The Business Value of Information Systems. Case Study: Amazon.Com

THE BUSINESS VALUE OF INFORMATION SYSTEMS CASE ruminate AMAZON Isabel Maria Arroyo Moreno backup reading Technology Module BSc duty expressive style with HR Greenwich School of Management, University of Plymouth (London) Submission date 8th declination 2011 Word count 2. 776 T qualified of Contents Executive Summary4 The byplay shelter of Information dodges5 Introduction5 wrinkle Value of Information5 Business Information Management finished Information Systems6 The Value of Information Systems6 node Relationship Management (CRM) Systems6 try Resource Planning (ERP) Systems7 Supply strand Management (SCM) Systems8 Information Systems and the ever-changing Business environment8 amazon. com Information Systems10 Introduction10 amazon. coms Information Systems Value10 viragos Customer Relations Management (CRM) body11 CRM System Business Value11 amazons effort Resource Management (ERP) System Value13 virago. coms Supply arrange Management (SCM) governance13 amazo n. coms SCM carcass Value13 amazon IS and the outdoor(a) changing environment . 5 Conclusion 16 ? Executive Summary Business schooling trouble requires the example of selective breeding strategys, which make possible the conversion of entropy into utile knowledge to be customd by conclusiveness makers in schemes (Chaffey, 2004) The acquisition and further deployment of much(prenominal)(prenominal) corpses requires boldnesss to make expensive investments prior to know whether they ar going to produce the desired pipeline improvements. at that steadfore, delivering nurture for funds from nurture systems investments has become a very serious issue for numerous organisations. There are several examples in both the private and public arena of expensive failures, but there are fewer published cases of advantage (Ward, 2006) The purpose of the present paper is to explain how furnished logical argument value emerges from the affair of knowledge systems. The paper begins with a review of the related literature and then, it takes a practical approach finished a case believe depth psychology which intends to set out the value of nurture systems to a successful organisation such as Amazon.Therefore, the case study pull up stakes illustrate how contrasting information systems establish enabled Amazon to achieve a solid warring advantage by improving its marketing techniques and the efficiency of its distribution take in a time in which the fast development of technologies establish come to redefine the commerce model within the retail industry. Indeed, the use of Internet has changed the way in which people acquire goods and services, and nowadays there is a strong shift towards online shopping that is forcing retailers to go onto the Net if they want to prevail competitive.In this regards, Amazon has been a pi geniuser in development information systems to anticipate changes in the retail industry environment, and in leaveitio n, it leave behinds the unadulterated example of how a phoner butt end obtain value for money from information system investments. ? The Business Value of Information Systems Introduction Business information c demeaning is indispensable to organisations in launch to support strategical decisions. Information adds value to organisations as it allows improving merchandises and services, reducing business be and developing new innovations.Information systems are used in put up to manage business information in such a way that allows organisations to increase gainfulness, to improve productivity and to gain new(prenominal) intangible asset benefits with the prey of achieving sustainable competitive advantage and company success. In addition, the use of information systems allow organisations to adapt to external changes in the business environment, otherwise they could not remain competitive. Business Value of InformationInformation precaution is essential to businesses in dress to support operational processes, organisational performance, and strategic decisions affecting their moorage in the market place. cor reply to Marchand (2000) information can create value for organisations by Adding value to products and services through and through a better taste of client characteristics and needs, as customer activities are monitored to develop competitive strategies. trim equals and making business processes and trading trading operations more efficient, as information enables organisations to use fewer resources and to improve conference. Supporting organisational strategic decisions and servinging with chance vigilance valuatement Enabling innovations and new product and service developments (Chaffey, 2004 Oestreich, 2010) Business Information Management through Information SystemsBusiness information management involves the use of information systems (IS) which, according to the UK Academy for IS, are the means by which organisations and people, employ information technologies resources, gather, process, store, use and disseminate information. (www. ukais. org Chaffey, 2004) Therefore, IS are computing machine based systems that collect, process and stores data, making possible its conversion into useful management information data mining process- to be used by decision makers within organisations. (Davis & Olson, 1985 Lucas, 1990 McLeod, 1995 cited by Ramesh, 1997).The Value of Information Systems During the 1990s, there was a bully argument about the real value delivered by expensive organisational investments on IT and IS, as studies found out that there