chart. o Linear Responsibility Chart (LRC) Having the processes as the rows and the OU as columns of a table it represent at each intersection the degree of involvement of the OU in the specific process. P if the OU is a main actor in the process or C if the unit just receives something from the process but doesn’t perform any action, nothing when the OU is not involved at all. If a certain process implies too many OU it means that there is something wrong in the process. o BPMN Pool and lanes We can model an organization by a pool where each OU is a lane. Both LRC and BPMN are cross models between processes and OUs. 3.4 Low level models – Business rules A business rule is a statement that contains some aspect of the business, apply to business processes and can only be true or false. Every business has business rules which are more or less automated and formalized (if they are formalized, they will be implemented in the same way by everyone). Written by: Dario Marchitelli 17 A business rule is usually encoded with a computer language into the application layer (in other cases could be implemented into the presentation or data layer). A policy is a general direction and will be implemented using different business rules. A business rule should be: Declarative: the statement of a policy, not how the policy is enforced, this characteristic has different advantages: o Force formal definition of rules o Separate business rules and business processes Precise: the rule must have only one interpretation Atomic: a business rule marks one statement, not many Consistent: a business rule must be internally and externally consistent with respect to other business rules Expressible: a business rule must be able to be stated in natural language Distinct: business rules mustn’t be redundant Business-oriented: a business rule is stated in terms that businesspeople can understand The implementation of a business rule can be: Manual Automated: can be embedded in computer programs, or written in a declarative form and executed by an engine During the execution of a process when the process engine encounters a condition/decision, it calls the rule engine which after accessing the rule base gives the result. The Business Rules Management Systems (BRMS) is a software system that can be used to define, deploy, execute and monitor business rules. The Business Rule Engine is the part of the BRMS in charge of executing the business rules. Some examples of BRMS are: Drools (Red Hat) Camunda DMN (Camunda) Oracle BR engine (Oracle) Operational decision manager (IBM) A Drools rule has two parts: when the condition is verified, the action is carried out. In the example if the two people have the same address, their informations are printed. Written by: Dario Marchitelli 18 This kind of rules can also do pattern matching and every type of condition. Another possibility is to use Decision Tables that are a compact way of representing conditional logic. They are expressed with spreadsheets or CSV files where each row is rule. Each rule contains input entries which represent the conditions and output entries that are the conclusion of the rule. 3.5 Low level models – Technology There are differente notation to model the technological implementation of the IS: Application portfolio: is composed simply by a list of applications UML deployment diagram: describes the applications into the context where they are executed. A node is a physical or software entity capable of do some processing, they can be nested. Nodes are physically linked by associations. An artifact is a software part that is interesting for the business process like source file, library, db table. It doesn’t represent a single function but a structured program. The deployment diagram represent how the artifact are integrated inside the nodes, and the general structure of the technology. Instead of using links, artifacts can be nested inside the corresponding node (but it is not the best solution). This diagram has the potential of putting all the information related to technology togheter in a condensed view. Data flow diagram: describes the processes and what data they exchange. 4. Organizations An organization have different characteristics that are related to the organizational variables. The organizational design defines the organizational variables of an organization. The changing of an organization is strongly related to a change to their organizational variables, changes and innovations are needed for evolution but most of the less successful companies tend to resist to it. Due to higher competition and bigger market, organizations’ lifespan is shorting. Written by: Dario Marchitelli 19 Information systems are one of the key factors to be considered in the evolution of an organization. The implementation of automations via an IS increases the efficency but decreases the flexibility of a certain process. There are different organizational variables: Size: can be estimated in different ways: o Number of emplyees: manage the different kinds of employees (full time, part time and collaborators) o Turn overs o Number of sites Size definitions by the European Commission SMEs (Small Medium Enterprise) are the majority of companies (90%+) and employ the majority of emplyees. This possible metrics for estimating the size of a company could not be strictly correlated. Goal type: o Coercitive goal (Prison) o Utilitarian goal (Profit) o Normative goal (University) Culture: is the tacit social order of an organization and define what is encouraged, discouraged, accepted or rejected by the people. A cultural change will involve a transformation of an organization through multiple phases. Examples: o We are the best o Working is fun o Women are paid less o Working more is better o The boss knows more/is always right o Dressing codes o Innovation and change vs “we always did it like this” For example the organization “Patagonia” is an example of “good” culture. The culture is a unifying factor and restraint change. Politics: activities related to making decisions in groups related to the allocation of resources and status. In a company conflict is the rule, not the exception, so the conflict resolution must be ongoing, using differente techniques: o Brute force, hidden decisions and rules o Discussion, transparent decisions and rules Environment: composed by: o Resources and constraints (cost of labour, currency) o Governments/regulatory agencies (right of employees/power of trade unions, taxation, pollution laws, freedom