LETTERS TO THE DEAD AND OTHER TALES OF DATA DERELICTION A retailer once launched a targeted customer marketing campaign that had but one tiny flaw: a fifth of the intended recipients were dead. The letters for them – addressed, with impeccable accuracy, to ‘Dear Mr Deceased’ – urged them to ‘wake up’ to what the company had to offer. This mailshot mishap is part of a nightmarish list of corporate data blunders drawn up for the Financial Times by Detica, a business and information technology consultancy. It includes the tale of the insurance company that was intrigued to discover the majority of its customers were astronauts – until further investigations showed that lazy sales staff eager to close deals had simply chosen the first option available on the pull-down menu of jobs. Whether grotesque or hilarious, the bloopers have a unifying theme that any business ought to note. As companies develop ever more sophisticated ways of using data to help win new business and cut costs, the risk is that they pay too little attention to the quality and organization of the underlying raw information. At best, this damages efficiency; at worst it can destroy relationships and hamper efforts in crucial areas such as fighting fraud. ‘Firms have always seen the data as the water that flows around the system’, says Philip Powell, professor of information management at the University of Bath’s School of Management. ‘They have invested a lot in the system – the water pipes – without really recognizing the value of the water’. It is a problem that has come increasingly into focus as technological advances have opened up new methods of collecting, combining and storing data. Managers have greater quantities of information than ever before, but are in some ways less well-informed because they do not order it well. Bill gates, Microsoft chairman, claimed last year that almost a third of information workers’ time was spent searching for data, costing $18,000 per person per year lost productivity. Those hundreds of forgone hours are in part a consequence of the explosive growth of the space available for information storage. While a bulging filing cabinet is a daily reminder of the need for data discipline, electronic file dumps can grow to gargantuan proportions unseen. They are monitored and cleansed only by computer experts, rather than by information management professionals applying a librarian’s discriminating eye. Information is sometimes duplicated or out of data. A common fault is that companies lack a single docket on each customer, supplier or employee, instead spreading information across files held in numerous places by many departments. In the absence of a master copy, updating is done piecemeal, generating horrors such as the ‘Dear Mr. Deceased’ letters.
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Trang 2CASE
CASE STUDY STUDY STUDY 1.1 1.1 1.1
LETTERS TO THE DEAD AND OTHER TALES OF DATA DERELICTION
A retailer once launched a targeted customer marketing campaign that had but one tiny flaw: a fifth of the intended recipients were dead The letters for them – addressed, with impeccable accuracy, to ‘Dear Mr Deceased’ – urged them to ‘wake up’ to what the company had to offer
This mailshot mishap is part of a nightmarish list of corporate data blunders drawn up for the Financial Times by Detica, a business and information technology consultancy It includes the tale of the insurance company that was intrigued to discover the majority of its customers were astronauts – until further investigations showed that lazy sales staff eager to close deals had simply chosen the first option available
on the pull-down menu of jobs
Whether grotesque or hilarious, the bloopers have a unifying theme that any business ought to note As companies develop ever more sophisticated ways of using data to help win new business and cut costs, the risk is that they pay too little attention to the quality and organization of the underlying raw information At best, this damages efficiency; at worst it can destroy relationships and hamper efforts in crucial areas such
as fighting fraud
‘Firms have always seen the data as the water that flows around the system’, says Philip Powell, professor of information management at the University of Bath’s School of Management ‘They have invested a lot in the system – the water pipes – without really recognizing the value of the water’
It is a problem that has come increasingly into focus as technological advances have opened up new methods of collecting, combining and storing data Managers have greater quantities of information than ever before, but are in some ways less well-informed because they do not order it well
Bill gates, Microsoft chairman, claimed last year that almost a third of information workers’ time was spent searching for data, costing $18,000 per person per year lost productivity
Those hundreds of forgone hours are in part a consequence of the explosive growth of the space available for information storage While a bulging filing cabinet is a daily reminder of the need for data discipline, electronic file dumps can grow to gargantuan proportions unseen They are monitored and cleansed only by computer experts, rather than by information management professionals applying a librarian’s discriminating eye
Information is sometimes duplicated or out of data A common fault is that companies lack a single docket on each customer, supplier or employee, instead spreading information across files held in numerous places by many departments In the absence of a master copy, updating is done piecemeal, generating horrors such as the ‘Dear Mr Deceased’ letters
Trang 3Bridget Treacy , partner at Hunton & Williams, the law firm, says companies are sometimes ignorant of basic facts about information they hold, who has access to it, and what it is being used for ‘If people are not paying attention to it, of course there are going to be blunders’, she says
