Chapter 13 - Building Information Systems PDF

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Building Information Systems...

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C HAPT ER

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Building Information Systems

LEARNING OBJECTIVES

CHAPTER CASES

After reading this chapter, you will be able to answer the following questions:

Cameron International Builds a New System for Financial Reporting Carter’s Redesigns Its Business Processes Systems Development Is Different for Mobile Apps Hitachi Consulting Moves Human Resources to the Cloud

13-1 How does building new systems produce organizational change? 13-2 What are the core activities in the systems development process? 13-3 What are the principal methodologies for modeling and designing systems? 13-4 What are alternative methods for building information systems? 13-5 What are new approaches for system building in the digital firm era? 13-6 How will MIS help my career?

VIDEO CASES IBM: Business Process Management in a SaaS Environment IBM Helps the City of Madrid with Real-Time BPM Software Instructional Videos: BPM Business Process Management Customer Story Workflow Management Viisualized

MyLab MIS Discussion Questions: 13-6, 13-7, 13-8; Hands-on MIS Projects: 13-9, 13-10, 13-11, 13-12; Writing Assignments: 13-19, 13-20; eText with Conceptual Animations

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Cameron International Builds a New System forFinancial Reporting

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ameron International Corporation is a subsidiary of Schlumberger Holdings Corporation and is a global provider of pressure control, processing, flow control, and compression systems as well as project management and aftermarket services for the oil and gas and process industries. Headquartered in Houston, Texas, Cameron has approximately 23,000 employees and maintains a sales and service network that spans five continents. In 2010 Cameron embarked on an enterprise-wide standardization project to simplify its information technology platform and financial reporting processes. The company consolidated to five profit centers on five business units, with a new reporting structure. Manufacturing plants were to roll up their financial data to profit centers for reporting information such as profit and loss (P&L) statements. This consolidation made it possible for senior managers to use an aggregate view of profit center data to better evaluate the overall financial health of the company. However, Cameron’s systems were unable to provide views of data at the manufacturing plant level. Managers seeking plant-level reporting had to input data into one system and then review it in another. Cameron needed a solution that would include financial data at the plant level in a central, consolidation application. The company evaluated several planning and consolidation software tools and selected SAP Business Planning and Consolidation (SAP BPC) version 7.5. The BPC software delivers planning, budgeting, forecasting, and financial consolidation capabilities in a single application. SAP BPC did provide reporting at the plant level and could be integrated with SAP’s ERP system, which Cameron was already using. Each plant would be able to see its P&L statements and any variances as well as data aggregated by profit center. Cameron implemented the new SAP planning and consolidation system in stages, starting with its U.S. locations, and it ran the system in parallel with its legacy system for a set period. During the parallel rollout, Cameron matched the data from the two systems to ensure the financial data was correct. After running successfully in parallel for two months, the new system went live throughout the company and the legacy system was retired.

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Customization of the SAP software was required. Cameron made software modifications to customize business rules for U.S. eliminations of intercompany transactions. It also used plug-ins to rectify timing differences during data loading. (A plug-in is a software module that can easily be installed to add a specific feature or service to an existing computer program.) End users, who comprised two-thirds of the project team, actively participated in the development and implementation of the new system. Business users from finance provided systems developers with details about their reporting needs. End users helped review the system’s reporting capabilities and outputs to improve the reports prior to putting the system into production. This also helped familiarize users with the new system. Management was pleased because the new system produced financial statements rapidly, exactly the way the business wanted. Implementation of the new system went smoothly, on time and on budget. The new system is more user-friendly, with tools to help finance business users to do more on their own without assistance from IT staff. With SAP BPC, Cameron has moved from manually pulling data to seamless automation. Users of the new system need only double-click on a profit center to see the data in detail. They can see how many plants there are and the data for each plant. With the legacy system, it took a full day of manual effort to ensure consolidation was done correctly. Business users were spending 90 percent of their time assembling the data and only 10 percent on analyzing information. The level of automation in the new system enables Cameron’s business users to now spend 90 percent of their time analyzing reporting results. Sources: www.sap.com, accessed January 5, 2018; Lauren Bonneau, “Cameron Achieves Complete Plant-Level Visibility with SAP Business Planning and Consolidation,” SAP Insider Profiles, October 30, 2017; and www.cameron.slb.com, accessed January 5, 2018.

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ameron’s experience illustrates some of the steps required to design and build new information systems. Building a new system for financial consolidation entailed analyzing the organization’s problems with existing systems, assessing information requirements, selecting appropriate technology, and redesigning business processes and jobs. Management had to oversee the systemsbuilding effort and evaluate benefits and costs. The information requirements were incorporated into the design of the new system, which represented a process of planned organizational change. The chapter-opening case calls attention to important points raised by this case and this chapter. Cameron had reorganized around five profit centers. Its ability to analyze its financial data by both manufacturing plant and profit center levels was hampered by an outdated legacy consolidation system and inefficient manual processes, which raised costs and slowed down work, and limited the company’s ability to quickly and thoroughly analyze its financial data. The solution was to implement a new business planning and consolidation system that could provide reporting at both manufacturing plant and profit center levels. Cameron’s information requirements were incorporated into the system design. The system was more user-friendly. The solution encompassed not just the application of new technology, but changes to corporate culture, business processes, and job functions. Cameron’s finance function was able to spend more time on planning and analysis.

