CENTER FOR
INFORMATION
SYSTEMS
RESEARCH
Sloan School
of Management
Massachusetts
Institute of
Technology
Cambridge
Massachusetts
IT Savvy Pays Off: How Top Performers
Match IT Portfolios and Organizational Practices
Peter Weill and
Sinan Aral
May 2005
CISR WP No. 353 and Sloan WP No. 4560-05
© 2005 Massachusetts Institute of Technology. All rights reserved.
Research Article: a completed research article drawing on one or
more CISR research projects that presents management frameworks,
findings and recommendations.
Research Summary: a summary of a research project with
preliminary findings.
Research Briefings: a collection of short executive summaries of key
findings from research projects.
Case Study: an in-depth description of a firm’s approach to an IT
management issue (intended for MBA and executive education).
Technical Research Report: a traditional academically rigorous
research paper with detailed methodology, analysis, findings and
references.
About the Center for Information Systems Research
CISR MISSION
CISR RESEARCH PATRONS
CISR was founded in 1974 and has a strong track
record of practice based research on the management
of information technology. As we enter the twentyfirst century, CISR’s mission is to perform practical
empirical research on how firms generate business
value from IT. CISR disseminates this research via
electronic research briefings, working papers,
research workshops and executive education. Recent
and current research topics include:
BT Group
The Boston Consulting Group, Inc.
DiamondCluster International, Inc.
Gartner
Hewlett-Packard Company
Microsoft Corporation
Tata Consultancy Services—America
2003 PROJECTS
Business Models and IT Investments
Governing IT for Different Performance Goals
Assessing Architecture Outcomes
Infrastructure as Variable Cost
Managing IT Related Risks
2004 PROJECTS
Assessing the Performance of Alternative
Business Models
Managing the Next Wave of Outsourcing
Managing IT Architecture for Business Value
Measuring IT-driven Risk
Exploring the Role of the IT Unit in Leading
IT-enabled Change
Since July 2000, CISR has been directed by Peter Weill,
formerly of the Melbourne Business School. Drs. Jeanne
Ross, George Westerman and Nils Fonstad are full time
CISR researchers. CISR is co-located with MIT Sloan’s
Center for e-Business and Center for Coordination
Science to facilitate collaboration between faculty and
researchers.
CISR is funded in part by Research Patrons and Sponsors
and we gratefully acknowledge the support and
contributions of its current Research Patrons and
Sponsors.
CONTACT INFORMATION
Center for Information Systems Research
MIT Sloan School of Management
3 Cambridge Center, NE20-336
Cambridge, MA 02142
Telephone: 617/253-2348
Facsimile: 617/253-4424
http://web.mit.edu/cisr/www
Peter Weill, Director
pweill@mit.edu
David Fitzgerald, Asst. to the Director
dfitz@mit.edu
Jeanne Ross, Principal Res. Scientist
jross@mit.edu
George Westerman, Res. Scientist
georgew@mit.edu
Nils Fonstad, Research Scientist
nilsfonstad@mit.edu
Jack Rockart, Sr. Lecturer Emeritus
jrockart@mit.edu
Chuck Gibson, Sr. Lecturer
cgibson@mit.edu
Chris Foglia, Center Manager
cfoglia@mit.edu
Julie Coiro, Admin. Assistant
julieh@mit.edu
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CISR Working Paper No. 353
Title:
IT Savvy Pays Off: How Top Performers Match IT Portfolios and
Organizational Practices
Author:
Peter Weill and Sinan Aral
Date:
May 2005
Abstract:
Information technology is major investment for most enterprises and constitutes a
portfolio of investments. Just like any other investment portfolio, the IT portfolio must be
balanced to achieve alignment with business strategy and the desired combination of short and
long term pay off. This portfolio balancing is the role of senior management and should be
integrated into firms’ IT governance processes. Top financial performers have matched particular
organizational practices and competencies with IT portfolio allocations to achieve specific
business goals. In short, they have more IT savvy and it pays off.
Keywords: Retail, business model, IT and information management, IT enabled strategy,
outsourcing.
12 Pages
IT Savvy Pays Off: How Top Performers Match IT
Portfolios and Organizational Practices1
Sinan Aral, Phd. Student, MIT Sloan School of Management
Peter Weill, Director, CISR, MIT Sloan School of Management
Matching IT Investments and Organizational Practices Enhances Returns
7-Eleven Japan, with over 10,000 stores, is the most profitable retailer in Japan. 7-Eleven Japan
“counselors” visit each store at least twice a week. The counselors work with the store franchisees or
managers to improve the business, often by using data from their information systems to manage and order
more effectively.2 By matching practices and information technology (IT) investment, the typical 7-Eleven
store offers an industry leading 70% new items for sale per year. This product mix agility has contributed to
the average store’s daily sales doubling from 1977 to 2004. 7-Eleven CEO Toshifumi Suzuki, explains:
“It is not enough to exchange information. The information has no value unless it is understood
and properly integrated by the franchisees and makes them work better.”
7–Eleven’s “total information system” connects 70,000 computers in stores, at headquarters, and at supplier
sites providing transparency across the entire value chain. Recent sales, weather conditions and product
range information are provided graphically to each store for ordering fresh food. Fresh food is ordered and
delivered three times a day into stores. The result is that on hot days Tokyo’s 7-Eleven stores have plenty of
Bento boxes while on cold days there are lots of hot noodles for sale. But these practices alone are not
enough—7-Eleven Japan has worked hard to develop firm-wide IT skills and business management
involvement to conceive of, and reinforce, these practices. The company counselors’ visits increase the IT
skills of the store operators while reinforcing the IT practices.
One reason why 7-Eleven’s average daily sales is approximately ¥200 thousand ($1670) higher than
competitors’ is that each of the total 200,000 store owners and clerks, including part time workers, is
expected to participate in ordering, often testing hypotheses for new product offerings. The collaboration
leads to more effective ordering, optimizes employees’ capabilities, and maintains motivation—
differentiating 7-Eleven Japan from its competitors.
The matching of practices, capabilities and IT has helped steadily increase profitability with gross margins
per store increasing from 5% to over 30% from 1977 to 2004. The impact is also apparent in store and
supply chain efficiency with the average number of deliveries to downtown stores dropping from 77 to ten
per day over the same period and stock turn decreasing from 25 to ten days.
7-Eleven Japan has made effective IT investments for their business strategy and matched the resulting IT
portfolio with IT practices and capabilities to create industry leading financial returns over more than 20
years. We call this reinforcing set of practices and capabilities “IT savvy.” We found this pattern of success
is repeated by top performing firms that have stronger IT savvy and derive greater value from each dollar
invested in their IT portfolio. We studied 147 firms over five years and found that top performers had
developed value enhancing IT savvy to support their IT portfolio. Top performers have matched particular
practices (e.g., the percent of firm transactions that are digital) and competencies (e.g., IT skills of all staff)
with IT portfolio allocations to achieve specific business goals (e.g., growth, profit or innovation).
1
The authors gratefully acknowledge the support for this research from all the MIT CISR Patrons and Sponsors
(http://mitsloan.mit.edu/cisr/) and the National Science Foundation, grant number IIS-0085725. In particular, we would like to
acknowledge the input of Jeanne Ross of MIT Sloan CISR and Shafeen Charania of Microsoft.
2
For more information see K. Nagayama & P. Weill “7-Eleven Japan Co., Ltd.: Reinventing the Retail Business Model,” MIT
Sloan CISR Working Paper 338, January 2004.
© 2005 MIT Sloan—Aral & Weill
Page 1
About the Research
Why Use IT Portfolios
for IT Investment
To better enable senior executives to match
IT investments with strategy, many firms use
IT portfolio management.3 Just as investors
address their risk and return objectives using
portfolios of financial investments, firms
have portfolios of IT investments. We found
there are four different management objectives that motivate firms’ investment in IT.
Each objective results in a different IT asset
class with a unique risk-return profile. Just
like any other investment portfolio, the IT
portfolio must be balanced to achieve alignment with the business strategy and the
desired combination of short and long term
pay off. This portfolio balancing is the role
of senior management and should be integrated in the firm’s IT governance processes.4
Four Management Objectives Leading
to Four IT Asset Classes
We found business leaders have four
different management objectives for investing in IT:
This paper is based on a survey of CIOs and IT managers at
147 U.S. firms and supplemented by discussions with IT
managers in large U.S., European and Asian firms over the
last five years. The survey was designed at the Center for
Information Systems Research (CISR) and the Center for
eBusiness at MIT and conducted in person and over the
telephone in 2001/2/3 by the research firm Harte Hanks. The
firms surveyed accounted for $448 billion in output in 2001
and provided three years of data on IT investments and
organizational practices between 1999 and 2001. Performance
data was obtained for four years between 1998 and 2002 from
the Compustat database. The total IT investment includes all
centralized and decentralized IT spend (expenses and
depreciated capital) both in-house and outsourced, plus all
employees dedicated to IT services and management. The
survey sample is composed of 58% manufacturing and 42%
services firms, which mirrors the composition of the S&P 500
and the Fortune 1000. The results are all statistically
significant from regression analysis controlling for size,
industry, R&D and advertising expenditure. Interviews and
discussions with CIOs and other senior executives were
conducted to further understand how IT savvy was
implemented during 2003/4/5. For more details on the
technical analysis see—Weill, P. & Aral, S., IT Assets,
Organizational Capabilities and Firm Performance: Asset
and Capability Specific Complementarities, MIT Sloan CISR
Working Paper No. 343, August 2004.
•
Transactional – to cut costs or increase throughput for the same cost (e.g., a trade processing
system for a brokerage firm). For 7-Eleven Japan, the store ordering system, which efficiently
processes millions of transactions a day, is a transactional investment.
•
Informational – to provide information for any purpose including: to account, manage, control,
report compliance, communicate, collaborate or analyze (e.g., a sales analysis or reporting
system). For 7-Eleven Japan, the sales analysis to identify what products are (or are not) selling
well is informational.
•
Strategic – to gain competitive advantage or position in the market place (e.g., ATMs were a very
successful strategic IT initiative for the innovating banks increasing market share). A successful
strategic IT initiative for 7-Eleven Japan was the introduction of a bill payment service where
customers can pay their utility and other bills in stores. The service is growing at 20% per year. In
a few years this strategic initiative will lose its competitive advantage as other outlets provide the
same service and what was once strategic will become transactional.
