Download 5.1 e-business - KV Institute of Management and Information Studies

Management Information System
Unit 5
New IT Initiatives
Table of Contents
New IT Initiatives........................................................................................................................................... 1
5.1 E-BUSINESS.......................................................................................................................................... 2
5.1.1 Subsets of e Business ................................................................................................................... 3
5.1.2 Models of e Business.................................................................................................................... 4
5.1.3 Classification by provider and consumer ..................................................................................... 4
5.1.4 Factors affecting E-Business......................................................................................................... 6
5.1.5 Elements of an E-Business ........................................................................................................... 6
5.2 E-Governance ...................................................................................................................................... 7
5.2.1 Objectives of E-Governance ......................................................................................................... 7
5.2.2 E-Governance for development ................................................................................................... 7
5.2.3 Challenges of E-Governance ........................................................................................................ 7
5.2.4 Stages of E- Commerce ................................................................................................................ 8
5.2.5 Types of Interactions in e-Governance ........................................................................................ 9
5.2.6
Benefits of E-Governance ................................................................................................... 10
5.3 ERP .................................................................................................................................................... 11
5.3.1 Evolution of ERP ......................................................................................................................... 13
5.4.2 Modules of ERP .......................................................................................................................... 15
5.4.3 The Driving Force behind ERP .................................................................................................... 17
5.4.4 Implementing ERP System ......................................................................................................... 18
5.4.5 Benefits and Challenges of ERP.................................................................................................. 18
5.3.6 Causes for ERP............................................................................................................................ 18
5.4.7 Advantages of ERP System ......................................................................................................... 19
5.4.8 Disadvantages of ERP System .................................................................................................... 19
5.4 SCM ................................................................................................................................................... 19
5.4.1 Supply-Chain Principles .............................................................................................................. 20
5.4.2
Basic patterns of SCM ......................................................................................................... 21
5.4.3 Five basic components of SCM .................................................................................................. 22
5.4.4 Process of SCM ........................................................................................................................... 23
5.5 e CRM ................................................................................................................................................ 25
5.5.1 Different Levels of e CRM .......................................................................................................... 26
5.5.2 Implementing and integrating CRM solutions ........................................................................... 26
5.5.3 Failures of e CRM ....................................................................................................................... 27
5.6 Data Warehousing and Data Mining ................................................................................................. 28
5.6.1 An Introduction to Data Mining ................................................................................................. 28
5.6.2 The Foundations of Data Mining................................................................................................ 28
5.6.3 The Scope of Data Mining .......................................................................................................... 30
5.6.4 How Data Mining Works ............................................................................................................ 32
5.6.5 Architecture for Data Mining ..................................................................................................... 32
5.7 Business Intelligence ......................................................................................................................... 34
5.8 PERVASIVE COMPUTING ................................................................................................................... 35
5.9 Capacity Maturity Model .................................................................................................................. 37
5.9.1 Overview – CMM ....................................................................................................................... 37
5.9.2 CMM is adapted to processes other than software development ............................................ 38
5.1 E-BUSINESS

E – Business defined as the application of information and communication technologies in
support of all the activities of business.

Commerce constitutes the exchange of products and services between businesses, groups and
individuals and can be seen as one of the essential activities of any business.

Electronic commerce focuses on the use of ICT to enable the external activities and relationships
of the business with individuals, groups and other businesses.

Electronic business methods enable companies to link their internal and external data processing
systems more efficiently and flexibly, to work more closely with suppliers and partners, and to
better satisfy the needs and expectations of their customers.

While e-business refers to more strategic focus with an emphasis on the functions that occur
using electronic capabilities, e-commerce is a subset of an overall e-business strategy.

E-commerce seeks to add revenue streams using the World Wide Web or the Internet to build and
enhance relationships with clients and partners and to improve efficiency using the Empty Vessel
strategy.

Often, e-commerce involves the application of knowledge management systems.

E-business involves business processes spanning the entire value chain: electronic purchasing and
supply chain management, processing orders electronically, handling customer service, and
cooperating with business partners.

Special technical standards for e-business facilitate the exchange of data between companies. Ebusiness software solutions allow the integration of intra and inter firm business processes.

E-business can be conducted using the Web, the Internet, intranets, extranets, or some
combination of these.

Basically, electronic commerce (EC) is the process of buying, transferring, or exchanging
products, services, and/or information via computer networks, including the internet.

EC can also be benefited from many perspective including business process, service, learning,
collaborative, community. EC is often confused with e-business.
5.1.1 Subsets of e Business
Applications can be divided into three categories:
1. Internal business systems:
o
customer relationship management
o
enterprise resource planning
o
document management systems
o
human resources management
2. Enterprise communication and collaboration:
o
content management system
o
e-mail
o
voice mail
o
Web conferencing
o
Digital work flows (or business process management)
3. electronic commerce - business-to-business electronic commerce (B2B) or business-to-consumer
electronic commerce (B2C):
o
internet shop
o
supply chain management
o
online marketing
o
offline marketing
5.1.2 Models of e Business

When organizations go online, they have to decide which e-business models best suit their goals.

A business model is defined as the organization of product, service and information flows, and
the source of revenues and benefits for suppliers and customers.

The concept of e-business model is the same but used in the online presence.

The following is a list of the currently most adopted e-business models such as:

E-shops

E-commerce

E-procurement

E-malls

E-auctions

Virtual Communities

Collaboration Platforms

Third-party Marketplaces

Value-chain Integrators

Value-chain Service Providers

Information Brokerage

Telecommunication
5.1.3 Classification by provider and consumer

Roughly dividing the world into providers/producers and consumers/clients one can classify ebusinesses into the following categories:

business-to-business (B2B)
o
E-business holds electronic transactions among and between businesses.
o
The internet and reliance of all businesses upon other companies for suppliers, utilities
and services has enhanced the popularity of B2B e-business and made the fastest growing
segments within the e-business environments.
o
Companies using B2B e-business relationship observe cost savings by increasing the
speed, reducing the speed, reducing errors and eliminating many manual activities.
o
B2B e-business reduces cycle time, inventory and prices and enables business partners to
share relevant to share relevant, accurate and timely information.

business-to-consumer (B2C)
o

Business sell directly a diverse group of products and services to customer. In these cases
e-business supplements the traditional commerce by offering products and services
through channels.
consumer-to-consumer (C2C)
o
E-business, consumers sell directly to other consumers using the internet and web
technology.
o
Individual sell a wide variety of services/products on the web or through auction sites
such as ebay.com and gittigidiyor.com through classified ads or adverting.

consumer-to-business (C2B)
o
E-Business that involves individuals selling to businesses may include a service/product
that a consumer is willing to sell.
o
Individual offer certain prizes for specific products/service.

