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Business strategy and IT Strategy

Q1: Business strategy and IT Strategy: Market conditions are changing and Unimicron Technology Corporation (UTC) is faced with challenges relating to increasing competition and the fast evolution of electronics technologies in the industry it is in. How might UTC use different forms of information technologies we studied in this course to support alternative business strategies in order to be more competitive? What strategy concepts/frameworks would you use to support the use of these information technologies?

Solution: There was a time when businesses relied on competencies of individual team members for ensuring seamless business processes but increasing market competition and the emergence of internet has resulted in globalization in customer and supplier network. Consumers have more options available to them that were ever there so they are demanding more sophisticated products customized to their needs and high customer service. If companies cannot keep their customers satisfied they don’t hesitate to do business with their competitors. So today companies like UTC need to provide quality customer services and develop products faster and more efficiently to compete in global markets.

Out of the four distinct functional areas important for seamless running of any business organization ie marketing and sales, supply chain management, accounting and finance and human resource management (Valacich and Schneider, 2012) UTC has identified Supply chain management and accounting and finance as critical aspects for future growth in the competitive market.

As of now they are doing strategic sourcing of raw materials by signing long term contracts their sellers after private negotiations. However there are many electronic technologies available in the market which will help improve current situation and gain a competitive advantage. Following systems can be used by UTC:

Enterprise-wide information systems (ES): ES is an integrated suite of business applications for virtually all the departments, processes and industry which allows company to integrate information across operations on a company-wide basis using a large database (anonymous, n.d). Enterprise systems can also be extended to streamline communications with global customers and suppliers. UTC can use this system to effectively streamline its internal business process and external media to ensure strategic edge in the market.

For example: Enterprise system of SAP not only focuses on internal operations but also on business activities that occur outside the business organization. They can help UTC find innovative ways to increase on-time shipment, avoid surprises like shortage of raw material or weather problems, minimize cost and ultimately increase customer satisfaction and overall profitability of company.

Since ES comes in various shapes and sizes, providing unique set of features and functionality it is important for managers to select and implement applications that meet the requirement of business as well as customers and suppliers.

An ES can have various sub-systems coordinating with each other.

  • Enterprise Resource Planning (ERP): They are the applications that integrate applications across department boundaries. It replaces stand – alone applications by providing various modules based on central database. So, rather than information flowing for one department to other in different formats (which makes it difficult to interpret), it can be accessed and updated at will in a pre-defined format. It also allows sharing of information across the organization.

For Example: When ERP is used not only inbound logistics and operations have access to current inventory data but also accounting, sales and customer service personnel. So, if a customer calls enquiring about status of an order, customer service representative can access the database and share it with him.

  • Supply Chain Management (SCM): Like ERP helps to share internal data to streamline business processes, improving coordination within organization to improve effectiveness and efficiency. Information systems focusing on supply chain have two main objectives a) Accelerate product development and innovation

b) Reduce costs.

SCM helps a company in coordinating efforts with supplier/s to ensure stronger and more integrated relationships with them which in turn allows companies to compete more effectively in their markets through cost reductions and responsiveness in market demand. (Valacich and Schneider, 2012)

  • Customer Relationship Management (CRM): To sustain in the current competitive market, where in most industries competitor is just a mouse click away, it is important for companies to not only attract new customers but also get repeat business from existing customer and to do so they need to shift their emphasis from conducting transactions to maintaining relationships. For this companies need software’ which capture information from retail stores, websites, social network, micro blogs, call centers and various other ways organization communicates with the client. This helps them get insights regarding customer preferences, how they view and rate their services, customer life time value based on their purchase patterns and customer satisfaction.

For leveraging their companies and suppliers strength to the best possible level UTC should look at integrating organization ERP, supply chain and CRM databases to develop and enterprise wide information system which will allow them to streamline internal processes, interaction with suppliers to achieve cost reduction and high responsiveness to customer requirements.

Q2: Enterprise wide Systems & Business Process Management: We spent quite a bit of time studying enterprise wide systems and business process management in the course and this is good foundational knowledge for this case. What electronic environments should UTC create to enhance their current standing in the electronics industry circa 2009 (as described in the case) and going forward in today’s (2017) conditions? What different forms of information technologies should UTC use to enhance their relationships with valuable trading partners? Define, describe, and discuss these technologies and how you might weave them together.