3
See 1) Jeffery & Leliveld, “Best Practices in IT Portfolio Management,” MIT Sloan Management Review, Spring 2004, who
report 24% of firms had effectively implemented IT portfolios and 78% expected implementation by the end of 2004; 2)
Leveraging the New Infrastructure: How Market Leaders Capitalize on Information Technology, P. Weill and M. Broadbent,
Harvard Business School Press, 1998; 3) P. Weill and J. Ross, Managing the IT Portfolio (Update Circa 2003), MIT Sloan CISR
Research Briefing, Vol. III, No. 1C, March 2003 available in CISR Working Paper 340 “CISR Research Briefings 2003”; and 4)
P. Weill and J. Ross, Managing the IT Portfolio: Returns from the Different IT Asset Classes, MIT Sloan CISR Research
Briefing, Vol. IV, No. 1A, March 2004 available in CISR Working Paper 351 “CISR Research Briefings 2004.”
4
See P. Weill and J. Ross, IT Governance: How Top Performers Manage IT Decision Rights for Superior Results, Harvard
Business School Press, 2004, Chapter 3.
© 2005 MIT Sloan—Aral & Weill
Page 2
•
Infrastructure – the base foundation of shared IT services used by multiple applications (e.g.,
servers, networks, laptops, customer databases). Depending on the service, infrastructure
investments are typically made with the objective of either reducing IT costs via consolidation
and/or providing a flexible base for future business initiatives. In 7-Eleven Japan, the satellite,
ISDN and mobile network linking the stores, headquarters and suppliers supports many different
applications and is a large infrastructure investment.
Investments in the four management objectives become an IT portfolio with four distinct asset classes (see
Figure 1). The average firm studied allocates 54% of their total IT investment each year to infrastructure.
Utilizing the infrastructure are the transactional systems, accounting for 13% of average IT investment.
Informational systems conceptually sit on top of and use both the transactional and infrastructure systems,
accounting for 20% of average IT investment. Similarly, strategic systems use both the transactional and
infrastructure systems and account for 13% of average investment. Just like a personal investment portfolio
with cash, bonds, equities, property etc., the four IT asset classes have different historic risk-return profiles
and must be re-weighted as objectives change.
Figure 1: Rethinking IT as an Investment Portfolio
• Increased control
• Better information
• Better integration
• Improved quality
• Faster cycle time
20%
• (Innovation)
• (Major Change)
• (Facilitation)
• (High Value Added)
• (Interact with customers)
• Increased sales
• Competitive advantage
13%
• Competitive necessity
• Market positioning
INFORMATIONAL STRATEGIC
13%
• Cut costs
• Increase the Firm’s
IT Skills throughput
( ) = public sector
TRANSACTIONAL
54%
INFRASTRUCTURE
• Business integration
• Business flexibility
• Reduced marginal
cost of BU’s IT
• Reduced IT costs
• standardization
Adapted from: Weill & Broadbent Leveraging the New Infrastructure: How market leaders capitalize on IT,
Harvard Business School Press, 1998. Percentages reflect data collected in 2001/02 from 147 firms.
Investment for any single project can be allocated over one or more asset classes. For example, the senior
executives of a large technology firm allocated their recent multimillion dollar investment in a customer
relationship management system (CRM) as 60% informational (providing customer information), 5%
strategic (to gain competitive advantage), 25% transactional (to cut costs) and 10% infrastructure (to provide
shared IT services). This allocation raises a critical issue about the role of technology. The same technology
can be applied with different managerial objectives in different firms. The technology firm was relatively
late in adopting CRM and expected only 5% of the benefits would be strategic. They also had much of the
infrastructure needed for the implementation and thus only 10% of the investment was for shared
infrastructure. By comparison a competitor had successfully implemented CRM three years earlier with a
higher total project cost and a different allocation of resources—more strategic and infrastructure and less
informational. The portfolio allocation works because it underscores the importance of how firms use
© 2005 MIT Sloan—Aral & Weill
Page 3
technology instead of the technology itself. Making a sensible allocation of an IT project investment into the
asset classes requires senior management clarity about what they wish to achieve and who will be held
accountable—a matter of strategy rather than of technical specifications.
Figure 2: Different IT Assets Deliver Different Value
Investments in these IT assets are associated with the following average changes in
cost, profitability, innovation and market value the year after the investment is made4
Informational
Strategic
Transactional
Infrastructure
Lower Cost
of Goods
Sold
Infrastructure
Transactional
Profit1
Innovation2
Market
Value3
-
-
+
+
Informational
+
Strategic
R&D
Advertising
-
+
+
+
1
Profit is Measured by Net Margin = Income Before Extraordinary Items/Total Sales.
Innovation is measured by Sales from Modified and Enhanced Products/Total Sales and Sales from New Products/Total Sales.
3
Market Value is measured by Tobin’s q – the Market to Book value of company stock, in the same year the investment is made.
4
+/- = Statistically significant impacts controlling for industry, firm size, R&D expense, and advertising expense.
2
The Returns from the Four IT Asset Classes
IT investments in the transactional asset class aim to reduce costs and increase productivity. Firms that
invested more heavily (than their competitors) in transactional IT had superior productivity (measured by
sales per dollar of assets) and lower costs (see Figure 2). The results suggest that transactional investments
pay off by using IT to support or automate repetitive business processes. For example, UPS, a very
successful but cost conscious logistics firm, provides free package tracking information on their website or
integrated into their customer’s ERP systems. Before on-line tracking, customer calls to their call center cost
UPS around $2 each; sometimes there were two follow-on calls within UPS to locate the package, costing a
total of $6. With on-line tracking, there can be six million tracking requests per day during the Christmas
rush period and each costs UPS only a few cents.5 If the firm’s strategy is to use IT to cut business costs and
increase productivity, weighting the IT portfolio with transactional investments more heavily than the 13%
average makes sense.6
Investments in the informational asset class aim to provide more and better information to manage, control,
report, comply with regulations like Sarbanes Oaxley, or analyze customer needs. Firms that invested more
heavily in informational IT had higher quality and larger margins. Thus these firms, such as 7-Eleven Japan,
proactively used the output of their informational investments to make better decisions, often about
customer needs. Information on its own doesn’t create business value; it is the systematic application of the
information to the business issue that creates value.
5
See J. Ross, “United Parcel Service: Delivering Packages and E-Commerce Solutions,” MIT Sloan CISR Working Paper 318,
August 2001.
6
See the MIT Sloan CISR Research Briefing (March 2003) in footnote 3 for benchmarks by industry.
© 2005 MIT Sloan—Aral & Weill
Page 4
Investments in strategic IT aim to gain a competitive advantage by positioning the firm in the market place
for growth and innovation. Successful strategies include electronic connections that provide customized
services (e.g., Amazon’s recommended books service) and customized products (e.g., TD Waterhouse’s
personalized investment analysis) to the customer.
Strategic IT is a high risk-high return strategy with high failure rates (we estimate 50%), but large potential
upside with successful initiatives gaining a two- to three-year lead on competitors. But the lead doesn’t last;
ATMs are now a lower cost channel for banks, illustrating that effective strategic investments eventually
become transactional. Firms with more strategic IT investments generate more revenues from modified and
enhanced products indicating that these investments are effective in increasing sales through product
innovation.
Investments in IT infrastructure serve multiple purposes. Some infrastructure investments aim to reduce cost
through standardization and consolidation (e.g., server or data center consolidation). Other infrastructure
investments provide a platform for delivering firm-wide initiatives such as a shared customer database for a
single point of customer contact. Still other infrastructure investments, such as implementations of modular
architectures, enable future IT initiatives and flexibility. More infrastructure capability is expected to reduce
time to market for new business initiatives.
The returns from the IT infrastructure asset class reflect this complex set of objectives and present a strategic
choice for senior executives. Firms that made more investments in IT infrastructure did have higher
valuations and faster times to market. However, there is also a cost. Firms with more IT infrastructure
investments showed a short-term impact on their profitability with lower margins and return on assets in the
same year as the infrastructure investment, demonstrating that there is typically a lag to receiving the
benefits. However, the stock market appears to reward long-term investments such as IT infrastructure.
Firms that maximized their infrastructure investments had higher market valuation but lower short run
margins and ROAs. A CEO in financial services responded to this finding, “That balancing act makes sense
to me. We constantly make the same tradeoffs in all our infrastructure investments such as people, brand,
buildings and research.”
Understanding each of the four IT asset classes’ return profiles and the portfolios for top performers helps
managers make more informed IT investment decisions that are linked to their strategic goals. The portfolio
approach helps put IT in business terms and provides a common language for business and IT professionals.
Since 1999, Eli Lilly has used this approach to categorize its IT investments. “We tend to want to have five
percent [of our projects] in strategic areas, 15% to 20% in the informational category, and the remaining
percentage split between the infrastructure and transactional,” explains Sheldon Ort, Lilly’s information
officer for business operations. He says that at the enterprise level, those percentages have remained fairly
consistent. This model allows Lilly to balance the risk and reward of its IT investments in business teams.7
For comparison, Figure 2 also provides the measurable returns from firm-wide investment in research and
development and advertising. For many firms, investments across these different areas require tradeoffs and
coordination. This evidence of the different average returns associated with each type of investment
provides interesting input for these often politically charged discussions.
Figure 3 provides a comparison of IT investments and portfolios for all firms studied as well as top
performers. Top performers averaged across all industries spend 4% more on IT and have similar portfolios
to the average firm. The industry differences are interesting. For example, top performers in financial
services spent 10% less than the average firm, but have portfolios more weighted to infrastructure. IT
investment is so fundamental to all financial services firms that IT is mature with much of the advantage
coming from more efficiency and effectiveness. Top performers in wholesale, retail and transport spent 11%
7
Adapted from Todd Datz, “Portfolio Management – how to do it right,” CIO Magazine 1 May 2003.
© 2005 MIT Sloan—Aral & Weill
Page 5
more than the average firm, indicating there was still potential benefit to strategically increase IT spending
and create value.
Figure 3: Portfolios of Top Performers Are Different
Informational
Strategic
Transactional (40)
Infrastructure (40)
Finance,
Finance,
Insurance
Insurance
12%
All
All Firms
Firms11
[N=140]
[N=140]
[N=49]
[N=49]
Top
-Year
Performers
Top Performers’
Performers’’ 33-Year
Relative
Relative IT
IT Spend
Spend33
21%
12%
Wholesale
Wholesale
Retail,
Retail,
Transport
Transport
17%
17%
Information
Information
&
& Services
Services
25%
11%
All
All
20%
13%
14%
13%
14%
17%
13%
54%
54%
52%
47%
54%
11%
Top
Top Performers
Performers22
20%
ManuManu
Manu-facturing
facturing
19%
25%
11%
18%
13%
27%
9%
20%
13%
12%
13%
13%
17%
13%
58%
51%
56%
47%
54%
-10%
+3%
+3%
+7%
+7%
+11%
+11%
+4%
+4%
1
MIT CISR/SeeIT Survey of 147 enterprises.
