consultancy
websites and services
multimedia projects
content management systems
online learning
online directories

IT in Retail - Transformation & Globalisation
G. Herman, (c) 1997


Chapter Five - IT Applications: From Support to Strategy

Introduction
In the customer-focused world of the future, micro-managing is the single most important goal of store-based retailing, while the promise (or threat) of interactive teleshopping is the biggest challenge. Increasingly, IT is seen as strategic to retail operations, but it is not clear just what strategic means in this context or what it means to be strategic.

The development of IT itself is, in part, responsible. IT systems seem so much more versatile and powerful than the computers that preceded them that there is a tendency to assume that they must be important. Strategic in these cases is just another way of saying important . Yet there are distinctively different ways in which IT is approached by different organizations, involved in different types of activity, at different stages of their development. An analysis of these approaches can help management take better decisions about the deployment of information systems and related resources.

From data processing to information technology
Data processing (DP) is what individual computers are good at. It means the ability to handle large amounts of information, represented as numerical data, quickly and accurately. Linking individual computers together makes two things possible: firstly, data can be efficiently and rapidly delivered to the place where it is most needed and, secondly, communications itself can be computerised, so that phone conversations or video images, for example, can be treated as data and manipulated in much the same sort of way as personnel records or sales figures are processed.

The importance of computer-to-computer communication, or connectivity , is that it allows data to flow in many directions and be organized within a corporate or social structure. Communications channels form the infrastructure of enterprises.

Connectivity is the key to the long heralded IT revolution, and it applies to microprocessors as much as it does to the devices we immediately recognise as computers. Economic life is being revolutionised by the ability to connect up microprocessors in televisions, telephones, EPoS terminals, printers, numerically controlled machine tools and so on. At heart, this revolution is not about smaller and cheaper computers or more powerful and usable software. They are only its instruments. The IT revolution is not about better or cheaper data processing, it is about the transformation of data. With IT, we can turn data into information and add value to the information by selecting and targeting it.

Almost anybody who writes about or comments on computing these days has attempted to draw out a simple distinction between DP and IT. Management theorist Peter Drucker concentrates on the difference between information and data. Information is data endowed with relevance and purpose, Drucker noted in his influential paper, `The Coming of the New Organization , Harvard Business Review, January-February 1988. Converting data into information thus requires knowledge. Another way of putting this would be to see information as data that has been filtered and communicated - information, in other words, is the right data in the right place at the right time. Filtering and communicating data requires a previously organized body of information to identify significance, relevance and usefulness. This organized information is what Drucker means by knowledge .

Clearly, there are different aspects to the distinction between DP and IT. Technically, IT involves the convergence of computing, communications, automation and transduction technologies. Together, these allow datato be captured, processed, delivered as information and used to drive productive processes. Philosophically, IT involves the notion that information is a fundamental resource - intellectual capital, if you like. In organizational terms it means that knowledge is dispersed and multiply connected.

Drucker comments that knowledge is, by definition, specialized. This is true at an individual or component level, but one important aspect of IT is that it allows us to coordinate and integrate individual knowledge into an organic whole. It therefore demands that organizations reconsider what they call knowledge. Within an IT-based organization, knowledge is no longer the unique possession of an individual chief executive or a centralised management grouping. IT allows individuals at every level within an organization to take informed decisions about their own work and to transfer data between each other without the necessary intervention of a data processing department - it enables, and may even enforce in the longer run, team working, democratisation and the re-engineering (in the current fashionable jargon) of business processes.


Corporate Characteristics
The McFarlan-McKenney strategic grid provides a crude but widely-used typology of organizations in which dependence on IT and the impact of IT are mapped onto four categories: factory, support, turnaround and strategic. The grid was introduced in Warren McFarlan and J.L.Kenney s book, Corporate information systems management: The issues facing senior executives, Dow Jones Irwin, 1983, and elaborated by McFarlan in his essay, Information technology changes the way you compete , Harvard Business Review, May-June 1984.

Dependence and impact are usually interpreted as referring to the current and future levels of utilisation of IT by a company, so that support indicates a situation in which a company makes little use of IT now and expects to make little use in the future; factory suggests a company making considerable use of IT now but not expected to increase its use in the future; turnaround indicates a company moving from low use at present to significant use in the future; and strategic refers to a company which makes considerable use of IT now and expects to increase its usage in the future. Typical examples might be, respectively, a quarrying company, a chemical works, a restaurant, and a bank. The point of the grid, however, is not to fix companies like butterflies on pins but to encourage management to ask the right questions - are information systems critical to our operations now, and will they become critical? This dynamic element is probably the most important aspect of the McFarlan-McKenney grid, and it is typically used by IT management (if at all) to support arguments about the changing nature of IT within their organizations.



