BestBuy and supply chain data challenges

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CASE STUDY 1.1

LETTERS TO THE DEAD
AND OTHER TALES OF DATA DERELICTION
A retailer once launched a targeted customer marketing campaign that had but one tiny flaw: a fifth of
the intended recipients were dead. The letters for them – addressed, with impeccable accuracy, to ‘Dear Mr
Deceased’ – urged them to ‘wake up’ to what the company had to offer.
This mailshot mishap is part of a nightmarish list of corporate data blunders drawn up for the Financial
Times by Detica, a business and information technology consultancy. It includes the tale of the insurance
company that was intrigued to discover the majority of its customers were astronauts – until further
investigations showed that lazy sales staff eager to close deals had simply chosen the first option available
on the pull-down menu of jobs.
Whether grotesque or hilarious, the bloopers have a unifying theme that any business ought to note. As
companies develop ever more sophisticated ways of using data to help win new business and cut costs, the
risk is that they pay too little attention to the quality and organization of the underlying raw information. At
best, this damages efficiency; at worst it can destroy relationships and hamper efforts in crucial areas such
as fighting fraud.
‘Firms have always seen the data as the water that flows around the system’, says Philip Powell,
professor of information management at the University of Bath’s School of Management. ‘They have
invested a lot in the system – the water pipes – without really recognizing the value of the water’.
It is a problem that has come increasingly into focus as technological advances have opened up new
methods of collecting, combining and storing data. Managers have greater quantities of information than
ever before, but are in some ways less well-informed because they do not order it well.
Bill gates, Microsoft chairman, claimed last year that almost a third of information workers’ time was
spent searching for data, costing $18,000 per person per year lost productivity.
Those hundreds of forgone hours are in part a consequence of the explosive growth of the space
available for information storage. While a bulging filing cabinet is a daily reminder of the need for data
discipline, electronic file dumps can grow to gargantuan proportions unseen. They are monitored and
cleansed only by computer experts, rather than by information management professionals applying a
librarian’s discriminating eye.
Information is sometimes duplicated or out of data. A common fault is that companies lack a single
docket on each customer, supplier or employee, instead spreading information across files held in numerous
places by many departments. In the absence of a master copy, updating is done piecemeal, generating
horrors such as the ‘Dear Mr. Deceased’ letters.
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Bridget Treacy , partner at Hunton & Williams, the law firm, says companies are sometimes ignorant of
basic facts about information they hold, who has access to it, and what it is being used for. ‘If people are not
paying attention to it, of course there are going to be blunders’, she says.
A more suitable snare facing companies is their failure to consider the various possible meanings of the
information they gather. The classic example is the sales spike that causes marketing people to sniff an
opportunity, when a risk manager would scent danger. For instance, a customer starting a credit card
splurge might receive an offer for an upgraded deal, when a better response would be to launch an
investigation into card theft and fraud.
In other cases, companies embarrass themselves because their data storage systems have not kept
pace with the complexity of the information they hold. One Detica story concerns an insurer that was unable
to store separate addresses for a couple holding a joint account. When the wife left her violent husband, she
sent her new address to the company, which promptly wrote a confirmation note to her old home, where her
ex-husband was living. The company had to pay to rehouse the ex-wife in a new, undisclosed location.
The need for companies to improve their data management is becoming increasingly urgent as the flow
of information quickens and the uses to which it is put become more complex. Businesses must manage an
increasing amount of ‘unstructured data’, such as voice recordings and pictures.
Above all, the challenge for the companies is to make sure they – and their employees – use
information in ways that make them look clever rather than ignorant, or event heartless. Death, says David
Porter, Detica’s head of security and risk, is the great test of a company’s data deftness. After all, no one
wants to emulate the company personnel department that punctiliously sent out a slew of cheques for £0.00
to its ‘pension leavers’, causing distress to the relatives of all those ‘ who had ‘ left’.
(Michael Peel, FT.com site, published 3 September 2007)
Questions:
1. The case study identifies a number of problems with the way companies store and mange
information. Using your own words, identify and describe these problems.
2. According to the case study, Bill gates has claimed that almost a third of information workers’
time is spent searching for data. Why do you think this is ?
3. What are some of the consequences of relying on inaccurate information ? Refer to the case
study in your answer.
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CASE STUDY 1.2

SUPPLY CHAIN:
DEMAND FOR MORE DATA HAS WIDE IMPACT
For US electronics retailer BestBuy, having the right data really matters. Research carried out by the
company found that if a product’s height was wrong by as little as half an inch, customer returns increased
by 3.4 per cent. For a company such as BestBuy, the trend towards flat-screen TVs – which customers often
want to mount on a wall – has turned product descriptions that most shoppers once ignored into a deal-
breaker. It is part of a wider trend for consumers to want to know much more about the products they are
buying. From food to electronic goods, pharmaceuticals to cars, consumers are demanding far more
information on a product’s origins, its ingredients or materials, how it was shipped and even its impact on the
environment. But this information is absent from many companies’ supply chain management systems- or
worse, it is information they simply do not have. The problem is all the more acute because regulators are
asking companies to retain more information about the products they sell, in some cases for six years or
more. But extended supply chains and a growing use of contract manufacturing are making it hard for
companies to say, with certainly, what is in their wares.
‘Senior executives are trying to understand the risks to their business, for example ingredients that can
cause an allergic reaction but are not correctly identified’, says Bryan Larkin, director of strategy for retail
and CPG industries at data synchronization company GXS. ‘Bad data can result in brand damage’.
Improving data quality, on the other hand, can bring immediate benefits to profits. Mr. Larkin, for
example, cites research showing that suppliers to US retailers lost the equivalent of 2 per cent of gross
sales to compliance-related penalties. Typically, data errors cause companies to ship the wrong product or
quantity, or to charge the wrong price. Reducing penalties by half of 1 percentage point in a business with
10 per cent margins means a 5 per cent boost to the bottom line.
Then there is the time taken up resolving both supply disputes and product recalls.’ Handling disputes
takes up a lot of money,’ says Jon Chorley, vice-president for supply chain execution and product lifecycle
management strategy at software vendor Oracle. ‘You also have to be able to track the genealogy of the
products, which means getting that information out of the supply chain’.
Businesses that want to improve data quality face two hurdles, however. The first is how an item is
described and measured. A household chemical could be delivered to a factory in a tanker measured in
gallons, bottled in containers measured in centiliters, packed in cartons by the dozen, transported in 50
cases on a pallet and then sold in a store as a single bottle. Each organization in the supply chain could hold
the correct data for their part of the process, but still be unable to share it with the others.
The second problem is ensuring that the right parties hold the right level of information. ‘There is a cost
to every piece of information, so you have to understand the value of that information, its granular quality
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and frequency’, says Jeff Wacker, futurist at system integrators EDS.’ You need sophistication to ensure
that the information adds value to the decisions being made’.
Manufacturers might not want to share an entire recipe or bill of materials with a retailer, but the retailer
will want to know that the manufacturer can call up that information on a batch-by – batch basic, for example
if there is a product recall or a health scare. Retailers are also under pressure from consumers to provide
more data, either at the point of sale, online or in catalogues. But there is a strong chance that the financial
and technical burden for gathering and storing such data will fail mostly on producers and manufacturers; as
has largely been the case with electronic data interchange and more recently, RFID.
‘Retailers will only do something if they have to’, suggests John Davison, a vice-president at analysts
Gartner. ‘You could improve the operational efficiency of your company, but retailers are most likely to act if
it improves product availability on shelves’.
(Stephen Pritchard, FT.com site, published 19 September 2007)
Questions:
1. ‘Bad data can result in brand damage’. Explain this statement with reference to the case study.
2. The case study discusses a number of problems caused by poor quality information. Identify
and describe these problems with reference to the attributes of information quality.
3. Why do you think customers are starting to want know more about the products they buy ?
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CASE STUDY 2.1

