Global corporate world
Table of Contents
Global corporate world has experienced fast advancements in Information Technology (IT) which have driven the creation and adoption of global Information Systems (ISs) and have helped many businesses grow into multinational companies (Bidgoli 2011). When a company expand its operations beyond its national borders, it also globalizes its information systems leading to a whole set of new problems that need to be effectively solved. Xu & Quaddus (2013) argues that problems arise due to different languages, cultures, laws and regulations, and currencies, time zones, political systems, competition from local brands and huge costs incurred on global ISs and supporting technologies. In addition, different countries posses different levels of IS and IT competency thus companies wishing to venture beyond their borders must either seek offshore IS services or send their IS personnel to execute some tasks (Information Resources Management Association 2011).
IS managers must rethink their IT global strategies in order to sufficiently solve these issues by becoming more informed of every local setting and adhering to more perfect solutions. Senior management of multinational corporations must be well versed with the demanding task placed on IS managers who try to solve these issues while simultaneously coping with the dynamic nature of IT, thus the management must offer needed support to build a global IS that is capable of keeping the business competitive and sustainable.
This report involves case studies of four multinational companies – DHL, Nestle, Avnet and Penske that are using global ISs as a strategy to succeed beyond national borders. It will show how multinational firms are using global ISs to orchestrate their operations and take maximum advantage of their current position. In addition, it will discuss enablers for GIS and barriers to GIS.
DHL is a multinational company dealing in express deliveries, warehousing solutions, freight forwarding, mail deliveries and other tailored logistic services. It has a global network spanning over 220 countries servicing approximately 140, 000 destinations with instant and express deliveries (K. Laudon & P. Laudon 2013). This is a significant yet unique problem facing DHL: how is it possible to work in exceptionally unique local settings, with different cultures, local knowledge, and languages, while delivering parcel delivery and logistics on a time-intense and global platform?
Today, DHL is owned by the Deustsche Post World Net, and operates a global network of 4,400 regional offices and 238 gateways. In addition, it has over 450 hubs, terminals and warehouses. DHL employs more than 170,000 people and serves over 4.2 million worldwide customers using about 400 aircrafts (K. Laudon & P. Laudon 2013). DHL faced the challenges of keeping track of many operations and client packages. In case information is significantly delayed or inaccurate, scanners cannot operate, packages wait in warehouses and aircrafts fly empty.
Traditionally, DHL handled this issue by creating about 40 data centres in every major country of operation and then coordinating these data centres with a single set of central database applications installed in every country (K. Laudon & P. Laudon 2013). The global applications allowed locals to see local data only, thus setup was a considerable limitation because failure of one data centre means that e-mails, transit data and customer shipment, or billing details may be negatively affected leading to tracking problems globally. This system was adequate to effectively support DHL operations until global trade extended beyond the local limits and data volume rapidly expanded.
After painful encounters, DHL discovered that running 50 different information system centres to a centralized global standard was hard in many countries (Research and Markets 2011). In addition, DHL learnt that information is more vital than packages: customers might understand when natural disasters such as hurricanes lead to loss of packages, but they will be intolerant if DHL systems failed and packages cannot be traced– even if they have been swept away by ocean waters. The decentralized IS infrastructure slowed down changes and raised costs: it would take over 15 months to undertake software upgrades in 50 countries and computers and IT personnel were maintained in every country. In the third quarter of 1990, Stephen McGuckin became the Managing Director of the Asian & Middle Eastern operation which had its IT organization very strained and costly, and coordination centres were located in expensive areas: London, Bahrain, Hong Kong and Singapore, while the system was being developed in the U.S (K. Laudon & P. Laudon 2013).
These necessitated new collection of management processes and McGuckin started implementing an increasingly centralized systems arrangement to decrease costs, risks, accelerate applications deployment, and enhance reliability. By 2000, DHL had concentrated its global IT structure into three inexpensive, regional centres: Prague, Cyberjaya, and Arizona, with each centre handling operations for a set of countries within the region. In the process, software production management was also changed. Initially, DHL outsourced all software creation from the Indian-based software firm InfoSys, but with consolidation, design work was transferred to Arizona while InfoSys remained with implementation and maintenance leading to reduced costs, accelerated deployment, and enhanced quality. Centralization was complete by 2006, and IT infrastructure’s maintenance costs have reduced by 40%; deployment of new applications takes less than a month; performance has been greatly enhanced (K. Laudon & P. Laudon 2013).
