06.03 OPERATIONS E-Processes
E-Processes Andrew Fight
■ Covers the key areas of e-processes from planning and
management to using operations research techniques to organise systems and identifying operational requirements ■ Examples and lessons from some of the world’s most successful
businesses including United Sugars and Cameron and Berkley ■ Includes a glossary of key concepts and a comprehensive
resources guide
OPERATIONS
communications and Internet technology are transforming business processes
06.03
OPERATIONS
■ Fast track route to understanding how electronic data
E-Processes Andrew Fight
■ Fast track route to understanding how electronic data
management to using operations research techniques to organise systems and identifying operational requirements ■ Examples and lessons from some of the world’s most
successful businesses including United Sugars and Cameron and Berkley ■ Includes a glossary of key concepts and a comprehensive
resources guide
06.03
■ Covers the key areas of e-processes from planning and
OPERATIONS
communications and Internet technology are transforming business processes
Copyright Capstone Publishing 2002 The right of Andrew Fight to be identified as the author of this work has been asserted in accordance with the Copyright, Designs and Patents Act 1988 First published 2002 by Capstone Publishing (a Wiley company) 8 Newtec Place Magdalen Road Oxford OX4 1RE United Kingdom http://www.capstoneideas.com All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, including uploading, downloading, printing, recording or otherwise, except as permitted under the fair dealing provisions of the Copyright, Designs and Patents Act 1988, or under the terms of a license issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London, W1P 9HE, UK, without the permission in writing of the Publisher. Requests to the Publisher should be addressed to the Permissions Department, John Wiley & Sons, Ltd, Baffins Lane, Chichester, West Sussex, PO19 1UD, UK or e-mailed to
[email protected] or faxed to (+44) 1243 770571. CIP catalogue records for this book are available from the British Library and the US Library of Congress ISBN 1-841123-994 This title is also available in print as ISBN 1-84112-398-6 Substantial discounts on bulk quantities of ExpressExec books are available to corporations, professional associations and other organizations. Please contact Capstone for more details on +44 (0)1865 798 623 or (fax) +44 (0)1865 240 941 or (e-mail)
[email protected] Introduction to ExpressExec ExpressExec is 3 million words of the latest management thinking compiled into 10 modules. Each module contains 10 individual titles forming a comprehensive resource of current business practice written by leading practitioners in their field. From brand management to balanced scorecard, ExpressExec enables you to grasp the key concepts behind each subject and implement the theory immediately. Each of the 100 titles is available in print and electronic formats. Through the ExpressExec.com Website you will discover that you can access the complete resource in a number of ways: » printed books or e-books; » e-content – PDF or XML (for licensed syndication) adding value to an intranet or Internet site; » a corporate e-learning/knowledge management solution providing a cost-effective platform for developing skills and sharing knowledge within an organization; » bespoke delivery – tailored solutions to solve your need. Why not visit www.expressexec.com and register for free key management briefings, a monthly newsletter and interactive skills checklists. Share your ideas about ExpressExec and your thoughts about business today. Please contact
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Contents Introduction to ExpressExec 06.03.01 06.03.02 06.03.03 06.03.04 06.03.05 06.03.06 06.03.07 06.03.08 06.03.09 06.03.10
Introduction to E-Processes What are E-Processes? The Evolution of E-Processes The E-Dimension of E-Processes The Global Dimension of E-Processes The State of the Art in E-Processes E-Processes Success Stories Key Concepts in E-Processes Resources for E-Processes Ten Steps to Making E-Processes Work
Frequently Asked Questions (FAQs)
v 1 3 9 17 27 49 65 79 97 101 107
06.03.01
Introduction to E-Processes » How electronic data communications and Internet technology can be used in business; » Identification of three important production processes which can be improved by electronic operation: pre-order processes, delivery processes, and post-order customer management.
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E-PROCESSES
E-processes can be defined as the new paradigms which affect the ways Internet-oriented and classically-oriented companies can use electronic data communications and Internet technology to manage the company optimally, to control the logistics and manufacturing patterns of the company most effectively, and to position the company in new areas of activity. This book looks at what e-processes are, and how they have evolved. It considers how to plan and manage business processes in e-business, how to measure the necessary quality metrics, and how to identify the operational requirements. We shall examine the classic principles of operations management, and look at how this has been affected by the new paradigms and by the current academic thinking around these problems. These new tendencies will be illustrated by case studies in different areas. The unifying themes of these case studies are the implementation of new e-process models into existing structures, or the harnessing of these new processes to create new activities and new markets. The book shows readers how to adapt traditional operations management for the electronic world. Using examples, the book provides a blueprint for the three most important production processes: » pre-order processes; » delivery processes; and » post-order customer management. It examines all levels of the electronic operation, and includes a discussion of such functions as customer service, technical infrastructure, and distribution management, as well as an e-operations management audit to help readers to evaluate their own company’s present operations structure.
06.03.02
What are E-Processes? » » » » »
Effective e-processes lead to greater cost-effectiveness; Areas of company operations which can benefit from e-processes; Distinguishing between e-processes and e-commerce; The road to e-processes: four stages of development of e-process; The changes that e-processes will bring.
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‘‘The full importance of an epoch-making idea is often not perceived in the generation in which it is made. The mechanical inventions of every age are apt to be underrated relatively to those of earlier times.’’ Alfred Marshall, 1920 INTRODUCTION E-operations are primarily concerned with organizational and production workflows, and rely heavily on IT and network administration to manage those processes. In order to meet operational manufacturing and heavy maintenance objectives in the pursuit of leanness, profitability, and extensibility, e-processes use tools to manage those processes. These tools comprise applications such as an e-operations solution platform via a browserbased suite of applications. Such a framework provides on-line transaction processing, collaborative communication, and decision support capability. Various solutions on the market are component-based applications, architecturally designed and leveraging XML as a foundation technology. Such operations solutions typically contain the following components: » a process planning component to create work instructions; » a manufacturing/maintenance execution component to generate and execute work orders; » a performance-based reporting component to generate reports on cost, non-routine activity and schedule performance; » a regulatory compliance and reporting component to ensure compliance with all relevant regulations; » a conditional parts performance history component, which provides the ability to protect conditional service orders against mistakes; and » an as-flown/as-manufactured configuration repository and reporting component to store the as-flown configuration of aircraft. E-processes, as we see, focus on the application of Internet technologies through the existing processes within a company to increase efficiency and performance. In fact, the more efficiently a company can embrace
WHAT ARE E-PROCESSES?
5
effective e-processes, the more cost-effective it becomes. This part of the e-business strategy is applicable to any company or organization. E-operations therefore cover such areas of the manufacturing process as: » » » »
procurement of products; shipping and transport; handling production; and fulfillment function.
In terms of overall company process, this would include: » » » » » » » » » » »
customer contact centers; sales force automation; order fulfillment; the streamlining of internal operations by Internet technologies; human resource management; on-line job functions; employee benefit management; employee training and education; investor relationship management; on-line inventory; and corporate communications.
DISTINGUISHING BETWEEN E-PROCESSES AND E-COMMERCE Today, there is one idea that is transforming how we conduct business: that idea is e-operations. Once just a theoretical concept discussed by academics, e-operations has now become a core topic at business schools, a key element of some MBA courses, and, more recently, a subject for consideration in popular business publications. However, it is not widely grasped, largely because the speed at which it is being introduced has allowed very few organizations the time to analyze its potential. It is often confused with its cousin discipline, electronic commerce. Many business leaders believe that they can ignore e-operations until the concept has been more fully developed. But by the time
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e-operations are commonplace, it will be too late for the non-adopters. Those companies will have ceased to exist. The implementers will have traveled a difficult road, navigating the new landscape with some degree of trial and error, but they will be survivors. As for the ‘‘e-’’ prefix, it will soon be dropped and e-operations will simply be considered as operations as the word is generally understood. The power of electronic technology to transform the manner in which organizations operate is hard to conceive. It can help to boost revenues, cut production cycle times and costs, improve customer service, and broaden market share. Interactive relationships with customers and suppliers enable new products and services to be delivered faster and better at a substantially lower cost. Ultimately, e-operations will be deployed throughout an entire industry’s supply chain, linking suppliers with manufacturers, assemblers, distributors, marketers, and customers. The implications of these technologies on business are not yet fully understood by senior managers, as confirmed by recent research carried out by PricewaterhouseCoopers and MORI. This research suggests that many CEOs of global corporations do not believe that the effects of e-operations are an important issue facing their companies. Indeed, the research confirmed that their primary concerns occupied more traditional domains: » the threat of competition; » controlling costs; and » finding new opportunities. In other words, many business leaders are still thinking inside the box (on the lines of a SWOT analysis) rather than ‘‘outside the box.’’ Few organizations have taken the leap of faith (or want to take the risk) to realize that it is e-operations that can deliver these benefits. Historically, e-operations have been thought of as electronic commerce. While Internet shopping is expected to generate at least $1trn a year by 2002 (and some research suggests more than $3trn), the wider concept of true e-operations will bring benefits worth many times more. However, rather than in the ‘‘front line’’ of sales-oriented business, e-operation’s greatest opportunities are to be found in back office
WHAT ARE E-PROCESSES?
7
and supply chain systems. They offer the possibility of rationalizing production and marshaling information to define the parameters of the manufacturing and product development process. In an ideal world, e-operations seamlessly move data and information over open and closed networks, bringing together previously separate groups (suppliers, subcontractors, outsourcing, manufacturing, and production) inside and outside companies. They improve company performance by connecting disparate entities and thus enabling new relationships to be developed. They provide data for management information systems (MIS), enabling managers to identify their best profit centers, to modify existing business processes, and to create new ones. THE ROAD TO E-PROCESSES Most companies will migrate to e-operations in four stages: » The first step is to start with a Website, because that is familiar – the window on the world that is the Internet is now an everyday business tool. » The second step is to integrate that site’s buying and selling processes into the company’s ERP systems, linking with back office, customer, and marketing systems. Many companies have already done this or are in the process of doing so. Then they will extend the Website’s capabilities by connecting it to supply chains, eliminating paperwork and cost. Many motor manufacturers have reached this stage and have established electronic supply chains. » The third step is a complete transformation of an industry, as outsourced applications support specific processes. Users of these outsourced applications will form communities – either vertical (i.e. industry-specific) or horizontal (i.e. industry-independent). In a vertical community, businesses will be linked by an outsourced application that supports a shared value chain. An existing illustration of this is the airline industry where an outsourced application – e.g. SABRE – supports the ticketing process, linking corporate customers, travel agents, and the airlines. In a horizontal community, businesses will be linked by a shared need for support in a particular area, such as the procurement of indirect goods, or the provision of services.
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An example of this is the outsourcing of payroll calculations and payment. » The fourth step is where e-operations create new competition by lowering the barriers between industries. For example, the UK supermarket chains Tesco and Sainsbury are extending their brands into banking services. Customers use these banking services because of the brand and neither know nor care that the actual work is being done by connected partner banks. E-operations blur the demarcations between businesses and offer the possibility of joining value chains in different industries. Organizations will find ways to work together in areas of mutual interest. In the longer term, competition will focus on value chains rather than the traditional fully integrated corporation. The businesses that will be most competitive will be those which have integrated their demand and supply chains, and MIS systems enabling decisions to be made on an online real-time basis. To achieve this fully integrated nirvana, however, will require multi-company strategic planning, human resources, and finance. The true e-operations company will be able to slot systems and processes into a new market at minimal cost. Ultimately, a company could concentrate solely on managing its brand, while it outsources all the physical aspects of the business to others. As demand increases, rather than scale up production and distribution capacities, the company will outsource these functions to subcontractors. Key to the e-operations model is the ability to understand manufacturing processes and data flows, and the ability to integrate new technologies, partnerships, and alliances. E-operations also will redefine the role of management. The traditional role of the CEO, managing staff who carry out the operations of the company, will shift to identifying and managing specialist third parties acting as subcontractors. E-operations, in short, promise to changes industries. They will weed out inefficient players and link hitherto disparate players. E-operations is a technologically-driven trend which is unstoppable and which promises to transform the traditional operational model of traditional corporate operations.
06.03.03
The Evolution of E-Processes » » » » » »
Origin and rise of e-processes; Originally grew from wartime operational research; Operations research as an analytical tool for e-processes; Seven steps of operational research; Implementation and management of e-processes; Pros and cons of external IT consultants.
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THE ORIGIN AND RISE OF E-PROCESSES E-processes effectively rose in the wake of e-finance, which began with the development of several disparate elements, many of which were developed in isolation. As these individual elements progressed, they began to be tied together in networks. As these networks then in turn developed, transforming business models and interactions amongst players, the need for e-processes to tie together supply and distribution chains became evident. The true era of the Internet enabled businesses to communicate in hitherto unforeseen ways (transmitting information and payments, for example), as well as in conducting business. Businesses began to develop Web-based platforms to deliver financial services during the early to mid-1990s. The process started in the B2C sector and has gradually moved into the B2B arena as systems have become more robust and secure. As different groups began developing business models for the banking industry, several clear advantages emerged and have become evident, notably in the ability of companies to penetrate or even create new market sectors. The speed of transactions and logistics, as well as the need to process marketing data arising from the Internet-enabled business, however, has served to stimulate the need for e-operations and eprocesses: that is, operational organization structures designed to serve the Internet-enabled company. Whilst this is a nascent field, many of the organizational principles involved in disciplines such as operations research have proven to be of some validity. However, the methods involved in creating e-processes largely rest on new principles and business models, and are forming the subject of new disciplines and degree programs in many universities. For many companies, their Internet presence began life as corporate storefronts. Now, promoting proprietary products and services through their own company-specific Websites, the new logistical chains, communications media, and compilation and processing of data, all rest on new paradigms which are resulting in the new field of e-processes. In this book, we shall be looking at some of the underlying technologies and models, theories, and solutions providers which address the requirements of this ‘‘behind the scenes’’ discipline.
THE EVOLUTION OF E-PROCESSES
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OPERATIONS RESEARCH AS AN ANALYTICAL TOOL FOR E-PROCESSES Operation research, or OR, began during World War II when the British government conscripted scientists from various disciplines to work on problems posed by military operations. The goal was to combine purely technical research and operational research. One of the first tasks of these scientists was to develop methods for effectively utilizing new defense technologies, such as radar. The Battle of Britain, fought in 1940, was the first Allied victory in World War II, and OR applications clearly contributed to the victory. With the entry of the US into World War II in 1942, several groups of OR scientists were also established in the United States. After the war, there was a recognition by the OR scientists in both Britain and the US that the methodologies developed in a military context had potential for civilian applications, and OR departments were established in a wide range of companies and government departments. Similar developments took place in France and other European countries, and by 1970 OR was established in most OECD countries, and a number of other countries in Asia, Africa, and South America. OR is characterized by a seven-step modeling process: » define the problem: the objectives and what to include; » observe and collect data; » formulate a mathematical model: what descriptive model will work best; » verify the model and use it for prediction: without changing the system; » select a suitable alternative: switch to prescriptive mode; » present the results: optimal may not be easy to find, or the objectives may be complex; and » implement and perform post-implementation monitoring: did we achieve the predicted results? By the early 1970s, researchers had developed large bodies of theory and methods in this field, such as linear and dynamic programming, queuing theory, game theory, network analysis, replacement and inventory theories, scheduling, simulation, and others. However,
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within most successful OR departments the original multidisciplinary approach has been retained and the OR practitioner must always remember that every technical problem is embedded in an organizational context which has to be understood if the OR solution is to be effective. IMPLEMENTATION AND MANAGEMENT OF E-PROCESSES A strong management team is a critical requirement for every financial venture and for Internet-oriented ventures, and indeed the successful ones need to operate with a combination of managers and IT staff who can work together to define the business and technical requirements (technology at the service of business). The implementation issues facing companies seeking to understand and master e-processes are often difficult and contradictory. This is because an Internet-enabled company often necessitates a business structure which can be completely new and alien to the existing management structure. As a case in point, consider the fact that managers typically have subordinates working for them, and they can monitor, set objectives, and ‘‘see’’ the performance of these subordinates. In an e-operations structure, suppliers as well as clients may be third parties linked via the Internet, and the monitoring and control mechanisms required, as well as the nature of these relationships, will be completely different. Hence, not only is the work environment completely different, but the models and structures tying the various players together in new ways are also completely different. Companies will often need to call in outside consultants from specialist boutiques or from some of the major consultant firms such as Accenture or PwC to assist them in examining their existing IT infrastructures, and to analyze their needs, and then formulate appropriate organizational structures as well as the hardware and software decisions and implementation strategy. The advantage of this is that a vendor-independent opinion is theoretically possible; the disadvantage is that the customer is dealing with generalists as opposed to specialist experts.
