|
| 0 Comments / Subscribe To Comments |
| Posted: Oct.27.2006 @ 8:45 pm |
I originally wrote this article, “SWOT analysis” in February 2004.
SUMMARY
A case study by Nairn and Strickland (2003) of the Élan Boat Company is used to identify the strengths and weaknesses of the company and the opportunities and threats within the external environment of the company. According to Nairn and Strickland,
“Ben Favret, professional water-skier, World Champion, V.S. Champion, and Pro-Tour champion, was resting on the dock after a slalom training run one afternoon when a call came through on his cell phone. Jay Blossman, his high school tennis partner and now politician, was on the other end. Out of the blue, Jay announced to Ben that he was buying American Skier, the competition ski boat company owned by financially troubled American Performance Marine. Ben instantly knew that Jay had found himself a great boat and suspected that he was getting a great deal in buying the company, but he also realized that while Jay was an excellent tennis player, Jay lacked the necessary insider knowledge about building, marketing, and selling ski boats. Excited and eager to be involved in this rare opportunity, Ben was on the next flight to New Orleans to meet Jay and look into the situation.
As Ben took the tour of the American Performance Marine plant in Kentwood, Louisiana, he learned that the company had recently filed for bankruptcy. Ben concluded that with his firsthand knowledge of the waterskiing industry and the boatbuilding capabilities that lay before him in the Kentwood plant, he and Jay ought to be able to resurrect the ailing company. With all the enthusiasm and high hopes of an entrepreneur entering the industry of a sport he loves, Ben Favret dove headfirst into building ski boats. In keeping with this excitement and attitude, Ben renamed the company Élan Boats. The word Élan means ‘vigorous spirit and enthusiasm‘.”
The purpose of this report is to identify the firm's key capabilities and trends within the macro environment to develop a clear strategy for the Élan Boat Company.
|
| 0 Comments / Subscribe To Comments |
| Posted: Oct.15.2006 @ 12:56 pm |
I originally wrote this article, “Managerial control” in July 2003.
A group of my friends have what you believe to be the opportunity of a lifetime.
They graduate this year and the father of one of my friends has asked two of them if they would like to buy the air-conditioning business he founded and operated for thirty years. It has been a very lucrative business for him; today he is a millionaire several times over. They are aware his firm is the leader in its field in their area and they see the possibility of expanding because many new homes are being built locally.
My friend's father will finance the buyout through a loan, to be paid off over the next ten years. Both of my friends have some degree of expertise in the heating and air-conditioning field since they have both worked for my friend’s father during university vacation times. My friend’s father has also agreed to be a consultant to the two of them for the first year or so if they need his advice.
The business has almost 60 well-qualified employees, a large inventory, 40 service trucks in excellent condition and a well established list of clients. At the same time the return on investment has been lower than average for the past three years, labour costs are very high, and the company has attracted only a few new clients during the past two years. In addition they have some indication that the firm is not carrying the most up-to-date heating or air conditioning equipment and the four large structures used to house showrooms and service centres are in need of refurbishment.
My friends are discussing the possibility of buying the firm. In considering the situation I reviewed the control forms and processes that I would use to ensure effective control over the operation.
I outlined the control issues and potential problems that I considered relevant to this case. I recommended control processes to be put into place to ensure the continued success of the business. Using my knowledge of the concepts and classification of controls, I applied these concepts of control to their particular situation.
The proposed purchase, by my friends, of the air-conditioning business raises many issues that are discussed. I've identified ten potential problems with the acquisition. Half of the potential problems are controllable and I propose four control process models to reduce the risk of business failure.
Issues
Organizational control of the air-conditioning business is required if my friends are to be successful in this venture. Daft (2003, p. 654) defines organizational control as the 'systematic process through which managers regulate organizational activities to make them consistent with expectations established in plans, targets and standards of performance.' The importance of control is evidenced by the fact that it is one of the four basic management functions - planning, organizing, leading, controlling, as explained by Robbins, Bergman, Stagg and Coulter (2003). Controlling is required throughout the depth of the organization (strategic, tactical and operational) and the breadth of the organization (financial, operations, information and people).
As part of the control process, they need systems to measure and compare actual performance. This will allow them to take corrective action if performance deviations are found. They should only control processes which will contribute to the success of their business. One method of selecting these particular processes is by resource-dependency, as described by Bartol (1997). The standards of the existing air-conditioning business need to be reviewed, amended and supplemented, where necessary.
Having established which of the business process performances are to be measured, my friends need to determine if measurement is to be through observation or reporting, i.e. statistical, oral or written. If they find deviations in performance against their standards then they may; take action to change the performance, alter the standard or they may choose to take no action. Depending on the business process, they should use feedback, feed-forward, concurrent control or a combination to match the application. Additionally, the results may be simply mechanically processed or may require subjective judgment.
Up to four managerial approaches to implementing controls are described by various authors. All sources include bureaucratic and clan (decentralized) control. Robbins, Bergman, Stagg and Coulter (2003, p. 558) add a third approach, described as 'market control', which uses external market mechanisms to establish standards in the system. Mullins (2002, p. 774) further identifies a fourth approach which he labels personal centralized control. This approach is found in small owner-managed organizations where decision-making and initiative are centralized around a leadership figure.
My friends need to study the managerial control style used by my friend's father. They should determine if this style is most appropriate to the operations and to the new leadership. Existing control systems and new control systems should be assessed to ensure that they have the right qualities. They also need to consider how the control systems could be misused, manipulated or be negatively viewed.
Ten potential problems
I’ve identified ten potential problems with the management of the air-conditioning business. The first five problems do not lend themselves readily to the application of control processes and they are; their inexperience, business purchase price evaluation, role of the current owner, financial loan terms and nepotism. The remaining five potential problems may be monitored through control processes and they are; inventory turnover, asset turnover, return on investment, profit margin and sales growth.
My friends have some experience in the heating and air-conditioning field, since they both worked for my friend's father during university vacation times. Whilst there are advantages of an early entry strategy into the business, Hodgetts and Kuratko (2001, p. 61) identify a disadvantage that normal mistakes tend to be viewed as incompetence in the successor. The problem centres around the ability of them to gain credibility with the firm's sixty existing employees. This is in contrast to a delayed entry strategy which would involve my friends in gaining experience outside of the business, prior to takeover. This would have the advantages of; self-confidence development outside the firm, credibility and acceptance through outside successes and a broader business perspective.
Establishing a mutually agreeable and fair purchase price with my friend's father for the air conditioning business is a potential problem. Assuming that all of the current personnel will remain, the major concerns are the inventory condition, state of other assets and quantifying the contribution of goodwill. The inventory is large and I have noticed that the firm is not carrying the most up-to-date heating or air-conditioning equipment. Storage costs for this equipment need to be considered and if the products are obsolete then they contribute minimal or no value in the inventory portion of the purchase price. The four large structures used to house showrooms and service centres are in need of refurbishment. The condition of these assets attracts significant maintenance expenditure, required within the immediate future of operating the new business, and this cost needs to be factored into the price. Quantifying the goodwill contribution to the purchase price is complicated by the fact that the company has attracted only a few new clients during the past two years.
My friend's father has agreed to be a consultant to my friends for the first year or so, if they need his advice. Despite the obvious advantages of such an arrangement, there are potential problems. Although my friends will be the owners of the new business, the presence of my friend's father could lead to management conflicts when the sixty existing employees naturally still see him as still being in control of the business. This situation could be further complicated if my friend's father previously used a personal centralized control technique. As company founder, with thirty years of experience, it would not be possible for my friends to emulate his previous style.
The terms of the financial loan need to be thoroughly investigated. Whilst the interest rate could be readily agreed upon, there are other factors of great importance to be formalized. The payment frequency, principal and interest apportioning, payment default definition, contractual terms and security all need to be negotiated.
Nepotism between my friends and my friend’s father is a delicate issue and a potential problem one friend.
As stated previously, the firm has a large amount of stock, due to low inventory turnover, and is not carrying the most up-to-date heating or air-conditioning equipment. The obsolete inventory is a burden, incurring storage costs, and reflects badly in the financial ratios of the business - if it is not already written off. They may inherit this stock if my friend's father insists on compensation for it within the business purchase price.
The four large structures used to house showrooms and service centres are in need of refurbishment. It's possible that this is a result of poor building maintenance planning. Alternatively, short-term cost savings may have been sought by avoiding building maintenance.
Return on investment for the business has been lower than average for the past three years. Labour costs are very high and the firm uses forty service trucks.
The final two potential problems are associated with the fact that the company has attracted only a few new clients during the past two years. If sales revenues are flat or declining then the ability to retain the sixty well-qualified employees, who incur very high labour costs, is in question if the profit margin on sales is to be an acceptable value. Additionally, a certain level of sales are required to achieve total asset turnover to compensate for the forty service trucks and the four large structures used to house showrooms and service centres.
Four control processes
Four processes should be implemented to control the latter five potential problems. The first two processes have the objective of testing the operations and they control inventory turnover and total asset turnover. The remaining two processes have the objective of monitoring profitability and they are profit margin and return on investment. The model of Robbins, Bergman, Stagg and Coulter (2003, p.567) is used to explain the four control processes.
Inventory turnover control process
The inventory turnover control process model is designed to make sure that all warehoused inventory is saleable. This is accomplished by setting an acceptable standard average time period, measured monthly, for all inventory. The average time assumes a standard deviation and may be adjusted so that all inventory remains within their technically and commercially useful life. Price reductions, writing off and scrapping are possible courses of action for obsolete items. The acceptance criteria may be increased if newer models are slower to reach the market and if shelf life permits.
Total asset turnover control process
Robbins, Bergman, Stagg and Coulter (2003, p. 623) identify that 'the fewer assets used to achieve a given level of sales, the more efficiently management is using the organization's total assets'. The main assets of the air-conditioning business are the four large structures used to house showrooms, service centres and the forty service trucks in excellent condition. If the total asset turnover ratio falls below an acceptance criteria then asset re-financing or disposal should be carried out.