Solution: In order to achieve strategic advantage and enhance its standing in the electronic industry it is important for UTC to look at long term perspective and larger picture instead of focusing on different arms of its business in silos. For any organization to succeed in its chosen business segment, in this case manufacturing, four things are of prime importance( Kaplan and Norton, 1996):

  • Clear vision of top management of what they want to achieve as an organization in both long term and short term.
  • Streamlined internal business processes to avoid duplicity and redundancies in work.
  • Well-oiled supply chain to ensure better adherence to budget, better cash management, improved inventory management, controlled supplier proliferation, greater visibility into demand etc.
  • Effective customer acquisition process to attract new customers and high customer satisfaction to ensure long term loyalty and thus increased customer life cycle value for the company.

Any organization which excels in these four parameters gains competitive advantage in market. However, for achieving these goals effective utilization of available technologies is of prime importance.

UTC needs to effectively connect the organizational value chain whose core processes include inbound logistics, operation and manufacturing, outbound logistics, marketing and sales and customer services and support processes include HR, Technology development, Procurement, Administration and firm infrastructure using following information technologies to enhance its relationship with valuable trading partners(Valacich and Schneider, 2012):

  • Enterprise Resource Management (ERP): ERP is a process/application by which a company (often a manufacturer) manages integrates the business activities across department boundaries. An ERP replaces stand alone or legacy applications by providing various modules based on a central database.

ERP core components support the internal activities of an organization for producing their products and services. These components support internal operations like financial management, operations management, human resource management etc. Whereas the operations management component (inbound/ outbound logistics, product development, manufacturing and sales and service) enable the core activities of value chain, financial management (accounting, financial reporting, performance management, corporate governance) and human resource management (employee recruitment, assignment tracking, performance reviews, payroll and regulatory requirements) are associated with activities supporting the core activity.

Depending on the way processes are typically performed within an industry ERP vendors typically package various modules that enable industry specific processes and offer such systems as industry solutions. These modules when implemented in an organization work together to enable the business processes needed to run a business efficiently and effectively.

UTC can use following ERP processes to improve its internal workings:

  1. Order to Cash process: For a company like UTC selling a product or service is the main way of generating revenue. However there are many sub processes that need to be completed before the sale is made. Sub processes can be creating an order, checking and allocating stock, picking, packing and shipping, invoicing and collecting the payment. Since there are so many touch points where things can go wrong an ineffective order-to-cash process may lead to errors which can cause high rate of dispute that have to be resolved, ineffective collection process and ultimately defecting customers. However, if ERP is implemented effectively it can lead to high customer satisfaction, speed up collection process and serve to provide valuable inputs to intelligence process.
  1. Procure to pay: In order to be able to sell its product UTC needs to acquire parts from various suppliers, place purchase orders, receive the products, allocate warehouse space, receive and pay invoices and handle potential disputes. All these processes associated with procuring goods from external vendors is together referred to as procure to pay processes. Sub process may include price and terms negotiation, ssuing of purchase order, receiving goods and receiving and paying invoices.

An efficient procure to pay process reduces error rates in purchase order and invoices, help organization develop close relations with suppliers, reduce transactions costs and ultimately creates customer good will.

  1. Make to stock/make to order: This process comprise of processing sales order, procuring inputs to the manufacturing process, scheduling production, production, quality control, packaging, stocking or shipping the product.
  1. Other Business processes: UTC can also deploy ERP for human resource management and HR processes in order to avail the complete benefit of the application

Effective implementation of ERP will help in ensuring buy-in of internal stakeholders which is of prime importance.

  • Supply Chain Management: Supply chain is a global network of retailer, distributors, transporters, storage facilitator and suppliers that participate in production, sales and delivery of a particular product.

Most of the successful companies like Apple import thousands of components of best quality for their final products like i-phone from various suppliers across globe and get them assembled at a factory and ship it to different countries where there is market for the product for achieving desired sales targets. Coordinating such extensive supply network requires considerable expertise or supply chain management technique.

For Example: Let us take an example of a toy manufacturing company to explain how a typical supply chain is managed.

As we can see that generically any manufacturer has multiple suppliers and sub suppliers. The raw material shared by sub suppliers is processed and share with suppliers as raw material for their processes.

After the processing is done the raw material shared by sub suppliers is done by the suppliers the raw material is shared with the manufacturer. Who the assembles / manufactures and package and share it with its distributors who then depending on the demand sell to their retailers and eventually customers.

Thus as we can see here there are three parts to this process:

  1. Upstream process: This involves movement of raw material from sub suppliers to suppliers to the manufacturing unit.
  1. Internal Processes: This comprises of manufacturing or assembling of raw material to create final product.
  • Downstream Processes: This includes the distribution centers which deliver the product to the end customer.