Chapter 13 Building Information Systems

Business Problem

• Select system solution

Management

• Monitor project

• Inefficient manual processes • New organizational reporting units

• Antiquated legacy systems

• Redesign financial reporting process

Organization

Information System

Business Solution

• Change financial reporting structure

• SAP BPC • SAP ERP • Plug-ins • Custom script

Planning and Consolidation System • Provide reporting by plant and profit center

• Save time • Reduce costs

Technology

Here are some questions to think about: How did Cameron’s new SAP BPC system meet its information requirements? How much did the new system change the way Cameron ran its business?

13-1 How does building new systemsproduce organizational change? Building a new information system is one kind of planned organizational change. The introduction of a new information system involves much more than new hardware and software. It also includes changes in jobs, skills, management, and organization. When we design a new information system, we are redesigning the organization. System builders must understand how a system will affect specific business processes and the organization as a whole.

Systems Development and Organizational Change Information technology can promote various degrees of organizational change, ranging from incremental to far-reaching. Figure 13.1 shows four kinds of structural organizational change that are enabled by information technology: (1) automation, (2) rationalization, (3) business process redesign, and (4) paradigm shifts. Each carries different risks and rewards. The most common form of IT-enabled organizational change is automation. The first applications of information technology involved assisting employees with performing their tasks more efficiently and effectively. Calculating paychecks and payroll registers, giving bank tellers instant access to customer deposit records, and developing a nationwide reservation network for airline ticket agents are all examples of early automation. A deeper form of organizational change—one that follows quickly from early automation—is rationalization of procedures. Automation frequently reveals new bottlenecks in production and makes the existing arrangement of

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ORGANIZATIONAL CHANGE CARRIES RISKS AND REWARDS

The most common forms of organizational change are automation and rationalization. These relatively slow-moving and slow-changing strategies present modest returns but little risk. Faster and more comprehensive change—such as redesign and paradigm shifts—carries high rewards but offers substantial chances of failure.

High

Paradigm shifts RISK Redesign

Rationalization Low Automation High

Low RETURN

procedures and structures painfully cumbersome. Rationalization of procedures is the streamlining of standard operating procedures. For example, Cameron International’s new system for financial reporting is effective not only because it uses computer technology but also because the company simplified its business processes for this function. Fewer manual steps are required. Rationalization of procedures is often found in programs for making a series of continuous quality improvements in products, services, and operations, such as total quality management (TQM) and Six Sigma. Total quality management (TQM) makes achieving quality an end in itself and the responsibility of all people and functions within an organization. TQM derives from concepts developed by American quality experts such as W. Edwards Deming and Joseph Juran, but it was popularized by Japanese organizations. Six Sigma is a specific measure of quality, representing 3.4 defects per million opportunities. Most companies cannot achieve this level of quality but use six sigma as a goal for driving ongoing quality improvement programs. A more powerful type of organizational change is business process redesign, in which business processes are analyzed, simplified, and redesigned. Business process redesign reorganizes workflows, combining steps to cut waste and eliminate repetitive, paper-intensive tasks. (Sometimes the new design eliminates jobs as well.) It is much more ambitious than rationalization of procedures, requiring a new vision of how the process is to be organized. The Interactive Session on Organizations presents another example. Rationalizing procedures and redesigning business processes are limited to specific parts of a business. New information systems can ultimately affect the design of the entire organization by transforming how the organization carries out its business or even the nature of the business. For instance, the long-haul trucking and transportation firm Schneider National used new information systems to change its business model. Schneider created a new business managing