Profit margin on sales control process
I initially estimate that the overall gross profit for the air conditioning business should be 40 percent and that the net profit margin should be 7 percent. If the profit margin on sales ratio falls below this standard then they should attempt to increase sales through increased promotion and advertising. Additionally, they may reduce business costs for either labour, materials or overheads.
Return on investment control process
I noticed that the return on investment for my friend's father's business has been lower than average for the past three years. They need to establish the cause for this and to remedy the situation. I propose that they set a standard for their return on investment, identify the cause for any under performance and take action to correct the performance. The control process model shows that they should reduce labour, material or overhead costs if the acceptance criteria is not met for the month. Additionally, the total asset costs should be reduced through re-financing or disposal.
List of references
Bartol, K.M., Martin, D.C., Tein, M. & Matthews, G. 1997, Management: A Pacific Rim Focus, 2nd edn, Sydney: McGraw-HiII pp.6SS-6S8
Daft, R.L. 2003, Management, South-Western, Mason, Ohio, U.S.
Hodgetts, R.M. & Kuratko, D.F. 2001, Effective Small Business Management, Harcourt College Publishers, Orlando, Florida, U.S.
Mullins, L.J. 2002, Management and Organizational Behaviour, Pearson, U.K.
Robbins, S.P., Bergman, R., Stagg, I. & Coulter, M. 2003, Management, Pearson, Australia.I originally wrote this article, “Managerial control” in July 2003.
A group of my friends have what you believe to be the opportunity of a lifetime.
They graduate this year and the father of one of my friends has asked two of them if they would like to buy the air-conditioning business he founded and operated for thirty years. It has been a very lucrative business for him; today he is a millionaire several times over. They are aware his firm is the leader in its field in their area and they see the possibility of expanding because many new homes are being built locally.
My friend's father will finance the buyout through a loan, to be paid off over the next ten years. Both of my friends have some degree of expertise in the heating and air-conditioning field since they have both worked for my friend’s father during university vacation times. My friend’s father has also agreed to be a consultant to the two of them for the first year or so if they need his advice.
The business has almost 60 well-qualified employees, a large inventory, 40 service trucks in excellent condition and a well established list of clients. At the same time the return on investment has been lower than average for the past three years, labour costs are very high, and the company has attracted only a few new clients during the past two years. In addition they have some indication that the firm is not carrying the most up-to-date heating or air conditioning equipment and the four large structures used to house showrooms and service centres are in need of refurbishment.
My friends are discussing the possibility of buying the firm. In considering the situation I reviewed the control forms and processes that I would use to ensure effective control over the operation.
I outlined the control issues and potential problems that I considered relevant to this case. I recommended control processes to be put into place to ensure the continued success of the business. Using my knowledge of the concepts and classification of controls, I applied these concepts of control to their particular situation.
The proposed purchase, by my friends, of the air-conditioning business raises many issues that are discussed. I've identified ten potential problems with the acquisition. Half of the potential problems are controllable and I propose four control process models to reduce the risk of business failure.
Issues
Organizational control of the air-conditioning business is required if my friends are to be successful in this venture. Daft (2003, p. 654) defines organizational control as the 'systematic process through which managers regulate organizational activities to make them consistent with expectations established in plans, targets and standards of performance.' The importance of control is evidenced by the fact that it is one of the four basic management functions - planning, organizing, leading, controlling, as explained by Robbins, Bergman, Stagg and Coulter (2003). Controlling is required throughout the depth of the organization (strategic, tactical and operational) and the breadth of the organization (financial, operations, information and people).
As part of the control process, they need systems to measure and compare actual performance. This will allow them to take corrective action if performance deviations are found. They should only control processes which will contribute to the success of their business. One method of selecting these particular processes is by resource-dependency, as described by Bartol (1997). The standards of the existing air-conditioning business need to be reviewed, amended and supplemented, where necessary.
Having established which of the business process performances are to be measured, my friends need to determine if measurement is to be through observation or reporting, i.e. statistical, oral or written. If they find deviations in performance against their standards then they may; take action to change the performance, alter the standard or they may choose to take no action. Depending on the business process, they should use feedback, feed-forward, concurrent control or a combination to match the application. Additionally, the results may be simply mechanically processed or may require subjective judgment.
Up to four managerial approaches to implementing controls are described by various authors. All sources include bureaucratic and clan (decentralized) control. Robbins, Bergman, Stagg and Coulter (2003, p. 558) add a third approach, described as 'market control', which uses external market mechanisms to establish standards in the system. Mullins (2002, p. 774) further identifies a fourth approach which he labels personal centralized control. This approach is found in small owner-managed organizations where decision-making and initiative are centralized around a leadership figure.
My friends need to study the managerial control style used by my friend's father. They should determine if this style is most appropriate to the operations and to the new leadership. Existing control systems and new control systems should be assessed to ensure that they have the right qualities. They also need to consider how the control systems could be misused, manipulated or be negatively viewed.
Ten potential problems
I’ve identified ten potential problems with the management of the air-conditioning business. The first five problems do not lend themselves readily to the application of control processes and they are; their inexperience, business purchase price evaluation, role of the current owner, financial loan terms and nepotism. The remaining five potential problems may be monitored through control processes and they are; inventory turnover, asset turnover, return on investment, profit margin and sales growth.
My friends have some experience in the heating and air-conditioning field, since they both worked for my friend's father during university vacation times. Whilst there are advantages of an early entry strategy into the business, Hodgetts and Kuratko (2001, p. 61) identify a disadvantage that normal mistakes tend to be viewed as incompetence in the successor. The problem centres around the ability of them to gain credibility with the firm's sixty existing employees. This is in contrast to a delayed entry strategy which would involve my friends in gaining experience outside of the business, prior to takeover. This would have the advantages of; self-confidence development outside the firm, credibility and acceptance through outside successes and a broader business perspective.
Establishing a mutually agreeable and fair purchase price with my friend's father for the air conditioning business is a potential problem. Assuming that all of the current personnel will remain, the major concerns are the inventory condition, state of other assets and quantifying the contribution of goodwill. The inventory is large and I have noticed that the firm is not carrying the most up-to-date heating or air-conditioning equipment. Storage costs for this equipment need to be considered and if the products are obsolete then they contribute minimal or no value in the inventory portion of the purchase price. The four large structures used to house showrooms and service centres are in need of refurbishment. The condition of these assets attracts significant maintenance expenditure, required within the immediate future of operating the new business, and this cost needs to be factored into the price. Quantifying the goodwill contribution to the purchase price is complicated by the fact that the company has attracted only a few new clients during the past two years.
My friend's father has agreed to be a consultant to my friends for the first year or so, if they need his advice. Despite the obvious advantages of such an arrangement, there are potential problems. Although my friends will be the owners of the new business, the presence of my friend's father could lead to management conflicts when the sixty existing employees naturally still see him as still being in control of the business. This situation could be further complicated if my friend's father previously used a personal centralized control technique. As company founder, with thirty years of experience, it would not be possible for my friends to emulate his previous style.
The terms of the financial loan need to be thoroughly investigated. Whilst the interest rate could be readily agreed upon, there are other factors of great importance to be formalized. The payment frequency, principal and interest apportioning, payment default definition, contractual terms and security all need to be negotiated.
Nepotism between my friends and my friend’s father is a delicate issue and a potential problem one friend.
As stated previously, the firm has a large amount of stock, due to low inventory turnover, and is not carrying the most up-to-date heating or air-conditioning equipment. The obsolete inventory is a burden, incurring storage costs, and reflects badly in the financial ratios of the business - if it is not already written off. They may inherit this stock if my friend's father insists on compensation for it within the business purchase price.
The four large structures used to house showrooms and service centres are in need of refurbishment. It's possible that this is a result of poor building maintenance planning. Alternatively, short-term cost savings may have been sought by avoiding building maintenance.
Return on investment for the business has been lower than average for the past three years. Labour costs are very high and the firm uses forty service trucks.
The final two potential problems are associated with the fact that the company has attracted only a few new clients during the past two years. If sales revenues are flat or declining then the ability to retain the sixty well-qualified employees, who incur very high labour costs, is in question if the profit margin on sales is to be an acceptable value. Additionally, a certain level of sales are required to achieve total asset turnover to compensate for the forty service trucks and the four large structures used to house showrooms and service centres.
Four control processes
Four processes should be implemented to control the latter five potential problems. The first two processes have the objective of testing the operations and they control inventory turnover and total asset turnover. The remaining two processes have the objective of monitoring profitability and they are profit margin and return on investment. The model of Robbins, Bergman, Stagg and Coulter (2003, p.567) is used to explain the four control processes.
Inventory turnover control process
The inventory turnover control process model is designed to make sure that all warehoused inventory is saleable. This is accomplished by setting an acceptable standard average time period, measured monthly, for all inventory. The average time assumes a standard deviation and may be adjusted so that all inventory remains within their technically and commercially useful life. Price reductions, writing off and scrapping are possible courses of action for obsolete items. The acceptance criteria may be increased if newer models are slower to reach the market and if shelf life permits.
Total asset turnover control process
Robbins, Bergman, Stagg and Coulter (2003, p. 623) identify that 'the fewer assets used to achieve a given level of sales, the more efficiently management is using the organization's total assets'. The main assets of the air-conditioning business are the four large structures used to house showrooms, service centres and the forty service trucks in excellent condition. If the total asset turnover ratio falls below an acceptance criteria then asset re-financing or disposal should be carried out.
Profit margin on sales control process
I initially estimate that the overall gross profit for the air conditioning business should be 40 percent and that the net profit margin should be 7 percent. If the profit margin on sales ratio falls below this standard then they should attempt to increase sales through increased promotion and advertising. Additionally, they may reduce business costs for either labour, materials or overheads.
Return on investment control process
I noticed that the return on investment for my friend's father's business has been lower than average for the past three years. They need to establish the cause for this and to remedy the situation. I propose that they set a standard for their return on investment, identify the cause for any under performance and take action to correct the performance. The control process model shows that they should reduce labour, material or overhead costs if the acceptance criteria is not met for the month. Additionally, the total asset costs should be reduced through re-financing or disposal.
