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Interrelationships of Information Technology and Management

Assessing the Interrelationship of Information Technology and Management: Implications for Organizational Competitiveness

Process Integration and Improvement Is The New Competitive Advantage

Using Business Process Management for Linking IT to Business Strategies

Measuring Interprocess Integration and Management Linkages in Supply Chains

Measures of Supply Chain Performance

The Impact of Interprocess Integration on Financial Performance

Financial Performance Outcomes of Interprocess Performance

Related Sources

The transformation of enterprises from competing on price, production efficiency or the traditional means of gaining and sustaining competitive advantage is changing. The new competitive advantage is knowledge, process integration, interprocess coordination and the synchronization of entire organizational structures to pursue a strategic goal. Information technologies (IT) once seen as ancillary and even as a maintenance function within organizations are now considered a critical link in strategic growth and plan attainment. The use of information technologies to make processes more efficient, integrated, transparent and accountability to customers and suppliers is revolutionizing nearly every process within organizations today.

The challenge for organizations is to get beyond seeing IT as the enabler of computing "dial tones" and instead see it as the basis for enabling greater interprocess communication, integration, accountability and speed of response by organizations to market factors. Ultimately the ability of organizations to combine IT, their unique processes, and perpetuate product differentiation is critical. Combining these three factors at a strategic level has the potential to transform process expertise into knowledge as the strongest competitive advantage (Dyer, Nobeoka, 2000). Only through interprocess integration (Chaturvedi, 2005) and the creation of linkages throughout an organization defined at the process level first can these strategically critical objectives be attained. This paper analyzes how organizations can make the journey from being myopically focused on just their IT infrastructures (Bhatt, 2000) to becoming more competitive and responsive to market dynamics.

Introduction

The greatest differentiating factor in global competition today is not the concentrating on a single attribute of a given company getting exceptional results. It is rather on the extent to which organizations can synchronize their many processes, product strategies and systems to achieve a common strategic goal. In aligning systems, processes and products towards a common strategic goal, the role of Information Technology (IT) linkages and interprocess integration becomes critical (Chaturvedi, 2005).

It is the intention of this paper to evaluate the approaches companies are taking to transform processes and the knowledge they generate (Dyer, Nobeoka, 2000) into a competitive advantage over time. The interrelationship of IT and Business Process Management (BPM) (Attaran, 2004) and Business Process Re-engineering (BPR) (Broadbent, Weill, St. Clair, 1999) is evaluated from the supply chain linkage concepts as suggested by Chaturvedi (2005).

When the factors mentioned in this paper are taken into account, it is clear that the greater the level of interprocess integration in an organization they greater the potential to transform process efficiencies into financially measurable results. Detrimental to these efforts however is resistance to change on the part of those being most impacted by interprocess integration. For lasting process-centric change to occur from process integration (Chaturvedi, 2005) change management strategies must be put into place (Broadbent, Weill, St. Clair, 1999) that give those employees affected by the change an opportunity to "own" it. Through the use of analytics including the key performance indicator of The Perfect Order (Columbus, 2008) organizations are increasingly looking to quantify the payback of interprocess integration and efficiency.

The financial implications of having more efficient interprocess integration can also be measured using The Perfect Order as a metric of how effective IT is supporting management strategies. The key performance indicators that comprise The Perfect Order are directly correlated to the financial performance of organizations (Columbus, 2008). This provides a means of tracking financial performance over time based on the extent to which organizations can attain a high degree of process synchronization and interprocess accuracy.

Process Integration and Improvement Is the New Competitive Advantage

The reliance on a one-dimensional competitive strategy is actually a competitive weakness today. Competitors in every industry are finding that by concentrating on process integration first and then automating key process areas, strategies are more effective over time. The popularity of BPM and BPR techniques for re-orienting entire customer-facing strategies is a case in point (Eardley, Shah, Radman, 2008). Taking a process-centric view for example of supply chains on the part of Toyota Motor Corporation led to the development of the Toyota Production System (TPS) (Towill, 2007). This is a fascinating approach that this auto manufacturer has taken to transforming their supply-side and Supplier Relationship Management (SRM) processes into a global competitive advantage.

