- What are the criteria for deciding whether or not to invest in IT?
- When there is competitive pressure upon you, how do you respond - do you move closer to the competitor that is trying to change competition or do you try to make the new competition move closer to you?
- What about the hidden, lost sales for Zara or Schwab - do you know what you are missing if you fail to invest in IT?
Tuesday, September 14, 2010
Investing in IT
In class today, we talked about Charles Schwab and Zara and we had a very interesting post-case discussion. This leads us to ask some questions:
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I think you have to make the decision to move toward a better system only if it benefits your company and actually improves the goal of your company. Although Zara's system was extremely outdated and maybe a little slow, it seemed to work for them. Also, this slow response time of transferring data of purchases and other things seemed to create a demand on their products that actually helped the company. It made Zara more of an in-demand company selling products that weren't guaranteed.
ReplyDeleteI think if Zara implemented some new IT strategies, it would make things run faster and help them sell more products, but the act of selling more products may decrease the value of those products, thus not making it worth it to actually make the change and implement a new system.
As far as the question of whether or not to invest in IT, I believe that the decision is based solely on the comfortability of the institution. Obviously Zara is out of the ordinary and without their unique operating style they would not be at the level of success that they are at without it. Customer service is an integral component of every company, but Zara is different in the fact that every appearance in the store is new and interesting. Although IT could improve sales and reach out to ignored customers with their original style of operation, I would suggest to keep their industry as is. I completely agree with the saying "if it isn't broke don't fix it". On the other hand though Zara has to keep an eye out for a dying trend, and that is the point when they should look into a new strategy of technical advancements.
ReplyDeleteFailing to invest in IT could ultimately be a severe detriment to a company, especially for global firms like Zara and Schwab. They need to be efficient, interconnected, identifying and connecting with the correct target markets, producing innovative services, and staying ahead of the curb in pricing, branding, and customer service. Failing to invest in IT, especially in today’s every changing technological climate, could push companies to the backburner of competition.
ReplyDeleteThrough IT, Schwab can hone in on its exact customer in both high-priced and deep discount trading markets, and they can do this through extensive research with analytics, as well as employing enterprise systems to consolidate that data. Through the use of that data, it can provide not only exact but superior customer service to both target audiences. IT allows Schwab to maintain its core competencies of unbiased advice, unparalleled customer service, brand value, and superior innovative products. IT allowed Charles E. Schwab to make the paradigm shift from low-cost leader to a focused differentiation company, which gave the company a strong brand reputation, allowing it to not only be the leader in its industry, but also raises prices on its trading product.
IT is a must, if you want to play with the big dogs, bottom line
Although Zara has managed to survive without updating their IT structure, it seems farfetched to believe that they have reached their full potential.
ReplyDeleteLike Jacob, I believe that Zara chose not to update its system because they were comfortable with the status quo. However, I disagree with the notion of "if it isn't broke don't fix it". That is exactly the type of thinking that has gotten Barnes & Noble, along with a plenty of other technologically stubborn companies, into financial trouble. If Zara spent the money to invest in their IT infrastructure they would improve reaction time, customer service, and inter-organizational communication.
Ultimately, they are going to have to update their systems in order to continue their relationships with their suppliers. It would be foolish of Zara to wait until their supplier forces their hand. If they acted now, then they would have plenty of time to sort out any kinks that may pop up along the way.
I wanted to comment in class before we ran out of time on the topic of Zara's customer service being terrible. We were discussing in class about how the employees of Zara weren't able to help the customers because they could not locate the items due to no IT governing inventory levels.
ReplyDeleteThe one perspective that was not presented in class is that many people do not want to deal with customer service representatives while shopping. Many people's first response to a retail sales person is, "I'm just looking". The whole point of Zara is you're able to come in and "just look". It seems like this idea is a gigantic part of thier company culture. If that was not thier culture they would advertise the new lines of clothes online every consecutive period instead of telling customers to visit the stores to find out.
That being said, I can see how an experienced shopper hunting for specific ittems or prices would be extremely annoyed with Zara's IT system.