List of references
Bartol, K.M., Martin, D.C., Tein, M. & Matthews, G. 1997, Management: A Pacific Rim Focus, 2nd edn, Sydney: McGraw-HiII pp.6SS-6S8
Daft, R.L. 2003, Management, South-Western, Mason, Ohio, U.S.
Hodgetts, R.M. & Kuratko, D.F. 2001, Effective Small Business Management, Harcourt College Publishers, Orlando, Florida, U.S.
Mullins, L.J. 2002, Management and Organizational Behaviour, Pearson, U.K.
Robbins, S.P., Bergman, R., Stagg, I. & Coulter, M. 2003, Management, Pearson, Australia. |
| 0 Comments / Subscribe To Comments |
| Posted: Oct.12.2006 @ 9:36 am |
I originally wrote this article, “Virtual team working” in June 2003.
Robbins et al (2003, p.4) define an organisation as being "a deliberate arrangement of people to accomplish some specific purpose." If the people working together within the organisation are separated by distance and/or time then the organisation type can be described as being 'virtual’. It is uncommon to find a fully virtual organisation. Virtual teams however, operating within an organisation, are commonplace and their growth in numbers raises many management issues.
Organisation
The virtual workplace has the potential to allow team members to be more effective by matching work times to when people are likely to be at their best. Greater efficiency can be realized by removing time wasted commuting to, and from, a traditional workplace.
Mintzberg's interpersonal, informational and decisional management roles within the virtual workplace may be very different to that of a traditional organisation. Anderson and Shane (2002) report that some virtual teams use shared leadership. They also suggest that having only one team leader can slow decision making. Knowledge management, as an informational role, is a key component of management in virtual organisations according to Witzel (2002).
When evaluating the technical, interpersonal and conceptual skills required for a successful virtual team, Adres (2002) quotes various researchers as stating that interpersonal skills are most important. This is because the lack of physical proximity between team members reduces the number of communication channels available and can lead to an increase in 'noise'.
It could be argued that contributions from Peters (1992) could be considered as worthy of being added to the works of recognized general administrative theorists like Henri Fayol and Max Weber in predicting that "information networks will be decisive to relative future competitiveness”. However, no, universally accepted approach is yet available for the management of the virtual workplace.
Taylor (2001) describes the challenges faced by labour unions in coping with fragmented labour markets in virtual workplaces and introduces the concept of 'e-picketing' by virtual workers as a new form of protest.
Globalisation is seen by Hagen (1999) and many other authors as being a major force in the rise of numbers of virtual workplaces. Workforce diversity is created by the employment of minorities and mobility-impaired people who may otherwise experience difficulties in being accepted by certain traditional organisations. Additional diversity is provided by the fact that people of different countries, nationalities, religion or culture may be part of the same virtual team.
There are certain dimensions of the successful virtual organisational culture that have common characteristics. High team orientation, low aggressiveness and high innovation and risk taking are important. Conner (2003) suggests that organisations will no doubt have to foster proactive employee behaviour in terms of selection, socialization and policies that encourage individual initiative.
External and internal environments
The interface between the external environment and a virtual organisation can be quite different from that of a traditional organisation. Many virtual organisations extensively utilize outsourcing, strategic alliances and similar partnerships to realize their goals, according to Fitzpatrick and Burke (2001). Walters and Buchanan (2001) believe that more cooperation among competitors, suppliers and customers makes it harder to determine where one company ends and another begins.
The proportion of U.S. workers employed in manufacturing has halved in the last thirty years and Konrad and Deckop (2001) attribute this decline to globalization. Virtual teams are a natural choice for geocentric organisations that break down the barriers of time, distance and national borders to execute projects.
Social responsibility and ethics
The classical view that management's only social responsibility is to maximize profits is exemplified by the virtual organisation, according to Conner (2003), who states that [virtual] "organisations are cutting cost and streamlining operations by reducing or eliminating the need for facilities, levels of management and work sites. This contrasts with the socioeconomic view of Businessline (2002), which argues that virtual organisations offer flexible working practices to mobility-impaired talent, women and minorities.
A consideration of ethics within the virtual workplace raises the issues of collective bargaining, communication, security and trust.
Williams (2002) claims that outsourcing of workers affects wage bargaining and quotes Young as stating that, 'in outsourced businesses, the most important flexibility is that of employees in accepting lower wages and intensified work.' However, Taylor (2001) has an interesting notion that the web enables unions to communicate directly with workers in their homes, thus bypassing the employer.
A lack of courtesy may be experienced within the virtual workplace due to the use of e-mail over face-to-face communication. This may lead to assertive and hostile language as reported by Andres (2002) from research carried out by Siegel. Although e-mail has the convenience and casualness of conversation, it is a written record and the contents of some messages can be regretted at a later date.
The dispersed team members within the virtual workplace rely upon internet, satellite and telephone networks for communication and this gives rise to potential security problems. 'In the Net economy, organisations are forced to strike a delicate balance between accelerating their transformation to e-Business while still securing their networks and data. This balance is driving the rapid adoption of security services, a market which analyst firm IDC expects to reach US$21 billion by 2005', according to M2 Presswire (2001).
Staples (2001) has tested four hypotheses dealing with the role of trust in remote work. He suggests that trust between the manager and employee is an important factor for making remote work effective. His research found that four hypotheses
relating to trust were supported, and these were that higher levels of trust between the manager and employee will be associated with:
- more positive perceptions of self-performance
- higher levels of job satisfaction
- more frequent communication
- lower levels of job stress
Additionally, Anderson and Shane (2002) recognize that trust among the virtual team members is very important and they need to be confident in each other’s competency.
Decision making
Two aspects of the managerial decision making process have prominence within the virtual workplace. They are the availability of information and the empowerment of individual virtual team members.
Koch (2000) describes a decision support environment known as the 'management cockpit', which is an advanced information system. It's a special meeting room with walls covered with screens displaying data on internal and external processes. The vision is to control an entire organisation with one hand and this concept is already being used by companies such as ISS Europe, Citibank, Groupe Oburg and La Suisse Assurance. This type of organisational hub is also described by Fitzpatrick and Burke (2001), who state that it performs all the functions needed to maintain their core competitive competencies and coordinate the work process as it flows or is transmitted from one subcontractor to another within the virtual organisation.
The sharing of relevant information from management amongst virtual team members will become increasingly expected. Decentralised, and a higher degree of discretion in, decision-making will be sought by virtual staff members, according to Businessline (2002).
Experience
I worked for seven years as a Project Manager for Rolls-Royce plc leading virtual teams from 1996 to 2002 in Asia, Europe and the US on three separate projects.
The first project was a joint venture between the jet engine design bureau of Sukhoi and Rolls-Royce plc. The joint venture was created to utilise the energy systems experience of Rolls-Royce to modify Sukhoi jet engines to be used for generating electricity and to pump gas from Siberia to Europe. It was a two year project from 1996 to 1998. A virtual team was created with members in Liverpool, Moscow and Ohio. The team consisted of British engineers and drafters, American stress analysts and designers and Russian designers and production engineers.
The time difference was between three and eight hours for team members and English wasn't readily understood by the Russian designers and engineers. Knowledge was difficult to manage as much of the Rolls-Royce information was proprietary and all of the Sukhoi information was military and only available in the Russian language. Engineering design, equipment and materials were to American, British, Russian, military standards and imperial and metric sizes. I reduced the language barrier by ensuring that all designs, specifications, drawings and daily correspondence was produced in two languages using several interpreters.
The second project was the reconstruction of two, twenty year-old, Rolls-Royce gas turbines for the Oil and Natural Gas Corporation of India. The turbines were past their useful life but the oil rig, where they were located, was a hub and production time could not be lost for the installation of new turbines. Lasting for two years, the project ran from 1999 to 2001. The oil rig was in the Arabian Sea; parts and manpower came from the UK, US, Singapore and Bombay. I was based at hotels in Bombay and Singapore and visited the oil rig by helicopter. The virtual team consisted of designers, drafters, schedulers, technical authors and shippers in the US and the UK. Oil production engineers and construction workers were based in Bombay.
The time difference was between five and nine hours for team members. Communication networks are a problem in Bombay. The infrastructure is not designed for the level of internet traffic and drop-out is frequent during facsimile and e-mail transmissions. Additionally, the monsoon period from May to September creates periods of several days when communication is not possible, due to waterlogged communication hubs and distribution centres. Further, for security reasons, communication between the oil rigs and the outside world is severely restricted to public payphones only. Digital communication with ONGC's oil rigs, by third parties, is not allowed. Whilst onshore in Bombay, I utilised my Nokia 6150 mobile phone for most of the voice calls and was able to transmit and receive e-mails and facsimiles to the UK and the US via the infrared port, using a laptop computer.
My final project with Rolls-Royce plc was remote machinery diagnostics for seven gas turbines owned by bp Indonesia, Conoco and Shell Philippines. These three companies had signed multi-million dollar asset management agreements with Rolls-Royce to manage the maintenance of the machines and to remotely monitor their condition for a period of ten years. The seven turbines were all located offshore in the South China Sea. The virtual team consisted of members in Birmingham, Indianapolis, Jakarta, Manila, Melbourne, Ohio and Singapore. Monthly invoice payments to RolIs-Royce were performance related and penalties were to be applied if machinery efficiency fell below 98.5 percent.
I hired a team of five engineers to be based in the Singapore office of Rolls-Royce and installed several dedicated broadband internet lines for each customer. Using Microsoft SQL and Oracle databases, virtual team members throughout the global company were able to view 300 turbine parameters almost real-time, with only a delay of approximately three seconds. By this method, quality experts in Indianapolis liaised with field technicians from Melbourne and production operators in Jakarta to resolve problems during teleconference calls whilst simultaneously viewing real-time performance data via the internet. Based in Singapore, I was the customer's single point-of-contact for all technical and commercial issues. The global network of Rolls-Royce plc was used, via intranet, to obtain answers to questions beyond my capabilities and a customer response time of same-day or 24 hours was usually achieved. Monthly customer meetings in Jakarta and Manila enhanced the virtual teamwork.
List of references
Anderson, F.F. & Shane,H.M. 2002, 'The impact of netcentricity on virtual teams: The new performance challenge‘, Team Performance Management, 2002.