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TIME LINE 1985 » Classic electronic proprietary networks. » SWIFT installs a high volume satellite link between US and European operations. 1986 » Internet Engineering Task Force established. 1988 » First Internet worm virus. 1991 » WWW released by CERN. 1992 » SWIFT introduces Interbank File Transfer. » World Bank comes on-line. » The term ‘‘surfing the Internet’’ is coined by Jean Armour Polly. 1993 » InterNIC is created by NSF to provide Internet services (domain name). » UN goes on-line. » Mosaic is the first browser. » Extension of MIME. 1994 » Marc Andreessen, one of the developers of Mosaic, leaves NCSA, cofounds Netscape Communications Corp., and releases the Netscape Navigator, a graphical Web browser. » House/Senate provide information servers. » Shopping malls arrive on the Internet. » SWIFT introduces SWIFTAlliance UNIX-based terminals. 1995 » Microsoft steps into the Web browser market, releases Internet Explorer version 1.0. » Traditional on-line dial-up systems (Compuserve, America Online, Prodigy) begin to provide Internet access.
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» A number of Net-related companies go public, with Netscape leading the pack with the third largest ever NASDAQ IPO share value (August 9). » Two of the biggest names in e-commerce are launched: Amazon.com and eBay.com. » Technologies of the Year: WWW, search engines. » Emerging technologies: mobile code (Java, JavaScript), virtual environments (VRML), collaborative tools. » Hacks of the year: The Spot (June 12), Hackers Movie Page (August 12). 1996 » SWIFT gears up for STP with a dedicated team. » Technologies of the year: search engines, JAVA, Internet phone. » Emerging technologies: virtual environments (VRML), collaborative tools, Internet appliance (Network Computer). » Technologies of the year: e-commerce, e-auctions, portals. » Emerging technologies: e-trade, XML, intrusion detection. 1997 » June, 35 million Internet users. 1998 » June, 60 million Internet users. » Companies flock to the Turkmenistan NIC in order to register their name under the .tm domain, (tm is the English abbreviation for trademark). 1999 » June, 130 million Internet users. » First Internet Bank of Indiana, the first full-service bank available only on the Net, opens for business on February 22. » First large-scale cyberwar takes place simultaneously with the war in Serbia/Kosovo. » Retail spending over the Internet reaches $20bn, according to Business.com.. » .ps is registered to Palestine (October 11).
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» Emerging technologies: Net-cell phones, thin computing, embedded computing. » Viruses of the year: Melissa (March), ExploreZip (June). 2000 » A massive denial of service attack is launched against major Web sites, including Yahoo, Amazon, and eBay in early February. » After months of legal proceedings, the French court rules that Yahoo! must block French users from accessing hate memorabilia in its auction site (November). Given its inability to provide such a block on the Internet, Yahoo! removes those auctions entirely (January 2001). » SWIFT announces plans for two services for trust and payments into the business-to-business domain: TrustAct, which assures the identity of corporates trading over the Internet, and e-paymentsPlus, which provides corporates with Web-based payment initiation and assurance services. » Technologies of the year: ASP, Napster. » Emerging technologies: wireless devices, IPv6. » Virus of the year: Love Letter (May). 2001 » Afghanistan’s Taliban bans Internet access country-wide, including from Government offices, in an attempt to control content (13 July). » Code Red worm and Sircam virus infiltrate thousands of Web servers and e-mail accounts, respectively, causing a spike in Internet bandwidth usage and security breaches (July). » A fire in a train tunnel running through Baltimore, Maryland seriously damages various fiber-optic cable bundles used by backbone providers, disrupting Internet traffic in the mid-Atlantic states and creating a ripple effect across the US (18 July).
06.03.04
The E-Dimension of E-Processes » E-processes and e-business: managing IT-enabled operations; » E-processes and digitization of items, processes, and transactions; » Public administration and enterprise resource planning systems; » Selecting which data to use; » Production operations; » Computer programs and the IT industry; » E-markets.
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E-PROCESSES AND E-BUSINESS: MANAGING IT-ENABLED OPERATIONS The impact of the Internet on e-operations is a central theme; indeed, it can be seen as the Web tying together all the disparate elements necessary for the formation of the new paradigm, and the medium for all the relevant information flows to circulate amongst concerned parties. Increasingly, the e-business customer is demanding more customized products, faster delivery schedules, and instant access to order status. Whilst taking orders over the Internet is the easy task, the hard part is ensuring that the production and delivery mechanisms function in a way which will mesh well with the orders. Advances in information technology (IT) – the World-Wide Web, enterprise integration, high-performance computing, transactional data systems – are both facilitating and transforming manufacturing and service operations. IT has enabled companies to avail themselves of both global reach and connectivity at the same time, by reducing barriers to collaboration, compressing information lead times, and vastly increasing the visibility and availability of data for decisionmaking. Information technology helps operations managers improve the efficiency of operations. However, it is important to heed the message of the wave of failed dotcoms – establishing and managing robust and responsive ‘‘backend’’ e-operations is critical to ensure success in e-business. It is the behind-the-scenes ‘‘guts’’ of the business, but it is certainly as dependent, if not more dependent, on the new technologies to achieve efficient operation. E-operations must not only seamlessly exchange and integrate information from various players – customers, designers, suppliers, assemblers, distributors, and retailers – but also process and use this information to provide the right product (or service) efficiently at the right time and place. The fundamental premise is that successful e-operations managers understand the dynamics of multi-stage operations, and can exploit the available information to manage – streamline, plan, and coordinate – activities at various stages of the product realization process.
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The following questions typify the challenges and opportunities of e-operations. » What information is available or can be obtained to facilitate operations? » How can I exploit this information to reduce costs? » How can information substitute for inventories? » How do I design and manage my operations to increase product variety and become more responsive to customer needs simultaneously, while maintaining or improving operational efficiencies? » How can I exploit information technology to compress lead times and eliminate processing steps or parallel activities? » What will be the impact on operations of the emerging organizational trends such as globalization, outsourcing, and dynamic and opportunistic alliances? Well-tested principles of operations management, such as just-in-time manufacturing, multi-stage coordination and scheduling, process reengineering, flexibility, and mass customization, continue to be the cornerstones for best practice in contemporary operations. However, the impact of e-business means that these tried and tested models need to be upgraded and harnessed for the requirements of the new economy. OPERATIONS MANAGEMENT The underlying processes which underpin the e-business model needs to be customized accordingly. This variant is known as e-operations, and it affects the creation and distribution of goods and services in both domestic and international settings. Traditional operations management focuses on the management of operations resources and processes including materials, technology, logistics, vendors, process design, and international production. Operations management encompasses several disciplines including: » cost analysis and forecasting; » information systems development and implementation; » e-business and supply chain management;
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» » » » » »
E-PROCESSES
business process management; principles of e-business; information systems development and implementation; information technology and programming; Internet databases; and Internet marketing.
E-PROCESSES E-operations can be seen as a combination of operations strategy and effectiveness, and business technology – the intersection of operations and technology where IT or e-enablement are key drivers of operational transformation. The Internet and e-enabling technologies offer potential for dramatic improvement in every facet of operations – but the means to obtain this improvement are not necessarily immediately apparent. McKinsey Consultants have identified five service lines where IT and e-factors are key enablers, and have been working with clients to help them to answer many of the following questions (by service line): » technology-enabling OE diagnostic: » what operations performance potential can technology unleash? » how would we characterize a company that is world-class in technology-enabled operations? » what are some examples of best practices and improvement potential? » how do you prioritize IT investments within operations? » OE IT transformation for incumbents: » how do you develop IT-enabled strategy, select vendors, and manage implementation? » how do you unleash value from existing IT investments, such as ERP? » what are the available technology solutions? » how do you establish optimal sequencing for implementing an IT transformation? » how do you achieve effective execution of a new OE IT system? » how do you integrate the operating systems of merging companies?
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» how do you build a platform off legacy operations systems for e-commerce and future flexibility? » technology-enabled innovation for marketplaces: » how do you build a trading exchange? » what are the alternative business models and their operational implications and impact? » what IT architecture do you use? » how do you select and approach potential partners for the exchange? » how do you manage this process? » how do you determine fulfillment options? » what are the best practices in governance and leadership to achieve full operational impact? » strategy or opportunity scan for 3PL/4PL and OE technology providers: » how do you develop a strategy and business plan for an OE software offering? » how do you manage the implementation risk? » where are there needs that are not being met? » business building for 3PL and OE technology providers: » how do you develop a business plan and manage business building? » how do you develop an architectural blueprint for the business? E-PROCESSES AND DIGITIZATION OF ITEMS, PROCESSES, AND TRANSACTIONS The impact of the Internet is not limited only to the use of the Internet as a virtual corporation as seen in e-finance. E-operations can affect the venerable manufacturing-based company in profound ways, significantly restructuring traditional manufacturing and operations research models. Developments of the models as well as the impact on the manufacturing process are accelerated enormously by the emergence of systems that create an almost total digital registration of all items, processes, and transactions in an organization. We shall look at how e-operations have impacted various manufacturing processes.
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Public administration and enterprise resource planning systems In companies, and increasingly in public administration, operations are managed by enterprise resource-planning systems. Electronic commerce applications offer the possibility of adding finegrained information about customers and their preferences; management systems connect resource planning up and down the supply chain. Through this model, customers gain influence over organizations by expressing their preferences in terms of product configuration, quality, and price. This feedback element may affect the internal structure of a company or organization, or its manufacturing processes. These new organizational paradigms can be extended in a straightforward fashion to concepts such as network hospitals, health-care centers, or social-benefits organizations. The advantages and opportunities are clear: organizations can increase flexibility, efficiency, client proximity, geographical reach, customization, and the range of options available to clients. However, the new paradigm brings uncertainty, as virtual systems demand constant vigilance and assessment of human resources necessary to organize or stimulate retraining. In any discussion about informational or information-enhanced products, the challenge is to understand the dynamics, processes, and rules of an information environment that stimulates innovation and production, and increases distribution and services. From a theoretical point of view, the availability of more information should improve decision-making in all areas, as decision models take more parameters into account. However, the complexity of such decision models increases sometimes exponentially with the inclusion of more parameters, to the point where finding long-term, stable solutions especially may be impossible. Use of data The question becomes one of determining which data to use. Better results might require simplifying design and operations, even as our techniques for handling complex phenomena improve.
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An example of this is the car industry. Whilst CAD and CIM continue to improve machinery, the cars are built in increasingly simple ways; a small number of platforms with a small number of modules are being used to assemble a large variety of slightly different cars. What we see is that advances in information processing may be over-compensated by efforts toward simplification. In manufacturing, the planning of complex production schedules has indeed been widely replaced by implementing just-in-time solutions with which to accomplish self-adjusting dynamic systems. Coordination of such systems requires considerable information exchange – tempered by simplified rules of behavior. Research on eoperations as they develop in future should shed light on these interrelations between organizational structures and the value of information in their operations management. Production operations Production operations are changing – internally as companies restructure and externally as the operating environment changes. Brand names, such as Daimler-Chrysler, for example, merge to create economies of scale and market presence; whilst paradoxically, on the other side, production itself is performed by loosely-coupled networks of anonymous suppliers or subcontractors. What used to be fully vertically-integrated manufacturing entities have now effectively become intermediaries between customers, who are interested the car as a branding exercise, and the virtual network of unknown and specialized suppliers of parts for that car. A brand’s task is thus reduced to observing demand and translating it into signals to a network of suppliers who coordinate production. The coordination mechanisms in these networks are mostly information-based. Technically, they require the interoperation of internal electronic resource planning systems. Conceptually, they raise the possibility of using information-based mechanisms for their coordination, as in electronic markets. The distinction between consumers and providers may even get lost in such networks. For example, many of
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the consumers of the Linux operating system are at the same time its producers. Computer programs and the IT industry In the example of programs (i.e. software) provided through the Internet, data is transported as raw material to the software, which is loaded on the consumer’s machine, just as today raw materials for physical products are shipped to a production site. Further examples of new paradigms of production structures are that a single copy of a newspaper on a Web server is enough to make it available world-wide, and that a newspaper server itself instantaneously consults stock market reports to inform the reader of latest figures. Operations also change on a strategic level with respect to innovation management and standard-setting. Success or failure with information products is broadly influenced by network externalities and switching costs observed by customers. As these factors interact with each other, creating knowledge and providing feedback on a given company’s operations becomes necessary. Almost all organizations, private or public, face the questions of how to operate in networks, and to what extent to view themselves as evolving networks. E-markets Another topic addressed by the e-organization research unit is emarkets, which concerns transactions, markets to handle transactions, and the evolution of networks formed by these transactions. It is important to understand the impact of changes on the nature of transactions under the information paradigm. Costs of transactions diminish rapidly wherever they involve mostly the production and communication of information, rather than the physical transport or human decision-making elements. If mutual trust can be replaced by on-line, information-based contractual relations, there will be less need for small groups of stable partners. Markets, as vehicles to make supply and demand meet, therefore become more diversified and specialized, as well as more accessible. Markets paradoxically also become more ‘‘intelligent,’’ as demonstrated by auctions on the Internet, which follow complicated algorithms.
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Auctions are becoming a feature of the electronic commerce landscape on the Web. These provide a coordination mechanism in multi-agent systems. Since electronic markets are characterized by complex interrelations between computational complexity, strategic behavior of participants, human or software agents, and economic theory, the best approach to them must combine elements of mathematics, economics, and psychology.
06.03.05
The Global Dimension of E-Processes » IT, software, and the management of e-processes; » e-operations in e-business; » next-generation e-operations; » managing disparate elements; » the needs of e-operations in e-business; » Decision support; » operations research in the e-business era; » definition of operational research; » some books on e-marketing and their links to e-processes; » logistics: collaboration + workflow = e-process; » proven e-process solutions; » decision support with Web-enabled software.
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IT, SOFTWARE, AND THE MANAGEMENT OF E-PROCESSES E-business could be said to be entering its second wave. While the initial e-commerce and Websites wave unleashed new and exciting opportunities for enterprises (as well as a lot of wacky ideas), it was merely the beginning of a much larger e-business revolution. Once the domain of the dotcoms, e-business is now mainstream, taking root in larger, more stable, clicks-and-mortar companies. The first generation of e-business focused on navigation and speed; this next generation demands security, reliability, availability, and performance. The Internet has become today’s single most important business platform, enabling connectivity to all e-business constituents: customers, partners, suppliers, and employees. This poses tremendous opportunities and management challenges. Driving all this is the software that manages e-business. Here, we now turn to looking at the larger issues and strategy required to enable companies to manage their e-businesses. E-operations in e-business Software solutions can be grouped into three main categories: » e-business processes: to manage business processes within and across the extended enterprise seamlessly; » e-business information: to manage vital business information and to leverage it for new opportunities coherently; and » e-business infrastructure: to manage the core infrastructure, keeping the e-business up, running, and secure while connecting customers, suppliers, partners, and employees. Across these three strategic categories, we may consider six key solution areas that address today’s most pressing e-business needs: » » » » » »
enterprise management; security; storage; e-business transformation and integration; portal and knowledge management; and predictive analysis and visualization.
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These six issues form the main focus areas for the challenges presented by the next generation of e-business. Next-generation e-operations Managing the next generation of e-operations is complex. It involves managing processes that flow across organizational boundaries with an increasing number of players. These massive networks of multiple organizations, suppliers, partners, marketplaces, service providers, and customers all have their own business processes. The complexity of these environments is compounded by new and diverse technologies such as wireless PDA devices and WAP phones, demanding anytime/anyplace availability. This must all be managed in the next generation of e-operations in order to ensure the same level of security, availability, reliability, and performance that we have come to expect from traditional IT. Managing disparate elements Regardless of the model, the elements will include: » » » » »
business-to-business (B2B); business-to-consumer (B2C); e-marketplace (eMP); and application service provider (ASP), or managed service provider (MSP).
It is essential that relationships between these disparate elements and players be managed in an integrated and concise manner. E-operations necessitate managing an increasing number of elements found in the next generation of e-business. These integrated e-operations solutions interoperate with one another, delivering enhanced customer value. Customers have the freedom to choose whatever combination they need, with the assurance that these solutions will work together. Openness and extensibility give customers the flexibility to leverage their existing technologies and to adopt new ones as their e-businesses evolve. These solutions can be categorized into three strategic e-operations areas:
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» e-business process management; » e-business information management; and » e-business infrastructure management. E-business process management E-business process management solutions monitor and manage the critical business operations of a company’s trading partners, internal operations, business suppliers, and service providers. True e-business process management requires two levels of integration: » the integration of an enterprise’s existing back-end systems with its new Web-based systems; and » B2B integration between an enterprise and its partners, suppliers, and service providers. E-business has become a very service-oriented environment. Customers, suppliers, and business partners all need a seamless view of their interactions with the business, and this needs to be consistent. This necessitates a comprehensive platform for quick and seamless integration of systems to manage e-operations. These operations include services such as messaging, XML and Java object management, and systems management. E-business information management E-business information management solutions should deliver unique portal, knowledge management, predictive analysis, and visualization capabilities (e.g.: ‘‘dashboard’’ functions). Such systems should enable the comprehensive integration of business processes, applications, databases, partner systems, and data, and be customizable to individual requirements. Data analysis should provide the ability to predict business outcomes by analyzing both historical and current session data that present customers with the information they are most likely to be interested in. Customers’ overall satisfaction with personalized service will ensure their loyalty, and drive sales through cross-selling and up-selling techniques.
