Information System Planning for Sustainability

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Published on May 29, 2014

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Investigation of the Significance of Enterprise Resource Planning in the Value Chain of the Colgate-Palmolive Company

Investigation of the Significance of Enterprise Resource Planning in the Value Chain of the Colgate-Palmolive Company Karim Khayat April 2014

Khayat 2 Contents 1- Introduction 2- Background on 3- Significance of the value chain 4- The Colgate-Palmolive Company’s Value Chain 5- Levels of Information Systems 6- Enterprise Resource Planning 7- The Colgate-Palmolive Company’s ERP 8- Conclusion 9- References

Khayat 3 Introduction Every business has a vision and mission. While all businesses attempt at generating profit, a successful business is one that creates value for its product or service. The twenty-first century has proved that competition is around the corner for any business, and as such, companies today must be able to pinpoint and implement innovative work processes that “demonstrate clear worth in the value chain” (Janzen, 1999). The new “mainstream” development that companies are implementing is going online, and adopting e-business in their operations has brought major benefits and added value to their companies. This is done in various ways. The development of on-demand software delivery service models such as software-as-a-service (SaaS), aiming to provide firms with Internet-based access to resources or applications related to a firm's complete virtual value chain (Chou and Chiang, 2013). On the other hand, cloud computing is the latest trend to outsource some or complete IT operations to run a business from the public Cloud that provides a flexible and highly scalable technology platform for an organization’s business operations (Armbrust et al., 2010; Badger et al., 2011; Catteddu and Hogben, 2009). This report will tackle the significant of an aspect of this implementation of e-business, namely “Enterprise Resource Planning systems (ERPs) and how value can be added by using this information system. This report will present the discussion using the case study of the Colgate-Palmolive Company. Background on the Colgate-Palmolive Company The Colgate-Palmolive Company is an American multinational consumer products company founded in 1806 and established in New York City by William Colgate. The Colgate-Palmolive company is focused on the production, distribution and provision of household, health care and personal products, such as soaps, detergents, and oral hygiene products (Colgate.com). The company is worth around ten billion dollars and operates in over 200 countries, and has more than 38,000 employees. Colgate’s core vision is to enhance consumer lives, whether through oral care, personal care, home care, or pet nutrition. The company’s continual success in the last decade can be attributed largely to the fact that it adopted an ERP system in 1994. The company’s business reports found on the website show that in 1994, the

Khayat 4 revenue was 63 million USD, and in 2004, the revenues totaled about 114 million USD, while in 2014, the revenues increased to 167 million USD. The firm has been steadily increasing, expanding, and become more successful over the years (colgate.com). Significance of the value chain The value added to a product or service is what creates competitive advantage; why would you buy an HP laptop over a DELL laptop? Supposing that both laptops had the same specifications, and cost the same, why would a consumer buy one over the other? Perhaps HP provides a three year warranty while DELL provides a one-year warranty, or perhaps that with purchase a DELL laptop, a free laptop bag, mouse, or both are given. Suppose one gives a free operating system with the laptop while the other provides free malware for a year, or that you can buy one online and the other delivers for free. There is much room for value creation, and the general strategies that companies adopt are cost strategies or product differentiation. The idea is that the customer will have to decide which product to buy over the other based on the value created. Adding value and the value chain are not the same thing. The value chain is technically adding values at different stages of operations in the business (Recklies, 2001). According to Porter’s Value Chain Analysis (see Fig. 1), there is a unique pattern of activities that can add value to a company which are separated into two categories; the primary activities and the supporting activities (1985). The primary activities are the operations needed to create the product and deliver it, while the supporting activities are ones that add to the productivity of the primary activities through increasing efficiency and effectiveness (Recklies, 2001). Furthermore, according to Porter, these activities, both the primary and supporting activities, create data (1985). Porter suggested that this data be analyzed, and the resulting information be used to generate value; however, with traditional methods, this could be tiresome as the data has to be collected manually and the information extracted. IN this age, it is possible to store and transform the vast amounts of collected data into information through digital methods; Information Systems has become a

Khayat 5 support tool for many businesses, especially ERPs. This report will later display how ERPs have the ability to conglomerate all the various sources of data and ‘deduce’ from them. Figure 1. Learnmarketing.net’s version of Porter’s Value Chain Analysis. The Colgate-Palmolive Company’s Value Chain The Colgate-Palmolive Company’s value chain has been advancing steadily since the establishment in 1901, and especially after its expansions across Europe in the 1930s. Colgate –Palmolive clearly developed its activities, evolving from selling soap and wax to producing all types of products from shower gel to toothpaste and detergents. Expanding the product line was one way of advancing the value chain, but creating the “Colgate Smile” has become an idiom in the English language, emphasizing the brand success. Thereon, all customers rely on the quality of all Colgate products, and Colgate kept on increasing its value by allowing online shopping and delivery through its website, and providing more and more products every year that are met with success. With the increasing number of customers, the Colgate Palmolive Company has had to integrate its data to maintain its huge market share, and the integration will be discussed in this report.