Figure XXX. The McFarlan-McKenney strategic grid


Retailers as a class do not fit into any one of the four categories although individual retailers may belong to each. In this respect, they are like the vast majority of organizations among whom IT use is distributed unevenly. For example, a small regional grocery chain uses a computer system to manage its payroll and accounts. Another system is used to keep inventory. The company has no plans to extend its use of information systems or to integrate its existing systems. It is in the support quadrant. (You can imagine plenty of retailers who are not even there.) Travel agents, on the other hand, use information systems as an essential part of their operations. They have done this for some years and will continue to do so. These days, you can t really be a travel agent without using a computerised information and booking system. An agency has plans to upgrade its computer systems as and when necessary, but no more. It is in the factory quadrant.

In this analysis, there is an implicit assumption that all other variables are ignored.That being the case, the grocery chain and the travel agency can survive with only routine investment in IT. They might even be able to increase profitability or market share by extending their range of customer-offerings, cutting costs, or increasing customer service. But there are forces which may drive a company from one quadrant to another - particularly from either support or factory into turnaround. Companies in the turnaround quadrant are in the process of change, and the McFarlan-McKenney grid itself is valuable if it does no more than underline the possibility of change.

Companies are driven into the turnaround quadrant by developments in the business environment - although some particularly innovative or particularly bad managers may be attracted to change for its own sake, as an entrepreneurial strategy, or sometimes as a smokescreen for a fundamentally unsound business. It is possible for businesses to create novel - even radically new - approaches and markets, and it is equally possible for unpredictable - even catastrophic - changes to occur around them. This is a lesson we should draw from IT: in a little over a decade this technology has created dramatic changes in all areas of business life, and has spawned whole new businesses and even new forms of business. Much of the confusion that managers feel about IT, and that is evident in the literature, is simply because of its revolutionary character. For the most part, managers seek the reassurance of a rational approach to a well-ordered environment. IT has disturbed that order.

The McFarlan-McKenney grid is a simple taxonomy, and neither prescribes practical choices nor describes theoretical foundations. But it does reinforce the idea that turnaround can be always achieved. It is often assumed - particularly by IT directors - that the grid charts an inevitable and desirable progression by all companies towards the strategic use of IT, on the grounds that IT is always capable of achieving competitive advantage for a company and is, therefore, always vital to the implementation of corporate strategy. In fact, there are only certain circumstances under which this is so, and managers would do well to remind themselves that last year s competitive advantage is often this year s necessity.

McFarlan himself has formulated six questions to ask in determining whether a company belongs in the strategic quadrant of his grid. Restated, these questions ask whether IT can be used within the company:

to change the ground rules for competitors;
to create barriers to entry;
to increase customer loyalty or lock-in;
to shift the focus of competition from pricing to product differentiation;
to support closer links with suppliers; and
to provide new marketable products or services directly.

The first five of these questions address the competitive environment. They suggest that IT is strategic to a business if it can be used to achieve advantage in each competitive arena: against established competitors, new entrants and new types of competitor, and against customers and suppliers. The sixth question makes the difference between temporary and longer term advantage - in fact, between what may only be a turnaround scenario and what is fully strategic - because it addresses the key question for any company using IT - can the information system itself become a productive resource?

For example, consider TV home-shopping. IT can be used to introduce interactivity, which completely alters the character of distance selling. Computer and communications technology can be used to create significant economies of scale or to introduce advanced features in the service provision which make it expensive for competitors to enter the field. Subscriptions, credit arrangements, or savings plans, administered by computer, can make it expensive for customers to switch loyalties. It is possible to use IT to analyse viewing patterns and target specific groups with particular products. Even more than with most retailing, electronic trading provides an essential link to suppliers who can respond quickly to viewer demand. And, most important of all,IT can be used to generate new products and services - customer profiles can be sold to merchandising companies, interactivity can be used to support a range of in-home services, and so on.

