Management Information Systems: Zara - Case Study Example

? ZARA: CASE STUDY ANALYSIS By 9th, February, Table of Contents Table of Contents 2 Executive Summary 3 Introduction 4 The most important Aspects of Zara’s Approach to Information Technology Management 4 Firm-Based Value Chain Model 6 Are these approaches applicable and appropriate to anywhere? If not, where would they not work well?  7 Conclusions 10 Recommendations 10 Appendices 12 Works Cited 13 Executive Summary Zara is a large retail company under the Inditex fashion group in Spain. Zara is a successful company, which invests in information technology to increase its productivity. This, in addition to its vertical integrated operation, has helped it achieve its objective of reduced time in decision-making. Unlike other retail companies, Zara does not invest highly in advertising, as only posters are displayed in the stores. This leads to an approximate 0.3 per cent of the company’s budget on advertisements, unlike other companies, which spend close to 4 per cent of their total budget on the same. Investing in information technology and in the stores is a strategy that has helped Zara to have a competitive advantage over the other retail companies. However, Zara has been faced with a challenge in deciding the right move, between updating the current software the company uses, or maintaining it as it is. This is a challenge, as both moves result in benefits as well as costs (Tungate 2012). Introduction Thirty-seven years ago, Amancio Ortego and Rosalia founded Zara. This owns different brands, and has close to 1660 stores, most of which are situated in Europe. The different styles of fashion and clothes by this company serve the needs of men and women, as well as children. This is one of the most successful companies in Spain that have constantly managed to adapt fast to changes in the business environment, unlike other companies that lack this capability. Analysing the IT strategy of Zara is of interest, since this company is unique in the way it utilizes communication and information technology. While other companies rely on outsourcing to reduce costs, Zara on the other hand, has capitalized and invested in information technology, as a way of gaining a competitive advantage in the market. This company, unlike others in the same fashion industry, is known for its instant reaction and response to fashion trends. While its counterparts take a prolonged time to respond to new fashion trends, Zara restocks its shelves rapidly, to meet the new needs of customers, for fashion items that are the hits. Therefore, the success of Zara is wholly influenced by the information and technology, which the company has prioritised (“Zara”: Dutta n.d). The most important Aspects of Zara’s Approach to Information Technology Management Zara makes use of the Hybrid model in its IT management and business operations. With regard to IT management, this involves important aspects that have helped the company’s success, as IT influences most business actions. For instance, the product development for the company’s brands has high capabilities and this results in speedy deliveries in the company. Production process results in high-quality products, while distribution meets the demands of customers on time. Generally, design, manufacture, distribution in stores, and logistics take as short as three weeks to accomplish. On the other hand, other retail companies will take as long as five to eight months in order to adjust to a new fashion trend. Nonetheless, the unique approach of Zara’s approach to IT management has helped it have a higher standing in the fashion industry (“CNN Tech” 2004). Zara employs cost reduction on its expenditure on IT. Despite this, Zara makes the best out of its information technology, beating the other retail companies. Zara lacks a chief information officer, as well as a formal budget making process for its information technology. Only about 0.5 per cent of the staff at Zara are involved in IT management. It is therefore, surprising how Zara, a successful company, operates with such few financial and labour investments in information technology. However, this has helped Zara to remain steady and effective today’s business world, characterized by high technology (Tungate 2012: Mcafee, Dessain & Sjoman 2007). The hybrid model strategy is also reflected in Zara’s IT management. Information transfer in the company is through information technology, and a combined human intelligence input, including PDA devices. Store managers send their store orders, while another group evaluates these depending on nature, needs, and priorities of the stores. Calculations from an application that records and tracks the “theoretical inventory” of every SKU are used in this decision-making. Information technology is also employed in the production, as computers control the large cutting equipment in the factories. The distribution centres equally use information technology through computerization and automation. Here, computers process and supply orders received in the distribution centres. In addition, the company’s IT department has developed applications specific to Zara’s distribution centres (Mcafee, Dessain & Sjoman 2007). Market research is another approach the company employs in its IT management. This helps in gathering information about trends in the fashion industry. This is because the fashion industry is characterized by unstable customer demands. This information is used in conjunction with