1.3 PORTER’S GENERIC STRATEGIES
Michael Porter described three generic strategies open to firms. (Refer to Figure 2) These are overall cost leadership, differentiation and focus. Aalsmeer Flower Auction adapted strategies which are examined in the diagram shown below:
Figure 2 depicting Michael Porter's Generic Strategies
EXTERNAL ENVIRONMENT
The external environment of the firm reveals the strategic opportunities and threats but powerful strategies are also dependant on the internal strategic capability of the organization which can provide sustainable competitive advantage. (Johnson et al 2005).
External environment basic depends on:-
* Market definition and size
* Market growth
* Market share
1.4 PESTLE ANALYSIS
Figure 3 depicts AFA's PESTLE Analysis
From the pestle analysis above it could be seen that global warming is a threat due the nature of the business. Also, the new technology advancement could be seen as a strategic opportunity as AFA could redefine the value chain to reduce cost. The external environment shows a potential increase in market size as the link with demand and supply is strengthen and reinforce.
1.5 SWOT ANALYSIS
Based on the situational analysis of AFA’s SWOT Analysis (Kenneth Andrews.1970) is done to identify its internal capabilities and external situation. The S.W.O.T. Analysis is helpful in strategy formulation and selection, provides information that is helpful in matching AFA's resources and capabilities to the competitive environment in which it operates.
Figure 4 illustrates AFA's SWOT Analysis
1.6 PORTER’S 5 FORCES ANALYSIS
In addition to undertaking a PESTLE Analysis, it is necessary to undertake a structural analysis of the industry to gauge the strengths and weaknesses of the oppositions and also determine the competitive structure of the given market.
As Figure 5 illustrates, the unique services offered by AFA would lead to customers becoming attached thereby reducing the threat for substitutes. Customer loyalty can in turn discourage potential entrants. However, the technological environment in which the firm operates is changing and new entrants into the market are more ready to take advantage of the opportunity created.
The use of Technology such as e-commerce, websites, supply chain management systems, customer relationship management systems and e-auctions are being utilized by new entrants into the floriculture market as it is becoming easily available. Aalsmeer use of IS in comparison to industry competitors within the market is limited as it is more difficult to change their business processes.
It should be highlighted however that the Value Chain was originally dominated by growers who were able to sell what they produced in a steadily growing market. The auction was able to determine how to conduct business and took a fairly passive role. However there were three developments that threatened AFA’s comfortable position which were/are:
- There was the emergence of alternative, electronically driven flower markets.
- The auction met the needs of growers, but not those of retailers.
- Mergers and acquisitions among retailers increased their size and power and growers became more professional, which led to a more formal way of doing business and interest in new ways of selling. The suppliers’ and buyers’ bargaining power is low since AFA determines the prices and is used as a price indicator around the world.
CURRENT INFORMATION SYSTEM
In order to recommend the use of modern information systems to ensure the continued success of AFA an evaluation of the existing information system is done.
1.7 NOLAN 6 STAGE MODEL
Nolan hypothesised in 1979 that, the way organisations have introduced IT and IT applications into their organisations can be viewed as a series of stages, somewhat similar to Greiner’s Life Cycle of Organisations.
Figure 6 depicts Nolan's 6 Stage Model
From the characteristics given above it is asserted that Aalsmeer is at stage 3 Control. The characteristic from stage 3 that fits Aalsmeer is that more users are demanding IT illustrated by the fact that growers are seeking new ways of doing business. The prevalence of new technology which makes selling their product perhaps in a timelier manner appears appealing.
1.8 MCFARLAN & MCKENNEY STRATEGIC IT/IS GRID
From the evaluation of the current information systems, AFA could be seen at the turnaround on the IT/IS grid. This is determined as Aalsmeer should have the appropriate strategy to enable it to plan for future developments and to support current operations. Technology, especially an IS tailored to fit the organization objective can assist the firm in increasing its competitive advantage and market share.
1.9 RECOMMENDATION OF INFORMATION STRATEGY
E-commerce, the process of buying and selling goods and services electronically involving transactions using the internet, networks and other digital technologies. E-commerce, in the situation with Aalsmeer, will allow transaction time to be reduced thereby satisfying the desire of retailers to have fresher flowers, more variety, smaller quantities and multiple deliveries each week.
A Customer Relationship Management (CRM) system is an information system that tracks all the ways in which a company interacts with its customers and analyzes these interactions to optimize revenue, profitability, customer satisfaction and customer retention.
A Supply Chain Management (SCM) system is an information system that automates the flow of information between and its suppliers in order to organize the planning, sourcing, manufacturing, and deliveries of products and services. A SCM system has the potential of reducing operating costs in the area of transporting products, packaging material and auctioning equipment.
E-Auction is a part of the strategic sourcing process. It is a procurement tool using web-based software that allows suppliers to bid online for a contract for the supply of goods or services. It is sometimes called a ‘reverse auction’ because bids are reduced and not increased as in a traditional auction. The objective is typically to arrive at the lowest total cost as distinct from the lowest price.
