Business Information System - Competitive Advantage over Competitors - Assignment Example

Business Information System - ф Competitive Advantage over Competitors Introduction Any business information system (BIS) is only as good as the people who designed it in the first place. One consideration for BIS is to always allow for growth in the future in what industry experts term as scalability. This means a good BIS software should take into account not only a firm's present needs for the system but future uses as well. A firm that has an excellent BIS gains a competitive advantage over its competitors all thing being equal due to the crucial role that information in today's fast-paced and highly-competitive environment plays in decision making using updated and accurate information. Besides scalability, one other important aspect of any BIS software program is called flexibility. The BIS must be able to respond to various challenges caused by a change in the firm's operating environment. By this, it means both macro-economic factors like inflation, a change in employment that affects sales prospects and changes in aggregate demand. For the micro-economic factors, this list includes industry-specific concerns like cost-pricing data, the expenses that a company incurs in doing business, vendor pricing and competitive moves by other players within the same industry segment. Revenues and cash flow are also important. For any business organization, perhaps the most important micro-economic factor is its accounting function. This is the heart and soul of any firm because this is where the dollars and pennies are being counted by its accounting department. This means a good accounting system must be able to provide timely and accurate data to guide management in making its important decisions that will determine whether the firm will be profitable or not or if it will survive for another year despite all the competitive odds against it. In the case study following this page, the company involved had a major problem in its hands regarding its accounting system, more specifically in its accounting payable ledger that requires prompt action. Discussion This paper discusses the issues and problems facing Tegan which is the second biggest distributor of educational toys in Europe. However, its sales had slowed down lately due to an intense competition within the industry caused by the entry of new players. As such, it had to adopt new strategies to help revive its flagging sales. One of these new-found strategy was to tie up with the Chinese company named Fan Li which is a toy manufacture in the mainland of China. By around this time prior to the tie up, Tegan had become a £5bn company that also is listed as a public company at the London Stock Exchange. It had around 3,000 employees in its main office and in 15 warehouses all over Europe. The tie up with Fan Li can be seen as a last measure for Tegan to help improve its poor sales lately. For starters, most of its toys are in the £50 range while the toys of Fan Li is only about a tenth or approximately £5 per item. This means profit margins are much lower and to help the company compensate for this lower margin, it must do a higher number of order transactions. This means a lower order size that was made up in volume of transactions that will hopefully improve its revenues and thereby its profits as well. The toy industry is a low-margin industry which means profits per item are small. The firm needs to sell plenty of toys. As such, the accounts payable plays a significant part in the company's bottom line. As margins are low but turnovers high, Tegan must utilize its payment strategy with regards to its accounts payable to help boost profits by availing of supplier discounts with prompt payment. Industry practice allows for 1% to 2% for prompt payments but the other side of the coin is to make a payment only when it is due or when it becomes absolutely necessary without losing the payment discount. This means the A/P must be managed in a very precise manner using an antiquated accounting software. Tegan's new higher volume transactions require it to update its current system because it can no longer handle the increased load (Upton & Staats 2). Background of the Case – As a result of this big increase in its order transactions, the present A/P accounting system at Tegan is straining under its increased load. What is more is this is not yet the peak season and the system is already showing some signs of a breakdown with frequent re-boots, blocking of records and unexplained run-time errors. These events are clearly detrimental to the company's operations which are hinged on the founder's principles of integrity, honesty and speed. The accounting computer system had to be fixed early enough in time for the Christmas holiday season in December 2008 (ibid. 2) and fixed quickly. Although the problem is probably minor at this time, it has the potential to blow up to a full-scale emergency if ever the system breaks down during the forthcoming peak season. It has gotten Tegan's top management worried sick about the possible ramifications if ever this worst-case scenario ever happens. It would truly be a logistical and accounting nightmare that has the potential to destroy the company's image with missed deliveries and late payments. Its accounts payable system was an old version of a packaged software program called Dunnock and over the years had seen numerous changes to it such as customized add-ons and external modules that were custom-written for specific applications. It was a hodge-podge approach. What is even more ominous is that this Dunnock system had become overly-complex over the years and persons who are familiar with the system can sometimes no longer recall its specific uses. The net result of labor turnovers had produced only one person left named Julia Jones as the sole expert authority on the firm's A/P system who knew it