of trade) o Competitors o Financial institutions o Knowledge Written by: Dario Marchitelli 20 Structure: describe the role of people Formalization: level of description of an activity. If an activity has a complete formalization it becomes a sort of algorithm also called SOP. SOP (Standard Operating Procedures): precise rules, procedures and practices that cope with virtually all expected situations, starting point for automation using the IS. Centralization: where to allocate decision power in the hierarchical levels o Centralized organization: decision power only at higher levels o Decentralized organization: decision power also at lower levels Example: centralization in a bank for deciding mortgage allocation. -If the structure is completely centralized all decision are taken by the main branch financial director, this case is not ideal because there should be too many request for a single individual. -If the structure is decentralized every single agency director takes the decisions, this case is more realistic. -The best solution is to rise up the decisioner accordingly to the difficultiness of the decision. o High centralization: more homegeneity and slower responses o Less centralization: better response times and less homogeneity Specialization: the level of detail of activities and the level of specificity of employees, specific activities are often assigned to specialized roles. An higher level of specialization allows to differentiate di activities: o Mortgage for industrial activities o Mortgage for first houses o Mortgage for vacation houses More specialization is typically linked with more formalization, is efficient and precise but is less flexible (it’s difficult to balance the work of each “specialization”). An high level of the last three organizational variables is related to high bureaucracy. The organization design spans from a mechanical/hierarchical system design where the organization works as a machine having a vertical structure, rigid culture, routine task having a stable and efficient environment (army); to a natural system design that has an horizontal structure, adaptive culture, shared information and empowered roles. There are different organizational types: Enterpreneurial: startup business with total flexibility Machine bureaucracy: mid-sized manufacturing firm Divisionalized bureaucracy: biggest organizations that manage sort of indipendent companies Professional bureaucracy: law firms and hospitals, where part of the activities should be efficient and repetitive and the other part are difficult and custom for each customer Adhocracy: consulting firm where each project is different (“ad hoc”) The organizational structures are represented in graphs with node and links where each node is a OU, and a link represent a formal dependency. Written by: Dario Marchitelli 21 This structure must be completed with mechanisms that supports communication and coordination. Given the same size of organization a lower depth of the hierarchical levels (horizontal organization) gives faster reaction (the command chain is really close) but increases the workload on the upper levels. So the links can be: Vertical: control and communication, lower level employees must perform activities coherent with goals set by the higher level, managers at higher level must know activities and results of lower level Horizontal: communication, employees in different units must share information and coordinate themselves Hierarchy, denoted by vertical links, can be implemented in different ways: Plans: the controlling/commanding is made with plans, for example budget plans Rules/procedures: higher level gives a standard way for performing activities to the lower level Command chain: a problem that can’t be solved al level x is reported at level x-1 Vertical IS: to define and diffuse reports and internal meausures like KPI Horizontal links can be implementes in different ways: IS: database of shared informations Direct contact: o Liaison person: charged of contact with other units o Temporary collocation of employees from different units Full time integrator role: project manager, product manager, brand manager Task force: temporary group of people from different units Team: same as task force, but permanent The structure of an organization can be: Functional: employees are grouped according to similar functions/skills, functions are not repeated o Strengths: ▪ Allows economies of scale (if a unit does more thing it costs less) ▪ Enables in-depth knowledge and skill development ▪ Enables organization to accomplish functional goals ▪ Is best with only one or a few products o Weaknesses: ▪ Slow response time to changes ▪ May cause decision pile on top, hierarchy overload ▪ Leads to poor horizontal coordination among departments ▪ Results in less innovation ▪ Involves restricted view of organizational goals Written by: Dario Marchitelli 22 Divisional: employees are grouped by product, functions are repeated for each division o Strengths: ▪ Suited to fastly change in an unstable environment ▪ Leads to client satisfaction because the product responsibility and contact points are clear ▪ Involves high coordination across functions ▪ Allows units to adapt to differences in products, regions and clients ▪ Best in large organizations with several products ▪ Decentralizes the decision making o Weaknesses: ▪ Eliminates economies of scale in functional departments ▪ Leads to poor coordination across product lines ▪ Eliminates in-depth competence and technical specialization ▪ Makes integration and standardization across product lines difficult Geographic: functions are repeated for each geographical area Matrix/multifocused: grouping by more than one criterion Process/horizontal: employees grouped by process Geographic Matrix 5. Strategy Horizontal The strategy is the definition of goals and an action plan to achieve them. The aims can be: Profit levels Profit destination (no profit, public company) Interaction with social environment Interaction with environment The Nace taxonomy list the possible business sectors. In his lifetime, a company, can change its business sector and his strategy radically. Nokia: 1865: pulp mills 1922: rubber and cables 1967: electronics 1981: mobile phones 2014: mobile phones unit sold to Microsoft The Porter’s model describes the strategy of a company considering: Competitive advantage: the product is unique (luxury) and costly or common and low cost Written by: Dario Marchitelli 23 Market focus: the product is for the