© Richard Welke 2002 MBA 8125: Enabling Process Innovation with IT Authors: Mike Gallivan Lars Mathiassen Richard Welke Adapted by C. Stucke

© Richard Welke 2002

MBA 8125: Enabling Process Innovation with IT

Authors:Mike GallivanLars Mathiassen Richard Welke

Adapted by C. Stucke

© CEPRIN (2007) MBA 8125 Enabling with IT 22

Agenda

The value of ITRetail innovationsIT infrastructureService-Oriented Architecture


Topic one


Does IT add value?Many researchers have sought to prove the economic impact of IT spending on firm performance, productivity, profits, with mixed results:

Organizational IT Organizational IT spendingspending

Demonstrable Demonstrable economic impacteconomic impact

??

From: Davenport


IT’s effect on BPIDavenport thesis:IT doesn’t cause higher organizational productivity, however, it can enable process changes that doIT spending process innovation economic

outcomes Managers need to consider process innovations and potential IT enablers before implementing change

What are leading-edge firms doing with IT?What emerging technologies are on the horizon?

Potential process Potential process innovations innovations

Potential new technologiesPotential new technologies

EconomicEconomicoutcomesoutcomes++

From: Davenport


How can IT improve processes?Automational – robotics, imaging, and automatic call distribution Informational – makes information available to decision-makersSequential – helps to make sequential processes parallel or concurrentTracking – real-time tracking systems (as used by FedEx and UPS)Analytical – expert systems that make decisions automatically or executive information systems that provide information to managersGeographic – helps to coordinate processes across spatial boundariesIntegrative – enables creation of more holistic “case manager” roles Intellectual – knowledge management systems that record and share information about FAQs and best practices across a companyDisintermediating – online purchasing systems and exchanges that eliminate middlemen/ brokers/agents (e.g., travel agents, stockbrokers)

The terms that Davenport uses to describe IT are non-standard. Use them to characterize and categorize the potential of using IT to enable BPI

From: Davenport


Combining technologies in BPIDavenport characterizes various IT systems for generic organizational processes:

New product development Automated design; simulation systems; tracking; decision analysis; interorganizational systems (IOS)

Customer order fulfillmentProduct choice; forecasting; voice communication; electronic markets; IOS; textual composition

Supply chain logisticsRecognition systems (barcode scanners and RFID); logistical planning; asset management; telemetry systems

Lesson: Know your industry, its Lesson: Know your industry, its generic processes, and state-of-the-generic processes, and state-of-the-

art IT systemsart IT systems From: Davenport


Topic two


Considered process & IT innovations

IOS – interorganizational systems that connects multiple firmsCRP – continuous replenishment:

Supplier responsible to monitor sales and to keep shelves stocked with products

Sometimes called vendor-managed inventory (VMI)Retailer transmits to supplier data about either:

Consumer purchases orProduct shipments from the retailer’s warehouse to its stores, but not actual orders

Various industries have adopted innovations similar to CRP:JIT – rapid delivery of raw materials to factories for manufacturing QR – quick response; similar concept in retail apparel industry

Manual CRP – conducting CRP without EDI or high-tech supportEDI – electronic data interchange:

An older electronic document standard that transmits pre-agreed (standardized) product data between a retailer and suppliersEDI does not represent a process innovation, by itself, but has some benefits:

Reduces data entry errors, may improve cost / speed of orderingEDLC (everyday low cost) – supplier charges retailers fixed prices

From: Clark and Stoddard


Technology and process innovation

Clark & Stoddard studied the comparative effect of:

Technology change alone (EDI), Process innovation alone (manual CRP or EDLC),Both technology and process change (CRP with EDI)

Which type of change is most effective?



How the grocery industry worksTraditional supply chain practices:

Retailer contacts the supplier (by phone, fax, mail) to order product whenever inventory is lowRetailer must determine how much / when to order

Traditional pricing practices: Supplier charges the retailer prices that vary over time, depending on supplier’s special promotions

During such promotions, retailers may “forward buy” in attempts to take advantage of the promotion.

