Management Information Systems - Wal-Mart - Assignment Example

?Table of Contents Introduction 2. Management Information Systems 3. Background – Wal-mart 4. Importance of MIS for Wal-mart 2 5. Business use, synergies, core competencies and network-based strategies 3 6. MIS and competitive advantage 4 7. Ethical and social issues in Wal-mart’s system 5 8. Evaluation of Wal-mart’s strategy based on Porter’s Five Forces 6 9. Recommendations 7 10. Conclusion 12 Bibliography 13 1. Introduction Businesses are faced with competitive pressures as an outcome of globalization and internationalization. Information technology is now integrated with all business functions. Every aspect of business requires information on which to build on and the right dissemination and application is power. This power should not be misused but used judiciously to enhance operations and for the overall growth of the company. Management information is helpful so long as it helps in the decision process but in most cases the systems designer systematically neglects the decision that could be made from the information (Stern, 1970). Instead, it is used to analyze questions by manipulating the data. 2. Management Information Systems Stern (1970) defines management system as an “automated system, which presents information both internal and external to the business that aids in making a specific set of routine decisions”. Systems are often created with miscellaneous pieces of data but they are seldom used or sometimes even misused. MIS should force the system designer to work with the manager and specify the most relevant data needed. The information generated should help the manager in making better decisions and this difference should be measurable. The definition of MIS implies that it is not worth building an MIS system unless the managers are willing to use it. MIS has never been rightly used as a control system for better decisions. 3. Background – Wal-mart Wal-mart plays a significant role in the US economy. Founded by Sam Walton in 1962, it has grown from a single store to a mammoth international corporation. As of 2007 Wal-mart operated more than 3400 stores and is the largest employer in the United States (Basker, 2007). Its first store opened in 1988 as an experimental format. Wal-mart is the largest retailer in the world with its sales being larger than the sales of the three big retailers combined – Carrefour, Home Depot and Metro. It is the biggest retailer of jewelry and groceries in the United States (Dan, 2002). Twenty-four of all toothpaste is purchased at Wal-mart’s (Dan, 2002). Wal-mart own 18 Lear-jets and employs 60 pilots. Wal-mart’s success is attributed to its expert logistics system and its cost-conscious “corporate culture” (Basker & Noel, 2009). 4. Importance of MIS for Wal-mart Wal-mart was an early adopter of technology and information system. Wal-mart achieved competitive advantage by being a leader in adopting technology in its operations (Basker, 2007). Wal-mart has three basic philosophies behind their Information system – they run a centralized information system from Arkansas for all their operations; they have common systems and common platforms and their third philosophy is to be merchants first and technologists second (Lundberg, 2002). They allow a great deal of flexibility as well so that people in the local markets can adapt to local situations. Wal-mart defines it success with the customer and everyone at Wal-mart has the same definition of success. Wal-mart believes that their merchants, suppliers, customers and business leaders must have access to information as this helps them to better understand the needs of tomorrow (Rollin, 2008). It has technological edge in inventory control, logistics and distribution. All its stores and distribution centers are connected to the company headquarters through computer network. Wal-mart was also an early adopted of bar-code technology which reduced the labor cost of processing shipments. The software – Retail Link – helped to bring the suppliers close to the individual stores (Basker, 2007). Wal-mart is the leader in the development of RFID technology called EPC which has helped improve distribution, inventory control, reduce theft and reduce stock-out experience (Rollin, 2008). The bar-code technology and the RFID help reduce inventory tracking costs which then is an incentive to stores to increase their product lines. Through RFID technology Wal-mart not only saves money but it also knows what shipments have arrived at the door and what sales have taken place. With the help of RFID, Wal-mart could save $8,35bn annually (AME, 2005). 