mass market or for specifiche niches (Airlines: Emirates vs Ryanair, Retail: Esselunga vs ALDI) Porter also defined the 5 forces model that identifies and analyzes five competitive forces that shape every industry and helps determine an industry's weaknesses and strengths. Substitute products: new products that substitutes and kill the one you are selling Bargaining power of customers: have few customers with large volumes can lead to a form of dependence to them Bargaining power of suppliers: higher costs for the supplier’s products cause your prices to increase, if they increase too much you can be out of the market New entrants: the ease with which a competitor can enter the company’s market Intensity of rivalry: how many competitors there are Example: Kodak vs Fuji While Fuji changing is business sector from the picture domain to chemical products increased its lifespan, Kodak decided to remain in the cameras sector taking a wrong strategic decision Technological innovation can change the market really fast and my hugely impact strategy. The diffusion of innovations is shrinking: Steam engine: 100 years Electricity: 50 years TV: 13 years Facebook: 2 years Also the amount of available knowledge is increasing in an exponentiali way, this is shown in the Knowledge Doubling Curve. Companies’ lifespan is decreasing also because of the technology boost. The Business Model Canvas is a tool to express all the essential strategic decisions in an organization, can be used to invent a new company and to model the reality. Value proposition: list of all products and services, how they produce benefits and provide gains for the customer (Gain Creators), how they alleviate problems, reduce negative emotions and undesidered things (Pain Relievers): o Newness o Performance o Customization o ‘Getting the job done’ o Price o Status: the social status that the product gives o Design o Cost reduction o Risk reduction o Accessibility Written by: Dario Marchitelli 24 o Usability Customer segments: groups of customers the organization is aiming to serve (and not to serve): o Mass market (consumer electronics) o Niche market (luxury cars) o Segmented (luxury cars+normal cars, Toyota+Lexus) o Diversified (Amazon: cloud services+books and items) o Multisided (commercial TV, audience + advertisers) Channels: the physical or non-physical way of reaching the customer segments: o Raise awareness about organization o Explain the value proposition o Purchase the product/service o Deliver the product/service o Provide post purchase support Customer relationship: type of relationship between organization and customer segment: o Personal assistance (face to face, email, call center) o Dedicated personal assistance (a strong relationship, financial advisor) o Self service (website) o Automated service (as self service but customized for the customer, google search) o User community (share knowledge and support customers) o Co-creation (youtube, amazon book reviews made by customers) Key resources: o Physical ▪ Facilities, buildings, vehicles, stores, point of sales ▪ Platforms (credit card companies, stock trading) ▪ Networks (logistic companies) o Intellectual: brands, patents, trademarks, customer data o Human: workers, researchers, designers, sales force o Financial: cash, credit lines, stock options Key activities: o Design, production (automotive, electronics) o Problem solving (hospitals, law firms, consultancy firms) o Platform management (credit card companies, stock trading) Key activities are not outsourced. Key partnerships: relationships with other organizations: o Alliances between non competitors o Coopetition: alliances between competitors on specific product/service o Joint ventures for new businesses o Buyer supplier relationships o Outsourcing relationships Cost structure: costs related to key resources, activities, relationships: o Cost driven (Ryanair) o Value driven (7 star hotel) Must be considered fixed and variable costs. Economies of: o Scale: maximize utilization of resources to produce one product/service to increase the volume of production Written by: Dario Marchitelli 25 o Scope: maximize utilization of resources to produce many products/services to increase the set of products/services Revenue streams: how much and how customer segments pay for the product/service: o Asset sale (one time payment) o Usage fee (proportional to usage, telephone calls paid per duration) o Subscription fee (for amount of time, monthly fee for gym) o Renting/lending/leasing (exclusive use for a defined amount of time) o Licensing (copyright, right of using a copy) o Brokerage fees (fee for intermediation service, real estate agent, booking.com) o Advertising Price can be: o Fixed: based on static variables ▪ List price (fixed) ▪ Number of features dependent ▪ Customer segmentation dependent ▪ Volume dependent o Dynamic: the price changes depending on market conditions: ▪ Negotiation (depends on discussion between parties) ▪ Yield management (depends on inventory and time of purchase, flights) ▪ Real time market (based on demand andoffer, stock exchange) ▪ Auctions (bidders compete) There are different kinds of Business Model Pattern: Unboundling: consist in dividing the activities in three macro-categories: o Product innovation o Infrastructure management o Customer relationships Long tail (books industry): consists in selling small quantities of many items (while in the traditional way the aim is to sell large quantities of few items). This approach is applied the most to content industry and can be more profitable than traditional. There are many conditions that made this approach possible: o Democratization of tools of production o Democratization of distribution (internet+digital content, lower transaction and inventory cost) o Better link supply-demand (search engines, recommendation systems, reviews and communities) Multisided: consists in selling to two different, but interdipendent, group of customers. Google, for example, brings togheter customers, content providers and advertisers. Free: offer a service for free, to have a high demand (revenues arrive from advertisers) Freemium (Skype, Flickr): the basic service is offered for free and the premium one requires a fee (it works if the cost of serving the free service is low) Written by: Dario Marchitelli 26 Bait and hook: upfront there is a free or a very cheap offer, but later there are fees to pay The Mission Model Canvas is an adaptation of the BMC for non profit organizations. 