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Chapter 3Strategic Initiatives for Implementing Competitive Advantages1CLASSROOM OPENERGREAT BUSINESS DECISIONS Richard Sears Decides to Sell Products Through a CatalogSears Roebuck changed the shape of an entire industry by being lucky enough to discover a huge untapped market that lay waiting to be discovered. In the 1880s about 65 percent of the population (58 million) lived in the rural areas. Richard Sears lived in North Redwood, Minnesota, where he was an agent at the Minneapolis and St. Louis railway station. Sears began trading products such as lumber, coal, and watches, when the trains would pass through. Sears moved to Chicago in 1893 and partnered with Alvah C. Roebuck, and the Sears & Roebuck company was born. The company first published a 32 page catalog selling watches and jewelry. By 1895 the catalog was 532 pages long and included everything from fishing tackle to glassware. In 1893 sales reached $400,000 and by 1895 sales topped $750,000.Sears invented many new marketing campaigns and concepts that are still in use today, including a series of rewards (or loyalty programs) for customers who passed copies of the catalog on to friends and relatives. Sears was one of the first companies to recognize the importance of building strong customer relationships. Sears loyalty program gave each customer 24 copies of the catalog to distribute, and the customer would generate points each time an order was placed from one of the catalogs by a new customer. The Sears catalog became a marketing classic. It brought the world to the isolated farms and was a feast for the new consumers. The entire world was available through the Sears catalog, and it could be delivered to the remotest of doorsteps.Learning Outcomes3.1List and describe the four basic components of supply chain management

3.2Explain customer relationship management systems and how they can help organizations understand their customers

23.1 List and describe the four basic components of supply chain managementSupply chain strategy is the strategy for managing all the resources required to meet customer demand for all products and servicesSupply chain partners are the partners chosen to deliver finished products, raw materials, and services including pricing, delivery, and payment processes along with partner relationship monitoring metricsSupply chain operation is the schedule for production activities including testing, packaging, and preparation for deliverySupply chain logistics is the product delivery processes and elements including orders, warehouses, carriers, defective product returns, and invoicing3.2 Explain customer relationship management systems and how they can help organizations understand their customersCRM is not just technology, but a strategy, process, and business goal that an organization must embrace on an enterprisewide level. If an organization does not embrace CRM on an enterprisewide level it will have a difficult time gaining a complete view of its customers. CRM can enable an organization to identify types of customers, design specific marketing campaigns tailored to each individual customer, and understand customer-buying behaviors.Learning Outcomes3.3Summarize the importance of enterprise resource planning systems

3.4Identify how an organization can use business process reengineering to improve its business33.3 Summarize the importance of enterprise resource planning systemsEnterprise resource planning systems provide organizations with consistency. Enterprise resource planning (ERP) integrates all departments and functions throughout an organization into a single IT system (or integrated set of IT systems) so that employees can make decisions by viewing enterprisewide information on all business operations. An ERP system provides a method for effective planning and controlling of all the resources required to take, make, ship, and account for customer orders in a manufacturing, distribution, or service organization. The key word in enterprise resource planning is enterprise.3.4 Identify how an organization can use business process reengineering to improve its businessThe purpose of BPR is to make all your processes the best-in-class. Companies frequently strive to improve their business processes by performing tasks faster, cheaper, and better. Companies often follow the same indirect path for doing business, not realizing there might be a different, faster, and more direct way of doing business. BPR provides companies with a way to find the different, more direct way of doing business, such as Progressive Insurance.If your students are unfamiliar with business processes have them review plug-in B2 Business Processes for a detailed look at common business processes, business process modeling, continuous improvement, and business process reengineering.Strategic InitiativesOrganizations can undertake high-profile strategic initiatives including:Supply chain management (SCM)Customer relationship management (CRM)Business process reengineering (BPR)Enterprise resource planning (ERP)4This chapter provides an overview of SCM, CRM, BPR, and ERPExplain to your students that this is simply an introduction of SCM, CRM, BPR, and ERPEach of these initiatives is discussed in detail throughout the textThere are also business plug-ins offering advanced material on SCM, CRM, BPR, and ERPSupply Chain ManagementSupply Chain Management (SCM) involves the management of information flows between and among stages in a supply chain to maximize total supply chain effectiveness and profitability5To help your students understand a supply chain, ask them to discuss and determine the steps typically taken when a customer buys a bike from TrekCustomer places an order for a Trek bike with a storeStore (such as Gart Sports, local bike shop, or local sporting goods store) receives the orderStore receives the payment from the customerStore orders the bike from TrekStore sends payment to TrekTrek orders materials from its suppliers, such as packaging material, metal, and accessoriesTrek sends payments to suppliersTrek receives materials from suppliersTrek assembles the bikeTrek ships the bike to the storeCustomer picks up the Trek bike from the store

