Chapter 15 Article: "Issue: Getting Along with Suppliers" from Business Week (2 September 2008)

Travel agencies have done well with developing internet travel sites such as Expedia.com to allow customers to book their leisure or business travel at a great price anywhere in the world. However, this advancement for the travel industry did come about without a reformed centralized global business strategy. InterActive Corporation, Chairman Barry Diller, acquired Expedia.com and became successful along with other travel discounters like Hotels.com and Hotwire in the post 9/11 travel slump where hotels needed to unload their empty rooms at low prices.

However, by 2005, the travel industry became more prominent and hotels were less inclined to offer low deals. The new company Expedia started their business without the best relations with its suppliers. About this time, Hotels.com had taken an aggressive approach with their hotel suppliers. Expedia adopted these practices too. If the hotel companies refrained from paying higher margins, then they would not get equal treatment on the travel sites. This approach to doing business strained supplier relationships.

Besides the strained relationship, Expedia had 15 different groups that worked externally with suppliers. Each group performed their own independent negotiations or contracts that fit the needs of that unit. Thus, large global hotel chains would need to work with 15 different Expedias. The hotels viewed these groups with uncertainty because of the chaotic nature in which to conduct business.

By the end of 2005, several hotel suppliers threatened to withdraw from Expedia. The hotels said that they would rather take the risk of losing revenue rather than doing business with Expedia.

Investors were hearing the frustrations from suppliers so Paul Brown, president of Expedia North America met with his senior managers and stated clearly they need to take a new business strategy to their current operations if the company is to survive in the long term. He said, "If we don't have good inventory and great prices on our shelves, our customers proposition will erode over time."

Expedia decided to form a central group that could smooth out relationships wit suppliers so as to alleviate the negative perceptions. The company formed a single entity that allowed for Expedia to present one face to hotel chains that complained about having to deal with 15 different Expedias. This new approach gave Expedia an overall view of the each hotel chain's total business. Thus, to make the new central "partner services group" work, the tame had to spend a lot of time meeting with Expedia country heads, account managers, and hotel representatives in different global markets to acquire concerns. New experts from the airline and hotel industry were brought in to identify standard metrics and policies that could be implemented across the company. Thus, all of the employees working in different parts of the business were accountable to the same performance standards.

Three years after implementing a centralized business group for Expedia, supplier relationships have certainly strengthened based on mutual trust that allowed the company to grow. About 11,000 new merchant hotels have been added to Expedia's inventory and its price competitiveness has remained strong. Paul Brown is pleased that the company offers the broadest selections and the best inventory. The outcome of a new global systems strategy has allowed the company to become more competitive in the global market and it happened with having the right relationships with suppliers as mentioned in Chapter 15 of the where the core business processes need to be clearly defined.

Reference: Jena McGregor (2008, September 2). Issue: Getting Along with Suppliers. Business Week. Retrieved from: http://www.businessweek.com/managing/content/sep2008/ca2008092_371191.htm

Chapter 15 Case Study: Nestle Tries for All-for-One Global Strategy

Question #2: What type of global business and systems strategy did Nestle adopt? Was this strategy appropriate for Nestle's business model?

Based on the case study, it appears that Nestle initially adopted a multinational decentralized strategy that concentrates financial management and control out of a central home base while decentralized production, sales, and marketing options to business units in other countries. The products and services on sale in different countries are adapted to suit local market conditions. However, this strategy was not appropriate for Nestle's business model because the inconsistencies and inefficiencies of 14 countries using an older enterprise resource planning software resulted in diminishing profits for the company.

Question #3: What management, organization, and technology challenges did Nestle have to deal with to standardize its business process and systems?

Management determined that a decentralized strategy of 80 different information technology units running multiple midrange computers created inefficiencies and extra costs that prevented the company to compete effectively in electronic commerce. Facilities in 14 countries all ran software differently using different schemes for formatting data and management forms. The challenge was to was to launch a $2.4 billion initiative to compel market heads around the world to adopt a single set of business processes and systems for procurement, distribution, and sales management. As a result, Nestle launched the Global Business Excellence (GLOBE)that would harmonize processes, standardize data, and standardize systems. All of Nestle's worldwide business units were to use the same processes for making sales, commitments, establishing factory production schedules, billing customers, compiling management reports, and reporting financial units. The greatest challenge of GLOBE was more personal in implementing a policy that would be accepted by highest-ranking executives. Managers resisted the idea of giving up control of their business processes to participate in a centralized solution.