was weak correlation mingled with IS investments and increased business performance (Solow, 1987 Brynjolfsoon, 1993 Strassman, 1997 cited by Dans, 2003 Chaffey, 2004) However, studies by Delone and McLean (1992, 2003) and by jacks (2009) demonstrated the importance of IS to the creation of business value and competitive advantage. Jacks, 2011) According to Jacks (2011) IS make organisations successful by either Increasing profitability gross tax income growth, profits, ROI, reduced be, market share increase. Increasing productivity business process outcomes, operational efficiency, service performance Intangible benefits customer bliss and trueheartedty, industry performance, quality improvement. Customer Relationship Management (CRM) SystemsCRM systems are think to build and sustain long-term business relationships with customers of an organisation. Organisations may increase their profitability if they can retain customers and denounce additional products to them. Research by Reicheld and Schefter (2000) showed that by retaining 5% more customers, online companies can increase their profits by 25% to 95%. (Chaffey, 2004) Consequently, CRM systems focus on the activities aimed to market products and services to customers in a more efficient way.By understanding customer characteristics and needs, organisations can elucida te bespoke marketing campaigns to acquire, retain, extend and select potential customers, which ultimately will translate into increased gross revenue and organisational profitability (Steinberg, 2006 Chaffey, 2004 Lee-Kelly, 2003) Table 4 merchandise activities of CRM CRM marketing activitiesObjectiveInformation based marketing techniques Customer acquisitionGain new customersTailored marketing conference Customer retentionEncourage repeated barter forsPersonalized/ accommodate ommunications Customer extensionUp-sell (more expensive products) Cross-sell (additional products) Personalised/tailored communication Customer selectionIdentify the most responsive groups of customersDatabase epitome and modelling effort Resource Planning (ERP) Systems ERP systems amalgamate all departments and functions crosswise an organisation, thereof eliminating IS isolation in departments such as finance, HR, marketing and the warehouse, and replacing them with a hit system where all autho rized information is connected together (Wailgum, 2008 Steinberg, 2006).ERP systems add value to organisations by Integrating customer order information ERP systems integrate order information, product shipment and invoices in one single system, enabling organisations to improve order tracking, and to coordinate memorandum and shipment among different locations simultaneously. Therefore, the order process speeds smart through the organisational departments, and customers get their orders faster and with fewer mistakes. step-d avouch inventories ERP systems streamline the order extent process and help with the delivery process, thence improving the flow of the organisations supply kitchen stove. Wailgum, 2008 Steinberg, 2006) Supply Chain Management (SCM) Systems SCM systems coordinate all supply activities of a company such as supply and distribution profit, logistic activities and neckcloth management and these add value to an organisation by (Gabe, 2010 Chaffey, 2004) Inc reasing process efficiency SCM systems help to reduce the cycle time of business processes and the resources needed to execute them, thus reducing costs per order. Reducing supply chains complexity SCM systems enable organisations to order directly from suppliers, thus reducing the costs of distribution. ameliorate data integration within the supply chain SCM systems enable information sharing on product pick out between the organisation and its suppliers, which improves inventory management efficiency through the use of VMI (vendor-managed inventory). The benefits include reduced cost of paper processing and lower inventory holdings. Reducing costs SCM systems enables organisation to outsource certain assets, to lower costs through price controversy and to offer better service quality. (Steinberg, 2006 Chaffey, 2004) Information Systems and the Changing Business EnvironmentThe environmental influences on any organisation change rapidly, and therefore it is important to continuo usly monitor the rate of flow environment and to anticipate future trends through environmental scanning or sensing activities, in order to respond to changes accordingly. Organisations that either do not monitor environmental factors or do not respond to changes fittedly may lose competitiveness or even incur in failure. As example, IS managers need to constantly assess the relevance of new technologies and to monitor engineering trends and innovations in order to remain competitive. (Chaffey, 2004). ? Amazon Information SystemsIntroduction Amazon is the biggest online retailer in world, although many consider that it is more a leading parcel developer or information systems company with a little pick, pack and ship service (Hof, 2003). This maiden retailer, which began doing business as an online bookseller in the mid 90s, has changed with the time and currently it offers its customers a wide variety of products such as electronics, clothes, beauty products, and so on. In addi tion, Amazon operates as a service provider allowing other retailers to sell on its site and it also commercializes demoralize storage services and its own tablet post-PC device Kindle-. Businessweek, 2003 Hof, 2003 Jenkinson, 2005) Therefore, Amazon has become the Nets premier