VOLVO TRUCKS’ VALUABLE
EARLY WARNING SYSTEM
For any manufacturing company, in-warranty failures represent a significant expense. There is the cost
of the repair or replacement itself, administering the process and, often, a loss of customer good will. But an
efficient warranty system can cut these costs and more. Customer satisfaction is higher if any warranty
issues are handled efficiently and quickly. The manufacturer ties up fewer resources handling the repair,
and goods are turned round more quickly. The product itself can even be improved, if the warranty system
can feed data into both the manufacturing process and suppliers. And a good reputation for handling in-
warranty repairs will even justify a price premium in some marketplaces.
These are some of the benefits identified by Volvo Trucks, the heavy goods vehicle manufacturer,
which created a new quality and warranty analysis tool (QWAT) a year ago. The system is based around
SAS Institute’s Warranty Analytics software and an Oracle relational database. The scale of warranty
operations at Volvo’s trucks division is significant. The company currently builds about 100,000 trucks –
mostly tractor units for semi-trailers or rigs – each year. The standard European warranty on these vehicles
is one year, with some vehicles covered by a 300,000 km warranty.
‘With current production levels, and some good will campaigns, 200,000 to 300,000 trucks could
produce a warranty claim or produce a problem that ends up in the analytics system’, says Micke Rydbeck,
project manager for warranty systems at Volvo Truck Corporation. To add to the complexity, in Europe the
vehicle could be taken to any one of 1000 service points or, in North America, one of 350 sites. Added to
this, the vehicles Volvo produces are simple, commodity items. Within the annual production total, perhaps
as few as two vehicles might be identical, such is the range of variants and configuration options available to
customers.
An in-warranty failure might be the result of a particular, and quite possibly very rare, combination of
components. The new system is much more effective at narrowing down the list of vehicles fitted with a
particular part to those that are most likely to have problems. ’It might not show up as a battery problem on
each and every truck, but only when two parts are used in combination’, says Rydbeck.
The business case for Volvo’s project was based on achieving more efficient warranty claims, reduced
fraud, better reporting and improved recovery of warranty costs from suppliers. The warranty tool acts as a
valuable early warning system, helping to pick up any potential faults before they occur in a truck. Improved
trend analysis is a valuable feature of the new system: previously, quality control staff had to use three main
tools and three data sources in what was still, largely, a manual process. But the earlier the company
identifies a problem, the cheaper it is to fix. Advanced warning allows more vehicles to be examined and
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repaired during regular servicing. This reduces Volvo’s costs but critically, keeps customers’ trucks on the
road for longer.
The system also helps Volvo to give customers a wider range of configuration options without
compromising on the manufacturer’s standards or increasing support costs. ‘ We need to have a situation
where we can produce trucks built to customers’ specifications that still nurture our core values of quality
and safety’, Mr. Rydbeck explains.
Another important part of the analytics-based approach to warranty management is that it helps Volvo’s
design and manufacturing teams react to after-market problems with the trucks, and prioritise design or
production changes. These are all important benefits for Volvo customers. The project has had a significant
impact on Volvo’s after-market costs : cutting them plays a key part in keeping the manufacturer
competitive.
‘Our warranty costs have fallen by 40 to 50 per cent in the past couple of years’, says Mr.Rydbeck. ‘But
it becomes progressively harder to lower these costs and harder to find the problems that cause them. Our
warranty costs are now about the industry average, but were higher’.
He believes that the new warranty management system, and in particular its analytical capabilities, will
allow Volvo Trucks to deliver above- average service to vehicle owners while cutting its prices and
increasing per- vehicle margins.’ If we can reduce our warranty costs, it gives us room to increase our
margins while also being competitive on price’, he says.
Volvo is also using its system to detect unusual or potentially fraudulent warranty claims. The analytics
tool can go through historical claims data and identify claims that need to be checked. Rather than send a
team of auditors to look at a dealer’s books, picking random samples, it can focus on claims that arouse
specific suspicions.
‘During an audit we can focus on three, five or 10 claims that we are really interested in, rather than
picking 20 at random. Dealers are getting the message, and we are at much less risk of fraud now’, says Mr.
Rydbeck.
The system is also being implemented at US truck maker Mack and at Volvo’s bus operations. The next
step for Volvo is to extend the warranty analytics system to key suppliers, a process it started in June this
year. ‘We are opening up the system and showing suppliers information relating to them. Previously we
reported to suppliers twice a year, but now we can show quality information to them and they can improve
products immediately’, says Mr. Rydbeck. ‘Because we can share our information, we can have better
conversation with suppliers’.
(Stephen Pritchard, Financial Times, 19 September 2007)
Questions:
1. What are the benefits of Volvo’s warranty management system ?
2. In general, how does the warranty management system help Volvo to be more competitive ?
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CASE STUDY 2.2

AIRPORT CHECK-IN:
BOARD YOUR FLIGHT BY MOBILE PHONE
Ubiquitous and well entrenched as mobile phones may be, some potential uses have yet to catch on
in a big way. Such is the case with mobile check-in at airports. A passenger survey at the end of last year by
the International air Transport Association (lata) found only 2 per cent of respondents had checked in via an
SMS (text message) on their mobile phones. But that number looks certain to rise as more airlines introduce
mobile check-in – those that already have are as enthusiastic about the service as are their passengers. ’To
have your boarding pass on your mobile should be something that really excites the customer’, says Patrice
Quellette, Air Canada’s director of customer service platform, e-commerce.
Last June the airline launched mobile check-in for customers on domestic flights without baggage.
Between one and 24 hours before departure, passengers can enter basic details about themselves and their
flight into their mobile phones, then print out their boarding pass from a self-service kiosk at the airport. In
the next few weeks, Air Canada plans to start pilot testing an ‘E-Boarding passes’ service, in which 2D
barcodes would be sent directly to mobile devices of customers checking in at Montreal for domestic flights.
The customers participating in the pilot would scan their device at airport security and proceed to the gate.
Elsewhere, mobile check-in has inevitably established a foothold in countries where mobile users
have been keen to try innovative or experimental services, pushing the devices beyond simple calling and
texting. Finland and Japan are two good examples. In October 2004 Finnair claimed a first in international
air travel when it launched SMS check-in for frequent fliers. Customer feedback has been extremely
positive, it says, reflecting the fact that the airline takes a proactive approach – it sends a text message and
the customer needs only to reply. On average, says Finnair, about 75 per cent of customers that receive a
message go ahead with the SMS check-in. The system has become the third self-service channel, along
with internet and kiosk check-in, and is now comparable in popularity, with sage falling only when there is
less business travelling.
In Japan, mobile phones can be used as part of Japan Airlines’ ‘Touch and Go’ system, which was
developed in-house for use on domestic routes, and introduced in February 2005. The system allows IC
(integrated circuit) cardholders to board domestic flights without a physical ticket or boarding pass. From
three days before departure and up to one hour before the flight, passengers can make or change a seat
selection and check in via their computer or mobile phone. All relevant data for the booking are recorded
automatically on the IC card, which can then be touched or swiped at machines in front of the airport
security check points and then at the boarding gate. The number of Touch and Go users has been steadily
increasing since the system was introduced, says Ko Yoshida, JAL’s vice-president for domestic marketing
planning, and has already run into millions. Users tend to be individual business travellers.
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At rival airline ANA, check-in via computer or mobile phone has been possible for two years for
domestic flights, and if the phone has an RF (radio frequency) chip it can used to pick up a boarding pass
from a self-service kiosk at the airport. Last August, the airline introduced an enhancement known as Skip,
allowing passengers who have paid for their tickets and reserved their seats – using their computer, mobile
phone or at a travel agent – to skip check-in. One touch of their RF chip-enabled mobile phone, credit card,
ANA Mileage Club or 2D barcode to a sensor at security prints a receipt with the customers on board and a
boarding pass is then printed for final seat number verification. Skip is used by 10,000 – 15,000 customers a
day.
Individual airlines have taken the initiative on these developments and are pushing for an industry
standard that would help widen the usage of mobile check-in, lata says this is a major activity for its
barcoded boarding pass (BCBP) team this year – currently North America, the European Union and Japan
each have a preferred 2D barcode to use on mobile phones for ticketing and other applications, and the
challenge will be to agree one global standard.
There are other obstacles, too. The biggest challenge, says Finnair, is the airport authorities’
requirements for paper boarding passes at the airport service points. ’In Finland, the airport authorities and
customs have accepted our text message confirmation as proof of travel’, says the airline. ‘At most of the
airports in the world that is not the case.
Air Canada, meanwhile, is working with Canadian authorities on its Montreal “E-Boarding passes”
pilot. Talks with authorities about starting the pilot on a limited basis in June were successful, and then
further implementation would be subject to the results of the test and continued working with authorities.
Finnair notes other provisos. Mobile devices must contain the required features by default, removing
the need for customers to install software. Secondly, multimedia message service (MMS) provides a method
to deliver a 2D barcode to a customer but mobile operators need to read – just their pricing policy, says the
airline. It says roaming pricing, in particular, can be ‘a real killer’.
(Andrew Baxter, FT.com site, published 14 May 2007)
Questions:
1. What are the advantages and disadvantages of mobile check-in ?
2. How does being one of the first companies to adopt technologies such as mobile check-in
confer competitive advantage? Refer to the concepts covered in BIS and Strategic Advantage in
your answer.
3. What barriers are there to the widespread adoption of mobile check-in ?
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CASE STUDY 6.1