entirely as she was the apprentice of its original developer. This also left Tegan highly vulnerable now as it is wholly dependent on the knowledge of one person alone. The firm had been aware of this potential problem but it never acquired the needed urgency due to some supervening events. It is ironically only now that the needed traction has been attained to give this problem an urgent priority it deserved a long time ago by spurring internal action from top management. Three Possible Options – due to the urgent nature of the A/P problem, management had considered three alternatives on how to deal with it, namely: install an enterprise-wide ERP system that includes financial accounting modules such as SAP, use internal resources to rewrite the system and lastly, outsource the entire project to a third party. The first option was clearly not acceptable considering its huge cost (estimated to be in the vicinity of £5 million). The second option would entail diverting some resources away from the equally important ERP (SAP R/3) project the company has undertaken and is still on-going at this moment. The third option seems the most viable step that can be taken considering it had some experiences before (on three instances on various projects). The first was with an Indian company that did not go very well. The second and third outsourcing projects went relatively well but these two were relatively minor projects in terms of scope and cost. Outsourcing was the right move – in the case of Tegan, outsourcing the A/P project is the right move. The next concern after deciding on outsourcing was correctly choosing the partner for the outsourcing; there are many considerations that will make a partnership work to the mutual advantage of both parties. Selecting the right vendor should be taken with a lot of serious thought as it can impact on a company in a very big way. For example, factors like English proficiency is important (to reduce mis-communication due to the language barrier), geopolitical risks (some countries are vulnerable to political disruptions that affect operations) and of course the level of proficiency and skills in computer programming versus the costs. In Tegan's case, there are very good reasons for it to outsource its A/P project such as freeing up internal resources for other more important tasks, to focus more on its core activity such as selling and distribution, and finally, to partially compensate for a lack of specific skills (Valacich & Schneider 53) which in this case is highlighted in the person of Julia Jones being the only one left who is more or less knowledgeable with the entire accounts payable system. Types of outsourcing relationships – there are essentially three major types of having outsourcing relationships with a third-party vendor and these are: single application, solution package for a specific industry (more focused and vertically integrated) and lastly, a broad and comprehensive solution such as ERP systems applicable to a diverse range of industries. The fourth but minor type of relationship is the local application service provider relationship that is limited to a geographic area only for some reasons like proximity, same time zones, speaks the same language or uses the same currency. What the two firms have is a basic relationship. Tegan's outsourcing relationship with Hrad can be correctly classified as belonging to the first type which is single application only (ibid. 438). In this case study, Tegan contracted with Hrad for its A/P system only and nothing else. The sheer size of the project and also its critical nature requires that this should be a single application in the mean time to give it the needed focus to solve the problem of Tegan in its accounts payable system very quickly but unfortunately, it did not turn out that way due to various reasons. Due to the urgency felt by its management, there were errors being committed during the bidding process and also other deficiencies that were overlooked in their haste to solve the A/P problem. Trade-offs Involved - Tegan may have committed a simple but strategic error of giving to Hrad Technika the outsourcing project after the same company had done the requirements document so essential to the bidding process of the project. By performing the analysis for the requirements and then participating later on in the bidding had put Hrad Technika into the so-called conflict of interest situation. It cannot be relied upon completely to honestly make the requirements document as objective as possible because by being allowed to place a bid also, it now has a vested interest to keep the actual system requirements from its competitors. This was partly the reason why there was a need to constantly revise the project resulting to delays. Hrad had an unfair advantage over its competitors because it had an insider's knowledge. What the top management at Tegan should have done was not to allow Hrad to be part of the bidding process so it has no stake to rig the requirements analysis somehow. As this case points out, that was actually what happened because there was a real conflict of interest situation. In other words, Hrad cannot be the judge and executioner at the same time, to use a colorful language used mostly in jurisprudence. For Hrad to be really objective in its analysis, it should have no stake in the bidding of the project. On the other hand, there were trade offs that might have worked to the advantage of Tegan. One of these is the speed with which the outsourcing project could have been implemented because Hrad already knew what were the requirements for the project to be successful. The only drawback is that Hrad may have bid a bit too low just to win the project as its opponents have to inflate their bids for unknown risks. Hrad had the inside track and knew that once Tegan is committed, it has very few options left considering how critical the project was and this made