Average industry adjusted portfolios of the top 1/3 performers on ROA, Percent Margin & Revenue Growth.
3
Top Performers’ IT as percent of Net Sales (three year average)/Industry average IT as percent of Net Sales (threeyear average).
2
Just like a personal investment portfolio, an enterprise’s IT portfolio must be aligned to its strategy and
balanced for risk and return. Firms use the results in Figures 2 as one would use stock brokers’ reports
containing historic returns to different asset classes and the average asset class composition of high return
portfolios. The objective is not to aim for the same profile as the benchmark but instead to answer the
following question. As a senior management team, can we explain the difference between our IT portfolio
and the benchmark by our strategy? If the difference can be convincingly explained, then alignment between
strategy and IT investment is typically achieved.
Just making IT investments is not enough. Above industry average returns per dollar invested are achieved
by matching IT investments, capabilities and management practices—i.e., more IT savvy—as in the 7Eleven Japan example. Again just like a personal financial portfolio, investing the right amount in the right
assets classes is only the first step—above average management capabilities are also needed to achieve
above industry average returns.
Firms with Superior IT Savvy Have Above Average Returns
Firms with more IT savvy derive greater value from each IT dollar invested in all four IT asset classes in
their IT portfolio. Firms achieving these above industry average returns from their IT investments have
developed a culture of IT savvy that impacts every employee and process. The instinct and discipline to use
IT effectively is part of every manager’s thinking and part of the DNA of the firm.
© 2005 MIT Sloan—Aral & Weill
Page 6
Figure 4: Firm-Wide IT Savvy
IT for Internal and
External
Communication
Digital Transactions
Percent digitization of transactions
firms execute with both suppliers and
customers
FirmFirm-wide IT Skills
Technical and business skills of IT
staff, IT skills of end users and relative
ability of firms to satisfy their demand
for highly skilled IT labor
Business Mgt.
Involvement
The degree of senior management
commitment to IT projects and the
degree of business unit involvement in
IT decisions
Competencies
Internet Use
Internet based architectures for key
functions like sales force
management, employee performance
measurement, training and post-sales
customer support
Practices
Five mutually
reinforcing
practices
and
competencies
that drive
superior
value from IT
Intensity of electronic communication
media such as email, Intranets and
wireless devices for internal and external
communications and work practices
Practices derived from statistical factor analysis of effective practices in 147 firms from 1999 to 2002
Characteristics That Create IT Savvy
Business leaders of firms with high IT savvy have developed the five mutually reinforcing characteristics
described below. The first three characteristics are practices related to IT use. The last two characteristics
are competencies needed for high IT savvy. The mutual reinforcement of both practices and competencies is
necessary for high IT savvy and these five characteristics are representative but not exhaustive of firms with
stronger overall IT savvy (see Figure 4).
IT for Communication—high use of electronic channels such as email, intranets and wireless
devices for internal and external communications and work practices.
Digital Transactions—a high degree of digitization of the firm’s repetitive transactions,
particularly sales, customer interaction and purchasing.
Internet Use—more use of Internet architectures for key processes such as sales force
management, employee performance measurement, training and post-sales customer support.
Firm-wide IT Skills—high capability of all employees to use IT effectively. There are strong
technical and business skills among IT staff, strong IT skills among business staff and an
adequate market supply of highly skilled IT staff.
Business Management Involvement—strong senior management commitment and championing of IT initiatives. There is also strong business unit involvement in IT decisions
resulting in a partnership between IT staff and business units to help generate value from IT
investments.
© 2005 MIT Sloan—Aral & Weill
Page 7
Based on these five characteristics we assessed each firm’s IT savvy relative to the other firms in the study.8
The impacts of high IT savvy are compelling and Figure 5 summarizes the premium on four different
performance measures achieved by firms with high, average and low levels of overall IT competency.
Figure 5: Firm-wide IT Savvy (ITS) Impacts Performance
Informational
Strategic
Transactional
Lower Cost of
Goods Sold
Infrastructure
Firms4
Ave.
5
+5
Infrastructure
Transactional
Low
ITS
-
Strategic
Innovation2
Ave.
High
ITS
Low
ITS
-
+
-
+
+
-
+
+
-
+
+
-
+
Informational
1
High
ITS
Profit1
+
Market Value3
Ave.
High
ITS
Low
ITS
Ave.
High
ITS
Low
ITS
-
+
-
+
+
-
+
+
-
+
+
-
+
-
+
+
-
+
Profit is measured by Net Margin = Income Before Extraordinary Items/Total Sales.
2
Innovation is measured by Sales from Modified and Enhanced Products/Total Sales and Sales from New Products/Total Sales.
Market Value is measured by Tobin’s q – the Market to Book value of company stock, in the same year the investment is made.
4
Ave. = Average return for all firms, High ITS = additional return for firms in the top 5% of IT Savvy, Low ITS = additional negative
impact on return for firms in the bottom 5% of IT savvy.
5
+(-) = "High Impact" (50% or less of the highest positive (negative) incremental impact for that variable, ++(--) = "Very High
Impact" (Greater than 50% of the highest positive (negative) incremental impact for that variable). All impacts are statistically
significant controlling for firm and industry effects.
3
The Extra Returns from IT Savvy
Figure 5 summarizes the average returns and the impact of high IT savvy on investments in the four IT asset
classes in the IT portfolio one year after investment. Firms with high IT savvy achieved higher performance
than other firms when they invested in all four IT asset classes. For example, investments in infrastructure
coupled with high IT savvy were associated with superior returns for a broad basket of performance
measures—costs, profits, innovation and market capitalization. IT infrastructure creates business value by
enabling faster, more efficient application development. In average firms, the impact of IT infrastructure on
profit is negative in the year following the investment. The often several-year lag between infrastructure
investment and effective use, and the significant cash outlay and disruption typically required by major
infrastructure investments, helps explain this negative impact. However, the reinforcing practices and
competencies in high IT savvy firms help convert the impact of IT infrastructure on short-term profit from
negative to positive. The market highly values IT infrastructure investments in the average firm but attaches
premium value to these investments in firms with high IT savvy.
High IT savvy firms also had higher performance associated with transactional IT investments typically
made to automate repetitive transactions, cut costs and increase throughput. Not only does the market value
transactional investments in high IT savvy firms, but these firms also have higher profits and get more sales
from innovative products. The average firm also has lower costs associated with their transactional
8
For example, the practice—digital transactions—was measured as the percent of orders and total sales conducted electronically
which averaged 22%. Each firm’s IT savvy was calculated by a linear combination of the five characteristics in Figure 4.
© 2005 MIT Sloan—Aral & Weill
Page 8
Informational
Profitability
Strategic
Gamma: 5.2
ROA
Transactional
Industry: -0.94
Net Margin
Industry: -0.32
-1
Gamma ($IT/revenue)
0
1
2
3
4
5
6
Market Value
Gamma: 1.0
Industry Average
0.0% 0.2% 0.4% 0.6% 0.8% 1.0% 1.2% 1.4% 1.6% 1.8% 2.0%
Industry: .72
Tobin’s q
Gamma
IT Savvy (1 –> 10)
Industry Average
IT for Internal Communications
0
0.2
0.4
0.6
0.8
1
1.2
Innovation
Gamma: 70%
IT for External Communications
Industry: 35%
Percent Modified Products
Gamma: 30%
Internet Use
IT Savvy
Performance
IT Investment
Infrastructure
Gamma: 4.8
Industry: 26%
Digital Transactions
0%
10%
Percent New Products
20%
30%
40%
50%
60%
70%
Operational Performance
Firm-wide IT Skills
Man.Co.1:
Gamma: 0.72
1.8
Business Mgt. Involvement
Industry:
Industry:1.1
0.78
Cost of Goods Sold/Revenue
0.0
2.0
4.0
6.0
8.0
10.0
0.68
0.69
0.7
0.71
0.72
0.73
0.74
0.75
0.76
0.77
0.78
0.79
The IT Portfolio and IT Savvy at Gamma
Different IT assets contribute to different performance benefits for firms, and matching asset allocations
with particular components of IT savvy improves value creation. Gamma, a real but disguised
manufacturing firm, spends less than their industry’s average on IT, but leverages thoughtful asset
allocation and strong IT savvy to achieve greater profitability, market value and innovation than its
competitors. Spending more than the industry average on strategic and transactional IT, and leveraging
the Internet for sales, procurement, training, employee evaluation and customer support helps Gamma
achieve greater product innovation and close to the industry average cost of selling. Below average
human resource capabilities may prevent Gamma from achieving operational excellence that exceeds
their industry competitors. Although Gamma spends slightly less than their industry’s average on
informational IT and infrastructure, their use of the internet and strong IT management competency
(cooperative links between IT and business units; and top management championing of IT initiatives)
enable them to achieve greater profitability and market value than competitors in their industry.
investments, a tribute to the value transactional investments can bring to any firm. However, low IT savvy
firms have much lower impact on innovation, profits or market value from transactional IT.
Strategic IT with objectives to create new business value or growth is historically a high risk-high return IT
asset class. But firms with high IT savvy mitigate the risks associated with strategic IT investments and have
higher than average profits, innovation and market capitalization. In firms like 7-Eleven Japan, business
management involvement and a culture of IT use for communication are necessary for more successful
strategic (and in other firms, risky) IT investment.
Informational IT includes many types of investments including reporting requirements such as Sarbanes
Oxley and customer relationship management. Again IT savvy makes a big difference. We suspect firms
with strong IT savvy demonstrate particularly strong profitability because of the disciplines (e.g., firm-wide
IT skills of managers including the use of common information and standards) required to use a common set
© 2005 MIT Sloan—Aral & Weill
Page 9
of information effectively. Interestingly, we see no impact from informational IT on innovation, cost or
market capitalization in the average firm.
IT investments in firms with low IT savvy were associated with lower returns from all four asset classes in
their IT portfolios. The situation for these firms is bleak with value leaking from most IT dollars they invest.
These firms should reduce their IT investments to essential areas and reweigh their portfolios towards lower
risk transactional IT until they improve their overall IT savvy. Otherwise, they will continue to leak value,
particularly from the longer term and higher risk asset classes—infrastructure and strategic IT.
Maximizing the Business Value of Your IT Portfolio
Just making IT investments is not enough. Better returns are available by matching the type of IT
investments made with the firm’s objectives. Even better returns are available by having higher IT savvy
and matching IT management practices and competencies with the mix in the IT portfolio. IT portfolio
management is a proven way to make stronger returns possible by raising awareness of how IT dollars are
spent. Here are some suggestions for applying IT portfolio management and matching IT savvy.