Effects of traditional practices:Unpredictable product demand (due to forward buying), high retailer storage costsHigh “regular” prices (when not on promotion).Bottom line: great complexity in terms of pricing, promotions, and retailer ordering patternsHigh inventory costs due to excessive forward buyingFrom: Clark and Stoddard


Clark & Stoddard’s Study

Study innovations’ impact on inventory turnsTwo grocery suppliers:

Proctor & Gamble (P&G) – EDLC and CRPCampbell’s – CRP and (optional) EDLC

Two grocery retailers:H.E. Butt – very early adopter of CRPHannaford Bros.

Phase 1: EDLCPhase 2: CRP with EDI



Which innovations paid off?

In general, In general, both both process and process and technology technology innovation innovation was best. was best.

ProcessProcess

innovation innovation alone alone (manual CRP (manual CRP or EDLC) was or EDLC) was better than better than IT alone.IT alone.



Technology trends in retailing

“New retail technologies will focus on streamlining collaboration among SC partners and shift focus from product-centric to customer-centric business”Technologies:

Global data synchronizationGlobal register (UCCnet) of products being tradedElectronic product codes (ePC’s)

Collaborative planning and forecasting (CPFR)Requires common view of business processes

ePC on RFIDsRetail optimization and analytics

Augmenting judgment with real-time event information

CRM

From Gartner (Roster, White, Lehong, Fenn)


Topic three


The purpose of IT infrastructure

What is IT infrastructure?“The base foundation of the IT portfolio (including both technical and human assets), shared throughout the firm in the form of reliable servicesUsually coordinated by the IS groupIt includes technical and managerial expertise required to provide reliable service” (p. 163).

How does it differ from other forms of IT?“Shared services available to all business units in the firm”Regular IT performs a specific business application, whereas IT infrastructure provides services that enable these applicationsBoundary-crossing refers to infrastructure that “supports information flows and transaction processing across functional area”

From: Broadbent, Weill & St.Clair


What did Broadbent et al. study?

Broadbent et al. compared four case studiesTwo from retail industry (MergeCo, StockCo)Two from oil/gas industry (LeapCo, CostCo)All had generally high levels of IT infrastructureFirms with more boundary-crossing IT infrastructure were able to innovate processes more quickly

MergeCo and LeapCo had 7 types of boundary-crossing infrastructure, and innovated quickly

LeapCo and CostCo had just 4 types of boundary-crossing infrastructure, and innovated much slower




What set them apart?Only MergeCo and LeapCo had these forms of boundary-crossing IT infrastructure:

Enforcement of IT architecture and standards (#11) *Electronically provide management information (#17)Firm-wide data management, including standards (#19)Develop a common system development environment (#21)

But all 4 firms had these forms of infrastructure:Manage group-wide or firm-wide messaging services (#2)Manage firm-wide or business unit applications and databases (#7)Develop and manage linkages to suppliers and/or customers (#20)

* The numbers in parenthesis match the numbers from list in Table 3



Lessons learned

There are trade-offs to having more forms of boundary-spanning IT infrastructure:

Faster deployment of process innovation initiativesBut higher costs associated with such infrastructure

Why invest in IT infrastructure?IT infrastructure can provide firms with flexibility and “real options” to undertake quick innovationBut be cautious about spending money to develop this capacity unless your firm is likely to need it!Issue for IT management:

How to make the case for investment in “futures”?



Topic four


Gartner’s take on infrastructure

LinuxVendor/Contract Mgmt Tools

Voice/Data IntegrationWindows XP

Workflow MgmtMobile/Wireless

CRMReal-Time Enterprise

SpamXMLERP

Legacy ITWeb Services

Enterprise PortalsWeb Design/devt/Content Mgmt

Storage MgmtBusiness Intelligence

Network MgmtInterbusiness Processes

Integration/MiddlewareImproving TCO

IT Perf MgmtStandard Desktop

Security ToolsManaging efficient/flexible infrastructure

Developing efficient/flexible infrastructure

956 CIOsSurveyed Worldwide

Published March 2004

0 50 100 0 50 100 ◘


Web servicesWeb services is a new “paradigm” of IT components that firms can use to access an application’s servicesThe goals are to:

Make system development and operations fasterIncrease infrastructure flexibility, and Reduce costs

Key idea:Access applications using standardized (Internet) protocol (SOAP) interfaces and infrastructuresEnable transparent access to application services andApplication integration across different platforms