A more suitable snare facing companies is their failure to consider the various possible meanings of the information they gather The classic example is the sales spike that causes marketing people to sniff an opportunity, when a risk manager would scent danger For instance, a customer starting a credit card splurge might receive an offer for an upgraded deal, when a better response would be to launch an investigation into card theft and fraud
In other cases, companies embarrass themselves because their data storage systems have not kept pace with the complexity of the information they hold One Detica story concerns an insurer that was unable
to store separate addresses for a couple holding a joint account When the wife left her violent husband, she sent her new address to the company, which promptly wrote a confirmation note to her old home, where her ex-husband was living The company had to pay to rehouse the ex-wife in a new, undisclosed location
The need for companies to improve their data management is becoming increasingly urgent as the flow
of information quickens and the uses to which it is put become more complex Businesses must manage an increasing amount of ‘unstructured data’, such as voice recordings and pictures
Above all, the challenge for the companies is to make sure they – and their employees – use information in ways that make them look clever rather than ignorant, or event heartless Death, says David Porter, Detica’s head of security and risk, is the great test of a company’s data deftness After all, no one wants to emulate the company personnel department that punctiliously sent out a slew of cheques for £0.00
to its ‘pension leavers’, causing distress to the relatives of all those ‘ who had ‘ left’
(Michael Peel, FT.com site, published 3 September 2007)
Trang 4SUPPLY CHAIN:
DEMAND FOR MORE DATA HAS WIDE IMPACT
For US electronics retailer BestBuy, having the right data really matters Research carried out by the company found that if a product’s height was wrong by as little as half an inch, customer returns increased
by 3.4 per cent For a company such as BestBuy, the trend towards flat-screen TVs – which customers often want to mount on a wall – has turned product descriptions that most shoppers once ignored into a deal-breaker It is part of a wider trend for consumers to want to know much more about the products they are buying From food to electronic goods, pharmaceuticals to cars, consumers are demanding far more information on a product’s origins, its ingredients or materials, how it was shipped and even its impact on the environment But this information is absent from many companies’ supply chain management systems- or worse, it is information they simply do not have The problem is all the more acute because regulators are asking companies to retain more information about the products they sell, in some cases for six years or more But extended supply chains and a growing use of contract manufacturing are making it hard for companies to say, with certainly, what is in their wares
‘Senior executives are trying to understand the risks to their business, for example ingredients that can cause an allergic reaction but are not correctly identified’, says Bryan Larkin, director of strategy for retail and CPG industries at data synchronization company GXS ‘Bad data can result in brand damage’
Improving data quality, on the other hand, can bring immediate benefits to profits Mr Larkin, for example, cites research showing that suppliers to US retailers lost the equivalent of 2 per cent of gross sales to compliance-related penalties Typically, data errors cause companies to ship the wrong product or quantity, or to charge the wrong price Reducing penalties by half of 1 percentage point in a business with
10 per cent margins means a 5 per cent boost to the bottom line
Then there is the time taken up resolving both supply disputes and product recalls.’ Handling disputes takes up a lot of money,’ says Jon Chorley, vice-president for supply chain execution and product lifecycle management strategy at software vendor Oracle ‘You also have to be able to track the genealogy of the products, which means getting that information out of the supply chain’
Businesses that want to improve data quality face two hurdles, however The first is how an item is described and measured A household chemical could be delivered to a factory in a tanker measured in gallons, bottled in containers measured in centiliters, packed in cartons by the dozen, transported in 50 cases on a pallet and then sold in a store as a single bottle Each organization in the supply chain could hold the correct data for their part of the process, but still be unable to share it with the others
The second problem is ensuring that the right parties hold the right level of information ‘There is a cost
to every piece of information, so you have to understand the value of that information, its granular quality
Trang 5and frequency’, says Jeff Wacker, futurist at system integrators EDS.’ You need sophistication to ensure that the information adds value to the decisions being made’
Manufacturers might not want to share an entire recipe or bill of materials with a retailer, but the retailer will want to know that the manufacturer can call up that information on a batch-by – batch basic, for example
if there is a product recall or a health scare Retailers are also under pressure from consumers to provide more data, either at the point of sale, online or in catalogues But there is a strong chance that the financial and technical burden for gathering and storing such data will fail mostly on producers and manufacturers; as has largely been the case with electronic data interchange and more recently, RFID
‘Retailers will only do something if they have to’, suggests John Davison, a vice-president at analysts Gartner ‘You could improve the operational efficiency of your company, but retailers are most likely to act if
it improves product availability on shelves’
(Stephen Pritchard, FT.com site, published 19 September 2007)
Questions:
1 ‘Bad data can result in brand damage’ Explain this statement with reference to the case study
2 The case study discusses a number of problems caused by poor quality information Identify and describe these problems with reference to the attributes of information quality