An example of how this might work is offered by the UK travel company, Saga, which specialises in holidays for the over-55s. Having established a well-defined market niche and collected data on its customers, Saga has recently launched a telemarketing operation aimed at providing over-55s with a range of complementary products and services. This example demonstrates a company moving from using an information system to support its business to using the information system to generate new business.

Sectoral Characteristics
The McFarlan-McKenney grid works at a micro level - it suggests situations in which individual companies might decide that their IT use is turnaround or strategic - but it doesn t really speak to general trends. For that we need a sectoral framework. Unfortunately, the common sectoral analyses of IT use tend to confuse sectors with the firms that comprise them:

In some sectors, for example financial services, airlines and, increasingly, retailing, IT has become the means of delivering goods and services in the sector. Indeed the infrastructure of the sector is often IT itself and so each firm s IT infrastructure is a major plank of its asset base. A poor infrastructure exposes the firm in its daily operations and its future business development. An infrastructure which is inefficient and expensive creates a non-viable cost structure. (Michael Earl, XXXXX).

It is, of course, an important feature of the business environment for a retailer if EDI has been widely adopted or if competitor firms make extensive use of database marketing, and in the first two of Earl s sectors it would be effectively impossible to operate without access to a sectoral IT infrastructure. But retailing is much more diverse and presents much more of a problem for sectoral analysis. True, a teleshopping company must have telephones and an IT system to support its activities, but does every store need a networked EPoS system? Sectoral analysis often seems to beg the question and to assume that the extent of IT use within a sector indicates the need for IT.

A global industry, of course, will be characterised by heavy IT use - if only because global companies face worldwide competition and must see their arena of operations as the international market, not just one particular more-or-less technically sophisticated territory. Aspiring global companies, like many retailers, will accordingly need to implement the best available information systems. The degree to which retailing is customer-facing suggests that IT can be used to increase service levels. The need to win repeat business indicates that database marketing may play an important role.

An understanding of sectoral characteristics is a necessary precondition to the analysis of IT requirements, but sectoral characteristics should not be identified with IT use. Information systems are always a business resource, not a characteristic. There are really only two important questions in formulating an IT strategy: for what purpose are the information systems to be used, and which are the best available?

Too much writing on IT assumes that all information systems are essentially alike and that it is a routine matter to determine the best available in any given market. Neither assumption is remotely true. Different applications have different characteristics and these may coexist and conflict even within the same organization. Communications intensive applications like electronic trading are not just technologically different from, say, database intensive applications like management information systems, they are culturally different. Communications managers may not even talk to IT managers, and when they do talk they may find it hard to agree on almost everything.

Potential IT buyers make purchasing decisions like any other - based on an analysis of their requirements and a study of possible suppliers and their offerings, with just a hint of irrational prejudice thrown in. In this process, there are some sectoral characeristics that, while implicit, often turn out in practice to be the most important. To what extent do IT vendors target the sector with systems? Is the required technology available and working? Is the expertise available to develop and maintain systems? The promise of competitive advantage through a particular technology is hollow if the technology is, as yet, undeveloped or unreliable, and if a sector is not yet considered profitable by an IT vendor, the systems and the skills might just not be available.


IT Management
There are four commonly acknowledged areas of concern in IT management - planning, organization, control and technology - which lock into business strategy at different points. The table below lists the key issues in each area:


TABLE XXX

The relevant issues for retailing may vary over time, and this variation is particularly acute given the developments within IT itself, and the implications for intertype competition. Long-term planning should account for the likelihood that the retail environment will undergo major shifts in emphasis.


TABLE XXX Adapted from Donald Harris and David Walters, Retail Operations Management - A Strategic Approach, London, Prentice-Hall, 1992.


Planning, however, is not always the first priority in IT management. In a 1974 paper in The Harvard Business Review , called Managing the four stages of EDP growth, C.F.Gibson and R.L.Nolan argued that expenditure on electronic data processing followed a four stage pattern describing an S-curve. Each stage represented a new approach to the use and management of computer systems which Gibson and Nolan suggested was applicable to any organization using computers. The differences between organizations would then be reducible to precisely which technology and which applications they used, and precisely when they embarked on the first stage.