business-to-employee (B2E)

business-to-government (B2G)

government-to-business (G2B)

government-to-government (G2G)

government-to-citizen (G2C)
5.1.4 Factors affecting E-Business
(i) Economic Forces –
o
o
o
o
o
To remain in competition the organization are under relentless pressure to reduce costs,
firms are attracted to the economic efficiencies offered by electronic business.
These economic efficiencies include low cost technological infrastructures that reduces
the cost burden to technologies upgrades and obsolescence, low cost and accurate
electronic transactions with suppliers, the low cost of global information sharing and
advertising ability for firms to provide low cost customers services alternatives to
expensive retail bank branches and telephone call centers.
The economic forces motivating the shift to electronic business are internal as well as
external.
External integration molds the vast network of suppliers, government agencies and large
corporations into a single community with ability to communicate across any computer
platform.
The ability to coordinate the movement of information is key to both external and internal
integration and firms needs to find way to design business processes that change the way
data is created, manipulated and distributes.
(ii) Marketing and Customer Interaction forces
o
o
o
Companies also employ electronic business to provide marketing channels, to targets
micro segments or small audiences and to improve post-sales customer satisfaction by
creating new channels of customer services and support.
Companies want to supply target consumers with product and services information in
greater detail than that provided in a television or full-page advertisements.
In order to competitive, marketing executives must employ technology to develop low
cost customer-prospecting methods, establish close relationship with customer and
develop customer loyalty.
5.1.5 Elements of an E-Business
o
Forward thinking organizations automate, organize, standardize and stabilize the
processes and services offered in order to create and maintain sustainable computer
meditated relationship throughout an e-business lifestyle.
(i) CRM –
o These are front-office systems that help the enterprise deal directly with its customers.
o CRM is the process of creating relationship with customer through the introduction of
reliable services-automated processes, personal information gathering and processing and
self-services throughout the supplying company in order to create value for customers.
(ii) ERP –
o
ERP software can aid in the control of many business activities, like sales, delivery,
billing, production, inventory management and human resource management.
(iii) SCM –
o A supply chain is a network of facilities and distribution options that performs the
functions of procurements of materials, transformation of these materials into
intermediate of a suppliers internal systems with the buyers and trading and distribution.
5.2 E-Governance
“E-governance is the transformation of processes the continual and exponential introduction into
society of more advanced digital technologies. E –governance focuses on how these new technologies can
be used to strengthen the public’s voice as a force to reshape the democratic processes, and reforms the
management, structure and oversight of government to better serve the public interest.”
5.2.1 Objectives of E-Governance





Build service around citizen’s choice
Make government more accessible.
Facilitate social inclusion
Provide information responsibility
Use government resources effectively.
5.2.2 E-Governance for development


Governments in the developing nations too much cost while delivers too little, and is not
sufficiently responsive or accountable.
ICT provide three basic change potentials for good governance for development
o Automation – replacing current human-executed processes which involves accepting,
storing, processing, outputting, or transmitting information.
o Information – supporting current human – executed information processes.
o Transformation – creating new ICT- executed information processes or supporting new
human-executed information processes.
5.2.3 Challenges of E-Governance
(I) Data systems infrastructure readiness
(II) Legal infrastructure readiness
(III)
Human infrastructure readiness
(IV)
Technological infrastructure readiness
(V) Leadership and strategic thinking ready.
5.2.4 Stages of E- Commerce

It is evident that e-Governance is intrinsically linked with the development of computer
technology, networking of computers and communication systems.

In developing countries, such technologies and systems became available with a perceptible time
lag as compared to developed nations.

Generally speaking, the Indian experience demonstrates that the onset of e-Governance proceeded
through the following phases:
(a) Computerization

In the first phase, with the availability of personal computers, a large number of Government
offices got equipped with computers.

The use of computers began with word processing, quickly followed by data processing.
(b) Networking

In this phase, some units of a few government organizations got connected through a hub
leading to sharing of information and flow of data between different government entities.
(c) On-line presence

With increasing internet connectivity, a need was felt for maintaining a presence on the web.

This resulted in maintenance of websites by government departments and other entities.

Generally, these web-pages/web-sites contained information about the organizational
structure, contact details, reports and publications, objectives and vision statements of the
respective government entities.
(d) On-line interactivity

A natural consequence of on-line presence was opening up of communication channels
between government entities and the citizens, civil society organizations etc.

The main aim at this stage was to minimize the scope of personal interface with
government entities by providing downloadable Forms, Instructions, Acts, and Rules etc.

In some cases, this has already led to on-line submission of Forms. Most citizengovernment transactions have the potential of being put on e-Governance mode.
5.2.5 Types of Interactions in e-Governance

(i)
E-Governance facilitates interaction between different stake holders in governance.
G2G (Government to Government)

In this case, Information and Communications Technology is used not only to restructure the
governmental processes involved in the functioning of government entities but also to increase
the flow of information and services within and between different entities.

This kind of interaction is only within the sphere of government and can be both horizontal i.e.
between different government agencies as well as between different functional areas within an
organization, or vertical i.e. between national, provincial and local government agencies as well
as between different levels within an organization.

(ii)
The primary objective is to increase efficiency, performance and output.
G2C (Government to Citizens)

In this case, an interface is created between the government and citizens who enables the citizens
to benefit from efficient delivery of a large range of public services.

This expands the availability and accessibility of public services on the one hand and improves
the quality of services on the other.

It gives citizens the choice of when to interact with the government, from where to interact with
the government and how to interact with the government.

(iii)
The primary purpose is to make government, citizen-friendly.
G2B (Government to Business)

Here, e-Governance tools are used to aid the business community – providers of goods and
services – to seamlessly interact with the government.

The objective is to cut red tape, save time, reduce operational government.

The G2Binitiatives can be transactional, such as in licensing, permits, procurement and revenue
collection.

They can also be promotional and facilitative, such as in trade, tourism and investment.

These measures help to provide a congenial environment to businesses to enable them to perform
more efficiently.
(iv)
G2E (Government to Employees)

Government is by far the biggest employer and like any organization, it has to interact with its
employees on a regular basis.

This interaction is a two-way process between the organization and the employee.

Use of ICT tools helps in making these interactions fast and efficient on the one hand and
increase satisfaction levels of employees on the other.
5.2.6 Benefits of E-Governance
 E-Governance is about reform in governance, facilitated by the creative use of Information and
Communications Technology.
(i)
Better access to information and quality services for citizens:

ICT would make available timely and reliable information on various aspects of
governance.

In the initial phase, information would be made available with respect to simple
aspects of governance such as forms, laws, rules, procedures etc., later extending to
detailed information including reports, public database, decision making processes etc.

As regards services, there would be an immediate impact in terms of savings in time,
effort and money, resulting from online and one-point accessibility of public services
backed up by automation of back end processes.