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From powerful application development and life-cycle management to business intelligence, business information management solutions should enable historical and real-time data access, analysis, and dissemination for processing transactions across the extended enterprise. E-business infrastructure management E-business infrastructure management is the cornerstone of any business. Every resource – from traditional IT to wireless and other pervasive computing devices – must be managed in a cohesive, integrated fashion for e-business to deliver mission-critical availability and reliability. This requires industry-proven, highly scalable e-business infrastructure solutions, which range from comprehensive end-to-end management capabilities to solutions that meet specific needs such as security, network, storage, database, and application management. The needs of e-operations in e-business As noted above, there are six broad areas that will have a significant impact on next-generation e-business success: » Enterprise management – this typically requires scalable, flexible, fully-automated, and highly-integrated solutions to manage the extended enterprise for continuous availability and optimal performance. Such enterprise management solutions include systems and network management, service desk, backup and recovery, event, workload, database, and application management. » Security – companies need to ensure that their operations are adequately protected – e-operations need to protect areas such as intrusion detection, administration, authentication, and authorization. » Storage – safeguarding e-business-critical data against fire or damage requires storage solutions that reach across multiple platforms. This requires end-to-end backup capabilities today, such as serverless backup, and on-line ‘‘hot’’ backup, as well as recovery capabilities enabling a rapid restarting of business operations. » E-operations transformation and integration – making the transition to e-operations requires integrating disparate applications and processes. This in turn requires appropriate systems integration
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skills that can provide the services necessary to integrate applications, databases, and business partner systems via powerful XML, transport, and messaging services. » Information and knowledge management – e-operations require constant, immediate responsiveness; time spent retrieving, hunting for, or consolidating information obviously affects productivity. Information and knowledge management solutions should enable users to parameterize databases and extract requisite data in a usable format suited to individual preferences. » Predictive analysis and visualization – predictive analysis adds intelligence to help e-businesses identify new opportunities. For example, data analysis of buying patterns to enable demand forecasting, or identification of cross-selling or up-selling opportunities. DECISION SUPPORT Operations research in the e-business era The traditional domain of operations research in e-business carries a simple message: OR has a key role to play in the emerging digital economy. The opportunities for OR are numerous and important, as they will help to define the structure and measurement criteria of the emerging e-operational networks. Operations research as understood today is essentially identical to systems analysis. Historically, it was a narrower area of activity that stressed quantitative methods and did not concern itself with tradeoffs between objectives and means, or with problems of equity. A definition provided by the Operational Research Society of Great Britain is as follows ‘‘Operational research is the attack of modern science on complex problems arising in the direction and management of large systems of men, machines, materials and money in industry, business, government and defense. Its distinctive approach is to develop a scientific model of the system, incorporating measurements of factors such as change and risk, with which to predict and compare the outcomes of alternative decisions, strategies, or controls. The purpose is to help management determine its policy and actions scientifically.’’
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Bona fide, non-confidential OR computer applications have been somewhat slow in getting started, but are now coming in greater numbers. The impact of second generation IT and Internet technologies in e-operations naturally lends itself to being analyzed by this discipline. OR offers potential in three main areas of e-business – e-business, Internet marketing, and optimization problems. E-business In the e-business landscape, OR has been most active in information goods and services (especially on-line financial and travel-related services), supply-chain management, e-business network infrastructure (especially quality-of-service topics), and packaged OR software that is Web-enabled or oriented toward e-business. A series of articles in Interfaces magazine (Vol 30, No 2, March-April 2001) explores these issues in depth. » In E-Commerce and Operations Research in Airline Planning, Marketing and Distribution, Barry Smith, Dirk Guenther, Venkateshwara Rao, and Richard Ratliff describe how the airline industry pioneered an early version of e-commerce about four decades before the present era of Internet-based e-business. American Airlines and its Sabre Inc. spin-off have been near the center of these developments from the beginning, and their experience is instructive in several ways even beyond the airline industry. Of particular interest are: 1 the story of their multi-channel, multi-vendor, global distribution system for reservations (compare this with today’s vertical Web portals); 2 how low-fare search engines had to be rebuilt to accommodate popular access via the Web (producing low-price search functionality similar to that in comparison shopping engines); 3 OR’s role in helping airlines to develop revenue-maximizing countermeasures when display-bias in computer reservation systems led to new regulation (similar results-display design optimization problems lurk behind almost all Web search engines); and 4 OR’s role in yield (or revenue) management, a technique that is propagating rapidly as other industries realize the dramatic opportunities for dynamic pricing that the Internet presents.
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» Applications and Opportunities for Operations Research in Internet-enabled Supply Chains and Electronic Marketplaces, by ManMohan Sodhi, is an essay on one of the areas most heavily affected by the advent of the digital economy. Sodhi begins by surveying the important legacy of the last decade of enterprise resource planning (ERP), which is really about transaction processing rather than planning, and of advanced planning and scheduling (APS) systems. He provides a detailed example showing the use of ERP and APS in a Webenabled supply-chain environment for an electronics company. He explains how Internet-enabled supply chains and electronic marketplaces help to coordinate supply and demand for manufacturing capacity, materials, and logistics across the supply chain. A highlight of this essay is the detailed explanation of why supply-chain models for e-business need, by comparison with most past models: 1 longer decision horizons for supply-chain management processes; 2 broader physical scopes that take account of manufacturers’ increasing collaboration with customers and vendors, and 3 broader functional scopes that include product design, sales, and customer relationship management. To capture these emerging research and application opportunities, OR practitioners must invest heavily in staying abreast of Internetbased technologies and e-business processes. » Quantitative Analysis for Internet-Enabled Supply Chains, by Pinar Keskinocak and Sridhar Tayur, goes deeply into business-to-business spot markets, auctions, and exchanges. This is an important area, since electronic markets are forecast to become possibly half of all e-commerce trade within a few years. The focus is on the complex dynamics that arise as the Internet causes supply-chain management to become more collaborative. They consider supply/demand matching between multiple suppliers and buyers participating in a business-to-business exchange, spot markets for capacity and inventory, dynamic pricing, on-line negotiations, and many kinds of auctions. They demonstrate the value of math programming in supply/demand matching, and they make use of stylized economic models – sometimes including game-theoretic elements – as a basis for solving strategic problems, such as bidding behavior, capacity reservation, and pricing, that arise in the context of auctions and
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spot markets. Their examples illustrate the need for more strategic analysis to complement the kinds of planning and operational applications that have been OR’s forte. The authors believe the e-business era creates a major opportunity for the too-long-separate modeling traditions of economics and OR to mate and produce techniques that carry economic insights and qualitative results much further toward computable solutions to practical problems. Internet marketing Next we turn to Internet marketing, which has become a major focus of interest in business schools owing to its many potential applications to business-to-consumer e-commerce. Texts have started to appear, including Ward Hanson’s 5 Principles of Internet Marketing (SouthWestern College Publishing, 1999), and focused issues of leading journals are also starting to appear, notably the Winter 2000 special issue of Marketing Science on ‘Marketing science and the Internet.’ Although few papers on real-life Internet marketing applications have been published so far, industry professionals are quietly using existing tools and many university researchers are working with real data. Again, the March-April 2001 edition of Interfaces magazine (Vol 30 No 2) contains a series of useful articles. » In Applying Quantitative Marketing Techniques to the Internet, Alan Montgomery advances the thesis that a lot of mileage remains in the known theory and techniques of marketing science for those able to make the connections between the apparently new problems of Internet marketing and those already studied. The author illustrates this convincingly with his discussion of diffusion models applied to viral marketing, conjoint analysis for purchase prediction, models for estimating price sensitivity in such a way as to inform on-line (real-time) pricing and coupon decisions, and clickstream (Website navigational) data analysis for profiling Website visitors. To elaborate briefly on the last of these, Montgomery discusses the issue of brand equity using the example of an on-line bookstore. Using a comparison shopping engine, consumers can retrieve offers from multiple vendors for the same book. Given data from these engines and on the offers users choose for purchase, an analyst can use a
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standard multinomial logit model to estimate the probability that a consumer will accept an offer from a branded store. This provides information on the premium that a branded store may be able to charge over a non-branded store, thereby measuring brand equity and informing pricing strategy. E-business is having a big impact on OR software vendors, many of whom are Web-enabling their software and seeking to exploit some of the digital economy’s new business opportunities. We turn to one of the largest such vendors for an account of this impact on its products and services: SAS Institute, which for more than two decades has provided software for data management, OR, statistical analysis, and related functions. » In Decision Support with Web-Enabled Software, Marc-David Cohen, Charles Kelly and Andres Medaglia focus on three of SAS’s extensive efforts to exploit Web technology. The first uses an application server architecture to deploy mathematical programming applications over the Web. The authors give examples from procurement, production, inventory, and distribution planning. The second effort is to facilitate data visibility using the Web. Note that model solutions can be treated very much like data; the Web is a nearly-ideal medium for internally publishing data and solutions. SAS’s tools for supporting this are advanced, including drill-down, drill-up, and dynamically created Web pages. The Lockheed Martin example shows that these tools can be combined effectively with analytical methods, such as an algorithm for calculating nth longest paths in a CPM context for the purpose of cycle-time reduction. The third effort has to do with applying data-mining techniques to data describing users’ Webnavigational paths. All Web servers generate such data, which can shed light on consumer behavior and Web site design. Data mining is of great interest to management these days. OR professionals have the background to understand easily most data mining techniques, and therefore are in a good position to advise on and benefit from data-mining tools like those fielded by SAS. Optimization problems » In Optimization as an Internet Resource, Robert Fourer and JeanPierre Goux (Interfaces, Vol 30, No 2, March–April 2001) provide a state-of-the-art survey of how the Internet can facilitate optimization.
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Building on their experience with the NEOS (Network Enabled Optimization System) project, the authors discuss in great depth how the components that make up the usual monolithic desktop optimization system can be distributed and made available as services over the Internet. (This move to conceive of software-system components as services is in line with recently announced thrusts such as Hewlett Packard’s e-speak.) The paper covers optimization servers (modeling language only, solver only, and integrated), optimization clients (client-server, Java applets, and meta-computing for solving very large problems on networks of workstations), and application service providers. Thus, for example, a user armed with a favorite modeling language tool can design, instantiate, and then solve a model by sending it (for example, using HTML forms) to a chosen solver for execution. This is all free for now, and many real problems can be solved conveniently in this manner, but this is not an industrial-strength approach. In the future, we can expect that application service providers (ASPs) will provide enhanced services of this sort on a commercial basis, but they must overcome some problems first. As the authors explain, a triple fusion must occur between (1) IT expertise in the Internet and distributed computing; (2) resource management and allocation expertise; and (3) an economic understanding of the role of Internet intermediaries. It should then be possible to create scalable servers that can handle the likely demands for solver and modeling services at attractive prices. Conclusion To take full advantage of the opportunities the Internet offers, companies must respond quickly to opportunities as they arise and make smart decisions based on the vast amount of data now available. By developing new decision-support tools using operations research techniques, and by obtaining insights from new stylized models in economics, the OR/MS community can add great value to industry and be part of the Internet revolution. Logistics: collaboration + workflow = e-process The promise of B2B e-commerce is fast, efficient, and repeatable experiences for all users of a business ecosystem. Instant and ad hoc
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relationships can be formed and propelled forward unimpeded by traditional commerce ‘‘friction.’’ However, e-business has high complexity built into transactions. Not only are people collaborating with people, but also machines are collaborating with machines. The result is a dramatic net increase in the volume of communications between organizations that are more ad hoc and instantaneous than the traditional model. E-process’s key role is to act as the glue that holds the elements of business together. It mirrors critical business processes by defining the rules, interfaces, and procedures that comprise how relationships work. It also provides a management layer that gives oversight to the reliability and consistency of business practices within an e-business ecosystem. As such, e-process can be used to integrate suppliers, customers, and business partners seamlessly. Three e-process segments There are three distinct segments of any e-business that can benefit from e-process: » administrative e-process: general workflows or processes available to everyone in the organization to use, such as purchase approval processes, resum´e tracking, vacation requests, and suchlike; » production or transaction e-process: the automation of complex business-critical applications, repetitive or high-volume transactions; and » collaborative e-process: the automation of business processes that are not transaction-oriented, and that enable multiple users to share documents, data, and annotations of work in progress, and drive this work to completion faster and more efficiently. Why traditional workflow isn’t sufficient In a distributed business environment, information must always be made explicit. You can’t rely on the shared sense of understanding that face-to-face contact tends to foster. Workflow technology as it developed in the 1980s and 1990s can perform some of those tasks, but e-business brings new demands. The value of today’s work force is based on workers’ ability to make critical,
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rational decisions using the information at hand. This stands in contrast to the earlier model that was based on a worker performing tasks, usually in a repetitive manner. It is becoming apparent to enlightened business managers that a whole new set of tools is required for these new knowledge workers. As a result, the concept of collaborative work is taking root. E-process tools are designed to meet these new collaborative needs by providing the interface between all the tools currently utilized in the e-business marketplace. The measurable benefits of using collaboration technologies can be quite significant. Product quality improves by bringing together people involved in the decision process and providing fast, efficient communication. Also, companies can significantly reduce costs by eliminating travel expenses and the lost productivity associated with frequent meetings. Most importantly, it saves time by allowing people to resolve problems quickly. Shell International is an example of a company that saved $200mn in one year. Shell has created a process that not only allows engineers from all over the world to troubleshoot problems by connecting people in the same disciplines, but also enables cross-fertilizing ideas. Pipeline engineers and corrosion engineers, though they may not usually work together, can stay abreast of each other’s projects by participating in or observing discussions on-line. In Shell’s case, the sharing of information and ideas has led to better solutions, preventing problems, getting to market faster. In short, creating a competitive advantage. The portals and e-process Whether a company has adapted a portal infrastructure or is just combining multiple software applications into a B2B solution, the communication processes must be unified into a single interface. Even one disconnected communications channel could hold the key to a set of critical transactions that renders the archive ineffective. Eprocess is a vital component of the enterprise information portal (EIP) architecture, one that allows for the ad hoc creation of communities and contextual collaboration around any information resource in the portal. E-process:
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» facilitates efficient communication and project management among teams and disparate organizations; » encourages ‘‘contextual collaboration’’ or ad hoc team communication around specific data sources; and » is the means of defining, illustrating, and managing the complex interactions between the players. E-process adds another significant dimension to enterprise portal functionality. It enables workers to collaborate in real time on solving a problem or creating a deliverable. In these cases, integration with strategic business processes is critical. E-process accomplishes this through collaborative workflows, categorized knowledge resources, and linkages to transactional systems. This ability to collaborate in order to discuss and analyze information from disparate sources makes the potential of any enterprise portal solution more easily realized, allowing teams and individuals to use knowledge and information to improve the performance of a business function and, thus, the overall performance of the business itself. E-process is not a shrink-wrapped, one-size-fits-all commercial product; it is something a company must build to mirror exactly its way of doing business. It is an indispensable corporate asset and a competitive advantage. To cultivate and grow these assets and competitive advantages, a company must re-orientate its formal and controlled culture to one that is more flexible, responsive, and cooperative. Work should become more focused on processes and less on tasks. Management must concentrate more on building functional teams and less on departments. Companies need to grasp and implement efficient process controls; implementations need to pull together all the separate pieces of the process jigsaw that often contains people, information, and technology, and manage the pieces in a measurable and repeatable manner. Proven e-process solutions E-process applications are proven to provide quick and easy-to-use solutions to common business problems, such as managing resum´es and the hiring process, tracking and reporting active sales opportunities, or
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managing an on-line support environment to provide superior customer satisfaction. These solutions use a combination of workflow, pre-defined attribute fields, and custom commands to create robust collaborative applications. All can easily be further customized to meet specific business requirements in the following e-process areas. » Resum´e tracking – human resource professionals work with hundreds of applications and resum´es on a daily basis. Finding and utilizing the right information within these resum´es can be timeconsuming. With a resum´e tracker program, they can quickly locate the resumes and other information they need, and automate the interview process. » Sales account management – this program helps sales professionals to achieve two basic goals: to stay in communication with customers and business partners, and to track and prioritize sales prospects and activity. » Help desk – a help desk program provides help desk, call center, IT department, and technical support personnel with a way to report, track, and resolve problems efficiently and effectively. » Contact management – a contact manager program can file, store, search, and retrieve business and/or personal contacts in a shared, Web-based database. Colleagues can access e-mail addresses, phone numbers, and mail addresses anytime, anyplace, using an Internet connection. » Filtered discussion forums – these help to categorize and classify types of information. They have a variety of uses, including document review processes, project management, and many others. SiteScape’s Filtered Discussion Forum program, for example, enables users to view and filter information according to their needs and preferences. Filtered discussion forums are easy to use and allow users to manage data using their own searchable categories. Using a combination of easy-to-use set-up wizards and the simple workflow interface, it is easy to create new e-processes. And, if you don’t have the time, your supplier’s customization team can do it for you.