IT NEAR ITS LIMITS
IN SATISFYING CUSTOMERS
The customer experience used to end at the cash register. Today, that’s where it begins. ‘Woody
Diggs, leader of the global customer relationship management practice for the consultancy Accenture,
quotes this remark to illustrate how customer expectations have changed in recent years. Technology has
played a part in this change and if you look for examples, you will find plenty. Here are three:
The Santiago Bernabeu football stadium in Madrid has installed, in collaboration with Cisco
Systems, an intranet that can control remotely not only the turnstiles and lighting but also the loudspeakers
and security cameras. Epson, the Japanese electronics group, claims a 30 per cent increase in efficiency, a
38 per cent reduction in the cost of handling inquiries and a 1,125 per cent increase in online inquiries after
installing Talisma customer relationship management systems in its European call centres. Alliance 7
Leicester, the UK-based financial services group, worked with a data capture specialist, Digital Vision, to
create a fully automated account switching system, which, it says, has more than doubled the number of
customers switching their current accounts in its favour and achieved operational cost savings of 66 per
cent.
The catch is that it is always easy to find the ones that work; the failures are conveniently kept out of
sight. And customer relationship management (CMR) technology – systems designed to give companies a
single, integrated view of their customers and maintain a mutually beneficial dialogue with them – has a
patchy record of success. Richard Boardman of Mareeba CRM Consulting emphasizes the dichotomy: ‘The
brutal reality is that the majority of CRM projects produce, at best, marginal benefits to the purchaser. Which
isn’t to say’, he adds, ‘that CRM technology doesn’t produce the results; there are also plenty of
organizations enjoying very high returns’. As Spanish football fans, electronics aficionados and British bank
customers can perhaps testify.
CRM is a business problem which technology cannot solve, according to Aki Ratner, chief executive
of the enterprise software group Attunity. He says: ‘It may change the way businesses run, but it does not
address the fact that the knowledge that gives a company competitive edge is not held in structured
databases or processes but within the people who actually run the business. It is people- driven activities,
not process- driven ones, that define the real success of an organisation,’ And there are thousands of ways
to improve the customer experience, many of them involving little technology and little cost. Ed Thompson, a
senior analyst with the Gartner consultancy argues that it is a matter of expectation setting, feedback and
how organisations deal with these issues. He points to the example of Disneyworld, where the introduction
of a simple measuring stick meant an end to the disappointment felt by children who had queued for a
particular ride only to find they were too small to be allowed on board. ‘Another example is Southwest
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airlines in the US, a no-frills, low-cost airline that was looking for ways to improve customer satisfaction. It
discovered that the best way was for its staff to smile. It put in place a smiles programme and found a
positive correlation with its customer satisfaction scores.’ Mr. Thompson concludes: ‘Employees often have
the biggest impact on the customer experience. Ask customers what they want and they will often say
employees that have the power to “step outside the process”. Customer satisfaction scores are driven most
by delivering on the basics that customers expect – like stock on the shelves, clear transparent pricing, good
build quality and innovative design,’ IT only goes so far in helping with that.
Alan Cane, Financial Times, 13 June 2007 (abridged version )
Question:
Explain the quotation in the case study: ‘it is people-driven activities, not process - driven ones,
that define the real success of an organization.’
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CASE STUDY 6.2

RETAIL APPLICATIONS
OF TPS BY SAINSBURY’S
This case study of UK retailer Sainsbury’s considers the different ways in which a retailer may make
use of TPS.
The company and its customer service objectives:
17,000 commodities
aim is for no more than five commodities to be unavailable at any one time
order lead time 24-48 hours
distribution centres mange deliveries of 11 million cases to 335 stores.
How is Sainsbury’s helped by TPS technology ?
Improved customer service through more choice, lower prices, better quality of produce and full
shelves.
Improved operational efficiency by automatic links to suppliers and better information on product
demand and availability.
Assessment of the effectiveness of product promotions through availability of better information.
Marketing through customer loyalty schemes.
How does Sainsbury’s use technologies ?
At the till – EPOS and EFTPOS
On shelves – auto-price-changing LCDs
On trolleys – ‘ self-scanning systems’
At home – direct wine sales from the Internet Barclay Square site
For banking – TPS are vital to providing customer statements and cash withdrawals
In the marketing department – the effectiveness of marketing campaigns and loyalty card schemes
can be assessed using information on transactions stored in data warehouses. This type of system
is covered in more detail in Chapter 4
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Questions:
1. Draw a diagram summarizing the links between all the parties who access Sainsbury’s TPS.
2. What benefits will Sainsbury’s gain compared to the time before the introduction of TPS ?
3. Can you think of any problems with using TPS so extensively? What can be done to counter
these problems ?
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CASE STUDY 7.1

LICENSING:
HOW BUYERS CAN FLEX THEIR MUSCLES
Software licensing remains a minefield that all users - whether battle-weary or greenhorns - must
pick their way through with care. While IT suppliers like to trumpet the virtues of software asset
management, it can be user fast track to under licensing. And once users are on the back foot, suppliers can
pretty much dictate the terms of the next licence.
Seasoned negotiators encourage users first of all to get to grips with the terms and conditions of the
software licence. The focus should be to negotiate the best possible terms and then to concentrate on
fulfilling their part of the deal.
One caution from independent advisers is to beware the new trend for subscription licences.
Traditionally, licences were bought in perpetuity with a one-off payment. Subscription licences, by contrast,
offer no ownership, just renewal at regular intervals.
This advice is reiterated by the Surrey Police Force, which has just moved from a Microsoft Office of
Government Commerce Enterprise Agreement to the Home Office Master Agreement, designed specifically
for the police and criminal justice sectors.
‘We buy perpetual licences’, says Russell Fowler, ICT technical support manager. ‘The major
disadvantage of a subscription licence is that you never own it. As a result, you are never able to step out of
the agreement. If you want to use a particular product, you have to continue to subscribe – you cannot take
a break from the agreement.
And all users need to be mindful of support clauses. Within subscription licences, support is often
packaged with a ‘right to use’ aspect. Support needs to be measured and prompted by service level
agreement in the same way as an outsourcing contract.
‘The worst mistake is to think that just because you have the right of termination, you do not have to
build in other remedies’, says Kit Burden, partner with law firm DLA Piper Rudnick Gray Cary.
‘Using the “H-bomb” is not a palatable remedy. You need to incentisive suppliers properly to get it
right the first time.’
Case study: Banking on change
Burden recently negotiated a software licence for an investment bank that was procuring an online
trading application. The rate card price of the standard licence - £8.3m – was just the basis for the
negotiation.
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An important consideration was how long the user envisaged using the application. A warning signal
for Burden was that the supplier was offering a five-year licence while his client envisaged using the
software for eight to 12 years.
‘You might have a situation where the user is happily bedded in with the software after five years,
but the supplier is able to pull the rug out from under their feet because the licence is due to terminate at
that point. The danger is that a supplier can lock the user in and then rack up the licensing costs.’
Burden advised the bank to pay extra t secure a ‘perpetual’ licence, and it agreed to pay a further
£2m for this extension. ‘It is vital to get a licence long enough to get the full return on your investment’, he
says.
The other concern was to provide the bank with options to own the code or modifications, should it
later prove commercially expedient to control these. Burden renegotiated the standard licence to gain two
options.
The first option was for his client to identify functionality that it wanted developed from the core
application – spot trading, for example – and to create an exclusive licence for this part of the code.
An ‘uplift’ in price, to be negotiable according to the size of the modification, would take care of this.
The second option would be where the bank needed to take over development of the application as
a strategic move, whether to safeguard the application’s future or to ensure commercial confidentiality. This
option requires access to source code rather than object code.
If the bank ever wants to exercise this option, it will have to stump up an extra £6.8m.
‘For the right application, you may have to pay a substantial sum to get the licence you want’, says
Burden although the business benefit and peace of mind may make it worthwhile.
‘For users contemplating bespoke systems where millions of pounds will be spent on modifying a
core product, not looking at future scenarios is nothing short of criminally negligent’, he says.
Case study: The capacity model
The pattern of server deployment in Trafford NHS Trust is different to that in the private sector and it
follows that the trust prefers a different model of software licensing.
In the 15 years that Roger Fenton, deputy IT manager at Trafford, has been with the trust, it has
gone through three licensing regimes for back-up software. He is responsible for renegotiating and
introducing the most recent model for licensing back-up.
IT resources are assigned throughout the NHS on a project basis, rather than by central provision,
because of the way budget, rather than by central provision, because of the way that software licences need
to be procured.
‘We have upwards of 40 servers running various applications that all need to be licensed and
maintained’, Fenton says.
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He has just moved to a new licensing regime with his back-up supplier, Computer Associates. The
health authority now pays on the basis of total raw storage capacity rather than per server, and the licence
can be scaled up incrementally.
It is a big improvement on the previous regime, both financially and in terms of simplifying and
reducing administration.
‘The price we secured was embarrassingly good’, says Fenton, who states he saved ‘thousands’ on
the previous licensing bill of £40,000.
Savings accrue chiefly because licensing on the basis of capacity, rather than individual servers,
better suits Trafford’s pattern of deployment; as servers proliferated within its project-led culture, server-
based licensing incurred a financial penalty.
This was compounded by the fact that in the per server model, CA charges both for the software
running on the central back-up server, and for ‘agents’ that run on the application servers that are backed
up.
Keeping track of the annual maintenance charges for the separate agent licences was a major
headache. Every additional back-up agent that ran on the application servers had to be licensed, and the
maintenance fee renewed each year.
‘Potentially, we had loads of different licences to maintain, all expiring on different dates’, says
Fenton.
In addition, the overall cost of the model had become unpalatable, ‘In such an environment, each
time we bought a new server, we were talking about another £750 or more in licence fees’, says Fenton. At
the same time, server costs were falling below the £2,000 mark, making licence costs proportionately
greater.
This licensing overhead had accumulated over time, creeping up on the health trust, which, like
other former Unix users, had no previous experience of licensing back-up.
Before moving to Windows, Trafford had used Unix boxes, which have back-up built-in. Each Unix
server came with its own low-capacity tape drive, and applications were accompanied by a script for the
back-up. ‘They were turnkey systems’, says Fenton.
When the trust moved to Windows it initially repeated its approach with the Unix boxes.
‘We used individual tapes for each SQL server. It was a logical extension of what we did with the
Unix boxes. However, as the number of servers and applications mushroomed, managing tapes and back-
up programs for each server became impractical.’
There are some disadvantages to the new approach. The first is having to licence back-up in blocks
of 1 Tbyte.
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‘As you tip over into a new increment you are faced with buying a large chunk of extra capacity that
may be only partially used’, says Fenton.
A further disadvantage is the way that storage capacity is calculated – according to the raw capacity
of the backed-up drives, rather than the capacity actually utilized. The large disc installed in servers may
only be used nominally, while redundant array of independent disc (Raid) storage architectures are
designed to ensure redundancy.
‘Nonetheless, licensing capacity is cheaper and a lot less hassle for us’, says Fenton.
Beware the chamber of horrors
There are certain scenarios that users should avoid at all costs, says outsourcing broker Quantum
Plus. Above all, always remember the golden rule: there is no such thing as a standard contract.
Seemingly innocuous ‘version updates’
Relatively minor updates of the ‘0.1’ variety can incur unadvertised changes to terms and conditions
that have a significant impact on customers. For example, a version update may change the way that the
number of users is calculated or the nature of server licensing.
Obscure charging mechanisms
Be very sure of the supplier’s charging model for a licence. Is it based on the number of users,
servers or even processors ? Seemingly low-cost software can easily be installed in a non-compliant way.
For example, if software costs are processor-based, and the server is a quad processor, the result is under
licensing and a big bill.
Control of media
A number of suppliers of shrink-wrapped software have clauses in the agreement that require users
to show they control the media on which the software is distributed. Examples of control might include a
single point of contract for receipt of a disc, its safe storage, and an approval process for signing it out. A
supplier could cite a lapse in control as breach of contract.
The outsourcing clause
Supplier may try to insert into terms and conditions their right to renegotiate the licence should the
management of a asset be moved to a third party. This can be invoked for an outsourcing contract, even
when the software and server remain onsite. Suppliers may also reserve the right to charge an
administration fee to transfer the licence to the third party. Beware: the transfer fee could run into thousands
of pounds.
Enterprise licence
If you are underlicensed and on the back foot, the balance of power shifts to the supplier, who may
insist you sign up to an enterprise licence. Such a licence may appear to be all-inclusive and cover every
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eventuality, but the reality is that it will likely be accompanied by a hefty three-year or more service and
support charge that adds no value.
Source: www.computerweekly.com/Articles/2006/07/25/217102/licensing-how-buyers-can-flex-their-muscles.htm
Question:
Summaries the main differences between ‘traditional’ software licenses and ‘subscription’
licenses including their respective advantages and disadvantages.