3 Why do you think customers are starting to want know more about the products they buy ?
Trang 6CASE
CASE STUDY STUDY STUDY 2.1 2.1 2.1
VOLVO TRUCKS’ VALUABLE EARLY WARNING SYSTEM
For any manufacturing company, in-warranty failures represent a significant expense There is the cost
of the repair or replacement itself, administering the process and, often, a loss of customer good will But an efficient warranty system can cut these costs and more Customer satisfaction is higher if any warranty issues are handled efficiently and quickly The manufacturer ties up fewer resources handling the repair, and goods are turned round more quickly The product itself can even be improved, if the warranty system can feed data into both the manufacturing process and suppliers And a good reputation for handling in-warranty repairs will even justify a price premium in some marketplaces
These are some of the benefits identified by Volvo Trucks, the heavy goods vehicle manufacturer, which created a new quality and warranty analysis tool (QWAT) a year ago The system is based around SAS Institute’s Warranty Analytics software and an Oracle relational database The scale of warranty operations at Volvo’s trucks division is significant The company currently builds about 100,000 trucks – mostly tractor units for semi-trailers or rigs – each year The standard European warranty on these vehicles
is one year, with some vehicles covered by a 300,000 km warranty
‘With current production levels, and some good will campaigns, 200,000 to 300,000 trucks could produce a warranty claim or produce a problem that ends up in the analytics system’, says Micke Rydbeck, project manager for warranty systems at Volvo Truck Corporation To add to the complexity, in Europe the vehicle could be taken to any one of 1000 service points or, in North America, one of 350 sites Added to this, the vehicles Volvo produces are simple, commodity items Within the annual production total, perhaps
as few as two vehicles might be identical, such is the range of variants and configuration options available to customers
An in-warranty failure might be the result of a particular, and quite possibly very rare, combination of components The new system is much more effective at narrowing down the list of vehicles fitted with a particular part to those that are most likely to have problems ’It might not show up as a battery problem on each and every truck, but only when two parts are used in combination’, says Rydbeck
The business case for Volvo’s project was based on achieving more efficient warranty claims, reduced fraud, better reporting and improved recovery of warranty costs from suppliers The warranty tool acts as a valuable early warning system, helping to pick up any potential faults before they occur in a truck Improved trend analysis is a valuable feature of the new system: previously, quality control staff had to use three main tools and three data sources in what was still, largely, a manual process But the earlier the company identifies a problem, the cheaper it is to fix Advanced warning allows more vehicles to be examined and
Trang 7repaired during regular servicing This reduces Volvo’s costs but critically, keeps customers’ trucks on the road for longer
The system also helps Volvo to give customers a wider range of configuration options without compromising on the manufacturer’s standards or increasing support costs ‘ We need to have a situation where we can produce trucks built to customers’ specifications that still nurture our core values of quality and safety’, Mr Rydbeck explains
Another important part of the analytics-based approach to warranty management is that it helps Volvo’s design and manufacturing teams react to after-market problems with the trucks, and prioritise design or production changes These are all important benefits for Volvo customers The project has had a significant impact on Volvo’s after-market costs : cutting them plays a key part in keeping the manufacturer competitive
‘Our warranty costs have fallen by 40 to 50 per cent in the past couple of years’, says Mr.Rydbeck ‘But
it becomes progressively harder to lower these costs and harder to find the problems that cause them Our warranty costs are now about the industry average, but were higher’
He believes that the new warranty management system, and in particular its analytical capabilities, will allow Volvo Trucks to deliver above- average service to vehicle owners while cutting its prices and increasing per- vehicle margins.’ If we can reduce our warranty costs, it gives us room to increase our margins while also being competitive on price’, he says
Volvo is also using its system to detect unusual or potentially fraudulent warranty claims The analytics tool can go through historical claims data and identify claims that need to be checked Rather than send a team of auditors to look at a dealer’s books, picking random samples, it can focus on claims that arouse specific suspicions
‘During an audit we can focus on three, five or 10 claims that we are really interested in, rather than picking 20 at random Dealers are getting the message, and we are at much less risk of fraud now’, says Mr Rydbeck