IT to meet the demands of the customers. To achieve this, Zara’s employees analyse the market by getting information from the consumers about the most preferred fashion items at a particular time. A group of commercials in the company then use the gathered information for speedy decision-making. Another group is assigned to the supervision of all the stores in the world. This group also comes with information about what fashion items the company should produce, including the type of designs, based on their observations in the different stores. This strategy saves a considerable amount of time the company uses in decision-making (Mcafee, Dessain & Sjoman 2007). Firm-Based Value Chain Model In order to analyse the effectiveness and challenges of Zara’s approaches to IT management, Michael Potter’s value chain model will be used to test the business activities of this company with regard to information technology, and identify loopholes or strengths of each. This will also show whether the approaches this company uses with regard to information technology are effective and if these can be applied to other retail companies in the fashion industry (Sekhar 2009). The value chain model helps to identify aspects that can boost company’s competition, and can propose appropriate strategies, which a business can adopt in its processes. This model also highlights different processes and activities in the business, which can be linked with competitive strategies, and which can have good results for the company, when applied with information system. In this model, specific points where a company can successfully apply information technology to boost its productivity are identified. This model categorizes business activities into two major categories, including the primary activities and the support activities. The primary activities include all the activities directly related to processes of production and distribution of goods and services, which determine quality for customers (Laudon & Laudon 2012). Support activities help in the facilitation of primary activities. These include human resources management, recruitment, training, and motivation of employees. These also comprise the company infrastructure, including quality, finance, administration, and legal management. Support activities also include procurement, including buying of materials for the production and other processes in the company; and technology development of a company, which involves research and development of technology and the automation of processes in the company among others. Companies can therefore, adopt the value chain model to guide them in each of their value chain activities. This might help a company learn about ways to utilize their information systems in making company operations and customer satisfaction effective. The company will also be in a position to understand how information technology can strengthen its relationship with customers, as well as the suppliers (Laudon & Laudon 2012). Are these approaches applicable and appropriate to anywhere? If not, where would they not work well?  The value chain model can be used to evaluate Zara’s IT approaches, and establish if these can be applied to other fashion companies. These approaches can be applied to other fashion companies, but on different levels, depending on the nature and priorities of the company. As seen before, this model divides company activities into two categories, including the primary activities and secondary activities. The primary activities in Zara include those involved with designing, production, and responding to orders, by supplying all stores with fashion products from the distribution centre. With the aid of IT in these processes, this ensures that designing and production processes take the least time, mostly a maximum of three weeks (Laudon & Laudon 2012) Support activities in this company include information technology and infrastructure development. With regard to development of infrastructure, Zara uses the system of mobile tracking. The sales personnel and store managers utilize this facility. With these, they are able to collect and keep information collected on fashion, the orders made by customers, and the views, opinions, and recommendations of customers. All this information by store managers is then combined with results from the company’s market research, and together, these are incorporated into the production process of new trends. On the other hand, sourcing involves supplies from external suppliers for material for the production process. The company’s purchasing offices in different regions link up with external suppliers, mainly from Spain and other regions in the East (Mcafee, Dessain & Sjoman 2007). The process of chain management in Zara is facilitated by information technology. These include customer service, operations, sales and marketing, administration and management. In procurement, the company utilizes ordering systems, which are computerized. On the other hand, the overall technology use in this company’s production process, involves use of design systems that are aided by computers. Each process in the company is under distinct leadership, which ensures overseeing of the processes. In addition, these are aimed at ensuring cost reduction to produce high quality products using appropriate technology. However, since Zara lacks a chief information officer, the company’s department of information technology might lack proper decision-making aimed at developing strategies