Andres, H. P. 2002, 'A comparison of face-te-face and virtual software development teams', Team Performance Management, 2002.
Conner, D.S. 2003, 'Social comparison in virtual work environments: An examination of contemporary referent selection', Journal of Occupational and Organizational Psychology, March 2003.
Fitzpatrick, W.M. & Burke, D.R. 2001 ,'Virtual venturing and entry barriers: Redefining the strategic landscape', S.A. M. Advanced Management Journal, Autumn 2001.
Hagen, M.R. 1999, 'Teams expand into cyberspace', Quality Progress, June 1999.
Koch, C. 2000, 'Collective influence on information technology in virtual organisations-emancipatory management of technology?', Technology Analysis & Strategic Management, September 2000.
Konrad, A.M. & Deckop, J. 2001, 'Human resource management trends in the USA Challenges in the midst of prosperity', International Journal of Manpower, 2001.
'NOVELL: Novell delivers iChain web security software - the gatekeeper to network and application resources', M2 Presswire, 18 October 2001.
Peters, T. 2003, Liberation Management, Macmillan, London
Robbins, S.P., Bergman, R., Stagg, I. & Coulter, M. 2003, Management, Prentice
Hall, Australia.
Staples, D.S. 2001, 'A study of remote workers and their differences from non-remote workers', Journal of End User Computing, April-June 2001.
'Surfing the virtual workplace', Businessline, 22 July 2002.
Taylor, R. 2001, 'Workers unite on the internet: TRADE UNIONS: They were as workplace relics quietly fading away. But information technology may offer labour organisations a new lease of life', Financial Times, 11 May 2001 .
'Technology: Substitute or complement?', Businessline, 2 September 2002.
Waiters, D. & Buchanan, J. 2001, 'The new economy, new opportunities and new structures', Management Decision, 2001
Williams, G. 2002, 'Virtual organisations? Union survival in the outsourced workplace', Management Research News, 2002
Witzel, M. 2002, 'lack of tangibles can be an asset MANAGEMENT A-Z: VIRTUAL ORGANISATION:', Financial Times, 29 August 2002. |
| 0 Comments / Subscribe To Comments |
| Posted: Sep.30.2006 @ 8:31 pm |
I originally wrote this article, “Customer relationship management” in November 2003. A systematic process is used to prepare a comprehensive proposal to a sponsor for approval to implement a Customer Relationship Management (CRM) System in an organisation. The proposed system introduces a new information system and improves organisational productivity. The sponsor is a financial institution. The information system supports the strategic goals of the organisation where it will be implemented. A systematic approach was followed to identify the opportunity and the choice of proposed system is justified. A feasibility study for the system is proposed, including system investigation and the preparation of functional specifications for the intended system (from a managerial viewpoint) and a system implementation plan is given.
SUMMARY
An investment is proposed for the implementation of a customer relationship management (CRM) system within the client company over a six month period. It is the optimum solution to the client’s problem of how to achieve their sales revenue growth requirement for the next five years.
The proposed system has a good fit with the six strategic goals of their business. In particular, it meets the need to secure lifelong customers who buy the most profitable products using the client’s unique service.
The problem of achieving sales revenue growth is solved using a systems approach. First, we established that the problem has the four components of; creating customer awareness, encouraging sales, maintaining repeat custom and deciding upon the marketing mix.
Six alternative solutions to the problem are appraised. Mass marketing, CRM, local distributors, local sales representatives, advertising and the internet are considered. These possible solutions are evaluated againstthe definedproblem, cost, time and the degree of fit in supporting the business goals.
The optimum solution is a CRM system to focus the marketing and sales efforts in the right direction. It is envisaged that the system will help to attract, retain and get customers to spend more with the company. Using a relational database, the system will be used to co-ordinate the direct mail and telemarketing campaigns.
A feasibility study is required during the systems analysis and conceptual design phase to ensure that it meets the requirements for data; warehousing,extraction, management, mining, analysis and query. Implementation of the project will proceed only upon a favourable outcome from the feasibility study.
Project implementation is in nine stages. The critical stage is that of training staff in system adoption, data mining, use of technology and in how to get system support.
INTRODUCTION
The client company is a new business venture formed to utilize an opportunity to satisfy a UK demand for Asian products exported from Singapore by air parcel. The target market is small British retailers who already sell antiques, clocks, gifts, handicrafts and home decor. They compete by having product variety, and very few currently sell handcrafted goods from Asia. Their present offerings are either locally made expensively machined products or poor quality imports from wholesale warehouses. The client company offers good quality, high value, low weight, hand-made Asian products by 7 day delivery air parcel for payment by credit card.
STRATEGIC GOALS OF THE ORGANIZATION
The client company has six strategic goals, and they are:
Annual export sales of S$2M in 5 years and 10% net profit after tax - The client company will acquire 500 lifelong European retail outlet customers. The average order value is S$800 per consignment and the client company will receive bi-monthly or quarterly orders from each customer. Gross margin for the cost of goods sold is 50% and the cost of doing business is such that net profit after tax is 10%.
The client company’s customers have high inventory turnover - The order quantity requirements are smaller than that of the client company’s competitors and reduce the amount of cash tied up in the customer's inventory. The customer's higher inventory turnover enables them to place smaller orders which are delivered more often. Their risk of holding low demand products is reduced.
The client company’s value chain is shorter than that of their competitors - The value chain is shorter than that of the competitors because UK wholesale warehouses are eliminated. The client company’s customer is the retailer, not the wholesaler, and deliveries are door-to-door from Singapore to Britain by air parcel - not container ship.
The client company’s goods have a money-back guarantee - Credit is not offered to customers and all order payments are made through Visa and Mastercard credit card companies. However, the credit card companies give 4 to 7 weeks free credit to customers and the client company is paid monthly by the credit card companies, who dictate the money-back guarantee.
The system of competing is unique, integrated and not easily imitated - The client company only sells products to the target market that fits their particular business model. The minimum order value is S$750 and each consignment weighs less than 15Kg. Goods within each consignment are high value, have a high price to weight ratio and are only sold to the target market of small UK retailers who sell antiques, clocks, gifts, handicrafts and home decor.
Competition with the small British retailer is not promoted - The Asian product mix is not readily available in Britain and there are very few competitive outlets already in existence which specialize in similar products. Administration costs are minimized by having a minimum order value of S$750 and, by this mechanism, not selling direct to British end-users. Additionally, substantial discounts are not offered for larger order quantities because this leads to lower retail prices and a perceived lowering of product quality.
SYSTEMS APPROACH TO PROBLEM SOLVING
An approach is used, as described by O'Brien (1999:p.80), to systematically solve the problem in 5 steps:
Recognize and define the problem using systems thinking
Develop and evaluate alternative system solutions
Select the system solution that best meets the requirements
Design the selected system solution
Implement and evaluate the success of the designed system
Problem definition
The problem of acquiring 500 lifelong customers is identified as having the four key components of; creating customer awareness, encouraging sales, maintaining repeat custom and having the right marketing mix.
Customer awareness - How does the client company make UK retailers aware that their company and marketing mix exist? The client company has just recently created their new business venture and, until they can reach their customers, nobody knows who they are, what we sell, where they are located and why they should do business with them.
Encourage sales - If the client company manages to reach their target market then what can they do to encourage customers to place orders with their company? Customers may be aware that their company exists but inertia, tradition or apprehension may influence their buying decision process and divert custom away from their company.
Maintain repeat custom - Having secured their first order from a customer, how do they achieve 'lock-on' and create a lifelong customer? If a customer doesn't enjoy a good experience with the company during the first transaction then the relationship may end after one sale.
Marketing mix - How does the client company know that the product mix is priced correctly through the right distribution channel and that the promotion tactics work? Is there a market demand for the initial offering? Is the end-user willing to pay the retailer the recommended price? Is the marketing campaign investment giving the required return? Are small UK retailers the best distribution channel?
Evaluation of alternative systems
Six alternative solutions have been developed to solve the problem:
Mass marketing
Customer Relations Management system
Local UK distributors
Local UK sales representatives
Advertising
Internet site only
| Problem |
Mass marketing |
CRM system |
Local UK distributors |
Local UK sales representatives |
Advertising |
Internet site only |
| Customer awareness |
Very low response rate |
Low response rate |
Low incentive to promote client’s products |
High cost and time to establish contacts |
Very high cost and very low response rate |
Low cost but no response |
| Encourage sales |
Very low probability of obtaining orders |
Moderate probability of obtaining orders
|
Moderate probability of obtaining orders |
High probability of obtaining orders |
Low probability of obtaining orders |
Very low probability of obtaining orders |
| Maintain repeat custom |
No relationship building |
High relationship building |
Moderate relationship building |
Very high relationship building |
No relationship building |
Very low relationship building |
| Marketing mix |
Very low customer feedback |
High customer feedback |
Moderate customer feedback |
High customer feedback |
No customer feedback |
Low customer feedback |
| Cost |
Moderate |
Moderate |
High |
Very high |
High |
Very low |
| Time |
Quick |
Moderate |
Slow |
Slow |
Quick |
Quick |
| Degree of fit in supporting business goals |
Low - not target market and could promote competition to small retailer |
High - meets all business goals |
Low - extra stage in value chain and not unique selling system |
Moderate - reduced profit |
Low - not target market and could promote competition to small retailer |
Low - not target market and sales goal not possible |
The six alternatives solutions have been evaluated as to how they fit in supporting the business goals and solving the problem:
Our development and evaluation of the six alternatives gives the optimum solution to our problem of acquiring 500 lifelong customers profitably as being to implement a customer relationship management system.
PROPOSED SYSTEM
The proposed customer relationship management system has the benefit of facilitating the business goals at a reasonable cost. This represents a saving on the appointment of UK sales representatives to achieve comparative results.
The CRM system will focus the client company’s marketing and sales efforts in the right direction, allow statistical analyses of the marketing campaigns and fit the business goals.