In context of a toy manufacturing unit the sub suppliers will be oil refinery, lumber company, sheet metal, Pulp Company. They will provide the raw material for the suppliers which in this case are plastic industry, components manufacturer and Paper Company. The paper company will further send it to box manufactures who will then make boxes and print them as per the requirement.

Then all this raw material that is plastic, components, boxes will go to the toy manufacturing company where toys will be assembled packaged and then delivered to distributors and retailers to sell to final customers. If the supply chain works like well-oiled machinery then the production cost will go down and margins will go up.

(Valacich and Schneider, 2012)

Benefits of effectively managing supply chains are many and include process innovation like Just in time manufacturing and vendor managed inventory. However, inefficiently managed supply chains may lead to excessive inventory, inaccurate manufacturing capacity plans and missed production schedules.

A well-managed supply chain also has necessary information to track back the movement of product so that in case some issue regarding the product quality arises company is quickly able to identify problem link.

The main aim of a good supply chain is to integrate business processes and supply chain partners. SCM contains many modules and applications. Each of these modules support either supply chain planning or supply chain execution or supply chain visibility and analytics. Four key processes that UTC can implement are described below:

  1. Demand Planning and Forecasting: To develop demand forecast SCM modules examine the historical data, the accuracy of forecast will depend on stability of data. When data is stable forecast for longer duration can be accurately done otherwise time frame must be narrowed. It also takes into consideration other factors influencing demand.
  2. Distribution Planning: It focuses on delivering products or services to consumers as well as warehousing, invoicing and payment collection.
  3. Production Scheduling: It focuses on coordination of all activities needed to create product or service. In this analytics tools are used to optimally utilize material, equipment and labor. It also involves product testing, packaging and delivery preparations. It will help UTC in developing a production plan.
  4. Inventory and Safety Stock Planning: It focuses on development of inventory estimates. Using inventory simulations UTC can balance inventory cost and desired customer service level to determine optimal inventory level. This planning will help in development of sourcing plan.

UTC can implement information systems like e-procurement to ensure effective supply chain execution. It will help it improve the supply chain efficiency by:

  1. Accelerating product development and innovation
  2. Reducing cost
  3. Increased organizational effectiveness
  4. Optimal control over demand and expenditure

Effective implementation of SCM will ensure good relations with suppliers which will help in creating competitive advantage for organization in long term.

Customer Relationship Management: Customer relationship management (CRM) refers to practices, strategies and technologies that companies use to manage and analyze customer interactions and data throughout the customer lifecycle, with the goal of improving business relationships with customers, assisting in customer retention and driving sales growth.

CRM systems are designed to compile information on customers across different channels -- or points of contact between the customer and the company -- which could include the company's website, telephone, live chat, direct mail, marketing materials and social media. CRM systems can also give customer-facing staff detailed information on customers' personal information, purchase history, buying preferences and concerns (Margret Rouse).

UTC should adopt collaborative CRM which is a combination of Analytical CRM (this analyses customer behavior and perception and helps in making organizational CRM strategy) and Operational CRM (which helps in executing CRM strategy).

With effective operational CRM organizations are able to provide personalized and highly efficient customer service. It provides all customer information, history, pending sales and service request, to the touch point help the customer better.

Analytical CRM focuses on analyzing customer behavior and perceptions in order to provide business intelligence necessary to identify new opportunities and to provide superior customer services. Its effective utilization can help customize the campaigns from segment level to even individual customers which can lead to cross or up-selling. It also helps identify popular products and services tailored to different markets as well as in retaining customers by having accurate, timely and personalized information.

Now when we combine the two we get collaborative CRM which provide effective and efficient communication with the customer from entire organization. It facilitates sharing the information about customer across various departments to increase customer satisfaction and loyalty.

Thus, we see that though even as standalone these systems will add great value to UTC the real effect can be achieved only by integrating SCM with ERP and CRM modules. This will help in centralization and decision making by using central data base. Eg. SCM can use data about customer orders (from CRM systems), data about payments (from ERP) and ensure timely delivery of the product to ensure maximum customer satisfaction.

Q3: Systems Development Life Cycle(SDLC):

a) Map out the different activities undertaken by UTC against the SDLC roadmap.

