The Technological Infrastructure of the Charles Schwab and Zara - Case Study Example

? Case Study Analysis Introduction While the rapid pace of technological development has made great contributions to the lives of individuals, it haswreaked havoc on many businesses that must struggle to keep pace with the changing times. The case studies of Charles Schwab and Zara demonstrate two conflicting ways organizations have dealt with these changing technological demands. While Charles Schwab made efforts to rapidly embrace technology and finds means of conforming their business philosophy to it, Zara has steadfastly clung to antiquated systems. This essay examines these case studies in relation to their central issues, as well as means of information technology these companies implement. Analysis In the first case analysis the company under consideration is Charles Schwab. There are a number of key issues facing this organization. One of the predominant considerations is related to online trading, namely the e.Schwab product. Charles Schwab is an equity brokerage firm and a significant amount of this business occurs through online trading options. One of the main questions that the organization faced in relation to its online trading platform was whether to offer all customers significantly discounted trades while at the same time provide the same amount of service options that had previously provided. The organization had considered two solutions to this quandary. The first solution involved potentially granting customers complete access to the organization’s services, while at the same time offering a 20% discount on trades. The second solution involved granting customers an even greater discount on trades, but at the same time curtailing the services provided. The major dilemma was whether it was worth sacrificing service for price discounts. Another prominent consideration was challenges from outside organizations. A great amount of discount brokerages emerged that challenged Schwab’s position as one of the preeminent stock traders. In response to these challenges the organization was to work towards differentiating itself through innovative product design and services. The main backbone of this innovation was rooted in technology that, “to both generate productivity improvements and to develop superior customer service” (‘Charles Schwab Corporation.’ 2001, p. 3). As such, a multi-channel strategy was implemented. Still the organization was faced with further questions of whether to expand deeper into Internet trading. While organizations such as E*Trade had been coming on strong, Schwab recognized that they retained significant portions of the market. These considerations factored into whether the organization should assume a lower pricing strategy per trade or if they should continue with the traditional mode of business based heavily on attention to service. Fig. 1 Charles Schwab In the second case analysis the company under consideration is Zara. There are a number of key issues facing this organization. Zara is recognized as the chain of stores of the main organization Inditex. One of the main issues facing Zara specifically is whether the point-of-sale (POS) terminals should be upgraded. One of the negative aspects of the current point-of-sale (POS) terminals is that they run on DOS. While DOS was once the major language used by computers, in the current environment it had become outdated and was no longer even compatible with Windows. Even as members of the organization believed an update was necessary these individuals were challenged on the grounds that even while the point-of-sale (POS) terminals are outdated they still function to maximum effectiveness. Still, individuals in the organization that support the implementation of new point-of-sale (POS) terminals argue that store managers within the organization have been accessing for updated software, as it would greatly contribute to functionality and ease of use. However, this poses a challenge. If the organization were to update the software to Windows there would be compatibility issues between antiquated hardware that only runs DOS and new machines that only run Windows. These compatibility issues would emerge in challenging ways. For instance, if the organization attempted to open new stores it would necessitate that it bring along with it information technology staff, rather than simply self-explainable disc insertion (Mcafe, Dessain, Sjoman, 2007). The company also worried over whether if they ultimately decided to upgrade to the new technology if they should then also build new capabilities into the software. Additionally the organization recognizes that upgrading to new technology would greatly facilitate the implementation of wireless networks in the stores. These networks would make further and substantial contributions to inventory management. Fig. 2 Zara Store Front Information technology plays an important role in the business model of each organization. As noted earlier information technology was one of the crucial contributing factors in allowing Charles Schwab to remain profitable in the increasingly competitive online brokerage environment. Indeed, the organization has been called, “really a technology company that happens to be in the financial services business” (‘Charles Schwab Corporation,’ 2001, p. 5). Schwab’s use of information technology dates back to the 1970s; during this period the organization designed a method that allowed direct trade confirmations, significantly lowering the cost per transaction. In 1979 the organization brought its entire trade clearing system in house, rather than outsourcing IT needs. In 1985 the organization is credited with establishing the Equalizer platform. This DOS based IT package gave traders the same access to information that Wall Street traders were afforded, including up to the minute research information. In 1989 Schwab developed the Telebroker, an automated phone brokerage service. 