Tegan vulnerable to blackmail. Development methodology – Hrad Technika prided itself on high-quality work and it uses diligent adherence to the standardized processes to ensure the success of its projects. It uses both the CMM and CMMI design standards to ensure rigour, discipline and improvement in all its partner undertakings. In particular, Hrad Technika employs work breakdown method that allows the company to estimate the costs involved in each task in a more detailed way. It then allows it to submit very competitive bids that usually wins them contracts. This is like a value-chain analysis in which each step of the process is analyzed in a very precise manner. A key factor, however, is that Hrad Technika cannot be entirely sure each time that it has gotten all things right because there are always hidden surprises that can distort its cost estimates. Its methodology, however, gives it a certain advantage because things are standardized to certain degree. Employing both CMM and CMMI plus its Level Five status provides a degree of the assurance that processes are standardized and there are no wasteful or unnecessary expenses. Scoping Problems – there are a number of possible reasons why scoping problems had kept cropping up during the project's implementation. The first was already mentioned a few pages back which was about the conflict of interest. Hrad was supposed to be in an advisory capacity only in determining the system requirements that will allow exact replication but this time on scalable system that can handle the increased workload. Another reason is this was a fixed-cost project unlike previous projects based on the cost-plus method and so Hrad had an interest to keep project costs to a minimum in order to gain an edge and win the bid. This may be the reason why scoping problems were a bit persistent during project implementation. Also a possible explanation is that only one person is truly knowledgeable about the old system. It is a critical factor because Hrad Technika might not have been able to fully scope the project itself when observing the whole process live during the evaluation period. There were very few people who knew and still fewer people who could give them competent answers. And finally, the initial scoping project did not really specify a 100% precision of the current functions of the system but only an approximation of the efforts and risks involved in the project so potential bidders can submit a realistic bid (Upton & Staats 3). This could have given Hrad the justification of not including so many things in the original documents paper that was used as the basis in the bidding process. Another possible reason is that there were some issues concerning change management. The people at Tegan may be so comfortable with the old system and they are not excited about prospects of changing to a new system. CIO Smith's statement that Leadership and Commitment were not the issues in the case is merely a diversionary tactic on his part to avoid blame for the entire failure of the project. It was clear from the case facts that he was not involved hands-on in the project and only came into the picture quite late already when problems started to crop up. Smith did not argue strongly for the project nor championed it in the executive meeting due to high costs. Management Failures – I can see two failures as enumerated in the text: failure of the CIO to take a strong and active role in managing the outsourcing relationship with the vendor. Smith had delegated most of the important tasks to subordinates and he did not keep himself updated constantly on what is going on with the project. The second management failure was not putting out clear performance measurements of the contracted systems and a lack of clear criteria that will define costs and benefits to each partner. Each failure individually is already enough reason to jeopardize the project and the two combined is sure to sink the project. Most Viable Option – the third option holds the highest chance of success for Tegan at this moment when it is very crucial they have a new system in place before the holiday rush. Being both a mission-critical and business-critical project, the A/P system should now get a top priority status and this can be solved by diverting temporarily IT resources presently being used for the SAP R/3. Every person available working on the SAP can be utilized temporarily for the A/P project until this problem is solved and then they can go back to SAP afterward. Conclusion Outsourcing is a growing and irreversible trend in the business community today as it gives them several good reasons for doing so. These are cost considerations, concerns about quality, problems in IS or IT performance levels, downsizing, re-engineering, financial factors and organizational culture that gives rise to internal irritants. Although it gained widespread acceptance, this is not a cure-all for most firms as there is still a need to evaluate its benefits on a firm-by-firm basis as requirements are different and each firm is unique in some way. It is however essential to know that outsourcing is always a good option for many businesses today who are seeking ways to retain their competitive advantage as competition grows more fierce with globalization. The battlefield composed of competitors is no longer local but truly worldwide; those who can offer the lowest cost at the best quality will win most contracts. Works Cited Upton, David M. and Bradley R. Staats. Hrad Technika. Harvard Business Case No. 9-609-039 (21 Oct. 2008). Boston, MA: Harvard Business School. 1-5. Print. Upton, David M. and Bradley R. Staats. Tegan c.c.c. Harvard Business Case No. 9-609-038 (31 Oct. 2008). Boston, MA: Harvard Business School. 1-5. Print. Valacich, Joseph and Christoph Schneider. Information Systems Today: Managing the Digital World, 4th ed. Upper Saddle River, NJ, USA: Prentice-Hall, 2009. Print. Read More