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CASE STUDY 7.2

LASCELLES FINE FOODS
Lascelles Fine Foods (LFFL) is a fictitious example of a long-established company operating in the
food industry. The company has its administrative headquarters in Ashville and manufactures on an
adjacent site. All customer deliveries are from the Ashville-based warehouse. In addition, LFFL purchases
finished and semi-finished food products from other manufactures which it then finishes before resale.
The company has enjoyed steady growth in recent years and is now seeking to capitalize on the
current fashion for quality and healthy food products. LFFL’s turnover is £16 million with net profitability of
6.3 per cent of turnover/ It is hoping to gain a competitive edge by providing quality food products which
meet all present and anticipated quality standards and to this end will be applying for BS5750 accreditation
within the next six months. It is hoping to increase turnover by 10 per cent per year after inflation over the
next five years and increase net profitability to 9 per cent of turnover over the same period.
LFFL’s main operations are divided into four main areas:
- Sales and marketing;
- Warehousing and distribution;
- Manufacturing;
- Finance.
All information recording and internal communication is paper based and relies on range of
preprinted documents which are then used as appropriate.
The sales department
LFFL has a diverse customer base, ranging from small health food shops to major supermarket
chains. Orders can be one of two types: standard orders placed in advance for delivery in a specific week or
priority orders placed for immediate delivery.
Orders are placed either directly through sales office ‘account handlers’ or through field sales
persons (each customer has one sales person). Each customer is allocated an account handler who acts as
the main liaison point within LFFL. Besides receiving orders, the account handler is responsible for cash
collection, ensuring satisfactory progress of the order and handing day-to-day queries. Customers are also
placed into sales categories based on geographic location, volume of business and type of customer (e.g.
specialist store vs supermarket chain). The sales director is apt to change his mind about which category a
customer is in and which category means what.
Order processing
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Once an order is taken, it is recording on a preprinted order form. One copy is retained by the sales
department and two copies are sent to warehousing and distribution.
Warehousing and distribution sort all order forms into date order. When an order is due to be
delivered, products are picked from the warehouse and loaded into the appropriate vehicle.
When an order is delivered, it is accompanied by a consignment note and an invoice. The customer
is required to check the delivery against the invoice and note any errors on the consignment note and if any
errors are noted a corrected invoice is sent to the customer.
Warehousing and distribution
LFFL stores finished products, bought-in products and raw materials in the warehouse. The
warehouse in divided into three areas:
- The general zone, comprising a high-rise bulk storage area with a floor-level picking area;
- The cool zone, comprising low-level storage at 2 to 4oC;
- The frozen zone, with temperatures held to -18oC.
In addition to their role in the order processing cycle, other activities are also performed:
- Internal warehouse movements from high-rise locations to ground-level areas and vice versa;
- Receiving products and raw materials from suppliers and returned products from customers;
- Issuing raw materials to manufacturing in response to submitted requisition forms;
- Receiving finished products from manufacturing and any unused raw materials.
Information about quantities of finished goods and raw materials in stock is recorded in a card file,
which has to be searched manually for the appropriate entry when updating is required.
Manufacturing
Manufacturing ranges in complexity from simple repackaging of bulk-purchased materials to

complex mixing and cooking activities.
Recipes are recorded on 7” by 5” cards and include details of the required ingredients as well as the
processing which is to take place.
Finance
LFFL’s finance department is divided into three areas:
- Accounts payable – when LFFL makes purchases, suppliers will invoice them; LFFL uses a manual
purchase ledge to manager these accounts;
- Financial accounting – management of all monies flowing in and out of the company together with
compliance with legal accounting requirements;
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- Management accounting – internal accounting information necessary to manage the business more
effectively.
The accounts receivable area is handled by the account handlers who use a manual sales ledger
and make a weekly return to the finance department on the state of their customer’s accounts.
Specific business issues
There are a number of specific issues which relate to the activities of each department. These are
detailed below.
Sales
- The status if an order cannot easily be determined without pestering the warehouse.
- Many customer complaints occur due to delivery of wrong products, orders delivered too late,
incomplete orders and faulty products.
- Warehousing does not deliver the most important orders first – small orders are often given priority
over larger orders from major retailers.
- Orders often cannot be delivered on time because manufacturing produces too late and in
insufficient quantity.
Warehousing and distribution
- Many items have a limited shelf life – warehousing often fails to rotate the stock properly.
- Actual stock levels are rarely in step with the recorded stock levels – this may be due to pilfering,
poor update of stock records or both.
- The sales department often accepts priority orders for products which are not in stock.
- Manufacturing bypasses the normal requisition procedures and simply takes raw materials as
required – it also often fails to return unused materials to warehousing.
Finance
- The sales returns from the account handlers are often incomplete.
- There are several bad debts which cannot be recovered – this is attributed to poor credit control
procedures.
- Management accounting is very difficult due to a general lack of accurate information from other
departments.
- Financial accounts are often published late due to lack of accurate information.
Manufacturing
- Warehousing is slow to respond to requests for raw materials, thus necessitating correct procedures
being bypassed (especially when the sales department is applying pressure).
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- Lack of accurate forecasting makes it difficult for production to be planned ahead and adequate
suppliers of raw materials to be secured.
General
- There is a rapid turnover of staff, especially in the sales area where the pressure from customers
can be intense. In addition, field sales personnel are apt to make promises which cannot be kept
and new sales personnel are often thrown in at the deep end with little formal training for their jobs.
- There is a high level of sickness in the warehousing and distribution area, due mainly to inadequate
provision of lifting equipment.
- There is a perceived lack of management and technical support which has resulted in a general
lowering of morale.
Future plans
The managing director, Clive Moor, has indicated that he would like to replace the existing paper-
based systems with ‘computers of some kind’. With such a move, he is hoping to improve on the
communication of information at all levels in the organization. However, Mr. Moor knows little about
computer hardware or applications software except that it seems to cost rather a lot.
In order to proceed with the computerisation programme, Mr Moor has asked the following senior
managers to produce a plan:
- Paula Barlow – Finance director
- Terry Watson – Sales and marketing director
- Peter Jackson – Manufacturing operations director
- Frances Clarke – Warehousing and distribution director
However, these directors have varying degrees of enthusiasm for the project, together with a desire
to minimize the risk of damage or exposure within their own departments. One of the key decisions which
must be made will be how LFFL acquires the necessary applications software. One option will be to hire
relevant IT staff and build bespoke applications, while another will be to purchase off-the-shelf packages.
Yet another option will be for end-users to develop their own applications. This last option may prove
awkward, since there is very little IT expertise among the end-users.
Questions:
1. Which method(s) of business systems software acquisition would you recommend to LFFL ?
Explain and justify your answer.
2. Assuming that LFFL decides to go down the route of purchasing off-the-shelf packages, what
steps do you recommend it takes to ensure that the applications which are selected meet their
requirements ?
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CASE STUDY 7.3