The ultimate objective of e-Governance is to reach out to citizens by adopting a lifecycle approach i.e. providing public services to citizens which would be required right
from birth to death.
(ii)
Simplicity, efficiency and accountability in the government
 Application of ICT to governance combined with detailed business process reengineering
would lead to simplification of complicated processes, weeding out of redundant
processes, simplification in structures and changes in statutes and regulations.
 The end result would be simplification of the functioning of government, enhanced
decision making abilities and increased efficiency across government – all contributing
to an overall environment of a more accountable government machinery.
 This, in turn, would result in enhanced productivity and efficiency in all sectors.
(iii)
Expanded reach of governance
 Rapid growth of communications technology and its adoption in governance would
help in bringing government machinery to the doorsteps of the citizens.
 Expansion of telephone network, rapid strides in mobile telephony, spread of internet
and strengthening of other communications infrastructure would facilitate delivery
of a large number of services provided by the government.
 This enhancement of the reach of government – both spatial and demographic –
would also enable better participation of citizens in the process of governance.
5.3 ERP

ERP is the technological backbone of e-business, an enterprise wide transaction framework with
links into sales order processing, inventory management and control, production and distribution
planning and finance.

ERP is a cross-functional enterprise system driven by an integrated suite of software modules that
supports the basic internal business processes of a company.

Ex – ERP software for a manufacturing company will typically process the data from and track
the status of sales, inventory, shipping, and invoicing as well as forecast raw material and human
resource requirement.

ERP gives a company an integrated real – time view of its core business processes, such as
production, order processing and inventory management tied together by the ERP application
software and a common database maintained by a database management system.

In any industry, some of the demands managers face is to be cost effective. In addition to that,
they are also faced with challenges such as to analyze costs and profits on a product or consumer
basis, to be flexible to face ever altering business requirements, and to be informed of
management decision making processes and changes in ways of doing business.

However some of the challenges holding managers back include the difficulty in attaining
accurate information, lack of applications that mimic existing business practices and bad
interfaces. When some challengers are holding a manager back, that is where Enterprise Resource
Planning (ERP) comes into play.

Over the years business applications have evolved from Management Information Systems with
no decision support to Corporate Information Systems which offer some decision support to
Enterprise Resource Planning. Enterprise Resource Planning is a software solution that tackles
the needs of an organization, taking into account the process view to meet an organization's goals
while incorporating all the functions of an organization.

Its purpose is to make easy the information flow between all business functions within the
boundaries of the organization and manage the organization's connections with its outside
stakeholders.

In a nutshell the Enterprise Resource Planning software tries to integrate all the different
departments and functions of an organization into a single computer system to serve the various
needs of these departments.

The task at hand, of implementing one software program that looks after the needs of the Finance
Department together with the needs of the Human Resource Department and the Warehouse,
seems impossible. These different departments usually have an individual software program that
is optimized in the way each department works.

However, if installed correctly this integrated approach can be very cost effective for an
organization. With an integrated solution, different departments can easily share information and
communicate with another.

The following diagram illustrates the differences between non-integrated systems versus an
integrated
system
for
enterprise
resource
planning.
5.3.1 Evolution of ERP

ERP (Enterprise Resource Planning) is the evolution of Manufacturing Requirements Planning
(MRP) II.

From business perspective, ERP has expanded from coordination of manufacturing processes to
the integration of enterprise-wide backend processes.

From technological aspect, ERP has evolved from legacy implementation to more flexible tiered
client-server architecture
Timeline
System
Description
1960s
Inventory
Inventory Management and control is the combination of
Management & information technology and business processes of maintaining the
Control
appropriate level of stock in a warehouse. The activities of
inventory management include identifying inventory requirements,
setting targets, providing replenishment techniques and options,
monitoring item usages, reconciling the inventory balances, and
reporting inventory status.
1970s
Material
Materials
Requirement
Planning
(MRP)
utilizes
software
Requirement
applications for scheduling production processes. MRP generates
Planning (MRP)
schedules for the operations and raw material purchases based on
the production requirements of finished goods, the structure of the
production system, the current inventories levels and the lot sizing
procedure for each operation.
1980s
Manufacturing
Manufacturing Requirements Planning or MRP utilizes software
Requirements
applications for coordinating manufacturing processes, from
Planning (MRP product planning, parts purchasing, inventory control to product
2000s
II)
distribution.
Enterprise
Enterprise Resource Planning or ERP uses multi-module
Resource
application software for improving the performance of the internal
Planning (ERP)
business processes. ERP systems often integrate business activities
across functional departments, from product planning, parts
purchasing, inventory control, product distribution, fulfillment, to
order tracking. ERP software systems may include application
modules for supporting marketing, finance, accounting and human
resources
5.4.2 Modules of ERP
(i)
SD - Sales and Distribution

Module supports sales and distribution processes, with functions for pricing, order processing and
on-time delivery.

It has a direct interface to the Materials Management (MM) and Production Planning (PP)
modules described below.

This enables an integrated process that involves checking customer credit, ensuring materials and
production capacity are available to satisfy an order at the time it is placed, executing the order,
and automating the billing process.

This module also facilitates an analysis of sales and delivery performance using standard metrics
that are defined within SAP R/3.
(ii)
MM - Materials Management

Module is designed to support the procurement process and to optimize the logistics pipeline
within the enterprise.

It enables automated supplier evaluation and can lower procurement and warehousing costs with
accurate inventory and warehouse management, and integrates invoice verification.

The module is designed to support foreign trade processing, such as customs declarations, as
well. Tools for inventory control and purchasing information help to identify trends and
developments.
(iii)
PP - Production Planning

Module supports production planning, manufacturing processes execution, and analysis and
production control.

This application covers the production process from the creation of master data to production
planning, MRP, and capacity planning, right down to production control and costing.

It supports a variety of manufacturing processes including repetitive, make-to-order and
assemble-to-order production.

Quality management, laboratory information systems and data analysis functions are also
available.
(iv)
FI - Financial Accounting

Module collects all the data relevant to financial accounting, from transactions to accounts, into
an integrated General Ledger.

It provides comprehensive, consolidated financial reports and ties together the different pieces of
financial data, Accounts Payable, Accounts Receivable and Asset Management.

It also provides an up-to-the-minute basis for enterprise-wide control and planning, giving a
snapshot of the enterprise.

(v)
The FI module supports international accounting standards such as GAAP and IAS.
CO - Controlling

Module includes a variety of planning and control tools for enterprise control systems, following
a uniform system of reporting.

It provides comprehensive reports to support most common cost-accounting problems, as well as
the capability to put together additional reports.
TR – Treasury
(vi)

(vii)

Module is a comprehensive solution for financial/treasury management.
EC - Enterprise Controlling
Module continuously monitors metrics and performance indicators on the basis of specially
prepared management information.
(viii)
IM - Investment Management

Provides integrated management of investment projects.

Projects are tracked from planning through execution to settlement, including pre-investment
analysis and depreciation simulation.
(ix)
PM - Plant Maintenance and Service Management

Module handles planning, control, and processing of scheduled maintenance, inspection, special
maintenance, and service management.
(x)
QM - Quality Management

Module monitors, manages and tracks all processes relevant to quality assurance along the entire
supply chain, coordinates inspection processing and initiates corrective measures.
(xi)
PS - Project System

Module coordinates and controls all phases of a project, in direct cooperation with Purchasing
and Controlling, from quotation to design and approval, to resource management and cost
settlement.
5.4.3 The Driving Force behind ERP
There are two main driving forces behind Enterprise Resource Planning for a business
organization.