The system is also being implemented at US truck maker Mack and at Volvo’s bus operations The next step for Volvo is to extend the warranty analytics system to key suppliers, a process it started in June this year ‘We are opening up the system and showing suppliers information relating to them Previously we reported to suppliers twice a year, but now we can show quality information to them and they can improve products immediately’, says Mr Rydbeck ‘Because we can share our information, we can have better conversation with suppliers’
(Stephen Pritchard, Financial Times, 19 September 2007)
Questions:
1 What are the benefits of Volvo’s warranty management system ?
2 In general, how does the warranty management system help Volvo to be more competitive ?
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CASE STUDY STUDY STUDY 2.2 2.2 2.2
AIRPORT CHECK-IN:
BOARD YOUR FLIGHT BY MOBILE PHONE
Ubiquitous and well entrenched as mobile phones may be, some potential uses have yet to catch on
in a big way Such is the case with mobile check-in at airports A passenger survey at the end of last year by the International air Transport Association (lata) found only 2 per cent of respondents had checked in via an SMS (text message) on their mobile phones But that number looks certain to rise as more airlines introduce mobile check-in – those that already have are as enthusiastic about the service as are their passengers ’To have your boarding pass on your mobile should be something that really excites the customer’, says Patrice Quellette, Air Canada’s director of customer service platform, e-commerce
Last June the airline launched mobile check-in for customers on domestic flights without baggage Between one and 24 hours before departure, passengers can enter basic details about themselves and their flight into their mobile phones, then print out their boarding pass from a self-service kiosk at the airport In the next few weeks, Air Canada plans to start pilot testing an ‘E-Boarding passes’ service, in which 2D barcodes would be sent directly to mobile devices of customers checking in at Montreal for domestic flights The customers participating in the pilot would scan their device at airport security and proceed to the gate
Elsewhere, mobile check-in has inevitably established a foothold in countries where mobile users have been keen to try innovative or experimental services, pushing the devices beyond simple calling and texting Finland and Japan are two good examples In October 2004 Finnair claimed a first in international air travel when it launched SMS check-in for frequent fliers Customer feedback has been extremely positive, it says, reflecting the fact that the airline takes a proactive approach – it sends a text message and the customer needs only to reply On average, says Finnair, about 75 per cent of customers that receive a message go ahead with the SMS check-in The system has become the third self-service channel, along with internet and kiosk check-in, and is now comparable in popularity, with sage falling only when there is less business travelling
In Japan, mobile phones can be used as part of Japan Airlines’ ‘Touch and Go’ system, which was developed in-house for use on domestic routes, and introduced in February 2005 The system allows IC (integrated circuit) cardholders to board domestic flights without a physical ticket or boarding pass From three days before departure and up to one hour before the flight, passengers can make or change a seat selection and check in via their computer or mobile phone All relevant data for the booking are recorded automatically on the IC card, which can then be touched or swiped at machines in front of the airport security check points and then at the boarding gate The number of Touch and Go users has been steadily increasing since the system was introduced, says Ko Yoshida, JAL’s vice-president for domestic marketing planning, and has already run into millions Users tend to be individual business travellers
Trang 9At rival airline ANA, check-in via computer or mobile phone has been possible for two years for domestic flights, and if the phone has an RF (radio frequency) chip it can used to pick up a boarding pass from a self-service kiosk at the airport Last August, the airline introduced an enhancement known as Skip, allowing passengers who have paid for their tickets and reserved their seats – using their computer, mobile phone or at a travel agent – to skip check-in One touch of their RF chip-enabled mobile phone, credit card, ANA Mileage Club or 2D barcode to a sensor at security prints a receipt with the customers on board and a boarding pass is then printed for final seat number verification Skip is used by 10,000 – 15,000 customers a day
Individual airlines have taken the initiative on these developments and are pushing for an industry standard that would help widen the usage of mobile check-in, lata says this is a major activity for its barcoded boarding pass (BCBP) team this year – currently North America, the European Union and Japan each have a preferred 2D barcode to use on mobile phones for ticketing and other applications, and the challenge will be to agree one global standard
There are other obstacles, too The biggest challenge, says Finnair, is the airport authorities’ requirements for paper boarding passes at the airport service points ’In Finland, the airport authorities and customs have accepted our text message confirmation as proof of travel’, says the airline ‘At most of the airports in the world that is not the case
