This chapter is from the book
This chapter is from the book
This chapter is from the book
1.2 How Business Is Changing
The need for enterprise integration is being driven by the changing needs of business. Sometime around 500 B.C. Heraclitus said, "Nothing endures but change." Although change may have been a constant from time immemorial, the rate of change is accelerating far faster than ever before, and this is having a profound effect on business. Business cycles are rapidly shrinking. The way business was conducted even a decade ago is no longer acceptable if a business intends to remain competitive. The changes include how the business interacts with customers, how it manufactures goods, and how it is organized and managed. The changes in business are fundamental and pervasive.
1.2.1 Customer Interaction
In the past, customers interacted with companies from defined access points such as stores, over the telephone, or through sales reps, during defined business hours. Now customers may place an order over the Web, ask questions about the order over a telephone, and then exchange merchandise at a physical store. The goal and challenge is to have all customer access and interactions managed consistently across the enterprise, even if the customer uses multiple channels for a single transaction. This requires comprehensive integration of customer information across all possible channels. Barnes & Noble effectively dealt with the threat of Amazon.com by providing seamless integration of an online presence with vast brick-and-mortar operations, turning what had been considered a weakness at one time into a real competitive advantage.
It costs many times more to acquire a new customer than to retain an existing customer. Providing an integrated view of the customer brings together knowledge of the customer that is spread across multiple systems in the organization.
Improving customer knowledge enables the company to maximize the value of each customer.
1.2.2 Manufacturing
The manufacturing process is also changing. Whereas companies used to produce goods to stock with low levels of customization, the trend and competitive advantage is to manufacture products to order with mass customization. Dell Inc. provides a good example of how this capability propelled it to become the number one computer manufacturer and changed the way people buy computers. Whereas retail customers used to purchase personal computers in stores and then customize configurations after the fact, Dell introduced the capability to purchase computers over the Web or by telephone, customized with the amount of memory, disk storage, and other features they may require such as specialized graphics cards or a math coprocessor. It also delivered the customized system to the customers' door faster and cheaper. To compete effectively, the other computer manufacturers needed to do the same to retain customers.
Integration of the design, planning, and manufacturing processes is critical to managing margins, ensuring that the right amount of materials are on hand, and improving inventory turns. Over the last several years this has been the focus of General Motors Corporation's information systems organization. As a result of reducing redundant systems and integrating across the diverse set of systems that support design and engineering, it was able to reduce the design time of a new car from 48 months down to 18 months.
1.2.3 Business in Real Time
Competitive advantage requires making the end-to-end process across the value chain—from requisition to payment—as fast and efficient as possible. The concepts of "zero latency" and the "real-time enterprise" are gaining traction as companies seek to accelerate business processes and reduce business cycle times. The term "real time" refers to being able to view, manage, and control business processes in business time, rather than responding to end-of-month or quarter reports after the fact. This includes integrating, monitoring, managing, and optimizing the end-to-end process across applications, business units, and the entire value chain. Optimization may be based on different metrics, such as time or cost (which in some cases may be conflicting goals). Automating business processes can also go a long way towards reducing business cycle times. Cisco Systems has applied this concept to its finance operations to achieve dramatic increases in performance (Powell 2003). Its story is described in Case Study 1.1.
Sidebar 1.1. Cisco Systems: The Importance of Enterprise Integration to World-Class Finance
Many important business strategies and initiatives will be based upon a strong technology-integration foundation. Without the foundation, the building cannot stand. Cisco Systems is an example of an organization where the creation of a world-class finance organization required a solid platform for enterprise integration.
Cisco is a great business success story. In the 1990s, Cisco's finance organization recognized that truly world-class finance required the movement from a gatekeeper role to that of a business catalyst, the difference being one of collection of information versus continuously monitoring and analyzing critical information for more rapid decision making and course correction. The goal was to improve financial reporting and the underlying processes to better support a changing business. For example, strategies changed after 2000, when growth, acquisition, and capturing the growing network volume as business drivers were replaced by the slowing economy, shareholder concerns around disclosure and ethics, and a focus on profitability and productivity.
The finance organization began focusing on real-time metrics to understand the nuances in one of the world's largest businesses. Furthermore, being able to have a virtual close of the books at any time gave management the ability to adjust in real time. If we examine the metrics that were being evaluated constantly, we see that they are a diverse set, including order and revenue status, discounts, product margins, and expenses. In addition, market share, head count, revenue per employee, after-tax profit, business-unit contributions, and balance-sheet information were all collected and analyzed. The finance organization also began looking at nontraditional performance in such areas as sales channels, emerging technology, new opportunities, deal analysis, bookings forecast, and contribution margin. In examining these metrics, we can see that for a global organization such as Cisco, this required the integration of data from diverse systems in diverse locations. Without this integration, the virtual close and ability to perform real-time analysis would not be possible.