In a business sense, Enterprise Resource Planning ensures customer satisfaction, as it
leads to business development that is development of new areas, new products and new
services.
Also it allows businesses to face competition for implementing Enterprise Resource
Planning, and it ensures efficient processes that push the company into top gear.

In an IT sense: Most software does not meet business needs wholly, and the legacy
systems today are hard to maintain. In addition outdated hardware and software is hard to
maintain.
Hence, for the above reasons, Enterprise Resource Planning is necessary for management
in today's business world. ERP is single software which tackles problems such as material
shortages, customer service, finances management, quality issues and inventory problems.
An ERP system can be the dashboard of the modern era managers.
5.4.4 Implementing ERP System

Producing Enterprise Resource Planning (ERP) software is complex and also has many
significant implications for staff work practice.

Implementing the software is a difficult task too and one that 'in-house' IT specialists
cannot handle.

Hence to implement ERP software, organizations hire third party consulting companies
or an ERP vendor.

This is the most cost effective way.

The time taken to implement an ERP system depends on the size of the business, the
number of departments involved, the degree of customization involved, the magnitude of
the change, and the cooperation of customers to the project.
5.4.5 Benefits and Challenges of ERP

Quality and Efficiency – ERP creates a framework for implementing and improving a
company’s internal business processes those results in significant improvement in the quality and
efficiency of customer service, production and distribution.

Decreased Costs – Many companies report significant reduction in transaction processing costs
and hardware, software and IT support staff compared to the nonintegrated legacy systems that
were replaced by their new ERP systems.

Decision Support – ERP provides vital cross-functional information on business performance to
managers quickly to significantly improve their ability to make better decision in a timely manner
across the entire business enterprise.

Enterprise agility – Implementing ERP systems breaks down former departmental and
functional walls of business processes, information systems and information resources.
5.3.6 Causes for ERP

The business managers and IT professionals of these companies underestimated the complexity of
the planning, development and training that needed to prepare for a new ERP system that would
change their business processes and information systems.

Failure to involve affected employees in the planning and development phases and to change
management programs or trying to do too much too fast in the conversion process were typically
causes of failure projects.

Insufficient training in the new work tasks required by the ERP system and failure to do enough
data conversion and testing were other causes of the failure.
5.4.7 Advantages of ERP System

With Enterprise Resource Planning (ERP) software, accurate forecasting can be done.
When accurate forecasting inventory levels are kept at maximum efficiency, this allows
for the organization to be profitable.

Integration of the various departments ensures communication, productivity and
efficiency.

Adopting ERP software eradicates the problem of coordinating changes between many
systems.

ERP software provides a top-down view of an organization, so information is available to
make decisions at anytime, anywhere.
5.4.8 Disadvantages of ERP System
o
Adopting ERP systems can be expensive.
o
The lack of boundaries created by ERP software in a company can cause problems of
who takes the blame, lines of responsibility, and employee morale.
5.4 SCM

The Supply Chain Management Program integrates topics from manufacturing operations,
purchasing, transportation, and physical distribution into a unified program. Successful
supply chain management, then, coordinates and integrates all of these activities into a
seamless process. It embraces and links all of the partners in the chain. In addition to the
departments within the organization, these partners include vendors, carriers, third party
companies, and information systems providers.

Within the organization, the supply chain refers to a wide range of functional areas. These
include Supply Chain Management-related activities such as inbound and outbound
transportation, warehousing, and inventory control. Sourcing, procurement, and supply
management fall under the supply-chain umbrella, too. Forecasting, production planning and
scheduling, order processing, and customer service all are part of the process as well.
Importantly, it also embodies the information systems so necessary to monitor all of these
activities.
5.4.1 Supply-Chain Principles

If supply-chain management has become top management's new "religion," then it needs a
doctrine. Andersen Consulting has stepped forward to provide the needed guidance,
espousing what it calls the "Seven Principles" of supply-chain management. When
consistently and comprehensively followed, the consulting firm says, these seven principles
bring a host of competitive advantages.
1. Segment customers based on service needs.
o Companies traditionally have grouped customers by industry, product, or trade channel and then
provided the same level of service to everyone within a segment. Effective supply-chain
management, by contrast, groups customers by distinct service needs--regardless of industry-and then tailors services to those particular segments.
2. Customize the Supply Chain Management network.
o In designing their Supply Chain Management network, companies need to focus intensely on the
service requirements and profitability of the customer segments identified. The conventional
approach of creating a "monolithic" Supply Chain Management network runs counter to
successful supply-chain management.
3. Listen to signals of market demand and plan accordingly.
o Sales and operations planning must span the entire chain to detect early warning signals of
changing demand in ordering patterns, customer promotions, and so forth. This demandintensive approach leads to more consistent forecasts and optimal resource allocation.
4. Differentiate product closer to the customer.
o Companies today no longer can afford to stockpile inventory to compensate for possible
forecasting errors. Instead, they need to postpone product differentiation in the manufacturing
process closer to actual consumer demand.
5. Strategically manage the sources of supply.
o By working closely with their key suppliers to reduce the overall costs of owning materials and
services, supply-chain management leaders enhance margins both for themselves and their
suppliers. Beating multiple suppliers over the head for the lowest price is out, Andersen advises.
"Gain sharing" is in.
6. Develop a supply-chain-wide technology strategy.
o As one of the cornerstones of successful supply-chain management, information technology must
support multiple levels of decision making. It also should afford a clear view of the flow of
products, services, and information.
7. Adopt channel-spanning performance measures.
o Excellent supply-chain measurement systems do more than just monitor internal functions. They
adopt measures that apply to every link in the supply chain. Importantly, these measurement
systems embrace both service and financial metrics, such as each account's true profitability.
5.4.2 Basic patterns of SCM

There is a basic pattern to the practice of supply chain management.

Each supply chain has its own unique set of market demands and operating challenges and yet the
issues remain essentially the same in every case.