LLOYDS BANK
INSURANCE SERVICES APPLIES RAD
When marketing people spot a business opportunity, it is often IT people who have to think and act
the faster.
Systems have to be put in place that meet the stipulated deadline, that work first time, and that fulfil
the expectations of users. Otherwise the opportunity could be lost forever.
That was the situation facing the computer team at Lloyds Bank Insurance Services when a new
product called MUDI (Mortgage Unemployment Disability Insurance) required a telesales quotation system
that had to be fully operational by October 2nd.
Yet it was already mid-August when David Jacklin, IT Development Manager, LBIS, was informed of
the need for new application. It was a moment he remembers well. ‘I faced the classic dilemma of no
available resource within my team and an immovable deadline’, he recalls.
However, in spite of that initial reaction and against some unexpected odds, the race against time
was won. The insurance broker’s objective was achieved with help of a hard-working software house, a
development environment toolset, and a fast-track approach called RAD (Rapid Application Development).
In fact, the entire development took just five weeks.
Reason for the urgency at the LBIS headquarters in Haywards Health, West Sussex was a
government decision to amend the rules relating to the payment of mortgage cover out of social security in
the event of a house-owner being made redundant. This opened a new insurance window which the
company was determined to exploit.
LBIS, a subsidiary of Lloyds Bank and Abbey Life, is a firm of independent brokers dealing in life
assurance, pensions and general insurance. Annual turnover is £100 million and 800 people are employed
at Haywards Health and six regional offices. A significant proportion of the company’s business is generated
through a business unit called Lloyds Bank Insurance Direct.
This is essentially a telemarketing organization based in Bournemouth. About 70 per cent of its
business comes via branches of Lloyds Bank, where advisors take an enquirer’s details and ring LBID for a
quote. The remaining 30 per cent is from people responding to direct mail of advertisement and telephoning
in direct.
A simple version of MUDI was, in fact, available at the bank branches. But there were no facilities for
accurate underwriting and anyone talking up the policy paid a straight £6.50 per £100 of cover (i.e. if the
monthly mortgage payment was £300, the premium was £19.50). The new system would incorporate a
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complex screen replacing the existing simple paper form, providing the flexibility to quote premiums
appropriate to the enquirer ranging from £4.40 to £9.40 per £100 of cover.
But first the new system had to be built. There already existing another application at Bournemouth
– BIQS (Building Insurance Quotations Service) – but this ran under DOS, so what would almost certainly
be a Windows system could not merely be tagged on.
Jacklin and his team had been looking at development toolsets and the RAD concept earlier in the
summer. They had been particularly attracted by a RAD specialist, MDA Computing, and has already met
the Croydon-based soft-ware house at the end of July.
Suddenly, with the new business-critical requirement looming, the need for RAD became urgent.
‘We had no hesitation going back to MDA. They obviously knew what they were talking about and we were
in urgent need of a system’, says Jacklin.
Some of the main attractions of RAD included the delivery of a workable first version within a very
short time-scale, testing that is integrated within the development cycle, flexibility of the specification, and
user involvement throughout the whole process.
Within days, Jacklin and his colleagues had agreed with MDA the RAD methods to be used. The
software house underlined the need for an appropriate development environment, and recommended
Enterprise Developer. This versatile toolset from Symantec had all the advanced features of a second
generation client/server development system, and this was precisely what the LBIS team sought.
Such systems are repository-based and scaleable, and – specially important according to Jacklin –
are driven by business rules so that future changes are easily made as business needs change. MDA
evaluates every tool that comes on to the client/server market and felt that Enterprise Developer offered the
best set of second generation facilities.
Next step was a demonstration of the Symantec toolset at MDA, ‘The demo convinced us. We had
looked at other development tools but they did not seem meaty enough for our needs. And although MDA
had never built anything with Enterprise Developer they were clearly keen to do so.’ Following that demo
and an agreement of project scope, work began on August 24th.
The key requirement was for a front-end system that would enable telesales staff at 30 screens to
capture a caller’s details and generate an immediate MUDI quotation. The system would be in Windows 3.1
and GUI based, essentially a classic PC LAN application. It would run a Compaq server using Novell.
However, MDA’s first task was systems analysis. At the early stage, LBIS had not formulated all
their needs – not even the design of the ‘forms’ that would appear on the screen. So MDA used RAD
techniques to work out what the requirements would be, and spent three days at LBID in Bournemouth
prototyping the forms on screen using Enterprise Developer. The software house also had to allay fears,
among a user-team with little experience of Windows, about mouse-driven systems.
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In order to get the project started, the use of a Watcom database was assumed. However, following
discussions within LBIS, it was decided that f or strategic and operational support reasons the use of Oracle
was preferred.
MDA had to accommodate a new database in already tight development cycle. The ability to adapt
to the fresh circumstances and still deliver the system on time was a big tribute to the software house’s RAD
methods and the Symantec toolset. (In fact, there were minor compatibility problems which disappeared
when LBIS upgraded to Enterprise Developer 2.5 at the beginning of November.)
The system was delivered in the last week of September for final testing in readiness to go live the
following Monday. By then, LBIS’s own technical team had adjusted the BIQS system so that the telesales
people could flip to it from MUDI, depending on the caller’s needs, with a simple keyboard Alt/Tab
depression.
On ‘live’ day, the telesales team processed 200 customer quotations with scarcely a hitch. Jacklin,
MDA and Symantec had every right to feel pleased with themselves. A business need had demanded IT
support, and that support was implemented on time.
Now the end-users, equipped with telephone headsets, enter personal details which affect ratings,
such as sex, post code and occupation, on to a GUI screen. The quotation then appears on the same
screen. There are five other, supporting screens labeled status, comments, letter print, rating and search for
existing customer.
A happy Jacklin concludes, ‘Here was a software house that gave us what we need. They were
always confident they could do something with Enterprise Developer and within time. There was no slippage
despite it being their first real use of the Symantec product and despite the change in database midway
through. I think that says something for Enterprise Developer too. And we went live on the big day.
‘We like RAD and we shall use it again. In a market-oriented organization like LBIS, we always have
a need to react to business changes quickly, and I suspect that within 18 months we could need a system to
handle all six of our insurance products.’
He adds, ‘The system had allowed LBIS to launch a more competitive product than would otherwise
have been possible, and we have sold more than we would have done. It had to be in at the right time or we
would have missed the boat. From a technical point of view, it forced us to go to Windows which was always
our eventual intention. All this, and the system will pay for itself before Christmas!’
Source: www.dsdm.org
Questions:
1. Why and how did the company choose the RAD approach used for this project ?
2. What disadvantages of the RAD method can you identify from the study ?
3. Do you think that Lloyds can be confident that future RAD projects will be successful ?
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CASE STUDY 7.4

USE OF WATERFALL V. AGILE METHODS
AT MELLON FINANCIAL
Mellon Financial’s shift to agile software development is part of an emerging trend. ‘Every
investment bank and hedge fund I’ve spoken to is looking at agile’, says Sungard’s Chapman. A relatively
new term, agile development is based on iterative development – developing software in small, manageable
chunks that can be modified as requirements change, yet using a disciplined software delivery mechanism.
Historically, the software development approach used throughout Wall Street has been the ‘waterfall’
method, which calls for strict, lengthy analysis and documentation of requirements. For a one-year project,
for example, three to six months might be spent on needs analysis. ‘The business people are expected to
define 100 percent of their requirements up front before the project even starts’, Chapman says. ‘People get
stuck in this analysis paralysis – they spend months and months trying to define what they want.’
Another three to six months can be devoted to software design, then the actual program finally is
written. ‘Inevitably what happens is requirements change, integration becomes very difficult and all the risky
software development happens at the end of the development effort’, Chapman explains. ‘The waterfall
approach has a horrible track record of delivery.’
Agile software development is designed to delivery software more quickly yet maintain high quality.
In agile methods, every two or four weeks, businesspeople get a small amount of code to review and the
opportunity to change the requirements. ‘Imagine a hedge fund where traditionally a new credit derivatives
trading system would take a year to build using the waterfall approach, with businesspeople writing six
months’ worth of documentation versus using an agile approach, where some of the system is delivered in
two weeks, and it’s OK if you change your mind’, Chapman says. ‘For the hedge funds particularly, agile is
an extraordinarily good fit because the portfolio managers want to get things done quickly.’
But you every project lends itself to short iterations, Chapman concedes. ‘On Wall Street it’s not so
easy because there are a lot of other systems you need to integrate with’, he says. ‘But I think there are
parts of agile you can use on every project to improve it.’
Agile development had three levels: developer, project and enterprise. ‘Nobody on Wall Street is
using agile at the enterprise level’, Chapman says. ‘A lot of education needs to take place within the banks –
it’s going to take some time. But I think every project could gain some benefit from trying to break down the
project into more manageable chunks that can be delivered in a more iterative and agile way.’
Agile methods even improve software quality, Chapman contends, because they emphasize testing.
Agile methods encourage developers to do their own testing. Agile methods encourage developers to do
their own testing, often code and to develop automated testing routines for the programs they deliver.
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‘Agile development approaches and CMMI are compliant with each other – you can use CMM and
CMMI to make agile software development better’, Chapman adds. On the other hand, he asserts, trying to
use CMM and CMMI on top of waterfall development approaches will just weigh projects down with
bureaucracy and paperwork.
Source:
www.wallstreetandtech.com/advancedtrading/showArticle.jhtml?articleID=199601961&cid=RSSfeed_TechWeb
accessed via www.computing.co.uk
Questions:
1. What does the observation that ‘requirements change, integration becomes very difficult and
all the risky software development happens at the end of the development effort’ suggest
about the traditional waterfall approach to software development with respect to system
design?
2. Do you think there are any dangers in trying to take short cuts around the traditional approach
to systems design ?