1. Identify the current and previous year’s IT portfolios. Using our portfolio categorization, estimate
your firm’s IT portfolios for the last three years and the proposed IT portfolio for next year.9 At
an IT investment committee or governance meeting discuss whether these investments are
appropriate for the strategy of the firm. A recent discussion with an insurance firm looking back
over the last four years of IT portfolios raised these important questions:
• Why did the firm’s percentage of strategic IT investments fluctuate so dramatically?
• Will the low infrastructure investments planned for next year adversely affect our strategic
agility?
• Does our method of decentralized and departmentalized decision making about IT
investments fritter away our IT resources in a “bottom up” approach which doesn’t support
the major strategic direction of the firm as a whole?
• Why do some business units with different strategies not have different IT portfolios?
2. Understand IT asset class performance and benchmarks for your business. Using the results
reported in this article and other benchmarks, assess whether your current IT portfolios are
appropriate for your firm’s or business unit’s strategic goals, IT savvy and appetite for risk. An
attractive alternative to using benchmarks is to compare multiple business units within your firm.
As each business unit has a different strategy and IT savvy, comparing the alignment of their
objectives, practices, capabilities and IT portfolio will help highlight where IT investments are
applied thoughtfully and what changes should be investigated.
3. Understand and track your firm’s IT savvy. Given the impact on the business value generated
from IT, firms should assess and actively manage IT Savvy. The practices and competencies
described in Figure 4 provide a starting point for assessing IT savvy. Again, comparing IT savvy
across multiple business units is particularly informative. Firms or business units with low overall
IT savvy should consider re-weighting their IT portfolios towards the less risky transactional and
informational investments. At the same time, low IT savvy firms can focus on improving IT
practices and competencies that are most important for the asset classes where most of their key
investments are made. Figure 6 summarizes the impact of IT savvy. The column on the right
identifies the key components of IT savvy that add the most leverage to the asset classes in the IT
portfolio for each performance goal. To improve IT savvy, start with characteristics that provide
leverage for the most important asset classes in the firm’s (or business unit’s) IT portfolio to
improve firm-wide performance. Practices from strong IT savvy business units can be codified
and transferred to lower IT savvy units.
9
To estimate your portfolio using the MIT CISR IT portfolio framework please go to: http://web.mit.edu/cisr/MITCISRITPortfolio.doc to get a brief questionnaire.
© 2005 MIT Sloan—Aral & Weill
Page 10
4. Balance the portfolio for alignment and risk-return profile through a transparent process. Using
the results from the previous three steps, senior management must make judgements about the
firm’s IT portfolio. The judgements are based on management’s intuition concerning the strategy,
the appetite for risk, the firm’s IT savvy, the economy, available capital etc. Having an IT
portfolio process makes this judgement explicit and trackable over time instead of hidden within
the budgets of each project or department.
5. Re-weight portfolios annually and when major changes occur. Objectives, economic conditions
and many other important factors change and like personal investments, IT portfolios need to be
re-weighted as needs change. For example, as firms achieve a high overall IT savvy rating they
could effectively invest more in IT and take more risk in their portfolio relative to competitors or
previous investments.
6. Incorporate the IT portfolio approach into your IT governance framework. Effective IT
governance specifies the decision rights and accountability framework to encourage desirable
behavior in the use of IT. IT investment is one of the key IT decisions that needs to be governed.
Effective governance institutionalizes the disciplines of IT investment (often incorporating IT
portfolio management) in a repeatable governance process that is understood and followed by all
managers and linked to the incentive and reward systems of the firm. Organizational learning is
predicted, in part, by the time between action and feedback. The shorter time lag the faster the
opportunity to learn. Tracking the impacts of IT investment decisions and using these results to
inform the next cycle of IT investment promotes enterprise learning and the faster the better.
Firms with average or low IT savvy can increase their returns and reduce their IT risk without investing
another cent in IT. These firms should apply another scarce resource—management attention—to increasing
their IT savvy. The superior results from IT savvy reflect a return on superior management capability, one of
the few long term sources of competitive advantage. We suspect that the aspects of strong IT savvy we
measured are reflective of superior capability in all aspects of management, including IT. Firms with strong
IT savvy like 7-Eleven Japan have developed a firm-wide culture of IT savvy that impacts every employee
and process. The instinct and discipline to use IT effectively is part of every manager’s thinking and part of
the firm’s DNA. IT savvy can be learned and it pays off.
© 2005 MIT Sloan—Aral & Weill
Page 11
Figure 6: IT Investment-Savvy Profiles for Different Goals
Performance Goal
Practices/Capabilities
to Add Leverage
IT Asset Classes
Overweight
for All Firms
Overweight
for High IT Savvy Firm
High Leverage
Profitability
Informational
Strategic
Transactional
• Firm-wide IT skills
• Management involvement
• Internet use
Market Value
Informational Strategic
Transactional
• Firm-wide IT skills
• Management involvement
• Internet use
Infrastructure
Innovation
Strategic
• Management involvement
• Internet use
Informational
Infrastructure
Lower Cost
of Goods Sold
Strategic
Transactional
• Firm-wide IT skills
• Internet use
Infrastructure
Overweight = percent of IT investment and IT investment is often larger than industry average.
© 2005 MIT Sloan—Aral & Weill
Page 12
H
9B05E023
KL WORLDWIDE ENTERPRISES, INC.: PUTTING
INFORMATION TECHNOLOGY TO WORK
Professor Richard M. Kesner prepared this case solely to provide material for class discussion. The author does not intend to
illustrate either effective or ineffective handling of a managerial situation. The author may have disguised certain names and other
identifying information to protect confidentiality.
Ivey Management Services is the exclusive representative of the copyright holder and prohibits any form of reproduction, storage or
transmittal without its written permission. Reproduction of this material is not covered under authorization by any reproduction rights
organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Management Services,
c/o Richard Ivey School of Business, The University of Western Ontario, London, Ontario, Canada, N6A 3K7; phone (519) 6613208; fax (519) 661-3882; e-mail cases@ivey.uwo.ca.
Copyright © 2005, Northeastern University, College of Business Administration
Version: (A) 2009-09-30
In 2005, the Boston-based sports apparel retailer KL Worldwide Enterprises, Inc. (KL) faced several new
threats to its business. Margins were tightening, as competitors with lower cost production capabilities in
China began posing a serious threat to the firm’s private-label business. And the Internet had become
cluttered with KL look-alike sites. Company Chief Executive Officer (CEO) Joseph Campbell and Jens
McCreary, chief operating officer (COO), were concerned. Noted McCreary:
We can’t let others steal KL’s thunder. We must reinvent our use of IT [information
technology] to both improve our production capabilities and capacity and facilitate the
rapid and economical integration of anticipated KL acquisitions. We need to be able to
turn on a dime and leverage our supply chain management expertise to outpace our
competitors in our markets. But to do that we need timely, accurate data that we can slice
and dice to forecast where we are headed and what to do next.
KL was also witnessing serious challenges in its key demographic markets — teenagers and young adults
— from Web-based enterprises with manufacturing largely sourced in mainland China. McCreary felt the
need to add “more sizzle” to the KL experience while keeping costs down.
It is a cliché that we need to do more with less. I would go beyond that, we need to find
creative ways to cut our operating costs so that we can invest more in product innovation
and quality and sales growth.
KL WORLDWIDE ENTERPRISES, INC.: A BUSINESS OVERVIEW AND HISTORY
KL Worldwide Enterprises, Inc., was established in 1983 through the merger of several small but highly
regarded sports equipment and clothing manufacturers, all of whom were located in the United States.
Incorporated in the state of Delaware but operating out of a headquarters facility in Boston, Massachusetts,
the founder of KL, Scott Porter (CEO and Founder of Skateworld USA and subsequently of KL
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Worldwide) envisioned a global company engaged in the production, marketing and distribution of
footwear, fitness and sports apparel, and equipment, favoring winter sports, such as skiing and ice hockey,
and rugged outdoor activities, including boating, camping, hiking, rock climbing and hunting. The initial
offering of KL stock took place in 1983 through the American Stock Exchange but as the firm grew into a
multi-national conglomerate, KL moved up to the New York Stock Exchange where it traded under the
letters KLWE.
As he put it to his board of directors at their first stockholders’ meeting, Porter’s vision was simple:
At KL Worldwide Enterprises we will expand rapidly and globally within our niche to
become the very best provider of high quality, yet eminently affordable sportswear and
equipment. We will become a household name among those devoted to outdoors activity
from professional athletes to the typical active family of sports enthusiasts. To that end,
we will acquire other quality providers of sporting goods — both at home and abroad,
teach them the “KL” ways of doing business, and integrate them into a thriving global
enterprise.
KL Worldwide Enterprise remained true to its founder’s strategy. When Porter stepped down as CEO and
president in 2003, KL stood at $720 million in gross sales and, as of the end of fiscal year 2005, eclipsed
the $1 billion mark. His successor, Joseph Campbell, continued KL’s winning ways by acquiring,
improving and growing a host of smaller sports product providers and merging them into KL. He has also
moved KL globally through the extension of KL’s manufacturing and distribution arms in India, Brazil and
Singapore.
KL had its headquarters in Boston, Massachusetts, and regional offices in all of the firm’s primary markets,
namely the United States, Canada and Europe. In addition, KL operated a highly successful eCommerce
arm through its Web site, KLBrand.com. In fiscal year 2005, the eCommerce branch of KL Enterprises
reached the same level of sales as KL’s own boutique sporting goods outlets. Campbell brought a focus on
business-driven information technology (IT) investment to KL. He explained,
If we are to remain competitive, KL must retain its brand recognition, maintain a
commitment to high quality and reasonable prices, and leverage its worldwide
manufacturing, design, and distribution capabilities. Effective and efficient use of IT is
essential here. This is why I have pushed for ever-improving eCommerce capabilities and
the very best, global supply-chain management that money can buy.
As always the challenges are around coordinating the various, and at times conflicting,
business priorities across the enterprise. We sure could use better IT tools for this as well
as ready access to timely performance data.
However, KL’s strategy was not built purely on its own store chain and eCommerce capabilities. Sales for
KL came primarily from neither of these areas, but from the distribution of KL products through
established retail chains in its three primary markets — the United States, Canada and Europe. Beyond
these well-established distribution channels, a growing segment of KL business came in the form of
“private brand” sales — particularly at the less expensive end of KL product lines — to third-party retailers
who preferred to sell sporting goods under their own in-house label. As noted by Evan McGinnis,
executive vice-president (VP) of Global Marketing and Sales:
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Like its competitors, KL must strike a balance in its approach to the marketplace. For
those who want the cache of the KL brand and our latest designs and product innovations,
and who are willing to pay a premium, we offer KL sports stores and KLBrand.com. For
those who don’t care to use the Web and don’t live in an urban center that offers access to
a KL boutique, consumers can get products from an array of middle-tier to up-scale sports
retailers. But in this highly competitive market and given our competitive edge in
manufacturing and logistics, we can also provide low-cost, customized goods for retailers
who promote their own branding.