Companies in any supply chain must make decisions individually and collectively regarding their
actions in five areas:
(i) Production
What products does the market want? How much of which products should be produced and
by when? This activity includes the creation of master production schedules that take into account
plant capacities, workload balancing, quality control, and equipment maintenance.
(ii) Inventory
What inventory should be stocked at each stage in a supply chain? How much inventory
should be held as raw materials, semi-finished, or finished goods? The primary purpose of
inventory is to act as a buffer against uncertainty in the supply chain. However, holding inventory
can be expensive, so what are the optimal inventory levels and reorder points?
(iii) Location
Where should facilities for production and inventory storage be located? Where are the most
cost efficient locations for production and for storage of inventory? Should existing facilities be
used or new ones built? Once these decisions are made they determine the possible paths
available for product to flow through for delivery to the final consumer.
(iv) Transportation
How should inventory be moved from one supply chain location to another? Air freight and
truck delivery are generally fast and reliable but they are expensive. Shipping by sea or rail is
much less expensive but usually involves longer transit times and more uncertainty. This
uncertainty must be compensated for by stocking higher levels of inventory. When is it better to
use which mode of transportation?
(v) Information
How much data should be collected and how much information should be shared? Timely
and accurate information holds the promise of better coordination and better decision making.
With good information, people can make effective decisions about what to produce and how
much, about where to locate inventory and how best to transport it.
5.4.3 Five basic components of SCM
(1) Plan
o Every company needs a strategy on how to manage the resources in order to achieve their
customers demand for their products and services.
o The supply chain management is developing a set of metric to monitor the supply chain so that it
can deliver high qualities and values to customers.
(2) Source
o
To create their products, companies need to be very careful when choosing suppliers to deliver
their goods and services needed. The managers need to develop a set pricing and delivery system
in the supply chain.
o
They can also put processes for managing their goods and goods inventory, Ex- receiving
shipments.
(3) Make

In manufacturing the supply chain manager should always schedule the activities that are
needed for the production, packaging, testing and preparation for delivery.

The most metric-intensive portion of the supply chain, production output and measure
levels.
(4) Deliver

This part is mainly referred to as logistics by the supply chain management.

In this case companies coordinate receipts of orders, pick carriers to get products to customers
and develop a network of warehouses.
(5) Return

In many companies this is usually where the problem is – in the supply chain.

The planners should create a flexible and responsible network for receiving a flaw and excess
products sent back to them.
5.4.4 Process of SCM
(1) Customer Relationship Management
 CRM involves establishing a framework for building and maintaining relationship with
customer.
 This involves identifying the customer groups who form the target for achieving the firm’s
business objectives.
 Then the customer service teams design the product or services agreements specifying the
level of service that is to be identified to each of these customer groups.
(2) Customer Service Management
 CSM is concerned with providing the customer with up-to-date information relating to
shipping dates, product availability, and product application.

The customer service management teams act as an interface between the customer and the
functional departments like production and logistics in administering product and services.
(3) Demand Management
 Demand management is the key to effective supply chain management.

It plays a major role in balancing the customer’s requirement with the firm’s supply
capacities.

Demand management involves determining forecasting methods to gauge customer demand,
synchronizing demand with the supply capabilities of the firms.
(4) Customer Order Fulfilment
 The effectiveness of a supply chain is determined by its ability to fill customer orders on
time.
 A high order fulfilment rate with low costs requires co-ordination between various
organization across the supply chain and their internal functions like manufacturing,
distribution and transportation.
 The order fulfilment process includes activities like receiving orders, defining the
requirements for order fulfilments, evaluating the logistics network.
(5) Manufacturing Flow Management


Manufacturing flow management is concerned with ensuring the smooth production of
goods and developing flexible production processes that can respond to the demands of the
markets.
This supply process include activities like determining the degree of manufacturing
flexibility required, manufacturing and material planning, determining manufacturing
capabilities, synchronizing production and demand.
(6) Procurement Management
 Supplier relationship management guides the interactions of the firm with its suppliers.
 This process aims at developing long-term relations with suppliers to ensure uninterrupted
flow of supplies for the firms manufacturing processes.
(7) Product Development and Commercialization
 Reducing the time to market is one of the objectives of supply chain management.
 The product development and commercialization process involves establishing crossfunctional product development teams, designing and building prototypes, developing
product plans.
(8) Returns Management
 Many companies are forced to recall products to rectify defects upgrade the products or
recycle them.
 The return management capability of a firm also play a major role in providing a
competitive edge to the firm.
5.5 e CRM

Electronic CRM concerns all forms of managing relationships with customers making use of
Information Technology (IT).

The overall goal can be seen as effectively managing differentiated relationships with all
customers and communicating with them on an individual basis.

Underlying thought is that companies realize that they can supercharge profits by acknowledging
that different groups of customers vary widely in their behavior, desires, and responsiveness to
marketing.

As the internet is becoming more and more important in business life, many companies consider
it as an opportunity to reduce customer-service costs, tighten customer relationships and most
important, further personalize marketing messages and enable mass customization.

Together with the creation of Sales Force Automation (SFA), where electronic methods were
used to gather data and analyze customer information, the trend of the upcoming Internet can be
seen as the foundation of what we know as e CRM today.

The challenge hereby is to offer communication and information on the right topic, in the right
amount, and at the right time that fits the customer’s specific needs.

Channels, through which companies can communicate with its customers, are growing by the
day, and as a result, getting their time and attention has turned into a major challenge.

One of the reasons e CRM is so popular nowadays is that digital channels can create unique and
positive experiences – not just transactions – for customers.

Furthermore, Information Technology has helped companies to even further differentiate between
customers and address a personal message or service. Some examples of tools used in e CRM:

Personalized Web Pages where customers are recognized and their preferences are
shown.


Customized products or services (Dell).
CRM programs should be directed towards customer value that competitors cannot match.
However, in a world where almost every company is connected to the Internet, e CRM has
become a requirement for survival, not just a competitive advantage.
5.5.1 Different Levels of e CRM
In defining the scope of e CRM, three different levels
Foundation Services
Customer- Centered Services
Value Added Services
(1) Foundational services:
o
This includes the minimum necessary services such as web site effectiveness and
responsiveness as well as order fulfillment.
(2) Customer-centered services:
o
These services include order tracking, product configuration and customization as well as
security/trust.
(3) Value-added services:
o
Self-services are becoming increasingly important in CRM activities.
o
The rise of the Internet and e CRM has boosted the options for self-service activities.
o
A critical success factor is the integration of such activities into traditional channels.
o
Ex -Ford’s plan to sell cars directly to customers via its Web Site, which provoked an
disagreement among its dealers network.
o
CRM activities are mainly of two different types.
Reactive Service
Proactive Service
o
Reactive service is where the customer has a problem and contacts the company.
o
Proactive service is where the manager has decided not to wait for the customer to
contact the firm, but to be aggressive a contact the customer himself in order to establish
a dialogue and solve problems
5.5.2 Implementing and integrating CRM solutions

Several CRM software packages exist that can help companies in deploying CRM activities.

Besides choosing one of these packages, companies can also choose to design and build their own
solutions.

In order to implement CRM in an effective way, one needs to consider the following factors:


Create a customer-based culture in the organization.

Adopt customer-based managers to assess satisfaction.

Develop an end-to-end process to serve customers.

Recommend questions to be asked to help a customer solve a problem.

Track all aspects of selling to customers, as well as prospects.
CRM solutions are more effective once they are being implemented in other information systems
used by the company.
o
Ex - Transaction Processing System (TPS) to process data real-time, which can then be
send to the sales and finance departments in order to recalculate inventory and financial
position quick and accurate.
o
Once this information is transferred back to the CRM software and services it could
prevent customers from placing an order in the belief that an item is in stock while it is
not.
5.5.3 Failures of e CRM

Designing, creating and implementing IT projects has always been risky. Not only because of the
amount of money that is involved, but also because of the high chances of failure.