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Conclusion E-process technology provides the means to define, visualize, map, and manage the complex processes that comprise today’s increasing global and mobile businesses. E-process links the remote islands which are customers, suppliers, and companies into a coherent whole. It pulls together all the separate pieces of the process jigsaw that usually contains people, information, and technology, and manages them in a measurable and repeatable manner. E-process is all about pulling disparate elements of business together into a collaborative and constructive whole, providing strong productivity growth and measurable return on investment. Decision support with Web-enabled software Background SAS develops software for building Web-based applications for data management, statistical analysis, forecasting, data mining, and operations research. A Web-based optimization framework is used to: » solve a large-scale production-and-distribution problem at United Sugars Corporation; » solve an inventory-replenishment problem at Cameron & Barkley; and » find optimal portfolios of suppliers using Dun & Bradstreet data. The Internet is an electronic marketplace, meeting place, and medium for communication. It has created myriad opportunities, and businesses are emerging to exploit them. For over 20 years, SAS has provided software for data management, statistical analysis, forecasting, data mining, and operations research. Now its products simplify building applications that use the Internet as a communication channel and find wide use as a tool for analyzing Web usage. The OR community needs to exploit the potential of the Internet. United Sugars Corporation The United Sugars Corporation of Bloomington, Minnesota, sells and distributes sugar products for its member companies. With a 25% share of the US sugar market and sales of over $1bn, this grower-owned
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cooperative is one of the nation’s largest marketers of sugars to industries and consumers. Nationwide expansion and multi-site development led to growth in sugar production and distribution. United Sugars decided to take a more systematic approach to managing its supply chain. In 1998, the United Sugars Corporation collaborated with SAS to explore methods for modeling and managing its supply chain. Following supply-chain methodology for aligning supply and production with demand, SAS designed and built a strategic model to identify the minimum cost solution for United Sugars’ packaging, inventory, and distribution problem. United Sugars extracted business data from an SAP AG R/3 system and a legacy database to populate the mathematical model. The company uses the results monthly to plan operations that account for approximately 85% of its operational budget. The resulting network model for planning over a 13-month horizon with approximately 80 plants (packaging, storage, distribution, and transportation transfer points), 250 sugar products, and over 2000 customers contained roughly 220,000 nodes, 1 million arcs, 3000 nonarc variables, and 26,000 linear side constraints. United Sugars solved the optimization problem using the primal-dual predictor-corrector interior-point algorithm of the NETFLOW procedure [SAS Institute Inc. 1999b] on a PC running Windows NT (450 MHz and 1 GB of RAM) in about 2.5 hours. The optimal solution specifies the minimum-cost schedule and indicates the packaging, distribution, and inventory assets needed to satisfy customer demand. United Sugars uses the results in its current planning cycle for budgeting all freight and warehousing expenses. Primary users include the production planning, logistics, and distribution managers. Currently, the company uses the results to make strategic decisions, but it plans to upload information to its ERP system to support operational decisions in the future. United Sugars creates reports that contain detailed and summarized information. They include: » a packaging-line planning schedule; » a packaging-line capacity utilization report;
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distribution requirements planning flows; freight costs; inventory movement (interplant shipments); and warehouse utilization and costs.
In the future, United Sugars plans to create graphics-quality reports with summary information and drilldown capability to be distributed via the Web for multiple-user access. By using the Web browser and clicking on a particular facility or customer, users can display a related business report. Since reports are generated dynamically from current solution data, all information is up to date and accurate. By tailoring the set of reports available to individual groups of users, United Sugars can make information access timely and efficient for everyone. Cameron & Barkley Company Founded in 1865, the Cameron & Barkley Company (Cambar) of Charleston, South Carolina, is a distributor of industrial, electrical, and electronic supplies with facilities throughout the south-eastern United States. Cambar’s inventory contains nearly one-half million products. To become more profitable and competitive, Cambar wants to reduce the inventory without sacrificing customer service. In 1999, Cambar collaborated with SAS to explore methods for managing and reducing its product inventory and improving its demand forecasting. Through data analysis and exploration, SAS examined Cambar’s product inventory and demand patterns, and suggested several ordering rules. SAS then built a prototypical inventory-planningand-management system that is nearing production status. Cambar has a team of buyers charged with maintaining enough inventory to meet its strict levels of customer service. Traditionally, buyers relied on their knowledge of the market, intuition, and simple demand forecasts to determine stock levels. To automate these processes SAS created the inventory replenishment planner (IRP) using the distributed architecture. The Web interface captures user interactions, saves the business information specified by the user, and finally builds a model of the problem to be solved. The model approximates lead-time demand and minimizes ordering and fixed costs subject to required service levels.
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Users who go to the IRP page see a display that allows them to specify service levels for three classes of inventory. The inventory is classified automatically and controlled via parameters entered in the page accessed via the Data tab. The user can specify the mean and variance of the order lead times for inventory items by class, and the type of algorithm used in calculating the inventory replenishment policies. The IRP enables the user to calculate replenishment policies for desired classifications of parts. The user may specify a target service level, order lead-time mean and variance, and the approximation algorithm to use. The Simulation tab is used to control a simulation of the calculated policies. The Summary Report page displays the replenishment policies and the current inventory – including the re-order level, order-up-to level, inventory position, excess on-hand or to-be-ordered, and order status for each part. Parts with excess inventory are highlighted in blue, while parts that need to be ordered are highlighted in red. The Email Orders button triggers an e-mail message for those parts selected in the Order Status column. Supplier portfolio optimization In a partnership with Dun & Bradstreet, SAS developed an initiative called Supplier Relationship Management (SRM). SRM is composed of two software components, a viewer of procurement data called Procurement Vision (PV) and a procurement-planning component called Supplier Portfolio Optimizer (SPO). The PV software is an exploratory tool that helps users to understand the current portfolio of suppliers represented in the Dun & Bradstreet database. It helps buyers to make strategic decisions about purchasing practices by identifying existing and potential suppliers, and the products and services they provide. PV answers such questions as: » how much am I spending with a supplier? » what is my risk with a specific supplier? and » how are my buying practices changing over time? The SPO software is a planning tool that builds portfolios of suppliers that meet specific goals. It provides buyers with guidance for answering these strategic questions:
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» how much should I spend with a supplier? » how can I limit my financial risk? and » what should I buy from a given supplier? The SPO solution has four functions: the Scenarios tab for managing solution output, the Filtering tab for preparing the data before portfolio selection is made, the Design tab for specifying the design parameters of the portfolio, and the Reports tab for reviewing the portfolio. The SPO main page provides an interface for building portfolios of suppliers using design parameters for controlling the structure of the supplier portfolio. For example, the design parameters capture rules such as: » to satisfy a government regulation, at least 1% of purchases should be from ‘‘minority-owned businesses’’ (‘‘minority’’ as in ‘‘ethnic minority’’ as opposed to ‘‘minority shareholder’’); » to promote quality, we should buy at least 25% of our supplies from ISO-compliant businesses; and » we should have 30 to 50 suppliers from our home state and buy between 15% and 20% of our supplies from them. After setting the design parameters and pressing the Optimize button, the user will be asked for an e-mail address. The output of the optimization process is a portfolio of suppliers that satisfies all the conditions specified by the design parameters and maximizes leverage in future negotiations. Numerous reports available summarize the optimal portfolio, giving such information as: » » » »
detailed and aggregate purchases from each supplier; detailed and aggregate purchases of each commodity; purchases aggregated by region and state; interactive drill-down reports, for example, going from region to state to suppliers to commodities; and » data visibility via the Web For an analytical solution to be effective, its end-users must understand and have access to the process state represented by the input data and the solution saved in the data warehouse. In the three examples
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in Chapter 6, two companies make manufacturing production data available to a diverse user community. Conclusion Intranets, extranets, and the Internet can become more useful for delivering analytical content and exploiting the numerous opportunities for decision support in e-operations. Delivering decision support functionality over the Web improves accessibility, ensures timely information, and results in institutionalized decision-support capabilities.
06.03.06
The State of the Art in E-Processes » Best practices in e-business: moving beyond the ‘‘e’’; » Outsourcing – out of site; » some examples from the insurance industry; » PricewaterhouseCoopers management consulting services; » Defining e-business and operational goals; » Key factors for the successful e-process activated company; » Implications of e-operations at the organizational and individual level; » A look to the future – likely trends and developments.
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BEST PRACTICES IN E-BUSINESS: MOVING BEYOND THE ‘‘E’’ Accelerated revenue growth, lower cost, and greater customer loyalty are the key prizes of the Internet revolution. Companies want to know how to invest their e-business resources to realize the greatest return. Industry research generally confirms the fact that Internet pioneers and latecomers alike have profited by integrating their e-business initiatives with overall corporate strategy: in effect, moving beyond the ‘‘e.’’ While B2B Internet revenues are expected to triple in 2001, reaching $260bn, 210 dotcoms collapsed last year. What implication does this paradox have on the future of e-business – and of business in general? A Best Practices BenchmarkingTM Report reveals how organizations are integrating the Internet with their existing operations to generate substantial cost-savings, increase customer loyalty, drive sales, and ultimately, have a positive impact on the bottom line. Research shows that those organizations that integrate e-operations into their overall strategy and existing business practices are best positioned to lead the way into the new economy of the twenty-first century. Study snapshot The world’s companies – from the most advanced technology firms to fledgling Internet start-ups – face the same dramatic and paradoxical opportunity: removing the ‘‘e’’ from e-business. This opportunity is dramatic because companies that fully integrate the Internet into their overall strategy and existing business operations are experiencing dramatic productivity gains and marketplace advantages. The opportunity is also paradoxical because most companies are still seeking to put the ‘‘e’’ into their businesses. Now Internet bellwethers – those managers and companies making dramatic progress in e-marketing, e-sales, and e-services – observe that it is only a matter of time before the Internet is completely integrated into every facet of their overall strategy and business operations. Then, these e-commerce leaders reflect, today’s ‘‘e-business’’ will be tomorrow’s ‘‘business as usual.’’ The ‘‘e’’ won’t merit comment because it will have become inextricably part of their business models. E-commerce units won’t be cultivated
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as skunk works and as peripheral business structures. A recent study by the consultancy Best Practices, LLC was anchored on four critical perspectives that serve as the cornerstones for fieldwork, analysis, and organization of all insights: » the Internet has emerged as an essential tool to enable and supercharge productivity; » the Internet can and should be used to enhance existing successful business models; » Internet managers must translate e-business tools, techniques, and initiatives into real stakeholder value that can be calculated in traditional terms of business economics and productivity; and » broad-based Internet strategies and initiatives can be analyzed and understood in terms of specific practices that are repeatable and manageable throughout multiple enterprises. Key findings The findings in the study were drawn from field research that included extensive interviews with Web-masters, Internet managers, executives and strategists, extensive Web reviews, data analysis, and Internet strategy research scans covering more than 100 companies. Benchmark partners articulated hundreds of practices and operational insights that characterized their progress in e-marketing, e-sales, and e-service. Researchers identified five overarching key lessons learned: » evaluate your business model and apply Internet tools to the highest value points; » integrate e-tools with traditional customer service excellence principles to drive long-term loyalty, faster responses, greater ease of use, increased functionality, and cost reduction; » enhance sales productivity by integrating Internet tools with existing sales channels; » employ e-marketing to gather information and to segment and target customers with mass-customized communication; and » measure e-business success based on deployment of people, technology and strategy to accelerate improvement cycles and increase profit margins.
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OUTSOURCING – OUT OF SITE Outsourcing is becoming more popular as a way of jumping straight to the latest IT platforms and e-business. It traditionally comprised (in the industry sector for example) functions such as run-offs and claims handling. In the computer age, fashions have come and gone as to how much expertise should be retained within the organization or contracted in from outside. The era of the bureau service was followed by moving data processing back in-house; then companies began exploring the advantages of facilities management and applications management. What is now sometimes being called ‘‘traditional’’ IT outsourcing usually involved farming out the data center operations to a third party, and reduced cost was usually the prime motivation. But now the nature of the activities being considered for outsourcing, and the motives behind such a decision, are both changing. The big issue at the moment is business process outsourcing (BPO) – putting whole business functions previously carried out inhouse into the hands of a third party, thereby benefiting from economies of scale. In extreme cases this may result in a scenario where, for example, an insurance company itself is concerned purely with the product design, the underwriting criteria, and the marketing strategy, leaving all other functions and processes in the hands of an outsourcing provider. Thus we arrive at the virtual model, where all that remains of the insurance company is a handful of experts focused purely on core activities. The lines distinguishing ‘‘IT outsourcing’’ from BPO may not always be clear, given that IT capabilities are crucial to all these functions, but it does take the concept a stage further from straightforward IT support and maintenance to putting customer and business-to-business contact in the hands of a third party. Also, the drivers behind this trend go beyond cost considerations. They include increased competition, pressure on margins, fear of new entrants, increased cross border activity in Europe driven by the single market – together leading to a desire for more flexibility and faster time to market for new products. Also, and inevitably, the growth of e-business is an influence.
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Faced with the need to get to grips with the world of electronic delivery channels, whether business-to-consumer or businessto-business, some insurance companies are looking to outsourcers to help them make that step change in technology overnight, rather than waiting for in-house development to run its course. Established insurance providers are uncomfortably aware that start-ups can benefit from the latest technology, without the baggage of integration with legacy systems. One way to combat them is to set up a separate e-business subsidiary operation (though this does nothing to improve the cost ratios of the parent operation) and the quickest way to set up such a subsidiary is to use a platform readily available from an outsourcer. This is the path already being taken by companies in the US, and Europe appears set to follow suit. The virtual company may be at the extreme end of the outsourcing spectrum, but the signs are that outsourcing in one form or another is a growth area. Research published last year by Datamonitor predicted that expenditure by the European insurance sector on outsourcing would rise from $698mn in 1998 to $1.4bn in 2003, a compound annual growth rate of 15.8%. Commenting on the research, Datamonitor analyst Daniel Mayo said, ‘‘Outsourcing by insurers is set for dramatic growth. To capitalize on this technology, vendors are increasingly attempting to provide the business rather than the IT processes. However, in the short to medium term, it will be the basic IT services that experience greatest growth.’’ The drivers behind this growth identified by Datamonitor include the pressure to exploit multiple distribution channels, and the constraints on getting new products on to the market experienced by insurance companies burdened with multiple legacy systems – outsourcing can be a short-cut to achieving the required flexibility. Yet the prime driver identified by Datamonitor remains cost pressure, forcing insurers increasingly to focus on their core competencies. At the same time, insurers are cautious as to which suppliers they will trust. The factor that deters some from going into outsourcing is a fear of putting business-critical processes and customer contact into the hands of a third party, over whom it may prove difficult to exert control. Datamonitor found that both life and general insurance companies
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quoted previous experience as the most significant factor in choosing an outsourcing supplier, rating a good reference site above pricing considerations. They also required potential outsourcing suppliers to be able to demonstrate a thorough understanding of the business issues facing the insurance sector. According to figures produced by IDC, the leading outsourcer world-wide is IBM Global Services, which recently secured a ten-year contract for outsourcing the host and backup systems of Meiji Life in Japan. It is also the market leader in the UK insurance sector, and late last year announced a seven-year outsourcing contract with CGU, following on from a similar arrangement pre-merger with General Accident. Similarly, IBM was a provider of outsourcing services to Sun Alliance before its merger with Royal Insurance, and now provides IT outsourcing to the merged entity, Royal & Sun Alliance. This conforms to a pattern some observers detect whereby, after a merger where one party uses an outsourcer, the merged business is more likely to transfer the other side of the business to the outsourced operation too, thus leaving the outsourcing supplier to sort out the problems of integrating the two companies’ systems. ‘‘Outsourcing the data center was once done primarily for cost purposes or maybe to get rid of a problem, whereas now the customers are maturing,’’ comments Malcolm Carter, director of insurance services at IBM Global Services. Costs and service delivery are still important but now customers are looking for added value. ‘‘In general terms it’s about how to survive the next ten years.’’ As an example, Carter quotes the deal announced last year between IBM and Parion, the German composite insurance company formed from the merger of Gather Versicherungen and Berlin-Kolnische Versicherungen (BKV) in 1997. Gather already had an outsourcing arrangement of a fairly conventional kind with IBM, covering data and desktop services, but post-merger the contract was renewed on a broader basis. It now constitutes more of a long-term partnership, covering application maintenance and development, and charged with the need to develop an IT solution strategy for the merged corporation. Carter characterizes this sort of deal as something more than the traditional IT outsourcing arrangement, being ‘‘a fuller-scope outsourcing for information technology’’ – though not yet extending as far as BPO.