In the end, it’s all about numbers (what is in the pipeline, where is it headed, who needs
what when) and KL’s ability to respond to changing patterns of sales and consumer
interests.
The company’s sales figures suggested that this approach had served KL Enterprises well (see Exhibits 1
and 2).
KL ENTERPRISE ORGANIZATION STRUCTURE
As of December 31, 2004, KL Enterprises had approximately 15,737 employees, including management.
In 2005, KL Enterprises employed a total of 16,680 employees stationed in operation facilities throughout
the world with 1,242 of these being management personnel (see Table 1). KL’s global management team
ran corporate operations out of its headquarters in Boston, Massachusetts.1 (See Appendix A for a detailed
discussion of KL’s corporate leadership). The overall growth in KL had many implications for its ability
to compete in global markets. According to Jackie Terrazas, the VP of Customer Service:
As KL has added more and more operations overseas, maintaining a common vision and a
common sense of the company’s value proposition has been a real challenge. It shows up
particularly in the issues around product design and quality where our salespeople have
difficulty in translating customer inputs into improved product offerings. Ultimately,
when customers are unhappy, it is my team that must address the missed handoffs between
sales, design and manufacturing. Given the seasonal nature of our business, the big chains
in particular get bent out of shape when our supply chain breaks down and we not deliver
their private label product or even our KL brands in line with their marketing and sales
plans.
The COO’s office oversaw all manufacturing, logistics, and distribution and warehousing services
worldwide, including extensive facilities in the United States, Brazil, India and Singapore. Each of these
centers focused on a subset of KL product line offerings, producing goods for KL Stores, retailers and
private-label customers.
1
The Boston headquarters included the offices of the CEO, COO, CFO, Corporate Counsel, Global Customer Service,
Global Marketing and Sales, Global KL Store Operations and Information Technology Services (ITS). The executive team
included the CFO, the General Counsel, the VP of Customer Services and the Chief Information Officer (CIO).
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Table 1 — KL Enterprises Employment Data, 2005
Location
Boston, MA, Headquarters
Waltham, MA, Data Center
KL Stores, U.S.
KL Stores, Canada
KL Stores, Europe
M&D, U.S.A.
M&D, Brazil
M&D, India
M&D, Singapore
Total KL Personnel
Management
83
13
150
29
75
242
187
293
170
1,242
Staff
485
82
1,523
475
796
2,437
2,828
4,745
3,309
16,680
KL Store Operations had its own management team led by an executive vice-president (EVP) reporting
directly to the CEO (see Exhibit 3). Global Marketing and Sales included eCommerce and Marketing, as
well as three sales teams for the United States, Canada and Europe respectively. These latter teams sold to
both traditional and the private-label retailers.
For its part, the ITS organization ran a global data center in Waltham, Massachusetts, and oversaw
operational centers within each of the four enterprise Manufacturing and Distribution (M&D) Groups (For
further details on ITS and the information technologies deployed at KL, see Appendix B. For more
information on members of the ITS global team, see Appendix C.).
PRODUCTS, MANUFACTURING AND DISTRIBUTION
KL originated in the United States and its core product line manufacturing capabilities for sports
equipment remained U.S.-based, supplemented by an expanding capability both in Brazil and Singapore.
However, over the past decade, KL migrated the majority of its clothing and sportswear manufacturing to
India and Singapore. KL employed its own and partner-provided facilities at home and abroad to enable a
highly flexible and responsive manufacturing platform for its products (The distribution of KL production
responsibilities is summarized in Table 2).
Table 2 — KL Production Responsibility by Region
Location
United States
Brazil
India
Singapore
Product Focus
sporting equipment, some designer sportswear, sports fashion
accessories, specialization in skiing and ice hockey equipment
leather and canvas products, including gloves, shoes, bags, etc.;
some sporting equipment lines
cloth for most product lines, low-end finished goods for clothing lines
most clothing lines, some sports accessories, low-end equipment
lines
With the exception of clothing lines that required tight coordination between KL M&D India facilities,
where cloth was produced and then sent on to Singapore, all of KL manufacturing was self-contained,
including the sourcing of raw materials through final assembly and distribution. After products were
manufactured, they were stored in distribution and warehousing centers located in Canton, Massachusetts;
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9B05E023
São Paolo, Brazil; Tanjong Pager, Singapore and Mumbai, India, until such a time as they were shipped to
regional KL distribution warehouses or directly to KL customers in the United States, Canada and Europe.
This massive operation posed a variety of logistical challenges for KL. From the perspective of those
involved, some things needed to change.
The U.S. operation is the oldest within KL and the most capital-intensive, yet we run on
the most outmoded SCM [supply-chain management] system. It is taking forever to
move us over to SAP. It is also nearly impossible to get information about the status of
work in our Brazil and Singapore facilities that will require additional finish work once
the product reaches the States.
— Jack Powell, Director of Manufacturing, U.S.A.
The operation in India is complicated by the number of outsourced services that we
employ to supplement and complement our in-house capabilities. The legacy systems we
use are also a barrier to managing our supply chain and logistics activities efficiently.
But the move to SAP is slowed by the product’s inability to address the unique
compliance requirements imposed by the Indian government as well as by the different
business and manufacture processes already in place here.
— Mukesh Vishal, Director of Manufacturing, India
Everything in Brazil takes a little longer to accomplish. We try to be responsive and our
new SAP system really makes a difference. However, we cannot get what we need from
corporate in terms of production line and delivery requirements. The designs emerging
from our colleagues in the U.S. do not work well with the factory configurations and
production capacity in KL’s Brazilian facilities.
— Pepe Simmon,
Director of Warehousing and Distribution, Brazil
Coordination between India and Singapore production facilities is a challenge. Our
systems are not compatible with one another and it is therefore difficult to get timely data
on where we stand with orders for raw materials and semi-finished goods.
Communication and collaboration tools are not in place that do us any good.
— Elizabeth Tan, Director of Manufacturing, Singapore
SALES AND MARKETING
KL Enterprises sold its products domestically and internationally through third-party retailers, as well as
directly through its eCommerce Web site and specialty stores. To manage the associated sales processes,
KL Enterprises employed three independent sales teams located in the United States, Canada and Europe,
all reporting to the same EVP for Global Marketing and Sales. Each sales office was responsible for
maintaining working relationships with customers, including private-label and third-party retailers. KL
eCommerce sales through KLBrand.com were managed by a separate marketing and sales team, and KL
Stores operated as a separate entity with its own direct relationship to KL operations, manufacturing and
distribution. Both the KL stores and eCommerce organizations utilized local KL distribution centers for
their inventory management and order fulfillment needs. These arrangements were not without their
issues, especially concerning inter-operating unit communications and coordination, as noted in the
following comments.
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Our Web site has been around for quite a while and is showing its age. We need to offer
the same sort of customer self-design of products that companies like Nike and Dell offer.
And we need a new look and feel.
— Ivan Henderson, VP of eCommerce
We need to offer a “boutique” experience and therefore the latest and greatest in design
but it takes too long to work our designs through the system to get new and improved
product out the other end.
— Alex Johnson, EVP for KL Store Operations
The designs we get from KLBrands.com and KL Stores look nice but at times require a lot
of work before they can be integrated into our manufacturing processes.
Manufacturability is a real issue and it is increasingly difficult to get all the right players
involved to decide how best to move from a concept to production.
— Jens McCreary, COO
Where is my data?! I cannot run the U.S. sales based upon monthly printed reports
delivered to me two weeks after month-end close.
— Ed Griffin, VP of Sales, U.S.A.
Same here! I need to be able to create forecasts from real-time data to focus my team and
grow the business.
— Leslie Lambert, VP Sales, Europe
European consumers have a greater sense of style than their U.S. counterparts. I need a
way to provide feedback to Boston as the fashion sense of my customers changes.
— Ramero Cohen, VP of Store Operations, Europe
The operation in Canada is small but highly profitable, especially since NAFTA. We seem
to be orphaned when it comes to information systems that provide order statuses,
inventory availability and so forth.
— Helen Irving, VP of Store Operations, Canada
ORDER FULFILLMENT AND DISTRIBUTION
In the United States, sporting equipment, footwear and apparel products were mainly distributed through
third-party retailers, such as athletic stores, sporting goods stores and department stores, either under the
KL label (high end) or private labels (low end). Some specialty products (such as leather accessories) were
also distributed through specialty stores. Lastly, KL’s own store chain served as a showplace for the latest
in KL product offerings, especially at the high end of each KL product line, which was differentiated by
the level of customer care provided at each sales location.
KL International regional offices were located in Canada and Europe. Similar to the United States, KL
Enterprise products were marketed and distributed internationally through third-party and private-label
retailers as well as through KLBrands.com and KL’s own boutiques (see Exhibit 4).
As always, the challenge for KL is to model customer demand, forecast sales for each
product line and ensure that at the end of a season, there is little left in inventory. Our
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capabilities to forecast sales and manage our product and cash flows are not what they
need to be in today’s electronic marketplace.
— Juliet Allen, CFO
We also need to clearly differentiate our high-end product lines sold through KL Stores,
our Web site and certain, third-party retail chains versus the less expensive mix of
products sold through the large national chains and through our private-label relationships.
— Sally Roberts, VP Marketing, Global
And, let’s not forget about delivering the right product to the right customer on a just-intime basis. Most of our accounts want their shelves stocked in a timely manner to cut
down on warehousing and wastage, and to make the most of their advertising and
promotion dollars. As the person who runs the largest segment of our distribution
operations, I can tell you that we do not have the controls in place today to optimize our
effectiveness.
— Mary Simmons,
Director of Warehousing and Distribution Services, U.S.
Flow of Goods and Customer Servicing
Depending on the size of the order, KL either shipped goods directly from a KL M&D Group to the
customer or to one of its own regional distribution and fulfillment centers for order assembly and reshipment to the customer. Large or customized orders tended to go directly to the customer.
KLBrand.com and KL Stores fulfillment always originated from the most appropriate regional center (see
Exhibit 5).