of improving the department. Currently, a high level of automation is evident only in the company’s distribution centres. Individual stores use fax and telephone to place their orders. In addition, the PDA, which managers use lack a connection to individual stores for information sharing, especially, with regard to inventory (Tungate 2012: Mcafee, Dessain & Sjoman 2007). Zara invests in its own software and does not buy new technology. Most companies would therefore, not agree to adopt this approach, since this limits business process. Being a global company, Zara utilizes a variety of currencies; therefore, buying an accounting package would still require customization and adjustments. The operating system used by Zara cannot keep data for future forecasting. Therefore, company sales, plans, profits and loses cannot be predicted. The use of fax machines by stores is unreliable and causes a breakdown in communication. This is also costly, considering the cost of fax machine order forms. Reliance on the telephone could also result in mishearing. These applications are therefore, not suitable for Zara’s value chain. Since these applications are internally developed, upgrading them might be impossible. In addition, their compatibility with other applications is impossible. Zara is a big company with few IT personnel. This reduces the effectiveness of the company, with regard to IT, since the workload is not proportional to the workforce. Therefore, with all the limitations, the IT approach of Zara presents, most companies would not agree to adopt this kind of IT management approach (Gitman and McDaniel 2008). The firm saves considerable finances with the current system. This is through the low operational costs the system presents, small IT workforce; meaning little money is spent on their salaries, and low computer expenses. Since the information technology system is simple, managers do not require special training in order to manipulate the system. However, on the negative, this system is slow in data collection and requires more time to execute commands. Therefore, the IT management approaches used by Zara can be applied to other fashion companies on different levels. The IT approach in the production process can be applied to other fashion industries, as this boosts production. Additionally, the IT approach in the distribution processes is commendable, and can be adopted by other companies in their distribution as well, since this meets customers’ demands right on. With regard to the cost benefits of this system, most companies would prefer this IT management strategy, as it saves on costs. However, most companies might not accept the fact that Zara develops its own software. This is because of the limits this approach presents to the company, including incompatibility with other softwares, and some of its operational ineffectiveness. Therefore, a company might weigh the advantages and disadvantages this approach presents, before deciding whether to adopt it or not. Conclusions Zara is a highly competitive company, and this draws from its use of information technology to run its different operations. Although information technology strategy of the company is commendable, there exists a variety of flaws in the system. These flaws bar the company from reaching its optimal performance in the market. The main drawback of this company is its information technology strategy, and specifically the use of its current POS, which is limiting to the company, although it has propelled it to great heights in the market. The company has a commendable information technology strategy, though with a few flaws, which can be corrected. If these are improved, the company will be able to increase its productivity and profits further. Recommendations For effective business operations, Zara should consider upgrading its operating system. A system that will increase efficiency between stores, consumers, and store manager should be adopted. The current system is restrictive and has had negative implications for the company, even though it runs on low cost of operation. The company could consider a HP POS, which is equally cheap to operate and simple. This is flexible and can manage a variety of operations, compared to the current POS of the company. Therefore, the company can still have a small number of IT personnel, as the application has a high capacity for tasks. If successfully adopted, Zara will have a new experience with IT and a positive impact on its productivity. The new IT approach can be readily applied in other fashion companies, unlike the current IT approach faced with considerable limits. Appendices Figure 1. The Value Chain Model. Source: Think Fast Solutions, http://www.thinkfastsolutions.com/valuechain.html, accessed February 9, 2013. Works Cited “CNN Tech” July 24 2004, Zara: A Model Fashion Retailer, Viewed 9 February 2013 “Zara” n.d, Viewed 9 February 2013 Dutta, D n.d, Retail @ the Speed of Fashion, Viewed 9 February 2013 Gitman, L & McDaniel, C 2008, The Future of Business: The Essentials, Cengage Learning, London. Laudon K. C & Laudon J. P 2012, Management Information Systems: Managing the Digital Firm, 12th edition, Prentice hall, New York. Mcafee, A., Dessain, V. & Sjoman, A 2007, “Zara: IT for Fast Fashion,” Harvard Business School. Sekhar, V 2009, Business Policy, and Strategic Management, I. K. International Pvt Ltd, New York. Tungate, M 2012, Fashion Brands: Branding Style from Armani to Zara, Kogan Page Publishers, New Jersey. Read More