Solution: a) After UTC identified supply chain as the critical area of improvement and zeroed down on adoption of e-procurement as a new business initiative to provide it competitive advantage in the long run it conducted following activities:

  • Identifying critical benefits of this electronic environment for both suppliers and TLC: Since this activity demanded initial investment it was important to list down the long term benefits for both the parties involved to bring everybody on board.
  • Shortlisting the IT team designated to take part in the System Development Life Cycle process for initiating the procurement extranet, under UTC’s head of IT operation.
  • Identifying the software vendors who were best qualified to support such an electronic environment and inviting proposals from them. Then they analyzed all the proposals and finalized the one with best terms of engagement and selected E-procure Solutions which was delivered via cloud and with least overall cost for both UTC and suppliers.
  • Shortlisting three suppliers (one key, two normal) and convincing them to go ahead with pilot project.
  • Testing/checking if the system was working as expected and giving a go ahead for full deployment.

b) Point out the causes for the problems that occurred subsequently in the pilot project experience. What SDLC phases are involved in this problem? What did they do right and what did they do wrong in these phases?

Solution: b) After deployment two glitches were faced by the company for the following reasons:

  1. Purchase order submitted by UTC could not be processed due to unavailability of updated catalogues from supplier’s side. Bullwhip effect of which lead to delay in production schedules for UTC: This is clearly due to ineffective management of supply chain by the supplier (Chapter 8, Benefits of effectively managing supply chains). Since they did not update the new catalogues with latest product description, price and discount the information got distorted and did not reflect in UTC’s portal and their purchase order could not be processed.
  2. Suppliers complained that they did not realize the savings promised to them by UTC after deploying the e-procurement system. On top of that to meet the demand of adopted system they needed to hire two more resources: This problem came because at the time of investment analysis the cost of additional resource hiring and training was not factored in. Also the time frame for realizing the savings by implementing the e-procurement project was not specified.

If we look at it from e-procurement system development or Supply chain management architecture perspective problem happened during following stages(Chapter 8, SCM Architecture)

  1. Demand Planning and Forecasting: In the collaborative demand and supply planning, sales representative can work with demand planner taking into account the information provided by organizations point-of-sale system , Product details, price and promotions details entered by the supplier and other factors influencing demand. Here the supplier side information was not updated hence the issue arose.
  2. Inventory and safety stock planning: Though inventory was apt to take care of the production schedule when conditions are optimal. Safety stock planning(in case some problems arise in the supply chain cycle) was not upto the mark due to this the production of UTC suffered delays when order couldn’t be placed properly.
  3. Acceptance, installation and deployment: Though the critical supplier accepted the use of new system they did not do proper analysis of the new resources requirement nor they understood that if existing employees have to take up this additional job how will the time management happen. Due to this after deployment they were not able to manage the task.

c) What are your recommendations about how UTC should proceed going forward? For instance, should they pursue the deployment of this e-procurement extranet with all their suppliers? How should they do this to avoid similar pitfalls as happened in the pilot launch?

Solution C: Since the long term benefits of using e-procurement extranet are many, like significant reduction in maverick spending (buying from unauthorized vendor), better cash management, better adherence to budget, improved inventory management, greater visibility into demand etc, and problems they are facing are related to its proper execution and short term in nature UTC should proceed forward with the deployment.

However, to avoid any further instances of gap in demand and supply (which beats the entire purpose of having the e-procurement system) supply chain optimization needs to be done with due diligence in advance by UTC. It includes following aspects:

  • System analysis and requirement definition should be extensive and cover all aspects including man power requirement (hiring and training).
  • Optimal demand and safety stock planning and forecasting.
  • Distribution planning: Optimize the allocation of available supply to meet demand.
  • Effective supply network collaboration to ensure improved accuracy of demand forecast, reduce inventory buffers, increase velocity of materials and improve customer satisfaction.
  • Proper material management to ensure materials required for production are available when and where needed to avoid production delays.
  • Effective warehouse and transportation management.

Q4: Security and Information Systems: Consider all the electronic environments involved in this case: the ones you will recommend in answer to Question (2) and the EProcurex extranet described in the Appendix.

a) What are the security risks facing UTC considering these environments?

Solution a): When any organization decided to outsource any of its processes, following security risks can be faced by them (Stephanie Overby, 2003)

  1. They have to surrender a degree of control over critical aspects of enterprise to the third party. So if UTC decided to implement the integrated solution of ERP, SCM and CRM they may lose control over:
  • Control of project
  • Scope creep
  • Financial controls
  • Accuracy and clarity of financial reports
  • Companies IS direction

Eg: By turning over data supply chain operations UTC is sharing critical data regarding procurement with e-procurement team and putting itself in its mercy to manage it effectively and efficiently (Keri E. Pearson, Carol S. Saunders, 2001).