System and data integration is the name of the game here. We have Brazil and Singapore
on the latest version of SAP and the entire firm on Oracle eBusiness suite (ERP) for
corporate financials and HR. However, we do not as of yet have the U.S. and India
operations on the SAP platform and we do not have Oracle’s data warehouse in place for
business analytics. Even with all these large systems in place, we still don’t have an
effective means to bring all the data to bear for end users. ITS is strapped just to meet its
service delivery obligations. These large projects are on top of that.
— Kelly Barnes, CIO
If you want to see ugly, try working with the data from our legacy systems, SAP and
Oracle. We haven’t even scratched the surface on integrating these resources to help
direct corporate decision making and forecasting.
— Bob Weiss, Manager of Data Services
The Web could be a big leverage point for data integration and decision support but
management just sees us as a sales and distribution platform to supplement and extend the
reach of KL Stores.
— Classina Aberto, Manager of eCommerce Systems
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CORPORATE FINANCIALS
From 2001 to 2005, KL posted solid returns with an annual growth rate approaching 20 per cent per
annum. While KL Store sales leveled off somewhat during this period, Web sales went from nothing to
matching the sales of KL Stores. Traditional third-party sales were flat in fiscal year 2004 and fiscal year
2005, but private-label sales continued to demonstrate solid growth. It was also noteworthy that, while
sales in Canada declined and European sales increased, the overall trend in KL sales by region was almost
unchanged, with U.S. sales accounting for approximately 75 per cent of total annual sales.
We are in danger of losing our hold in the market and our competitive edge if KL cannot
reinvent the way it designs and delivers product. I believe technology is the key here —
both in production and in sales.
— Joseph Campbell, CEO
KL spends big bucks on Oracle and SAP but it is hard to get their attention when we need
product changes in line with the dynamics of our business. I am nervous that we are
customizing the hell out of Oracle and that one day KL will just “own” the system and will
not be able to use Oracle product updates and enhancements anymore.
— Greta Van Bevin, Manager of Oracle ERP Systems
INFORMATION TECHNOLOGY SERVICES (ITS)
Oracle e-Business Suite was employed enterprise-wide for accounting, human resources (HR) and
operations data management. However, KL systems deployment efforts focused on the roll-out of
transactional capabilities for finance and HR, and not on planning and forecasting tools. No decision
support services, including corporate-wide data warehousing and business unit data marts, were in place.
Even though SAP served as the information technology standard for enterprise supply chain management,
because KL’s U.S. and India facilities already operated their own logistics, manufacturing, and
warehousing and distribution systems, the company had been slow to move these M&D Groups to the new
standard. Although these efforts were underway, they proved a serious drain on ITS resources.
All KL offices and operations used the same general purpose application software consisting of Microsoft
XP, Microsoft Office, Internet Explorer and SharePoint. But here too, though KL had a solid plan and a
uniform architecture, its IT investments were not thoroughly leveraged.
We do not get the best use of the collaborative technologies at hand. For example, KL
lacks an intranet or enterprise portal but we spend a fortune on siloed information systems
and then on phone and teleconferencing to share the data housed in those silos.
— Kelly Barnes, CIO
KL needs to spend less on ITS and more on production and sales-related capabilities.
— Jens McCreary, COO
If we are to spend more on IT, I want to see an ROI [return on investment] justification
and will bear scrutiny and I want to see actual results rather than vague promises.
— Juliet Allen, CFO
Page 9
9B05E023
We need to look to the Web and eCommerce in terms of prioritizing our future IT
investments.
— Joseph Campbell, CEO
CORPORATE NETWORK COMPATIBILITY
KL Worldwide Enterprises benefited from a well-architected and integrated, but somewhat dated, IT
infrastructure. Each major M&D Group and Regional Sales Office location connected to corporate
headquarters and centralized IT services via high-capacity, leased lines. This network provided highbandwidth connectivity that could support KL’s Oracle, SAP, Web and other heavy through-put
applications.
Most other KL locations and all of its stores operated via virtual private networking (VPN) services
running over the Internet. As the company grew, this communications network became increasingly
uneconomical and prone to intermittent failure. Furthermore, as more applications became Web-based, KL
needed a technical networking platform that was both more secure and flexible.
Throughput is a concern but so too is collaboration. We need it real-time with easy access
to data and views into our core SCM and financial management processes. And if we turn
to the Internet as our platform of choice, it had damn well better be secure from intrusion
and information theft or tampering.
— Jens McCreary, COO
Our network is too slow and does not have the tools we need to collaborate effectively.
The time that goes into product design is both wasteful and way too slow when responding
to market trends and customer demands.
— Evan McGinnis, EVP, Global Marketing and Sales
Page 10
9B05E023
Exhibit 1
KL WORLDWIDE ANNUAL SALES DATA, 2001 TO 2005
Sales by type of Customer ($ millions)
KL Stores
Web Sales
Private Label
Third Party Retail
FY '01
$
75
$
$ 100
$ 325
FY '02 FY '03
$
90 $ 108
$
$ 36
$ 150 $ 180
$ 360 $ 396
FY '04
$ 130
$ 86
$ 233
$ 415
FY '05
$ 156
$ 156
$ 311
$ 415
Total Sales
$
$
$ 864
$ 1,038
500
600
$ 720
Sales by type of Customer (%)
KL Stores
Web Sales
Private Label
Third Party Retail
FY '01
15%
0%
20%
65%
FY '02 FY '03 FY '04 FY '05
15%
15%
15%
15%
0%
5%
10%
15%
25%
25%
27%
30%
60%
55%
48%
40%
100%
100% 100% 100%
100%
Sales by Region ($ millions)
FY '01
FY '02
FY '03 FY '04
FY '05
United States
SE
MW
W
SW
NE
Canada
Europe
$
$
$
$
$
$
$
40
50
65
90
130
100
25
$
$
$
$
$
$
$
48
72
90
108
132
108
42
$ 58
$ 101
$ 122
$ 130
$ 130
$ 115
$ 65
$ 69
$ 138
$ 164
$ 156
$ 121
$ 121
$ 95
$
$
$
$
$
$
$
Total Sales
$
500
$
600
$ 721
$ 864
$ 1,038
FY '03 FY '04
FY '05
83
187
218
187
104
124
135
Sales by Region (%)
FY '01
United States
SE
MW
W
SW
NE
Canada
Europe
8%
10%
13%
18%
26%
20%
5%
100%
FY '02
8%
12%
15%
18%
22%
18%
7%
8%
14%
17%
18%
18%
16%
9%
8%
16%
19%
18%
14%
14%
11%
8%
18%
21%
18%
10%
12%
13%
100% 100% 100%
100%
Page 11
9B05E023
Exhibit 2
KL WORLDWIDE ENTERPRISES SALES DATA BY REGION AND CHANNEL, 2005
Sales by Type of Customer and Region — FY’05 ($ millions)
KL
Web Private 3rd Party
Stores Sales Label
Retail
United States
SE
MW
W
SW
NE
Canada
Europe
$
$
$
$
$
$
$
Total Sales FY '05
$ 156
16
12
14
17
28
33
36
$
$
$
$
$
$
$
20
14
19
23
9
39
31
$ 31
$ 40
$ 28
$ 56
$ 47
N/A
$ 109
$
$
$
$
$
$
$
50
25
37
46
66
83
108
$ 156
$ 311
$
415
Sales by Type of Customer and Region — FY’05 (%)
KL
Web Private 3rd Party
Stores Sales Label
Retail
United States
SE
MW
W
SW
NE
Canada
Europe
10%
8%
9%
11%
18%
21%
23%
13%
9%
12%
15%
6%
25%
20%
10%
13%
9%
18%
15%
N/A
35%
12%
6%
9%
11%
16%
20%
26%
100% 100%
100%
100%
Page 12
9B05E023
Exhibit 3
KL WORLDWIDE ENTERPRISES ORGANIZATION CHART
Page 13
9B05E023
Exhibit 4
KL WORLDWIDE ENTERPRISES ORDER FULFILLMENT PROCESS
Page 14
9B05E023
Exhibit 5
KL WORLDWIDE ENTERPRISES FLOW OF GOODS
Page 15
9B05E023
Appendix 1
KL WORLDWIDE ENTERPRISES, INC.
EXECUTIVE MANAGEMENT
Chief Executive Officer and President
Mr. Joseph Campbell plans and directs all aspects of KL Enterprise’s policies, objectives, and initiatives. He is
responsible for the short and long term profitability and growth of the company. Campbell has held two upper
management positions as COO of Patagonia Furniture Enterprises, for 10 years and CIO of Sunset Global
Manufacturing, for 12 years. Campbell relies on his past experience and judgment to plan and accomplish
future goals of KL Enterprises. Because Campbell has such extensive experience in upper management, he
demonstrates expertise in a variety of the field concepts, practices, and procedures. Campbell is a harddriving but creative executive who believes in his own leadership but is also committed deeply to KL Enterprise
teamwork. His immediate concerns include:
• the aggressive growth of the firm through mergers and acquisitions.
• the extensive use of e-Commerce to grow KL’s bottom line.
• team and individual worker productivity and collaboration.
• a steep reduction in corporate overhead and the unit costs of production.
• improved profitability, stock performance and return on equity.
Chief Financial Officer
Ms. Juliet Allen is responsible for directing KL Enterprise’s overall financial policies. Allen oversees all financial
functions including accounting, budgeting, credit, insurance, tax, treasury, and related reporting and
compliance. In addition, she oversees investor and stockholder relations. One of her primary responsibilities is
to ensure that consistent practices are used throughout the company to maintain the integrity of the system,
especially in light of recent Sarbanes-Oxley legislation. She often works closely with KL’s CIO to address her
unit’s information management needs. Before joining the KL Enterprise Team, Allen was the CFO of Tiger and
Company for 13 years. While she reports directly to Mr. Joesph Campbell, Allen works closely with the COO,
Jens McCreary and CIO, Kelly Barnes. Her immediate concerns include:
• timely and accurate financial reporting to KL management in real time as well as at month, quarter and
year-end.
• the longitudinal analysis of firm performance by product, by region, by time of year, by sales team, etc.
• compliance with Sarbanes-Oxley.
• enhancing bottom-line KL performance.
Chief Operating Officer
Mr. Jens McCreary is responsible for planning and directing all aspects of KL Enterprise’s operational activities,
including product design and develop, manufacturing and distribution. In addition, Mr. McCreary oversees the
development and dissemination of all corporate policies and processes governing the design, manufacturing,
and distribution to KL’s sales channels of KL products. Before coming to KL Enterprises, McCreary held a
strategic management role for 12 years as the top organizational development executive for Panavision Global
Enterprises, a manufacturing company based out of Marseille, France. McCreary has worked with KL
Enterprises for eight years and brings a strong sense of leadership and a variety of international skills to
enhance the productivity of KL Enterprises.