This case study illustrates the challenges faced in becoming locally responsive and achieving seamless information flow across national borders in a real global system. Though it will be resource-intensive, DHL needs to integrate all its systems and get rid of the three regional centers to enjoy full benefits of GIS.
Avnet is a New York-based firm founded in 1921 by Charles Avnet, and is among the Fortune 500 companies and one of the biggest suppliers of electronic components, connectors, embedded technology and computer products globally. Avnet has adopted various business strategies focused on future growth and use of global ISs to sustain corporate growth. Since 1991, Avnet has undergone a growth streak, buying 43 firms including Access Group, a British semi-conductor distributor (K. Laudon & P. Laudon 2013). According to Lalit & Kent (2012), approximately 60% of Avnet’s business involves distribution of components and the rest computer distribution thus it acts as a middleman between producers and end users including computer industries.
By 2001, the company had successfully expanded into Europe, China and Asia by purchasing the Chinese Sunrise Technology, and in 2005, Avnet bought Memec Group Holdings thus establishing itself better in the Asian market. However, the company has divided its global presence into three regions (Asia, USA and Europe) instead of forcing its purchased companies to adopt its American systems. Each region has its own ERP and associated systems to enable quick integration of new acquisitions and give regional managers freedom to chose how to organize their business in their region. In its acquisitions, Avnet weighs between retaining the systems of each firm and using its own in order to avoid training costs if entirely new systems are introduced to its employees (K. Laudon & P. Laudon 2013).
Today, Avnet maintains two ERP systems: Genesis – a custom-built system in the U.S., and SAP in its Asian and Europe regions. However, Avnet maintains 10 SAP versions, nearly one for European country of operation (K. Laudon & P. Laudon 2013). A centralized SAP system is therefore necessary to consolidate the 10 SAP systems into one.
Due to its high acquisition rate, Avnet has developed “Cookbook” to help it integrate its new companies into its business model and global ISs (Gina 2013). Avnet’s Cookbook covers finances, human resources, logistics, materials, IT/IS, and sales and marketing (Lalit & Kent 2012). Gina (2013) claims that Cookbook has proved to be very instrumental in ensuring common business processes globally despite presence of different regional ERP systems by harmonizing regional and global financial transactions, orders, supply chains and other transactions. However, Avnet is working towards a global system that will replace the current ERP systems and achieve more conformity. Avnet’s executive management has stated that it understands the unique nature of each market but they believe, without an integrated global system, it is hard to achieve business growth and achieve a truly global recognition.
Avnet’s global strategy is at risk: acquisitions costs may outweigh derived profits and three regional ERP systems is a barrier to global strategy due to reduced commonality among regional offices.
Penske Inc. is a company dealing in a broad variety of transportation services in diversified industry segments such as retail automotive, transportation logistics, truck leasing, professional motorsports, and transportation components production (K. Laudon & P. Laudon 2013).
When Penske leases out a new truck to commercial trucking firms, Genpact its Indian vendor works remotely from Hyderabad to electronically arrange for registrations, state titles, and permits. Upon returning, the fuel, toll and driver’s taxes and log documents are dispatched to Genpact and the paperwork sent to Juarez, Mexico where Genpact also has an office for information to be posted into Penske’s information system. At Hyderabad, workers enter data for purposes of accounting and tax filings. Therefore, Penske is componentizing almost every business process, including routine administration and data entry in what is currently called offshore outsourcing. It has outsourced people to execute routine information systems work from as far as India. These people are tasked with routine programming to support Penske ISs, clerical and management jobs in engineering, procurement, human resources and logistics Andel (2011).
According to Andel (2011), offshore outsourcing has lead to severe loss of jobs especially in developed countries such the U.S and Europe whereby computer services jobs are shifted to inexpensive countries such as India where similar results can be derived.
From a business perspective, offshore outsourcing is a rewarding global corporate strategy as it lowers costs, improved performance and expands business coverage. However, it tends to shift job opportunities from high-wage nations to low-wage ones leading to unemployment or forcing people to take pay cuts to retain their jobs therefore globalization has set stage for grounding competent workers. Research by Information Resources Management Association (2011) has indicated that without outsourcing from India, the U.S would have experienced a severe IS labor shortage, increased ISs costs, and reduced spending on ISs.
