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Chapter 9 Achieving Operational Excellence and Customer Intimacy: Enterprise Applications 387

acquisition and retention. Information from CRM systems increases sales
revenue by identifying the most profitable customers and segments for focused
marketing and cross-selling.
Customer churn is reduced as sales, service, and marketing better respond to
customer needs. The churn rate measures the number of customers who stop
using or purchasing products or services from a company. It is an important
indicator of the growth or decline of a firm’s customer base.

9.4 ENTERPRISE APPLICATIONS: NEW
OPPORTUNITIES AND CHALLENGES

Many firms have implemented enterprise systems and systems for supply chain
and customer relationship management because they are such powerful instru-
ments for achieving operational excellence and enhancing decision making. But
precisely because they are so powerful in changing the way the organization
works, they are challenging to implement. Let’s briefly examine some of these
challenges, as well as new ways of obtaining value from these systems.

ENTERPRISE APPLICATION CHALLENGES

Promises of dramatic reductions in inventory costs, order-to-delivery time, as
well as more efficient customer response and higher product and customer
profitability make enterprise systems and systems for supply chain manage-
ment and customer relationship management very alluring. But to obtain this
value, you must clearly understand how your business has to change to use
these systems effectively.
Enterprise applications involve complex pieces of software that are very expen-
sive to purchase and implement. It might take a large Fortune 500 company
several years to complete a large-scale implementation of an enterprise system
or a system for SCM or CRM. The total cost for an average large system imple-
mentation based on SAP or Oracle software, including software, database tools,
consulting fees, personnel costs, training, and perhaps hardware costs, runs over
$12 million. The implementation cost of an enterprise system for a mid-sized
company based on software from a “Tier II” vendor such as Epicor or Lawson
averages $3.5 million. Changes in project scope and additional customization
work add to implementation delays and costs (Kanaracus, 2012; Wailgum, 2009).
Enterprise applications require not only deep-seated technological changes
but also fundamental changes in the way the business operates. Companies
must make sweeping changes to their business processes to work with the
software. Employees must accept new job functions and responsibilities. They
must learn how to perform a new set of work activities and understand how the
information they enter into the system can affect other parts of the company.
This requires new organizational learning.
Supply chain management systems require multiple organizations to share
information and business processes. Each participant in the system may have
to change some of its processes and the way it uses information to create a
system that best serves the supply chain as a whole.
Some firms experienced enormous operating problems and losses when they
first implemented enterprise applications because they didn’t understand how
much organizational change was required. For example, Kmart had trouble getting
products to store shelves when it first implemented i2 Technologies supply chain

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