The results of this effort are nothing short of tremendous: Productivity doubled, a 30% reduction in cost performance was achieved, and daily reporting became the norm, allowing for improved decision-making. Cisco had a competitive information advantage that was unparalleled in the industry.
Six building blocks were critical to the execution of this strategy:
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Management commitment
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Network and system architecture
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Process reengineering
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Linkage between the IT and business functions
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Focus and review process
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Web-based application
Business strategies that require enterprise integration are the most difficult of all projects to execute. As a result, they require more substantial processes, analysis, technology, and review. However, none of this is as important as the business management commitment and understanding of the complexities of achieving dramatic success.
What can we learn from this example? If we look at these building blocks we see that success is determined by having a business-driven strategy and a good understanding of the problem from a process orientation. With this in hand, it is important to ensure a common understanding between the business and IT functions of the strategy and requirements. Finally, the organization needs to have the right technology to make it all work.
1.2.4 Business Operations
One of the reasons companies are facing the challenges of integration today is the way they were organized in the past. Business operations were organized in functional stovepipes such as sales, order processing, manufacturing, finance, and so on. The back-office computer systems used to manage these organizational stovepipes reflected the specific views and needs of the department, and were not designed to interact with other departmental systems. Each system defined business entities, such as customers and products, without regard to how the other systems represented the same entities. However, the end-to-end business process of the entire interaction with a customer or a business transaction was likely to be supported by multiple business systems.
Lack of integration between systems requires additional manual steps such as rekeying information, increasing the possibility of introducing errors. The cost of fixing errors is not trivial. For example, one high-tech manufacturer integrated the order entry and fulfillment systems, eliminating the need to manually rekey orders, and reduced errors by 40%. Several companies have reported 100% return on investment (ROI) from an integration project within the first year, merely through reducing errors. Automating the flow of information as it crosses stovepipe systems greatly reduces the latency in business processes, reducing business cycle times and enabling the real-time enterprise. FedEx has been a leader in this area. It continues to be on the cutting edge of operational improvement with a focus on field force automation. The details on its latest endeavor can be found in Case Study 1.2 (Brewin 2002).
1.2.5 Business Organization
The globalization of business has fueled the move from centralized to decentralized organizations. Decentralized organizations require access to shared information from multiple locations and systems. This has driven the rise of enterprise portals, which provide front-end, role-based integration. From a browser-based interface, employees, partners, suppliers, or even customers can access the information they require through a single easy-to-use interface that includes information and functionality from multiple back-end source systems.
1.2.6 Management
Moving towards real-time business, or business on-demand, requires real-time management. Previously, defined planning cycles based on historical analysis might have sufficed. However, the company that can recognize and exploit competitive opportunities and react to changes in the market faster than the competition gains competitive advantage. For example, General Electric Company monitors its mission-critical operations across the company's 13 different businesses around the world from "digital cockpits." The cockpits enable GE to respond faster to change, reduce cycle times, and improve risk management. Rather than waiting for end-of-month or quarter reports, the cockpits provide real-time data to GE.
Management practices based on monitoring key performance indicators and real-time metrics tied to the fundamental business objectives, such as reducing business cycle times, will provide competitive advantage to the real-time enterprise. Methods such as balanced scorecard and Six Sigma have shown that management by metrics improves the overall efficiency, quality, and profitability of the company.
Sidebar 1.2. FedEx: Improving a Field Force Through Enterprise Integration
FedEx was founded on the principle that through better operational processes it could build a business that would compete with a protected industry. FedEx has become a giant because it has one of the most efficient operations in the world. It has managed the delivery of packages in a way that is still the gold standard in the industry. Next day delivery, electronic package management, and Web-based customer-status checking are all business strategies that require different levels of integration of processes and systems.
FedEx continues to be at the leading edge even today through the provisioning of its field force with custom-built handheld devices based upon Microsoft's Pocket PC operating system. These devices will provide applications to automate courier dispatch, pickup, and delivery. The handheld devices will eliminate paperwork, provide real-time update of information into the core processing systems, and improve the efficiency of managing its field force. It is expected that each transaction can be reduced by ten seconds, which may not seem like a lot, but when aggregated provides a significant increase in productivity. This will result in an estimated yearly savings of $20 million. Furthermore, the real-time update will give enhanced capabilities to manage a package. None of this would be possible without integration with its back-office core systems, such as package tracking. Without enterprise integration, this application would not be able to achieve the dramatic business results that FedEx is expecting.