Founded in 1986, Nestle S.A. is the global leader in food and beverage production. Nestle has its headquarters in Vevey, Switzerland and operates in 200 countries with approximately 250,000 workers stationed at its 500 facilities (K. Laudon & P. Laudon 2013).
Traditionally, Nestle allowed every local company to do business according to local conditions and cultures as the local management saw fit. This decentralized strategy was supported by 80 independent IT units, but the management learnt that these different local units created significant inefficiencies and costs, and hindered effective e-commerce (Blackshaw 2014). Nestle lacked standard business processes thus it was unable to leverage its global buying power so as to get its raw materials at lower prices since each factory negotiated its prices independently.
Weiss & Drewry (2013) notes that Nestle adopted a program to coordinate and standardize its business processes and ISs by initially installing SAP R/3 ERP to integrate its applications in the U.S., Canada and Europe with the hope of achieving effective promotions, and reduced spoilage and overstocking. Nestle facilities run SAP ERP differently using different data formatting schemes leading to system disparities and increased maintenance costs. It was difficult to compile company-wide financial reports as well as viewing performance. It has been tough for Nestle to achieve global standards of business processes, with Nescafe becoming the only brand to get global attention.
In 2000, Peter Brabeck, the CEO of Nestle launched GLOBE (Global Business Excellence), a US $2.4 billion initiative focused on adopting an integrated IS and business processes for procurement, and sales and distribution management. GLOBE was to harmonize business processes, and standardize data and systems globally for Nestle business units to share processes for undertaking sales commitments, creating production schedules, customer billing, and management and financial reporting. This was vital in making Nestle operate like it was in a single country. By 2005, GLOBE had resulted to faster and better demand forecasts and financial reports. However, GLOBE failed to control IT/IS costs calling for a review so as to protect Nestlé’s profits and by 2006 costs were considerably reduced and the company started operating efficiently as one unit globally (K. Laudon & P. Laudon 2013).
From these case studies, it is evident that if a company develops a perfect global information system, then it is better placed to serve its customers regardless of uniqueness of their locations.
Senior management support including funding is vital GIS success (Phillips & Gully 2011). Weiss & Drewry (2013) asserts that at Nestle, Peter Brabeck, the CEO initiated GLOBE which saw Nestle effectively operate globally under an integrated IS. In addition, Brabeck spent $ 2.4 billion on GLOBE while it costs approximately $ 40 million to construct a coffee factory. Well understood and capable business processes extending to an effective global strategy is another enabler (Galliers & Currie 2011). According to Wuttke, Blome, Foerstl & Henke 2013) effective business processes eases the design and implementation process, and clear GIS project goals. Avnet developed “Cookbook” which entailed all elements of its business processes leading to smooth acquisitions and global performance. Cross-functional teams represent the whole business knowledge thus Nestlé’s GLOBE initiative shows greater representation of different business areas in their GIS leading to success.
Growth of internet, and presence of global data standards, for example UNICODE and EDIFACT that facilitate global computing has enabled DHL, Nestle, and Avnet to truly achieve their GISs, as Steinfield, Marcus & Wigand (2011) notes: increased ability to share data across different platforms is supported by global communication technology – internet and data standards.
Moller & Chaudhry (2012) argues that effective change management allows a business to effectively handle any unforeseen challenges and risks.
According to Stair & Reynolds (2011), appropriate training of users is a fundamental success factor for GIS, for example, Avnet has adopted a knowledge-based use of IS in that the effort needed in user learning is greatly considered before implemented an IS.
A company that wishes to implement a GIS faces a number of barriers including:
- Presence of different political systems, cultures – norms, attitudes, values, and behaviours, laws and regulations. For example, the U.S intends to ban offshore outsourcing which may greatly impact on Penske global operations (Stair & Reynolds 2011).
- Xu & Quaddus (2013) claims that physical differences between different locations, for example differences in currency, time zone, and language is a significant barrier to GIS. Further, they cite Incurred costs from IT/IS investments are a big challenge. For example, Nestlé’s GLOBE initiative incurred costs exceeding those of setting up a new coffee factory.
- Ola & Bendik (2013) claims that rapidly changing IT/ISs results to some regions lacking critical technical infrastructure and competency to handle GIS. Eventually, this leads to offshore outsourcing or moving professionals to and from different regional sites which may be costly.
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