However, a positive trend can be seen, indicating that CRM failures dropped from a failure rate of
80% in 1998, to about 40% in 2003.

Some of the major issues relating to CRM failure are the following:

Difficulty in measuring and valuing intangible benefits.

Failure to identify and focus on specific business problems.

Lack of active senior management sponsorship.

Poor user acceptance.

Trying to automate a poorly defined process
Data Mining and CRM

The first task, identifying market segments, requires significant data about prospective customers
and their buying behaviors.

In theory, the more data the better.

In practice, however, massive data stores often impede marketers, who struggle to sift through the
minutiae to find the nuggets of valuable information.

Recently, marketers have added a new class of software to their targeting arsenal.

Data mining applications automate the process of searching the mountains of data to find patterns
that are good predictors of purchasing behaviors.

After mining the data, marketers must feed the results into campaign management software that,
as the name implies, manages the campaign directed at the defined market segments.

In the past, the link between data mining and campaign management software was mostly
manual.

This separation of the data mining and campaign management software introduces considerable
inefficiency and opens the door for human errors.

Tightly integrating the two disciplines presents an opportunity for companies to gain competitive
advantage.
5.6 Data Warehousing and Data Mining
5.6.1 An Introduction to Data Mining

The extraction of hidden predictive information from large databases.

This is a powerful new technology with great potential to help companies focus on the most
important information in their data warehouses.

Data mining tools predict future trends and behaviors, allowing businesses to make proactive,
knowledge-driven decisions.

The automated, prospective analyses offered by data mining move beyond the analyses of past
events provided by retrospective tools typical of decision support systems.

Data mining tools can answer business questions that traditionally were too time consuming to
resolve.

They scour databases for hidden patterns, finding predictive information that experts may miss
because it lies outside their expectations.
5.6.2 The Foundations of Data Mining

Data mining techniques are the result of a long process of research and product development.

This evolution began when business data was first stored on computers, continued with
improvements in data access, and more recently, generated technologies that allow users to
navigate through their data in real time.

Data mining takes this evolutionary process beyond retrospective data access and navigation to
prospective and proactive information delivery.

Data mining is ready for application in the business community because it is supported by three
technologies that are now sufficiently mature:


Massive data collection

Powerful multiprocessor computers

Data mining algorithms
In the evolution from business data to business information, each new step has built upon the
previous one.

Ex - dynamic data access is critical for drill-through in data navigation applications, and the
ability to store large databases is critical to data mining. From the user’s point of view, the four
steps listed in Table 1 were revolutionary because they allowed new business questions to be
answered accurately and quickly.
Evolutionary
Business Question
Step
Data Collection
"What
was
my
total
revenue in the last five
(1960s)
Data Access
(1980s)
Enabling
Product
Technologies
Providers
Computers,
tapes,
IBM, CDC
disks
years?"
data
delivery
"What were unit sales in
Relational
databases
Oracle, Sybase,
Retrospective,
New
(RDBMS), Structured
Informix, IBM,
dynamic
data
Query
Microsoft
delivery
at
England
last
March?"
Language
record level
Data
"What were unit sales in
On-line
Warehousing &
New England last March?
processing
Drill down to Boston."
multidimensional
(1990s)
Retrospective,
static
(SQL), ODBC
Decision Support
Characteristics
databases,
warehouses
analytic
(OLAP),
data
Pilot,
Retrospective,
Comshare,
dynamic
data
Arbor, Cognos,
delivery
at
Microstrategy
multiple levels
5.6.3 The Scope of Data Mining

Data mining derives its name from the similarities between searching for valuable business
information in a large database ,Ex - finding linked products in gigabytes of store scanner data —
and mining a mountain for a vein of valuable ore.

Both processes require either sifting through an immense amount of material, or intelligently
probing it to find exactly where the value resides.

Given databases of sufficient size and quality, data mining technology can generate new business
opportunities by providing these capabilities:

Automated prediction of trends and behaviors. Data mining automates the process of
finding predictive information in large databases.
o
Questions that traditionally required extensive hands-on analysis can now be
answered directly from the data — quickly.
o
Ex - A predictive problem is targeted marketing. Data mining uses data on past
promotional mailings to identify the targets most likely to maximize return on
investment in future mailings.
o
Other predictive problems include forecasting bankruptcy and other forms of default,
and identifying segments of a population likely to respond similarly to given events.

Automated discovery of previously unknown patterns. Data mining tools sweep through
databases and identify previously hidden patterns in one step.
o
Ex –The pattern discovery is the analysis of retail sales data to identify seemingly
unrelated products that are often purchased together.
o
Other pattern discovery problems include detecting fraudulent credit card
transactions and identifying anomalous data that could represent data entry keying
errors.

Data mining techniques can yield the benefits of automation on existing software and hardware
platforms, and can be implemented on new systems as existing platforms are upgraded and new
products developed.

When data mining tools are implemented on high performance parallel processing systems, they
can analyze massive databases in minutes. Faster processing means that users can automatically
experiment with more models to understand complex data. High speed makes it practical for
users to analyze huge quantities of data. Larger databases, in turn, yield improved predictions.

More columns. Analysts must often limit the number of variables they examine when doing
hands-on analysis due to time constraints. Yet variables that are discarded because they seem
unimportant may carry information about unknown patterns. High performance data mining
allows users to explore the full depth of a database, without preselecting a subset of variables.

More rows. Larger samples yield lower estimation errors and variance, and allow users to make
inferences about small but important segments of a population.
The most commonly used techniques in data mining are:

Artificial neural networks: Non-linear predictive models that learn through training and
resemble biological neural networks in structure.

Decision trees: Tree-shaped structures that represent sets of decisions. These decisions generate
rules for the classification of a dataset. Specific decision tree methods include Classification and
Regression Trees (CART) and Chi Square Automatic Interaction Detection (CHAID) .

Genetic algorithms: Optimization techniques that use processes such as genetic combination,
mutation, and natural selection in a design based on the concepts of evolution.

Nearest neighbor method: A technique that classifies each record in a dataset based on a
combination of the classes of the k record(s) most similar to it in a historical dataset (where k ³ 1).
Sometimes called the k-nearest neighbor technique.

Rule induction: The extraction of useful if-then rules from data based on statistical significance.

Many of these technologies have been in use for more than a decade in specialized analysis tools
that work with relatively small volumes of data.

These capabilities are now evolving to integrate directly with industry-standard data warehouse
and OLAP platforms. The appendix to this white paper provides a glossary of data mining terms.
5.6.4 How Data Mining Works

How exactly is data mining able to tell you important things that you didn't know or what is going
to happen next? The technique that is used to perform these feats in data mining is called
modeling.

Modeling is simply the act of building a model in one situation where you know the answer and
then applying it to another situation that you don't.

For instance, if you were looking for a sunken Spanish galleon on the high seas the first thing you
might do is to research the times when Spanish treasure had been found by others in the past.

