The Business Situation for Aalsmeer FA and the Change-Drivers - Research Paper Example

1. Introduction The Aalsmer Flower Auction (FA) brought together growers, transporters, the auction house, retailers and consumers in the flower business. The emergence of electronic auctions, growing power of buyers due to mergers among retailers, and the demand by retailers to have better say in the FA were among the chief reasons for the board of Aalsmeer FA to go in for a new information systems strategy. This analysis will discuss Value Chain analysis of the Aalsmeer FA, present business conditions and proposed IT solutions, methodology for developing the new systems and the impacts of the IS on the organization, management and employees. 2. Value Chain Analysis of the Aalsmeer FA Managers use value chain analysis to identify opportunities to add value to the organization’s products and services. Here, Aalsmeer FA is considered to be a big input/output process. At one end, supplies of flowers are brought to the FA. The FA then conducts the auction and adds value. Then the flowers are transported to the wholesalers, retailers and end consumers. Aalsmeer FA provides a variety of auction-related services. Throughout this process, there are opportunities for people to add value to the organization by acquiring supplies in a more effective manner, improving the auction, and selling more flowers. This process of adding value throughout the organization is known as the value chain within the organization. Value chain analysis is the process of analyzing an organization’s activities to determine where value is added to products/services and the costs that are incurred in doing so. Because Information Systems (IS) can automate many activities along the value chain, value chain analysis has become a popular tool for applying IS for competitive advantage. In the value chain analysis for Aalsmeer FA, at first the value chain must be drawn by fleshing out each of the activities, functions and processes where value is or should be added. Then, the costs and the factors that drive costs within each of such value addition activities are determined. Then the Aalsmeer value chain is compared with that of competitors. Then changes can be made to the value chain to gain competitive advantage. This process depends on the business conditions prevailing now, and it is discussed in section 3. The use of IS has become one of the primary way by which organizations improve their value chain. For example, the supply logistics of Aalsmeer FA can be improved with a Supply Chain Management system. The flower auction itself can be automated with e-business systems. The delivery to consumers of flowers can be improved with a Customer Relationship Management system. There is scope for improving the management of the complex factors involved in the FA with a Management Information System. There is scope for using e-commerce technologies such as intranets and extranets in the “cluster” involving all parties to the FA. Based on business conditions and the appropriate IT solutions, competitive advantage can be gained by Aalsmeer FA. These are discussed in section 3. 3. Present business conditions in FA and the proposed IT solutions The emergence of electronically driven flower markets, changing tastes of consumers and mergers of retailers necessitates new information and IT strategy for the Aalsmeer FA. The changes in the business and environment and the strategies needed for the FA are discussed by van Eenennaam and Soesman (2008). The IT strategies will be presented here based on the new business strategies for the FA. Logistical change-driver: The pan-European customers’ demands became heterogeneous and increasingly challenging. Logistical models, systems and infrastructure have to be upgraded through heavy investment in the “business cluster” of the FA. The innovation to transportation methods opens new possibilities of cost efficient and environmentally friendly flower imports and more efficient direct selling and delivery from growers to customers worldwide. Sea transport could also make other regional markets in Asia and North America more accessible to the cluster. For managing this logistics, supply and delivery, a Supply Chain Management (SCM) IT system is proposed. However, this system should not stop with just the supply chain. The entire value chain should be automated, and the Customer Relationship Management (CRM) aspects should also be taken care of. Hence SCM and CRM systems should be developed. The suppliers and customers can access this system and know the status of shipments. This will bring in efficiencies and cost savings to every party in the supply chain. Financial change driver: International auction houses emerged in low cost countries in Asia, Africa and South America and posed a threat to Dutch and Aalsmeer FA. Aalsmeer needs to ensure that a growing proportion of the internationally produced flowers go through its FA. The Aaalsmeer FA needs to become more efficient by cutting transaction costs. For this, the sales volumes have to be increased. In order to achieve this, Aalsmeer has to allow foreign growers to become full members of the FA; further it has to merge with other Dutch FAs. For achieving these objectives, an integrated Transaction Processing System is proposed. This will help in consolidating the foreign and domestic growers, reducing transaction costs and integrating with other FAs in Holland. Trade change-driver: The Dutch FAs were seasonal in sales volumes. Further, there were increasing regulation and environmental concerns. In order to address the seasonality issue, Aalsmeer needs to bring in foreign growers into the FA. Thus flowers will be available around the year to customers. To facilitate this, the EDI system must be extended to have extranets with foreign growers. Extranets, here, are internet systems that allow foreign growers exclusive access to the FA. With extranets, the foreign growers and Aalsmeer will benefit in costs, transactions and efficiency. However, allowing international growers into the FA will create a bigger importance to the development of certification standards to ensure the quality of products and processes. Through the use of research organisations working in partnership with elements of the “cluster”, Aalsmeer can develop standards IT system that can exceed the regulation requirements, yet achievable by foreign and domestic growers. An example is a certification IT system is the one to regulate the use of