The Gibson and Nolan model illuminates the internal organizational and external technological pressures on DP, which can be extended to describe the development of IT and other related technologies. Briefly, the model assumes that IT is adopted warily at first, largely in order to reduce costs and automate existing procedures ( initiation ). Once proven, IT grows or spreads rapidly within an organization, taking on new functions and following technology trends under the supervision of a specialist department ( contagion ). Concern over the costs of IT, delays in delivering projects and applications, a perceived lack of corporate control and consonance with corporate objectives, and - latterly - end-user dissatisfaction act to put a brake on expansion and re-establish the authority of financial and general management ( control ). Finally, a synthesis is produced in which IT is seen as an essential resource subject to rational management at a corporate level ( maturity ). The model was subsequently extended to six stages - without adding significantly to its usefulness.

In their original work, Gibson and Nolan estimate that the each of the four periods lasts between three and five years on average, although some organizations get stuck for longer periods at the control stage. It may be futile to look for benchmarks in this connection, because IT itself develops - probably according to a similar dynamic - but it is clear that different industries or sectors will demonstrate different scattering of companies within the stages. Most large companies in retailing, for example, will be in the contagion stage, moving into control, where general management is beginning to ask the question, Is IT capable of delivering its promises at an affordable price?

The Gibson-Nolan model suggests, once again, that it is important to distinguish between different applications of IT and different key technologies. Technological development is uneven, and some IT applications are themselves mature while others are still at the design stage. Mature applications, like payroll, are subject to different considerations to newer applications, like database marketing or multimedia. Payroll is a support application, and is managed accordingly like any other established system within an organization. The main concerns of any IT manager looking at a payroll system is whether he or she can cut its cost or contract out its operation. The main concern of an IT manager looking at data-mining, say, will be to demonstrate that it is a viable technology and integrate it into other systems.

The management style involved in each example will be different, and even incompatible: one orthodox and controlling, the other innovatory and loose. It may even be the case that one person cannot be responsible for both types of application, which threatens the viability of plans for systems integration and the development of enterprise-wide computing and architectures.


TABLE XXX

Retailing is more susceptible to such problems than other industries or economic sectors, because IT applications are evenly distributed all along the value chain, as table XXX indicates. IT applications in retail display a very wide range of technologies, and management styles and concerns. In addition to the activities covered by table XXX, IT managers will also be concerned with systems development, security, and the administration of IT resources themselves. Capacity planning. applications development, access control, system and network management, and disaster recovery planning may all introduce even more systems displaying degrees of maturity, cost and importance. The introduction of new systems, new technologies and innovative applications continually threatens the internal stability and authority of the IT department itself.

Issues: Downisizing, Outsourcing, Productivity and Profiting from Information Systems
Old style factory or support applications tend to focus on cost cutting, and concentrate on building supply chain efficiency, reducing inventory, and increasing productivity. Mature technologies can be used to cut staff numbers. On a purely technological level, this may involve downsizing systems - which almost inevitably means decreasing IT personnel by between 10% and 50%. This is one reason why IT departments are wary of downsizing. Another is that downsized systems are frequently less secure and less reliable than their larger, more expensive counterparts. Nevertheless, the encroachment of PCs, Macs and workstation-based Unix machines into offices and shop-floors has shifted the emphasis of most organizational systems away from centralized mainframes.

Downsizing in this sense is inevitable - smaller, cheaper systems bring information to the people who need it and collect information from the places where it is generated. This process slowly changes people s work patterns - office personnel and shopworkers incrasingly operate IT systems and even program custom applications, while IT staff are diverted into business analysis, user support, training, procurement and contract management.

Contracting out some or all of an organization s mature systems is part of the same process. A word of warning: outsourcing does not always lead to cost cutting, particularly if the contractor fails to manage the systems adequately. However, it almost always allows a business to reduce staff numbers and to liquidate assets. Retailers tend to outsource communications and wide area network services, largely because the technical skills are in short supply and capital costs are high. The contractors are often the system vendors, whose expertise with their own systems is presumably unparalleled.

Outsourcing is an increasingly significant issue, because of the proliferation of systems within retail. A single IT department may not have all the skills - technical or managerial - to cope with the full range of systems that a typical large retailer might contemplate. The alternative to expensive recruitment programmes, training and staff development, is to outsource. Because outsourcing involves an abdication of management control, it must not be undertaken lightly.