5. Business use, synergies, core competencies and network-based strategies Information systems division at Wal-mart helps improve efficiency and innovation through technology. Their system engineers think of newer ways to improve system, processes and products. The gap analysis revealed three areas which needed attention - merchandising, finance and human resources (Rollin, 2008). Through investment in technology they continue to meet changing customer demands and provide them an improved customer experience. They provide their ‘associates’ the technology tools they need to grow their careers, enhance their job performance and improve customer services. They have virtualized their network thereby making greater use of system capacity. Sustainability makes good business and to support this idea, their information systems division is working on developing these ideas. At Wal-mart, technology does not drive business but provides the solution to enhance functions. Sales and in-stock information is transmitted between Wal-mart and its suppliers within seconds which also helps them conduct negotiation in shared understanding. All the information from their POS is provide to their suppliers. The suppliers thus have all the information on what has been sold from which store at which time of the day. This information empowers the suppliers to adjust their production accordingly (Collins, 1997). Based on supplier information, the store manager adjusts the product mix. Wal-mart also uses social networking to recruit candidates. Social networking sites such as FaceBook and Linkedin provide an employer the platform to reach candidates whom they might not have been able to access through traditional means (Elmore, 2009). They use social networking to tell their stories and engage potential candidates. The students too benefit as they receive up to date information on recruitment events. Social networking can help attract a larger and more diverse talent pool. 6. MIS and competitive advantage The technology that Wal-mart adopted was nothing new but when combined with the firm’s managerial and organizational innovations, the impact was huge (Dan, 2002). The competitors and suppliers too had to invest in technology and upgrade their system. As part of its CRM (customer relationship management) strategy, Wal-mart invested in technology that helped it obtain real-time information. They learned to read the cash register receipts which enabled them to know what their customers were buying. The managers are able to get 8.4 million updates a minute. It then shares this information with employees which enables every employee to feel that he is a merchant. Wal-mart receives big pay-offs from inventory and customer satisfaction. Executives at Wal-mart interact regularly with a panel of 50 young consumers (Tsai, 2009). This generation of consumers will be very careful in their spending even after the economy bounces back and hence the challenge further intensifies for retailers. Thus to enhance customer relationships, Wal-mart recognizes that maximizing a networked organization is essential as it connects not just vendors and employees, but the customers as well. 7. Ethical and social issues in Wal-mart’s system While Wal-mart has been able to reap benefits through information system and have a competitive edge due to early adoption of technology, new information systems have given rise to new ethical and social issues such as information rights and obligations, quality of life, accountability and control. The Utilitarian Principle states take the action that achieves the higher or greater value (Prentice Hall, 2007). Wal-mart maximized value for themselves while ignoring the harm it caused to individuals. They used technology to lower costs by scheduling work shifts for its employees. This reengineering resulted in job loss, which is unethical use of technology. Technology also results in negative social consequences. Adoption of the Kronos system resulted in enhanced productivity and customer satisfaction but it adversely impacted the lives of the associates. Working hours became irregular and they could be called to work at short notice. With inconsistent paychecks the associates’ lives became disorganized. The computer in fact was trying to have the most number of part-time workers and the least number of full time workers with no regard to the impact it made on the lives of the employees. If workers limit their availability, or if they are unwilling to work night shifts or weekends, they are immediately replaced by willing workers. Thus, information system in this case had a detrimental effect on the employees. 8. Evaluation of Wal-mart’s strategy based on Porter’s Five Forces Threat of entry Wal-mart has no threat from new entrants because of its sheer size and global reach. They have been early adopters of technology and it has taken them years to achieve this position which would be difficult for competitors to emulate. Investment in technology has to be high to be effective which poses a barrier for new entrants. Wal-mart has the financial strength and technological capability in different functions such as logistics, distribution, and customer relationship. Bargaining power of suppliers The bargaining power of suppliers is low because of the sheer volume of purchases that Wal-mart does. Technology has helped to bring the suppliers close to the individual stores. Being leaders in the development of RFID they have been able to improve distribution, inventory control, reduce theft and reduce stock-out