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.

Article: Harrah’s Use of Business Intelligence Software to Improve Customer Loyalty and Operations

Harrah’s Entertainment, Inc. is the world’s largest gaming company having more than 80,000 employees. It operates several branded casino entertainment under the Harrah’s, Caesars, and Horseshoe brand names domestically and internationally. The company has grown through development of new properties, expansions, and acquisitions since it started in Reno, Nevada about 70 years ago. Harrah’s is committed to building loyalty and value with its customers through great service, operational excellence, and technical leadership. The need to attract and retain customers is critical to the success because customer loyalty can make or break a business. Harrah’s has succeeded in gathering data about its 40 million customers through its Total Rewards program that keeps track of guest gaming activities from restaurants to gaming tables and slot machines at any of its brand name casinos. It rewards guests and customer incentives through offering free room nights, free shows, free dining, and free gifts. Harrah’s already collects high volumes of transactions made by its customers. Harrah’s biggest challenge is to understand, analyze, and leverage raw data to maximize the lifetime value of their customers ultimately maximizing the return on investment, thus to better plan its strategic growth.

Harrah’s needed a system that could be managed from a central location and accessible from any of its properties and newly acquired companies. The solution needed to be user friendly for its corporate and property-level managers, and provide insights and analysis that could be applied to performance metrics at any of its properties.

As a result, the company chose to invest into Teradata and IBM Cognos Business Intelligence software to establish a closed-loop marketing system and to better achieve its marketing and customer loyalty and improve its business operations. Teradata is a single enterprise data warehouse and IBM Cognos business intelligence software allows users to drill further and deeper into customer data.
The company can now better profile and segment customers and use the data to develop targeted market strategies to drive customer behavior. For example, Harrah’s might reach out to customers who have not visited their property in more than six months and offer them incentives to bring them back to their favorite property. Through the use of IBM Cognos business intelligence solutions, managers can acquire detailed reporting and analysis capabilities that can be used to measure the effectiveness of new marketing campaigns against control groups. Specifically, the closed-loop system helps the organization with all aspects of the campaign such as indentifying and segmenting customers, implementing marketing strategies, tracking execution, documenting incentives, and measuring effectiveness.

Harrah’s has successfully deployed the IBM Cognos software from its corporate data center and provide access to the data from any property site. The intuitive interface made it easier for managers to interact with the software regardless of software experience. Thus, the company has developed standard marketing campaigns that drive activities for specific customer segments. Individual property managers can access these programs to determine which of the campaigns or combinations of campaigns can achieve their business operation goals for their specific location.

The implementation of this business intelligence software has resulted in a more focused communication and with customers, thus achieving better customer relationships. As a result of Harrah’s deployment of the system, customer spending has increased from 30 percent to nearly 50 percent. The outcome is that Harrah’s has cut down on employment costs by avoiding hiring new analyst on their properties. The centralized deployment strategy has made it easier for the company to identify new locations and support future growth and acquisitions. Harrah’s now has the ability to analyze historical data to predicting future performance of its marketing campaigns, which is a critical factor in sustaining a competitive market advantage.

Reference: IBM Case Study, Harrah's Entertainment, Inc., 27 February 2009.
Website: http://www-01.ibm.com/software/success/cssdb.nsf/cs/LWIS-7PNLEC?OpenDocument&Site=cognos&cty=en_us

Chapter 11 Case Study: Can Knowledge Systems Help Boeing Trounce Airbus?

Question #2: What is the relationship of knowledge management to Boeing's business strategy? How is Boeing using knowledge management systems to execute its business model and business strategy?

Knowledge management, which is the set of business processes developed to create, store, transfer, and apply knowledge closely resembles Boeing's business strategy. Boeing's strategy is to fly travelers from their own city nonstop to their destination using smaller airplanes that will fly quickly and inexpensively, enabling passengers to fly nonstop from departure to destination, thus bypassing the larger hubs. Boeing sees a strong expansion of smaller jet sales rather than larger jumbo jets sales that Airbus is developing.
Boeing implemented a "paperless design" model to replace its manual design to computerize the design and production of its 777 aircraft. The Boeing 777 carries 300 to 400 passengers at lower operating and maintenance costs, lower fuel costs, and lighter materials. Boeing implemented the Dessault Systems CATIA computer-aided design software to enable engineers to access any of the airplanes parts modify them, fit them into the surrounding structure. This allows other engineers to make adjustments without making extensive modifications. The airplane was designed entirely on a computer screen and assembled without expensive mock-up models. The implementation of computer aided design (CAD) software is an example of a knowledge work system.


Question #3: Evaluate Boeing's new business strategy. What management, organization, and technology issues will Boeing face as it attempts to implement the strategy? What role will knowledge management play in this strategy. How successful will Boeing be in pursuing this strategy?