The client company’s revenues will not be enhanced by selling more core items but by increasing the amount of spending customers do with the client company. The system will enable the client company to monitor and enhance the longevity, depth, breadth and diversity of spendingby their customers. It will identify customers with opportunities, as well as customers at risk. The system will allow the client company to understand the differences among customers, particularly the nature and intensity of the relationship they currently have with the client company, so the depth, breadth and the length of their relationship can be improved. By developing a multi dimensional customer typology (segmentation scheme), the client company will select segmentation variables which show customer's preferences for products and the intensity (magnitude and frequency) of their relationship with the client company. It can be determined what the most profitable customers look like, who the high-risk customers are and describe customers who have a high propensity to buy certain products.
A proprietaryrelational database will be populated by client company staff with 10,000 to 30,000 small UK retailers who already sell antiques, clocks, gifts, handicrafts and home decor. Basic information for the target market is available from UK regional Chambers of Commerce, trade directories, Yellow Pages, etc. Commercially available data bases are avoided because they are notoriously unreliable and very expensive. Weekly regional direct mail campaigns will target London, followed by Birmingham, Leeds, Sheffield, Bradford, Liverpool and Manchester. Each batch of direct mail is to be followed by telemarketing calls from the single point-of-contact staff at the client company’s call centre.
The business goals of the client company will be supported by the CRM system. Their sales and profit goal will be made possible by getting direct mail I telemarketing response rates better than the 2 to 3% achievable by direct mail alone. This will assist the client company to get a critical mass of customers locked on and will create a platform from which to stretch their product range into the many areas of their end-users' lives. The customer benefits of a high inventory turnover, money-back guarantee and 'small retailer only' target market will be explained by the client company’s telemarketers to potential customers and their responses will be recorded into their database for analysis. High value to weight products, for low shipping costs, will be selected to match the particular requirements of individual groups of customers, from their database response records, to further focus on market niches.
FEASIBILITY STUDY
A feasibility study is required within the systems analysis and conceptual design phase of the client company’s implementation plan. The implementation of CRM within their company is a major undertaking and they need to make sure that they have sufficient resources and are able to integrate this system with their other management information systems. This will involve the development of many processes within their business model. Hardware, software and resource costs and the time taken to implement the CRM system need evaluating to verify that the project is feasible. The implementation plan will proceed only if the results of the feasibility study are positive, thus enabling the project to be completed.
It needs to be determined if, within the business constraints, it is viable to implement:
Data warehouse information - customers calling the client company, their purchases, transaction history, complaint history, data archaeology, contact, customer business, group, history, promotion, product purchases, survey and customer response data, customer interaction data.
Data extraction and cleansing
Data management and storage - logical stores of information
OLAP or data mining applications
Data analysis and query tools - sliced and diced system reports
These are the main features required of the CRM if implementation is to proceed and the project is practical.
IMPLEMENTATION
Implementation of the CRM system is in the eight stages of strategic planning, research, system analysis and conceptual design, design, construction, implementation, maintenance and documentation, adaptation.
Strategic planning - complete business process analysis, identification of customer interaction points and decision support requirements.
Research - assessment of market conditions, business resources and possible technological means of meeting business needs.
System analysis and conceptual design - user interaction, software and hardware vendor assessment, data design, scalability and feasibility study.
Design - detailed specification, selection of specific software packages and core technologies.
Construction - execution of design plan
Implementation - training program for staff in; system adoption, support seeking, technology, data mining techniques.
Maintenance and documentation - system performance evaluation, data quality, data quantity, confirmation of meeting DSS needs.
Adaptation - modifications to the system to match changes in the market and business.
A phased roll-out is planned, commencing with a pilot program.
CONCLUSIONS
The client company’s first strategic business goal of annual export sales of S$2M in 5 years is achievable with the proper management tools. The proposed CRM system is one of those tools. It’s not pretended that use of this technology will solve all of the problems. It is the people within the company, using this technology, that will determine the success of the venture.
List of references
Q'Brien, J.A. 1999, Management information systems: managing information technology in the inter-worked enterprise, 4th ed., Boston, Irwin McGraw Hill. |
| 0 Comments / Subscribe To Comments |
| Posted: Sep.29.2006 @ 9:57 am | Lasted edited: Sep.29.2006 @ 3:10 am |
I originally wrote this article, “Enterprise Resource Planning” in October 2003 when I analysed the Fast Food Industry’s business models using the competitive forces and value chain analysis models. I explained that an Enterprise Resource Planning System would provide a good solution to McDonald’s challenges. The critical success factors driving technological were identified and reasons for the failure of information systems, within the fast food industry, were given. The managerial, organisational and technology factors that caused these problems were explained. The role and impact of alternative information systems development projects were evaluated in terms of the future strategic directions to be taken by McDonald’s and Burger King. The undertaking of risk evaluations are recommended with each project. Finally, I recommended an approach to prevent the negative impact of technology upon the people concerned, including the financial performance of the stock.
BUSINESS MODEL ANALYSIS
Competitive forces model
The competitive forces within the fast food Industry can be analyzed using Michael Porter's competitive forces model, described by O'Brien (2003:p.42). These forces are the bargaining powers of customers and suppliers, competitor rivalry, new entrant threats and the threat of substitutes.
Customer bargaining power is high and created by fast food outlets being located in close proximity to each other. Prices are readily displayed, giving the customer a real choice of which outlet to buy from.
Supplier bargaining power is low because of the concentration of suppliers and the availability of substitute suppliers.
Competitor rivalry is high because it is difficult for fast food companies to distinguish themselves from their competitors, so the challenge has intensified.
The threat of new entrants is caused by the relatively low entry barriers into the fast food business. MOS Burger and Wendy's are examples of new entrants.
The threat of substitute fast food products is affected by trends, such as increased health consciousness, and cost changes.
Using Michael Porter's above model; competitive strategies of cost leadership, differentiation, innovation, growth, alliances and other tactics are used in the fast food industry to counter the actions of the above competitive forces.
A cost leadership strategy used by fast food companies requires efficient facilities, cost reduction programs and tight cost control by a structured organization with defined responsibilities.
An example of a differentiation strategy is that used by McDonald's to distinguish it's products and services from Burger King, etc. by introducing wholesome foods, re-introducing hostesses to carry trays and exploiting the Ronald McDonald mascot for the brand experience.
Innovative strategies employed by fast food companies include; operating units in non-traditional markets, dual branding, food science experimentation and test marketing of new products to adjust to the consumer's changing food tastes. For example, on 8th October 2003, McDonald's appointed a Director of Worldwide Nutrition to help guide McDonald's nutrition and active lifestyle initiatives, McDonald's (2003c).
The growth strategies of a fast food business expand the company's ability benefit from the economies of scale, product integration and global expansion. Both McDonald's and Burger King see the Eastern Hemisphere as a place to expand and compensate for the more saturated market in America and Europe.
Alliance strategies are becoming more prevalent in the fast food industry. Competitors like KFC and Pizza Hut share common locations and home delivery services. McDonald's have more than 800 restaurants in Wal-Mart stores.
Another strategy used by McDonald's to counter competitive forces is sponsorship. For the first time, the company became the exclusive worldwide sponsor of the Olympic Day Run, in addition to being committed to the International Olympic Movement for more than 30 years, McDonald's (2003b)
Value chain analysis model
The business model within the fast food Industry can also be analyzed using Michael Porter's value chain analysis model, described by Kotler (2003:p.70), as a tool for identifying ways to create more customer value. The primary activities in the generic value chain are in bound logistics, operations, outbound logistics, marketing, sales and service. The support activities are firm infrastructure, human resource management, technology development and procurement.
Using McDonald's as an example of a fast food business, the primary activities of logistics and operations are decentralized whereas sales, marketing and service are centralized, according to Lorentzen (2000). Each region of restaurants manages its own supply of materials and operational efficiency to create customer value, but sales, marketing and service are centralized.
The fast food business support activities are usually centralized, with the exception of procurement. McDonald's implements a centralized Supplier Social Accountability Program and Supplier Product Quality Program, reports Beurskens (2002), as a condition of doing business with the company. However, whilst a supplier is in compliance with these procurement programs, buying from these suppliers is controlled regionally.
An ERP as a good solution to McDonald's challenges
McDonald's has 10 challenges:
- Customer satisfaction - McDonald's has been ranked the worst company for customer satisfaction in America for a decade.
- Franchisee monitoring standards - The company has no system for monitoring standards, so as to avoid trouble with the franchisees.
- Investor relations - McD's share price has underperformed the S&P500 for several years. Investors want a tighter, more centralized McDonald's. Instead of aggressive expansion, investors want the company to concentrate on the profitability of existing stores, The Economist (2001).
- Threat of substitutes - The future of fast food may be congee, tofu and roast duck as Chinese will displace the burger and pizza, says The Economist (2002a). The Economist (2002b) reports that sales at McDonald's and Burger King are declining and 'fast casual' gourmet sandwich, salad and soup chains are taking market share. McDonald's offering looks increasingly outdated.
- Changing customer eating habits - “The world has changed. Our customers have changed. We have to change too", says McDonald's CEO, Jim Cantalupo, in The Economist (2003). There are too many confusing meal choices and variety will be reduced and salads, yoghurts and sliced fruit introduced.
- Growth - The company no longer aims to be bigger than everybody else in the fast food industry, just better. A decade of stagnant US store sales was followed by declining sales in 2002. like Coca-Cola or Disney, McDonald's is in the maturity stage of it's life cycle and, as a cash cow, needs milking.
- Capital investment - The company massively misallocated capital for decades, according to The Economist (2003), and slashed capital spending by a third, to USD1.2 billion, for 2003.
- Out-of-date strategies - The Economist (2003) quotes an analyst as saying that McDonald's top management, shaped by previous out-of-date strategies, lacks the vision or stomach to make the necessary changes."
- Decentralization - The company decentralized operations in 1998 to rebuild tattered relationships with franchisees. However, this caused reduced service, quality and cleanliness standards. McDonald's new CEO promises improvements in franchisee restaurant management.
- Franchisee alienation - The poorly executed and imposed 'Made For You' kitchen initiative had an adverse effect upon franchisee revenue growth and profits.