This act of model building is thus something that people have been doing for a long time,
certainly before the advent of computers or data mining technology.

What happens on computers, however, is not much different than the way people build models.

Computers are loaded up with lots of information about a variety of situations where an answer is
known and then the data mining software on the computer must run through that data and distill
the characteristics of the data that should go into the model.

Once the model is built it can then be used in similar situations where you don't know the answer.

Ex - say that you are the director of marketing for a telecommunications company and you'd like
to acquire some new long distance phone customers. You could just randomly go out and mail
coupons to the general population - just as you could randomly sail the seas looking for sunken
treasure. In neither case would you achieve the results you desired and of course you have the
opportunity to do much better than random - you could use your business experience stored in
your database to build a model.
5.6.5 Architecture for Data Mining

To best apply these advanced techniques, they must be fully integrated with a data warehouse as
well as flexible interactive business analysis tools.

Many data mining tools currently operate outside of the warehouse, requiring extra steps for
extracting, importing, and analyzing the data.

When new insights require operational implementation, integration with the warehouse simplifies
the application of results from data mining.

The resulting analytic data warehouse can be applied to improve business processes throughout
the organization, in areas such as promotional campaign management, fraud detection, new
product rollout, and so on.

The ideal starting point is a data warehouse containing a combination of internal data tracking all
customer contact coupled with external market data about competitor activity.

Background information on potential customers also provides an excellent basis for prospecting.

This warehouse can be implemented in a variety of relational database systems: Sybase, Oracle,
Redbrick, and so on, and should be optimized for flexible and fast data access.

An OLAP (On-Line Analytical Processing) server enables a more sophisticated end-user business
model to be applied when navigating the data warehouse.

The multidimensional structures allow the user to analyze the data as they want to view their
business – summarizing by product line, region, and other key perspectives of their business.

The Data Mining Server must be integrated with the data warehouse and the OLAP server to
embed ROI-focused business analysis directly into this infrastructure.

Profitable Applications –
o
A wide range of companies have deployed successful applications of data mining.
o
While early adopters of this technology have tended to be in information-intensive
industries such as financial services and direct mail marketing, the technology is
applicable to any company looking to leverage a large data warehouse to better manage
their customer relationships.
o
Two critical factors for success with data mining are: a large, well-integrated data
warehouse and a well-defined understanding of the business process within which data
mining is to be applied.
Some successful application areas includes

A pharmaceutical company can analyze its recent sales force activity and their results to improve
targeting of high-value physicians and determine which marketing activities will have the greatest
impact in the next few months.

The data needs to include competitor market activity as well as information about the
local health care systems.

The results can be distributed to the sales force via a wide-area network that enables the
representatives to review the recommendations from the perspective of the key attributes
in the decision process.

The ongoing, dynamic analysis of the data warehouse allows best practices from
throughout the organization to be applied in specific sales situations.

A credit card company can leverage its vast warehouse of customer transaction data to identify
customers most likely to be interested in a new credit product.

Using a small test mailing, the attributes of customers with an affinity for the product can
be identified.

Recent projects have indicated more than a 20-fold decrease in costs for targeted mailing
campaigns over conventional approaches.

A diversified transportation company with a large direct sales force can apply data mining to
identify the best prospects for its services.

Using data mining to analyze its own customer experience, this company can build a
unique segmentation identifying the attributes of high-value prospects.

Applying this segmentation to a general business database such as those provided by Dun
& Bradstreet can yield a prioritized list of prospects by region.

A large consumer package goods company can apply data mining to improve its sales process to
retailers.

Data from consumer panels, shipments, and competitor activity can be applied to
understand the reasons for brand and store switching.

Through this analysis, the manufacturer can select promotional strategies that best reach
their target customer segments.
5.7 Business Intelligence

BI refers to computer-based techniques used in spotting, digging-out, and analyzing business
data, such as sales revenue by products or departments or associated costs and incomes.

BI technologies provide historical, current, and predictive views of business operations. \

Common functions of Business Intelligence technologies are reporting, online analytical
processing, analytics, data mining, business performance management, benchmarking, text
mining, and predictive analytics.

Business Intelligence often aims to support better business decision-making.

Thus a BI system can be called a decision support system (DSS).

Though the term business intelligence is often used as a synonym for competitive intelligence,
because they both support decision making, BI uses technologies, processes, and applications to
analyze mostly internal, structured data and business processes while competitive intelligence, is
done by gathering, analyzing and disseminating information with or without support from
technology and applications, and focuses on all-source information and data (unstructured or
structured), mostly external to, but also internal to a company, to support decision making.

The following are the critical success factors for business intelligence implementation:
a. Business-driven methodology & project management
b. Clear vision & planning
c. Committed management support & sponsorship
d. Data management & quality
e. Mapping solutions to user requirements
f. Performance considerations of the BI system
g. Robust & expandable framework
5.8 PERVASIVE COMPUTING

Ubiquitous computing (ubicomp) is a post-desktop model of human-computer interaction in
which information processing has been thoroughly integrated into everyday objects and activities.

In the course of ordinary activities, someone "using" ubiquitous computing engages many
computational devices and systems simultaneously, and may not necessarily even be aware that
they are doing so.

This model is usually considered advancement from the desktop paradigm.

This paradigm is also described as pervasive computing, ambient intelligence.

When primarily concerning the objects involved, it is also physical computing,

At their core, all models of ubiquitous computing (also called pervasive computing) share a
vision of small, inexpensive, robust networked processing devices, distributed at all scales
throughout everyday life and generally turned to distinctly common-place ends.

Ex - a domestic ubiquitous computing environment might interconnect lighting and
environmental controls with personal biometric monitors woven into clothing so that illumination
and heating conditions in a room might be modulated, continuously and imperceptibly.

Another common scenario posits refrigerators "aware" of their suitably-tagged contents, able to
both plan a variety of menus from the food actually on hand, and warn users of stale or spoiled
food.

Ubiquitous computing presents challenges across computer science: in systems design and
engineering, in systems modeling, and in user interface design.

Contemporary human-computer interaction models, whether command-line, menu-driven, or
GUI-based, are inappropriate and inadequate to the ubiquitous case.

This suggests that the "natural" interaction paradigm appropriate to a fully robust ubiquitous
computing has yet to emerge - although there is also recognition in the field that in many ways we
are already living in an ubicomp world.

Contemporary devices that lend some support to this latter idea include mobile phones, digital
audio players, radio-frequency identification tags, GPS, and interactive whiteboards.

Mark Weiser proposed three basic forms for ubiquitous system devices, see also Smart device:
tabs, pads and boards.


Tabs: wearable centimeter sized devices

Pads: hand-held decimeter-sized devices

Boards: meter sized interactive display devices.
These three forms proposed by Weiser are characterized by being macro-sized, having a planar
form and on incorporating visual output displays.

If we relax each of these three characteristics we can expand this range into a much more diverse
and potentially more useful range of Ubiquitous Computing devices.

