Chapter 4 Measuring the Success of Strategic Initiatives

Key performance indicator – measures that are tied to business drivers

Metrics are detailed measures that feed KPIs

Performance metrics fall into the nebulous area of business intelligence that is neither technology, nor business centered, but requires input from both IT and business professionals

Efficiency and Effectiveness :

Efficiency IT metric – measures the performance of the IT system itself including throughput, speed, and availability

Effectiveness IT metric – measures the impact IT has on business processes and activities including customer satisfaction, conversion rates, and sell-through increases

Benchmarking – Base lining Metrics :

Regardless of what is measured, how it is measured, and whether it is for the sake of efficiency or effectiveness, there must be benchmarks – baseline values the system seeks to attain

Benchmarking – a process of continuously measuring system results, comparing those results to optimal system performance (benchmark values), and identifying steps and procedures to improve system performance

Efficiency IT metrics focus on technology and include:

• Throughput
• Transaction speed
• System availability
• Information accuracy
• Web traffic
• Response time

1. Throughput - The amount of information that can travel through a system at any point
2. Transaction speed - The amount of time a system takes to perform a transaction
3. System availability - The number of hours a system is available for users
4. Information accuracy - The extent to which a system generates the correct results when executing the same transaction numerous times
5. Web traffic - Includes a host of benchmarks such as the number of page views, the number of unique visitors, and the average time spent viewing a Web page
6. Response time - The time it takes to respond to user interactions such as a mouse click

Effectiveness IT Metrics

Effectiveness IT metrics focus on an organization’s goals, strategies, and objectives and include:

• Usability
• Customer satisfaction
• Conversion rates
• Financial

Usability - The ease with which people perform transactions and/or find information. A popular usability metric on the Internet is degrees of freedom, which measures the number of clicks required to find desired information.

Customer satisfaction - Measured by such benchmarks as satisfaction surveys, percentage of existing customers retained, and increases in revenue dollars per customer.

Conversion rates - The number of customers an organization “touches” for the first time and persuades to purchase its products or services. This is a popular metric for evaluating the effectiveness of banner, pop-up, and pop-under ads on the Internet.

Financial - Such as return on investment (the earning power of an organization’s assets), cost-benefit analysis (the comparison of projected revenues and costs including development, maintenance, fixed, and variable), and break-even analysis (the point at which constant revenues equal ongoing costs

The Interrelationships of Efficiency and Effectiveness IT Metrics

Security is an issue for any organization offering products or services over the Internet

It is inefficient for an organization to implement Internet security, since it slows down processing

• However, to be effective it must implement Internet security 
• Secure Internet connections must offer encryption and Secure Sockets Layers (SSL denoted by the lock symbol in the lower right corner of a browser)

Metrics for Strategic Initiatives

Metrics for measuring and managing strategic initiatives include:

1. Web site metrics
2. Supply chain management (SCM) metrics
3. Customer relationship management (CRM) metrics
4. Business process reengineering (BPR) metrics
5. Enterprise resource planning (ERP) metrics

Web site metrics

Web site metrics include:

• Abandoned registrations - Number of visitors who start the process of completing a registration page and then abandon the activity.
• Abandoned shopping cards - Number of visitors who create a shopping cart and start shopping and then abandon the activity before paying for the merchandise.
• Click-through - Count of the number of people who visit a site, click on an ad, and are taken to the site of the advertiser
• Conversion rate - Percentage of potential customers who visit a site and actually buy something.
• Cost-per-thousand - Sales dollars generated per dollar of advertising. This is commonly used to make the case for spending money to appear on a search engine
• Page exposures - Average number of page exposures to an individual visitor.
• Total hits - Number of visits to a Web site, many of which may be by the same visitor.
• Unique visitors - Number of unique visitors to a site in a given time. This is commonly used by Nielsen/Net ratings to rank the most popular Web sites

SUPPLY CHAIN MANAGEMENT METRICS

• Back order - An unfilled customer order. A back order is demand (immediate or past due) against an item whose current stock level is insufficient to satisfy demand.

• Customer order promised cycle time - The anticipated or agreed upon cycle time of a purchase order. It is a gap between the purchase order creation date and the requested delivery date.

• Customer order actual cycle time - The average time it takes to actually fill a customer’s purchase order. This measure can be viewed on an order or an order line level.

• Inventory replenishment cycle time - Measure of the manufacturing cycle time plus the time included to deploy the product to the appropriate distribution center

• Inventory turns (inventory turnover) - The number of times that a company’s inventory cycles or turns over per year. It is one of the most commonly used supply chain metrics.