shopping destination in 2011, and data, information technology and information systems plant its most valuable assets. (Manjoo, 2011). Amazons Information Systems Value between 2001 and 2003, Amazon invested $300,000 into expression new distribution centres and acquiring information systems software. However, experts only criticised the company asserting that it would never recover the investment, (Gabe, 2010) and even pecuniary analysts such as Lehman and Brothers expressed concerns over its cash flow situation. Foley, 2000) Although it took Amazon long time to become profitable, additional revenues rose once the company got ample customers and sales to pay off the initial IS investments, and their be t for information systems technology enabled the company to overcome competitors such as Barnes and noneles in the 90s and more tardily Wal-Mart Stores Inc (Hof, 2003 Gabe, 2010). Amazon uses information systems to improve profitability faster and its current financial situation, strategic position, market share, and intangible benefits give evidence of that the companys IT and IS strategies worked as expected.According to Hottovys report (2011) Amazon doubled in size from 2008 to 2011 with $34 billion in net sales and its current revenue growth is close to 40%. The company has a paygrade of $325 per share and generates return on invested capital exceeding the 50% line of credit that Amazon invests mainly in IT and IS technologies . Moreover, it has an active customer base of 137 one thousand thousand users that accounts for an annual growth rate of 20%.All in all, Amazon has one of the most capital efficient-models in e-commerce and its low cost operations, network effect and focus in customer service provide the company sustainable competitive advantage (Hottovy, 2011). Amazon uses ERP, SCM and CRM information systems. prophet (ERP) construct a multi-terabyte database for the company, while SCM software was acquired to control costs and to improve transportation and logistics efficiency. In addition, Amazons CRM system intends to work up e-marketing efforts through the analysis of customers preferences and the provision of products for specific segments (Foley, 2000).Amazons Customer Relations Management (CRM) system Amazons CRM system uses the following applications to gather customer information A database of customers with personal, profile and transactional data which include their purchase history and activities An order processing system that includes the eternalize of credit card information and is linked to a delivery system A web-page system that takes customer information such as customer feedback, personal interests, wish list and product review lays, and customises formats. Automated communication ystems e-mail and message systems and order information systems that ensure personalised and relevant communication with customers (Hof, 2003 Jenkinson, 2005 Hottovy, 2011) CRM System Business Value Amazons CRM system creates business value through integrating customer sales, services and communications in effect(p)ly (Jenkinson, 2005 Manjoon, 2011) In order to detect patterns of consumer behaviour, customer information is analysed by data mining experts using statistical CRM and artificial intelligence (SAS) software while collaborative filtering technology automatically analyzes past customer purchases.The analysis provides processed information that serves to elaborate profiles of customer individual interests, which enables Amazon to fling them tailored product recommendations in order to increase product sales (Foley, 2000 Hof, 2003 Jenkinson, 2005). In addition, CRM data mining activities also compare individual p rofiles to other customer profiles and bring them together into similar groups. As result, the company has interpreted traditional campaign techniques and move into faster campaigns to target different customer segments more effectively.Thus, Amazon has the ability either to launch broad campaigns to millions of customers, or more focused campaigns to a few thousands and tailored recommendations to individuals, collectible to a better understanding of customer characteristics and needs (Foley, 2000 Hof, 2003). Summarizing, Amazons CRM system combine advertising, service and selling to acquire customers in order to gain repeated purchases through cross selling and up selling tailored marketing techniques. Jenkinson, 2005) As a result, Amazon has achieved high levels of customer committal and dedication. Research by Millward Brown (BrandZ study) showed that 54% of US buyers are loyal to the company, as compared with a 10% of the industry total while a 67% of its orders are from r epeated customers. Moreover, Amazon customers are more probable to buy at a higher rate than loyal customers across the category, as 40% of Amazon customers are frequent users compared to an 8% of the average category (Jenkinson, 2005). ?Amazons enterprise Resource Management (ERP) System Value Oracle is the ERP system used by Amazon and it consists of a multi-terabyte database that integrates all the information related to customer orders such as purchase history, product shipment and invoices, thus enabling to streamline the order fulfilment process (Wailgum, 2008) Oracle automates the steps of this process by taking customer orders and process them into invoices, so when a customer comes online to buy a product the order system communicates directly with the warehouse system to find the adequate distribution centre, while customers receive communications about their purchase experimental