Air Canada, meanwhile, is working with Canadian authorities on its Montreal “E-Boarding passes” pilot Talks with authorities about starting the pilot on a limited basis in June were successful, and then further implementation would be subject to the results of the test and continued working with authorities
Finnair notes other provisos Mobile devices must contain the required features by default, removing the need for customers to install software Secondly, multimedia message service (MMS) provides a method
to deliver a 2D barcode to a customer but mobile operators need to read – just their pricing policy, says the airline It says roaming pricing, in particular, can be ‘a real killer’
(Andrew Baxter, FT.com site, published 14 May 2007)
Questions:
1 What are the advantages and disadvantages of mobile check-in ?
2 How does being one of the first companies to adopt technologies such as mobile check-in confer competitive advantage? Refer to the concepts covered in BIS and Strategic Advantage in your answer
3 What barriers are there to the widespread adoption of mobile check-in ?
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CASE STUDY STUDY STUDY 6.1 6.1 6.1
IT NEAR ITS LIMITS
IN SATISFYING CUSTOMERS
The customer experience used to end at the cash register Today, that’s where it begins ‘Woody Diggs, leader of the global customer relationship management practice for the consultancy Accenture, quotes this remark to illustrate how customer expectations have changed in recent years Technology has played a part in this change and if you look for examples, you will find plenty Here are three:
The Santiago Bernabeu football stadium in Madrid has installed, in collaboration with Cisco Systems, an intranet that can control remotely not only the turnstiles and lighting but also the loudspeakers and security cameras Epson, the Japanese electronics group, claims a 30 per cent increase in efficiency, a
38 per cent reduction in the cost of handling inquiries and a 1,125 per cent increase in online inquiries after installing Talisma customer relationship management systems in its European call centres Alliance 7 Leicester, the UK-based financial services group, worked with a data capture specialist, Digital Vision, to create a fully automated account switching system, which, it says, has more than doubled the number of customers switching their current accounts in its favour and achieved operational cost savings of 66 per cent
The catch is that it is always easy to find the ones that work; the failures are conveniently kept out of sight And customer relationship management (CMR) technology – systems designed to give companies a single, integrated view of their customers and maintain a mutually beneficial dialogue with them – has a patchy record of success Richard Boardman of Mareeba CRM Consulting emphasizes the dichotomy: ‘The brutal reality is that the majority of CRM projects produce, at best, marginal benefits to the purchaser Which isn’t to say’, he adds, ‘that CRM technology doesn’t produce the results; there are also plenty of organizations enjoying very high returns’ As Spanish football fans, electronics aficionados and British bank customers can perhaps testify
CRM is a business problem which technology cannot solve, according to Aki Ratner, chief executive
of the enterprise software group Attunity He says: ‘It may change the way businesses run, but it does not address the fact that the knowledge that gives a company competitive edge is not held in structured databases or processes but within the people who actually run the business It is people- driven activities, not process- driven ones, that define the real success of an organisation,’ And there are thousands of ways
to improve the customer experience, many of them involving little technology and little cost Ed Thompson, a senior analyst with the Gartner consultancy argues that it is a matter of expectation setting, feedback and how organisations deal with these issues He points to the example of Disneyworld, where the introduction
of a simple measuring stick meant an end to the disappointment felt by children who had queued for a particular ride only to find they were too small to be allowed on board ‘Another example is Southwest
Trang 11airlines in the US, a no-frills, low-cost airline that was looking for ways to improve customer satisfaction It discovered that the best way was for its staff to smile It put in place a smiles programme and found a positive correlation with its customer satisfaction scores.’ Mr Thompson concludes: ‘Employees often have the biggest impact on the customer experience Ask customers what they want and they will often say employees that have the power to “step outside the process” Customer satisfaction scores are driven most
by delivering on the basics that customers expect – like stock on the shelves, clear transparent pricing, good build quality and innovative design,’ IT only goes so far in helping with that
Alan Cane, Financial Times, 13 June 2007 (abridged version )
Question:
Explain the quotation in the case study: ‘it is people-driven activities, not process - driven ones, that define the real success of an organization.’