Question #4: What strategies did Nestle management use to deal with these challenges? How successful were these strategies? Explain your answer.

Chris Johnson, who was charge of Nestle's Taiwan market was asked to lead the GLOBE initiative. In July 2000, Johnson formulated a team 12 senior executives with various backgrounds to help establish a GLOBE policy of converting 70 percent of the business to a common set of practices and systems by December 2003. However, the schedule was changed to establish a GLOBE-enabled organization by the end of 2005 rather than 2003. Johnson expanded his team to 400 executives with diverse backgrounds at Nestle covering 40 different countries. The core group formulated a GLOBE Best Practices Library and documented the best way to perform their core processes based on their initial weaknesses.

The biggest challenge was not a technical one, but a personal one because many of the high ranking executives were reluctant to give up their decision making authority. Johnson met with executives and market heads several times until the managers eventually endorsed the benefits of GLOBE. To help the rollouts, Johnson asked each country to name a GLOBE manager who would facilitate the operation and adoption. There were some technical challenges along the way and by the end of 2005, Nestle have converted 30 percent of its business to GLOBE. Each country has a data manager to ensure that data entering GLOBE's streamlined data centers are accurate and complete. Challenges, Nestle has successfully implemented its goal of standardizing all processes, data, and systems so as to better serve its customers. I think that the strategies implemented were successful because Johnson succeeded in changing the culture of the various business units. The benefits of applying GLOBE at Nestle have provided a more efficient business model, reduced maintenance costs, and gained profits. This strategic approach has resulted in a better use of global supply chain management.

Article: What's Your Company's Risk Culture? (Business Week, May 2009)

CEO's and top managers take considerable interest in their company's risk management programs. They make assessments to identify the most significant risks factors that challenge their organization and focus on updating their risk mitigation plans. However, one key factor that is not always considered in their risk management program is the "risk culture." It is a critical element of risk management that top managers should understand. Risk culture influences how managers and employees make decisions based on risks and benefits.

A company's risk culture is a critical element that can ensure that "doing the right thing" wins over "doing what it takes." Based on results from KPMG International Survey, more than half of corporate Board members and internal auditors said that their company's employees have little or no understanding of how risk exposures should be assessed for impact to their organization. One-third of the respondents said that the key leaders in their organization have no formal training in risk management or guidance. Thus, employees need to understand how to make educated risk-related decisions to ensure that risk behavior is consistent throughout the organization. Managers and employees without training will be unable to apply critical thinking and judgment to better make decisions. A strong risk culture results in a more collaborate enterprise that benefits the survivability of the organization.

There are several steps that Board members need to take to assert risk culture. First, the management team needs to establish the true "tone at the top" and "in the middle." The management team needs to establish good leaders who can set the example that other will follow. Leadership is a real driver for changing the risk culture. Management needs to follow their own risk management policies s that the employees can fully understand that non-compliant behavior will not tolerated.

Second, leadership must effectively communicate acceptable ethical behavior throughout all levels of the organization. Ethical behavior is a key element of a strong risk culture. A Code of Conduct should establish the organization's core values, ethical standards and expectations for its employees. It can introduce how risk management should be incorporated in the day-to-day conduct of employees.

Third, organizations can build a strong risk culture using a consistent and repeatable approach to risk when making key business decisions. This approach includes a discussion of risk and a review of risk scenarios that help management and Board members understand the inter-relationship and impacts of risks. A discussion of risk in the formal decision-making process can help executives feel more comfortable about the decisions they make, thus allowing them to make more assertive decisions.

An company with a strong risk culture means that the employees are aware what the company stands for, and the boundaries in which they can operate. They should be allowed to address risks openly in a formal discussion, thus to help mangers achieve the company's long-term strategic goals. A risk culture that can be communicated effectively to all employees as part of their daily responsibilities is critical to the company's success and survival.

The article has some key recommendations to manage risk through mitigating a risk culture within the organization. It is closely related to the concept of implementation where the development team of new information system requires technical experience of risk management. The concept of making changes to human behavior is significant to making project management work more effectively.