An enterprise resource planning (ERP) system would provide a good solution for McDonald's 10 challenges. The company's internal businesses would be integrated and improved through a framework. This would enable monitoring of franchisee standards and increase customer satisfaction. An ERP would increase efficiency, thereby reducing costs and improving investor relations. Quick access to sales information would allow the company to develop menus to match the changing eating habits of customers, counter the threat of substitutes and make informed capital investment decisions. The decision support from an ERP would also enable strategies to be adjusted and brought up-to-date. Centralization of the many regional and departmental existing information systems would give greater agility to McDonald's.
Burger King's ERP system, reports Malcom (2003), enables the company to analyze sales trends and track food costs on a daily basis and is also used by marketing to analyze the product mix. A growing number of fast food companies, like Burger King, are standardizing their systems on packaged ERP systems, according to Songini (2002). Burger King uses Microsoft's “Business Solutions” says iStart (2003)
CRITICAL SUCCESS FACTORS
Critical success factors driving technological change
The 'Investor Fact Sheet, McDonald's (2003a) defines the company's critical success factors as being those of McCarthy's Four P Components of the Marketing Mix, Kotler (2003:p.16), plus people - Product, Price, Promotion, Place and People.
The product variety needs to match changing customer tastes and swift fast food outlet feedback is necessary to drive the changing product mix. Product quality requires controlling and customer service needs improving.
The food price is determined by market forces, so costs need reducing through greater operational efficiency. Operating profits and returns on investment call for improvements.
Promotion of McDonald's brands needs re-building to differentiate its products and service from competitor offerings.
The place where customers dine, the McDonald's restaurant, has lost it's status as the gold standard for clean restaurants. It needs re-imaging, rebuilding and renovating.
The people who produce the restaurant food require training to deliver better customer service and educating in the use of technology for logistics, production and sales.
Reasons for failure of IS within the fast food industry
The 6 reasons for failure of IS within the fast food industry are; project cancellation, user resistance to IS, system crashes, user lack of understanding IS, bad system performance and IS not meeting expectations.
Management, organizational, and technology factors
Poor management can cause IS project cancellation. McDonald's wrote off $170 million already spent on a project in 2002 when they unexpectedly realized that the final cost would exceed $1 billion. Taylor (2000) identifies scope management as the leading management activity leading to IS project failure. Companies tend to underestimate the planning complexity, development and training required to change business processes. Compressing new IS roll-out periods, an over reliance upon expensive and external ERP consultants and overstated expectations also contribute to IS failure.
Organizational factors in the fast food industry contribute to IS failure, especially if corporate IT systems are linked to individual stores or franchises that have workers who are relatively unfamiliar with technology, according to Computer Weekly (2002). The non-involvement of affected workers in development and insufficient employee training in ERP can also cause IS project failure.
Technology factors are the least cause of IS failures. Technology problems are only responsible for between 12 and 15 percent of projects that don't work, says Everett (2002).
ALTERNATIVE IS DEVELOPMENT PROJECTS
Role and impact of alternative IS development projects
The role of alternative IS development projects in the fast food industry is to increase revenues and reduce costs.
McDonald's has tested automated order taking machines, using paper money only, says Belilos (1999).
The VISA quarterly report (2002) describes how Burger King and VISA are developing cashless payment.
Contact-less, cashless payment, according to Longini (2002) and Kuykendall (2003), is accepted at certain fast food outlets, e.g. McDonald's in Chicago in the form of a car key fob.
Centralized management of HVAC, lighting and food processing energy conservation systems, reports Sheehan (2001), is being tested by McDonald's at their restaurants in Atlanta, Chicago, Colorado springs and San Francisco.
Ewalt (2002) and Hamblen (2002) say that Burger King uses Palm-100 PDA programmed warming bins in 500 company-owned restaurants and is transitioning to all of it's 8,000 outlets.
McDonald's is looking at putting in an electronic invoicing system that will be integrated into it's network, reports Newman (2002).
Singer (2003a), Black (2003) and Krane (2003) report that McDonald's unveiled wireless hotspots at 10 restaurants in New York and plan to "unwire” 300 restaurants by the end of the year. The New York launch was followed by a similar launch in San Francisco, according to Singer (2003b), and subsequent openings in Chicago, Canada and Australia, reports Kaye (2003).
Burger King, according to Hulme (2003), uses identity and access management systems at a cost of $5 to $25 per employee to protect access to it's systems because of rapid staff turnover.
The impact of automated order taking and cashless payment is to reduce order processing times and cash handling costs. Energy conservation, programmed warming bins and electronic invoicing all reduce operational costs. The impact of WiFi is to increase sales revenue by attracting new customers or retaining existing customers who might be tempted to use the facility elsewhere.
If McDonald's and Burger King choose the strategic directions of cashless payment to reduce costs and WiFi to increase sales revenues then substantial capital investment is required.
Risk associated with each project
Risk evaluation is required at the beginning of each project to evaluate the risk probability and magnitude of effect of the occurrence of the risk associated with each project.
The risks associated with ERP and operational efficiency systems implementation vary according to whether the project has a piloted, phased or 'big bang' roll-out. Risks connected with existing legacy systems, crash contingency plans, stoppages etc. need evaluating. Floyd (2000) says that "the obvious places to start a phased migration are with the 'easy' modules, like Fixed Assets and General Ledger.
Cashless payment IS project risks include system crashes, software and hardware bugs, card theft, communication problems and employee training.
Prevention of negative impact of technology
Technology is prevented from having a negative impact on the people concerned by involving them from conception to completion of each project. Users need to be involved in project development and they need to be trained. Pilot programs require assessing and investors should be kept informed of the hefty financial commitment before the first cheque is written.
McDonald's have introduced e-Ieaming tools in restaurants to bridge the technology skill gap of franchisee employees required to use new information systems. Jones (2001) quotes McDonald's as saying, "This is not a white collar tool. This is a business tool”.
Customer and employee acceptance of new technology can be assessed using pilot programs. For example, a new POS contact-less smart card has been tested by McDonald's and Mastercard in Orlando, says Lingblom (2003).
The financial performance of the stock can be protected by making provisions in several years of accounts for investment in IS. The total costs must be realistic and must include all costs for data conversion, employee training, software, hardware, implementation, maintenance and a risk contingency
List of references
Belilos, C. 1999, 'Technology enhancing service at MacDonald's', CHIC Hospitality Consulting Services, 16th August 1999. Retrieved: from http://www.easytraining.com on 1 th October 2003.
Beurskens, F. 2002, 'Value of Supply Chain Management Issues from the Customer's Perspective', Corn Utilization and Technology Conference 2002, 3rd June 2002. Retrieved: from www.agribiz.com on 1ih October 2003.
Black, J. 2003, ~The Magic of Wi-Fi', Businessweek, 18th March 2003. Retrieved: from www.businessweek.com on 17th October 2003.
'Burger King standardizes ERP menu', Computer Weekly, 9th July 2002. Retrieved: from www.computerweekly.com on 17th October 2003.
Cantalupo, J. 2003, 'McDonaJd's eMac Digital News', McDonald's Corporate Press Release, 20th May 2003.
'Did somebody say a loss?', The Economist, 10th April 2003.
Everett, C. 2002, 'Special Report - The slings and arrows of CRM', Akibia, 18th July 2002.
Ewalt. D. M. 2002, 'PDAs get more innovative, from food-service to life-saving functions', Informationweek, 9th September 2002. Retrieved: from www.informationweek.com on 17th October 2003.
Floyd, T.H. 2000, 'Phased ERP Implementation instead of "The Big Bang"', ERP World West, Anaheim 2000. Retrieved: from www.supgrp.com on 17th October 2003.
Hamblen, M. 2002, 'Field Report: Want Fries With Your PDA?, ComputelWorfd, 29th July 2002. Retrieved: from www.computerworld.com on 17th October 2003.
Hulme, G. V. 2003, 'Companies can cut costs significantly by implementing software that manages users' access to applications', Informationweek, 20th January 2003. Retrieved: from www.informationweek.com on 17th October 2003.
'Investor Fact Sheet', McDonald's, May 2003a. Retrieved from www.mcdonalds.com on 1th October 2003.
Jones, M. 2001, 'Comdex E-Ieaming experts call for knowledge management rethink', Infoworld, 15th November 2001. Retrieved: from www.infoworld.com on 17th October 2003.
'Junk food?', The Economist, 5th December 2002a.
Kaye, T. 2003, 'Will you be having a McWiFi with that, sir?', Australian IT News, 26th August 2003. Retrieved: from www.australianitnews.com.au on 17th October 2003.
Kotler, P. 2003, Marketing Management, 11th ed., Prentice Hall, New Jersey, USA.
Krane, J. 2003, 'Burgers, Fries, And Wi-Fi', Informationweek, 11th March 2003. Retrieved:
from www.informationweek.com on 17th October 2003.
Kuykendall, L. 2003, 'Will Contactless Payments Prove Sticky?' I American Banker, 9th June 2003. Retrieved: from http://aO-gateway.proquest.com.ezproxy.scu.edu.au on 17th October 2003.
Lingblom, M. 2003, 'Mastercard puts contactless smart card to the test', CRN.Jericho, 3rd March 2003, Iss. 1035; p. 55. Retrieved: from http://80-gateway.proquest.com.ezproxy.scu .edu.au on 1ih October 2003.
Longini, P. 2002, 'Models for Internet Success and Failure', Techyvent, 7th January 2002. Retrieved from www.imakenews.com/techyvent on 17th October 2003.
Lorentzen, 1.2000, tlmplementing multi-site ERP projects: centralization and decentralization revisited', Department of Sociology, NTNU Inform. Science, Norway.
Malcolm, A. 2003, 'Aussie burger chain gains Kiwi smarts', IDG Communications Ltd, 24th January 2003. Retrieved: from www.idg.co.nz on 1 ih October 2003.
'McDonald's Announces Worldwide Sponsorship of Olympic Day Run', McDonald's Corporate Press Release, McDonald's 16th June 2003b.
'McDonald's Corporation Announces Worldwide Nutrition Director' I McDonald's Corporate Press Release, McDonald's ath October 2oo3c.
'Microsoft Business Solutions delivers for Burger King', iStart Limited, February 2003. Retrieved: from www.istart.co.nz on 17th October 2003.