Trang 12aim is for no more than five commodities to be unavailable at any one time
order lead time 24-48 hours
distribution centres mange deliveries of 11 million cases to 335 stores
How is Sainsbury’s helped by TPS technology ?
Improved customer service through more choice, lower prices, better quality of produce and full shelves
Improved operational efficiency by automatic links to suppliers and better information on product demand and availability
Assessment of the effectiveness of product promotions through availability of better information
Marketing through customer loyalty schemes
How does Sainsbury’s use technologies ?
At the till – EPOS and EFTPOS
On shelves – auto-price-changing LCDs
On trolleys – ‘ self-scanning systems’
At home – direct wine sales from the Internet Barclay Square site
For banking – TPS are vital to providing customer statements and cash withdrawals
In the marketing department – the effectiveness of marketing campaigns and loyalty card schemes can be assessed using information on transactions stored in data warehouses This type of system
is covered in more detail in Chapter 4
Trang 13Questions:
1 Draw a diagram summarizing the links between all the parties who access Sainsbury’s TPS
2 What benefits will Sainsbury’s gain compared to the time before the introduction of TPS ?
3 Can you think of any problems with using TPS so extensively? What can be done to counter these problems ?
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CASE
CASE STUDY STUDY STUDY 7.1 7.1 7.1
LICENSING:
HOW BUYERS CAN FLEX THEIR MUSCLES
Software licensing remains a minefield that all users - whether battle-weary or greenhorns - must pick their way through with care While IT suppliers like to trumpet the virtues of software asset management, it can be user fast track to under licensing And once users are on the back foot, suppliers can pretty much dictate the terms of the next licence
Seasoned negotiators encourage users first of all to get to grips with the terms and conditions of the software licence The focus should be to negotiate the best possible terms and then to concentrate on fulfilling their part of the deal
One caution from independent advisers is to beware the new trend for subscription licences Traditionally, licences were bought in perpetuity with a one-off payment Subscription licences, by contrast, offer no ownership, just renewal at regular intervals
This advice is reiterated by the Surrey Police Force, which has just moved from a Microsoft Office of Government Commerce Enterprise Agreement to the Home Office Master Agreement, designed specifically for the police and criminal justice sectors
‘We buy perpetual licences’, says Russell Fowler, ICT technical support manager ‘The major disadvantage of a subscription licence is that you never own it As a result, you are never able to step out of the agreement If you want to use a particular product, you have to continue to subscribe – you cannot take
a break from the agreement
And all users need to be mindful of support clauses Within subscription licences, support is often packaged with a ‘right to use’ aspect Support needs to be measured and prompted by service level agreement in the same way as an outsourcing contract
‘The worst mistake is to think that just because you have the right of termination, you do not have to build in other remedies’, says Kit Burden, partner with law firm DLA Piper Rudnick Gray Cary
‘Using the “H-bomb” is not a palatable remedy You need to incentisive suppliers properly to get it right the first time.’
Case study: Banking on change
Burden recently negotiated a software licence for an investment bank that was procuring an online trading application The rate card price of the standard licence - £8.3m – was just the basis for the negotiation
Trang 15An important consideration was how long the user envisaged using the application A warning signal for Burden was that the supplier was offering a five-year licence while his client envisaged using the software for eight to 12 years
‘You might have a situation where the user is happily bedded in with the software after five years, but the supplier is able to pull the rug out from under their feet because the licence is due to terminate at that point The danger is that a supplier can lock the user in and then rack up the licensing costs.’
