Assignment one

11/30/2012 Student ID number: 11051574 Written for: Gareth White

PS3S71 Strategic Relationships and E-Business

Executive summary
Environmental issues such as climate change, resource depletion, loss of biodiversity and air pollution are acute subjects affecting society at large, demanding immediate action (Watson, 2008). The importance of sustainable business practises is increasing with pressures from customers, competitors, regulators and community groups, making green objectives key strategic issues for organisations (Molla and Pittayachawan, 2011). According to Gartner (2007), the use of information technologies (IT) creates 2% of the total CO2 emissions in the U.S., similar to the emissions created by the airline industry. Dedrick (2010) argues that although IT may seem to account for a very small part of the overall climate change problem, the anticipated increase in use of IT in developing economies can cause this number to grow rapidly. Furthermore, IT has the potential to approach much of the remaining 98% of CO2 emissions by addressing issues highlighted in three stage effect model of the environmental impact of IT (Hilty, 2006, Koehler and Erdmann, 2004 and Dedrick, 2010).

In the current economic climate, competitive competences are of paramount importance to organisational success (Agha, Alrubaiee and Jamhour, 2012). Competitive competences can be improved by achieving higher levels of standardization, formalization and integration (Rondueau, Vonderembse and Ragu-Nathan, 2000). Ward and Zhou (2006) suggest achieving this by reducing customer lead time, through the implementation of lean principles and ERP systems.

The purpose of this report is to investigate the role information technology can play in achieving a leaner and greener organisation. As a final point the report will aim to form a strategy of how to use IT to support the goal of reaching lean and green objectives. The organisation this report is directed at is a multinational electronic commerce which imports and exports a wide variety of goods at a global scale. It is a direct competitor to Amazon and eBay, as it offers a similar, wide variety of products to a global market. Other competitors include sector specific online retailers such as play.com and area specific retailers such as Tesco, Wal-Mart and Target, with their wide range of products and online presence.
PESTEL analysis

When forming a business strategy, both the internal and external environment of the organisation should be taken into account. An analysis of the external environment may be
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expressed with the acronym PESTEL, standing for political, economic, sociocultural, technological, environmental and legal factors. While the analysis tends to oversimplify the process, it does serve to monitor the key forces which can impact the organisation. According to Thomas, Clark and Giola (1993), there is a proven link between environmental scanning and company performance.

Political -

Pressures to become greener by political organisations, activists and pressure groups. Steel and Barnett (2008) forecast an increase in environment-related taxes, tariffs or fines.

Economic -

Increased prices of crude oil affecting transportation costs all over supply chains. Increased focus on cost differentiation as a result of lower levels of disposable income (Jifeng, Sulin and Han, 2012).

Importance of competitive competencies to achieve organisational success in the current economic climate (Agha, Alrubaiee and Jamhour, 2012). Threat of unstable exchange rate fluctuations between economies in the companys global market.

Sociocultural -

A societal shift in shopping habits, from traditional brick and mortar shops towards online shopping, where customers have higher expectations with regards to price and variety, and the ability to switch from browsing in one shop to another at the click of a button(Jifeng, Sulin and Han, 2012).

Anticipated increase in people with internet connection in developing economies (Dedrick, 2010).

Technological -

Easier ways of customer intervention through online reviews, social media and price comparison websites (Jifeng, Sulin and Han, 2012).

The ability to capture information about customer spending habits through transaction processing systems (TPS).
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Shift in perception of markets from local to global as a result of online shopping, globalisation and more developed supply networks.

Environmental -

Accumulative focus on green and environmental issues through media, corporate governance and consumer behaviour (Watson, 2008).

Legal -

New EU data protection regulation to affect the Data Protection Act (International Law Office, 2012).

According to Steel and Barnett (2008), there is an anticipated increase in legislations and regulations, the details of which will vary from country to country, but lowering carbon emissions, increasing recycling and decreasing waste will be key issues.

