An information system is a set of interrelated components that gather or retrieve, process, store and distribute information to support organisational decision-making and control. One of the key issues with 'information systems' (IS) (these days) is that companies cannot measure if they are becoming more profitable or efficient utilizing the systems that they purchase. In a report done by KPMG on 200 UK firms, around seventeen billion GBP is lost every year because of the mismanagement and misalignment of it (IT). The best way to evaluate a firms' IS usefulness is to use the resource-based view "inside-out approach, " meaning a firm should identify its core business values and subsequently, align these goals with the right information system that will fulfil these needs. Often times, however, large multinational organizations implement new technology, whether or not it benefits the company or not and there is absolutely no way to measure results. Therefore, it is effective to check out a firm who may have implemented an effective IS, that it receives its competitive advantage.
Inditex is a major holding company based in La Coru±a, Spain, which maintains controls over popular clothing stores such as Zara, Massimo Dutti and Bershka between others. For the intended purpose of this report, we can look at Zara in more detail, a store known because of its high fashion for reasonable prices, numerous clothing stores in prime locations in metropolitan cities round the world. It competes with other clothing stores such as H&M and Gap but it sets itself apart from them using its savvy information system and rapid production schedule. For the purpose of this report, we will examine Zara's Technological and Socio-Economic Environment along with Zara's knowledge chain management to judge its alignment of information technology as a function of Zara's business strategy.
Zara's business strategyis to provide fast fashion for low prices. Predicated on this principle, one of Zara's developed core competencies is its effective and minimalistic method of utilizing IT for the purpose of timely knowledge transfer, fast production turnaround and employee empowerment. Aspects beyond that are not directly linked to Zara's core competencies, the business prefers to outsource, such as its logistics. In order to understand the consequences from it on Zara's business model, we must take into consideration the technological and socio-economic factors affecting Zara, such as its management process, employee skills, technology, structure and strategy.
The management processof Zara is supported by its holding company Inditex, who manages other popular European brands such as Massimo Dutti, Pull and Bear, etc. however, each clothing store is distinct because Inditex supports organisational learning, as opposed to maintaining firm control on these stores. Not merely is each entity separate, but management encourages employee empowerment at Zara by allowing its employees the overall flexibility to choose new clothing designs because of its store on the bi-weekly basis. Therefore, in just one city alone, one Zara store may have significantly different inventory than another Zara store up the road. Despite these differences, Inditex is still able to create economies of scale and scope predicated on the training curve between its inter-related brands.
Employees and managers at Zara stores are trained to respond quickly to fashion trends, which they report through a PDA system to in-house designers two times per week. This technique pays to for information collection in Zara headquarters in La Coru±a, Spain, and it is also very user-friendly for store managers, as it does not require tremendous skill to comprehend how to use the technology. Zara heavily depends on the decision-making capabilities of its employees. For example, store managers decide which styles to choose from and how many items are needed while employees in the headquarters, called "commercials, " facilitate ongoing production, volume and allocation choices for every single garment.
Opportunity exists within Zara's information systems. Although part of Zara's strategic plan is to keep simple operating systems in each store, there may be room for improved software at the point-of sale (POS) terminals. It might be more helpful if customer purchases and returns could be updated instantaneously instead of having each manager, at approximately 1, 500 stores worldwide, counting inventory at the end of each day. This system wouldn't normally detract from employee empowerment of forecasting demand and new styles; rather it offers them an chance to give attention to more significant rather than menial tasks, like counting. Also, headquarters could implement an enterprise-wide system where upper-management could connect to each POS system at any point during the day, which would allow them to control economical order quantity (EOQ) more often and efficiently, thus promoting a leaner production schedule.
One clear implementation is the fact Zara could enhance its website to allow visitors to buy clothing online. There is a tremendous market for online shopping, however, due to capacity constraints and Zara's pull strategy, it is unlikely we will see this emergence in a long time.
The organization permits the introduction of information systems on an incremental basis. In 1994, Zara managers used fax machines and floppy disks to transfer information from store to headquarters each day. This technique was expensive and slow, which is why they installed new os's. Staying steady with Zara's business strategy, the CEO describes the firm as highly information intensive, but it does not need employ "bloated applications" that contain more modules than necessary.
Managers take into account store demand to be able to reduces inventory costs. With good inventory management, the business keeps its inefficiency and wastage at significantly less than 1% annually. The CEO Jose Maria Castellano estimates that the firm spends about 25 million euros per year onto it or approximately. 5% of income on IT instead of its rivals that spend at least 2. 5% on it's IT needs. Cost savings onto it are not Zara's only recipe for success, we should also take a look at its competitive advantage as a function of its information system.
Zara's success and competitive advantage is fostered by its hybrid information system, which employs both human capital and it (IT) to streamline information between Zara stores and headquarters in La Coru±a, Spain. As noted by Figure B, inputs come from store managers who record daily sales and place clothing orders twice per week through a personal digital assistant, noting fashion trends and popular products. These details is sent to approximately 200 in-house designers who create computer-aided designs (CAD) based after store manager tips and general market trends. These designs are drawn, processed, allocated to various Zara shops, and delivered to local factories that cut, finish and press each garment. They are then delivered within three weeks of order placement to over 1, 500 stores worldwide.
The competitive edge that Zara exhibits over Gap and H&M is partially explained by its timely knowledge exchange between store managers and the look team in conjunction with its relatively inexpensive IT system. Managers immediately report consumer tastes to designers who then send design requirements via Zara's intranet to local subcontractors. Since Zara will not outsource its production to foreign countries, goods can maintain Zara stores within three weeks, as opposed to rivals such as Gap who may take up to 12 times longer.
Conclusion (DISCUSS ALIGNMENT by the end of "Have you got too much IT?" case. WILL IT drive strategy or does strategy drive IT?)