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ACTIVITY 8.5
DETAILED WEIGHTED ANALYSIS
OF AN ERP SOFTWARE DECISION
Table 8.5 shows an analysis for three products from different suppliers that were compared across
many factors to establish which was most suitable. This type of detailed analysis is usually conducted when
a new system costs tens or hundreds of thousands of pounds. The grand total shows that Supplier 3 is the
clear winner.
Table 8.5 - Detailed weighted analysis for ERP software
Weighting Supplier Supplier Supplier

Decision criteria
factor 1 score 2 score 3 score
A. General functionality
Receive information 70 60 60 60
Verify cut quantity 70 30 40 80
Schedule operations 80 56 56 56
Monitor schedule execution 80 40 40 68
Verify shop data input 80 64 64 64
Verify parts loss reporting 70 28 56 56
Detect labor variances ? 60 30 36 42
Provide real-time status 60 24 19 43
Provide capacity planning ? 70 56 40 50
Calculate incentive pay 70 30 25 35
Provide needed flexibility 80 65 50 55
Verify inventory data entry 60 42 42 42
Provide operation history 60 32 40 42
Provide security 90 30 36 36
A. Subtotal 1000 587 604 729
B. Technical considerations
System reliability 100 56 56 56
Compatibility with other systems 100 56 56 56
Cross-module integration 100 45 70 65
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Implementation time 100 45 70 65

Ease of customisation 100 60 48 56
B. Subtotal 500 262 300 298
C. Other considerations
Cost 60 36 48 54
Service and support 90 45 50 57
Vendor vision 70 25 25 40
Confidence in supplier 80 35 45 65
C. Subtotal 300 141 168 216
Grand total 1800 990 1072 1243
Questions:
1. Review the different categories and the criteria within them. Do you think that the weighting
factors are valid? Are there other factors that might apply for ERP software ?
2. Look in detail at the values for each product. Comment on the basis for deciding on individual
scores.
3. Given possible deficiencies in 1 and 2 above, comment on the suitability of this technique for
making a decision. Would you use it and why? What would you do differently ?

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CASE STUDY 8.1

SEDGEMOOR DISTRICT COUNCIL
Quick availability or information increases efficiency and reduces costs
Sedgemoor District Council is improving the availability of information online to enhance customer
service, increase the efficiency of accessing information and reduce data management costs. The council is
now in a position to remove its planning department’s legacy data management system (DMS), as it had
complete migrating information to its electronic document and records management (EDRM) system, Trim
Context from Tower Software.
Craig Wilkins, information system manager at Sedgemoor District Council, says archived material for
planning stretches from 1974 to 1995. ‘It was in a proprietary DMS but it has been migrated to our EDRM
system and been made available to the public online’, he says.
‘Dropping the DMS means we can improve efficiency and save about £7,000 annually on
maintenance and server hardware. Making planning documents available online has also reduced the
number of phone calls to the council.’
The aim is to replace paper-based systems and integrate all systems with the EDRM software to
centralise the storage and management of all documents, and to remove legacy DMS applications. ‘We now
have a million records in the EDRM system out of 7.5 million documents. We have a variety of systems
covering 14 different business areas and EDRM will underpin them all to attain availability of information
accurately’, says Wilkins.
‘New documents go into the repository as well as archived data being migrated. We can scan
documents into EDRM and recycle paper documents, reducing storage costs. We also aim to specify
retention policies for data to improve information lifecycle management.’
The council had started to fully integrate its Goss iCM content management system with its EDRM
software to assist in making data available via its web site.
As volumes of data multiply, the council has also installed a storage area network to support EDRM.
‘We are scanning documents into the EDRM system and populating the back-office systems with metadata.
We are having to key in metadata manually but the aim is to automate this process, perhaps through a
barcode system, although there is a question over how much metadata a barcode can contain’, says
Wilkins.
Recently the council received confirmation that it is likely to be one of the first local authorities to
comply with the Code of Connection requirements for connecting onto GCSx, part of the Government
Connect programme to provide a common infrastructure for secure electronic transactions between local
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and central government. Other benefits include making council reports, agendas and minutes available
online – and using Goss software in conjunction with EDRM to ensure the correct document versions are
published online in each service area. The ultimate goal is for the EDRM system to make information readily
available to support customer services through all access channels – the internet, face to face and by
telephone, says Wilkins.
Lisa Kelly, Computing, 11 Oct 2007,
www.computing.co.uk/computing/analysis/2200923/case-study-sedgemoor-district
Questions:
1. Given the intangible nature of some of the benefits from the new information systems, how
might the council have gone about making the investment decision ?
2. Analyse the initiation part of the project in terms of the internal and external factors driving the
systems acquisition process.

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CASE STUDY 9.1

PUTTING AN ALL-INCLUSIVE PRICE TAG
ON SUCCESSFUL IT
Failure to derive the expected benefits from IT systems is legendary. Yet organizations still fail to
recognize or accept why this occurs and generally do little to address the root cause in any meaningful way.
The first place to look is the application of the Return on Investment (ROI) tool as the arbiter for
benefits delivery and the subsequent plans for implementing the systems. An ROI is required by most
organizations, but the tool is often applied without fully understanding all of the cost components (full
disclosure)
By definition, IT projects tend to focus on dealing with the technical issues. It is these that get
measured as the cost side of the change – usually the cost of hardware and software with some allowance
for training. Typically, costs are grossly underestimated (often 40 per cent or more) by failing to consider
precisely those factors that are needed to deliver the return.
ROI is a technical measure talking expected returns and expected costs to determine the worth of
the investment. The key word is ‘expected’. The reality, of course, is that the ROI calculation is no more than
a forecast, based upon someone’s view of the costs and benefits. Realising the benefits forecast is where
the hard work arises, there is often a drastic underestimate of the efforts required to ‘make it happen’. The
underestimates are generally in:
- ensuring compliance with the business strategy;
- aligning the people with the processes the business is changing to;
- ensuring that behaviours are commensurate with the required new ways of working.
This assumes processes are being changed – otherwise where are the benefits coming from?
Which means there is an implicit assumption that people somewhere will be doing something differently. It is
the need to ensure and facilitate this change that generates a high proportion of the total project costs. By
including these costs some projects start to appear unprofitable. This, of course, is generally not in the
interests of any systems suppliers. It may, however, stop some projects from getting off the ground and
avoid some of the overspending we have seen in the past. If the way things are done in the business is
being changed the there is a need to understand what that change means. There is a range of
implementation approaches taken by companies including:
- simple ROI and the ‘stuff it at ‘em’ approach that follows the principles of ‘if we tell them what to do
and give them a bit of training then they’ll make it work’;
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- a considered approach that defines real business need and vision but then fails to communicate this
through to the ‘what’s in it for me’ messages and thereby does not connect with the users;
- development of a system that involves some users early and is well communicated to staff, but is not
properly aligned to the organisation’s strategy and owned by specific, accountable people in the
business.
Quite often, once the decision to invest is made, technology projects are devolved to the IT
department who are then responsible for overseeing through delivery and implementation. Often these
technically focused people are poorly qualified to understand and business nuances and may not have the
required communications skills. Over and above this, who looks at the changes required in human
behavior? Who is addressing the motivational issues that will get the right people doing the right things?
A framework can be proposed to improve chances of success. This is based around the simple
model of People, Process and Technology (PPT) with the added element of environment or context (PPTE).
Context is the first parameter to get right. How does the development proposed relate to the business
strategy? What is the desired outcome for the development, in business benefit terms, so that we know what
is to be delivered and why? After thinking through the application needs and functions, the next useful
question is how is it to be delivered? This should be viewed as problem that the business deals with rather
than abdicating it to the IT group.
Costs can then be assessed in outline for the whole PPTE model. This may include some scenario
planning work fully to appreciate the different ways that the system may work, and identify the best options,
prior to getting the technologists involved. A full disclosure ROI can then be calculated that takes all benefits
and PPTE costs into account. This should include all of the people costs for effective change, from
ownership and visions through stakeholder buy-in, to positive, user-led adoption. Decisions to proceed are
now likely to be better informed and can be done on all fronts of process, technology and people readiness,
perhaps with the ‘go’ decision requiring people readiness to be assured.
Truer costs will be understood and the full implications of benefits will emerge. The business’s
responsible project owner will now have a budget that allows them to plan from concept to execution with
holistic consideration of all PPTE elements. This will give positive adoption of systems that are pulled
through by users who expect what they get and get what they expect. They will ‘pull’ the system through
rather than having it shoved at them.
Ron Barker, Financial Times, 30 May 2007
Question:
Discuss the difficulties in estimating the costs and benefits of an IT project.