Supply Chain ManagementFour basic components of supply chain management include:Supply chain strategy strategy for managing all resources to meet customer demandSupply chain partner partners throughout the supply chain that deliver finished products, raw materials, and services.Supply chain operation schedule for production activitiesSupply chain logistics product delivery process6There are dozens of steps required to achieve and carry out each of the four basic components of SCMSupply chain strategy is the strategy for managing all the resources required to meet customer demand for all products and services. Supply chain partners are the partners chosen to deliver finished products, raw materials, and services including pricing, delivery, and payment processes along with partner relationship monitoring metrics. Supply chain operation is the schedule for production activities including testing, packaging, and preparation for delivery. Supply chain logistics is the product delivery processes and elements including orders, warehouses, carriers, defective product returns, and invoicing.An organization generates tremendous operational efficiencies when it automates these steps and the information flows among them

CLASSROOM EXERCISESupply Chaining the RoomDivide your class into four groups and assign a different SCM component to each groupAsk your students to create a list describing the details of the work involved in their assigned componentAsk your students to discuss how this work was accomplished prior to the invention of the computerAsk your students to describe the effect SCM software has on work accomplished among the four componentsSupply Chain ManagementWal-Mart and Procter & Gamble (P&G) SCM

7Wal-Mart and P&G implemented a tremendously successful SCMSystem links Wal-Marts distribution centers directly to P&Gs manufacturing centersEach time a Wal-Mart customers purchases a P&G product, the system sends a message directly to P&Gs factory for a reorderExplain how Wal-Marts and P&Gs relationship would be affected if a catastrophic incident destroyed the SCM system?How would Wal-Mart reorder products?How would Wal-Mart send payments?How would P&G know which products to send to Wal-Mart?Supply Chain Management Effective and efficient SCM systems can enable an organization to:

Decrease the power of its buyersIncrease its own supplier powerIncrease switching costs to reduce the threat of substitute products or servicesCreate entry barriers thereby reducing the threat of new entrantsIncrease efficiencies while seeking a competitive advantage through cost leadershi8This is a good time to readdress Porters Five Forces ModelAsk your students to diagram Porters Five Forces and then walk-thru each of the above bullets and explain how SCM is causing this effectSupply Chain ManagementEffective and efficient SCM systems effect on Porters Five Forces

9Is it a good idea to try to influence buyer power and supplier power?Why would a company wants to decrease its buyer power and increase its supply power?Decreasing buyer power gives a company a competitive advantage as Apple discovered with the introduction of its iPod. Being the first to market and the only supplier of a product puts the company in the coveted position of being able to set prices and control the market.Discuss how SCM systems can drive buyer power and supplier power

Customer Relationship Management Customer relationship management (CRM) involves managing all aspects of a customers relationship with an organization to increase customer loyalty and retention and an organization's profitability

Many organizations, such as Charles Schwab and Kaiser Permanente, have obtained great success through the implementation of CRM systems10CRM systems help organizations understand and manage their customersCharles Schwab recouped the cost of a multimillion-dollar CRM system in less than two yearsThe system allowed Schwab to segment its customers in terms of serious and nonserious investors The CRM system looked for customers that had automatic withdrawal from a bank account as a sign of a serious investorThe CRM system looked for stagnant balances as a sign of a nonserious investorCharles Schwab could then focus efforts on selling to serious investors, and spend less time attempting to sell to nonserious investorsKaiser used CRM to enforce more rigorous eye-screening for diabetic patientsAsk your students to list other organizations that use CRM to increase sales and improve operationsRitz-Carlton HotelsHarrahsHarley-DavidsonCustomer Relationship ManagementCRM is not just technology, but a strategy, process, and business goal that an organization must embrace on an enterprisewide level

CRM can enable an organization to:Identify types of customersDesign individual customer marketing campaigns Treat each customer as an individualUnderstand customer buying behaviors11CRM is not just a technology, but a strategy that an organization must embrace on an enterprisewide levelAlthough CRM has many technical components, it is actually a process and business goal simply enhanced by technologyOrganizations must first decide that they want to build strong customer relationships and then they determine how IT can support their goalsProvide examples of bad customer experiences you have had in the pastAre you still doing business with that company?What could the company have done to attempt to keep your business?Do you see the value in CRM and how beneficial it can be for an organization to develop and maintain strong customer relationships?

Customer Relationship ManagementCRM overview

12Customers contact organizations multiple times through numerous channelsEach contact can be stored in a different system or different database. For example, a sales call and a billing call will be maintained in two different databasesThe CRM system tracks all of the different contacts through the various channels and collates the information into a central repositoryThis gives the organization a complete and total view of its customers, along with their purchases, questions, issues, and concerns, in one single placeWhy is it so important for an organization to embrace CRM on an enterprisewide level?What happens if only one division in an organization embraced CRM? (not enterprisewide)What happens if the customer service system or order fulfillment system were not part of the CRM system in the above diagram?How would the company determine orders or provide customer service?