1993 saw another important Schwab information technology innovation – StreetSmart. This was the first trading platform designed for Windows. In 1995 the organization was at the cutting edge of trading foregrounding e.Schwab. This was an electronic software package that allowed customers to trade through a 1-800 number. Fig. 3 Charles Schwab Internet Trading Interface Additionally, the very structure of Charles Schwab’s backend infrastructure design greatly contributes to the effectiveness of their system. The architecture of their information technology systems is such that all front-end designs should consistently access back-end systems; the operative word in these regards being consistent. The nature of stock trading is such that even a system that is down for a few minutes could potentially result in significant impact for the customers. As a means of circumnavigating these potential pitfalls the organization developed a system with three tiers of systems: mainframes, middleware servers, and Web servers. Prior to new developments these differing systems were housed in distances far separated. During the process of updating these systems the company moved the systems to the same location. As the systems were co-located the company was able to more easily fit them with high-speed fiber cables. The underlining significance of this change was that if the system potentially crashed the organization was able to quickly re-route the crashed infrastructure to the other group of systems, effectively preventing the front-end aspects to crash. Schwab also invested significant in mainframe technology that ensured a general consistency in their front-end information technology operations. Specifically the organization a legacy Datacom database, as well as IBM’s cutting edge DB2 database. The DB2 database implemented clustering technology that contributed to the seamless transaction that occurred if one system ever crashed. Additionally the company’s eight middleware servers functioned as the conduit between all front-end applications and the corporate databases residing on the mainframes. While Charles Schwab implemented a great degree of information technology Zara stores were unique in having a highly human touch to their internal functioning. Indeed, perhaps the most notable consideration in terms of Zara’s use of information technology is the areas where they actually don’t use information technology. It is in these instances that this report argues constitutes one of the primary determinants of Zara’s organizational culture – a determinant that prominently factors in to later considerations regarding their underlining dilemma. One of the most unique aspect of Zara’s business operations are that they make prominent use of ‘commercials.’ Commercials within this context of Zara are individuals that exercise considerable discretionary power. One group of commercials serves the role of store product managers and sits in close proximity to product teams. These individuals travel extensively and observe what store customers and general populations were wearing. They also conversed with store managers to gain a general qualitative understanding of customer attitudes. The commercials could then implement store-to-store transfers based on their perceptions and also recommend future product designs. Such processes are highly significant as they indicate that there are elements to the Zara operation that still exist external to information technology. The extent that such processes are truly contributive or could be co-opted by this technology is uncertain. Still, there were areas where information technology was implemented. Rather than buying externally made software or programs individuals in the organization wrote many of their own applications. The justification for this was that the business operations were so unique – expanding many countries, as well as implementing unique forms of product dispersal – that external platforms would not have the customization necessary to fit the organization’s information technology needs. Among specific platforms that were developed was one that aided the organization in balancing its supply and demand product designations. Specifically the application would compared the aggregated order to existing supply and demand inventory for each SKU; the software would then highlight instances where supply and demand needed to be further balanced and instances when demanded exceeded supply. Other information technology aided the organization in its ecommerce sector. Specifically when a customer placed an order through the site the software then sets a process that prepared and distributes the order. Still, another information technology model functions by keeping inventory at each store. Personal digital assistants (PDAs) were another prominent technological device implemented in stores as a means of ordering and handling garment returns. While in store functionality concerns were a major area of focus for information technology, Zara’s distributions centers also greatly implemented information technology systems. For instance, “information systems tracked where each SKU was stored as it entered the DC, the controlled the conveyor belts to pick them up and drop them off at appropriate places” (Mcafe, Dessain, Sjoman, 2007, p. 9). There are a number of lessons from one case study that can benefit the other the company in the other case study. To a great extent it appears that Charles Schwab has been more successful in their implementation of strategic directives. Notably this organization has regularly updated technology when necessary and ensured that there were on the forefront of both technological innovation and business practices. Conversely, Zara has steadfastly held to antiquated DOS software for their store environments. To a degree it appears that Zara’s decision to not update their software is influenced by a larger organizational culture that prefers to rely to a degree on human instinct through traveling ‘commercials’ who exercise considerable discretion rather than entirely on automated systems. While Charles Schwab also valued the importance of quality customer service they also recognized that the shifting nature of technological change necessitated a rapid pace of reform. As such, Schwab was able to retain their quality customer service while implementing new technologies that changed throughout the years. Specifically Schwab direct point of sale stock purchases in the 1970s, later e.Schwab, and ultimately an online brokerage, al the while retaining high quality customer service and fees that ran significantly higher than discount brokers. It seems that Zara needs to recognize that while the human element is important to the fashion of their business, by implementing new technological models – specifically updated point-of-sales and wireless connections. This technology holds the potential of enhancing their high fashion commitment to quality by allowing the human professionals they have on staff to focus their energies in areas such as product placement and development. Conclusion In conclusion, this essay has examined the Charles Schwab and Zara case studies. Within this context of investigation it has argued that while Charles Schwab sought to rapidly embrace technology Zara has decided to lag behind the times. While implementing new forms of technological infrastructure may not always be the most cost-effective maneuver, this essay argues that ultimately it’s necessary for organizations to continually reinvent their business model in accordance with technological innovation. References Mcafe, A. Dessain, V. Sjoman, A. (2007) ‘Zara: IT for Fast Fashion.’ Harvard Business School. ‘Charles Schwab Corporation.’ (2001) Harvard Business Review. Read More