6. KPI CSF BSC The managers of an organization need to have control of what is happening. The best way is using metrics and measures. The entire cycle is shown inside the Management Cycle. The IS should support managers in monitoring and controlling the organization, using reliable indicators that needs to be defined. An indicator is an high level aim of the company that implies many measures. Indicator = Brand recognition Measures % Population aware of the brand Number of announces in press A measurement is the process of empirical objective assignment of numbers to entities, in order to characterize a specific attribute. A measure is an attribute of an entity, typical entities are: Resources (employee→ age, salary, machine, web server) Activities (design→duration/cost of design, production) Products/services (car→cost/defects of car, book, insurance) The measurement process is composed of different phases: Define/modify indicators and measures using approaches as Management accounting, CSF, KPI Verify measures and indicators: o Meaningfulness: does it measures what is supposed to measure? o Cost to collect and process the measure o Coverage: how much the measure covers the indicator o Frequency/Obsolescence: how often the measure changes and has to be recomputed o Objectivity: how much the indicator is objective and not ambiguous Collect and store the measure: o Data collection (Human based, automatic) o Data storage (DB schema) o Measure computation o Measure presentation Present the results to the managers and use them day by day Written by: Dario Marchitelli 27 Check if they are used and useful The different possible measures are grouped in different dimensions: Time window: sales per hour/day/month Hierarchical nodes/geographical: sales per country/region/shop, expenses per company/division/group/person Product/Product category: sales per phone xy / sales per business phones Customer/Customer category Activity in process: cost/defect per design/production Project: cost/defect per project There are different approaches to define indicators. The management accounting base indicators on costs, revenues, cash flow, investment, capital, return of investment. There are two aspects to consider: Financial accounting: public data, accounting standards and laws, historical perspective Management accounting: private, sensible data, fit for use of company/managers There are different indices and measures that must be considered: Expenses: costs for the organization (fixed and variable) Revenue: income for the organization Accounts receivable: invoices issued to customers Accounts payable: invoices received by suppliers Liquidity: money available for the organization at a certain time Net income: total revenues – total expenses Asset: what is owned o Current: will be converted to cash within one year (cash, inventory, account receivable) o Fixed: will provide benefits in more than a year (machinery, real estate, land) Liability: what is due o Current: payable within a year (account payable) o Long term: payable in more than one year (mortgage) Equity: assets – liability Cash flow: sum of cost – sum of revenues, over a certain period (3-6-12 months) (can be positive or negative) Operating profit: sum of invoices issued – sum of invoices received, over a period. Cash flow and operating profit are not the same thing, because there is often a delay between the issue of an invoice and its effective payment, also some invoices may never be paid. Profitability: o Net profit margin: net income / revenues o Operation profit margin: (net incomes – taxes – interests)/revenues o EBITDA: Earnings before interest taxes depreciation amortization Balance sheet: the summary of assets, liabilities and equity at a certain time Written by: Dario Marchitelli 28 In the management accounting the cost accounting is an important part, it includes budget and actual cost of operations, processes, departments, products. It is needed to analyze the variances and the profitability to compute the unit cost of products and services. A direct cost is directly traceable to a product/service sold to the customers while indirect costs are usually related to the horizontal functions that are not directly traceable and difficult to compute. Example for car manufacturing: Direct: car components, materials, labor, energy to manufacture Indirect: machine to manufacture, effort to design, advertise, HR, purchase A fixed cost is a cost that doesn’t depend on the number of units produces, while variable costs depend on quantities. Example for car manufacturing: Fixed: infrastructure (factory buildings, long term contract personnel, machinery) Variable: cost of raw materials and parts, cost of energy, short term contract personnel The indirect costs can be allocated is two ways: Proportional to number of elements manufactured Activity based costing: consist in splitting the cost on different activity in function of actual consumption, so requires a precise measure of how cost is split, it aims to understand the true cost of product/service to identify profitable ones. To allocate costs related to personnel we need to consider: Salary (direct cost): average or specific per person Overheads (indirect cost): office cost as percentage of the employee’s cost The FTE (Full Time Equivalent) is the virtual number of employees working full time on a process. Are also used tools like timesheets. Another approach is the CSF (Critical success factors), where the concept is that only a few factors are really important in an organization, so they should be monitored constantly. CSF exists at different levels among the organization structure (corporation, function, single role). CSF can come from different areas: Business domain: key areas for all companies in same business domain (cost for PC manufacturers, skill of personnel for consulting companies) Competitive factors: factors that differentiate company from others (for airlines, low cost vs QoS) Environmental factors: constraints from outside such as norms, rules, standards (pollution norms) Written by: Dario Marchitelli 29 Contingency factors: temporary constraint (merge IS of two companies after financial merge, recover brand reputation after failures) A CSF is composed by: Name: (brand recognition) Description: (how brand is known by a sector of population in a geographical area, how the brand is associated to a product or service) Type: (business domain, competitive…) Level: (corporation, function…) The selection, decomposition, assignment of CSF is not algorithmic, there