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This, he says, is a trend evident across the industry. IBM’s main business consists of ‘‘traditional’’ IT outsourcing, but it is now moving into BPO, starting with generic areas such as call centers, procurement systems, and human resources systems. Policy administration is also on the list of targets. ‘‘Technology may be the solution to some of the cost and delivery issues, but it’s also the problem,’’ says Carter. ‘‘A lot of insurance companies are saying they don’t know how to keep up to date.’’ As IT moves ahead, the skills of the applications developers get rapidly out of date. Hence the attraction of outsourcing IT and just concentrating on the core competencies, and even outsourcing key functions such as claims – although maintaining control is, Carter acknowledges, still a big issue. Towry Law has recently embarked on a major change program that involves outsourcing most of its back-office operations. This may be described both as a strategic business process and a transitional outsourcing partnership, in that the company has turned to a third party – CMG – to run major areas of its operation and to advise on and implement the introduction of new technology platforms. The IFA has signed a ten-year contract with CMG to cover management consultancy, IFA software systems, and technical expertise. Together with arrangements with other third party suppliers to cover its finance and investment areas and payroll systems, this will create a virtual operations company, allowing Towry Law to concentrate on relationships with clients through its sales operation, which remains in-house. IT projects on which CMG will provide consultancy include the implementation of Towry Law’s e-commerce strategy and its preparations for the introduction of stakeholder pensions. Keith Webb, chief operating officer at Towry Law since 1998, says that the company had to take a fresh look at the whole of the back-office operation, including new IT and new human resources practices, and to address the financial and regulatory implications of a policy of growth by acquisition. ‘‘Technology is the key to moving forward and you need the full range of skills to do so. A small organization can’t possibly employ that range of skills, so it has to look at utilizing the professionals,’’ he says. Insurance companies, says Webb, have traditionally prioritized work by setting out how much they can afford to spend, how many personnel they can afford, and then seeing how many projects they can attempt
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within these constraints. An alternative approach, he suggests, in such a scenario where a major investment in IT is clearly required to drive the business forward, is to bring in third parties to provide the technology and the necessary manpower but without swelling the in-house headcount. In the case of Towry Law, he says, there were two options. ‘‘One was to recruit people directly, but it’s hard to get the right caliber of people when you are a small company, and it takes time. The other option was to identify organizations that could work with us and deliver the skills we needed.’’ In the event, Towry Law has chosen to go beyond a conventional outsourcing set up and form a strategic, longterm partnership: ‘‘CMG will not only manage our existing applications but also advise us what systems we should deploy.’’ Kevin McCarthy, sales director for life and pensions at CMG, says: ‘‘The major change we have seen in the last ten years is the outsourcing of what have historically been considered core activities. Providing you have a strong brand you can get almost anyone to provide the services.’’ In the US, PMSC operates a substantial outsourcing operation and its clients include a number that can be said to be truly virtual insurers, where the core company is stripped down to the absolute minimum. Kenneth Branham, senior vice president at PMSC in Atlanta, explains that outsourcing in general, and also the virtual insurer model, has seen strong growth in recent years. ‘‘Our second quarter results [1999] showed a huge increase in outsourcing revenues for us – a 43% increase over last year. We are currently outsourcing for 70 companies on the property/casualty side and 15 on the financial and life side.’’ Branham says US insurers are increasingly accepting the proposition that they can outsource the execution of their business processes without relinquishing control over key factors, such as underwriting rules, claims guidelines, financial investment decisions, and customer service standards. While ‘‘traditional’’ data center and IT outsourcing is still a big market, the significant growth is in BPO. And there is ‘‘a big, big trend’’ towards the virtual concept. Established companies are opening up virtual divisions to try to get into e-commerce – sometimes under a different name so as not to cause conflict with the broker channel. E-commerce is the key driver here. Most companies are not equipped for it, though they do recognize
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that exploiting the Internet can allow them to cut down the number of people required on the processing side. But taking the traditional approach of building the systems in-house loses time in the race to market. The implications of mergers and acquisitions too are starting to create a need for outsourcing in the US, says Branham, with some companies finding that after a merger they are fatter and have higher expense ratios than before. Another more common driver in the US is the desire to expand into new regions, without establishing another office there. But above all, says Branham, e-business and the virtual model are going to drive a boom in outsourcing. ‘‘It’s going to be an explosion – the financials prove this is the way to reduce costs.’’ Nearly three years ago, Reliance National Insurance set up a subsidiary called CyberComp in order to enter a niche area – workers compensation business for small companies with under 50 employees. By using the Internet to reduce its product distribution costs, CyberComp was able to make profitable inroads into a market many insurers regarded as unprofitable and of little interest. Low margins and a product seen as a commodity meant that many companies and agents thought the time spent marketing these policies the traditional way was not cost effective. CyberComp decided both to use the Internet as a low cost route to deliver quotes to its independent sales agents – around 500 of them in 43 states – and to outsource most of its operations. As a consequence it was able to move from concept to launch in only four months. PMSC provides the systems, networks and between 50 and 60 staff to handle underwriting, claims management, commission payment, and all areas of administration. CyberComp itself has only 35 employees, 25 of whom are regional sales people who liaise with agents and recruit new agents. Control of the rules governing underwriting and claims remains within CyberComp. In its first full year of operation, 1998, CyberComp wrote $81mn of workers compensation business, up from $31.5mn the year before: 70% of the business is written on-line, reducing both costs and the time taken to provide quotes. In the UK, former London market run-off specialist Eastgate has become an established BPO provider, chiefly in the areas of claims management and back-office operations. Eastgate’s latest venture, launched jointly with Cap Gemini in the third quarter of
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1999, is very much in tune with the evolving landscape of e-business and may well be a sign of things to come. Called Consumer Direct, it offers an off-the-shelf, outsourced ebusiness service for personal and volume commercial lines. This could give new entrants a fast track into the insurance market, and may also prove attractive to existing players seeking to establish new ventures. The task of integrating an existing, traditional insurance business with an e-business using new delivery channels is so daunting for some organizations that, rather than be left behind, it seems likely some will opt to set up separate e-operations. Though electronic delivery channels are viewed as low cost by comparison with others, there are capital start-up costs to consider. Combine this with the desire not to be left behind in the rush to grab market share in these emerging channels and the quickstart outsourced or virtual operation starts to look very appealing. Consumer Direct will be able to operate through a range of new delivery channels, including retail Internet sites, corporate intranets, kiosks, digital TV, and personal digital assistants. The distribution infrastructure will be integrated with Eastgate’s full-cycle business process outsourcing service and is based on Cap Gemini’s Service Delivery Framework, using a mixture of Oracle and Sun technology. Though a version will be ready by 2002 for intermediaries obtaining quotes from a panel of insurers, the first release was aimed at direct insurers, and at banks and retail groups wanting to offer products under their own brand names but sourced from an established insurance company. The service includes policy processing, claims management, help-lines, and assistance services. Customers will be able to make policy adjustments, renewals, and claims themselves. The claims notification module includes a work queue, alerting agents when to phone customers back, and a claimstracing function that allows customers to log on and check on the progress of their claims. ‘‘Consumer Direct’s pricing will reflect the desire of distributors to have the cost structure tied to premium volumes rather than massive up-front costs,’’ says Max Carruthers, chief executive of Eastgate’s general insurance division. A flexible pricing model aligned with the business volume includes a set-up fee, a charge per transaction, and a charge per new product added or
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modified. In this way the client avoids the high up-front capital cost normally associated with such a start-up. And it may prove attractive to new entrants with strong brands anxious to make their mark quickly and cost effectively. PRICEWATERHOUSECOOPERS MANAGEMENT CONSULTING SERVICES The Management Consulting Services (MCS) practice of PricewaterhouseCoopers (PWC) helps companies to harness the competitive benefits of e-business by integrating strategic change, performance improvement, and technology solutions. PWC’s MCS practice has identified three key components in developing e-processes for e-business: strategy, design, and infrastructure. » Strategy – uses a framework for developing new business models and strategies that are customized for new market entrants and large, established companies. An integral part of developing this strategy is a company’s marketing and branding objectives. A company’s e-business strategy needs to take into account its people and culture, business processes, organization, and structure, as well as existing and potential systems, technologies, and applications. Alliances, supplier relationships, and networks are also evaluated. » Design – designs, optimizes, and manages customer-facing Web presence, internal portals, and back-end systems. Creativity is vital in this environment in order to develop a strong Web presence that supports business objectives and to redesign internal business processes, such as distribution or inventory, as well as the value chain, and how these processes can become more integrated into the organization using the Internet. » Infrastructure – in order to sell and buy products successfully, exchange information, and communicate with virtual communities, companies need the infrastructure to support their on-line businesses. This requires flexible and scalable solutions built on templates and tools that shorten delivery time, while offering customization that is indispensable in a rapidly changing environment. Adapting the infrastructure often goes hand-in-hand with redesigning a company’s internal business processes, such as distribution or inventory, in order
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to facilitate the customer service that is expected from successful Internet companies. Some questions which must be asked by anyone organizing e-processes are: » how should potential channel conflicts be managed? » how should existing brands be leveraged? Should new ones be created? » how can I use e-business technology to integrate my supply chain seamlessly? » how can a world-class and scalable infrastructure be built quickly to support my e-business? » how can I guarantee safe financial transactions over the Internet? Defining e-business and operational goals E-business is simply the designing or conversion of every business function suitable for the Internet to increase stakeholders’ returns. In today’s era of customer service, every business is an e-business. And it’s not just about the Internet; successful e-business is about managing the digital value-stream, whether it flows through an on-line exchange, the supply chain, the demand chain, ERP systems, or legacy applications to deliver non-stop service and value to customers. Regardless of the business model – pure-play, clicks-and-mortar, or a traditional bricks-and-mortar, an organization’s e-business strategy should include the following. » Customer contact centers » sales force automation; » order fulfillment; » streamlining of internal operations by Internet technologies; » human resource management; » on-line job functions; » employee benefit management; » employee training and education; » investor relationship management; » on-line inventory; and » corporate communication.
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» Customer procurement » e-logistics; » transportation management; » warehousing management; » finance and accounts; and » quality control. Key factors for the successful e-process activated company » Electronic business – this comprises the interchange and processing of information using electronic techniques for conducting business within a framework of generally accepted standards and practices. Areas covered include e-business terminology, the foundations of e-business, why e-business, retailing, customer service, advertising, managing with the Internet, using intranets and extranets, and infrastructure for e-business. » E-business technology – this comprises issues such as the architecture of Web systems, the attributes of a good Website, data interchange, search engines, data mining, profile building, customer management, and intelligent agents. It includes tools for Website enhancement: multimedia, video streaming, creative linking, and action graphics. » Internet marketing – this encompasses concepts such as Web marketing, strategies for building new on-line brands and extending existing brands on the Web, fundamentals of e-tailing, buyer motivation, tactics for increasing Web presence and activity. Topics include e-selling, URL submission techniques, search engine positioning, affiliate programs, banner advertising, contests, auctions, classified advertisements, the use of e-zines, and on-line newsletters. » E-operations – these relate to the management of customer service and satisfaction – essential goals of any business enterprise. E-operations include the day-to-day activities of an on-line business. Topics covered include business management, architecting process sustainability, on-line ordering systems, telephone ordering, record keeping, inventory control and management, order fulfillment, delivery assurance, delivery methods, electronic bills of lading, and working with intermediaries.
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» Competitive strategies for e-business – competitive strategies are constantly evolving along with technological and economic change. This includes strategic planning and management, fast-cycle management, gathering market intelligence, corporate restructuring, and global business strategy. These techniques should be applied to meeting objectives such as making Websites receive more traffic and earn more money. » Emerging technologies in e-business – a look at the future of e-business will focus on topics such as gathering technological intelligence, developing electronic communities, and building unusual alliances. The Internet is the electronic medium of choice in forging these new relationships and can change the ways we conduct business. This requires brain-storming and thinking ‘‘outside the box.’’ IMPLICATIONS OF E-OPERATIONS AT THE ORGANIZATIONAL AND INDIVIDUAL LEVEL The implications of e-operations on an organization will have an impact at several levels. At the corporate level, the impact will primarily be felt in the need to develop new organizational processes that can leverage on the possibilities of Internet-enabled business, and the need to make the best use of data to provide the requisite management information reports. Relationships between customers, the company, and its suppliers will also be modified as the company becomes the hub for organizing relationships between players rather than managing a diversified manufacturing operation. At the individual level, employees will need to be able to identify potential hiccups in the process (very different to those in the classic manufacturing operation) and liaise with concerned parties. A LOOK TO THE FUTURE – LIKELY TRENDS AND DEVELOPMENTS E-operations promise to change the manufacturing process into a virtual process. As companies are more easily in contact with suppliers of other goods and services, the new e-process manufacturing company will be the conductor, organizing relationships to create a product for sale.
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Whilst the ‘‘product’’ will be designed, ‘‘logo-ized’’ and sold by the company, the product itself will be the fruit of an assembly operation. The branding operation will become a concept divorced from the manufacturing process (a case in point being a supermarket bank whose EDP processes may be contracted out to a major established bank, or a clothing chain sourcing poorly-stitched, lopsided clothes from some third-world sweatshop). The customers of the supermarket bank will not know, nor even care, who actually delivers the computer services underpinning the supermarket bank (unless there are glitches of course). For companies such as automobile or aircraft manufacturers, eoperations promise to transform the relationships existing between the manufacturer and the various subcontractors and suppliers providing components required for the manufacturing process. These interrelationships and flows of materials and inventory levels will be monitored on-line and in real time via Internet connections and appropriate software enabling the compilation, processing, and presentation of requisite management information data and e-messages. Perhaps the ultimate impact of e-processes is that manufacturing operations may be assembled around a product or good or manufacturing process that is project-based, and that the players will coalesce and dissipate along with the shifting demands of the consumer marketplace. The long-term company, by contrast, may no longer be involved in manufacturing but rather as an architect boutique, ‘‘designing’’ these special-purpose transient companies and selecting the players to fulfill some transient marketing need or production process.
06.03.07
E-Processes Success Stories » Case study: Logica plc and STP; » Case study: Stryker Endoscopy; » Case study: ISite e-operations and Web-based applications.