Associated terms:SOA – Service-Oriented ArchitectureSOAP – Simple Object Access ProtocolWSDL – Web Services Description LanguageUDDI – Universal Description, Discovery and Integration


Web services - pictoriallyS

OD

AS

OA

SO

BA

Eve

nts

Web Services

Other Services

ProductivityService CreationRapid Maintenance

Process Management

Composite ApplicationsComposite Applications

OrchestrationAssembly

PackagedBusiness Functions

Bil

lin

g

Pri

ce

Invo

ice

-Inventory Low-Order Received-Payment Late

SODA: Service-Oriented Design of ApplicationsSOBA: Service-Oriented Business Applications

From: Gartner (D. Plummer)


Gartner’s infrastructural forecast

Rapid response to changeBusiness relationship flexibility

Lower transaction costsProcess and goal consistency

Internally Centralized (Owned Mainframe Era)

Externally Monolithic (Time-Shared Era)

Internally Distributed (Mini and PC Eras)

Externally Distributed (Internet/Web Era)

Adaptive/Dynamic (Era of Agility)

Service-Oriented (Web Services Era)

Event-Driven (Complex-Event Processing)

Incre

ased Agilit

y

and Complexity

Vendor-Vendor-centriccentric

Vendor-Vendor-centriccentric

User-User-centriccentric

User-User-centriccentric

Hardware Software Access Process Events Goals

© CEPRIN (2007) MBA 8125 Enabling with IT

Our context – we’re a services economy!

2626

Focus on manufacture

d goods

Where the action is!

Source: Jim Spohrer © 2007 IBM Corporation


Service AProduct A

Service B

Service Offer

This, in turn, gives impetus to organizational servitization

BusinessBusinessUnit AUnit A

CorporateCorporate

Finance &Accounting

OperationsHuman Resourc

esMarketing

Systems

Mktg

Acct’g

Op’s

IT

BusinessBusinessUnit BUnit B

Mktg

Acct’g

Op’s

IT

ERP or equivalent EAI

CRM SCMAssetMgt

App-1

App-2

App-3

App-4

App-5

App-7

App-6

App-8

App-9

App-1

0


CRM SCMAssetMgt

App-1

App-2

App-3

App-4

App-5

App-6

App-10


CRM SCMAssetMgt

App-1

App-2

App-3

App-4

App-5

App-6

App-10

Denotes: Value Stream

• Misalignment between processes delivering goods/services and end-customer value realization• Performance measures &

lines of responsibility• Hand-offs (inefficient, long

cycle-times)• Multiple points of contact• Inconsistent/no shared data• Don’t know where a

transaction is (tracking)• Difficult to change or re-

use (agility) and innovate• And many more …

Current configuration issuesCurrent configuration issues


In an “ideal world” organizations would be organized by value chains/streams & services

End

Consu

mer

IntermediateSuppliers

Distributors - Contractors

Product/Service ProviderReseller - Contractor

Need-to-concept

Design-to-order

Concept-to-prototype

Prototype-to-launch

InnovativInnovative offeringe offering

Build-to-order

Plan-to-produce

Demand-to-fulfill

Order-to-Order-to-cashcash

Responsive Responsive ServiceService

Sourc

e

Sup

plie

rs

And others …

Choic

e d

ep

ends

on

org

aniz

ati

on

al

stra

tegy

Verify-to-initiate

Order-to-verify

Complete-to-bill

Bill-to-cash CashOrder

Value-Chain (or Value Web)

Value streams

Value “streamlets” or “composite services”


Service Service notationnotation

Value stream notationValue stream notation

How do services (and associated business processes) figure into this scheme?