Porters five forces analysis

Porters five forces analysis framework, developed by Michael Porter of Harvard Business School, can be used to determine the competitive environment of an organisation. When using the framework, it is important not to separate the components and see them as distinctive activities, but to understand the connections between the forces. The model must not be seen as a static picture, but as a continuous consideration (Johnson,Scholes and Whittington, 2010).

Figure 1 adapted from Johnson, Scholes and Whittington (2010) Exploring Corporate Strategy 3 11051574

IT facilitating lean
Slack, Chambers and Johnston (2009) define lean as an overall philosophy that emphasizes the continual elimination of waste of all types. This could include waste of time, materials, production cost and human resources. These factors are regarded to be interlinked, as when waste is reduced, quality improves and production time and cost are reduced. Slack et al identify several approaches to planning, control and improvement which adopt lean principles. This report will primarily focus on just-in-time (JIT), as the literature acknowledges JIT as the key process improvement framework for lean strategies (Slack et al., 2009, Ward and Zhou, 2006). JIT is based on the notion that the flow of products and services should deliver exactly what the customer wants, in exact quantities, exactly when needed, exactly where required and at the lowest possible cost (Slack et al., 2009). This is done by removing buffer inventories between the stages of manufacturing processes. As a result, items are passed directly to the next stage, thus enabling immediate error detection, faster lead times and lower inventory. In other words, by preventing items accumulating between stages, the operation has increased the chances of the intrinsic efficiency of the plant being improved. JIT practices include practices such as quick changeover techniques, kanban systems, and lot-size reduction. A good JIT implementation produces high-quality products at the pace of customer demand with little waste. It allows customers to be served with less inventory investment and a higher level of responsiveness (Womack, Jones, and Roos, 1990; Womack and Jones, 1996).

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Scheduling and movement information from operations planning and control system

Stage A

Buffer inventory

Stage B

Buffer inventory

Stage C

(a)

Traditional approach buffers separate stages Information (orders) Information (orders)

Stage A

Stage B

Stage C

Deliveries

Deliveries

(b) Lean synchronisation approach deliveries are made on request

Figure 2 (a) Traditional and (b) lean synchronized flow (JIT) between stages. Adapted from Operations Management, Slack et al, 2009.

Lead time performance is a key competitive field for manufacturers across many industries (Blackburn, 1991, Treville, 2004). Lead time can be measured in a number of ways, including manufacturing lead time (Jayaram, Vickery and Droge, 1999) and customer lead time (Duenyas and Hopp, 1995). Industry Weeks Census Glossary defines customer lead time as the time elapsed from receipt of an order until the finished product is either shipped or delivered to the customer (IndustryWeeks Census Glossary, 2004). Lead time reduction is linked to faster response to customer needs, in consequence making organizations more customer-oriented (Fisher, Raman and McClelland, 2000). It also leads to higher levels of standardization, formalization, and integration, which increase competitive competences (Rondeau, Vonderembse and Ragu-Nathan, 2000). According to Ward and Zhou (2006), lead time can be reduced by two general approaches: IT integration within and between firms in the supply chain, such as enterprise resource planning (ERP) systems, and process improvements such as JIT. Ward and Zhou further state that companies that have successfully reduced lead time through JIT practises may benefit from IT integration practises such as those embodied in enterprise resource planning systems. However, practitioner literature describes a tension between JIT and IT approaches to performance improvement (Astall,
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2006, Bruun and Mefford, 2004, Piszczalski, 2000). According to Piszczalski (2000), the two approaches require different sources of organizational expertise, respectively manufacturing management and IT professionals. Additionally, financial restraints and the requirement for senior management attention for each approach often hinder introducing both approaches simultaneously. Astall (2006) describes a schism between ERP and lean thinking, as ERP systems maintain control through work orders and inventory transactions, a centralized top down process, as opposed to the lean philosophy of process visibility, simplicity and control in the hands of the many. However, Astall further argues that through appropriate integration of IT such as applying the 5S philosophy (sort, set in order, shine, standardise, sustain), lean strategies can be supported. This includes sorting out which systems add value, standardising them and sustaining them through appropriate support.

