Week 1 Field Exercise

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We focus on applied learning. In that spirit, each Week of MGSC 6204 affords you with a hands-on learning experience where you have an opportunity to apply your work on that Week's reading and case study to your own organization. Attached you will find a learning guide and the template for the Week 1 Field Exercise.

Use the template to complete your exercise.

Please be aware that you may need some assistance from people inside your company to complete this assignment for submission on the end of Day 7 deadline. Do not wait until late in the week to seek these people out.

Week 1 Lesson 3 Field Exercise

Note: Contact your Instructor if you are not presently affiliated with an organization for your Field Exercise work.

Complete and submit your field exercise using the Turnitin drop box found within the Assignments area by end of Day 7.

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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 ƒ ƒ ƒ ƒ ƒ Business Models and IT Investments Governing IT for Different Performance Goals Assessing Architecture Outcomes Infrastructure as Variable Cost Managing IT Related Risks 2004 PROJECTS ƒ ƒ ƒ ƒ ƒ 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 CISR SPONSORS Aetna Inc. Allstate Insurance Co. American Express Corp. AstraZeneca Pharmaceuticals, LP Banknorth, NA Campbell Soup Company Care USA Celanese ChevronTexaco Corporation Det Norske Veritas (Norway) Direct Energy eFunds Corporation EMC Corporation The Guardian Life Insurance Company of America ING Group Intel Corporation International Finance Corp. Merrill Lynch & Co., Inc. MetLife Mohegan Sun Motorola, Inc. National Kidney Foundation, Singapore Nomura Research Institute, Ltd. Pasco County, Florida Pfizer, Inc. PFPC, Inc. Raytheon Company State Street Corporation Telenor ASA TRW Automotive, Inc. 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). ƒ IT for Communication—high use of electronic channels such as email, intranets and wireless devices for internal and external communications and work practices. ƒ Digital Transactions—a high degree of digitization of the firm’s repetitive transactions, particularly sales, customer interaction and purchasing. ƒ Internet Use—more use of Internet architectures for key processes such as sales force management, employee performance measurement, training and post-sales customer support. ƒ 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. ƒ 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 Page 2 9B05E023 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: Page 3 9B05E023 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). Page 4 9B05E023 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; Page 5 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. Page 6 9B05E023 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 Page 7 9B05E023 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 Page 8 9B05E023 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 9B05E023 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 9B05E023 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 9B05E023 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 9B05E023 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 9B05E023 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: • • • • • • • 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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Explanation & Answer

Attached.

Week 1/Lesson 3 Field Study: Alignment

Student’s Name:

Section Number:

Company’s Name:
G&M Trading Company
Description of Your Company’s Industry/Market Place:
The company is serving in the Construction Industry in Phoenix.
Description of Your Company’s Overall Business Strategy:
The company business strategy is to ensure achievement of client expectation together with
attaining client satisfaction of the project at hand.
The Tool for Data Collection:
The collection of data in the construction industry is appropriate in order to establish and
ascertain the needs of the customers towards maintaining and increasing a company customer
base. Through Customer Relationship Management as a tool it would assist our company to track
the needs of the customers and ensuring that we keep the needs of the customers at par and
ensuring they are satisfied with our services.
Part A: Complete the Field Assessment Tool that follows. Feel free to add additional rows as
need be but do not go beyond six core processes. Chances are if you find more than 6 core
processes within your enterprise, you are identifying subsets of a core process. Do not feel
obliged to fill each box but be sure to think through each element to ensure the completeness
of your response.
Core Process

Core Process Activities

financial (all
orgs. have one,
what is yours?):

• accounting
• asset management
• cash management
• compliance and
reporting
Training and development
of employees, ensuring
employees satisfaction,
positive customer and
employee relationship
Installation of new
computers application
software’s,
implementation, hardware

Employee
management

Management of
technology

MGSC 6204, last updated 081312

Business Unit
Stakeholder
• Controller
• CFO
• Controller
• Chief Auditor

Enabling IT
System(s)
[name of systems
employed?]

Customers and
employees

Customer and Employee
Relationship Management

Chief
Technology
Officer

The operating system and
Microsoft Office

Page 1

Week 1/Lesson 3 Field Study: Alignment

Service
Management
Management of
Accounts
Sales and
marketing
management

and software application,
setting up computers and
scanners
Delivering of quality
services and proposing of
project designs
Analysis and reporting of
financial statements and
management of capital
Acquisition of customers,
connecting the customers
through various channels
of communication.

MGSC 6204, last updated 081312

The employees

Using Microsoft Office
especially Word and Excel

The Chief
Financial Officer

Premier contractors,
financial books and
QuickBooks.
The various internet search
engines.

Contractors and
developers,
community
members,
property/land
owners, and
landlords.

Page 2

Week 1/Lesson 3 Field Study: Alignment

Part B: Note: Carry over your list of enabling IT systems from the prior table and add
additional information here.
Enabling IT
System
[name of
system]

Financial
books and
QuickBooks
Microsof...


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