The concentration on transforming accumulated interprocess integration knowledge into a competitive advantage (Dyer, Nobeoka, 2000) shows in concrete terms how a process-centric view to transforming organizations can turn knowledge into a potent competitive advantage. This supports the findings of other researchers who have noted that competitive strength is dependent on supply chain performance (Chaturvedi, 2005). What is unique about the process-centric integration Toyota accomplishes with its suppliers is that it also seeks to indoctrinate them about their values as well. This interprocess integration with suppliers outside the four walls of their organization carries with it a high degree of accountability and trust as well (Liker, 2003). The conclusion drawn from this observation is that for interprocess integration to achieve close to its potential in organizations there must also be accountability, transparency and trust. All of these factors taken together from a process-centric viewpoint lead to a competitive advantage that is globally recognized as one of the best in any industry.

Toyota's reliance on the TPS as the foundation for transforming Supplier Relationship Management (SRM) strategies into knowledge-based competitive strength over and above just price is considered the most and difficult to replicate competitive advantage of Toyota (Hoon, 2007). Their use of the TPS as a means to move into new markets has been proven in the U.S. And Europe, where expansion has been successful against entrenched competitors.

The essence of Toyota's ability to transform interprocess integration to knowledge is in the judicious use of technology coupled with BPM and BPR strategies that concentrate on continuous improvement (Liker, 2003). What also differentiates Toyota from other companies who have attempted this level of interprocess integration only to see lesser results is their use of collaboratively-based IT technologies as well (Liao, 2008). What is also so powerful about this example is that it shows the long-term, quantifiable impact of successfully combining processes, systems and gaining buy-in from the people whose roles changed significantly. The TPS example further underscores the key premises and concepts of Chaturvedi (2005) specifically focusing on the dispersion of knowledge throughout a supply chain.

Toyota's expertise in optimizing their supply chains' performance to align with production requirements is considered the foundation of their Toyota Production System (TPS), specifically the development of interprocess integration between suppliers as well (Liao, 2008). This concentration on inter-supplier coordination and knowledge sharing is 180 degrees different than in many American car manufacturers for example, where price discounting and availability of production lines for customized components dominate negotiations for parts. Toyota takes a more partner-based approach to the development of supplier relationships, often taken a year or more to bring a supplier onboard (Liker, 2003). This is to ensure the supplier gains insights into the culture of Toyota and understands the expectations and requirements, both from a process and system standpoint, they are required to maintain.

The system integration with suppliers is often accomplished using Electronic Data Integration (EDI) services (Towill, 2007) and have also begun relying on Intranet portals that are protected via security logins and passwords (Liker, 2003). The use of secured Internet applications for further coordinating production plans with suppliers and synchronizing them from a global basis happens on a 24/7 basis as Toyota seeks to create unified manufacturing strategy globally. The concentration on having a variety of factories at various stages of maturity as defined by the models of Dr. Kasra Fedrows (2006) in his research of foreign factory strategies also illustrates that there is no "outlier" effect of manufacturing strategies within Toyota.

Instead all factories are part of a concerted manufacturing strategy that seeks to optimize the global supply chain of the company. Driven by strategic objectives of attaining higher levels of lean manufacturing performance that thereby cutting production time and costs while increasing quality on the one hand, and focusing on how to create a sustainable, stable set of suppliers on the other, Toyota continually works to balance these two objectives. In conclusion, the TPS also exemplifies the core concepts o how layered architectures, when combined with interprocess process improvement and integration (Chaturvedi, 2005) can yield financially significant results over time.

Using Business Process Management for Linking IT to Business Strategies

Of all the catalysts that enable greater interprocess communication, integration and synchronization across departments, Business Process Management (BPM) and Business Process Re-engineering (BPR) have emerged as the two most dominant. To merely seek higher levels of performance of processes over time purely on efficiency misses the point of what is critical in making IT an integral part of strategic linkages in managing strategies. The efficiency gains from BPM and BPR must be oriented towards a specific strategic objective to be effective (Attaran, 2004).

While processes are often continually monitored to see how they can be made more efficient to save on costs, it is has been shown that re-orienting processes to be more customer-centric can transform entire companies. The concept of a Demand-Driven Supply Network (DDSN) (O'Marah, 2004) specifically focuses on this level and focus of interprocess integration and re-orientation. As with the Toyota Production System (TPS) the concept of a DDSN in the context of any organization is to create higher levels of transparency and trust through shared process ownership. From this context both the Toyota Production System and DDSN model share the attribute of collaborative workflows that ensure higher levels of adoption and higher levels of accuracy as well (O'Marah, 2004).