In the late 1980s and early 1990s scholars and practitioners criticized the poor correlation between organizational investment in IT and organizational performance measured by return on equity (Solow, 1987, Brynjolfsson, 1993 and Strassman, 1997). This concept is known as the IT productivity paradox. A study by Ward and Zhou (2006) examining the influence of IT integration and JIT practises on performance indicates that JIT practises mediate the impact of IT integration, thus challenging the IT productivity paradox. Other recent literature also counters the IT productivity paradox and determines that it results from the delay between initial investment and results and the mismanagement of information systems projects (Brynjolfsson and Hitt, 1998, Mcafee and Brynjolfsson, 2008 and Sircar, Turnbow and Bordoloi, 2000). Integrating ERP and similar systems along a supply chain can dramatically reduce the cost of communicating between supply partners and the potential for avoiding errors as information and products move between partners in the supply chain are significant (Slack et al, 2009). According to Chaffey and White (2012) inter-organizational ERP can be used to meet fluctuations in consumer demand by rapidly notifying its suppliers of changes in stock inventory that are required. Implementing an ERP system is expensive, particularly because of the need to customize the system, understand its implication on the organization, and train staff to use it (Slack et al, 2009, Davenport, 1998 and Finney and Corbett, 2007). Critical requirements for successful implementation includes a large financial investment, the involvement across organizational boundaries (Slack et al, 2009) a combination of broad, organization-wide strategies and division specific factors and investment in training of staff
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(Davenport, 1998). To avoid website downtime when maintaining a web-integrated ERP system, it is advisable that the company configures its ERP and E-commerce links in such a way that the can be decouples so that the ERP can be periodically shut down without affecting the companys web presence (Slack et al, 2009). Learning and development is the first area businesses make cuts when implementing lean strategies (Lewis, 2006), however, appropriate training in the use of ERP is critical to a successful implementation (Davenport, 1998).

IT facilitating green
Steel and Barnett (2008) identify several positive advantages to going green, from cost reductions and PR pay-offs to lower capital spending and more effective working practises. They further argue that environmental effects like climate change are a symptom of overconsumption of the planets resources, similar to pressures on profits or budgets being due to insufficient use of resources. They claim waste reduction and efficiency are key in both lean and green practises. It is widely recognised within the literature that there is a potential for IT to play a critical role in improving the natural environment and addressing climate change (Boudreau et al. 2007, Climate Group 2008, Erdmann et al. 2004, Farrell and Oppenheim, Melville and Ross 2010, Richards et al. 2001). According to Dedrick (2010) IT can increase the energy efficiency of buildings, transportation systems, supply chains and electrical grids, but the production and use of computers plays an important part of global energy consumption and greenhouse gas emissions, a fact that must be balanced against the benefits of IT use. Energy consumption, and greenhouse gas emissions as a result of IT production and use, can be reduced by designing, manufacturing, using and disposing of computer, servers and associated subsystems more effectively (Murugesan, 2008). In practise, this could include more energy efficient design, using renewable energy sources to power computers and data centres and reducing electronic waste (Watson, 2008). Ultimately, IT should be viewed as both part of the problem and part of the solution (Fuchs, 2010).