I am agree with Zach that Zara should spend enough money on their IT infrastructure to improve it. It seems in the new digitally enabled environment, moving toward IT based business is unavoidable. However, Zara system is performing very well for them but I think they are approaching to their Strategic Inflection Point and if they resist against accepting technology they will suffer from lack of required technology basis at future. Zara may implement a step by step improvement in its technology basis and then they have enough time to adopt the technology without a sudden change in their Socio-technical structure. They can start to improve their system as well as increasing their employee's knowledge about IT. In such a way they can keep their business trend while they are upgrading their technology into an advanced system.
ReplyDeleteThough Zara's system still works fine for the time being, I do believe that it is imperative for them to update their system at least minimally. While doing so may cause them to move somewhat away from exactly who they are, I believe it will be good change in the long run. Their out-of-date system is going to eventually become obsolete (I am surprised it isn't already). What are they going to do when no one is around to support their systems whenever they have problems?
ReplyDeleteAlso, what are the costs of keeping such an old system up and running? By upgrading just minimally, I believe that Zara can more efficiently run their system, instead of moving floppy disks from one computer to another to record sales figures and inventory. The store design and rapid changes in types of clothing available could stay the same, which would allow Zara to keep their unique design. The process of tracking their information would simply be faster. To me, it is a no-brainer: make the IT investment!
I agree with Eric in that companies should invest in IT when it improves their operations and strategies. New technology will usually cut costs and improve profitability, but these benefits may not be enough to invest in IT. This was demonstrated by Zara's view of "if it ain't broke, don't fix it." However, in today's high speed world Zara is an exception. In order to stay competitive today, companies must continually invest in technology to improve their processes. Without investing in IT, companies will eventually lose any competitive advantages they currently hold.
ReplyDeleteWhen it you have competitive pressure on you, you should respond in a manner that will best utilize your core competencies. In the Charles Schwab case, one of their core competencies was customer service. By sticking to their strategy of providing superior customer service for a higher fee, they were able to outlast the fad of low fee brokerage houses.
I definitely agree with Henry and Eric, I feel that Zara could have invested in their IT, but why should they since there was no competitive pressure on them. They would have essentially spent money to remain at the top. It would have been a complete waste of capital and time. However, after reading an article about a prospective tax credit last week relating to technology I would seriously consider investing in IT even if there was no competitive pressure.
ReplyDeleteThe tax credits were proposed by the Obama administration and would allow companies to write off investments in technology. If a company like Zara, who is at the top could write off a potential investment in technology then they could gain a competitive advantage. Also, they was raise the barriers to entry and gain more control over their suppliers and buyers. This would potentially make Zara the top competitor for a long time
I assume there is no general criteria for when a company should invest in IT. Instead, each specific company considering such an investment should probably identify what problems they hope to solve through an IT upgraded, whether those problems can be solved under the current system, what future problems might be avoided if an upgrade is done now, and what problems might arise due to the IT upgrade.
ReplyDeleteIn Zara, the CEO identified the lack of qualified store managers as the biggest restraint to opening new stores. Zara could certainly use IT to lessen the store manager's responsibilities - thus lowering the qualifications for that position. However, this problem is solvable under the current system (salary increases + training). Also, taking away the store managers decision power would certainly create future problems in the form of disgruntled store managers. In this instance, the current system fits Zara's socio-technical position.
I further assume it is impossible to calculate the exact amount that an outdated IT system can cost a company. However, there are a few obvious areas where savings can be properly estimated - mostly in the form of labor and material costs. For example, before Schwab began pushing e-statements, I'm sure they analyzed the savings potential of going "paperless".
I believe that to have a general policy for all business as to what/when they invest is not correct. Each company has their own mission/goals and their own pressures, and then the situation dictates itself more than anything as to how they invest in IT.
ReplyDeleteHaving said that, if you are feeling competitive pressure pushing you almost out of the market you need to invest first in trying to keep up with the competition. Once you've done that I believe the main goal for every corporation is to be the market leader. So once you've aligned yourself with the competition in IT, it is time to become innovative and lead the market in the new direction.
As far as Zara specifically, we were talking in class about how some of their business is because of the fact that consumers know what they have on the shelves is it. You cannot know unless they invested heavily in IT whether the difference between what they gain with better inventory will be more or less than what they lose because of being more efficient, with their products.