Reference: Farrell, John Michael and Angela Hoon, What's Your Company's Risk Culture? Business Week, 12 May 2009.
Website: http://www.businessweek.com/managing/content/may2009/ca20090512_720476.htm

Ch 13 Case Study: Can the U.S. Army Reserve Pay Soldiers Correctly?

Question #1: Write a systems analysis report about the U.S. Army pay system. What have been the problems with existing systems? What management, organization, and technology factors caused the problems? What was the impact of these problems? What are the objectives and information requirements of a new systems solution?

System Analysis Report: Defines the problem; identify its causes, specifies the solution, and identifies the information requirements that must be met a system solution.

(1) Problems with existing systems: The Defense Finance and Accounting Service (DFAS) that uses the Defense Joint Military Pay System (DJMS) that consists of separate systems for active duty and reserves were not working well together. The Web-based Regional Level Application Software system that tracked when reservists participated in their drills, which skills they lerarned, and how long they were called up on active duty is suppose to work with the DJMS, but the two systems were not well integrated. As a result, there were inconsistencies in payment of reservists with injuries and non-injuries as well hazardous and non-hazardous pay.

(2) Factors causing the problems: Legacy systems required constant changes and patches that had already been applied, and a lack of documentation. Thus, this is a configuration management issue. Updating payroll software with DFAS required manual updates to records which caused more data-entry errors. Implementing a new system in 2006 called the Defense Integrated Military Human Resources System (DIMHRS) was delayed as a result of multiple agencies having influence on management of the project and inconsistent support from senior management. There was a substantial turnover of leadership and a lack of understanding of the goals of the program.

(3) Impact of the Problems: DFAS workarounds and temporary fixes proved to be unreliable because there were still inconsistencies in payment of soldiers who had moved from hazardous duty to un-hazardous duty. There were still problems with unit commanders not being able to report changes in a timely manner so the there were still mistakes with manual data entry, thus further delaying automated processing. The impact of the problem is that the reservists were not paid appropriately to their length of time served and whether the duty was hazardous or non-hazardous.

(4) The objectives and information requirements of a new system solution is to provide a clear Leave and Earnings Statements for soldiers, instantaneous updating of pay records, and better capabilities for updating state tax rates. DFAS rolled out the Forward Compatibility Payroll (FCP) as an interim solution until a more comprehensive solution could be rolled out. This provided a more automated solution to keep track of mobilization of soldiers called up for active duty.

Question #2: As part of your report, diagram the Forward Compatible Payroll business process for paying Army reservists. How should this process be improved?

Forward Compatible Payroll Process
Step (1): Army Reservist - Provide hazardous duty status and mobilization orders to company commander.

Step (2): Company Commanders - Submit a hard copy of mobilization order to administrator.

Step (3): Financial Administrator - input beginning and ending dates of deployment. Update mobilization application into web browser. Submit pay rate report to company commanders for approval.

Step (4): Company Commanders - Review and sign pay rate. Submit approval report to Administrator.

Step (5): Administrator - Makes updates to the personnel system in the Web browser. Submits pay rate into the Microsoft SQL Server database at Reserve HQ at Fort McPherson, GA.

Step (6): SQL Server - Formats data so that the Reserve Payroll System can process data.

Step (7): Pay Process Center Staff - Uses Web browser software to upload local server and review pay records. They review and export soldier tour of duty dates and pay data to Reserve payroll system.

Step (8): Reserve Payroll System - Pays soldiers.

The system can be improved by making changes into the payroll and personnel that are permanent. The DIMHRS should be capable of replacing 30 legacy applications in the Army branch of the Armed Forces. The Defense Department needs to take immediate action to ensure that the payroll system is fully functional to reduce the number of mistakes.

Question #3: Describe the role of end users and technical specialists in analyzing the problem and developing a solution.

End users and technical specialist should be allowed to participate in the way the payroll system is upgraded. The project management team should work extensively with Northrup Grumman to establish a configuration management plan. The software development phases should include dates where end users can provide immediate feedback to the developers of the system. The Government should establish a configuration control board where the fixes and enhancements can be fully implemented into the payroll system. This process will allow for immediate improvements to the system and give the Army reservists the pay they are entitled to.