A service level agreement should be drawn up setting out the aims and deliverables of the service clearly and unambiguously. It must list the rights and duties of each of the parties to the agreement, and set out procedures for the resolution of disputes and the termination of the agreement. Clearly, outsourcing should not be considered for any experimental or trial application, and probably not for one that is considered sensitive in any way. But outsourcing takes many different forms: contractors may simply manage on-site facilities, providing their own staff; or they may bring in their own equipment as well as staff; or they may provide a remote service (for example, a payroll bureau service). As long as there are clear aims and deliverables, an appraisal procedure, and a system of steering committees and review groups, outsourcing should be considered.

There is less of an argument for outsourcing management information systems and the newer applications that promote strategic uses of IT. Here the priority is not generally to cut costs, or consolidate operations, but to increase revenues through increased customer service, reassortment, and product marketing. The eventual goal is to increase sales and cut costs at the same time through the process of micro-managing - replacing an item on the shelf as soon as a customer has removed it. In the short term, the objective is to track trends using sales information, manage the replenishment and reassortment processes, operate DPP or similar systems, exploit product differentiation opportunities, and respond to changing preferences and local conditions - positioning or repositioning the business.

In the longer term, new systems and management information must be pro-active - creating sales opportunities, using electronic shelf-edge labelling and custom promotions to move more goods, increasing customer loyalty by offering a range of facilities, products and services including multimedia information services, kiosk-based inventory location, point-of-information and electronic funds transfer facilities. Of course, these applications may reduce costs - for example, the introduction of automated kiosk sales will cut checkout staff numbers - but that should not be the priority. Part of the problem is that there is no absolutely correct productivity measurement in retail. Many measures have been proposed: sales per staff member, sales per unit area, customer spend per visit, profit per customer, average transaction size, customer visits per unit time and so on. Different measures can be more-or-less useful at different stages of a business s development - innovation, consolidation, expansion, repositioning, and diversification.

In survey after survey, IT managers invariably rate integrating IT and corporate strategy as a top priority. This tends to be perceived as a problem when a gap opens up between the potential of IT and the immediate requirements of the business. To bridge this gap, the retailer and the IT manager must develop a technolog strategy together based on a realistic assessment of the options available. Such a strategy will identify the most appropriate IT systems for the retailer, taking into account sectoral characteristics, the competitive environment, and the developmental stage of the business itself. But it must also, and critically, examine where the retailer wants to go and which technology can help achieve that objective.

Technology strategy is a firm s approach to the development and use of technology, according to Michael Porter (Competitive advantage, New York, Free Press, 1985). Although it encompasses the role of formal R&D organizations, it must be broader because of the persuasive impact of technology on the value chain. Because of the power of technological change to influence industry structure and competitive advantage, a firm s technology strategy becomes an essential ingredient in its overall competitive strategy. Which is not the same as saying that IT is the source of competitive advantage.


CASE STUDY

Seven-Eleven Japan:
Customer orientation and the use of IT to enhance service provision
Seven-Eleven Japan was set-up in 1973 by Ito-Yokado, a Japanese retailing conglomerate which owns supermarkets, department stores, discount outlets and restaurants, in order to acquire the rights to the 7-Eleven name in Japan from the US-based Southland Corporation. Southland had launched the 7-Eleven convenience store format in 1946 and, by 1973, the stores had spread from Texas and the South across the United States. The Japanese licence was the company s first venture outside its home-base.

Convenience stores - sometimes known as dammit stores (as in Damn it! I ve forgotten something at the supermarket ) - are retail outlets open for extended hours and specialising in grocery essentials, fast foods and drinks, and - latterly - petrol. They tend to be located close to residential areas and typically charge premium prices for their goods. Sales volumes are sensitive to a number of variables, including the weather, site location, and the profile and habits of consumers in the area. Southland s expansion within the US saw it move rapidly into petrol retailing (which, by the early 1980s, had become the company s largest single product group) and away from the traditional convenience concept towards an emphasis on volume sales of discounted goods. By the mid-1980s, about 40% of its stock lines came into the category of non-food . In 1987, Southland became the target of a debt-financed acquisition (or leveraged buy-out) by the Thompson Corporation which led, in 1990, to Chapter 11 bankruptcy and acquisition by Ito-Yokado and Seven-Eleven Japan.

