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  • April 21, 2010

The Information Driven Value Chain - Part 2

In the first installment of this series, we looked at how companies have been set adrift down a churning rapids of fast moving data, and how their supply chains (which used to be only about purchasing and logistics) had grown into value chains encompassing everything from their supplier's vendors all the way to the end consumer. This time we will look at the way investments have been made in enterprise software in an effort to create and manage value, and how systems are moving from a controlled-process approach design towards gathering and dynamically using information.
This graph shows several software technologies, how they are related to operating performance, and how widely they are adopted by today's firms. The horizontal axis shows the operational performance from laggard through best practice and transformational, while the vertical axis shows the rate of adoption, from low to high. As you can see, financial systems are the most widely installed followed by traditional ERP systems. These systems tend to have an internal focus, are transaction-oriented, and are mostly dedicated to recording past activities. As we move down and to the right, systems become more sophisticated, increasingly deal with data external to the Enterprise, and are concerned with the future. These systems implement demand-driven manufacturing, and distribution, managed innovation, and multi-enterprise orchestration. We believe that by shifting focus to external-events and future-orientation, systems will show a very high rate of return on investment by providing greater contribution to value creation. These new systems will enable three key capabilities.
  • The ability to predict and shape future outcomes,
  • The ability to innovate both products and processes, and
  • The ability to effectively align the components of the extended value chain to work towards corporate goals instead of simply optimizing the unconnected parts.
We believe this transformation is also aligned to a paradigm shift in systems design towards gathering and using information as opposed to the older controlled-process approach. A challenge of a standard process model is that it can be inflexible when presented with unpredictable information, or innovation which causes major changes in the business environment. The process model is well-suited for implementing best practices -- which are good for modeling relatively static business processes like accounting and receiving; e.g. simpler processes that are repetitive and where the data is well understood and does not deviate from what is expected. These traditional systems are good at providing hindsight.
In contrast, supply-chain operations such as manufacturing and logistics must deal with today's global world of cascading and constantly changing information. Oracle believes that this requires a shift to systems that are dynamic and information-driven. These new systems will have underlying process models for the simpler operations, allowing for continuous improvement, but they will also deliver insight and foresight by providing:
  • the ability to predict using insights gained from real-time data gathered from as many sources as possible both internal and external,
  • the ability to adapt and innovate so you can better respond to unplanned scenarios and disruptive changes, and finally
  • the ability to align your business goals and operations not only internally but also across the extended value chain
To sum up, let's look at a definition of information driven value chains. As we have seen, the change from simple internally-focused business to a more virtualized one is pushing us towards value chains. These are networks which exist as a dynamic alliance of your business with your customers, partners and suppliers. A value chain needs to deal with the synchronization of planning logistics and network execution, and it must be driven—as much as possible—by real-time actionable information. And the three key capabilities of information driven systems are first, the ability to predict --- which allows you to anticipate and influence demand; second, the ability to adapt and innovate both products and processes allowing you to identify problems and opportunities and quickly respond to them. Finally information driven systems have the ability to forge alignment among all parts of the value chain creating agreement enabling concerted and focused action. (Follow Oracle VCP on Twitter)

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