experience. Since they have integrated their suppliers into their network, the suppliers too are able to save money and track shipments. Bargaining power of buyers Wal-mart’s customers are huge as they also impact the US economy. However, the buyers have no pressure to remain loyal to Wal-mart. Consumers are price sensitive and rising fuel prices have exerted pressure on consumers (Kavilanz, 2011). Wal-mart recognizes that it has become important for retailers to understand the changing customer needs. Technology such as internet and m-commerce has made it possible for consumers to gather competitive prices, thereby enhancing their bargaining power. Availability of substitutes Retailers are all selling the same products – price and service would make the difference. Wal-mart, after its EDLP is now trying to make it a “one-stop shopping stop” as consumers do not want drive down the town for different products (Kavilanz, 2011). Substitutes are available in plenty and easily identifiable by consumers because of technological advancements. Competitive rivalry Competitive rivalry in the retail sector is intense as technology has made their reach wide. Price war exists among the retailers. However, since it has become possible to gather information on consumer buying behavior, retailers offer incentives in different forms to gain consumer loyalty. Analysis The Five Forces Analysis suggests that Wal-mart has no threat from new entrants because of its technological competence. As the bargaining power of suppliers is low, Wal-mart to a large extent exploits its suppliers. The bargaining power of buyers is high because of technological advancements and availability of information. Substitutes too are available in large numbers and Wal-mart cannot afford to shrink its product variety. Competitive rivalry too is high but Wal-mart tries to maintain competitive edge through the use of technology at each stage. 9. Recommendations Ethical and social issues Wal-mart decided to realign the eligibility criteria for health insurance to make the organization more competitive in the retail sector (Chamber, 2006), but their adoption of MIS in human resources management only served to reduce the number of full time associates entitled to the health insurance plans. This amounts to unethical practice as they are trying to enhance organizational benefit while adversely impacting the lives of the Associates. This stand also has social implications as workers experience job instability and financial hardship with inconsistent paychecks. The compensation level at Wal-mart is barely above the poverty line (Head, 2004). Having more part-time associates reduces their health care costs. Wal-mart provides its store managers with a “preferred budget” so that the managers are conscious to keep the staff at adequate levels but there is a gap between the actual and the preferred budget (Head, 2004). Understaffed stores and the difference between the two budgets help the managers to decide how much they need to extract from the workforce. Thus, Wal-mart needs to provide job security and stability to its associates. Supply chain challenges While Wal-mart uses MIS to connect their suppliers to exchange real-time information, they squeeze suppliers and usually deal with unbranded suppliers to save costs (Ghemawat, Bradley & Mark, 2004). These are firm-specific advantages and they should think in terms of long-term relationship with their suppliers instead of squeezing them at every point (Rugman, Waters & Dossett, 2005). They also need to re-evaluate their low-cost strategy and benchmark their strategy against those of competitors (Evans. n.d.). They must consider the effect of five forces in their business’s competitive environment. Even with suppliers, Wal-mart has been accused of exploitation as they are known to squeeze their suppliers. Their purchase strategy too needs to be changed as they have not made efforts to build long-term relationship with their suppliers. They even opt for unbranded products and suppliers just to maintain low costs but this can turn away customers. They maintain real-time information exchange with their suppliers but they have not been spending on publicity and advertisements. While Wal-mart has implemented RFID and achieved success to the extent that it can track sales and shipments, but since 2005 only 100 suppliers have been tagging products and only 1000 items have been tagged (Songini, 2006). Goods are sensitive and perishable. For instance, they need to replenish products such as fruits and hence such items must have sensors. The benefit derived from this technology by Wal-mart is limited as only 3% vendors are connected to this. Many vendors do not know how to use this technology. Intranet does not really serve any purpose and must be enhanced. CRM challenges Companies have to align themselves to customer-centricity which is possible if they continue to invest in technology (Tsai, 2009). With the growth in mobile commerce, Wal-mart finds that the shopper expects the same level of convenience they enjoy with their personal technology. However, they