Hence, three additional forms for ubiquitous systems have been proposed:

Dust: miniaturized devices can be without visual output displays, e.g., Micro ElectroMechanical Systems (MEMS), ranging from nanometers through micrometers to millimeters.
See also Smart dust.

Skin: fabrics based upon light emitting and conductive polymers, organic computer devices,
can be formed into more flexible non-planar display surfaces and products such as clothes
and curtains, see OLED display. MEMS device can also be painted onto various surfaces so
that a variety of physical world structures can act as networked surfaces of MEMS.

Clay: ensembles of MEMS can be formed into arbitrary three dimensional shapes as artifacts
resembling many different kinds of physical object (see also Tangible interface).
5.9 Capacity Maturity Model

The Capability Maturity Model (CMM) is a service mark owned by Carnegie Mellon
University (CMU) and refers to a development model elicited from actual data.

The data were collected from organizations that contracted with the U.S. Department of Defense,
who founded the research, and they became the foundation from which CMU created the
Software Engineering Institute (SEI).

Like any model it is an abstraction of an existing system.

Unlike many that are derived in academia, this model is based on observation rather than on
theory.

When it is applied to an existing organization's software development processes, it allows an
effective approach toward improving them.

Eventually it became clear that the model could be applied to other processes.

This gave rise to a more general concept that is applied to business processes and to developing
people.
5.9.1 Overview – CMM

The Capability Maturity Model (CMM) was originally developed as a tool for objectively
assessing the ability of government contractors' processes to perform a contracted software
project.

The CMM is based on the process maturity framework first described in the 1989 book Managing
the Software Process by Watts Humphrey.

It was later published in a report in 1993 (Technical Report CMU/SEI-93-TR-024 ESC-TR-93177 February 1993, Capability Maturity Model SM for Software, Version 1.1) and as a book by
the same authors in 1995.

Though the CMM comes from the field of software development, it is used as a general model to
aid in improving organizational business processes in diverse areas; for example in software
engineering, system engineering, project management, software maintenance, risk management,
system acquisition, information technology (IT), services, business processes generally, and
human capital management.

The CMM has been used extensively worldwide in government, commerce, industry and software
development organizations.
5.9.2 CMM is adapted to processes other than software development

The CMM was originally intended as a tool to evaluate the ability of government contractors to
perform a contracted software project.

Though it comes from the area of software development, it can be, has been, and continues to be
widely applied as a general model of the maturity of processes (e.g., IT Service Management
processes) in IS/IT (and other) organizations.
Maturity model

A maturity model can be described as a structured collection of elements that describe certain
aspects of maturity in an organization. A maturity model may provide,

A maturity model can be used as a benchmark for comparison and as an aid to understanding –
Ex - for comparative assessment of different organizations where there is something in common
that can be used as a basis for comparison.

In the case of the CMM, for example, the basis for comparison would be the organizations'
software development processes.
Capability Maturity Model structure
The Capability Maturity Model involves the following aspects:

Maturity Levels: a 5-Level process maturity continuum - where the uppermost (5th) level is a
notional ideal state where processes would be systematically managed by a combination of
process optimization and continuous process improvement.

Key Process Areas: a Key Process Area (KPA) identifies a cluster of related activities that, when
performed collectively, achieve a set of goals considered important.

Goals: the goals of a key process area summarize the states that must exist for that key process
area to have been implemented in an effective and lasting way. The extent to which the goals
have been accomplished is an indicator of how much capability the organization has established
at that maturity level. The goals signify the scope, boundaries, and intent of each key process
area.

Common Features: common features include practices that implement and institutionalize a key
process area. There are five types of common features: commitment to Perform, Ability to
Perform, Activities Performed, Measurement and Analysis, and Verifying Implementation.

Key Practices: The key practices describe the elements of infrastructure and practice that
contribute most effectively to the implementation and institutionalization of the KPAs.
Levels of the Capability Maturity Model

There are five levels defined along the continuum of the CMM, and, according to the SEI:
Predictability, effectiveness, and control of an organization's software processes are believed to
improve as the organization moves up these five levels. While not rigorous, the empirical
evidence to date supports this belief.
1. Initial (chaotic, ad hoc, individual heroics) - the starting point for use of a new process.
2. Managed - the process is managed according to the metrics described in the Defined stage.
3. Defined - the process is defined/confirmed as a standard business process, and decomposed to
levels 0, 1 and 2 (the latter being Work Instructions).
4. Quantitatively managed
5. Optimized - process management includes deliberate process optimization/improvement.
Within each of these maturity levels are Key Process Areas (KPAs) which characterize that level, and for
each KPA there are five definitions identified:
1. Goals
2. Commitment
3. Ability
4. Measurement
5. Verification

The KPAs are not necessarily unique to CMM, representing — as they do — the stages that
organizations must go through on the way to becoming mature.

The CMM provides a theoretical continuum along which process maturity can be developed
incrementally from one level to the next. Skipping levels is not allowed.

The CMM was originally intended as a tool to evaluate the ability of government contractors to
perform a contracted software project. It has been used for and may be suited to that purpose, but
critics pointed out that process maturity according to the CMM was not necessarily mandatory for
successful software development.

There were/are real-life examples where the CMM was arguably irrelevant to successful software
Level 1 - Initial (Chaotic)

It is characteristic of processes at this level that they were typically undocumented and in
a state of dynamic change, tending to be driven in an ad hoc, uncontrolled and reactive
manner by users or events. This provides a chaotic or unstable environment for the
processes.
Level 2 - Repeatable

It is characteristic of processes at this level that some processes are repeatable, possibly
with consistent results. Process discipline is unlikely to be rigorous, but where it exists it
may help to ensure that existing processes are maintained during times of stress.
Level 3 - Defined

It is characteristic of processes at this level that there are sets of defined and documented
standard processes established and subject to some degree of improvement over time.
These standard processes are in place (i.e., they are the AS-IS processes) and used to
establish consistency of process performance across the organization.
Level 4 - Managed

It is characteristic of processes at this level that, using process metrics, management can
effectively control the AS-IS process (e.g., for software development). In particular,
management can identify ways to adjust and adapt the process to particular projects
without measurable losses of quality or deviations from specifications. Process Capability
is established from this level.
Level 5 - Optimized

It is a characteristic of processes at this level that the focus is on continually improving
process
performance
through
both
incremental
and
innovative
technological
changes/improvements.

At maturity level 5, processes are concerned with addressing statistical common causes of
process variation and changing the process to improve process performance. This would
be done at the same time as maintaining the likelihood of achieving the established
quantitative process-improvement objectives.
5.10 Reference
1) Introduction to Information System – James A.O Brien (topics covered – ERP, SCM and Data
Warehousing and Data Mining)
2) Web (Topics Covered – CMM, E-Business, E- Governance, Pervasive Computing)
3) Enterprise Resource Planning – Alexis Leon – (Topics Covered - Business Intelligence)
4) Management Information System – Kenneth C. Laudon (Topics Covered – e-CRM)