The firm needs to decide whether or not to invest in IT, after considering some basic questions such as:
ReplyDelete1. Are we globalizing our products? If yes, is there anyway IT can help and ease this process both in terms of human effort and revenues generated
2. Are the competitors in the business, gaining an edge with IT? If yes, is this causing a slow death to my organization or might have radical repercussions in the coming days
3. By involving IT, am I able to reach the vision and mission of the organization in the most effective and efficient way?
4. With IT am I able to reach the audience I intend to and market the products the best way I can.
5. Last but not the least, by involving IT; am I doing a re-design of my organizational structure, which would misalign from the existing one OR will IT align itself with the organizational structure.
Coming, to competition pressure, I would do a combination of both:
a. I would make the business move closer to that of the competitor, this way I can target the customers my competitor is targeting at.
b. I would add unique value to my business which is not offered by others. This would increase my customer database and giving a competitive edge and advantage to my business.
But, what goes 1st totally depends on both the external and internal environment of the business. Also much depends on the consumers in question.
As off now, Zara or for that matter Schwab is not facing much of a competition in the industry they are in. Till now, things might have worked to their advantage. But, just because all things are working fine, we should not resolve into “do nothing” attitude. This would lead to the doom of their business. This is very well true in case of Zara as well. By not investing in IT Zara might be:
1. Hindering its Globalization Goal
2. Adding redundant business process and creating a maze of network within itself
3. Adding dependence on external entities like hardware vendors
4. May not be reaching 100% potential customers.
And the list goes on! Time and again we have seen the big giants failing since they did not adapt to changes. So the point is any organization big or small, globalized or localized, competitive or non-competitive, for-profit or not-profit must have the ability and desire to adapt itself to the changing environment and business trends. If the new thing in business world is IT and customer services then both Zara & Schwab need to look into it seriously, else they are bound to dissolve in coming years!
When competitors put pressure on you, I don't believe you should respond by trying to get as close to them as possible. If what your competitor did worked, then maybe you should do a little research to see if what they did will work for you as well. I however don’t believe that people start companies to be like everyone else. Our goal is to establish what we do and how we provide our product or service is above and beyond our competitors and to set ourselves apart. We don’t strive to be like them.
ReplyDeleteMaybe the way we use IT is a little different. I suppose that some companies may have completely outdated systems that are not nearly as efficient as many others. If this is the case, then of course we need to find out what others are doing and try at the very least to match it. I also stand firm that we still need to go beyond matching. The whole point is to be one step ahead of the competition in order to gain ground within the market you are in.
To make a long story short, yes, you need to respond swiftly in matching your competitors, but if you want to gain a significant market share and be successful, you can’t settle for mediocrity.
I completely agree with Zach. Investing in IT is considered as one of the major business decisions in today's world. It would be fair to say that mostly all the businesses have to depend on IT directly or indirectly.
ReplyDeleteEspecially in the case of Zara, it is better to take action before system fails. It’s only a matter of time before they have to upgrade to a better technology platform. And as the famous saying goes “Prevention is better than cure”
I believe that, on nowadays, technology means the money. Every company sooner and later will implement or update the information system, if they want to keep their competition status in the fields. The company should implement its information system according to its management process and its profit model. The company can adjust its system through consistently to establish the measure of performance, to measure of performance and to identify opportunities for the improvement. The system in the company will be more efficient and effective.
ReplyDeleteAbout the competition, if I were the manager, I will specify the differences between the competitor and my company. Even McDonald’s and KFC, they have themselves’ features. And I will verify whether the strengths of the competitor are fit for my company or will collapse my existing management construction? After specifying the customer pool, I should select whether I can adjust and then use the competitor’s strength to chase my target and will exploit the specialties to distinguish from others in the same fields.
Bringing technological changes in an organization or upgrading your existing system is not as easy as it might sound. We only talk about how important it is to bring technological upgrades and have the organization function more effectively and efficiently; but we should also talk about the amount of time and money that need to be invested for the process. It is not something that you think about it today and have it done tomorrow. Hence, such decisions need to be taken very carefully and with a lot of research.
ReplyDeleteTechnological upgradation also brings “change” in an organization – and we know how people react to change! Say you want to upgrade a system in such an organization where the employees have been working there for several years; they would not react well to such changes. Hence, they should be pre-informed about the situation and should be given a proper training about the new system. There it is – another chunk of investment in training to each and every staff.