must be a continuous verification on the field to improve them constantly. CSF can be linked with compensation for the group of employees that achieve a certain goal or target. While the CSF focuses on the different areas of the company, the KPI (Key Process Indicators) approach focuses on measuring certain indicators on the processes. The KPI descriptor is composed of four parts: Name Definition: how the KPI is computed Type Segmentation There are four types of KPI: General: o Input volume: how many times the process starts o Output volume: how many times the process ends o Human resources o Non-human resources (plants, machines, facilities) o Inventory (ex. number of cars in the rental cars process) o Other resources (website, IS) o Output Volume / Input Volume: to get the ratio of actually completed operations Efficiency: o Cost per unit: total cost/volume o Productivity of resources: volume/resource o Utilization of resources: used resource/available resource, describes how well we are using the resources In general costs are low when productivity and utilization are high. Quality: o Conformity: non conform items/total # items, measures the conformity with the product description o Reliability: is the probability that the product satisfies its functions after time T ▪ MTTF: mean time to failure Written by: Dario Marchitelli 30 ▪ MTTR: mean time to repair ▪ MTBF: MTTF+MTTR, mean time between failures o Customer satisfaction: measure the satisfaction of the product using interviews and questionnaires and using qualitative scales (1 to 5 votes) Service: o Lead time: time to satisfy an order from the beginning to the end o Response time: lead time + queue, is the total time needed (the queue is considered only for people waiting) o Punctuality: actual lead time – nominal lead time, represent the delay of an order o Perfect orders: on time and within specifications o Flexibility: the flexibility towards the customers of changing an order ▪ # Modified orders / total # orders ▪ Value of modified orders / total value of orders The Balance Scorecards (BSC, Kaplan and Norton 1992) is a technique that consists in focusing on four key perspective of the organization that must be balanced: Financial: o Cash flow o Return of the investment o Financial result (profitability) o Return on capital invested o Return on equity Customer (the value proposition): o Customer satisfaction o Returning customers o Market share o Quality Internal process (that delivers the customer value proposition): o Number of activities o Opportunities success rate o Accident ratios o Manufacturing indicators (loading, availability, performance quality) Innovation and learning: o Investment rate o Illness rate o Internal promotions % o Employee turnover o Gender ratios All the important information related to the balanced scorecards are represented and visualizable by the Dashboard BSC. There are different possible statistics appliable to a measure: Central tendency: mode, median, mean Frequency distribution Variance 7. IS Written by: Dario Marchitelli 31 The IT area is the organizational entity that supports/offers IT services to an organization. Only companies above a certain turnover/size threshold can sustain an IT area. In the past the IT area worked only under the finance department, after some time it started working also for every other department (Decentralized IT) and this led to a divergence because each application was different and not correlated (data is not consistent or must be synchronized among divisions). Nowadays it works directly for the direction as a “staff” function (Centralized IT). The centralized approach has different advantages and disadvantages: Advantages: o Economy of scale (no duplications of assets) o Standardization (of tools, architectural choices, and career paths) o Data sharing o Governance: control of IT budget and costs, enforcement of IT strategy o Consistency of the data Disadvantages: o Less reactivity to requests from other business functions o Less specialization But even with the centralized approach, if there is no control, it will flow to a decentralized approach because of entropy, this is called the Conway’s Law. There are two different methodologies to coordinate the different division with the IS: Push: the CEO gives the strategy to the CIO that implements the IS for the different business functions Pull: CEO gives objectives to the business functions, and the business functions request the IS to the IT area There are different roles inside IT area: Manager: in charge of a team o General manager: in charge of an entire organization or business unit o Functional manager: in charge of a functional area or a team End users: individuals who have direct contact with sw applications and they use them to carry out specific tasks Executives: o Chief Information Officer (CIO): the individual in charge of the information systems function o Chief Digital Officer (CDO): the individual in charge of digital transformation and digital innovation in established organizations o Chief Data Officer (CDO): the individual who oversees all aspects of data use in an organization (collection, compliance, extraction) o Chief Information Security Officer (CISO): the individual in charge of digital risk management and cybersecurity Technical Staff: o Architect: the individual in charge of developing a framework for the development of a system Written by: Dario Marchitelli 32 o Developer: the individual who builds the software using the framework provided by architects o Administrator: the individual who is charged with the day-to-day maintenance of a system or collection Analysts and Managerial Staff: o Analyst: the individual who performs analysis in a specific field or topic area o Project Manager: the individual ultimately responsible for delivering the IS on time, within budget and scope o IS Manager: the individual in charge of a team within the IT function of an organization (is under the CIO) Data science and analytics: o Data scientist: the individual in charge of analytics on data o Data engineer: the individual that does data access and preparation o Subject matter expert: individual with a deep understanding of the business and the functional domain of analysis IT Consultant: the individual that moves assuming roles like the ones described previously. 