Newman, K. 2002, 'McDonald's seeks closer electronic relations', iStart Limited, August 2002. Retrieved from www.istart.co.nz on 1ih October 2003.
'Not so fast', The Economist, 5th December 2002b.
O'Brien, J. A. 2003, Management Information Systems, McGraw Hill, New York, USA.
Sheehan, M. 2001, '10 Ways to Cut The Cost of Energy', H T Magazine, March 2001. Retrieved from www.htmagazine.com on 1ih October 2003.
Singer, M. 2003a, W-Fi Gets 'Super Sized", IT Management, 11th March 2003. Retrieved: from www.itmanagement.earthweb.com/erp/article.php/2107771 on 17th October 2003.
Singer, M. 2003b, 'McDonald's Serves Up Wi-Fi in SF', Jupitermedia Corporation, ath July 2003. Retrieved: from www.cioupdate.com on 17th October 2003.
Songini, M. L. 2002, 'Burger King Upgrades to mySAP.com', Computerworld, 15th July 2002. Retrieved: from www.computerworld.com on 17th October 2003.
'Spotlight: Burger King Pilot', Visa Quarterly Report, Visa, August 2002. Retrieved: from www.visa.com/usnewsroom on 17th October 2003.
Taylor, A. 2000, 'IT Projects: Sink or Swim', The Computer Bulletin, January 24-26. 'Where's the beef, The Economist, 1st November 2001.
|
| 0 Comments / Subscribe To Comments |
| Posted: Sep.28.2006 @ 10:45 am | Lasted edited: Sep.28.2006 @ 3:51 am |
I originally wrote this
article, “Online retail“ in April 2003. The effectiveness of the
marketing and operations management of Amazon.com are discussed and
changes are suggested to improve the management of these functions.
Introduction
Amazon.com is an international business with operations in Asia, Europe and the US. Using the latest internet technology, the company trades in goods online and provides services to other companies. Amazon.com owns several patents based upon internet technology. 'Amazon.com Reports Second Profit Ever' (2003) describes how the company's revenue for 2002 was $1.43 billion, up 28% from 2001's figures and annual sales for 2003 are expected to increase by 15 percent upon sales for 2002. Net income for the company in the last quarter of 2002 was $2.7 million, down 48 per cent from the same period in 2001. A $40.6 million exchange rate loss in the euro contributed to this fall as Amazon's $2.15 million borrowings are in this currency. However, euro fluctuations in 2001 gained the company $16.3 million.
International sites in Japan, Germany, France, UK and Canada provided the company with the largest growth during 2002. The annual revenue for each international site increased by more than 60% in 2002. This created a 76 per cent annual increase for the international business, outside the US, to $461.4 million.
The company was founded in 1995 by Jeff Bezos and Schepp (2002) describes how Jeff attributes continuous improvements in computer and internet technology as being key to the success of his operations. According to Moore's Law, a doubling of speed in computing technology takes place every year. Lower prices, faster delivery and new web-site features have been achieved by Amazon as a result of this.
International marketing business strategies
Amazon's SEC report ‘Annual Report Persuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31,2002' (2003) includes their mission statement, “We seek to offer Earth's Biggest Selection and to be Earth's most customer-centric company, where customers can find and discover anything they might want to buy online. We have designed our Web sites to allow millions of new, used and collectible products to be sold by us and by other businesses and individuals worldwide. A product on our Web sites may be listed for sale simultaneously by several different sellers. For instance, a product may be offered by us, by a participant in our Merchants@ program and by a business or individual selling a new, used or collectible version of the product through Amazon Marketplace, zShops or Auctions. We also offer certain e-commerce services to other businesses through our Merchant.com and Syndicated Stores programs." The expansion of Amazon's product and service range appears to be getting to a stage where either the company should consolidate its position within the market or split up the company. There is a danger that customers and management will find it hard to focus and identify with the aims of a company with such a diverse product I services mix.
Cost leadership is the international business strategy adopted by Amazon. Additionally, the company also adopts a strategy which attempts to differentiate its products and services from that of its competitors. The product range is greater than that of high street book sellers. Promotion of Amazon's products is online rather than in-store and distribution is centralized via courier, rather than personal pick up of the product from the retailer. However, with such a variety of products, its competitors are not now just the booksellers. It is any company that sells any of its products either offline or online.
To attain synergy and competitive advantage, Amazon has strategic alliance partner networks with other retailers. Jeff Bezos' goal is to provide customers with a single source of supply. "Our vision is to become a one-stop shopping place for anyone to buy anything. It will be done not exclusively by us alone but in conjunction with what will ultimately be thousands of partners. The benefit of which is lower prices and better selection for Amazon customers“. I would recommend that the book sales business be separated from the 'one-stop shopping place'. Amazon have good experience with book sales but could jeopardize the success of this portion of Amazon by diluted efforts.
Last year, Amazon opened its fifth international business operation and expanded into the Canadian market. Amazon saw it as a natural choice as Canada was served by only one major online retailer, Heather Reisman's Chapters - Indigo. I consider that the choice of Canada for the latest international site was a mistake. Canadian law prohibits direct management of the operations and the company is in danger of losing control of its operations which are entirely subcontracted to third parties. Additionally, the total population and population density of Canada isn't amenable to providing a wide variety of products with a quick delivery service.
Think global, act local
Amazon's marketers had to decide between an ethnocentric, polycentric or geocentric approach to their international operations. They chose geocentric marketing and operations management. To the international consumer, it appears to be a polycentric company. Each website, for countries whose first language is not English, is available in that country's language and English. However, Amazon achieves this "think global, act locally" approach through the clever use of software. They have developed a single piece of global software which can handle any language. This reduces their entry costs into further international markets.
Foreign pricing laws
Amazon's international pricing policy is influenced by the laws and regulations of host countries. For example, there is no law against price fixing in Japan. Publishers in Japan do not allow retailers to discount prices on their books. This means that Amazon's strategy is modified for the Japanese market. Only books in non -Japanese language and other products are discounted. List price is used for Japanese books. I recommend that Amazon focus on the product, promotion and place in countries where laws dictate list price. A larger product collection, online promotion and same day delivery would differentiate Amazon from its competitors in densely populated cities of certain countries.
Cultural differences
Soto (2002) describes how mobile phones are heavily used by the Japanese for online purchases. They spent $19.2 million for online purchase of books and music, via mobile phone in early 2002. Amazon lags behind its Japanese competitors, such as Kinokuniya, in the use of mobile technology for online purchases. However, Amazon state that they expect only a small proportion of their sales income growth through mobile devices, compared with internet access through computers.
American culture and products are popular in Japan. Amazon bought 9% of the shares of a US company that specializes in assisting companies to expand into international markets using multi-lingual software.
Japanese preferences for payment methods has also affected another of Amazon's strategies in this country. The payment method to Amazon for goods, used internationally, is by credit card. However, the Japanese don't normally use credit cards for payment of goods. Amazon has changed its payment policy in Japan and offers cash on delivery, to suit the local market.
Branding
Amazon expects growth in its international markets to exceed growth in its domestic market. High international brand recognition is assisting this growth. For example, the market in Japan was developed prior to the company starting operations there. Tens of thousands of Japanese customers were already patronising Amazon's other international sites, based upon the high brand recognition. After commencing operations in that country, the Japanese web site now has revenues in excess of $100 million.
Yamada (2000) reports that three years ago, complaints started to be made about Amazon's alleged practice of dumping liquidated, discontinued, damaged, returned or overstocked products on its auction sites. Questions were asked as to whether this strategy conflicted with Amazon's quality branding image. In response to this criticism however, the company gave 'money back' guarantees for purchased items to a value of $2,500. I'd recommend that Amazon separate these business activities from its core business an operate them under a different company name to preserve their brand image in online book sales.
Pricing
Amazon's sales volumes increase yearly. The sales are driven by lower prices and Jeff Bezos claims that Amazon is lower in price because it can afford to be. 'Chewing the Sashami with Jeff Bezos' (2002) reports that although one of Amazon's long standing goals had been to reduce prices, it was only in 2002 that they were able to do so. A re-arranged cost structure from years 2000 to 2002 allowed the company to achieve this goal. Price reductions were achieved in three stages. Firstly, a 30 percent discount was offered on all books over $20. This was followed by free or discounted shipping. Most recently, the 30 percent discount was extended to books over $15.
Retail prices are discounted by 20 per cent to 80 per cent for liquidated products sold online by Amazon. This compares to 40 per cent to 80 per cent discounts offered by traditional liquidators. Amazon receives 5% sales commission for these products and the company's aim is to provide a better return than traditional liquidators can achieve. I'd recommend that liquidated products be sold by the company under a name other than 'Amazon' to preserve brand image.
Market pricing
Amazon's Canadian operations, which began last year, has adopted market pricing. It discounts its top 40 bestsellers in Canada by 40%. Amazon's Canadian competitor, Indigo, was forced to adopt the same strategy. This form of geographic market pricing is necessary to compete in local markets.
Product prices can be adjusted to match changing geographic, demographic or economic market conditions using web-based systems. In 2001, Amazon tested market pricing but had to abandon the test after five days because of customer resentment. I'd recommend that the company only use market pricing geographically.
Advertising
Amazon's expenditure to retain existing customers and to acquire new customers is very large. Advertising costs in 2003 will exceed $100 million.
The company has developed software that analyses the purchasing patterns of individual customers. It then recommends complimentary products based upon that particular buyer's previous buying history. According to Jeff Bezos, “The goal here is not rampant consumerism. The idea is to use technology to capture information about customers and their interests and match individuals with other products they might like, including products they don't know even exist." I'd recommend that Amazon spend more effort in re-assuring the customer of how this information is exactly used to prevent mistrust.
Sales promotions
Soto (2003) reports that Amazon's free shipping promotion will cost the company $100 million in 2003. Free shipping commenced at the end of 2002 and the campaign has proved to be so successful that the promotion will continue throughout 2003 for orders above $25 in the US and £39 in the UK. Amazon attributes a 28 percent sales increase as being a result of the free shipping promotion. Free shipping is also offered at its international sites in Japan and Europe throughout 2003. Sales volumes in the UK rose 32 percent for the end of 2002 as the British operations shipped 6.2 million products. The free shipping promotion contributed to a sales growth of 76 percent for its international operations at the end of 2002. I'd recommend that Amazon use quantitative analytic techniques on a regular basis to match sales promotion expenditure with increase in sales revenue and make sure that it is a profitable activity.