With considerable experience in international financial
management and the use of IT in supply chain management, McCreary advocates his own, well-argued
agenda with the CFO, Juliet Allen and CIO, Kelly Barnes. His immediate concerns include:
• universalize all of KL’s manufacturing facilities on the same IT platform.
• improve overall coordination/collaboration of the work process between Sales, and Manufacturing and
Distribution; create a seamless, IT-enabled management process.
• reduce the cost of new product design and the associated costs for the start-up of its manufacturing and
distribution.
• respond real-time to shifts in KL inventory and in market place demand.
Page 16
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Appendix 1 (continued)
Chief Information Officer
Ms. Kelly Barnes runs KL’s Information Technology Services (ITS) unit. She drives the acquisition of KL’s IT to
enable its global business processes and manufacturing and distribution capabilities. To that end, Barnes
takes an architected approach to product and service selection and works to employ off-the-shelf software
wherever possible. Currently, one of her main focuses is on how to leverage corporate data to smooth out
operations, leverage corporate knowledge, and enhance inter-unit collaboration. Her task is challenging in that
on the one hand, the corporation continues to grow through acquisitions, and on the other hand, the CEO and
KL’s Board of Directors is constantly after her to reduce IT costs across the enterprise. Prior to joining KL
Worldwide three years ago, Barnes worked as Chief Information Officer for Johnson’s and Company, a
competitor of KL, where she began as a data analyst and worked her way up to the role of Chief. In joining KL
she brings valuable experience, especially in the areas of supply-chain management, decision support
systems, and eCommerce. Barnes typically reports to Mr. Joseph Campbell but remains in close contact with
COO, Jens McCreary and CFO, Scott Phillips. Her immediate concerns include:
• overall integration of IT into KL work processes.
• strengthen KL’s e-commerce capabilities; update e-commerce technologies.
• complete the move in M&D, U.S.A. to SAP.
• complete the move in M&D, India to SAP.
• converge all corporate communications over IP.
Counsel
Mr. James Lee represents KL Worldwide as their Chief Attorney and specializes in mergers and acquisitions.
In addition, Lee and his staff advise KL Worldwide on matters concerning international trade, government
regulations, contracts with other companies or retailers and property interests, and so forth. Mr. Lee worked
as Chief Attorney for 15 years at Dean and Borders Company before coming to KL Worldwide. Lee has had
extensive training in financial law and has also worked at several international companies. Currently, Lee
works out of the Boston, Massachusetts headquarters and reports directly to CEO Joseph Campbell. His
immediate concerns include:
• the closure of two major acquisitions that will significantly expand KL’s product line and U.S. manufacturing
capabilities.
• legal standing of the firm in India and Brazil.
• brand and copyright infringements by Chinese manufacturers of KL “knockoff” products.
• corporate compliance with Sarbanes-Oxley.
• SEC and other reporting and compliance obligations.
Vice-president of Customer Service
Ms. Jackie Terrazas is responsible for ensuring that the company’s customers receive the highest quality of
customer care. KL Worldwide customers range from individual eCommerce customers, to retail-store
customers, to third-party store-chains who purchase KL products wholesale. Terrazas operates an enterprise
call center and also services customer needs stemming from the use of KL Web sites and eCommerce
services. In effect, Ms. Terrazas and her team serve as the internal advocates for KL customers within the
corporation. Terrazas joined KL Worldwide after working for eight years as a Manager of Customer Services
at Jist Works Inc. Her immediate concerns include:
• accessing customer data and feedback in a timely manner.
• making KL Web sites and eCommerce applications more customer-centric.
• communicating and collaborating with the product and service delivery units within KL.
Page 17
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Appendix 1 (continued)
Executive Vice-president of Global Marketing and Sales
Mr. Evan McGinnis is responsible for all aspects of marketing and sales that include promotions, advertising,
public relations, eCommerce operations, and the KL sales teams in the United States, Canada, and Europe. In
this capacity McGinnis and his team plan both short- and long-term marketing and sales strategies for all
product lines and market segments. KL sells through its own eCommerce outlet and its chain of boutique
sports equipment and apparel stores. The firm also sells directly to other sportswear retailers, and increasingly
provides “private label” products to major retail chains in the U.S. Canada and Europe. The team employs the
Customer Relationship Management System (CRMS) within the Oracle ERP to manage all major KL accounts.
Mr. McGinnis joined KL Worldwide after working for over a decade as the head marketing and sales at United
Force Inc., Vancouver, Canada. His immediate concerns include:
• the updating of the current KL eCommerce offering – the current site and services are very dated.
• faster turn around on the launch of new sports products and clothing lines.
• performance dashboards for Sales Management drawn from data both in the CRMS and other ERP
applications.
• timely access to detailed production and shipping information coming out of the four KL manufacturing
locations.
Vice-president Marketing (Global )
Ms. Sally Roberts plans and directs all aspects of KL’s marketing, including branding, public relations, print and
electronic communications, and KL’s public Web site. Ms. Roberts has worked her entire career at KL and is
very hands on. Her immediate concerns include:
• the consistent use of KL branding in all corporate media, including Web sites.
• the translation of branding into product design, development, and manufacturing.
• expanded but managed communication of KL’s value proposition both inside and outside the firm.
Vice-president eCommerce (Global )
Mr. Ivan Henderson directs KL’s eCommerce complex marketing and sales. He has broad experience in the
development of commercial Web sites and has been brought on board in the last few months by the CEO to
build and then run KL’s next-generation eCommerce offering. Before coming to KL, Henderson worked as an
eCommerce strategist and consultant with Accenture. His immediate concerns include:
• process reengineering of the eCommerce systems at KL.
• rebuilding the eCommerce store to make it more competitive.
• ensuring a more seamless process of product design and manufacturing based upon a “design-your-own
on the Web” model for his customers.
Vice-president United States (Sales)
Mr. Ed Griffin is responsible for directing the firm’s U.S. sales program, between KL and its U.S. retail chain
and private label customers.
Vice-president Canada (Sales)
Mr. Stephen Delomier is responsible for directing the firm’s Canadian sales program, between KL and its U.S.
retail chain and private label customers.
Page 18
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Appendix 1 (continued)
Vice-president Europe (Sales)
Ms. Leslie Lambert is responsible for directing the firm’s European sales program, between KL and its U.S.
retail chain and private label customers.
Executive Vice-president of Store Operations
Mr. Alex Johnson manages three of the vice presidents for KL Boutique Store Operations, located in the U.S.,
Canada, and Europe. Johnson’s responsibilities include directing the business development functions for the
specialty chain as well as unique, high-end product design and manufacture. Currently, Johnson is responsible
for stores located in 23 major cities, worldwide. Mr. Johnson has spent his career with KL and moved over
from Operations to run KL Retail. He is new to the assignment and quiet eager but also concerned that his unit
will be outpaced by KL eCommerce sales and KL’s surging private label business. His primary concerns
include:
• the coordination of design and manufacturing/delivery processes to reduce cost and speed delivery.
• quality control over product for KL stores.
• time to market for KL Store brands and clothing lines.
• the unit cost of product heading to KL Stores.
Vice-president of Store Operations (U.S)
Mr. Carlos Deluca is responsible for the KL Stores located in 15 major cities throughout the U.S. (Chicago,
Boston, Philadelphia, NY, LA, San Francisco, San Diego, San Jose, Denver, Seattle, Houston, Dallas, San
Antonio, Detroit, Washington D.C).
Vice-president of Store Operations (Canada)
Ms. Helen Irving is responsible for the KL Stores located in 3 major cities throughout Canada (Toronto,
Montreal, Quebec).
Vice-president of Store Operations (Europe)
Mr. Ramero Cohen is responsible for the KL Stores located in 5 major cities throughout Europe (Paris, London,
Milan, Bonn, and Copenhagen).
Director of Manufacturing (Atlanta, Georgia)
Mr. Jack Powell directs and oversees the manufacturing processes located in the U.S. Powell is responsible
for planning and directing the layout of equipment, raw materials procurement, design-to-assembly workflows,
manufacturing methods, and overall factory work force utilization. He is stationed in Atlanta, Georgia where
the primary goods manufactured are hockey and ice skating gear.
Director of Manufacturing (Sorocaba, Brazil)
Mr. Stanford Rodrigues directs and oversees the manufacturing processes located in South America.
Rodrigues is responsible for planning and directing the layout of equipment, raw materials procurement,
design-to-assembly workflows, manufacturing methods, and overall factory work force utilization.
He is
stationed in Sorocaba, Brazil where the primary goods manufactured are footwear, gloves, and other leather
accessories.
Page 19
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Appendix 1 (continued)
Director of Manufacturing (Tanjong Pager, Singapore)
Ms. Elizabeth Tan directs and oversees the manufacturing processes located in Singapore. Tan is responsible
for planning and directing the layout of equipment, raw materials procurement, design-to-assembly workflows,
manufacturing methods, and overall factory work force utilization. She is stationed in Tanjong Pagar,
Singapore where the primary goods manufactured are fitness and athletic apparel.
Director of Manufacturing (Bombay, India)
Mr. Mukesh Vishal directs and oversees the manufacturing processes located in India. Vishal is responsible for
planning and directing the layout of equipment, raw materials procurement, design-to-assembly workflows,
manufacturing methods, and overall factory work force utilization. He is stationed in Bombay, India where the
primary goods manufactured are cloth (both natural and synthetic) for finish work at the KL Singapore facilities
as well as the more low-end KL clothing lines.
Director of Warehousing and Distribution Services (US)
Ms. Mary Simmions oversees and directs all aspects of supply chain operations, including raw materials and
merchandise inventory management, shipping and receiving, and maintenance of facilities within the U.S.
Director of Warehousing and Distribution Services (Brazil)
Mr. Pepe Simmon oversees and directs all aspects of supply chain operations, including raw materials and
merchandise inventory management, shipping and receiving, and maintenance of facilities within Brazil.
Director of Warehousing and Distribution Services (Singapore)
Mr. Mark Richards oversees and directs all aspects of supply chain operations, including raw materials and
merchandise inventory management, shipping and receiving, and maintenance of facilities within Singapore.
Director of Warehousing and Distribution Services (India)
Mr. Victor Sameer oversees and directs all aspects of supply chain operations, including raw materials and
merchandise inventory management, shipping and receiving, and maintenance of facilities within India.
Page 20
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Appendix 2
KL WORLDWIDE ENTERPRISES, INC.