7.1 COBIT The COBIT (Control Objectives for Information and Related Technology) is a reference document that aims at aligning Business and IT Strategy meant for managers and auditors. Implements, in some way, the management control loop: Definition of objectives becomes plan Corrective actions become build Execution becomes run Control results becomes monitor Each process for governance and management are further decomposed in activities and practices, with input and outputs for each one. Usually Deliver, Service & Support (Run) takes 60%-70% of the IS budget while Build, Acquire & Implement (Build) takes 20%- 30% (or 0% if nothing changes). 8. ES – ERP – CRM ES, ERP, CRM are software applications that help managing the business. ERP: Enterprise Resource Planning CRM: Customer relationship management SCM: Supply chain management ES Enterprise System: ERP + CRM + SCM Written by: Dario Marchitelli 33 Originally there was only the ERP, while CRM and SCM were added later. An ERP is composed of different modules, where we can recognize the T of the T model: the vertical line is related to modules specific for the business, while on the horizontal line there are the cross-industry modules. The ES is organized in three levels: Software functions: that supports single operation and activities Module: a software application that has different functions Suite: a set of software application that can share the same database The ES model has three main principles: Data sharing: all the sw applications share the same data. In the past the same data were stored by different systems that needed dedicated and costly interfaces for synchronization. This because different and independent applications were sold by different companies. In the case of data sharing there are: o Horizontal integrity: all applications share the same data o Vertical integrity: data are the same from operational level to management level The management support applications aggregate data and show (for example) KPIs. Modularity: the companies that produces software sells different modules that fits different business functions (horizontal and primary). (SAP example). This principle offers a smoother transition and an extensible software that can perfectly match the company’s needs. Prescriptivity: the ERP sold is, in general, the same for every customer, but there is a limited capability of customization. Before buying or building an ERP, a company need to do gap analysis. Gap analysis help to decide if it is convenient or not using (or transition to) a software to do a certain activity and if the software should be bought or produced internally. The transition to an ERP has different costs: License + personalization Delay: the time for doing the transition Changes to business processes (acceptance, human factor) Loose flexibility on some operations The cost depends also on the size of the companies: Large corporations (turnover > € 50M) have difficult constraints like multi-currency, multi- language, multi-legal systems, big IT dept. SME (turnover < € 50M) has less constraints because they have one language, one currency and one legal system, small or no IT dept. Written by: Dario Marchitelli 34 There are different kinds of vendors: Major players: SAP Business One; Oracle ERP cloud, Microsoft Dynamics NAV that sells to the biggest companies Local producers and products: Metafresh, StartyERP, ERPNext, ePromis that sells to SMEs Open source: Adempiere, Apache OFBiz, Blueseer There are different vending options: Installation: o Cloud o On-premise: installed on the local pc Payment: o Per license: one shot cost o Per user per month SAP, founded in 1972, was the first offering a flexible software that could be sold to different companies, in the following years was implemented multi language and client-server and now is a really big and complex software. It has a Kernel, a DB, Packages and has approximately 64000 tables Oracle, in principle, was selling only the DBMS, in 1995, thanks to some buyouts, enters the ERP market. 8.1 CRM A CRM (Customer Relationship Management) implements an integrated and structured process to interact with customers (acquire new customers and retain existing ones). The goal is to build a long-term relationship with the customer, increase their satisfaction and increase the value of their companies. With the CRM approach the customer becomes a core aspect of the commercial strategy, in fact the company: Makes access to product/services as easy as possible Produces customized offers Provides complete access, from pre-sale to post-sale Collects complaints and suggestions The CRM approach is not feasible without tools, the first tool created was made by Siebel in 1993. The main principles of CRM are: Multichannel: the customer can access the company through any channel Uniqueness of data and services: the access is consistent through all channels, the data provided is the same and doesn’t depend on channel End to end service chain: is an evolution of Porter’s value chain where the company appears as a chain of services that are connected, it can be more or less complex: o Reservations: db with availability of product/service plus (multichannel) frontend o E-commerce: when the delivery is included. Written by: Dario Marchitelli 35 For example, sale of product + delivery (Amazon), sale of product + production + delivery (Dell) o Customer care: complex service chain that assists the customer after the sale Evolution of CRM tools: 80’s o Sales Force Automation (SFA): a tool to support salesperson for ▪ B2B: few buyers buy many items and negotiate the price ▪ B2C: many buyers buy one item at a fixed price and pay immediately 90’s o Toll free numbers, call centers o Informational and reservation services o After sale support (help desk) o Sales (telemarketing) 1995 o Informational websites o Sales made via web (B2C Amazon, B2B Cisco) 00 o Integration of SFA, call center and website into the CRM suites Not all the business domains have the same need for a CRM, that depends on: Intensity of relationship with the customers (frequency of contact, duration of contract) Size of the customer pool Loyalty of customer Multichannel or not The key functions of a CRM are: Commercial logistics (inbound, transformation, sales, distribution and post-sale) Support for multichannel interaction After sale support Analysis of customers A CRM can have different modules: Sales Force Automation: find new customers and interact with him for the sale (offer creation) Internet channel: o Different for Business vs Consumer customers o General information, catalogue of the products o Purchase: product suggestion, shopping cart, checkout o Information of all transactions of the customer