But all said and done, I am definitely not trying to make a point that a company should not invest in IT or upgrade its systems; it should but only when it is truly required; not just because its competitors have upgraded their systems or there is some kind of new trend in the market.
For a lot of the companies that we have been discussing (like Blockbuster and Barnes and Noble) we look at their inability to invest in IT when the competition is using it as bad judgment. We look at it as saying why didn’t they change when other companies began to change. However, the fault may involve many aspects of the company, the main culprit has to be the marketing department. The marketing department of any business is suppose to know what their customers want from their products or services and I think that is what has lead to the fall of many companies. They no longer look for what their customers want and instead try and convince customers that what the company provides is what it wants.
ReplyDeleteThere is a strong positive correlation between investment in IT and the economic performance.Many emprical studies show that companies who pay much attention to invest in IT can gain excess economic return.
ReplyDeleteFor example, software systems can make work much more easier and cost effective and with less error; digitized data can provide an excellent source of business information; also, technology can help build easy and effective communication between management and stuff, which can be turned in knowledge and used to keep track of commitments.
However, different companies have different IT capabilities. Although they all need certain IT services, there is no certain model that they must invest in some unique IT service. It should be on a case by case basis.
Technology as we have discussed is a strategic partner that helps make the company more efficient, expedite processes and improve service to allow the company better meet the needs of it consumers. What is important to note though as Will said, is that there is no specific time that investing in IT is mandatory. The company is going to have to evaluate it processes and determine what improvements in technology would mean for the company.
ReplyDeleteIn the case of Zara, I had absolutely no issue with them not upgrading because the functions they sought to perform were completed without problems to the bottom line. Slight tweaks here and there like store inter connectivity would be great to enhance the customer experience and maybe even improve company operations. But to drastically change a system that is a part of your core competency is a short amount of time for the sake of new IT could prove absolutely disastrous to the company as a whole.
In response to Moti, I agree that completely changing a company's culture when it is as successful as Zara is extremely dangerous. But in certain cases it might be necessary. The problem with Zara's system was that they could not make those slight tweaks. It was simply too outdated of a system to allow for even small changes like inter-connectivity.
ReplyDeleteMy group and I were not expressing the desire to completely change Zara the company or their culture. We simply expressed the desire to better the communications and accuracy of their inner workings, like actual inventory and inter-store communication. As we heard from Erika, they still lack this fundamental ability to keep track of what stock they actually have.
All in all, I think Zara's business plan is phenomenal. They are extremely successful. But you wouldn't exactly know it just by walking into the store and asking for help, would you?
What about the hidden, lost sales for Zara or Schwab - do you know what you are missing if you fail to invest in IT?
ReplyDeleteI guess you have to question is the unknown really worth the risks. Do benefits outweigh costs and benefits? For Zara, you take the chance of losing your effective core culture. The competition is not a factor in them switching their IT systems because they have a greater gross margin than GAP, so the only benefit would most probably be long term.
For Charles Schwab, on the other hand, a more immediate response to IT was necessary because of the proximity of Competition. The benefits of ST growth were in this case more beneficial.
The most important part of unknown/hidden sales for Zara would be online shopping. If Zara took that extra step in investing or Outsourcing the online part of shopping, I feel it could vastly increment the total sales. I really feel that Zara is missing a major chunk of market by choosing not to go online. If the growth in online shopping continues at current rate, Zara might be starring at huge potential loses.
ReplyDeleteThe decision in whether or not to invest in IT is much different now than it was ten years ago. I feel that without investing in IT, companies are sacrificing communication, efficiency, and overall production by leaving out software and processes that have been developed to make some aspects of the workplace much quicker and easier. If a company chooses not to evolve and invest in IT, they better have one heck of a clientele database that is already fixed on their brand. This may be working for Zara in that the customers are looking for a different shopping experience anyway. It just seems today with how technologically oriented companies, there are far too many advantage and even more disadvantages in not choosing to invent in at least some level of IT. It can be said that there are certain business fields and cases that do not need this investment, such as specific food industries or cases where the business is based solely on human interaction, but today it just seems as if there is way too much technology making the world an easier place to operate a business in.
ReplyDelete