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In this chapter we shall be looking at various manifestations of how the new Internet technologies have affected the tying together of classic corporate operations into e-processes. We shall examine Logica and the implementation of STP in the financial services industry, Stryker Endoscopy and the implementation of an e-process-enabled warehouse management system, and the use of ISite software to Web-enable companies’ marketing processes. These three success stories are each very different, but together serve to illustrate the common theme of the Internet as a secondgeneration unifying tool in e-processes over and above classic IT usage for company operations. E-PROCESSES AND STP – LOGICA PLC Logica plc is a systems integrator and consultancy active in providing customized mission-critical solutions to a wide range of clients including those in the financial services industry. A key area of financial services is STP or straight-through processing. This relates to the business process redesign, integration, implementation, and management of electronic order to settlement (straightthrough) processing capability to support new electronic operations in both retail financial services and financial markets. The idea is that transactions are entered once into the system (upon deal capture) and that all requisite information is then automatically fed through the system without further human intervention, thereby accelerating transaction cycles and reducing the possibility of human error in subsequent data entry phases. This is a managed services-led strategy which combines Logica’s cross-industry market infrastructure project experience, its managed services capabilities, and an investment in new business partnerships in both financial markets and retail banking core systems. Each of these strategies is supported by a combination of business consulting, ‘‘best-of-breed’’ software applications, Logica’s own intellectual property, systems integration, and managed services. Many of these capabilities and solutions are being successfully implemented in Logica’s other target markets in telecommunications and utilities. Solving the consequences of the ‘‘e’’ world requires an end-to-end change in business strategy, process, culture, organization, and systems
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by the financial services industry. This change is focused on four main objectives, each of which requires a unique combination of business consulting, best-of-breed business applications, advanced communications and technology integration skills, and managed operations services. » Making the customer visible – building and managing customer profiles in real time, targeting specific customer relationship objectives, integrating and activating channels to deliver these objectives, and empowering customers to co-manage their relationship, through the increased transparency of information and processes, and spearheaded by the increasing use of personal channels. » Making fulfillment immediate – refining the order-to-fulfillment processes, providing direct access to information and markets, removing the manual intervention required between product silos and front/back office through intelligent routing, and improving the operations’ performance through managed services. » Making doing business convenient – putting portable banking, information, and added-value services into the hands of customers using wireless technology. » Making the transaction real – providing the appropriate, reliable, value priced, secure payments infrastructure, trade finance service, and trust to support the settlement of inter-bank, businessto-business, and business-to-consumer transactions – across any network, anytime, anyplace. Implementing straight-through processing (STP) – Cap Gemini Ernst & Young Straight-through processing (STP) has been a topic of discussion within the securities industry for at least the last decade. Several initiatives and organizations have sprung up, all aimed at providing a solution to what appears to be one of the industry’s greatest inefficiencies: connectivity and continuity. STP aims to enable the business cycle of securities trading to be completed – from order inception to settled and cleared trade – on the principle of single data entry at deal capture. In theory, achieving a standardized messaging structure across the global markets is easily
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within the realms of today’s technology, but STP is easier to conceptualize than to accomplish. This is because the imposition of standards is elusive – the internal and external disparity of standards, the internal and external politics across business and geographic domains, and the inertia that is often a symptom of misguided protectionism all contribute to difficulty in realizing an environment that supports the STP concepts. STP is not a new concept. In fact it is a much hackneyed phrase that has lost a lot of its glamour, as financial institution after financial institution has tried to implement an STP strategy but has had at best limited success due to a combination of issues surrounding legacy systems or changes in market infrastructure. To some financial institutions, STP has become something of a Holy Grail. Unfortunately, the business drivers for STP have not gone away, and short of outsourcing the entire transactional processing lifecycle to an IT partner, the financial institution has to face up to its STP requirements. One success story relates to Cap Gemini Ernst & Young, and a large international bank that has major operations in New York and Toronto and smaller operations in London, Hong Kong, Singapore, Japan and Australia. The challenge was that the client’s securities businesses needed to assess the impact of moving to T + 1 settlement in North America. The client’s goal was to have a comprehensive T + 1 assessment completed early, in order to ensure adequate time to plan, leverage strategic opportunities, and use internal resources to minimize overall program expenditures. The bank asked Cap Gemini Ernst & Young to provide a methodology for its assessment and to provide subject matter expertise in T + 1, STP, and capital markets. The bank was also interested in ensuring that the assessment was appropriately scoped by line of business and front/middle/back office to ensure that all the impacts of moving to T + 1 settlement were identified. Cap Gemini Ernst & Young used its ‘‘accelerated assessment methodology’’ to review the technology, processes, and people affected by implementation of T + 1. Used previously for both Y2K and the Euro, the methodology uses a questionnaire approach to identify T + 1
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impacts. Senior management in the bank’s various lines of business completed the questionnaires. The impacts were then validated and clustered into projects at facilitated workshops. Project priorities, efforts, stakeholders, and sponsors were also identified during these sessions. The outcome was that Cap Gemini Ernst & Young delivered to the bank a comprehensive list of projects necessary to prepare for T + 1. These projects were ranked by priority and sequenced by the effort required. Impacts (i.e. requirements), sponsors, and stakeholders were identified for each project. The list of projects was also signed off by the various lines of business to ensure consensus on the direction of the program. An ancillary benefit from the project was a significant increase in the organizational awareness of T + 1 and its associated impacts on the bank. This improved awareness and, along with the broad involvement in the assessment work, improved the priority assigned to the T + 1 program within the organization. Defining Standards – Straight-Through Processing Markup Language (STPML) The Straight-Through Processing Markup Language (STPML) is ‘‘an XML message specification designed for the financial securities trading industry to meet the requirements of straight-through processing.’’ STPML was developed by representatives from Microsoft, FMC, Merrill-Lynch, CSS, FIX, Infinity, Bridge, ILX, NASD, and Reuters. Conceived as a superset of FIX, SWIFT, ISITC, and DTC ID, STPML can support virtually every industry standard data exchange format. The GSTPA model of the full trade cycle was used as the basis for the set of messages defined by STPML. These messages are enhanced by other common transaction messages and a separate set of messages for the exchange of market data is defined as the Market Data Markup Language or MDML. The first demonstration of XML-based straight-through-processing was performed at the SIA conference in June of 1999 when FMC, CSS, Infinity, and Microsoft teamed up to demonstrate the entire trade cycle automated using STPML.
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Most people will tell you that STP involves the proper use of standards. If that statement is true, then where does XML fit in? It fits into two key areas: 1 improving existing standards like FIX and SWIFT; and 2 creating new standards like FpML. In the securities industry, we already have overlapping standards and the community is extremely interested in standards convergence and interoperability. With XML, there is the potential for further divergence of standards instead of convergence, as it is necessary to ask counterparties about their standard and the syntax of the standard they are using (XML or EDI). This group is being formed under the International Organization for Standardization (ISO) as the ISO 15022 XML Working Group (WG 10). One key area of focus will be business modeling techniques in the standards process. Modeling, which offers a syntax-neutral approach to standards development, is already being utilized by organizations like ebXML, HL7, GSTPA, and SWIFT. The mission of the group is to evolve ISO 15022 to permit migration of the securities industry to a standardized use of XML, guaranteeing interoperability across the industry and with other industry sectors, particularly but not restricted to the financial industry. This ISO 15022 XML Group consists of a Steering Committee and three project teams that address specific issues. The current project teams include Reverse Engineering, UML/XML Design, and Registry/Repository. E-ENABLED WAREHOUSE OPERATIONS – STRYKER ENDOSCOPY (Excerpted from Integrated Solutions Magazine) Background Stryker Endoscopy is a division of $2.1bn Stryker Corp. Founded in 1989, the division has 700 employees and has its headquarters in Santa Clara, CA. The division manufacturers and distributes state-of-theart equipment for minimally-invasive surgery. The IT staff at Stryker
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Endoscopy work independently and in conjunction with other Stryker divisions to accomplish IT projects. As part of its e-business strategy, Stryker Endoscopy needed to replace its paper-based warehouse operations. The company also wanted to upgrade its home-grown CRM (customer relationship management) system. The company addressed these issues by implementing a WMS (warehouse management system) to automate warehouse operations. This included the use of handheld bar code scanners and an RF (radio frequency) network. The company also upgraded its CRM to include a Java-based browser. Applications using wireless technology are on the horizon. The challenge Stryker Endoscopy realized that any good e-business strategy requires a solid technology foundation. This led the company to implement an SCM (supply chain management) solution and to explore CRM and wireless technology enhancements. A classic company’s strategy is not superficially different from an e-business strategy. Attractive buildings and premises are the equivalent of a glossy front-end; with an intuitive GUI (graphical user interface), this is what most people view as important. It is the visible, interactive segment of the business. What cannot be seen, however, the foundation of a company’s e-business platform, is actually the most important aspect. It’s the guts of the company. Customer service drives e-business Stryker Endoscopy works with thousands of suppliers and customers to manufacture and distribute state-of-the-art video products, powered equipment, and instrumentation for minimally-invasive surgery. » On the supplier side of the equation, there are high-quality machining and electrical component manufacturers. » On the customer side, customers primarily include hospitals, surgery centers, and Stryker Corp.’s international subsidiaries that receive and sell products.
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In all cases, managing those relationships was of paramount concern. ‘‘There were services, such as access to shipping and freight information, that we wanted to provide to our suppliers and customers. Whether we had an e-business platform or not was inconsequential. First, we needed to have other critical internal systems in place,’’ said Kim Gonia, director of IT. ‘‘One of those internal systems was an automated WMS.’’ The WMS was a crucial part of Stryker Endoscopy’s e-business foundation. Other bricks in that underpinning included: » » » »
hand-held bar code scanners for data collection; an RF network to update data in real time; a home-grown CRM solution; and an enterprise mass storage system to manage the data that is really the mortar between the bricks.
WMS is critical to e-business foundation Stryker EndoscopyStryker Endoscopy needed to address the issues of repetitive business processes and inefficiency. The company’s manufacturing system (PRMS) also allowed warehouse employees to print pick tickets. Once an order was filled, an employee would then enter that data into the PRMS system. For receiving, the process worked in reverse. Always sensitive to human error, the company’s policy required every order to be double-checked before it was shipped. ‘‘Before the WMS, we used to refer to an entire shelf with many items as one location. We had to double-check orders because an employee might have picked the wrong item from a location,’’ said Mike Bernhard, project manager, systems and technology. ‘‘When the order was verified, then we ran the package through a FedEx or UPS meter.’’ The Logistics PRO WMS from Intrepa (Mishawaka, IN) reduced Stryker Endoscopy’s distribution processes dramatically. Eighteen handheld bar code scanners from Teklogix (Mississauga, Ontario) replaced pick tickets. Items were stored in individual locations instead of being grouped on shelves. ‘‘Between the bar code scanners and the reconfiguration of how we stock items, we eliminated the need to verify every order. The bar codes ensure that our accuracy is very high,’’
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says Bernhard. He also noted that the only requirement for the RF network was an Ethernet backbone, which the company already had in place. The company also installed an RF gateway to complete the implementation. The implementation of the new WMS also eliminated the delays caused when using a FedEx or UPS meter. Metering used to take better than 10 seconds for each package. Now, packages were loaded onto pallets, and the system printed the packing slip and updated the FedEx and UPS systems instantaneously. ‘‘We now save money at every turn. We save on the elimination of manual verification. We save on the time it took to meter packages. And, we save on the labor it took to type the freight charges back into our host system,’’ commented Bernhard. CRM offers new level of performance With the distribution foundation in place, Stryker Endoscopy turned its attention to the next level in the e-business building – CRM. Logistics PRO allows customers and suppliers to access data, including tracking information and parcel contents. Once an order has left the warehouse, a module of the system also alerts customers and suppliers by email about shipping details. To elevate customer service even further, Stryker Endoscopy developed its own CRM solution. ‘‘We worked with another Stryker division to design a Java-based browser application for our salespeople,’’ said Gonia. ‘‘It provides salespeople with a lot of the information similar to many packaged CRM solutions.’’ With Stryker Endoscopy salespeople scattered throughout North America, the Java-based application was a must. Using laptops and phone lines, salespeople could now access a range of data. For example, salespeople could view customer order history, check order details, review when shipments leave Stryker, and generate quotes using customer-specific pricing data. ‘‘It’s not a full-blown CRM system in that we don’t allow correspondence to be stored and shared,’’ observed Gonia. ‘‘But we are in the process of enhancing the entire system in the near future.’’ Part of that enhancement will include the implementation of wireless technology. When completed, salespeople will be able to access data and applications on PDAs (personal digital assistants) through a wireless Internet connection. Currently, Stryker Endoscopy is determining the
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applications and data that are most critical to its salespeople. Once that is complete, the implementation will move forward. Some IT projects span company divisions Working in a decentralized environment offers many challenges for the IT staff at Stryker Endoscopy. There is a constant balancing act between IT projects that need to be developed for one division versus those that need to span all divisions. ‘‘It’s difficult at times,’’ said Gonia. ‘‘The pain we feel at Stryker Endoscopy may be different from the pain felt by other divisions. You are asking people to come together and make common decisions and support those decisions. Inevitably, one division’s needs will get met sooner than others. Another factor is that all of the staffs are working at remote locations from each other. So, it’s tough to build momentum for projects.’’ That said, Stryker Endoscopy has still partnered successfully to implement several critical enterprise systems. For example, several divisions share a document management system that was developed with in-house resources. And a new EIP (enterprise information portal), slated for implementation late in 2001, will be used across several divisions at Stryker. In all cases, customer service remains the driving force behind technology investments. Customers asking for a service probably means that a company is already too slow to respond. ‘‘I don’t know anyone who demanded that gas stations accept credit cards at the pump. If you were to eliminate that service now, an awful lot of people would be upset,’’ commented Bernhard. ‘‘It’s better to be on the side of pushing services to customers, and not the other way around.’’ Gonia added, ‘‘Our goal is to offer services that leave customers wondering how they lived without them.’’ This is a brick-by-brick approach to e-business: one piece of technology joined with another and then another. Customers are surprised at what they can see, but the real accomplishment lies beneath the surface. WEB-BASED ANALYTICAL APPLICATIONS – ISITE E-OPERATIONS ISite’s Web-based e-operations applications offer comprehensive and affordable tools for small and mid-sized businesses, giving them the
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power to work anytime, anyplace. More specifically, these applications are easy to set up and intuitive to use: they help to manage all facets of business on-line. E-operations streamline business operations and increase worker productivity. The key areas addressed by these applications are organized around several key applications. » Intranet applications – join together remote offices and traveling users, providing a secure information-sharing network for the enterprise. Common business tools enable employees to access vital information quickly and easily. Encrypted e-mail protects the safety of data exchanges. This allows the entire enterprise workforce to remain equally operational wherever and whenever employees work. » Distribution applications – provide a secure and intuitive tool for sharing confidential data. Much easier and safer to use than FTP, they enable businesses to exchange strategic data with complete peace of mind. Authorized users can quickly enable private areas for new customers, partners, or remote employees. Remote users can easily retrieve, add, or update files from any location. » Billing applications – allow staff to access and update project information from any location through the day. Scattered team members can enter their data in real time, from home, a client site, or with their PDA. Project leaders can instantly retrieve accurate reports of project status or billable time. Billing Center reduces overhead costs and increases accounting accuracy. » Response applications – enhance customer service availability and response time. They immediately improve service and track incident history, at pennies to the dollar of a CRM solution. » Commerce applications – allow businesses to sell customizable products, services, even entertainment packages. Maintaining the store is very easy and possible from everywhere. E-business is all about changing the way organizations and people conduct business. When you combine information systems and Internet technology with key business activities, you end up with corporate intranets to streamline internal business processes and communications, extranets to improve business relationships, and secure electronic commerce to increase sales and profits.
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The benefits of e-operation-enabled companies The use of new technologies and Internet technologies on top of classic IT infrastructures enables an organization to realize several key benefits, some of which can be summarized as follows: » » » » » » » » » » » »
solving identified business problems; seizing new business opportunities; lowering transaction costs and increasing revenue; reaching new markets, attracting new customers, and broadening the customer base; enhancing productivity; reducing costs and increasing ROI; forging tighter relationships with customers; improving customer service and satisfaction; gaining competitive advantage; mobilizing global workforces, and sharing knowledge across geographically dispersed locations; integrating supply chains; and improving the business cycle.
It’s never too early to start Whatever your organizational position, the decision to begin transforming your company operations into an e-operation is critical in this swiftly-changing business climate. An organization with just one e-business-enabled process already commands a competitive edge over a business without one. Companies will succeed on the Net by turning challenges into opportunities and plans for rapid execution. With content management e-business applications, employees can publish, extract, and push information to desktops around the world. Data-mining features are great for generating reports from data that already resides within your company’s system. And, of course, Web authors can actively display a company’s products and services to a world-wide market. Using the latest tools, Websites can be designed for maximum impact and effectiveness. In building a successful Internet presence for the e-operation-enabled company, several areas need to be considered and a coherent master plan developed. Such a master plan should address key issues arising in several areas.
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» Web Internet strategies – design vision to Web-enable core business processes, increase exposure and traffic, site design and navigation, and analysis of current industry as it pertains to the Internet. » Commerce strategy – creates vision for overall commerce strategy to improve customer loyalty and satisfaction, increase cycle time, decrease internal expenses, and boost corporate revenue via a commerce-enabled Web environment. » Commerce enablement – initiates and enhances productivity of Web technology by getting business and IT people to work together more effectively, attract and build common audiences, and create and enhance business processes. » Internet connectivity – bandwidth and networking solutions including Frame Relay, VPN, and T-1 access. » Firewall – enables safe, secure e-business by controlling all communications to and from the Internet. » Business transformation – re-engineers business processes to streamline work processes effectively over the Web. » Competitive analysis – positions e-business products against the competition. » ROI analysis – studies internal processes and creates a return on investment analysis to determine whether or not an organization should move forward with Web-enablement. » On-line Internet marketing – creates an on-line marketing strategy for increasing brand awareness and traffic, and building a one-to-one interactive relationship with end-users. » Legacy database integration – utilizes award-winning Lotus Domino/Lotus Notes, Domino.Doc, LearningSpace, and other applications.
06.03.08
Key Concepts in E-Processes Those who work in e-processes are developing their own language. As well as studying a key financial services software provider, this chapter includes a glossary which will help you to get to grips with this new e-lexicon and with the key concepts of e-processes. It also explains the ever-growing number of acronyms that are being introduced around the subject.