o After sale: complaints and suggestions o Log of all customer actions Written by: Dario Marchitelli 36 Call center channel: with a CTI (Computer Telephone Integration) that has (interactive voice response, automatic call distribution, voice recognition, caller recognition, speech to text), and has different functions: o Information on company and products o Purchase o Status of purchases o Complaints o History of interactions o Telemarketing CRM Analytics: using data from the DW: o Segmentation indexes o Data mining to compute predictive indexes o Reports on customers, production of dashboards o Definition of segments, customers per segment Campaign management: planning and execution of campaigns: o Selection of customer lists using the Analytic CRM o Design and plan campaign o Transfer data from analytic CRM to operational IS There are different CRM vendors: Full liners: they sell the CRM with the ERP and BI: o Peoplesoft, Siebel (Oracle) o SAP CRM o Salesforce o Microsoft Dynamics Analytic CRM, BI (SAS, BO) Telephone technology vendors 9. IT Economics Let’s now analyze value and cost of IT in an organization, the processes (inside cobit) that manage the economics of the IT area are: Governance: ensure benefits delivery and resource optimization APO: manage strategy, budget and costs MEA: monitor performances and costs The cost of unit is calculated as (𝑓𝑖𝑥𝑒𝑑_𝑐𝑜𝑠𝑡 / #𝑢𝑛𝑖𝑡𝑠_𝑝𝑟𝑜𝑑𝑢𝑐𝑒𝑑) + 𝑣𝑎𝑟_𝑐𝑜𝑠𝑡. Economy of scale consists in maximizing #𝑢𝑛𝑖𝑡𝑠_𝑝𝑟𝑜𝑑𝑢𝑐𝑒𝑑 to minimize the cost of unit to make the most out of the “fixed costs”. Economy of scope consists in using the same infrastructure to produce different units/products so you can divide the cost of infrastructure among differente products. Examples: Parmalat: which started selling only milk and later started selling biscuits Written by: Dario Marchitelli 37 Bank: that started selling only bank services and later also insurance services reuseing the same infrastructure When considering informational units, the variable cost becomes negligible while the fixed costs refer to the entire IS. Examples: Booking: the single operation of reservation doesn’t have a cost Easyjet: the single ticket doesn’t have a cost Network effect: the value of a service increases with the number of users. The Total Cost of Ownership (TCO) is the financial estimate of all costs of a product/service considering the entire lifecycle, divided in four phases: Construction (make)/Selection (buy) Deployment Operation + Maintenance Dismissal Examples: Car (buy): o Selection: define needs, find and select model and vendor, define and sign contract, pay o Deployment: transportation and registration of the purchase o Operation: fuel, taxes, cleaning o Regular maintenance: oil, filters, tyres, wipes o Exceptional maintenance o Dismissal: resale value or scrapping cost Car (make): o Construction: define needs, buy materials and machines, design, implement o The rest is the same Similar story for a software product. When comparing two possible solution is better to consider the one with a lower TCO instead of the one with lower “label” cost. Example: if an airplane costs more, but the fuel is cheaper, maybe is the best choice The downside of the TCO is that you need to make assumptions on the future so is uncertain, the best way of computing the TCO is by computing the best and the worst case. Nowadays, when buying with the “as a service” payment mode, the estimation of the TCO is easier and less uncertain. Typically, the final cost is a bit more in exchange of price certainty. The Return On Investment (ROI) that represents the gain percentage 𝐵𝑒𝑛𝑒𝑓𝑖𝑡−𝐶𝑜𝑠𝑡 𝑃𝑟𝑜𝑓𝑖𝑡 related to a certain cost is computed as or. The problem 𝐶𝑜𝑠𝑡 𝐶𝑜𝑠𝑡 of the ROI is that it doesn’t consider the time, the Net Present Value (NPV) fixes it. Written by: Dario Marchitelli 38 Another way to address the problem is to consider the ROI on several time periods. The break-even point is the point where costs and revenues are balanced. In the example we can see that in the first case we buy something cheaper with less benefits, instead in the second case a more expensive thing, which recovers the costs first. Complete example: 9.1 Transaction theory A transaction is an exchange of products or services between two parties, there are two kinds of transactions: Internal transactions: happens inside a company between two organizational units Market transactions: happens outside the organization, the two parties are independent and there is always an exchange of money that is higher than the nominal cost. Their cost is computed using the TCO, the phases before and after the manufacturing (physical) or deployment (software) are called transaction costs. A transaction must be described by a contract with legal value that should be the perfect and complete description of what is exchanged and what happens in case of exceptions (that are not always predictable). It’s hard to describe the product completely because of the intrinsic difficulty in description or information asymmetry that allows for opportunistic behavior of one of the parts. For this case there is the example of a famous lawsuit. Liebeck was a person who bought a muggle of coffee that was hot, for this he sued McDonalds and won the case. (Now there is product liability). An internal transaction requires a looser description, and the contract is not needed. In market transactions the information is not controlled/distributed, there is no hierarchy, and the price is decided by the market. In firm transactions the information is controlled and centralized, there is a hierarchy and the price is imposed. The transaction theory makes some assumptions: Actors takes decisions rationally to maximize utility and profit Written by: Dario Marchitelli 39 All actors have all information All products (within a specified category) are equal The consequences of this assumptions are that the market defines the “best” price and the market is the “perfect” place to do transactions. But in practice actors do not always behave rationally, all information is not available to all and not all products are equal, and the consequence is that the market becomes less suitable for complex products that are hard to describe completely, and for having full control on process and product quality. So, the higher the unclarity of the item description, the higher the advantage of the firm to produce it internally. When choosing between internal and external transactions there are other factors to consider: Efficiency: is lower in market while