Since there were gaps between the business strategy and the IS strategy there is the need to incorporate new objectives. These new objectives are represented by a revised value Chain as indicated in the diagram below.
Table 2 reflects on AFA's Revised Value Chain
CHAPTER 2: SYSTEM THEORY AND SYSTEM DEVELOPMENT
2.0 DEFINITION OF A SYSTEM
A system is an interdependent group of people, objects, or procedures constituted to achieve a defined objective or some operational role by performing specified functions. The objective of a system is that some output is produced as a result of processing suitable inputs.
2.1 THE ORGANISATION AS A SYSTEM
From the definition of system, the organisation can be regarded as a system since all the parts of the value chain are working together to accomplish or achieve objectives.
2.2 SYSTEM PROPERTIES
Figure 7 illustrates the System Properties
2.3 THEORY OF SYSTEM DEVELOPMENT
In order for the AFA to choose an appropriate information system to meet their business needs, one area of the company needs to be recognised as the ‘driving force’ of the company; an area that the company cannot do without. This would obviously be the suppliers and the retailers that provide the opportunities for business transactions to take place, and therefore, the opportunity for the company to make money. So in this case an information system that can improve the way the company interacts and meets the needs of its customers, as well as attract new clientele is imperative for the AFA. Also, in recent times the auction has begun to fall behind its competitors as far as a cutting-edge business, so a methodology would need to be implemented in order for the business objectives to be achieved in the fastest possible time.
The oldest method of systems development would be using the ‘systems development life cycle’ (SDLC). Also called ‘waterfall’ development, SDLC is a system that uses a routine of methodical phases, in order to recognise, develop and re-plan the system that the company needs when the prior one becomes obsolete through thorough evaluation.
Table 3 shows the stages of the SDLC model
As shown in Table 3 above, the SDLC works upon the assumption that an information system starts with a need, followed by an assessment that the proposed information system can meet this need, in a way that the benefits outweigh the maintenance costs.
SDLC would not be appropriate in the case of recognising an appropriate information system for the AFA. It’s a rather outdated theory, based upon benefits outweighing costs. While this is important, this theory can also potentially cut corners, by finding purely the most cost effective system, rather than the best one for the job. Also the methodical approaches required for this system means it is very time consuming, and slow to react to technological or market change, and time is one thing the flower auction cannot afford to sacrifice.
For the requirements of the AFA, the candidate would like to recommend using an information system based upon two systems theories; Soft Systems Methodology (SSM) and Rapid Applications Development (RAD).
In Rapid Application Development, structured techniques and prototyping are especially used to define users' requirements and to design the final system. The development process starts with the development of preliminary data models and business process models using structured techniques. In the next stage, requirements are verified using prototyping, eventually to refine the data and process models.
SSM is a methodology which emphasises the human involvement in systems development, and by looking at human behaviour as a form of system analysis, can change the systems in accordance to changes in human behaviour. This is an appropriate methodology, due to the fact that the flower auction business is highly reactive to market trends, and customer buying patterns. So having a system in place that reacts to changes in human behaviour would be very useful.
2.4 ADVANTAGES AND DISADVANTAGES OF THE RAD MODEL
Table 4 showing the Advantages and Disadvantages of the RAD Model
Also, having elements of a RAD designed system would be useful as RAD focuses on being able to adapt to systems quickly, depending on technological changes in the world and changing business requirements.
Figure 9 illustrates the Rapid Application Development (RAD) Model
By being able to react in the quickest possible way to changes in business requirements, a system that entails RAD system theory is imperative in order for the auction to keep on the cutting edge of the marketplace and one step ahead of its competitors.
Despite which methodology, or hybrid is chosen, in general, SDLC follows six steps which are as follows:
Table 5 showing each phase of the SDLC model and how Aalsmeer intends to initiate each stage of the SDLC model
It is essential for Aalsmeer to have a thorough process like this established. SDLC helps companies determine when and whether or not an upgrade is needed in their information system. Aalsmeer need to have a secure method by which they can use to make decisions about new technology as the modern world is undergoing fundamental transformation.
2.5 IDENTIFYING AN APPROPRIATE INFORMATION SYSTEM
In order to get a system that meets the business requirements of the auction, as well as being reactive to both market and technological changes a ‘Customer Relationship Management’ (CRM) system would be most appropriate.
“Customer relationship management is a broadly recognized, widely-implemented strategy for managing and nurturing a company’s interactions with clients and sales prospects. It involves using technology to organize, automate, and synchronize business processes—principally sales activities, but also those for marketing, customer service, and technical support. The overall goals are to find, attract, and win new clients, nurture and retain those that the company already has, entice former clients back into the fold, and reduce the costs of marketing and client service”
One of the main objectives of the AFA was to reduce the overall costs to the company. It has been proven in the past that the cost of attracting an entire new set of customers to a company is far more costly than strengthening relationships with existing customers.
By having a CRM system in place it allows for suppliers, retailers and the auction themselves to interact in a one-to-one style, therefore the suppliers will be able to adapt to the retailers requirements more effectively through better communication. It was one of the main objectives of the Auction to improve communications with retailers in order to meet their demands, and this close level of interaction helps the auction achieve this.