  1. UTC may not adequately anticipate new technological capabilities while negotiating contracts. Poorly planned outsourcing can result in a loss in IS flexibility. Eg. If service provider is slow in adapting new data mining techniques then the demand forecast may get affected.
  • By giving up IS function to third part, UTC will give up on any real potential to develop them for competitive advantage. Even if the contract includes clauses to enhance existing systems to provide competitive advantage, because it is shared with the service provider it can become available to their other clients sometimes even in the same industry.
  1. Fourth, contract may leave UTC highly dependent on e-procurement, with little recourse in terms of terminating troublesome provider relationships. It means the clients may be locked in to agreements they no longer want.

Like in this case, in pilot things ran smoothly but after full implementation critical supplier found it difficult to use and update the system. This shows that the knowledge transfer from e-procurement to critical supplier was not proper. Due to this the critical supplier had to be removed from the SCM system, which beats the entire purpose of implementing SCM in first place.

  1. When a company turns to outsourcing provider it must realize that its competitive secrets might be hard to keep. Its database are no longer kept in house and the outsourcing providers other customers can have easier access to sensitive information.
  1. If outsourcing provider’s culture or operations may not be compatible with that of UTC, conflicts between UTC’s staff and vendor’s staff may delay progress or hurt the quality of service or product delivered by outsourcing provider.
  • A lot of times companies to outsourcing for perceived cost savings which are never realized. Usually cost saving is premised on activities that are performed by the company. However, old processes may become redundant and replaced by new processes which are not considered in planning stage. Also, increased volume due to unspecified growth, software upgrades and new technologies is sometimes not anticipated, which may end up UTC costing more money in implementation than they initially expected.

b) Take the role of an IT consultant approached by UTC. What approach would you recommend to UTC about how they should secure their IT assets considering threats that now play at global digital and physical (i.e. analog) marketplace of 2017 ?

Solution b): Since efficient supply chain management is the key factor to growth in the competitive market, it is important that UTC does the integration of its supply chain with multiple vendors. However, considering the risks that it might involve it is very important that proper due diligence be done before finalizing a vendor and implementing the system. I would give following recommendations to UTC for mitigating threats in both digital and physical environment.

  1. It is important for UTC before implementing SCM for itself and all the vendors that its technical team under the guidance of CTO should access all the latest technologies available in the market and identifies the one best suited for its needs. Till the time technical team is not sure of which technology is best for their vendor network inviting bids will not be fruitful.
  1. The compatibly of UTC with the outsourcing provider in terms of internal operations, managers and culture, because when it comes to long term partnerships cultural fit trumps price.
  • UTC should ensure that the contract terms allow them flexibility they need to manage and if required severe supplier relationships.
  1. Clear Service Level Agreements (SLAs) need to be defined to ensure adherence to contracted delivery time and expected performance of the services. Contracts are to be tightened by adding clauses describing actions to be taken in case of deterioration in quality of service or non-compliance of SLAs.
  1. To ensure that UTC does not miss out on enhancing the software to develop competitive advantage, the agreement needs to be sophisticated enough to comprehend developing such advantage in tandem with e-procurement. Along with this they also need to sign legal undertaking with the supplier that if the enhancement is USP or competitive advantage for UTC they will not implement it in any other organization in the same or related industry.
  1. To ensure that outsourcing vendors other clients don’t get access to sensitive information of the organization UTC must think through security issues carefully and implement controls where ever possible. They should look for providers who have a good reputation in market for data security. It should also include clauses in agreement to keep UTC data and system secure.
  • It is important to analyze which new processes will replace the old processes if e-procurement is implemented in the cost analysis.

Like in this case, UTC and even the vendors did not consider that manpower will be required for data entry in the new process which lead to miscalculation of total expenditure and misrepresented the total savings to the critical client.

Also, for keeping the system relevant for longer duration business growth projections for coming years, software upgrade cost and new technology implementation buffer needs to be considered while planning the investment.

References:

(n.d.). History of e-commerce. Retrieved April 5, 2017, from http://www.ecommerce-land.com/history_ecommerce.html

Kaplan, R. S., & Norton, D. P. (1996). The Strategy Focused Organization. Retrieved April 6, 2017.

Overby, S. (2003). The hidden cost of offshoring outsourcing. CIO Magzine. Retrieved April 5, 2017.

Pearlson, K. E., & Saunders, C. S. (2001). Managing and using information systems.

Rouse, M. (n.d.). Customer Relationship management. Retrieved April 4, 2017, from http://searchcrm.techtarget.com/definition/CRM

Valacich, J., & Schneider, C. (2012). Enterprise information system. 5. Retrieved April 6, 2017.

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