Khayat 6 Levels of Information Systems Information Systems are usually harmonious with a firm’s structure; while there are different vertical and horizontal structures that some businesses adopt, and others using the flat structure, it seems that the majority companies still use the traditional hierarchal structure even in the twenty-first century (Turban et al, 2007). Information Systems adapt to the hierarchal structure. According to Turban et al, the transaction processing systems (TPS) is the part that supports the observation, collection, storage, processing, and distribution of a business’s transactions, and TPS is used on the operational level, namely by operations managers (2007). Furthermore, knowledge work systems (KWS) are used by knowledge workers who process data and extract useful information. On a higher level, there are the management information systems (MIS) which are used by functional managers in order to support them with their decisions through providing periodic reports that include summaries, comparisons, and other statistics (Turban et al, 2007). The top level information system is executive support system (EIS), and is used on the strategic level by senior managers. Having all these systems is not enough; the information systems need to work synergistically. According to Laudon and Laudon (2012), it is a real challenge to get all the different kinds of systems in a company to work together; it seems that corporations end up with a collection of systems over time and face the challenge of getting these systems to “interact”. Since information systems are department- oriented, having the different systems integrate together is a need. Traditional information systems seem to have many limitations being department-specific, making less efficient than the requirements of managers. As such, many companies have turned towards what seems to be the innovation of the century; enterprise resource planning systems, coined “one of the most important and significant developments in the corporation of information infrastructure (Davenport, 1998; Hitt et al. 2002; Upton & McAfee 2000; Hanseth and Braa 2001). Enterprise Resource Planning

Khayat 7 Figure 3. Everything is integrated into ERP. ERP is software that integrates the business processes of different departments into one system in a central database, such as integrating purchasing, manufacturing, sales, and other departments into one system (Laudon and Laudon, 2012). ERP allows the automation and integration of business processes while enabling data collection and sharing (Sumner, 2005). Bocij et al. (2006) add that ERPs assimilate all functional information within then the various departments of a company and within one single system in order to satisfy the organization’s needs. So what is the value of ERPs? Simply, they increase overall efficiency, produce information that heavily supports management in decision making, evaluate the organization’s financials and performance, and even provide faster response to customers’ requests (Sumner, 2005).

Khayat 8 Figure 3. Top ERP producing companies in revenue growth comparison from 2003 to 2007 There are many companies that provide ERP software for businesses to purchase, but the market leaders include SAP AG, PeopleSoft, Oracle Applications, Baan Series, and J.D Edwards One World. Through competition, ERPs have evolved to become better and more efficient until their benefits included fewer data errors, increased efficiency, and more commands and options to use (Bocij et al, 2006). Also, ERPs are not used only internally in the organization; suppliers and other businesses can all share their information and enhance their relationship with the organization (Siriginidi, 2000). Moreover, according to Fournie et al (2007), ERP allows the minimization of costs through synchronization and the corrective maintenance facilitated by the vendor. At this stage, value is added in a company’s value chain since ERPs have become backbones for the primary and support activities through the instantaneous sharing of information within an organization’s system. This means that ERP creates competitive advantage for the organizations that use it well. However, like everything else, ERP systems are not without drawbacks. It is costly to implement ERPs as they are highly specialized; also maintaining it would also cost. On that note, the ERPs being highly specialized require professionals who are trained to use ERP and maintain it. This is all costly and time consuming (Bocij et al, 2006). ERP keeps evolving and progressing as we speak and as such,