Chapter 13 Building Information Systems

INTERACTIVE SESSION

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ORGANIZATIONS

Carter’s Redesigns Its Business Processes Carter’s has built a big business dressing little ones and you probably wore some of its products when you were growing up. This company is the largest U.S. branded marketer of apparel exclusively for babies and young children, and includes the OshKosh B’gosh brand. Carter’s merchandise is sold online, in over 1,000 company stores in the United States and Canada, and in 18,000 department and specialty stores. The company has annual revenue exceeding $3 billion and is based in Atlanta, Georgia. Carter’s financial systems handle hundreds of thousands of transactions each day. Until recently, the systems Carter’s used to process these transactions were heavily manual and paper-based and could no longer keep pace with the company’s growth or the increasingly digital business environment. For many years that company had relied on more than 20 legacy financial systems, some of which were homegrown and antiquated. If the systems did not integrate with each other as they should, Carter’s used manual processes to keep everything working together. This created bottlenecks that slowed down processing and also increased the chances of human error. For example, managing chargebacks required a great deal of manual data entry and tracking down spreadsheets, emails, folders, and faxes from various systems in order to reconcile a specific chargeback to the appropriate ledger. (A chargeback is the return of funds used to make a purchase to the buyer if the buyer disputes the purchase.) Carter’s management wanted to transform the role of the finance function from preoccupation with transaction processing to focusing more on analyzing financial data and guiding decision making. To accomplish this goal, the company needed process improvements in both the business’s finance processes and technology. This meant streamlining and simplifying financial processes so the finance department had more time for analysis and reporting work. In 2015, Carter’s launched a “Vision to Value” initiative to achieve this goal. In addition to replacing outdated systems with more up-to-date technology, including a centralized enterprise resource planning (ERP) system, the project provided an opportunity to modernize financial processes. Carter’s selected SAP Business Suite 4 SAP

HANA (also known as SAP S/4HANA) software for this purpose and worked with Deloitte Consultants for assistance with systems integration and implementation. SAP S/4HANA is a business software suite based on SAP’s proprietary HANA ultra-highspeed data management and computing platform, and is designed to support all day-to-day processes of an enterprise. The new software solution had to interact well with other related systems beyond financials such as order management systems and point of sale systems. SAP S/4HANA offers integration to multiple data sources from many different SAP and non-SAP applications, financial and otherwise. Business process redesign was as crucial to the success of the project as new technology. Implementing SAP software provided Carter’s with the opportunity to transform older and inefficient processes into modern processes reflecting best practices for its line of business and its industry. Carter’s had to benchmark its financial processes against these best practices, many of which were incorporated in the SAP software. Thorough benchmarking required questioning the rationale behind every core financial process. For each process based on existing technology, the implementation had to ask whether it could be redesigned on a new technology platform to be more efficient. Carter’s also examined whether the process would be better served by remaining on a legacy system rather than migrating to SAP S/4HANA. Carter’s decided to keep a process on its existing system unless migrating to SAP S/4HANA provided clear benefits. For the systems that ran core financial processes, SAPS/4HANA was superior. In July 2016, Carter’s went live with SAPS/4HANA Finance with the procure-to-pay, invoice-to-cash, fixed assets, and record-to-report processes supported by the new system. Moving the procure-to-pay process to SAP S/4HANA increased efficiency by eliminating manual data entry and increasing the visibility of a transaction as it flowed through the system. (Procure-to-pay is the process of buying goods and includes the initial decision to make the purchase, the process of selecting the goods, and the transaction to pay for the goods purchased.) Instead of requiring various phone calls, emails, and paper copies of supporting

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documentation, the software guides the process. The SAP Invoice Management application enables a centralized invoicing process by scanning, reading, and filing invoices via optical character recognition (OCR), which kicks off an invoice workflow through a preset list of coders and approvers all the way to invoice payment. Once invoice information has been entered, it can be accessed automatically anywhere along the process life cycle, and users can view all information related to the invoice transaction on a single screen. For example, when approving an invoice, the system makes it possible for Carter’s staff to see the invoice data flowing to accounts payable to start the payment process. System-generated tracking of chargebacks and an improved capability to monitor chargeback status in

the system has created significant time savings and efficiencies in billing and collections. All the information is in the SAP system, so whoever is approving the chargeback can see all the history in one place. In addition to chargeback history, once a chargeback is approved, the system sends a specific chargeback to a specific general ledger. The system has also made processes for fixed assets more efficient by eliminating manual routing and spreadsheet dependence.

Sources: “Transforming a Retail Brand Leader with SAP S/4HANA Finance,” events.sap.com, accessed February 24, 2018; Ken Murphy, “A Next-Generation Finance Platform at Carter’s,” SAP Insider Profiles, December 19, 2016; and www.corporate.carters.com, accessed February 26, 2018.

CASE STUDY QUESTIONS 1. How did Carter’s previous business processes affect its business performance?

4. Describe the role of technology in Carter’s business process changes.

2. What management, organization, and technology factors contributed to Carter’s problems with its business processes?

5. How did Carter’s redesigned business processes change the way the company worked? What was their business impact? Explain.

3. Diagram Carter’s old and redesigned business process for paying an invoice.

logistics for other companies. This more radical form of business change is called a paradigm shift. A paradigm shift involves rethinking the nature of the business and the nature of the organization. Paradigm shifts and business process redesign often fail because extensive organizational change is so difficult to orchestrate (see Chapter 14). Why, then, do so many corporations contemplate such radical change? Because the rewards are equally high (see Figure 13.1). In many instances, firms seeking paradigm shifts and pursuing reengineering strategies achieve stunning, order-of-magnitude increases in their returns on investment (or productivity). Some of these success stories, and some failure stories, are included throughout this book.

Business Process Redesign Like Cameron International, described in the chapter-opening case, many businesses today are trying to use information technology to improve their business proce...