still expect recognition as single individual which implies that Wal-mart must create a seamless multichannel experience. Since customers have become smarter, brand-loyal and have a vast number of choices available to them, it becomes difficult to know what the customer wants. Therefore individual customer recognition and intense data collection will be the key to customer relationship management. Issues raised by organizations Capitalizing on customer information has become paramount to success. To convert mere data into completely useful insights about the customer, the marketers must look at the intersection of different types of information – between customer needs, store formats and product types (Forsyth, Galante & Guild, 2006). A proper understanding can suggest new avenues of growth. Customer insight is not an isolated research capability. An insight network can help an organization to look at the world through a number of lenses and develop proprietary knowledge about customers. The network should not only integrate data on attitude and behavior but also develop relationships with third parties such as the suppliers and the customers. A consumer electronics company was struggling to enhance its sales in the mass-market discount stores, such as Wal-mart Stores. They could not isolate the problem through traditional market research strategy but when they integrated point-of-sale data with an online survey on shopping behavior at different stores, they learned that a large number of people shopping at Wal-mart were keen watch sports on the television. This prompted the electronic company to change their mix and add features that sports enthusiast love and also focus on in-store marketing to sports fans. Business strategy Their cost leadership has resulted in ruining their vendors and exploiting the workers. They have earned a reputation of being the “Sweatshop Retailer of the Year” in 2003 (Ghemawat, Bradley & Mark, 2004). Their attention has been directed towards the law suits rather focus on growth and operations. The effect of cost-advantage has worn off in the process. The greatest challenge and threat before Wal-mart is to organize its human resources. They exploit not only the vendors but also their Associates by offering lower than average salary, by reducing the staff load during lean hours. They need to adopt a strategy of differentiation like offering a one-stop shopping experience as consumers cannot afford the luxury of driving around for picking up necessities. They should strive to achieve competitive advantage through differentiation. Cutting edge technology can give them competitive advantage which Wal-mart is already employing. However, the sales staff does not have technical competence at Wal-mart as the organization prefers younger employees with no prior experience as they come at very low salaries. However, this strategy must be changed. Social challenges Wal-mart faces social challenges as consumers globally have become conscious. They expect corporations to focus on other factors rather than merely on profits (Bonini, Mendonca & Oppenheim, 2006). These should be seen as opportunities and not compulsions to be complied with. The balance in power lies in the hands of the consumers and risk to reputation has to be reduced by complying with regulations. Thus, they need to be socially responsible towards the consumers as well as the Associates. E-commerce challenges Wal-mart has not achieved much success with e-commerce. Moreover, their initial website had shortcomings such as fewer products on offer and difficulty of use (Liu, Magid & Gillete, 2004). It was neither user-friendly and nor did it utilize standard graphics. The online consumer characteristics are different from their offline customers. The online consumers seek convenience and hence must have adequate variety of products to choose from. With this in mind they would need to draw new customers and not bank on their brick and mortar base. Its weak search engine cannot retrieve some of the most popular items. They need to use benchmarking in online stores in the retail sector. Tesco is an example of web success in the retail sector. 10. Conclusion Thus, it is evident that while Wal-mart has been investing in technology they are not able to maximize returns on investment. The two most critical areas where they need to re-evaluate their strategy are human resources and vendor relations. Since Wal-mart has high bargaining power with suppliers, they exert downward pressure on the vendors to reduce costs. This forces the vendors to engage in sweatshops. The vendors as well as associates are exploited for personal gains. Vendor relations should be viewed as a long-term strategy. The associates too are exploited as Wal-mart, to save costs, has minimum full-time workers and maximum part-time workers. They must grow beyond the cost-leadership and adopt a differentiation strategy in order to sustain competitive advantage. Bibliography AME. (2005) How RFID can help optimize supply chain management. 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