Explain the relationship between value and cost

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Question: In terms of Porter's value chain model, this process involves both the sales and operations activities. The bike rental company uses information systems to maintain customer data in the Customer database and bike inventory data in the Bike Inventory database and to transmit hotel charge data to the Hotel Billing system. Each information system consists of all five IS components. Consider, for example, the information system for processing the Bike Inventory database. With regard to hardware, the database itself will be stored on a computer, and it will be accessed from other computers or computing devices, such as cash registers or handheld scanning devices (possibly used to check bikes in).

Computer programs will provide forms for the system users to query and update the database. Other computer programs will be used to manage the database. (You will learn about such programs in Chapter 5.) Data, the third component of an information system, will be stored in the database. Each employee will be trained on procedures for using the system. For example, the sales clerk will learn how to query the database to determine what bikes are available and how to determine promising up-sell candidates. Finally, the people component will consist of the clerks in the rental shop as well as any support personnel for maintaining the inventory system. Information systems that support the Customer database and those that interface with the Hotel Billing system will also have the five IS components. (By the way, whenever you consider the development or use of an information system, it is good practice to think about these five components.) As stated in this chapter, business processes must generate more value than their cost. If they do not-if the margin of a business process is negative-then either costs must be reduced or the value increased.

Considering the business process in Figure 3-13, one possibility for reducing costs is to eliminate rental personnel. Bicycles could be placed on racks having locks that customers can open with their hotel room keys; the bike would be rented until the customer places the bike back on the rack. Another possibility is to increase the value of the process. The rental agency could decide to rent additional types of equipment or perhaps to sell clothing or food and beverages. Using your collaboration IS, work with your team to answer the following

1. Explain the relationship between value and cost according to the Porter model. When does it make sense to add cost to a business process?

2. Suppose you are told that the business process in Figure 3-13 has a negative margin. Explain what that means. Suppose the margin of some business process is a negative $1 million. If costs are reduced by $1.2 million, will the margin necessarily be positive? Explain why or why not.

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3. Consider the alternative of replacing the rental personnel from the business process in Figure 3-13.

a. Describe changes that will need to be made to the process documented in Figure 3-13. You can download a copy of this Visio diagram from this text's Web site at www.pearsonhighered.com/kroenke.

b. Would eliminating the rental personnel change the competitive strategy of this company? Is it possible to be a high-value company with no rental personnel? Explain why or why not.

c. Would eliminating the rental personnel necessarily reduce costs? What costs would increase as a result of this change?

4. Consider the alternative of increasing the value delivered by existing rental personnel. The text suggests possibly renting more kinds of equipment or selling items of use to guests who are renting bicycles, but consider other options as well.

a. Describe five ways that you think the existing personnel could increase the value of this business process.

b. For the five alternatives you developed in part a, name and describe criteria for selecting among them.

c. Using your criteria in part b, evaluate the alternative you identified in part a and select the best one. Explain your selection.

d. Redraw Figure 3-13 for the alternative you selected in part c.

Reference no: EM131452064

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