Boeing's new business strategy was to lower costs by using technology to reform inefficient business process. Boeing's plan was to roll out the 787 aircraft using a new production process of outsourcing the design and construction of about 80 percent of the aircraft to hundreds of other companies outside the United States. Boeing and its key suppliers are using software that allows designers to collaborate in designing components and manufacturing processes. Instead of airplanes being produced under one facility, the 787 is being built in a modular assembly process.
Although Boeing implemented the Dessault Systems to help manage its global supply chain, the system required additional features to its planning and design software. Boeing expanded its use of Dessault's version 5 Product Life Cycle Management software from 1,000 to 6,000 licenses. These software tools enable designers to use a single set of data and to simulate the digitally the plane's life cycle from design through production and modeling changes in design, thus, to reduce errors and eliminate redundancy of work. Outsourcing the 787 required Dessault to improve integration of its CAIA, Enovia, and Delmia modules for Boeing. Boeing need custom tools to handle designs with carbon-fiber composite materials. Thus, the role of knowledge management is to quickly resolve issues from significant technical and production problems that could threaten the delivery of the 787. Software programs designed by a variety of vendors had trouble "talking" to one another.
I am uncertain if Boeing will be be able to successfully implement their new business strategy of outsourcing their new airplane design and production because of the required software updates and the lack of communication among the vendor's software solutions.

Question #4: Using the facts presented in this case, what role has knowledge management played in Airbus's business strategy and business performance.

For Airbus, the role of knowledge management was to launch its A380 jumbo jet to meet the predicted demand of increased mass of passengers without increasing operational costs. It envisions a hub-and-spoke model of air travel where jumbo jets transport passengers to a small number of hub cities where passengers can transfer to smaller connecting flights to their destinations. However, the application of knowledge management was not fully implemented to better streamline the design and production of the A380. Airbus announced later delivery schedules due to the complexity required to wire the aircraft for in-flight entertainment and communication units requested by airlines. There appears to be issues with supply chain management of Airbus, because any design changes to wiring results in further delays. Airbus ran into other issues with design changes to the A350 to widen its cabin and windows and provide appropriate cabin humidity. The A350 is not expected to enter service until the year 2012, four years after the 787 is rolled out. Thus, Airbus did not adequately address knowledge management as adequately as Boeing. The outcome is that the business performance is not going to meet its customers expectations unless significant knowledge management is implemented to streamline the production process.

Article: MLB's Real Competitive Advantage by Jay Yarow, Business Week (2 September 2008).

The article describes how Major League Baseball Advanced Media (MLBAM), an interactive media and internet company, has helped Major League Baseball (MLB) to become a profitable business both through e-commerce and m-commerce. MLB makes about $450 million per year. About half of the income comes from fans that pay $120 per season to watch games live over the Internet. The rest of the income comes from advertising of free content related to major league baseball teams. The business has grown significantly for MLB which is roughly $6 billion in total revenues. The market strategy for MLB is the implementation of online content business. MLB.com offers fans complete baseball information on the web such as up-to-date statistics, game summaries, historical background of the ball players, MLB events and programs, ticket sales, baseball memorabilia and collectibles, fantasy games, video webcasts of every game, and real-time pitch-by-pitch enactments of every game. The MLB Website offers more live events on the Internet than any other game in the world. Bob Bowman who is chief executive at MLBAM said, “Somehow the strategy of putting baseball games on every device that has a plug or a battery has worked for the business partners. Even more important, it has worked for our fans.”

MLBAM is now focused on the mobile phones as the next big opportunity for revenue. It has already built customized applications for a number of phones such as the BlackBerry from Research In Motion (RIMM). As of September 2008, MLBAM has implemented software that allowed individuals of the iPhone to acquire statistics from the Gameday Web site. This technology is likely to be followed by other similar applications for other phones such as Nokia, Motorola, and Sony-Ericsson. MLBAM hired a separate team to design mobile Web sites and applications. The MLB mobile site now receives about more than 10 million page views per day and it has more than 25 mobile applications. Right now the revenue generated from mobile phones is roughly $10 to $12 million so it is not a significant business for MLB. However, the revenue from mobile technology is expected to increase as Bowman mentioned, “I’m not sure it is for anyone, but those days will come.”

MLBAM understands that it could increase revenue from advertising if it develops a strategy for placing ads on its mobile Websites. However, it is still trying to determine the best course of action. They determined that advertising for wireless mobile phones is not robust because of the small screen, but as the technology becomes further developed, and the video becomes easier to use on all devices, then the technology will certainly become more profitable. Bowman’s strategy is that “If you serve the fans, you care of your business.” As a result, MLBAM will most likely become the lead in sports entertainment through m-commerce.

I like the article because I am a fan of Major League Baseball. I have made several trips to Dodgers Stadium. The technology described will certainly help me to better understand the significance of MLBAM through the internet to better provide mobile service to series fans.

Reference: Jay Yarow, "MLB's Real Competitive Advantage," Business Week Online, September 2, 2008, p26. Website: http://www.businessweek.com/technology/content/aug2008/tc20080828 _061722.htm.