Business Process Reengineering Business process a standardized set of activities that accomplish a specific task, such as processing a customers order

Business process reengineering (BPR) the analysis and redesign of workflow within and between enterprisesThe purpose of BPR is to make all business processes best-in-class13CLASSROOM EXERCISEReengineering a ProcessThere is nothing more frustrated than a broken process. Ask your students to break into groups and discuss examples of broken processes that are currently causing them pain. The process can be a university process, mail-order process, Internet-order process, return merchandise process, etc. Ask your students to agree on one of the broken processes and to reengineer the process. Students should diagram the As-Is process and then diagram their To-Be process. Bring in a large roll of brown package wrapping paper and masking tape. Give each group two large pieces of the paper and ask them to tape the paper to the wall. These make for great As-Is and To-Be process maps.Business Process Reengineering Reengineering the Corporation book written by Michael Hammer and James Champy that recommends seven principles for BPR

14BPR reached its heyday in the early 1990s when Michael Hammer and James Champy published their best-selling book, Reengineering the Corporation. The authors promoted the idea that radical redesign and reorganization of an enterprise (wiping the slate clean) sometimes was necessary to lower costs and increase quality of service and that information technology was the key enabler for that radical change. Hammer and Champy believed that the workflow design in most large corporations was based on invalid assumptions about technology, people, and organizational goals. They suggested seven principles of reengineering to streamline the work process and thereby achieve significant improvement in quality, time management, and cost.

Finding Opportunity Using BPRA company can improve the way it travels the road by moving from foot to horse and then horse to car

BPR looks at taking a different path, such as an airplane which ignore the road completely

15Companies frequently strive to improve their business processes by performing tasks faster, cheaper, and betterThe above figure displays different ways to travel the same roadA company could improve the way that it travels the road by moving from foot to horse and then from horse to carHowever, true BPR would look at taking a different path. A company could forget about traveling on the same old road and use an airplane to get to its final destination. Companies often follow the same indirect path for doing business, not realizing there might be a different, faster, and more direct way of doing business.

Finding Opportunity Using BPRProgressive Insurance Mobile Claims Process

16Radical and fundamentally new business processes enabled Progressive Insurance to slash the claims settlement from 31 days to four hours. Typically, car insurance companies follow this standard claims resolution process: The customer gets into an accident, has the car towed, and finds a ride home. The customer then calls the insurance company to begin the claims process, which usually takes over a month (see Figure). Progressive Insurance improved service to its customers by offering a mobile claims process. When a customer has a car accident he or she calls in the claim on the spot. The Progressive claims adjustor comes to the accident and performs a mobile claims process, surveying the scene and taking digital photographs. The adjustor then offers the customer on-site payment, towing services, and a ride home. (see Figure).Finding Opportunity Using BPRTypes of change an organization can achieve, along with the magnitudes of change and the potential business benefit

17A true BPR effort does more for a company than simply improve it by performing a process better, faster, and cheaperProgressive Insurances BPR effort redefined best practices for its entire industryThe figure displays the different types of change an organization can achieve, along with the magnitude of change and the potential business benefitWhat is an example of each type of change on the change spectrum?Automate answering phones with computers, auto grading an essay or Excel projectStreamline remove duplicate jobs in the process, use a different tool to perform the same taskBPR taking an airplane instead of a bike, horse, or carStrategic reengineering taking BPR to the level where you redefine an entire industry such as Progressive Insurance

Pitfalls of BPRFails to keep up with competitorsEnterprise Resource PlanningEnterprise resource planning (ERP) integrates all departments and functions throughout an organization into a single IT system so that employees can make decisions by viewing enterprisewide information on all business operations

Keyword in ERP is enterprise19What happens when sales and marketing departments are working from two different sets of customer information and product information?Would the marketing campaigns be accurate?Would sales be able to deliver the products it sells to its customers?Briefly explain the differences between SCM, CRM, and ERPSCM systems focus specifically on suppliersCRM systems focus specifically on customersERP systems focus on everything, all processes, departments, and operations for an enterprise

Enterprise Resource PlanningSample data from a sales database

When displaying the sales database example and the accounting database be sure to point out the differences in the dataAsk your students why correlating these two spreadsheets would be difficult?How can you understand customers when one spreadsheet has customer name and one has customer ID?How can you understand sales reps when one spreadsheet has sales rep names and one spreadsheet has sales rep ID?Date format is different will this cause problems?One quantity is in units and one quantity has decimal points what problems will this cause?Unit price and unit cost is rounded to dollars in one spreadsheet and contains cents in another what problems will this cause?

20Enterprise Resource PlanningSample data from an accounting database

When displaying the sales database example and the accounting database be sure to point out the differences in the dataAsk your students why correlating these two spreadsheets would be difficult?How can you understand customers when one spreadsheet has customer name and one has customer ID?How can you understand sales reps when one spreadsheet has sales rep names and one spreadsheet has sales rep ID?Date format is different will this cause problems?One quantity is in units and one quantity has decimal points what problems will this cause?Unit price and unit cost is rounded to dollars in one spreadsheet and contains cents in another what problems will this cause?

21Enterprise Resource PlanningERP systems collect data from across an organization and correlates the data generating an enterprisewide view

The true benefit of an ERP system is its ability take the many different forms of data from across the different organizational systems and correlate, aggregate, and provide an enterprisewide view of organizational informationThe two previous spreadsheets display examples of differences in data that can be fixed by using an ERP systemAsk your students why it is important to have an enterprisewide view of data?Without understanding how all of the different divisions, products, departments, etc. are operating you cannot run the business22