Burden advised the bank to pay extra t secure a ‘perpetual’ licence, and it agreed to pay a further
£2m for this extension ‘It is vital to get a licence long enough to get the full return on your investment’, he says
The other concern was to provide the bank with options to own the code or modifications, should it later prove commercially expedient to control these Burden renegotiated the standard licence to gain two options
The first option was for his client to identify functionality that it wanted developed from the core application – spot trading, for example – and to create an exclusive licence for this part of the code
An ‘uplift’ in price, to be negotiable according to the size of the modification, would take care of this
The second option would be where the bank needed to take over development of the application as
a strategic move, whether to safeguard the application’s future or to ensure commercial confidentiality This option requires access to source code rather than object code
If the bank ever wants to exercise this option, it will have to stump up an extra £6.8m
‘For the right application, you may have to pay a substantial sum to get the licence you want’, says Burden although the business benefit and peace of mind may make it worthwhile
‘For users contemplating bespoke systems where millions of pounds will be spent on modifying a core product, not looking at future scenarios is nothing short of criminally negligent’, he says
Case study: The capacity model
The pattern of server deployment in Trafford NHS Trust is different to that in the private sector and it follows that the trust prefers a different model of software licensing
In the 15 years that Roger Fenton, deputy IT manager at Trafford, has been with the trust, it has gone through three licensing regimes for back-up software He is responsible for renegotiating and introducing the most recent model for licensing back-up
IT resources are assigned throughout the NHS on a project basis, rather than by central provision, because of the way budget, rather than by central provision, because of the way that software licences need
to be procured
‘We have upwards of 40 servers running various applications that all need to be licensed and maintained’, Fenton says
Trang 16can be scaled up incrementally
It is a big improvement on the previous regime, both financially and in terms of simplifying and reducing administration
‘The price we secured was embarrassingly good’, says Fenton, who states he saved ‘thousands’ on the previous licensing bill of £40,000
Savings accrue chiefly because licensing on the basis of capacity, rather than individual servers, better suits Trafford’s pattern of deployment; as servers proliferated within its project-led culture, server-based licensing incurred a financial penalty
This was compounded by the fact that in the per server model, CA charges both for the software running on the central back-up server, and for ‘agents’ that run on the application servers that are backed
up
Keeping track of the annual maintenance charges for the separate agent licences was a major headache Every additional back-up agent that ran on the application servers had to be licensed, and the maintenance fee renewed each year
‘Potentially, we had loads of different licences to maintain, all expiring on different dates’, says Fenton
In addition, the overall cost of the model had become unpalatable, ‘In such an environment, each time we bought a new server, we were talking about another £750 or more in licence fees’, says Fenton At the same time, server costs were falling below the £2,000 mark, making licence costs proportionately greater
This licensing overhead had accumulated over time, creeping up on the health trust, which, like other former Unix users, had no previous experience of licensing back-up
Before moving to Windows, Trafford had used Unix boxes, which have back-up built-in Each Unix server came with its own low-capacity tape drive, and applications were accompanied by a script for the back-up ‘They were turnkey systems’, says Fenton
When the trust moved to Windows it initially repeated its approach with the Unix boxes
‘We used individual tapes for each SQL server It was a logical extension of what we did with the Unix boxes However, as the number of servers and applications mushroomed, managing tapes and back-
up programs for each server became impractical.’