In operations management, large steps have already been taken to reduce energy consumption in manufacturing supply chains. In terms of academic research, operations management is years ahead of information systems in addressing environmental issues (Melville and Ross, 2010).
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Hilty (2006) and Kohler and Erdmann (2004) have established a three stage effect model of the environmental impact of IT. First order effects include the direct impacts from the production, use and disposal of computer hardware. Second order effects account for the rest of the supply chain, including transportation and industrial production. Third order effects are the long term effects IT has on society at a large, including lifestyle changes and the growth of e-commerce. According to Dedrick (2010) the majority of the activity in the IT practitioner community is focused on reducing the first order environmental impacts of IT by increasing the energy efficiency of data centres and PC equipment. These efforts can directly reduce IT costs, the intrinsic motivation for adopting Green IT practises in organisations (Dedrick 2010). Dedrick further highlights that despite clear economic payoffs, these practises may not be adopted due to the lack of involvement of the IS departments of organisations in strategic decision-making. Additionally, the potential to achieve secondorder benefits of IT are often beyond the scope of the IS department. Human resources make decisions about telecommuting and operations managers are concerned with transportation, production and supply chain issues (Dedrick, 2010). This indicates a need to improve the synergy between functions in order to achieve strategic goals.

Proposed strategy
Stoller (2009) and Steel and Barnett (2008) both propose a very hands-on approach on how to reduce IT waste including reducing unnecessary server capacity, cutting down on excess printing, ensuring all office electronics are switched off when not being used, enforcing stricter policies on handing out software licenses, decreasing telecommunications expenses through tracking costs by end-user and migrating legacy systems so obsolete systems can be decommissioned. Stoller also suggests cutting the costs related to external training, such as hotels, travel and lost productivity by using online courses. Stoller then emphasizes the importance of feedback and peer interaction when learning, and suggests that online training should complement, rather than replace, classroom training. The introduction of additional costs by complimenting classroom training with online training is conflicting with the objective of reducing waste. However, Stollers point can also be applied to substituting external meetings with video conferences. Some of the activities proposed by Stoller and Steel and Barnett, such as reducing unnecessary server capacity and decommissioning legacy systems, are tactics which can be
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carried out by a few members of the organisation, by the enforcement of senior management decisions. Actions such as cutting down excess printing and ensuring all office electronics are switched off when not being used require a change in the attitude of all employees at all levels. According to Schneier (1974) operant conditioning, such as positive reinforcement, can be used as a tool for behaviour modification and attitude change in the work place. This stance is supported by Shin, Taylor and Seo (2012) who argue that organizational inducements increase employees commitment to change. A proposed strategy for the company to achieve the objectives of becoming leaner and greener should include both first and second order effects. Examples of first order effects include choosing computer solutions with lower carbon footprint, reducing unnecessary server capacity, enforcing stricter polices on handing out software licenses, decreasing telecommunications expenses through tracking costs by end-user and migrating legacy systems so obsolete systems can be decommissioned, together with an awareness campaign throughout the company, encouraging employees to cut down on excess printing and switching off their office workstation at the end of the work day. Slack et al (2009) suggests using a work breakdown structure to break complex projects into manageable tasks. Mapping information management practises can be a useful tool for identifying duplicate work and wasted server capacity due to duplicate storage. The storage of data can then be further reduced by evaluating the need of storing data through storage rationalization (Steel and Barnett, 2008). Second order effects include implementing ERP and integrating the system along the supply chain to decrease customer lead-time. This will require a great financial investment, however, due to the long term financial benefits of more efficient communication and error avoidance (Slack et al, 2009), it is suggested that the company considers implementing integrated ERP as part of a lean strategy. It is further suggested that the continuous development of this strategy involves all functions in the organisation and encourages participants at all levels to take part in the expansion of how IT can facilitate lean and green objectives. According to Lazarus and Andell (2006), decision-making within IT development tends to involve only technical staff and carried out by the IT professionals with little intervention from the organisation as a large. This is supported by Bostrom, Gupta andThomas (2009) who further claim IS literature focus too much on technology at the expense of the social elements of IS. As previously highlighted by
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Piszczalski (2000), the implementation of ERP and integration along the supply chain requires organizational expertise from both manufacturing management and IT professionals. As suggested by Astall (2006), the 5s philosophy of lean should be applied to the integration of ERP, including sorting out value-added systems, standardising them and sustaining them through appropriate support.

References
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