Loan application (business) service:Request loan (event+data) Receive loan documents (service result)

Service InterfaceService Interface(single point of (single point of

contact)contact)

LoanLoanAppApp

(service)(service)

LoanApplication

LoanDocuments

Un

derl

yin

g

Un

derl

yin

g

bu

sin

ess

pro

cess

bu

sin

ess

pro

cess

A service “encapsulates” (hides) the flow of actions needed to enact it (the business process)

Application-to-documents


Recasting our previous value-stream diagram in service notation …

End

C

onsu

merIntermediate

SuppliersDistributors - Contractors

Product/Service Provider Reseller - Contractor

Build-to-order

Plan-to-produce

Demand-to-fulfill

Order-to-cash Order-to-cash (orchestration)(orchestration)


Sourc

e

Sup

plie

rs

Choic

e d

ep

ends

on

org

aniz

ati

on

al

stra

tegy

Verify-to-initiate

Order-to-verify

Complete-to-bill

Bill-to-cash

CashOrder

Value-Chain (or Value Web)

Value streams

Service-delivery (orchestration)


Order-to-cash in more detail: creating a service flow across existing stove-pipes

Data

Logic

Sales

Service

Accounts Receivable

Service

Manufacturing

Order Capture

Cust/ Order Validation

Inventory Allocation

Invoicing A/R Cycle

Order EntryLegacy App

Data

Service

Logic

InventoryLegacy App

Data Logic

Service

Finance Legacy

App

Data

Service

Logic

DataData

LogicLogic

Sales

ServiceService

Accounts Receivable

ServiceService

Manufacturing

Order Capture



Invoicing A/R CycleOrder Capture



Invoicing A/R Cycle

Order EntryLegacy App

DataData

ServiceService

LogicLogic

InventoryLegacy App

DataData LogicLogic

ServiceService

Finance Legacy

App

DataData

ServiceService

LogicLogic


Identifying business services & their process connection

The triggering event or

document

The organizational response to

this event

A short “X-to-Y” A short “X-to-Y” description that description that

captures the captures the nature of the nature of the

service providedservice provided

Busi

ness

Serv

ice

Busi

ness

Pro

cessValu

e S

tream

The underlying process that produces the (service) response to the initiating event/document trigger

The value a company offers to one or several customer-types, the network of partners for delivering this value, in order to generate profitable and sustainable revenue streams

Business Model

Customer/client for the service


Building up higher-level (composite) service from lower level services (services use services)

Supply Chain (Plan-to-Results)Supply Chain (Plan-to-Results)

Plan Schedule

Plan-to-Plan-to-ProduceProduce

Out-StockTrigger

ReplenishOrder

Trigger-to-Trigger-to-ReplenishmentReplenishment

Client Order

Client Payment

Order-to-CashOrder-to-Cash

Sales Forecast

SupplierDelivery

Demand-to-Demand-to-FulfillFulfill

Plan Receipts

Lower-level (3) services that are consumed to produce a higher-level (2) service

Level 1

Level 2

Level 3

Services consume other services


In general – a value stream can be any set of activities with a defined trigger and result


document

The organizational

response to this event

A short “X-to-Y” A short “X-to-Y” description that description that

captures the captures the nature of the nature of the

service providedservice provided

The service provided

Start

Request new item

Approval by

supervisor

Check requisition for budget

Issue request for quotation

Select vendor

Receive & verify quotes

Issue purchase

order

Receive and verify

order

Match shipping

docs to PO

Release item to

requestor

Receive invoice

Match PO to receipt & invoice

Request payment to

vendor

End

Requisition

RFQ

QuotePOShip Docs

The underlying (encapsulated) process


The underlying business process is then discovered and documented (modeled)

Request new item

Approval by

supervisor

Check requisition for budget

Issue request for quotation

Receive & verify quotes

Select vendor

Receive and verify

order

Match shipping

docs to PO

Release item to

requestor

Receive invoice

Match PO to receipt & invoice

Request payment to

vendor

Requisition

RFQ

Quo

te

Ship Docs

Request new item

Vendor

Purc

hase

Ord

er

Ordering Customer Finance Purchasing Shipping/Receiving Vendor

Issue purchase

order

Invoice


document

The organizational response to this

event

A short A short ““XX--toto--YY””description that description that

captures the nature captures the nature of the service of the service

providedprovided


document

The organizational response to this

event

A short A short ““XX--toto--YY””description that description that

captures the nature captures the nature of the service of the service

providedprovided

Considerations that go into Considerations that go into properly identifying properly identifying

(documenting) a process(documenting) a process

Example of a resulting Example of a resulting process model process model

(swimlane)(swimlane)