The Japanese company grew in less than 20 years from nothing to over 5,000 stores (almost as many as there were in North America). Seven-Eleven has about a third of the market for convenience store products in Japan, and, in market capitalisation terms, is the country s largest food retailer. The stores focus predominantly on food items, with less than a quarter of their lines coming into the non-food category. It is a franchise operation (unlike the original US company), with locally managed independent shops supported from the company s central offices by the supply of goods, provision of EPoS systems, shared overhead costs, and management training and advice. Franchise commission is paid at 45% of a store s gross profit. Expansion is based on a strategy of clustering stores to achieve local saturation and squeeze out competition. This enhances the market presence of the 7-Eleven identity, and improves the efficiency of distribution, marketing and franchisee support. Despite having a comparable number of stores to its competitors, Seven-Eleven Japan is only present in less than half of Japan s administrative districts. As a result of this concentration, the company is very profitable.

The convenience concept demands a special sensitivity to customer needs and consumer preferences which, according to Ito-Yokado analysts, the Southland Corporation lost. In Japan, the strategic use of information systems has allowed the company to analyse and respond to changing patterns of consumer deand very rapidly. The responses focus on merchandising and distribution:

scheduling deliveries;
maximising delivery efficiency (for example, by scheduling combined temperature deliveries);
improving the mix and quality of stock keeping units;
enhancing manufacturer cooperation;
encouraging the stocking of distinctive merchandise;
improving cash-flow through electronic payments.


The logistics of Seven-Eleven Japan s information system are intimidating. Over 1.65 billion customer visits to more than 5,000 outlets generated some 7 billion data records giving sales and customer information in 1993. The company introduced data processing in 1975, and began to build a transaction processing facility for reordering in 1979. EPoS systems were introduced in 1982 and were linked to a distribution system in 1985. The system was fully integrated in 1987, combining all the relevant functions:

capture of sales data;
order entry and processing;
analysis of data for management information system;
scheduling of deliveries;
placement of orders with suppliers;
in-store processing of inventory on shipments received.

In-store systems comprise a small computer linked to one or more EPoS terminals, a number of portable systems used by employees checking shelf stock levels, and a scanner for processing deliveries. The stores are linked to headquarters by ISDN (integrated services digital network), the high-speed data communications system using the telephone network infrastructure. Seven-Eleven Japan say that theirs is the largest ISDN application in the world. Data can be passed to MIS systems at district offices for trend analysis, and the MIS systems can pass information back. The headquarters system can also pass information to individual stores. Orders generated by the stores are processed and modified, if necessary, by the analysis. Then they are passed to suppliers, who may also feed information back into the system. Finally - and taking into account store orders, MIS analysis, and information from suppliers - requests are passed to the appropriate distribution centres so that goods may be combined and deliveries scheduled. When the goods arrive at individual stores, they are scanned and stock records amended.

Sales data on individual items can be analysed under a number of categories - time of day, value of transaction, method of payment, store location and so on. Such analyses can be used for decision-support across the board: by store staff gauging reordering quantities, by head office staff determining chain-wide distributuion and promotional strategies, by suppliers and distribution staff scheduling production runs and deliveries.

The integrated system has allowed Seven-Eleven Japan to reduce its group-wide inventory by almost 40%, from almost 8 million per store in 1980 to just under 5 million per store in 1991. Meanwhile, gross profit margins rose from 25% in 1980 to 29% in 1993.

One of the main mechanisms used to achieve these results is reassortment or (in Seven-Eleven Japan s own jargon) product consolidation , by which slow moving stock items are replaced by fast moving items. Successful reassortment maximises opportunistic or impulse purchases and builds customer loyalty. With frequent or accurately scheduled deliveries to replenish stocks, reassortment may be tuned to maximise sales of particular items or types of item at particular times of day - for example, prepared meals at lunch-time - or it may be used to create a dynamic inventory based on a near-continuous process of analysing sales data, hypothesising trends, rapid in-store product testing, and on-going consultancy.

It has been estimated that Seven-Eleven Japan drops over a half of all its lines in the course of a year as a result of analysis of stock movements. With many product categories, the company identifies a handful of leading brands from which stores make their stocking decisions, in order to avoid the risk inherent in carrying a large number of brads in one category that most of them will not sell. But the information system allows stores and head office to refine and redefine stock-holding decisions in line with consumer preferences. In some cases, the company has entered agreements with manufacturers to produce particular lines exclusively for Seven-Eleven stores. This is typical of arrangements with suppliers of pre-processed meals and snack items, and the company is confident enough of the reliability of its information systems to agree to firm sale in some cases: unsold items are not returned to the supplier.

