To develop a good corporate strategy, it is beneficial to use the ‘COMPETITIVE FORCES MODEL’, which was developed by Michael Porter. It illustrated a firm that is faced with a number external threats and opportunities. Competitive advantage can be achieved by improving the firm’s ability to deal with customers, suppliers, substitutes, and new entrants. Information systems work along with corporate strategy to standardise business transactions electronically. (See Figure 1).
Competitive Forces Model
By Michael Porter
2.1.1 The Information System Strategy
There were numerous information systems being used in all the countries where Pirelli operated, these were all developed locally with no guidance from the corporate office because Pirelli had not yet established any international standards in either hardware or software. This made data-sharing across national borders very difficult. Mr. Arrigo Andreoni, Pirelli’s corporate director of information, came up with an Information System Strategy in order to respond to the new corporate strategy. Pirelli’s worldwide IT infrastructure would have to be redesigned and standardised.
Andreoni selected the SAP R/3 ERP readymade software that includes a module for production, factory automation, finance, sales, purchasing and personnel. He wanted to establish a fully-fledged global network, where each national unit will be linked to Milan headquarters, this would help to speed up executive planning functions. This would also aid in greater communication of its employees no matter where they worked. Culture would be the biggest problem facing this Strategy.
2.1.2 Implementing the Information System Strategy
In order for this new Strategy to work, all departments must be aware of the corporate strategy and must be willing to make the change. They must work in harmony with the overall goal of the business. This would be a challenge for the other units around the world, because they are used to doing things their way.
Andreoni’s plan for ‘Democratic Governance’ appeared to be good, because culture is very difficult to change in a business. It could be stated that in waiting for the other CEO’s to accept the new idea, and make their minds as it were, the business could have major losses. They need to be convinced that it is the best thing for the business, and if the company continued to reduce profits, they will be out of a job.
Andreoni’s plan could go hand in hand to assist in the development of a Global company while bringing about the desired change. Research has shown that global companies can be very effective in reducing production costs, and meeting greater customer demands, it can also improve its competitive edge. E.g. Nestlé
Some challenges of new system are; the legal aspect of Andreoni’s strategy, e.g., In some countries in Europe, information sharing across international boundaries is prohibited, this could be very disastrous, because business can be lost, and the reputation of the company is also at stake. Other problems such as foreign exchange rates, tax laws, accounting practices and language barriers are obvious to occur. On the other hand, the new system can speed up the decision making process, and improve reliability of the products and services to a global market.
When deciding on the software to use, it is good to keep in mind, the cost and the time it would take to actually have the software ready to use. Readymade software packages are being used worldwide, while some prefer to build their own systems. The use of SAP R/3 would be advantageous to the strategy, since it is a world leader in almost all industries and it is a proven product. While some companies opt for readymade, some prefer to design and build their own systems.
2.2 Designing an International Information System
The System Development Life Cycle (SDLC) is the traditional systems development method used by most organisations today. SDLC is a structured framework that consists of sequential processes by which information systems are developed.
This step-by-step process includes the following tasks:
- Systems investigation
- Systems analysis
- Systems design
- Programming
- Testing
- Implementation
- Operation and maintenance
Some of these tasks are present in most projects, whereas others are present in different projects. It is dependent on the type of system developed. For example, the project would use the task, system investigation then system analysis, and then go directly to implementation, then operation and maintenance. On the other hand, some systems could repeat tasks before even reaching implementation; this could be very costly and time consuming. This sought of lengthy process may not be what Pirelli need.
System development is a team effort and it includes:
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Users: employees from the functional areas and levels of the organisation, who will interact with the system directly or indirectly
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Systems analysts: these information systems professionals who specialise in analysing and designing information systems
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Programmers: these are information systems professionals who specialise in the modification of existing computer programs or write new computer programs to satisfy user requirements. This can be very time consuming and costly.
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Technical specialists: these are experts on certain type of technology, such as databases or telecommunications.
2.2.1 Systems Investigation
The most important task in the system investigation stage is the feasibility study. The feasibility study determines the probability of success of the proposed system’s development project and assesses the project’s technical, economic and behavioural feasibility.
The feasibility study is critically important to the systems development process because, done properly; the study can prevent organisations from making costly mistakes. The Pirelli Group cannot afford to make any costly mistakes, and this would defy the corporate strategy of cutting costs.
The technical feasibility determines if the hardware, software and communications components can be developed or acquired to solve the business problem. It also determines if the existing technology can be used to achieve the project’s performance objectives.
The economic feasibility determines if the project is an acceptable financial risk and if the organisation can afford the expense and time needed to complete the project. It addresses two primary questions:
- Do the benefits outweigh the costs of the project?
- Can the project be completed as schedule?
There are three commonly used methods to determine economic feasibility:
- Breakeven analysis: this determines the amount of time required for the cumulative cash flow from a development project to equal its initial and ongoing investment.
- Return on Investment: (ROI), is the ratio of the net cash inflows from the project divided by the cash outflows of the project.
- Net Present Value: (NPV) is the net amount by which the project savings exceed project expenses, after allowing for the cost of the capital and the time value of money.
Some projects may seem feasibly sound and okay to go ahead with it, but when the above analysis is carried out, the project may be cancelled. If the ROI is good then the project is embraced. In the case Pirelli, consideration was given to the ROI and the decision was made to implement the strategy.
The behavioural feasibility addresses the Human issues of the project, because all systems development introduces change into the organisation, and people area afraid of change. Employees may resist the change by sabotaging the new system, or may deride the new system to any who would listen. This could happen at the units in the other countries where the Pirelli Group operate, because employees who are used to the old way of doing things would reject change.
Once the feasibility analysis is completed the decision to go/no go is made, this is done by the functional area manager, and it is signed off by the project manager. If the decision is a No-go, it is put on the shelf until conditions are more favourable or it is discarded. In the case of Pirelli, Andreoni got the go to develop the system using the SAP R/3. As for the CEO’s that may reject the new change, he may have to do some more convincing, for them to go ahead with the project.
The systems analysis is concerned with the gathering of information about the existing system, and to determine the requirements for the new system. The most difficult task in the systems analysis is identifying the specific information requirements that the system must satisfy, it specifies what information, how much information and for whom, when and in what format. It is good to have an open mind when doing the investigations.
The systems design segment describes the ‘how to’ with the development of the system. There is both logical and physical design; it must also be user friendly. Once the specifications are decided it should not be changed because this could delay the project with scope creep.
Systems developers use the design specifications to acquire the software needed to for the system to meet its functional objectives and solve the business problems. Custom software are more expensive than packaged applications, if the packaged ones do not fit, it means that the business will have to do some customising.
The testing stage looks for any errors in the systems, it is very time consuming, but if the improper test are done, it could also be very costly.
The implementing stage is converting the old system to a new system.
The operating and maintenance stage is the final stage and can be followed by fewer or more stages. Depending on the type of information system, whether it is at the operational, tactical or strategic level, the systems is debugged and this continues throughout the life of the system.
4.0 Conclusion
The SDLC provides management with the control over the development process, and this type of system development can assist in detecting errors, thus again keeping cost to a low.
Pirelli implemented the SAP R/3 and it was successful, profits rose, costs were cut, and staffs were reduced, the project was not yet fully implemented and the business was already reaping rewards.
Bibliography
Laudon, K. C and Laudon, J. P (2002) Management Information Systems: Managing the digital firm, Seventh Edition, New Jersey: Prentice Hall
Lecture Notes