‘Jeffrey P. Bezos' (2002) describes how Amazon offers a 15 percent commission to other companies whose web sites link a customer to Amazon, resulting in a sale. The web sites can recommend Amazon books and tens of thousands of these affiliate sites are linked to international Amazon sites. I'd recommend that Amazon be selective in the frequency of payments to affiliates. Only a few hundred affiliates with large commissions due should be reimbursed monthly, the remainder being paid yearly.
International operations management
The international operations management is now organised on a geocentric basis. The company merged the management of its US home country business with its international business operations in November 2001.
Supply chain management
Jeff Bezos states that the distribution philosophy at Amazon is different from traditional retailers. Amazon uses a centralized distribution system. The inventory is much reduced when compared to that of high street retailers. Jeff Bezos expects that this business decision will ultimately lead to a very high return upon the capital investment.
International couriers, international and national postal services are used by the company for distribution of its products to customers. Urban property identification is very different in Japan, when compared to Europe and the US. Many streets don't have names and there is often no sequence to property numbers. Amazon aligned with Nippon Express for customer deliveries to benefit from their 'in country' knowledge.
Amazon was taught a lesson from its distribution centre mistakes in the US and applied its learned experience in Europe. The company had previously constructed too much warehouse capacity in the US and was forced to close one warehouse. They built five automated warehouses but only actually required four. After this, international depots were designed more efficiently.
International business accounts for one-quarter of Amazon's sales. However, much of this business doesn't involve products crossing borders. For example, the business operation in Germany deals mainly in books produced in the German language. These books are published and distributed within the same country.
Supply problems have created difficulties for Amazon in Canada. The relatively small population leads to smaller stocks of fewer titles being held by the publishers. It’s not economically viable to maintain huge stocks in Canada and this has lead to customer complaints of late deliveries. The business in Canada was created to alleviate the problems experienced by Canadians when they orders goods from the US. High shipping costs and adverse exchange rates are avoided. However, low warehouse stocks levels in Canada create the situation whereby it’s still quicker and cheaper for Canadians to order from Amazon's US operations. "It’s hard to come out of the gate perfect," acknowledges Amazon spokesperson Kristin Schaefer. "It’s difficult to know how to accurately manage and stock inventory until you know what customers are buying."
International logistics
Amazon ships products to 220 countries. Products are shipped to customers entirely domestically within international operations or via international inter-company transfers. Shipping times have been reduced by two-thirds and growth has been achieved in both international internal markets and export markets.
International distribution is offered to customers in three tiers. Customs clearance charges and import duties are the responsibility of the customer. Firstly, using DHL Worldwide Priority Express, products can be shipped in one to four business days. Secondly, using DHL World Mail, products may be shipped in 7 to 21 days. The slowest shipping method is by surface mail and the shipping times are; 3 weeks to Canada, 6 weeks to the UK, 8 weeks to Australasia and 12 weeks to Brazil. Tracking of shipments from Amazon is available over the internet. I'd recommend that Amazon consider undertaking delivery to densely populated cities within the world through their own organisation, without subcontracting to third parties. This would provide a complete service to millions of customers and customs clearance would be facilitated.
International service operations
Amazon has international service operations where it derives income from partnerships. Retailers use the international Amazon web sites as portals for purchase of their products. Borders, CDNow and Toys"R"Us are some of Amazon's partners. This exploits the benefits that Amazon receives from internet traffic.
The role of government
As well as crossing national borders, Amazon's business also crosses national laws. Two interesting cases have arisen due to differences in US law and UK law. Courts in the UK issued an injunction against the distribution of a book defaming the founder of a religious sect. The book was removed from all of Amazon's international websites. A huge protest ensued by the global public who criticized Amazon for globally applying UK law. The book was returned to Amazon's selection, except for the UK web site. Courts in the UK also issued another injunction against the distribution of a book defaming a political activist in the Northern Ireland dispute. The book was withdrawn from the UK website and sales from the US website are not allowed to residents of the UK. I'd recommend that Amazon pay more attention to the consequences of their actions with regard to the differences between the laws of different countries.
Europe is a large market for online shoppers but it is a collection of many individual countries, each having their own laws. There are common EU directives on e -commerce but irregular execution of these laws in member countries may splinter Europe into several different markets. Asbo (2003) reports Amazon as noticing that the value of transactions within the EU is growing alongside the increase in online trade. The company would like to see legislation keep pace with the technological advances being made. I'd recommend that Amazon continue to be involved, along with other e-commerce companies, in the harmonization of national laws.
Wolverton (2002) states that two of Amazon's technology patents were published by the US Patent and Trademark office last year. They were related to their particular system for online payment. Previous patents from Amazon were for its purchasing process, affiliates programme and recommendation service. The company has lodged these patents for a particular reason. The techniques described within the patents are not particular technological breakthroughs. However, the processes are critical to the business of the company. Having the patents in the name of Amazon prevents any other company from suing Amazon or from threatening the core operations of the business. Indeed, many other companies utilize the same techniques patented by the company. Amazon choose not to litigate against these other companies as evidence of their intention to use the patents purely in a defensive manner. This was a good tactic by Amazon to counter any potential legal threat to the operation of its core business.
Canadian law requires book retailing companies in Canada to have a minority of foreign ownership. Amazon expanded into the Canadian market, with books in the English and French languages, last year but had to adjust the operation to comply with Canadian law. It has accomplished this by using Canadian registered companies to provide supply and distribution services. However, a similar previous arrangement tried by Borders was disallowed by the Canadian Booksellers Association. Borders challenged the legality of Amazon's operations in the Canadian courts but lost. As Amazon doesn't have an office in Canada, it works through partner companies and the Canadian government ruled that the Investment Canada Act did not apply.
References
'Amazon. corn Reports Second Profit Ever', Associated Press, January 24,2003. Retrieved: April 3, 2003 from http://www.tallahassee.com/mld/tallahassee/news/
'Annual Report Persuant to Section 13 or 15( d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31,2002' United States Securities and Exchange Commission, February 19,2003. Retrieved: April 3, 2003 from http://phx.corporate-ir.net
Asbo. P. 2003, 'Amazon exec warns that legal uncertainties hinders Eurpoean e commerce', europemedia.net, February 20, 2003. Retrieved: April 3, 2003 from http://www.europemedia.net
'Chewing the Sashimi with Jeft Bezos', BusinessWeek online, July 15, 2002. Retrieved: April 3, 2003 from http://www.businessweek.com
'Jeffrey P. Bezos', METU Industrial Engineering Department, Ankara, Turkey, 2002
Schepp, D. 2002, 'Amazon's Bezos pushes growth', BBC News, June 3,2002. Retrieved: April 3, 2003 from http://news.bbc.co.uk/1/hi/business/
Soto, M. 2002, 'Amazon faces big test in international markets', The 8eaftle Times, April 22, 2002. Retrieved: April 3, 2003 from http://seattletimes.nwsource.com /htmllbusinesstechnology/
Soto, M. 2003, 'Earnings: Amazon posts second net profit', The 8eaftle Times,
January 24,2003. Retrieved: April 3, 2003 from http://seattletimes.nwsource.com
. /html/businesstechnology/
Wolverton, T. 2002, 'Amazon seeks patent for payment system', CNET Networks, Inc., September 23, 2002. Retrieved April 3, 2003 from http://news.com.com
Yamada, K. 2000, 'Shop Talk: Amazon.com's junkyard strategy', RHC Media, Inc., June 2, 2000. Retrieved: April 3, 2003 from http://www.redherring.com/insider/
|
| 0 Comments / Subscribe To Comments |
| Posted: Sep.27.2006 @ 11:57 am |
I originally wrote this article, “International business” in March 2003.
Reasons for international business growth
'Marriott to double Wi-Fi coverage' by Junnarkar (2003) is a good example of the reasons for international business growth. The article reports upon a strategic alliance between Intel and Marriott to provide high speed internet wireless access in the US, Canada and Europe. It shows how market expansion, competitive forces, technological changes and social changes create international business growth needs for both Intel and Marriott.
Junnarker (2003) quotes a Marriott vice president as saying, 'High speed internet access is one of the most common requests at our worldwide reservations department.' The article notes that 'many hotspots offer free access, but security concerns often keep business travellers from tapping into the network.' Marriott, with Intel, will expand into the market of providing secure high speed internet access for business travellers. The article also describes how Intel is working with companies such as Marriott to 'verify wireless compatibility.' This approach is essential. The service is being tested in a smaller market to identify product improvements, prior to further market expansion.
Competitive forces influence Marriott's decision to enter this new market because, according to the article, 'customers are selecting hotels based on it's [high speed internet access] availability.' Junnarker (2003) also reports on competition to Intel from T-mobile, Cisco and Connexion. The Intel and Marriott strategic alliance will combat these competitive forces. Additionally, the article reports that 'as hot spots proliferate in cafes, hotels, airport lounges and city neighbourhoods, companies from various industries have been seeking ways to provide Wi-Fi services to business travellers. This could mean a drop in Marriott's revenues derived from business communications unless the company also provides the same service.
This particular international business growth has only been made possible because of technological changes. Commercially available equipment that utilise wireless network services have only been on the market in the last few years. Telecommunication advancements have made broadband hubs more readily available in diverse locations. Portable computers and hand held devices are now produced, or easily be adapted, to utilise wireless network technology. Business e -mail security systems, once reliant upon land based telephone line country hubs, are now adapted to provide security with web based systems.
Social changes also create the need for wireless networks to be made available to the business traveller. The businessman replaced office to hotel communication by fax with e-mail through hotel room telephone lines. A disadvantage of this technique is that large documents and files can take a long time to download. Additionally, the businessman has to conduct all communications in his personal room so that call charges can be billed. This compromises business discussions between travellers in hotel conference rooms and lounges. This change of attitude is reported by Junnarker (2003), 'High-speed access is increasingly available at | |