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INTRODUCTION This chapter takes a look at one of the key software players in the financial services software market and how they see the evolution of e-operations in the financial services industry. We then take a look at some key concepts enumerated by several industry players, arranged in an easily consultable glossary format. SUNGARD CORPORATION SunGard Corporation is a leading provider of software solutions to the high end of the financial services industry software market. SunGard applications are typically used by leading international and investment banks to manage complex and highly profitable operations. The following excerpt from SunGard Corporation indicates how they see the nascent world of e-processes evolving over the near future, and how this will impact the financial services industry and the world of financial software in the international banking and investment banking spheres.1 The challenge Stocks, bonds, futures, options, risk and even electricity – all are increasingly bought and sold on-line. Transaction volumes are growing rapidly, as is the business of enabling these transactions. This is happening because the entire landscape of business is being transformed into an ‘‘e-world.’’ In this new e-world, SunGard plays an ever-larger role. To remain successful, SunGard’s customers must adopt entirely new business models. To do so, they demand round-the-clock real-time processing, seamless business-to-business integration and personalized customer interaction. By leading the e-processing revolution, SunGard is helping its customers meet this challenge. » Real-time – transactions in the e-world are initiated on the Web anytime, anyplace, with the expectation that they will be executed and recorded on a real-time basis. SunGard provides its customers with the 24 hours a day, 7 days a week (24/7) high-availability infrastructure they need to meet this expectation. SunGard’s mission is T+0.com, which stands for Web-enabled, real-time, straight-through processing.
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» End-to-end – connectivity in the e-world determines success. Processes need to be fully automated and integrated so that data and decisions can flow seamlessly, not just from department to department within an organization, but from one organization to another, across time zones and around the globe. This is straight-through processing, one of SunGard’s key strengths and a strategic imperative for its customers, enabling them to increase efficiency, cut costs, and eliminate errors. » One-to-one – to preserve customer loyalty and high margins in the e-world, SunGard’s customers must offer their own customers more choices, higher levels of support, and the flexibility to personalize their buying experience. This means providing a bigger universe of products and services as well as guidance to navigate and customize this universe. This new concept of one-to-one customer interaction is built upon truly individualized service. SunGard is providing the software solutions that make it possible. One of the most familiar examples of the e-world in action, one that SunGard has helped make possible, is on-line stock trading. The self-service model of buying and selling securities on-line illustrates each of the key dimensions of this new business world – allowing realtime execution of transactions, delivering an increasingly customized level of service and, thanks to end-to-end integration of the process, producing more cost-effective results. SunGard’s strategy As the e-processing revolution sweeps forward, SunGard is expanding its role as the premier supplier of financial software solutions and highavailability infrastructure that can support all the changes required by this revolution. This is accomplished by enhancing value through continued innovation, adding complementary capabilities through acquisition and providing customers with greater benefits by fully integrating SunGard products and services. SunGard forms strategic relationships with leading financial services companies world-wide. This helps it to identify emerging business requirements early on. SunGard develops or acquires best-of-breed products to address these requirements. These products are then
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integrated into straight-through processes and financial networks and managed aggressively for growth. This is the core of SunGard’s strategy. The result is a diversified revenue stream from customers that rely upon a wide range of SunGard products and services to meet business-critical processing needs. The most important challenge SunGard’s customers face today is adapting to and exploiting the opportunities created by the Internet. The Web thus provides the focus for much of SunGard’s current innovation. E-processing solutions that are being developed range from Web-enabled transaction initiation and sales automation to Webenabled tools for customer-relationship management and business-tobusiness integration. SunGard also continues to identify and acquire companies with market opportunities and technologies that complement its existing business. SunGard has made more than two dozen acquisitions in the last two years, and the more than 70 acquisitions completed during the 1990s have added vital capabilities. A number of recent product additions have added important elements to SunGard’s straight-throughprocessing systems for institutional investors and brokers. D´ecalog has added tools for investment managers. Plaid Brothers, EMS, and Sterling Wentworth have enhanced services for brokers, while BRASS provides an automated order-routing and execution system. Along with the acquisition of BRASS, SunGard acquired an equity position in BRUT, the third largest electronic communications network (ECN), which, operating on SunGard solutions, is used by institutions and brokers to trade anonymously. The overall goal of efforts to integrate SunGard’s products is to develop straight-through-processing systems that fully meet the needs of specific businesses or departments. SunGard is designing real-time, end-to-end processing systems for customers operating in every part of the investment marketplace, in both the corporate and public sectors and including institutional investors and financial intermediaries such as broker-dealers, market makers, and clearing agencies. Initiatives and updates In the midst of the e-processing revolution, SunGard is both building on the strength of existing products and customer relationships and
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seeking out new areas of potential. A sampling of the range of solutions SunGard has delivered and the types of organizations being served suggests the scope of the opportunities that lie ahead. » Business continuity and related ventures – SunGard has continued to build upon its leadership position in recovery systems, enhancing recovery facilities and working to develop 24/7 business continuity capabilities for customers operating in real-time environments. To keep pace with market demands, huge investments have been made in high-availability data centers and business-continuity networks. With an extensive infrastructure – 39 data and workgroup recovery centers – SunGard is leveraging its high-availability assets by forming SunGard eSourcing, which offers Web-hosting and co-location services for business-to-business and business-toconsumer e-commerce sites. The initial target market for these services includes the e-commerce divisions of SunGard’s existing Fortune 2000 customers. SunGard is also using these assets to deliver information processing as an application service provider (ASP), functioning as a data manager by offering processing via the Internet. SunGard is uniquely qualified to build these capabilities through the breadth of its strong technology platform. » Banking – SunGard is helping banks gain efficiencies in handling many functions on the Internet. New business is coming from smaller community banks that are expanding to capitalize on the rush by individuals to invest in stocks and mutual funds. These banks turn to SunGard for straight-through-processing systems that are accessed over the Internet, as well as to route orders to SunGard Direct, a network of participating broker-dealers. To meet these needs, SunGard is building systems that integrate front- and back-office operations. Systems are provided to help banks of all sizes administer trust and custody operations, manage global funds transfers, and coordinate trade finance. SunGard systems enable full-service and discount brokers to process trades from initiation through back-office settlement for both their institutional and retail clients. Banks, trading firms, and market makers rely on SunGard risk-management solutions for managing exposures, while mutual funds, banks, corporations, and insurers use SunGard systems for accounting and record keeping in managing portfolios.
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» Treasury – the SunGard eTreasury system quickly funnels large volumes of data from multiple banking and other supplier sources, giving corporate treasurers better information to make vital cashmanagement decisions. Better information that flows faster enables companies to manage cash more proactively, assessing risk and using hedging and other sophisticated investment strategies. » Mutual Fund Management – EXPEDITER is a SunGard product that automates mutual fund trades, integrating order entry, execution, settlement, and investment accounting functions through a single interface for users of SunGard’s trust and participant-accounting systems as well as for other vendors’ systems. SunGard provides more than 4000 individual funds from 180 fund families to more than 1000 plans covering 35 million individuals and families. » Public Sector – always looking for new opportunities, SunGard is improving its position as a provider of financial accounting and administration systems to schools and government agencies. Recent, more stringent standards of accountability in the public sector have driven investment in information technology, providing potential for growth in the coming years. » SunGard Transaction Network – going forward, the single largest component of SunGard’s Internet and e-commerce revenues will come from a key e-processing initiative recently launched called the SunGard Transaction Network. This fully automated straightthrough-processing solution links investors and asset managers with brokers, brokers with exchanges, exchanges with banks, and banks with settlement agents, custodians, and trustees. The outlook The Internet is transforming commerce as much as anything in history, and the e-processing revolution is a key part of that transformation. In fact, the time likely lies ahead when the ‘‘e’’ in e-business will fall into disuse. All business will be e-business, with the ‘‘e’’ implied and understood. As SunGard moves toward that point, the financial services industry will change as profoundly and present as much potential for reward as any other industry. SunGard already has encountered and seized many opportunities, as new technologies have changed the way transactions are executed, given rise to new competitors, and driven
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established firms to reinvent themselves. As the revolution continues, and the demand for technology to support it grows, SunGard will continue to lead the way. E-processing for financial services – from bricks-and-mortar to dotcom The Internet has changed everything. Many companies are undergoing a metamorphosis from bricks-and-mortar financial services institutions to dotcom destinations. These companies need to navigate through this fundamental transition with solutions that enable them to offer on-line trading and account services to their customers. Once they are on the Web, they need to make sure their services are always available, by providing infrastructure and facilities for 24/7 operations. These companies are under enormous pressures to reduce costs. They must: » reduce the cost of capturing deals and processing orders placed by their customers; » avoid costly, inflexible point-to-point interfaces between the different systems within their organization; and » minimize manual intervention in communicating transactions and doing business with other organizations, such as brokers, banks, custodians, trustees, exchanges, settlement and clearing agents. The solutions depend significantly on the successful implementation of Web-enabled, straight-through processing. To achieve this, financial services institutions should: » provide Web interfaces to their individual customers to enable them to initiate transactions as well as receive information; » streamline internal communications, replacing point-to-point interfaces with standardized messaging over network backbones; and » directly connect to the internal processes of other organizations, thereby facilitating inter-company straight-through processing. SunGard Transaction Network The SunGard Transaction Network connects the processes in the financial services value chain, linking asset managers with brokers, brokers
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with exchanges, exchanges with banks, and banks with settlement agents and custodians. This means that transactions can be initiated from any order management system, or from any device, anytime, anyplace and can be executed and processed in real time. Straight-through processing requires end-to-end integration within companies and across businesses and time zones. The vision is T+0.com – real-time, Web-enabled, straight-through processing. The SunGard Transaction Network offers straight-through processing services for the key transaction flows in the lifecycle of a trade. It automates the execution of orders, the generation of confirmations, and the affirmation and matching of trades. It simplifies the exchange of transaction information between market participants and provides business-to-business integration. Business-to-business integration The key feature that SunGard’s e-processing services have in common is that they integrate business-to-business processes using Internet technologies to reduce costs and improve efficiencies. The asset management world, for example, comprises many market players that fulfill different roles in the lifecycle of a trade. Global asset managers, insurance companies, 401k plan sponsors, regional and global trusts, community banks, and corporate treasuries initiate orders that are executed by brokers and market makers on exchanges and electronic communication networks. The resulting transactions are settled by banks and the assets are deposited with custodians. SunGard has deployed specialized systems to support the buy side and sell side in the asset management world. The SunGard Transaction Network enables the integration of market players to create end-to-end, straight-through processing. Some of the e-processing services that SunGard offers via the SunGard Transaction Network are described in the following sections. EXPEDITER – straight-through processing for mutual funds EXPEDITER is an on-line processing service for mutual funds which links employee benefit, capital market, and trust accounting systems
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with a broad range of mutual fund providers. It offers employee benefit administrators, capital markets professionals, and trust investment officers a seamless interface for straight-through processing of trading orders for mutual funds. EXPEDITER eliminates the need to prepare manual trading orders and confirmations. It fully automates the investment process using a single interface that links with any type of asset accumulation or tracking system, thus avoiding dual entry. For example, the straight-through process for a participant involves the following steps. 1 Sponsors/investors make contributions and (re)allocation decisions throughout the day. 2 Mutual fund providers send final net asset values and milrates. 3 Trust accounting system generates orders. 4 Mutual fund providers send confirmations that are routed back through to the sponsor, the designated custodian, and the bank holding settlement accounts. 5 Mutual fund providers send account balances for reconciliation. EXPEDITER has more than 150 direct links to mutual fund families that offer over 3800 funds to 401K participants, trust investment professionals, registered investment advisors, and other mutual fund investors. EXPEDITER is used by over 160 customers; daily trading volumes are over $64mn and more than 46,000 orders are executed each month. SunGard Direct – straight-through processing for equities SunGard Direct is a straight-through processing service aimed at institutional traders and asset managers. It provides straight-through processing of equities, enabling custodians and settlement agents to focus on receipt and delivery of securities and settlement of cash, rather than verification and affirmation of trade details. Execution orders are eligible for listed equities and Nasdaq OTC items. The straight-through process involves the following steps: 1 Trust officers and traders route trades to SunGard Direct via the SunGard Transaction Network.
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2 Broker executes the deal; 3 and sends e-mail confirmations and execution details back to the originator. 4 Broker sends execution details to custodian for settlement. All affirmation and matching to DTC is performed by 5 Broker’s office. Matched/affirmed confirmation is available for the originator. Using overnight interfaces, the SunGard trust accounting systems are updated from custodian. Next morning the trust officer is presented with updated trade details and effected balances. Trade placed, broker confirmation generated, and trade matched and affirmed are all completed in one straight-through process. MINT – business process integration In order to reduce costs associated with streamlining interfaces, our clients can implement standardized messaging over a network backbone for business process integration. This provides intelligent transformation of data, enrichment, validation and content-based routing. It means that only one interface needs to be developed from each specialized system. For example, a global custodian had a complex network of custodian and sub-custodian systems. It was costly to maintain interfaces, but more importantly, it took too long and too much effort to implement a new client. By implementing SunGard’s message backbone for business process integration, this global custodian was able to improve competitiveness, connect clients faster, and generate more revenues. Network Trade Model – XML-based message formats SunGard’s Network Trade Model is a set of standardized message formats for describing transactions, such as trades, trade details, and trade events, consistently between heterogeneous trading systems. The Network Trade Model is expressed in extensible markup language (XML), which allows the model to be shared between applications across different hardware platforms and the Internet using any middleware. It defines interest rate, foreign exchange, fixed income,
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and equity instruments and their associated derivatives. It also incorporates FIXML and FpML standards in order to span the range of solutions that SunGard offers. The Network Trade Model is a standard throughout all SunGard products and it facilitates the integration of data and systems. Adapters that map from proprietary formats into the Network Trade Model can be produced using the data transformation capabilities of MINT. The Network Trade Model is the message format for a transaction, which is transported on the MINT network transport between two SunGard systems. KEY CONCEPTS TERMINOLOGY After-hours trading – Trading which occurs prior to, or after, the official New York trading hours of 9.30am and 4pm; a growing amount of activity is occurring after hours through the use of electronic communications networks (ECNs) and other alternative trading systems (ATSs). Aggregator – A program which compiles financial information from disparate sources. Analysis – The qualitative and/or quantified evaluation of information requiring technical knowledge and judgment. API – An application program interface, a software layer which connects Internet processes and platforms with proprietary or third party ‘‘front-end’’ graphical user interfaces (GUIs). ATS – An alternative trading system, any alternative forum for trading securities which brings together buyers and sellers. B2B – Business-to-business; Internet platforms created by institutions to serve other institutions or alliances. B2C – Business-to-consumer; Internet platforms created by institutions to serve individual consumers (e.g. integrated portals or Websites). Bandwidth – The amount of information which can be sent through an Internet connection (in kilobits, megabits, or gigabits per second). Beta development – A test version of software or technology that is functional but still in the testing stage and not commercially distributed.