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CASE STUDY 9.2

LESSONS FOR BUSINESS
FROM THE PUBLIC SECTOR
Stephen King, the thriller writer, might be hard pressed to top some of the horror stories generated
by public sector information technology project. That’s an exaggeration, of course, but only just.
Take the UK’s Child Support Agency, charged with tracing absent fathers and forcing them to pay
child maintenance. The agency is in the process of being abolished, the consequence of an IT foul-up which
meant a government watchdog discovered that costs were eating 70p of each £1 it collected and that it had
a backlog of 300,000 cases. The system, developed by EDS, the US group, at a cost to date of about
£539m is through to have 52 critical faults of which 14 cannot be easily corrected. The CSA has had to
process thousands of cases manually because of system failures. The CSA story is chilling, not least
because of its human implications, but it is almost normal for an industry in which, according to analysts, an
IT project is more likely to be unsuccessful than successful and the bigger the project, the more likely it is to
fail.
There is no real difference between public and private sector projects in this respect. Public sector
failures, however, are more visible and attract media attention more easily. Here is Sir Andrew Turnbull, now
Baron Turnbull, the former UK cabinet secretary, the man with ultimate responsibility for government IT,
talking on the subject before leaving office: ‘There have been plenty of projects, large and small, that have
come in on time and to budget. Of course, you don’t tend to get headlines announcing “Government project
completed on time and to budget. No major problems encountered. Improved services delivered”. The
media inevitably focuses on those projects at the other and of the spectrum.’
This view resonates with Malcom George, executive director, government relations, for EDS in
Europe. He says public sector projects are on a scale rarely seen in the commercial sector and that scrutiny
tends to highlight failure. Successes, such as EDS’s Oyster card payment scheme with London Transport
rarely attract plaudits. Mr George says the most important lesson the commercial world could learn from the
public sector concerned the benefits of sharing pool of knowledge of what makes projects work and what
does not. Competition militated against such sharing, he said.
It is true that successful public sector projects rarely attract standing ovations. In 2002, the UK
government’s Swansea-based Vehicle and Driver Licencing Agency (DVLA) initiated a project to enable
British drivers to license their vehicles either online or by telephone. At present, most drivers renew their
licences at a post office. The system was built in collaboration with IBM at a cost of £30m. At the peak, 80
IBM staff and 20 DVLA IT specialists were involved. Today, two years after completion on time and budget
3m drivers have used the system successfully and it is attracting users at the rate of 400,000 a month. It can
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be counted as an unqualified success. But it was not a simple project. A licensing authority has to be sure a
vehicle is insured, has passed its roadworthiness test and that payment has been made before a licence
can be issued. The DVLA database had to be linked to the motor industry insurance and roadworthiness
database. And a payment engine with links to the banks had to be created. Julie Palmer, the Vehicle
Programme Manager in charge of the project, says it was important that DVLA and IBM shared the same
vision: ‘To the outside world, we looked like a single team.’ The ground rules were agreed at the start: these
included the degree to which risks were shared and the rules covering change management, the most
critical issue in any big project. Andrew Rhodes, planning and performance manager, pointed to the efforts
made at the beginning to ensure that what was delivered was what customers wanted: ‘The secret in
defining a product your customers will want to use. We could simply have mirrored the existing paper
process but we redefined it in a way that not only met our needs but also out customers’ expectations of
ease of use.’
Nevertheless, there are significant numbers of projects that have lost their way. The Standish Group
in the US has been at the forefront in analyzing and classifying these failures: its 1995 report is regarded as
a classic. Its lasted survey of 9,000 IT projects, more than half of them in the US, suggests that 29 per cent
were successful, 53 per cent were late and/or over budget or with less than optimal functionality and 18 per
cent were cancelled or never used. More recently, the Standish Group’s methodology has been queried,
does it select for failure?, but the fact remains that the rate of failure of big projects is unacceptably high.
Why do IT projects founder? And what can the business world learn? Among the most important is a
failure to align project objectives and the organisation’s strategic priorities, an example being a US
insurance group that took three years to finish a one year marketing project, only to find the product in
question was being sold. A second reason is a lack of ‘ownership’ of a project by senior management. This
comes up time and again in studies: a project needs a champion at senior level who is responsible for
bringing the scheme to fruition on time and to budget. Third, some projects are simply too large to be
managed effectively. More recently, there has been a trend to tackle automation in small steps, linking
successful projects together to create a seamless whole as a final stage.
These issues are underlined by Graham Kemp, in charge of public sector business for Sun
Microsystems in the UK, whose customers include the health service, the Inland Revenue and the Home
Office. He says communication is critical: ‘I think that when projects fail, it is because the rigour around
communications or review and inspection is not what it could be.’ ‘For those engaged in the project, it is
fundamental that all stakeholders are excellent communicators.’ Not engaging all the stakeholders in the
aims and objectives of a project is frequently quoted as a cause of failure. The DVLA licensing project
involved representatives of everybody affected at each stage. Mr Kemp points to the importance of
established and proven methods of project management such as Prince2, a methodology which takes as its
starting point the business case for a project and provides guidance at each stage. He also stresses the
importance of ‘Gateway’ reviews, in which independent scrutineers assess high-risk projects at critical
stages in planning, procurement and implementation, rating them red, amber or green. ‘The proper review
mechanisms have to be in place’, Mr Kemp says. ‘The projects led by governments are sometimes just too
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big. If they were segmented, then some risks could be mitigated by people with appropriate competences.
Projects and subprojects would be more manageable.’ So the public sector patient is responding to
treatment, if not yet out of intensive care. Is the private sector taking the same medicine? And would we
kmow? ‘The private sector keeps its mistakes to itself’, Mr Kemp notes.
Alan Cane, FT.com site, published 4 October 2006 (abridged)
Questions:
1. What reasons does the case study indicate are responsible for project failure ?
2. What steps can be taken to reduce the risk of project failure ?

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CASE STUDY 13.1

AGILE DEVELOPMENT CAN MAKE
BUSINESS QUICK AND LIGHT
But ICT must communicate its benefits if managers are to accept it
Agile software development can prevent organizations becoming locked into yesterday’s ideas and
business strategies, but it makes some managers nervous, experts told New Zealand Computer Society
members at a recent NZCS meeting.
Agile software development is one way IT can guard against becoming an anchor weighing down
changing businesses, according to developer Shane Hastie. Rigid specifications and inflexible development
techniques can lock organizations into yesterday’s ideas and also inhibit commercial evolution. Management
can appreciate the benefits of agile development techniques – but only if these benefits are communicated
properly, he says.
Hastie, who is chief knowledge engineer at Software Education Associates, was one of two
developers who addressed a well-attended NXCS’ birds of a feather’ session on agile development, held in
Wellington earlier this month.
Fellow presenter Stephen Hilson, who currently works for Telecom, says both general and ICT
managers are nervous about the less structured nature of agile methods, especially when it comes to
mission-critical disciplines, such as telecommunications.
Telecom fits agile practices around a skeleton of more conventional waterfall-style development –
starting with a complete specification and working through design, coding and testing stages linearly, says
Hilson.
The essence of agile development is the creation of small pieces of a program, a process that can
sometimes lead to a realization that the original design of that part of the program either won’t work or
should be revised. This results in iterative redesign and re-coding, independently of other parts of the
development.
Superficially, this process looks unstructured, but requirements’ churn’ is actually a fact of
applications development life, the speakers say. In an agile environment, realizing work is off-track often
means that only a little work has to be thrown away, says Hastie.
In contrast, a misconceived design, based on a monolithic specification, could mean throwing away
much more, with major impact on the project schedule. This is important in resource-constrained New
Zealand, he says. And, if the completion target is hard to see at times, agile techniques can at least ‘deliver
enough to keep the business moving forward’.
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The speakers acknowledge that, with agile development, the final product can be quite different from
that originally planned. But it tends to be more aligned with the business’ needs at the time of completion –
rather than its needs at the start, which may now be outdated.
If management and users are involved, they will understand the logic of the way the ICT team
chooses to develop.
‘Two of the most important factors are a high level of customer involvement and chief executive
support. If you have those, you will succeed no matter what technique you’re using’, says Hastie.
The essence of agile development has been known for 10 to 15 years, and recognised as good
practice, Hastie says. The essentials are programming with teams of peers, quick turnaround of small
modules, close contact with customers, and a daily ‘stand-up’, where developers report on the work they
have accomplished since the last meeting, as well as what they plan to do next and any obstacles they have
encountered.
Agile methods – branded as such around 2001 – ‘pull all these good practices together’.
Adapted from an article by Stephen Bell, 13 August 2007.
http:// computerworld.co.nz/news.nsf/devt/943AA253F4D6EADFCC257333000EAF06
Question:
What do the differences between the traditional waterfall model and agile development methods
suggest about their respective applicability to the strategic alignment of business and IS/IT strategies ?