pesticides in flower growing. An integrated certification IT system that regulates energy efficiency, carbon dioxide usage, employee treatment, quality controls, etc should be developed by Aalsmeer. Such an IT system with the participation of research organisations would facilitate the management of evolving regulation, and increasing customer demands for quality. Cluster – Sub-cluster evolution: Due to the emergence of low-cost flower production from foreign countries. The Aalsmeer FA is part of what is known as the “cluster” in Holland, consisting of growers, sellers, transporters, the auctions and the retailers. Due to the emergence of low-cost flower production in foreign countries, Aalsmeer, like other Dutch FAs, had to evolve “sub-clusters” in foreign countries. To some extent, the cluster invested to own a significant part of the sub clusters. This would provide close linkages between the cluster and the sub clusters. Hence, the general management of the cluster and the sub cluster was the same. In order achieve such a similar and beneficial management, a Management Information System (MIS) for the cluster and sub-clusters is proposed. The MIS should be same or similar for both entities. The MIS will help in reducing the costs of growing, sharing know-how about production, sharing logistics services, financial management, enforcing a certification system, participation in the FA, and organizational efficiencies. This will lead to significant competitive advantage for the Aaslmeer FA. 4. Systems Development Methodologies for Aalsmeer FA Since the four major systems as components of the overall Information System suggested for Aalsmeer FA have different characteristics, the development methodologies may not be the same for each. The best methodologies identified for the four component systems are discussed below. The theoretical concepts for systems development are explained in Lucas (2008). Before developing the systems, Aalsmeer should do a thorough Return on Investment analysis to justify the systems. 4.1 SCM and CRM systems development for logistics change-driver application SCM and CRM systems are enterprise-wide systems. They typically involve big investments and data warehousing projects. They also take longer times to build. Automating the value chain with such systems involves committing significant organisational resources. Hence, such a system is best developed by a structured Systems Development Life Cycle (SDLC) method. Further, since the SCM-CRM systems are fundamental to the Aalsmeer FA value chain, the systems should be developed in-house. The SDLC has eight stages. They are presented in Figure 1.In the Project Initiation stage, the board of the Aalsmeer FA asks the IS department to start building the SCM-CRM systems. In the Systems Analysis and Feasibility Studies stage, the IS department uses observation, review of documents, interviews and performance measurement to study the changes in logistics and value chain. Then a Feasibility Study is conducted to determine if the system will be successful. Since SM and CRM packages are commercially available, (e.g., SAP), they should be purchased and implemented with in-house customization and development. In the Logical Analysis and Design stage, the information requirements, Data Flow Diagrams, Entity-Relationship Diagrams, and physical design are collected and analysed for the value chain. In the Development or Acquisition stage, the logical design guides the development. In this case, packages such as SAR are acquired and further development, especially the input of data and customisation are undertaken. In the Implementation stage, the actual system is implemented taking care to avoid failures. This stage involves conversion of the existing systems in the logistics value chain to the new system. In the Operation stage, the new SM-CRM system is operated successfully until new changes are required. In the Post-Audit Evaluation stage, an audit is done to the system. If failures occur, an audit should be immediate. In the Maintenance stage, regular updating and fixing bugs are done. Maintenance costs nearly 80% of the budget for the system. Hence this stage is very important especially for expensive systems like value chain automation. During the Analysis and Design changes, maintenance should be allowed for. Thus, using the SDLC methodology, the SCM-CRM system can be built and implemented. 4.2 TPS development for financial change-driver application A TPS has to be developed to integrate foreign and Dutch growers of flowers. Transactions are the life blood of the Aalsmeer FA. Hence this system has to be developed quickly. Therefore, the Prototyping methodology is recommended for this purpose. Prototyping is in some ways the opposite of SDLC. Prototyping is resorted to, among other situations, when business processes are changed a lot. Instead of spending a lot of time on details, the prototyping of TPS will find out what users want. Developers will then make a quick prototype, e.g., a few screens of the transactions in FA, and then refine and extend it to a full-scale system. Then the process of user requirements and refining is repeated. In this evolutionary approach, programmers may use fourth generation languages, screen generators and spreadsheets, etc. A database management system can be linked to the TPS, and extended to data capturing and storage useful in building the data warehouse for the SCM-CRM system discussed before. 4.3 Extranets development for the trade change-driver In order to bring in the foreign growers into the FA and to meet regulation and quality, extranets linking foreign and Dutch growers have to be built. For this the Rapid Application Development (RAD) methodology is proposed. RAD is useful when applications need to be developed quickly and when user interfaces are important. RAD uses components such as Graphical User Interface development environment, Reusable components, Code generator and Programming languages like C++. RAD has been a key component of the client/server environment. RAD is resorted to in the internet age when newer technologies such as streaming of video and audio are needed in shorter time spans. For the extranet development, RAD will use steps like in SDLC. However, the phases in RAD are combined to produce a more streamlined development technique. The emphasis in RAD is more on doing the tasks in parallel and less on the structure. 