CUSTOMER RELATIONSHIP MANAGEMENT METRICS

Customer relationship management metrics measure user satisfaction and interaction and include

• Sales metrics
• Service metrics
• Marketing metrics
  

BPR AND ERP METRICS

The balanced scorecard enables organizations to measure and manage strategic initiatives

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Chapter 3 Strategic Initiatives for Implementing Competitive Advantages

Strategic Initiatives
Organizations can undertake high-profile strategic initiatives including:

• Supply chain management (SCM)
• Customer relationship management (CRM)
• Business process reengineering (BPR)
• Enterprise resource planning (ERP)

Supply Chain Management

Supply Chain Management (SCM) – involves the management of information flows between and among stages in a supply chain to maximize total supply chain effectiveness and profitability

Four basic components of supply chain management include:

• Supply chain strategy – strategy for managing all resources to meet customer demand
• Supply chain partner – partners throughout the supply chain that deliver finished products, raw materials, and services.
• Supply chain operation – schedule for production activities
• Supply chain logistics – product delivery process

Wal-Mart and Procter & Gamble (P&G) SCM

Effective and efficient SCM systems can enable an organization to:

• Decrease the power of its buyers
• Increase its own supplier power
• Increase switching costs to reduce the threat of substitute products or services
• Create entry barriers thereby reducing the threat of new entrants
• Increase efficiencies while seeking a competitive advantage through cost leadership

Effective and efficient SCM systems effect on Porter’s Five Forces

Customer Relationship Management 

Customer relationship management (CRM) – involves managing all aspects of a customer’s 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 systems

CRM 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 customers
• Design individual customer marketing campaigns 
• Treat each customer as an individual
• Understand customer buying behaviors

Business Process Reengineering 

Business process – a standardized set of activities that accomplish a specific task, such as processing a customer’s order

Business process reengineering (BPR) – the analysis and redesign of workflow within and between enterprises

• The purpose of BPR is to make all business processes best-in-class

Reengineering the Corporation – book written by Michael Hammer and James Champy that recommends seven principles for BPR

Finding Opportunity Using BPR

A 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

Types of change an organization can achieve, along with the magnitudes of change and the potential business benefit

Enterprise Resource Planning

Enterprise 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 “enterprise”

ERP systems collect data from across an organization and correlates the data generating an enterprisewide view

Chapter 2 Identifying Competitive Advantages

What is competitive advantage?

• A product or service that an organization’s customers place a greater value on than similar offerings from a competitor.
• Unfortunately, CA is temporary because competitors keep duplicate the strategy. 
• Then, the company should start the new competitive advantage.

Five forces Model

Michael Porter’s Five Forces Model is useful tool to aid organization in challenging decision whether to join a new industry or industry segment

• Buyer power
• Supplier power
• Threat of substitute products or services.
• Threats of new entrants.
• Rivalry among existing companies.

Buyer power 

• High – when buyers have many choices of whom to buy.
• Low – when their choices are few.
• To reduce buyer power (and create competitive advantage), an organization must make it more attractive to buy from the company not from the competitors.
• Best practices of IT-based

Supplier power

• High – when buyers have few choices of whom to buy from. 
• Low – when their choices are many.
• Best practices of IT to create competitive advantage.
• E.g. B2B marketplace – private exchange allow a single buyer to posts it needs and then open the bidding to any supplier who  would care to bid. Reverse auction is an auction format in which increasingly lower bids. 

Threat of Substitute products & Services

• High – when there are many alternatives to a product or service. 
• Low – when there are few alternatives from which to choose.
• Ideally, an organization would like to be on a market in which there are few substitutes of their product or services. 
• Best practices of IT 
• E.g. Electronic product -same function different brands

Threat of new entrants

• High – when it is easy for new competitors to enter a market.
• Low – when there are significant entry barriers to entering a market. 
• Entry barriers is a product or service feature that customers have come to expect from organizations and must be offered by entering organization to compete and survive.
• Best practices of IT
• E.g. new bank must offers online paying bills, acc monitoring to compete.

Rivalry among existence competitors

• High – when competition is fierce in a market
• Low – when competition is more complacent
• Best Practices of IT
• Wal-mart and its suppliers using IT-enabled system for communication and track product at aisles by effective tagging system. 
• Reduce cost by using effective supply chain.

The Three Generics Strategies

Cost Leadership

• Becoming a low-cost producer in the industry allows the company to lower prices to customers.  
• Competitors with higher costs cannot afford to compete with the low-cost leader on price.

 Differentiation

• Create competitive advantage by distinguishing their products on one or more features important to their customers.  
• Unique features or benefits may justify price differences and/or stimulate demand.
• Ex: i-care by Proton 

The Value Chains- Targeting Business Processes

• Supply Chain - a chain or series of processes that adds value to product & service for customer.
• Add value to its products and services that support a profit margin for the firm

Chapter 1 Business Driven Technology

Information Technology Basics

Information technology (IT) – a field concerned with the use of technology in managing and processing information
Information technology is an important enabler of business success and innovation
Management information systems (MIS) – a general name for the business function and academic discipline covering the application of people, technologies, and procedures  to solve business problems
MIS is a business function, similar to Accounting, Finance, Operations, and Human Resources

When beginning to learn about information technology it is important to understand

-    Data, information, and business intelligence IT resources

-    IT cultures

Information 

Data - raw facts that describe the characteristic of an event

Information - data converted into a meaningful and useful context

Business intelligence – applications and technologies that are used to support decision-making efforts

IT Resources

• People use
• Information technology to work with
• Information

IT Cultures

Organizational information cultures include:

Information-Functional Culture - Employees use information as a means of exercising influence or power over others. For example, a manager in sales refuses to share information with marketing. This causes marketing to need the sales manager’s input each time a new sales strategy is developed.

Information-Sharing Culture  - Employees across departments trust each other to use information (especially about problems and failures) to improve performance.

Information-Inquiring Culture - Employees across departments search for information to better understand the future and align themselves with current trends and new directions.

Information-Discovery Culture - Employees across departments are open to new insights about crisis and radical changes and seek ways to create competitive advantages.