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CASE STUDY 14.1

WHY DO PUBLIC-SECTOR PROJECTS FAIL ?
Back in the spring of 2007 a doctor application system which was supposed to match junior doctors
to specialist training posts was shelved by ministers. Doctors complained that the system – the medical
training application service (MTAS) – was profoundly flawed and that many juniors had been unfairly
treated. The reorganization of training and the application process meant that 30,000 doctors were chasing
just 32,000 posts in a system poorly thought through. Astonishingly research suggests that one in five
doctors have even considered suicide, such is the depth of the fiasco.
And the story didn’t end there. The MTAS site has also allegedly been the subject of two security
breaches, which caused the opposition to call for the resignation of the then-health secretary, Patricia
Hewitt.
But in the world of public sector technology initiatives, this story was the most recent in a long line of
blunders. One of the most troubled technology outsourcing cases was that of the now defunct Child Support
Agency. The outsourced IT system was at the root of the agency’s problems. An investigation by the
National Audit Office (NAO) found that ‘go live’ of the system had been authorized, despite the CSA and its
supplier being aware that there were 52 defects within the system. The NAO branded the project, ‘one of the
worst public administration scandals of modern times’.
These and other examples of outsourcing have been very damaging to public sector organizations
for a range of reasons. There is of course the waste of money and other resources. Public sector
organizations are effectively answerable to taxpayers – wanton waste of public funds does not bode well for
good relations. These public sector technology catastrophes also attract a good deal of negative publicity –
this can do serious amounts of damage to the organisation’s reputation and dent stakeholder and taxpayer
confidence in the ability of the organization to do a good job. Just look at the CSA – the situation
deteriorated to such an extent that the entire organization was scrapped.
The fact that public sector technology and outsourcing projects go wrong so regularly means we
aren’t surprised by these failures anymore. Public sector projects are so tainted by their poor track record,
expectations are set very low and they now have little to live up to. So why do these failures keep
happening?
There needs to ne an element of realism when looking at major technology projects. The sheer
scale of the larger projects means that inevitably there will be problems along the way. The problem with
many of these initiatives is that the parameters of the project and contract provisions are tightly defined and
the contracts are not managed effectively by the same team through the project lifecycle. When a problem is
encountered often the first reaction of the public sector is to seek to avoid any blame.
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History has taught us that errors and mistakes should be expected and factored in to the way that
contracts and projects are managed. A shift away from the blame culture to an environment where
successful delivery is valued above all else is required in order to increase the probability of problems being
detected at an early enough stage for them to be dealt with appropriately in a way that works for the supplier
and the public sector.
Problems often arise around the cost issue. Cost is often cited as a major driver in technology and
outsourcing projects. Whilst it is undoubtedly important, public sector organizations have to be wary they are
not blinded in the quest for squeezing as much value for money as possible out of the supplier. This
procurement – led approach to technology and outsourcing cab be problematic as it leaves very little scope
for innovation in the project and makes it much more difficult to cope with problems when they arise.
What appears to be the cheapest deal is often the worst as frequently the service will be
compromised or the final cost will spiral because it was unrealistic in the first place. Of course as a spender
of public funds those in the public sector feel an obligation to get the best deal but nailing the supplier to the
wall financially can often backfire. End users need to realize that any mentality of ‘the cheapest wins’ means
that the more realistic suppliers will be missing out on contracts.
Problems in technology and outsourcing deals can often arise when there are unclear lines of
responsibility both within the public sector and between the public sector and the supplier. Drafting a
contract with clear responsibilities and then managing it appropriately deals with the responsibility between
the public sector and the supplier. However, it does not deal with the constant reorganization that takes
place at central and local government level or the constant churn of ministers and officials on projects.
With this sort of fundamental change, is it any wonder that there is not a great track record of
successful delivery of major technology projects? Failures are often attributed to the supplier but as in any
relationship it takes two to tango. A blame culture often comes to the fore when things go wrong, with the
end user blaming the supplier as operations were not executed to their satisfaction and the supplier blaming
the end user because they were negotiated right down on costs.
Problems worsen as the two parties are more concerned with absolving themselves of wrongdoing
than they are with rectifying the issues. Since differences or disputes are inevitable in relation to large-scale
technology projects, mediation and adjudication – which exist as legal mechanisms for resolving disputes –
should be more widely utilized. Adjudication is a particularly useful dispute – resolution process for obtaining
swift results which has yet to find favour on large-scale technology projects.
From all the press reports that circulate about these problematic projects, it would seem that they
invariably involve the same circle of suppliers. This understandably begs the question, why on earth do
public sector organizations keep selecting them? One of the major problems in the public sector today is the
lack of competition amongst suppliers.
The principle reason behind this is the protracted and complex tendering process that suppliers have
to go through. Far from these being an alleged ‘inner circle’, organizations really are limited when picking a
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vendor for projects of this size. More choice would be likely to mean better service. But with such hurdles to
overcome how can smaller, quality suppliers compete in the public sector market? And how can end users
avoid the obvious choice?
Public sector organizations need to take a more strategic approach to outsourcing. They need to
ensure they have a dedicated team that manages the process full time, constantly reviewing existing
contracts and looking for improvements and innovations. Instead of using a ‘one-stop shop’ supplier the
public sector should look to use specialist suppliers for different aspects of a project. This gives smaller
companies a chance of a contract but also gives the end user access to.
Unfortunately the need for an ‘intelligent client’ is often overlooked – with the very expertise the
public sector needs to manage its IT suppliers being outsourced to those suppliers. Public organizations
shouldn’t be held to ransom by a private organization. If they spread the work and therefore knowledge
between a range of suppliers or keep some knowledge in-house then this won’t happen.
The public sector boom of technology outsourcing definitely set to continue but public sector bodies
need to learn lessons from their private peers. Successful delivery needs to be valued within the public
sector more than simply not being to blame for problems. The key to successful delivery is to have continuity
of personnel throughout the project lifecycle; a sensible, balanced contract managed appropriately; effective
dispute resolution; and the retention of an ‘intelligent client’ on the public sector side.
Paul Bentham, July 2007, www.silicon.com/publicsector/0,3800010403,39167934,00.htm
Questions:
1. Public-sector information systems projects have had a chequered history. Is the national
programme for IT proving to be any different from some of the flascos that have preceded it ?
2. The national programme for IT involves a substancial increase in outsourcing. What are the
likely benefits and risks associated with this approach ?
3. Could the COBIT methodology be applied in this context ?

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MÔN HỆ THỐNG THÔNG TIN QUẢN TRỊ

CASE STUDY 1.1

(Michael Peel, FT.com site, published 3 September 2007)

CASE STUDY 1.2

(Stephen Pritchard, FT.com site, published 19 September 2007)

CASE STUDY 2.1

(Stephen Pritchard, Financial Times, 19 September 2007)

1. What are the benefits of Volvo’s warranty management system ?

CASE STUDY 2.2

(Andrew Baxter, FT.com site, published 14 May 2007)

1. What are the advantages and disadvantages of mobile check-in ?

3. What barriers are there to the widespread adoption of mobile check-in ?

CASE STUDY 6.1

Alan Cane, Financial Times, 13 June 2007 (abridged version )

CASE STUDY 6.2

The company and its customer service objectives:

order lead time 24-48 hours

distribution centres mange deliveries of 11 million cases to 335 stores.

How is Sainsbury’s helped by TPS technology ?

Assessment of the effectiveness of product promotions through availability of better information.

Marketing through customer loyalty schemes.

How does Sainsbury’s use technologies ?

At the till – EPOS and EFTPOS

On shelves – auto-price-changing LCDs

On trolleys – ‘ self-scanning systems’

CASE STUDY 7.1

Case study: Banking on change

Case study: The capacity model

Beware the chamber of horrors

Seemingly innocuous ‘version updates’

Obscure charging mechanisms

The outsourcing clause

CASE STUDY 7.2

LFFL’s main operations are divided into four main areas:

- Sales and marketing;

- Warehousing and distribution;

The sales department

Warehousing and distribution

- The cool zone, comprising low-level storage at 2 to 4oC;

- The frozen zone, with temperatures held to -18oC.

- Issuing raw materials to manufacturing in response to submitted requisition forms;

Manufacturing ranges in complexity from simple repackaging of bulk-purchased materials to

LFFL’s finance department is divided into three areas:

Specific business issues

Warehousing and distribution

- Paula Barlow – Finance director

- Terry Watson – Sales and marketing director

- Peter Jackson – Manufacturing operations director

- Frances Clarke – Warehousing and distribution director

CASE STUDY 7.3

CASE STUDY 7.4

Table 8.5 - Detailed weighted analysis for ERP software

Weighting Supplier Supplier Supplier

Implementation time 100 45 70 65

CASE STUDY 8.1

Lisa Kelly, Computing, 11 Oct 2007,

CASE STUDY 9.1

- ensuring compliance with the business strategy;

Ron Barker, Financial Times, 30 May 2007

Discuss the difficulties in estimating the costs and benefits of an IT project.

CASE STUDY 9.2