Having a CRM system in place it will give the opportunity for AFA to gain records of customer information of both retailers and suppliers. This storage of information would mean that the auction house can increase the efficiency of sales by being able to conclude deals directly over the telephone, or across the internet by providing a secure payment option.
2.6 IMPLEMENTATION OF THE CRM SYSTEM
The implementation of a CRM system should be done in stages; if it is forced upon the customers it could put them off using the auction and using other competitors instead. The CRM system should be introduced in the following stages as can be seen in Figure 10 below:
Figure 10 depicts the stages in which Aalsmeer should implement the CRM system
CHAPTER 3: IMPACT AND EFFECTIVENESS OF THE NEW SYSTEM
3.0 ORGANISATION
Overall the implementation of a new CRM system should be of huge benefit to the organisation. It will once again be a major force to be reckoned with against its competitors in the marketplace and no longer lack the technological edge that would have held the company back. Instead it will show the organisation to have an innovative system unmatched by competitors. It will also provide the company with a much greater opportunity to increase profit margins, by reducing costs and attracting new business. This money can then be used by management in order to gain the organisation a larger market share overall.
3.1 MANAGEMENT
Implementation of the new CRM system should have a positive effect for management in their aims to meet the business and strategic requirements for the company. One major impact the system will have is reducing costs. Transaction costs will be considerably reduced, with the possibility of staff costs also being reduced. It is the management’s responsibility though, if they decide to cut jobs to cut costs that they keep the remaining staff fully motivated so that they keep entering and analysing the data the system can provide efficiently. If staff can do become de-motivated then the introduction of the CRM system could potentially be pointless if it is not gathering accurate information.
3.2 STAFF
The new CRM system will arguably have the biggest effect upon staff. It will require them to change their entire work habits that they had gotten used to before, in order to adapt to this new system. While on the one hand this could lead to a rise in employee morale as they are excited about having the opportunity to learn new skills in order to access the system, on the other it could have the opposite effect if some staff fail to adapt to the new systems or jobs are cut by management which could reduce morale.
3.3 MANAGING THE CHANGE
To manage the organisational change surrounding the introduction of the new CRM system effectively, Aalsmeer must examine the process of implementation. In this process, the systems analyst is a change agent. The analyst not only develops technical solutions but also redefines the configurations, interactions, job activities, and power relationships of various organizational groups. The analyst is the catalyst for the entire change process and is responsible for ensuring that all parties involved accept the changes created by a new system. The change agent communicates with users, mediates between competing interest groups, and ensures that the organizational adjustment to such changes is complete.
3.4 END-USERS
System implementation generally benefits from high levels of user involvement and management support. User participation in the design and operation of information systems has several positive results. First, if users are heavily involved in systems design, they have more opportunities to mold the system according to their priorities and business requirements, and more opportunities to control the outcome. Second, they are more likely to react positively to the completed system because they have been active participants in the change process. Incorporating user knowledge and expertise leads to better solutions.
3.5 TRAINING AND DEVELOPMENT
Aalsmeer needs to consider training and development for their staff in order to implement the new CRM system. It is imperative to have training and development procedures in place so there could be a successful CRM implementation so that both management and staff would know how to use the new system correctly. CRM implementation will not be successful if there are people who are struggling to use new systems and software. It is helpful to first train managers and then to have managers go on and train the people that are below them. If Aalsmeer provide proper training they will be able to have a successful CRM implementation.
CHAPTER 4: CONCLUSION
In developing a new information system as part of a survival strategy, it is vital for the Aalsmeer Flower Auction’s managers to gather all the required resources as well as experiences from the past before the actual planning and implementing of the strategy. Thus, the final success of any new information system strategy therefore depends upon the implementation of a concrete plan and the feedback received from the users.
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BIBLIOGRAPHY
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Aalsmeer Flower Auction, (2008), available online from , accessed 16/04/2011
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Boddy, D., Boonstra, A., & Kennedy, G., (2005), Managing Information Systems: An Organisational Approach, 2nd edition, Harlow: Financial Times, Prentice Hall
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Brooks, I., & Weatherston, J., (1997) The Business Environment: Challenges and Changes, Prentice Hall.
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Christopher, M., (1998) Logistics and Supply Chain Management, London: FT Prentice Hall.
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Customer Relationship Management, (2010), available online from , accessed 26/04/2011
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Customer Relationship Management, (2010), available online from , accessed 26/04/2011
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Johnson, G., & Scholes, K., (2002) Exploring Corporate Strategy, 6th edition, Prentice Hall, London
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10. Pride, W.M., & Ferrell, O.C., (1989) Marketing Concepts and Strategies, 6th Edition, Houghton Mifflin Company, Boston.
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Porter, M.E., (1985) Competitive Advantage: Creating and Sustaining Superior Performance, New York: Free Press
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Porter, M.E., (1980) Competitive Strategy: Techniques for Analyzing Industries and Competitors, New York: Free Press.
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The Value Chain (2007), available online from , accessed 1/05/2011