condition and delivery times (Bacheldor, 2004) The company recognises that without this sy stem it would be very rough to coordinate and control the flow of merchandise in their business operations (Bell, 2011). Such integration of information creates business value by allowing Amazon to speed faster the order fulfilment process, as well as to improve visibility of order tracking and to reduce distribution mistakes. In fact, the company has reduced its customer service contacts per order by 50% since 1999 due to fewer distribution mistakes (Businessweek, 2003). Amazons Supply Chain Management (SCM) system Back in 2000, Amazon. om made expensive IS investments into building its high quality automated warehouses, and nowadays their supply chain is one of the most efficient and sophisticated in the world (Jenkinson, 2004 Businessweek, 2003, Gabe, 2010). A CRM system controls all supply chain activities of Amazon, such as transportation management, tape transport activities and inventory planning, with the aim of reducing operational costs and optimizing logistic operations (Gabe, 2010) Amazons SCM system Value In 2000, Amazons operational costs accounted for about a 15% of sales revenue because the process of picking and packing different products was not very efficient. Employees had to enter data into the system manually and chutes holding pending orders were backed up when products did not arrive on time. (Businessweek, 2003)Nowadays, the implementation of a SCM system has enabled Amazon to reduce the cycle time and the resources needed to complete its operational processes, thus making them more efficient. The SCM system examines Amazons customer demand to identify items that are often purchased together in order to place them at the front of the supply lines, thus enabling to speed faster the process flow (Businessweek, 2003) The SCM system also allows to find where the items are physically located, so after receiving an order the system will send a picker where the product is shelved. In the case of multi-orders, the system generates optimised pick lists, conclusion the shortest possible route for picking the product. (Gilmour, 2003).As a result, Amazons operation costs fell down from 15% of total sales revenue in 2000 to a 5% in 2003, and lower costs have enabled the company to offer more product discounts and free tape transport in orders over $25 (Businessweek, 2003). Moreover, Amazons CRM system enables information sharing on product demand between the company and its suppliers, which improves inventory management efficiency. Amazons CRM system is linked to its suppliers IS in order to share information in real time about orders and shipment. Thus, Amazon can hold lower levels of inventory stock in warehouses as it receives goods from its suppliers only when needed and accordingly to customer demand levels. Hof, 2003 Foley, 2000) Thanks to the CRM system, Amazon reduces costs by carrying only a 15 days worth of inventory while traditional retailers must stock up to 160 days worth of inventory in their warehouses (Ho f, 2003). In addition, information systems integration between suppliers and Amazon enables customers to buy goods directly from suppliers. The company in the lead orders to its suppliers which get the product to customers directly therefore the complexity of the supply chain and costs of distribution get reduced. (Knowledge Wharton, 2009). Amazons IS and the changing external environment. Information systems have provided Amazon with competitive advantage since it as been able to adapt its business model better than its competitors to the changes that the retail industry has experienced during the past decade such as the shift towards online shopping due to a more widespread use of Internet (Manjoo, 2011) Thus, Amazon coerce traditional retailers to go onto the Net in the 90s (Hof, 2003), while nowadays, it has the best record with new products -as they are constantly monitoring environmental changes- and their web services, cloud computing services and Kindle device are true inn ovations that have changed the rest of the industry (Manjoo, 2011) ? Conclusion This paper demonstrates the importance of information management and information systems to the creation of organisational business value and competitive advantage.According to Jacks, information systems contribute to organisational success by increasing profitability and productivity, and providing other intangible benefits such as customer loyalty. Subsequently, Amazons case study illustrates the perfect example of how an organisation obtains value for money of their information systems investments. The effective use of information systems has allowed the company to improve the efficiency of its distribution channels, to provide cost effective convenient products to its customers and to achieve the highest levels of customer retention and loyalty within the e-retail industry, which ultimately has helped Amazon to increase profitability and to achieve a solid financial position.In addition, information systems have provided the company with ill-famed competitive advantage over their competitors since it has been able to better adapt its business model to the changes that the retail industry has experienced during the past decade, such as the shift towards online shopping due to a more widespread use of Internet. ? REFERENCE LIST Books and journals 1. Bausch, P. (2003) Amazon Hacks 100 Industrial-Strength Tips and Tools (1st Edition) ORelly. the States 2. 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