higher in firm Cost: while in market is defined upfront in firm is undefined Know how: while in market is external and not available, in firm is internal but can be lower than available to specialized producers Problem resolution: in market is performed with the contract and in firm by hierarchy Changing the type of a transaction could affect the size of the firm: Vertical disintegration: happens when there is a change from firm transaction to market transaction, in this case the is team that working internally on the product/service that is going to be outsourced becomes useless, so the company becomes smaller. Vertical integration: vice versa Two examples related to IT services are: Vertical integration: General Motors that bought EDS sw company in the 90s Vertical disintegration: also in the 90s the IS of Fiat was extracted and put in a company called GlobalValue (joint venture IBM-Fiat) which was external and working also for others (the IS transaction becomes a market one) As a consequence of disintegration there is the “network” company which is a company that integrate many independent companies each one specialized on few components. An example is MSC that owns all the supply chain nodes: inland transportations, port terminals, towage services and shipping line. The (dis) integration depends on: The cost of internal transaction vs the one of the external transaction The importance of the know how Written by: Dario Marchitelli 40 The need of specific product/service For example, in the case electronics for cars: Fiat: when Marelli was sold to Samsung the design of electronic circuits and diesel injection control unit became a market transaction BMW: manage the design of electronic systems internally while the design of diesel injection was outsourced to Bosch GM (General Motors): the design of diesel induction control units is internal Other kinds of collaborations are: Joint ventures: independent company owned/shared by more owners Long term contracts and collaborations There are different types of market transactions: Time and material: there is a contractual agreement on cost of work (time) and materials. Build a house: pay material + n person days Issues: o The buyer may control quality in more depth o The vendor may try to reduce productivity, the final price is not known in advance Fixed price: there is a contractual agreement on the result and its value Issues: o The price is known in advance so the vendor may try to reduce quality, to overcome this problem, the quality should be perfectly described in the technical annex of the contract o In case of inflation the price remains the same, so the vendor could lose something 9.2 Agency theory The agency theory is a classical economy theory used to explain and resolve issues in the relationship between business principals and their agents. The firm is made of: Principal: owner or shareholders Agents: employees and managers The firm is based on a web of (explicit or implicit) contracts between principal and agents. The agents have their own interests and goals, the contrast between goals of agents and principal causes agency costs. There are three types of agency costs: Monitoring costs: control of the agents by the principal Bonding costs: the reporting of the agent to the principal on activities done Residual loss costs: profits lost by the principal due to the suboptimal behavior of the agents The IS can have the role of decreasing these costs. Example: For a retail shop there is the owner (principal) and 3 vendors Monitoring: the time spent by the owner checking what agents are doing (instead of doing other work) Written by: Dario Marchitelli 41 Bonding: time spent by vendors to report to the owner (instead of selling) Residual lost: the customer asks a discount, the vendor says no, the customer does not buy; the owner instead would have granted the discount completing the sale In this case a solution could be to implement a form of compensation (profit sharing/bonus related to sales goals) 9.3 Decision theory There are three types of decisions (Gerry and Scott Morton, 1971): Structured: follows an algorithm and is repeatable Semistructured: output is defined, inputs and decisions are partially defined Unstructured: no algorithm, subjective Also, decision can be: Planned (Production budget at the end of the year) Unplanned (Adjust strategy for covid19) Under certainty: the outcome of every alternative is known (Turin to Milan, road vs train (no traffic, weather is good)) Under noncertainty: o Under risk: some knowledge about probability of each outcome (Turin to Milan, road vs train (there could be traffic, there could be weather issues)) o Under uncertainty: no information on outcomes The decision process, for structured and planned decisions, has many steps: Identify problem Identify alternatives Evaluate alternatives (effect/probability of each one) Select one Implement decision Evaluate decision Depending on the structuredness of the information and of the decision, the IS can become powerful. When the information is unclear it can only be used to store the textual description but if they are both high the IS can automate the process. The decision theory says that the decisions can be taken at many levels of the organization. In the option 1 there is a certain cost on trasferring the information to the upper level and the risk that the information trasferred is not completely right In the option 2 there are no cost but the decision can be suboptimal because it is taken in a lower level (agents) There are three decision issues: Bounded rationality (Simon): not all informations are available Analysis paralysis: too much information does not help Written by: Dario Marchitelli 42 Conflictiong goals in decisions: (time vs money) There are built-in mechanisms in humans that make rational decisions difficult, these are called cognitive biases. Cognitive biases are mental shortcuts in “reasoning” because as humans we are used to take decision more rapidly than precisely. Cognitive biases are also connected to Heuristics: Confirmation bias: related to information cherry-picking, use only the information that is convenient (My uncle died at 95 and did smoke all life long) Motivated reasoning: find reason to produce the desidered outcomes, instead of logical outcomes (Given a crime, find reason to demonstrate that person X is guilty, instead of analyze facts and find the guilty person) Survival bias: consider a dataset that contains

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