You start hereYou start here


Various organizational approaches in play for servitization …

Value chains streams

Fn-1 Fn-2 Fn-n

ERP/CRM/SCM Applications

Business Unit/Function B

Prc-1 Prc-2 Prc-3 Prc-n

Business Unit/Function A

Wrap-1

Existing Custom Applications

Wrap-2

Wrap-n

WS-1

New Service Development

WS-2 Ws-n

Prc-1 Prc-2 Prc-3 Prc-n

Top

-Dow

n

Serv

ice D

om

ain

Pla

nn

ing

Bott

om

-up

Tech

nolo

gy-b

ase

d

Serv

ices

Mid

dle

-out B

P

serv

itizatio

n

Client-Client-CustomerCustomer

Build-to-order

Plan-to-produce

Demand-to-fulfill

OrderOrder--toto--cash cash (orchestration)(orchestration)


Verify-to-initiate

Order-to-verify

Complete-to-bill

Bill-to-cash

CashOrder

Service-delivery (orchestration)


Client ServiceClient ServiceProvidedProvided

Flexible Flexible Solution Solution

StackStack

But also thinking about service innovation

ServiceServiceProviderProvider

ServiceA

ServiceB

ServiceN

3rd party provided service

Mix and match services in the solution stack to provide new/innovative, tailored client responses

Cust

om

er

pro

ble

m t

o b

e s

olv

ed

Cust

om

er

pro

ble

m t

o b

e s

olv

ed

Business Business UnitUnitAAprovided serviceprovided service

ActivityActivity11 ActivityActivity22 ActivityActivity33 ActivityActivitynn

Business Business UnitUnitAAprovided serviceprovided service


Business Business UnitUnitBBprovided serviceprovided service


Business Business UnitUnitBBprovided serviceprovided service


Business Business UnitUnitNNprovided serviceprovided service


Business Business UnitUnitNNprovided serviceprovided service



Shift to servitization & their digital enablement via newer IT architectures

Process/service Process/service orchestration or orchestration or choreographychoreography

ServicesServices(WSDL, UDDI)(WSDL, UDDI)

Components & Objects

Application softwareERP SCMCRM Custom

EventsEvents

BAM (Business BAM (Business Activity Monitor)Activity Monitor)

Data layerDB DWHDWHDB DM

Message-orientedMiddleware (MOM) ESB

Email messages (SMTP)

Hypertext messages (HTTP)

Service messages (SOAP, etc.)Service messages (SOAP, etc.)

USR

SO

A

BPM

Meta

Data

Meta

Data

Busin

ess R

ule

sB

usin

ess R

ule

s

Pre

vio

usly

Em

erg

ing

Sta

ndard

s

New!New!

ED

A

Newer!Newer!


ERPERPApplicationApplication

The service and business orchestration layers, one can orchestrate BP’s

11I 0 22I 0 33I 0 44I 0

External Software Service

88I 0

In-house Computer Application

77I 0

A different orchestrated service

66I 0

Selected

55I 0

parts

OrchestrationOrchestrationEngineEngine

1. Initiate A-1; move 0-1 to I-3 & I-5

2. Initiate A-3 & A-5 in parallel; when both done move 0-3 to I-6 & 0-5 to I-8

3. Initiate A-8; move 0-8 to “Output”

4. Initiate A-6; move 0-6 to “Output”

ScriptScript

Busin

ess

Pro

cess

Orch

estra

tion

executed

Human-actionsw/man-machine

interface {

“Wrapper”


Events allow for business activity monitoring (BAM) and RTE (Real Time Enterprise)

ERPERPApplicationApplication

11I 0 22I 0 33I 0 44I 0

External Software Service

88I 0

In-house Computer

Application

77I 0

A different orchestrated service

66I 0

Selected

55I 0

parts

OrchestrationOrchestrationEngineEngine

ScriptScript

Business

ProcessO

rchestration

executed

Process/service Process/service orchestration or orchestration or choreographychoreography

ServicesServices(WSDL, UDDI)(WSDL, UDDI)

Components & Objects

Application software

ERP SCMCRM Custom

EventsEvents

BAM (Business BAM (Business Activity Monitor)Activity Monitor)

Data layer DB DWHDWHDB DM

-oriented

à ESB Email messages (SMTP)

Hypertext messages (HTTP)Service messages (SOAP, etc.)Service messages (SOAP, etc.)

USR

(MOM) Middleware Message