4.4 MIS development for cluster – sub-cluster evolution As the cluster in the Dutch FA begins to invest in foreign sub-clusters, the management of them need to be done with the help of an MIS that can be used in the cluster and sub-clusters. This MIS will be comprehensive and integrated for the purpose of overall management of the clusters as well as the FA. This MIS will give strategic competitive advantage to the FA to retain its leading position in the world. Outsourcing method is suggested for building this MIS. Outsourcing means giving the system development work to a company outside. Outsourcing can give significant cost saving, as such companies can develop the system for a significantly lower cost than the internal development. General MIS functions are well established, and many companies have already developed such systems. There would be no point in reinventing the wheel at a bigger cost. Further, such companies specialise in the development of specific categories of systems, and their expertise would be useful to Aalsmeer. There is also an increasing trend towards outsourcing systems development to countries like India, which provide significant advantage in terms of cost. Just like bringing in foreign growers of flowers, Aalsmeer can develop the MIS with the help of foreign developers. 5. Impact and effectiveness of the new systems for the organisation, management and employees The proposed systems have many impacts and improve the effectiveness for Aalsmeer FA, their management and employees. The concepts of impacts and effectiveness of Information Systems are discussed in Lucas (2008). The four proposed new systems will bring many changes to the Aalsmeer FA and its people. These changes will be felt in many areas including the managers’ and employees’ job, structure, authority, power and job content; employee career ladder and supervision. They are discussed below. 5.1 Impacts on management and organisation The managers of the Aalsmeer FA, growers, transporters, retailers and sub-clusters are impacted by the SCM-CRM, extranets, TPS and MIS. These IS can change the way in which decisions are made and consequently change the managers’ jobs. The most likely areas of organisational change are: Automation of routine decisions (e,g., frontline employees) Less expertise required for many decisions More rapid identification of problems and opportunities Less reliance on experts to provide support for top executives Empowerment of lower and middle levels of management Decision making undertaken by non-managerial employees Power redistribution among managers, and power shifts down the organisation; fewer organisational levels typically are required to authorise action Organisational intelligence that is more timely, comprehensive, accurate and available Electronic support for complex decisions The systems will give managers the opportunity to “get out of the office and go to the field”. The ability of systems to support decision making changes the decision making process and even the decision making styles. For example, information gathering for decision making can be done much more quickly. Another impact of the systems is a change in leadership requirements throughout the cluster, transporters and the customer value chain. What are generally considered to be good qualities of leadership may be significantly altered with the use of IT. For example, when face-to-face communication is replaced by email and computerised conferencing, leadership qualities attributed to physical appearance and dress codes could be minimised. 5.2 Structure, Power, Authority, Job content and Employee issues Flatter organisational hierarchies: IS will increase span of control, increase productivity and reduce the need for technical experts. Fewer managerial levels will result with, fewer staff and line managers. Reduction in the total number of employees, reengineering of auction and business processes, and the ability of lower level employees to perform higher level jobs will result in flatter organisational hierarchies. Change in blue to white collar staff ratio: This ratio increases as computers replace clerical jobs, and as the need for systems specialists increases. However, the number of professionals and specialists could decline relative to the total number of employees. Growth in number of special units: IS makes possible technology centres, e-commerce centres, decision support system departments and intelligent systems departments. Such units may have a major impact on the organisational structure, especially when they are supported by top management. Centralisation of authority: Centralisation may become more popular, as there will be a trend towards smaller and flatter organisation. However, the Web permits more empowerment and decentralisation. Ultimately the net effect may be decided by the top management philosophy of the Aalsmeer FA. Changes in power and status: Knowledge is power. Hence, there will be struggles over who controls information resources in the FA and value chain. Changes in job contents and skill sets: Job content is interrelated with employee satisfaction, compensation, status and productivity. Resistance to changes in job skills is common and can lead to confrontations between employees and management. 5.3 Impacts of the systems on personnel issues The use of IS may short cut the learning curve associated with employees gaining abilities through years of experience in the jobs. IS introduces the possibility for greater electronic supervision. In general, the supervisory process in FA and value chain may become more formalised. The web has the potential to increase job mobility. Hence there may be more employee turnover. 6. Conclusion The business situation for Aalsmeer FA and the change-drivers have been discussed. Based on the new business conditions, four systems namely SCM-CRM for the logistics, TPS for the financial aspects, extranets for trade issues, and MIS for cluster – sub-cluster integration have been proposed. The development methodology for each system, namely SDLC for SM-CRM, prototyping for TPS, RAD for extranets and outsourcing for MIS has been discussed. Finally, the impacts of the new systems for organisation, management and employees of Aalsmeer FA and the value chain have been presented. The new systems will help Aalsmeer in gaining competitive advantage. 7. References 1) Lucas, Jr., H.C. (2008), Information Technology for Management. McGraw-Hill. 2) van Eenennaam, F. & Soesman, R. (2008) Case. Nyenrode Strategy Centre, Nyenrode Business Universiteit. Figure 1 The Systems Development Life Cycle Read More