Like the Toyota Production System, DDSNs are capable of becoming learning ecosystems (Dyer, Nobeoka, 2000) due to the intensive level of interprocess and system integration that is prevalent in these approaches to managing collaboration often on a global scope. The use of DDSN as a strategy for ensuring customer-centric processes gain the highest priority and also attain the highest levels of performance over time are critical. In fact the combining of the TPS concept for supply chain integration to the process level with the DDSN concept for demand management and customer-facing processes could be used for defining entire value chains in an organization.

Quantifying the extent of interprocess integration on the financial performance of an organization is a concept mentioned in the Introduction of this analysis. The Perfect Order (Novack, Thomas, 2004) is a key performance indicator companies rely on to verify and measure over time the extent of interprocess and system -- level linkages over time. Quantifying the performance of supply chains and their ability to stay focused on the goal of being demand driven is also captured in this metric. Ultimately The Perfect order metric is useful for measuring the accuracy, stability, transparency and trust generated throughout a supply chain (Columbus, 2008).

Measuring Interprocess Integration and Management Linkages in Supply Chains

Organizations have created process-based linkages in the form of connections that are rapidly becoming knowledge sharing networks (Dyer, Nobeoka, 2000). The corresponding growth in measuring the accuracy and performance of these networks on transaction accuracy and velocity is how The Perfect Order metric of performance (Columbus, 2008) has gained in prominence. In essence The Perfect Order measures the extent to which the process linkages throughout a supply chain are delivering consistently accurate and consistent performance (Novack, Thomas, 2004). One of the key factors in the growing popularity of this metric is the ability to quickly assess the impact of internal and external factors on the entire supply chain networks' performance. It is in effect a measure of the performance of a supply chain taking into account the key premises and concepts of Chaturvedi (2005).

For any company to attain excellent performance on the Perfect Order there are many other supply chain metrics that need to also be synchronized. The true objective of completing any level of supply chain interprocess synchronization is to ensure the highest level of responsiveness to customers. This is consistent with the core concepts of the DDSN model as mentioned earlier (O'Marah, 2004), yet seeks to extend this concept by including order velocity as a function of interprocess integration. Table 1, Measures of Supply Chain Performance, provide a summary of the most often used series of metrics by manufacturing and services companies alike in their pursuit of attaining high levels of performance on The Perfect Order measure of performance.

The Perfect Order is a measure of how effectively an organization has also been able to align its internal processes to their strategic plans. Not only does this measure of performance indicate the level of interprocess linkages and their correlation to management strategies, it actually measures how effectively the connections work. Inherent in any supply chain there is the need for close synchronization of processes across multiple, independent businesses (O'Marah, 2004). The Perfect Order is used as a means to share ownership of these key process areas and give each supplier in a supply chain network an opportunity to evaluate their performance. Each of the cycle times shown in Table 1 are often used as predictive indicators of how effective an entire network of suppliers are managing customer-facing processes (Columbus, 2008). This metric also shows the increase in accuracy based on interprocess transparency as well.

Table 1: Measures of Supply Chain Performance

Measure of Performance

What It Measures

Perfect Order

An order that is complete, accurate, on time, and in perfect condition

Demand Forecast Accuracy (DFA)

The difference between forecasted and actual demand

Quote-to-Cash Cycle Time

The time between when a quote is accepted by a prospect to when their first invoice is paid

Cash-to-Cash Cycle Time

The length of time between when a company spends cash to buy raw materials to the time cash flows back into the company from its cus-tomers. Includes the following metrics:

Ship to Customer Delivery -- Time taken from shipment of finished goods to delivery at customer's address Raw Materials

Receipt to Payment -- Time from receipt of raw materials to payment; also called Days Payable Outstanding (DPO)

Days Sales Outstanding (DSO) -- Measurement of the average collection period from invoicing to cash receipt.

Supply Chain Transparency and Performance

Integrating customer-facing systems with supply chain, ERP, fulfill-ment and service systems gives manufacturers the ability to track their progress toward a Perfect Order. These metrics include:

Available-to-Promise (ATP) -- Defines for both standard and customized products when the shipment will occur.

Capable-to-Promise (CTP) -- Defines stock levels relative to demand to the purchase order level.

Order Visibility -- Provides both at the individual order level and an aggregate view new order activity and its implications on the supply chain, existing production schedules and fulfillment.

Supply Chain Management (SCM) Cost

SCM cost includes the following components:

Direct purchasing operating cost

Manufacturing operating cost

Transportation cost

Warehouse/distribution center operating cost

Inventory holding cost

Customer service operating cost

Sources: Hofman (2004); Cecere, L., Hagerty, J., Souza, J. (2005)