GLOBAL ITS ORGANIZATION
Introduction
KL Worldwide Enterprises, Inc. views information technology (IT) as a key enabler of its business. For this
reason, as much as 10 per cent of the organization’s overall operating budget is devoted to IT-related
costs, including hardware, software, services, and personnel. The leadership of the IT unit rests with KL’s
Chief Information Officer (CIO), Kelly Barnes who reports directly to KL’s Chief Executive Officer and
President, Joseph Campbell. The CIO and her immediate team operate out of the enterprise’s main data
processing center, co-located with corporate headquarters in Boston, Massachusetts, U.S.A. However,
due to the global reach of KL operations, KL Corporate Services, Marketing and Sales, and KL Stores
receive their IT services directly from Ms. Barn’s team, while each of KL’s Manufacturing and Distribution
(M&D) groups, maintains their own, small IT organizations. The organizational charts below characterize
the corporate IT team and a representative M&D group counterpart
KL Corporate IT
KL
Chief Information
Officer
Chief of Staff
(support for CIO)
Planning, Budgeting
and General Admin.
IT Architecture
Information Security
& Compliance
Customer
Services
Information
Systems
IT Operations
and Infrastructure
Technical
Standards & Docu.
Tech Planning
I/T Liaison
Information Security
Leg. Compliance
Quality Assurance
Help Desk (Tier 1)
CRM, PMO,
User
Documentation,
Software Development and
Integration
Tier 2 & 3 Support
Infrastructure
Hardware Platforms
Storage
Management
M&D Group IT Team
KL Corporate
Chief Information
Officer
M&D Group
IT Director
Telecommunications
Manager
Manufacturing
and SCM Systems
Manager
Accounting
Systems
Manager
IT Operations
and Infrastructure
Manager
Page 21
9B05E023
Appendix 2 (continued)
From an operational standpoint, the enterprise IT team and the M&D group IT teams work in concert with
one another but are also highly focused on their respective areas of responsibility. These shared and
self-contained assignments may be summarized as follows:
IT Activity
overall IT planning and strategy
overall IT planning, budgeting and tactical
decisions
Corporate Services, Marketing and Sales, and KL
Stores IT services and projects
M&D IT services and projects
KL’s enterprise IT architecture and technology
standards
KL’s global IT services and product acquisitions
(e.g. for telecomm and hardware/software
purchases)
e-Commerce technologies
collaboration and e-mail technologies
Enterprise Resource Planning (ERP) Systems (for
enterprise finance, HR, and reporting)
Marketing, Sales, and Customer Relationship
Management (CRMS) Systems
Point-of-Sales (POS) and Inventory Management
Systems for KL Stores
Supply-Chain Management (SCM) Systems
Manufacturing Systems
Distribution and Logistics Systems
Decision Support and Data Management
Telecommunications — voice, data, video
Group Responsible
the CIO and corporate management
the CIO and his direct reports, including the M&D
group IT Directors
Corporate IT
each M&D Group’s own IT organization
the CIO and his direct reports, including the M&D
group IT Directors
the CIO and his direct reports, including the M&D
group IT Directors
Corporate IT
Corporate IT
Corporate IT
Corporate IT
Corporate IT
each M&D Group’s own IT organization
each M&D Group’s own IT organization
each M&D Group’s own IT organization
Corporate IT and each M&D Group’s own IT
organization; to be determined
the CIO and Corporate IT oversee the global
arrangements and contracts for KL while the IT
Director and his/her Telecomm Manager in each
M&D Group work with their local carriers to
implement and manage telecommunications
locally.
Technology Standards
Enterprise Standards:
• server OS: Oracle and Microsoft — latest versions
• desktop: Microsoft XP — latest versions
• desktop tools: Microsoft Office, Project, Outlook — latest versions
• collaboration: Microsoft: Outlook, Instant Messenger, Internet Explorer, SharePoint — latest versions
• database: Oracle and Microsoft — latest versions
• ERP: Oracle e-Suite — 2003 release, customized for KL
• e-commerce: various, mostly J2EE and .NET technologies, mostly current versions
• telecomm: in U.S. — Verizon; outside U.S. — various.
• data warehousing and decision support systems/tools: to be determined.
Page 22
9B05E023
Appendix 2 (continued)
•
•
POS: Point of Sales System
- IBM SurePOS:
∗ Provides power, flexibility and reliability required by retailers
∗ Fully integrated with key board, monitor, receipt printer and scanner
Store Management Systems:
- Microsoft Retail Management System
- Software suite created by Microsoft that provides tools to:
∗ Automate inventory management
∗ Speed up card transactions
∗ Create productivity reports
∗ Track customer purchasing habits.
Manufacturing and Distribution Group Standards:
• Brazil
- manufacturing: SAP — latest version
- distribution and logistics: SAP — latest version
- supply chain management: SAP — latest version
• India
- manufacturing: in-house systems moving to SAP — latest version
- distribution and logistics: in-house systems moving to SAP — latest version supply chain
management: in-house systems moving to SAP — latest version
• Singapore
- manufacturing: SAP — latest version
- distribution and logistics: SAP — latest version
- supply chain management: SAP — latest version
• United States
- manufacturing: in-house systems moving to SAP — latest version
- distribution and logistics: in-house systems moving to SAP — latest version
- supply chain management: in-house systems moving to SAP — latest version
Source: Company files.
Page 23
9B05E023
Appendix 3
KL WORLDWIDE ENTERPRISES, INC.
INFORMATION TECHNOLOGY SERVICES PERSONNEL
Role
KL Personnel in
Role
Chief Information Officer
Kelly Barnes
IT Architect
Ryan Sanders
IT Security Officer
Lily Scotts
Director of IT Customer
Services
Rebecca Chong
Director of Enterprise
Information Systems
Jake Lamb
Director of Enterprise
Operations and
Infrastructure
Colin Yep
Manager of eCommerce
Systems
Classina Aberto
Manager of Oracle ERP
Systems
Greta VanBevin
Description of Role
Enterprise IT
to serve as the outward-looking face of the IT organization,
serving as its strategic customer relationship management
executive, its chief business strategist, and its coordinator of
human, intellectual and capital asset allocations.
to serve as the key information technology strategist for IT; to
provide technology investment planning and direction for IT; to
assess and investigate emerging technologies; to serve as the
technical liaison between IT and external partner providers.
to serve as the chief risk management and independent quality
control function within IT; to oversee the day to day
management of the Enterprise information security services and
to deal with violations of Department policies and procedures; to
champion information security best practices; to independently
assess IT project risk and to enforce Unit-wide compliance with
recognized quality assurance standards and best practices.
to serve as the single point of contact between IT and its
customer constituencies; to provide proactive customer
relationship management with key stakeholders; to monitor
customer satisfaction with IT products and services; to enable
the users of products and services through user documentation
and training; to serve as the IT center of excellence in service
and project delivery; to serve as the promoter of IT Webenabled business processes.
to develop, support and maintain both off-the-shelf and
internally developed software for IT's Enterprise and external
customers; to ensure adherence to best practices in software
development and maintenance.
to operate and maintain an effective and efficient information
technology infrastructure, to ensure related services are in line
with business needs of the Enterprise; to rationalize and
streamline services while keeping them robust, reliable and
available 24x7; through technical support and platform
provisioning to enable Enterprise data-driven, decision support,
and enterprise technology planning.
serves as the lead IT support to the KL V.P. of eCommerce;
oversees the design and development of Web services and
applications; recommends strategic investments in Webenabled processes and service offerings.
maintains, extends, and supports all Oracle applications used
throughout KL Enterprises.
Page 24
9B05E023
Appendix 3 (continued)
Role
Manager of Data
Services
Manager Project
Management Office
Manager of Quality
Assurance and Testing
Business Analyst
Database
Developer/Administrator
Systems
Developer/Integrator
Testers/QA Analysts
M&D Group IT Director
Telecomm Manager
Supply Chain
Management and
Manufacturing Systems
Manager
Accounting Systems
Manager (Oracle)
Operations And
Infrastructure Manager
KL Personnel in
Role
Description of Role
Enterprise IT
maintains, extends, and supports all database and data
management applications used throughout KL Enterprises.
John Swinger
supplies and oversees IT project management services across
the enterprise.
Pilar Ferrara
supplies and oversees IT systems testing and quality assurance
services across the enterprise.
(numerous)
collects and documents requirements; carries out process
redesign; prepares user documentation.
(numerous)
designs and develops databases, scripts and tests ETL
applications, builds and supports database, data warehousing
ad analytics applications.
(numerous)
develops system solutions, adapts off-the-shelf software, adds
in system patches, assists in the testing process, carries out
systems integration and deployment.
(numerous)
ensures that IT delivery aligns with commitments as stated in IT
requirements documents.
Manufacturing and Distribution Group IT
Bob Weiss
Brazil — Sid Posner
India — Kevin
Padma
Singapore —
Chanelle Lim
U.S.A. — Shonda
Kissinger
Brazil — Juan Fox
India — Wayne Rana
Singapore — P.J. Hu
U.S.A. — Laura
Sienna
Brazil (SAP) —
Natalie Alba
India (Legacy) — Jay
Cherian
Singapore (SAP) —
Ashley Ha
U.S.A. (Legacy) —
Zack Evers
Brazil — Don Miles
India — Arya
Bhadraa
Singapore — Kam
Shing Pang
U.S.A. — Zack Evers
Brazil — Danielle
deBree
India — Pada Sakari
Singapore — Dixon
Lum
U.S.A. — Micro
Soffritti
serves as the chief IT manager for one of four of KL’s major
manufacturing centers with wide-ranging responsibility for the
care and feeding of local IT systems and infrastructure, with
special emphasis on that location’s supply chain management
(SCM), manufacturing, logistics, and warehousing and inventory
management systems
oversees voice, data, and video communications within one of
KL’s manufacturing groups, including local and wide-area
networks, voice, conferencing, and wireless systems.
oversees the operations and maintenance of a particular
manufacturing group’s production systems.
oversees the operations and maintenance of a particular
manufacturing group’s accounting, human resources, and
management reporting systems.
oversees local computer operations, including mainframes,
servers, data storage and backup, desktop technologies, and
end-user support within a particular manufacturing group.
Week 1/Lesson 2 KL Case – Study Questions Vocabulary
Key Concepts and Terms:
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Core business process – All organizations possess core business processes that allow the
enterprise to operate, delivering products and services to its customers. A typical
organization has no more than five or six core processes, including: (1) financial
management, (2) people management, (3) perhaps supply-chain management, (4)
perhaps sales force management, (5) perhaps product design and development, and so
forth, depending upon the nature of the business under study. Note that a not-forprofit, like a university or hospital, may have very different core processes from those of
a commercial bank or a automobile manufacturer.
Core business process activities – Within a given business process, there can be any
number of discrete activities. For example, the activities commonly associated with
financial manage...
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