There are some disadvantages to the new approach The first is having to licence back-up in blocks
of 1 Tbyte
Trang 17‘As you tip over into a new increment you are faced with buying a large chunk of extra capacity that may be only partially used’, says Fenton
A further disadvantage is the way that storage capacity is calculated – according to the raw capacity
of the backed-up drives, rather than the capacity actually utilized The large disc installed in servers may only be used nominally, while redundant array of independent disc (Raid) storage architectures are designed to ensure redundancy
‘Nonetheless, licensing capacity is cheaper and a lot less hassle for us’, says Fenton
Beware the chamber of horrors
There are certain scenarios that users should avoid at all costs, says outsourcing broker Quantum Plus Above all, always remember the golden rule: there is no such thing as a standard contract
Seemingly innocuous ‘version updates’
Relatively minor updates of the ‘0.1’ variety can incur unadvertised changes to terms and conditions that have a significant impact on customers For example, a version update may change the way that the number of users is calculated or the nature of server licensing
Obscure charging mechanisms
Be very sure of the supplier’s charging model for a licence Is it based on the number of users, servers or even processors ? Seemingly low-cost software can easily be installed in a non-compliant way For example, if software costs are processor-based, and the server is a quad processor, the result is under licensing and a big bill
Control of media
A number of suppliers of shrink-wrapped software have clauses in the agreement that require users
to show they control the media on which the software is distributed Examples of control might include a single point of contract for receipt of a disc, its safe storage, and an approval process for signing it out A supplier could cite a lapse in control as breach of contract
The outsourcing clause
Supplier may try to insert into terms and conditions their right to renegotiate the licence should the management of a asset be moved to a third party This can be invoked for an outsourcing contract, even when the software and server remain onsite Suppliers may also reserve the right to charge an administration fee to transfer the licence to the third party Beware: the transfer fee could run into thousands
of pounds
Enterprise licence
If you are underlicensed and on the back foot, the balance of power shifts to the supplier, who may insist you sign up to an enterprise licence Such a licence may appear to be all-inclusive and cover every
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CASE
CASE STUDY STUDY STUDY 7.2 7.2 7.2
LASCELLES FINE FOODS
Lascelles Fine Foods (LFFL) is a fictitious example of a long-established company operating in the food industry The company has its administrative headquarters in Ashville and manufactures on an adjacent site All customer deliveries are from the Ashville-based warehouse In addition, LFFL purchases finished and semi-finished food products from other manufactures which it then finishes before resale
The company has enjoyed steady growth in recent years and is now seeking to capitalize on the current fashion for quality and healthy food products LFFL’s turnover is £16 million with net profitability of 6.3 per cent of turnover/ It is hoping to gain a competitive edge by providing quality food products which meet all present and anticipated quality standards and to this end will be applying for BS5750 accreditation within the next six months It is hoping to increase turnover by 10 per cent per year after inflation over the next five years and increase net profitability to 9 per cent of turnover over the same period
LFFL’s main operations are divided into four main areas:
- Sales and marketing;
- Warehousing and distribution;
- Manufacturing;
- Finance
All information recording and internal communication is paper based and relies on range of preprinted documents which are then used as appropriate
The sales department
LFFL has a diverse customer base, ranging from small health food shops to major supermarket chains Orders can be one of two types: standard orders placed in advance for delivery in a specific week or priority orders placed for immediate delivery
Orders are placed either directly through sales office ‘account handlers’ or through field sales persons (each customer has one sales person) Each customer is allocated an account handler who acts as the main liaison point within LFFL Besides receiving orders, the account handler is responsible for cash collection, ensuring satisfactory progress of the order and handing day-to-day queries Customers are also placed into sales categories based on geographic location, volume of business and type of customer (e.g specialist store vs supermarket chain) The sales director is apt to change his mind about which category a customer is in and which category means what
Order processing
Trang 20Warehousing and distribution sort all order forms into date order When an order is due to be delivered, products are picked from the warehouse and loaded into the appropriate vehicle
When an order is delivered, it is accompanied by a consignment note and an invoice The customer
is required to check the delivery against the invoice and note any errors on the consignment note and if any errors are noted a corrected invoice is sent to the customer
Warehousing and distribution
LFFL stores finished products, bought-in products and raw materials in the warehouse The warehouse in divided into three areas:
- The general zone, comprising a high-rise bulk storage area with a floor-level picking area;
- The cool zone, comprising low-level storage at 2 to 4oC;
- The frozen zone, with temperatures held to -18oC
In addition to their role in the order processing cycle, other activities are also performed:
- Internal warehouse movements from high-rise locations to ground-level areas and vice versa;
- Receiving products and raw materials from suppliers and returned products from customers;
- Issuing raw materials to manufacturing in response to submitted requisition forms;
- Receiving finished products from manufacturing and any unused raw materials
Information about quantities of finished goods and raw materials in stock is recorded in a card file, which has to be searched manually for the appropriate entry when updating is required
LFFL’s finance department is divided into three areas:
- Accounts payable – when LFFL makes purchases, suppliers will invoice them; LFFL uses a manual purchase ledge to manager these accounts;
- Financial accounting – management of all monies flowing in and out of the company together with compliance with legal accounting requirements;