One consequence of the adoption of an information-based strategy at Seven-Eleven Japan has been the wholesale revision of the delivery system. Although frequent deliveries are required, in the past delivery was inefficient, involving many unnecessary trips. According to the company, deliveries per store per day averaged 70 in the mid-1970s. Today that figure has dropped to 11. This has been achieved by rationalising the delivery process. Instead of having individual loads based on single suppliers or single wholesalers, orders can be consolidated from order information generated by the system, separated according to temperature (hot foods, chilled foods, frozen foods, and processed foods and non-food items), collected in combined distribution centres, and made up into loads. The objective is to fine-tune the sales and ordering system so that deliveries per store per day can be reduced even further.

The potential of an information system extends beyond increasing efficiency or cutting costs. It can also create new business opportunities. With Seven-Eleven Japan, these have taken the form of offering additional services. The first such service was launched in 1987 with the final integration of the Seven-Eleven network. The stores offered to process gas and electricity bills, using the new network for electronic funds transfer (EFT). The stores made no charge for this service, but the company held on to the cash and placed it on short-term deposit. Thus, it offered an extra service to customers, attracted new customers into the stores and made a small profit on the transactions. Today, the stores accept payments of insurance premiums, and other regular bills and fees, and over 8 million such payments are made this way.

Seven-Eleven Japan s information system can, of course, link to other such systems offering value-added services. In particular, it allows stores to offer scheduled services, such as the delivery of flowers or gifts at pre-arranged dates and times, and to provide access to a catalogue-based mail order operation called Shop America through which customers can order discounted imports.

The fate of the Southland Corporation may be read as a salutary reminder that even retailers can lose sight of their essential function. The temptation is to argue that Southland fell into the common trap of looking for faster returns once it thought it had developed as far as it could, while Seven-Eleven Japan developed its business strategically and at length. The observation is often made in connection with manufacturing industry that the Japanese have developed flexible design, production and marketing techniques aimed at satisfying consumer demand, while American and European manufacturers are too often stuck in ruts of protected markets, hidebound traditions, and the pursuit of short-term gains. While this is not the whole truth, it has truth s ring - and what applies to manufacturing seems to have a parallel in retailing.



Summary
IT facilitates the coordination and integration of individual knowledge into an organic whole and, therefore, demands that organizations reconsider what they call knowledge. Within an IT-based organization, knowledge is no longer the unique possession of a management stratum or grouping.

The exploitation and deployment of knowledge using information systems to achieve corporate goals is what makes IT strategic. Other uses of IT support business processes or help to transform them; strategic uses of IT, on the other hand, are the business processes.

Many companies can happily and profitably continue to use IT in non-strategic ways, but there are forces which ma drive a company from one type of IT use to another. According to the typology constructed by McFarlan and McKenney, companies developing strategic uses of IT are described as turnaround .

Much of the confusion managers feel about IT is a result of its revolutionary character. For the most part, managers seek the reassurance of a rational approach to a well-ordered environment. IT has disturbed that order.

It is often assumed that there is an inevitable and desirable progression by all companies towards the strategic use of IT, on the grounds that IT is always capable of achieving competitive advantage for a company and is, therefore, always vital to the implementation of corporate strategy. In fact, there are only certain circumstances under which this is so - competitive advantage does not necessarily guarantee success.

Understanding sectoral characteristics is a necessary precondition to the analysis of IT requirements because the sectoral characteristics defines the most immediate aspects of the business environment. But sectoral characteristics should not be identified with IT use. Information systems are always a business resource, not a characteristic.

There are really only two important questions in formulating an IT strategy: for what purpose are the information systems to be used, and which are the best available?

The four commonly acknowledged areas of concern in IT management - planning, organization, control and technology - lock into business strategy at different points and have different priorities depending on a number of factors, including the competitive environment and the developmental stage of technologies adopted within the business.

The Gibson-Nolan model suggests that adoption of IT within an organization follows an S-curve covering at least four stages - initiation, contagion, control and maturity - but these stages may also apply to new technologies as they emerge as well as IT as a whole.

Retailing is more susceptible to such problems than other industries or economic sectors, because IT applications are evenly distributed all along the value chain.

The complexity and variety of IT applications in retail allow considerable scope for outsourcing functions.

In the longer term, retailers and their IT managers must develop an IT strategy together to determine how, in practical terms, IT can help achieve corporate objectives.

-end chapter 5-


Monday, September 10 2001

Links

BACK | HOME