Khayat 9 requires incessant maintenance all the time, meaning it will be complicated and costly all the time (Hossain et al, 2002). Given these sides of benefits and disadvantages of ERP, a business owner must be cautious and considerate before implementing it, even if the benefits outweigh the disadvantages. This is especially true in the case of the Colgate-Palmolive Company. The Colgate-Palmolive Company’s ERP The Colgate Palmolive Company an ERP system provided by SAP in 1996. Its implementation of ERP was described as one of the 10 most successful according to BusinessWeek. Their ERP system successfully implemented modules including supply chain management, customer relationship management, supplier relationship management, human resources management, financial management, integrated application, order processing procedure management, materials management, production management list, self-service and other employees. Colgate upgraded their ERP system twice, and currently includes the SAP R / 3 series, mySAP senior schedule plans and optimization, CRM, SAP portal and mySAP Business Warehouse. Colgate has reduced the number of manufacturing plants worldwide by over 25% after finding possible cost reductions through SAP since 2004. Even the Colgate Business Planning (CBP) in 2008, a global initiative for commercial planning and budgeting, used sap. Supported by SAP software, CBP incorporates a strong return on investment methodology into all work routines, which together with greater focus on the customer and regular meetings to assess performance against goals (Colgate.com). The result was extreme efficiency. For example, in Australia, the ERP system allowed the pinpointing and identification of certain inefficient promotions, while in Poland, the cost of employee recruitment services was cut by 24 percent by reducing the number of suppliers from 6 to 2. The ERP they use brings exact information, and they know how to use it, which keeps Colgate on the road to success.

Khayat 10 Conclusion In conclusion, this report showed how ERPs add value to the value chain of organizations by referring to the case of the Colgate Palmolive Company. The company is now a multi-national corporation that withstood the test of time for more than a century. Their ability to define and penetrate new markets, expand their customer-base through new product line, and maintaining their overall brand quality while adapting to new information systems is an example for other companies to follow.

Khayat 11 References Armbrust, M., Fox, A., Griffith, R., Joseph, A.D., Katz, R., Konwinski, A., Lee, G., Patterson, D., Rabkin, A., Stoica, I. and Zaharia, M. (2010), “A view of Cloud computing”, Communications of the ACM, Vol. 53 No. 4. Badger, L., Grance, T., Patt-Corner, P. and Voas, J. (2011), Draft-Cloud Computing Synopsis and Recommendations, National Institute of Standards and Technology, Gaithersburg, MD, May. Bocij, P. Chaffey, D., Greasley, A. and Hickie S. (2006) Business Information Systems: technology, development, and management for the e-business. Catteddu, D. and Hogben, G. (2009), “Cloud computing: benefits, risks and recommendations for information security”, European Network and Information Security Agency, available at: www.enisa.europa.eu/act/rm/files/deliverables/Cloud-computing-risk-assessment Colgate.com Chou, S.W. and Chiang C.H. (2013) Understanding the formation of software-as-a-service (SaaS) satisfaction from the perspective of service quality, Decision Support Systems Fournie C., Vaussanvin, F., Mai, A. Linhart A. (2007) Case Study: Cloetta Fazer – Erp implementation in the food industry. Linkoping’s University. Davenport TH, (1998) Putting the Enterprise into the Enterprise System. Harvard Business Review 76(4): 121 -131. Hanseth O and Braa k, (2001) Hunting for the treasure at the end of the rainbow. Standardizing corporate IT infrastructure. Journal of Collaborative Computing 10(3-4): 261 -292 Hitt LM, Wu DJ, Zhou X, (2002) Investment in Enterprise Resource Planning: Business Impact and Productivity Measures. Journal of Management Information Systems 19(1): 71-98

Khayat 12 Hossian, L, Patrick, J, Rashid, M. (2002). The Evolution of ERP Systems: A Historical Perspective [online] Available from https://faculty.biu.ac.il/~shnaidh/zooloo/nihul/evolution.pdf Janzen, W. (1999), Tapping ERP to Extend Value Chain Benefits. Enterprise Systems Journal [online] Available at: ftp://ftp.software.ibm.com/ftp/lotusweb/solutions/lotus2.pdf Laudon, K.C., and Laudon J.P (2012) Management Information Systems Managing the Digital Firm. Porter, M. (1985) Competitive Advantage: Creating and Sustaining Superior Performance [online] Available from: http://www.hbs.edu/faculty/Pages/item.aspx?num=193 Siriginidi, S.R. (2000) Enterprise resource planning in re-engineering business, Business Process Management Journal, 6(5) 376-91 Sumner, M. (2005). Enterprise Resource Planning. Turban, E. Leidner, D., Mclean, E. and Wetherbe, J. (2007) Information Technology for Management; Transforming organizations in the digital economy. 6th edition. Hokoben: John Wiley and Sons, Inc. Upton DM, and McAfee A, (2000) A Path-based Approach to Information Technology in Manufacturing. International Journal of Technology Management 20 (3/4): 354 -372

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