9.3 Application Software

Operating systems are designed to create a platformProducts and services that allow for the development and integration of software products and other complementary goods. Windows, the iPhone, the Wii, and the standards that allow users to create Facebook apps are all platforms. so that programmers can write additional applications, allowing the computer to do even more useful things. While operating systems control the hardware, application software (sometimes referred to as software applications, applications, or even just apps) perform the work that users and firms are directly interested in accomplishing. Think of applications as the place where the users or organization’s real work gets done. As we learned in Chapter 6 "Understanding Network Effects", the more application software that is available for a platform (the more games for a video game console, the more apps for your phone), the more valuable it potentially becomes.

Desktop softwareApplications installed on a personal computer, typically supporting tasks performed by a single user. refers to applications installed on a personal computer—your browser, your Office suite (e.g., word processor, spreadsheet, presentation software), photo editors, and computer games are all desktop software. Enterprise softwareApplications that address the needs of multiple users throughout an organization or work group. refers to applications that address the needs of multiple, simultaneous users in an organization or work group. Most companies run various forms of enterprise software programs to keep track of their inventory, record sales, manage payments to suppliers, cut employee paychecks, and handle other functions.

Some firms write their own enterprise software from scratch, but this can be time consuming and costly. Since many firms have similar procedures for accounting, finance, inventory management, and human resource functions, it often makes sense to buy a software packageA software product offered commercially by a third party. (a software product offered commercially by a third party) to support some of these functions. So-called enterprise resource planning (ERP)A software package that integrates the many functions (accounting, finance, inventory management, human resources, etc.) of a business. software packages serve precisely this purpose. In the way that Microsoft can sell you a suite of desktop software programs that work together, many companies sell ERP software that coordinates and integrates many of the functions of a business. The leading ERP vendors include the firm’s SAP and Oracle, although there are many firms that sell ERP software. A company doesn’t have to install all of the modules of an ERP suite, but it might add functions over time—for example, to plug in an accounting program that is able to read data from the firm’s previously installed inventory management system. And although a bit more of a challenge to integrate, a firm can also mix and match components, linking software the firm has written with modules purchased from different enterprise software vendors.

Figure 9.4 ERP in ActionAdapted from G. Edmondson, “Silicon Valley on the Rhine,” BusinessWeek International, November 3, 1997.

An ERP system with multiple modules installed can touch many functions of the business:

• Sales—A sales rep from Vermont-based SnowboardCo. takes an order for five thousand boards from a French sporting goods chain. The system can verify credit history, apply discounts, calculate price (in euros), and print the order in French.
• Inventory—While the sales rep is on the phone with his French customer, the system immediately checks product availability, signaling that one thousand boards are ready to be shipped from the firm’s Burlington warehouse, the other four thousand need to be manufactured and can be delivered in two weeks from the firm’s manufacturing facility in Guangzhou.
• Manufacturing—When the customer confirms the order, the system notifies the Guangzhou factory to ramp up production for the model ordered.
• Human Resources—High demand across this week’s orders triggers a notice to the Guangzhou hiring manager, notifying her that the firm’s products are a hit and that the flood of orders coming in globally mean her factory will have to hire five more workers to keep up.
• Purchasing—The system keeps track of raw material inventories, too. New orders trigger an automatic order with SnowboardCo.’s suppliers, so that raw materials are on hand to meet demand.
• Order Tracking—The French customer can log in to track her SnowboardCo. order. The system shows her other products that are available, using this as an opportunity to cross-sell additional products.
• Decision Support—Management sees the firm’s European business is booming and plans a marketing blitz for the continent, targeting board models and styles that seem to sell better for the Alps crowd than in the U.S. market.

Other categories of enterprise software that managers are likely to encounter include the following:

• customer relationship management (CRM)Systems used to support customer-related sales and marketing activities. systems used to support customer-related sales and marketing activities
• supply chain management (SCM)Systems that can help a firm manage aspects of its value chain, from the flow of raw materials into the firm, through delivery of finished products and services at the point-of-consumption. systems that can help a firm manage aspects of its value chain, from the flow of raw materials into the firm through delivery of finished products and services at the point-of-consumption
• business intelligence (BI) systemsSystems that use data created by other systems to provide reporting and analysis for organizational decision making., which use data created by other systems to provide reporting and analysis for organizational decision making

Major ERP vendors are now providing products that extend into these and other categories of enterprise application software, as well.

Most enterprise software works in conjunction with a database management system (DBMS)Sometimes referred to as database software; software for creating, maintaining, and manipulating data., sometimes referred to as a “database system.” The database system stores and retrieves the data that an application creates and uses. Think of this as another additional layer in our cake analogy. Although the DBMS is itself considered an application, it’s often useful to think of a firm’s database systems as sitting above the operating system, but under the enterprise applications. Many ERP systems and enterprise software programs are configured to share the same database system so that an organization’s different programs can use a common, shared set of data. This system can be hugely valuable for a company’s efficiency. For example, this could allow a separate set of programs that manage an inventory and point-of-sale system to update a single set of data that tells how many products a firm has to sell and how many it has already sold—information that would also be used by the firm’s accounting and finance systems to create reports showing the firm’s sales and profits.

Firms that don’t have common database systems with consistent formats across their enterprise often struggle to efficiently manage their value chain. Common procedures and data formats created by packaged ERP systems and other categories of enterprise software also make it easier for firms to use software to coordinate programs between organizations. This coordination can lead to even more value chain efficiencies. Sell a product? Deduct it from your inventory. When inventory levels get too low, have your computer systems send a message to your supplier’s systems so that they can automatically build and ship replacement product to your firm. In many cases these messages are sent without any human interaction, reducing time and errors. And common database systems also facilitate the use of BI systems that provide critical operational and competitive knowledge and empower decision making. For more on CRM and BI systems, and the empowering role of data, see Chapter 11 "The Data Asset: Databases, Business Intelligence, and Competitive Advantage".

Figure 9.5

An organization’s database management system can be set up to work with several applications both within and outside the firm.