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Broadband – High-bandwidth, high-speed communication links that feature ‘‘always-on’’ connections with no dial-up required (e.g. T1, cable, satellite, and wireless). Browser – A GUI which gives network users access to information, products, and services in a simple, user-friendly fashion. Corporate storefront – A Website which exhibits an institution’s offerings; transaction-enabled storefronts enable clients to purchase the company’s products and services. CPM (critical path method) – – A network analysis method which identifies the interdependency of sequential and parallel activities on each other, and the program schedule consequences if any of the activities fail to be completed on time. Critical path – The path or a network of scheduled activities which, if not completed on time, will result in an equal slippage to the end item. Due diligence – The process of reviewing and analyzing the financial state of a company which is planning to issue securities; results of due diligence are contained in offering prospectuses. E-cash – Electronic cash: cash which can be created on, and transported through, the Internet. E-cash can be anonymous (bearer) or registered: digital money, typically in the form of downloadable ‘‘digital coins’’ that can be stored in an on-line bank account, on a personal computer (PC) or on a smart card. Driven by Webbased payment schemes, electronic cash is today primarily aimed at exploiting very-small-value transactions (e.g. less than $20 or $1, or even less than a penny). World-wide, very-small-value transactions make up trillions of dollars worth of commerce annually. Making these transactions more convenient will be big business when electronic-cash technology matures. EC (electronic commerce) – The uses of communication technologies to transmit business information and transact business. Taking an order over the telephone is a simple form of EC. Commerce conducted via the Internet is also called EC, but commercial exchanges on the Internet are only one of several advanced forms of EC that use different technologies, integrated applications, and business processes to link enterprises. Business-to-business EC focuses on transactions and communication, specifically the electronic
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exchange of information, goods, services, and payments. Key business processes that are carried out by EC include procurement, order entry, transaction processing, payment, inventory, fulfillment, and customer support. ECN (electronic communication network) – A disintermediated exchange-like mechanism that matches buy and sell orders anonymously. ECNs do not depend on intermediates, but on price and efficiency. E-finance (electronic financial services) – Electronically enabled access to financial services. E-finance is not a delivery (institutioncentered) vehicle, but a vehicle of access (customer-centered). EFT (electronic funds transfer) – A mechanism for electronically transmitting funds between two parties. Electronic purse – Smart cards which can be used to purchase goods or services electronically. These cards can be credited with an anonymous form of electronic cash (e-cash), and can be used to purchase goods at appropriate terminals. Evaluation criteria – Standards by which testers may assess whether a system meets technical and operational effectiveness or suitability requirements, or resolves operational issues. Exit criteria – A set of specific accomplishments that a system must demonstrate before a program can progress further in the current acquisition phase or move on to the next acquisition phase. Exit criteria may include: passing critical tests, meeting projected growth curves and baseline parameters, and reducing specific risks. Exit criteria supplement minimum-required accomplishments and are specific to each acquisition phase. Facilities – Industrial property (other than material), special tooling, military property, and special test equipment for production, maintenance, research, development, or test, including real property and rights therein, buildings, structures, improvements, and plant equipment. Feasibility study – A study of the applicability or desirability of any management or procedural system from the standpoint of advantages versus disadvantages in any given case. Firewall – Hardware or software placed between two networks which forces all in/out traffic to pass through a central point for verification,
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authorization, and virus checking. Firewalls are designed to keep intruders or hackers from penetrating a network. Flow chart – A graphical explanation of a particular process. In the case of a production process, it usually includes symbols to allow recognition of operations: fabrication, processing, subassembly, assembly, inspection points, installations, and delivery. HTML (hypertext markup language) – A meta-language which allows for development of Web pages through standard commands, tags, and codes. Hyperlink – A link on a Web page which transports the user to another Web page on the Internet. IMP (integrated master plan) – An IMP is an offeror-generated document, describing the core activities and processes necessary to satisfy the system requirements document (SRD), the interface requirements specifications (IRSs), and the statement of objectives (SOO). It reflects the integrated product development (IPD) approach and can be the single plan for a program. An IMP is structured to be directly traceable to the contract work breakdown structure (CWBS), the integrated master schedule (IMS), the contract statement of work (SOW), and the contract line item number (CLIN) structure. Intelligent agents – Software programs that can be programmed to search the Internet for user-specified information, services, and products. Interoperability – The ability of systems, units, or forces to provide services to, and accept services from, units or forces, and to use the services so exchanged to enable them to operate together effectively. IPO (initial public offering) – A public flotation of a company in the stock market. ISDN (integrated services digital network) – Digital lines capable of transmitting data at speeds of up to 128 kbps. ISP (Internet service provider) – A company that provides users with access to the Internet. Killer application (or killer app) – A software or application that becomes so popularly accepted and widely used that it forms part of daily personal and business life. Last mile – The ‘‘final link’’ between an end-user’s PC and the tail end of a common network, such as a telephone company. This final link
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is typically bridged by standard copper wire, resulting in a slowing of data transmission. Legacy system – An IT system that forms part of an established institution’s operating processes. Legacy systems typically have to be integrated with Web-based front-end platforms to deliver full client execution capabilities. Management Information System (MIS) – An orderly and disciplined accounting and reporting methodology, usually mechanized, which provides for the accurate recording of data, and the timely extrapolation and transmission of management information used in the decision-making processes. Marketplace – A Website grouping information on various products and services which enables customers to search and select by using defined criteria. Milestone – A major management decision point in the overall acquisition process of a major DoD system. MIPS (million instructions per second) – A measure of the processing/computing speed of microprocessors. Model – A representation of an actual or conceptual system that involves mathematics, logical expressions, or computer simulations that can be used to predict how the system might perform or survive under various conditions or in a range of hostile environments. Modification – A configuration change to an item in production. Narrowband – Dial-up access (e.g. relatively slow transmission speed and capacity compared with broadband). Narrowband is the main form of Internet access for home users. New economy – The sector of the global economy based on ‘‘new companies’’ (start-up ventures or extensions of established firms) whose goods and services are based on new technologies (the Internet) and new distribution channels. Operations research (OR) – The attack of modern science on complex problems arising in the direction and management of large systems of men, machines, materials, and money in industry, business, government, and defense. Its distinctive approach is to develop a scientific model of the system, incorporating measurements of factors such as change and risk, with which to predict and compare the outcomes of alternative decisions, strategies, or controls. The
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purpose is to help management to determine its policy and actions scientifically. Operating system (OS) – Provides the environment for users to interact with a computer; individual software and interaction with peripherals are managed by the operating system. There are various operating systems such as Windows NT, UNIX, Linux, OS/2, and others. PDA (personal digital assistant) – A small, mobile computing device. PDF (portable document format) – A file format enabling the viewing and printing of documents over a wide range of heterogeneous computers without loss of formatting. Pert chart – A graphic portrayal of milestones and activities, and their dependence upon other activities for completion, and depiction of the critical path. Program evaluation and review technique (PERT) – A network analysis technique which defines and integrates what must be done to accomplish program objectives on time, and identifies the critical items and flow. Reliability – The ability of a system and its parts to perform its mission without failure, degradation, or excessive demand on the support system. Risk analysis – An examination of risk areas or events to determine options and the probable consequences for each event in the analysis. Risk management – All actions taken to identify, assess, and eliminate or reduce risk to an acceptable level in selected areas (e.g. cost, schedule, technology, producibility etc.) and in the total program. Stage 1 company – A start-up at the business plan stage. Stage 2 company – A start-up in the development phase but not yet generating revenues. Stage 3 company – A start-up which is generating revenues, but is not yet profitable. Stage 4 company – A start-up generating both revenues and profits. STP – (straight-through processing) – An automated process covering front-, middle- and back-office functions. STP enables data to be entered once at deal capture and flow through all middle- and back-office functions until completion, with no additional manual intervention.
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System analysis – A management planning technique which applies scientific methods of many disciplines to major problems or decisions. T1 (Trunk level 1 line) – A dedicated point-to-point communications line used for high-speed data transfer. TCP/IP (transmission control protocol/Internet protocol) – The primary communications protocol of the Internet. TCP disassembles and reassembles data packets, while IP routes packets. URL (uniform reference locator) – The unique identifier or address used to identify a Website. XML (extensible markup language) – A meta-language that is becoming a standard for communication on the Internet; XML is a markup and tagging language that describes Web-based content. It helps to power Web searches and can assist programs and applications in exchanging information. NOTE 1 Source: http://www.sungard.com/1999report/lead.cfm
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Resources for E-Processes E-processes and e-operations are emerging disciplines. Some books relating to them are referred to in the text (see Chapter 5). This chapter identifies the best resources for e-processes which are currently available: » books and articles on aspects of e-processes in practice; » URLs that illustrate e-processes.
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BOOKS AND ARTICLES Anderson, D.L., Britt, F.F., Favre, D.J. (Spring 1997) ‘‘The seven principles of supply chain management.’’ Supply Chain Management Review, pp. 31–41. Anderson, D.L. & Lee, H.L. The Internet-enabled supply chain: from the ‘‘First Click’’ to the ‘‘Last Mile.’’ Accenture, Stanford University. Anupindi, R., Chopra, S., Deshmukh, S.D., Van Meighem, J.A., & Zemel, E. (1999) Managing Business Process Flows. Prentice Hall, New Jersey. Balakrishnan, A., Kumara, S.R.T., & Sundaresan S. e-Manufacturing: Exploiting IT in design and supply chains. E-business Research Center working paper 10-99. Penn State University. Cohen, M-D., & Kelly, C.B. (1999) ‘‘ASAP: a methodology for strategic and tactical planning.’’ Working paper, SAS Institute Inc., Cary, North Carolina. Dell, M. ‘‘The power of virtual integration.’’ Interview with Dell Computer’s Michael Dell. Harvard Business Review, March/April 1998. Gebauer, J., Beam, C., & Segev, A. (1998) ‘‘Impact of the Internet on Procurement.’’ Acquisition Review Quarterly, Special Issue on Managing Radical Change, 5(2), pp. 167–84. Kaplan, S., & Sawhney, M. (2000) ‘‘E-hubs: the new B2B marketplaces.’’ Harvard Business Review, May–June 2000, pp. 97–103. Keskinocak, P., Goodwin, R., Wu, F., Akkiraju, R., & Murthy, S. (1999) ‘‘Decision support for managing an electronic supply chain.’’ Proceedings of the Workshop on Agents in E-commerce, The First Asia-Pacific Conference of Intelligent Agent Technology (IAT99), Hong Kong. To appear in Electronic Commerce Research Journal. Levitt, J. (1999) ‘‘XML for the masses.’’ Information Week, August 9, p. 83. Lucking-Riley, D. (2000), ‘‘Auctions on the Internet: what’s being auctioned, and how?’’ Journal of Industrial Economics, Vol. 48, No. 3, pp. 227–52. Parsa, I. (2000) ‘‘Mining Web data for personalization solutions: course notes.’’ SAS Institute Inc., Cary, North Carolina. Spiliopoulou, M. (2000) ‘‘Web usage mining for Web site evaluation.’’ Communications of the ACM, Vol. 43, No. 8 (August), pp. 127–34.
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Vickrey, W. (1961) ‘‘Counterspeculation, auctions and competitive sealed tenders.’’ Journal of Finance, Vol. 16, No. 1, pp. 8–37. WEBSITES THAT ILLUSTRATE E-PROCESSES » » » » » » » » » » » » » » »
AuctionNet: www.auction.net BidCom: www.bidcom.com BidFind: www.vsn.net/af/af-list.html ChemConnect: www.chemconnect.com ChemicalBid: www.chemicalbid.com eBay: www.ebay.com FairMarket: www.fairmarket.com FastParts: www.fastparts.com FreeMarkets: www.freemarkets.com Land’s End: www.landsend.com Onsale: www.onsale.com OpenIPO: www.openipo.com OpenWebs: www.openwebs.com ReverseAuction.com: www.reverseauction.com Streamline.com: www.streamline.com
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Ten Steps to Making E-Processes Work » » » » » » » » » »
Rationalize your organization; Quantify your procedures; Apply operational research; Define your e-process model; Audit your proposed solutions and e-models; Avoid the legacy issue syndrome; Use performance analytics to refine operations; Monitor customer data and line performance; Understand ‘‘friction;’’ and Keep an eye on the global dimension.
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1. RATIONALIZE YOUR ORGANIZATION E-operations promise to streamline the manufacturing process, but the process needs to be rational. Bolting e-processes onto existing processes is the path to failure, since the existing process may be the fruit of historical developments and not necessarily the fruit of rational design. An e-process-activated company therefore needs to understand what it is that is being manufactured, and the most rational way to manufacture that product, both in a classic sense and an Internetenabled sense. Only then can the appropriate organizational process be designed. 2. QUANTIFY YOUR PROCEDURES Assembling various players who will interact means defining manufacturing and management operations. Whilst admittedly subjective, it is crucial that all aspects of the manufacturing and organizational processes be quantified so that they can be measured and managed. This in turn promises the ability to use e-process control mechanisms to monitor and manage the process. 3. APPLY OPERATIONAL RESEARCH Whilst the roots of operational research date back over 50 years, it really is at the core of e-processes: mathematical modeling at the service of operational objectives. Operational research offers the possibility of quantifying and structuring manufacturing, logistics, and reporting processes. Since e-processes are a new field of manufacturing, operational research can assist in designing optimal new structures for the e-enabled company. It is essential, however, that the modeling is done with input from industry experts cognizant of the particularities of their specific market sector. 4. DEFINE YOUR E-PROCESS MODEL It is essential that the e-process model is at the service of the manufacturing process or service being provided. Therefore, before implementing procedures and processes into the e-process-enabled
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company, it is essential that the model is constructed using principles of operational research and PERT management, and logistics planning. Only then can the components (hardware, software, and Web architectures) be designed to support those processes. This needs to be coordinated by requisite IT staff, but also by business and sales staff who understand the nature of the market being targeted. There is a tendency for IT staff to build technologically elegant and expensive solutions which may not dovetail precisely with the business requirements. The extremely exacting and costly nature of building such systems means that careful thought about the model needs to be given at the beginning. Approximate or ‘‘tinkered’’ solutions are a harbinger of failure. 5. AUDIT YOUR PROPOSED SOLUTIONS AND E-MODELS An audit of the proposed solution and model can be useful in providing initial benchmarks for performance audits. Such an audit can be revelatory in identifying production bottlenecks of deficiencies in data processing and management reports, and further refining of the process before full implementation. IT consultants and systems integrators such as Logica or PWC can provide input into this process but need to be managed carefully from the start if control of the agenda is not to slip entirely to them. 6. AVOID THE LEGACY ISSUE SYNDROME There is a tendency to stick with the tried and true, and those considering the implementation of an e-process-enabled company will not be exempt from this most human of tendencies. It is important therefore to be fully aware of the fact that e-processes are not a bolt-on layer of processes to be placed over an existing process. This approach is wholly incorrect, in that it is perverting the nature of the Internet and e-processes to an architecture designed in a different era with a wholly different paradigm. Instead, it is crucial first to define the goal and then the means to achieve that goal. In other words, define the goal and understand how and what are the capabilities of e-technology and
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e-processes and how they can be harnessed to support the manufacturing process. 7. USE PERFORMANCE ANALYTICS TO REFINE OPERATIONS Once operations are under way, ensure that the data feeds can be extracted in such a manner as to enable management to monitor operations and adopt corrective measures if required. This means that management information reporting criteria need to be defined clearly at the outset of the design process (of e-processes) so that the subsequent elements of the e-process model can be configured accordingly. This will primarily relate to the data capture sequences involved in the marketing as well as the manufacturing process, and the use of that information to compile reports enabling management to monitor and manage the marketing and production process. 8. MONITOR CUSTOMER DATA AND LINE PERFORMANCE Customer data will prove to be crucial in enabling management to identify profitable lines of business. E-processes promise to enable the monitoring of these processes fully, in an Internet-enabled company, by feeding through data flows into appropriate customer behavior monitoring reports. Such reports will enable management to identify profitable lines of business by product line as well as by other criteria such as customer segment, geographic zone, or even industry sector. The result is that the company will be able to tailor manufacturing output in accordance with its most profitable lines of business. 9. UNDERSTAND ‘‘FRICTION’’ In any new business model, especially one relying on new technology, it is inevitable that processes and procedures will not be implemented as easily as might be initially expected. Indeed, the difference can be as great as 100% in terms of budgets and implementation. Moreover, with this new technology, there will be a painful learning curve which will make successful implementation more difficult than originally
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envisaged. This is why it is essential to give a full audit consideration to the design process at the outset to understand where exactly the difficulties are so they can be pinpointed. There will also be friction in implementation, as implementation means that existing business processes and organizational models are threatened with change. 10. KEEP AN EYE ON THE GLOBAL DIMENSION Wrapped up in the intricacies of the implementation, it is often too easy to forget that e-operations are a means to an end and not an end in themselves. It is therefore crucial to ensure that the technology implementation is driven by business requirements and not vice versa. Moreover, such an internal organizational issue is by nature introspective, and it is altogether too easy to become involved in navel-gazing. It is therefore crucial to take a step or two back and look at the global dimension – how are other companies and competitors behaving, which ones are successful in their use (and extent of use) of technology, and what are their successful criteria? What new and unforeseen developments are being adopted by other players? Keeping an eye on the global dimension will enable you to make a more objective assessment of the success of your e-processes project.
Frequently Asked Questions (FAQs) Q1: Do e-processes simply mean being on the Internet and using electronic data and communication? A: No; e-processes are a very focused application of these basic electronic techniques, see Chapter 2. Q2: Because e-processes are such a new concept, is it best to wait until the concept has been fully developed before making a commitment? A: No. Companies that wait will lose out; see Chapter 2. Q3: How did e-processes begin? A: The effectiveness of operational research in World War II led to OR being introduced as a basic business technique in Europe and the US. E-processes grew from that. See Chapter 3. Q4: Are e-processes only applicable in the private sector? A: E-processes can make any organization, public or private, more effective. See Chapter 4.
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Q5: What training is necessary for employees to manage e-processes? A: The most important thing is an awareness of the scale of what is possible. E-processes use existing skills in more highly-focused, interrelated ways. The implications for management structures – and hence for human resources to support them – are enormous. See Chapter 4. Q6: Is there a basic model for e-processes, regardless of business type? A: Yes. See Chapter 5. Q7: Is there software to support the decision-making associated with the new e-processes? A: Yes. See Chapter 5. Q8: Do all e-processes have to be in-house? A: Far from it. Outsourcing can enable companies to stay ahead of the game. See Chapter 6. Q9: With the concept of e-processes so new, are there any examples of companies which have already benefited from e-processes? A: Yes. See Chapters 6 and 7. Q10: Where do I go if I want more information and resources for e-processes? A: See Chapter 9.
