DSS Model That Aligns Business Strateegy and Business Structure with Advanced Information Technology: A Case Study

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A DSS Model that Aligns Business Strategy and Business Structure with Advanced Information Technology: A Case Study Petros Theodorou Technological Educational Institution of Kauala, Greece

EXECUTIVE SUMMARY Advanced information technology must be aligned to business strategy and structure if premium earnings and competitive advantage has to be created. Strategy is mainly driven by the uncertainty of the environment where business works. Information technology is a key element of business structure in order to bypass environmental uncertainty. In this study, the case of a firm is examined that is located in Northern Greece and has to make some decision regarding the modernization of the technology applied in production. An integrated system needs to be applied in order to manage enterprise resources, from warehouse and logistics to front office and client service. The ultimate purpose of this system is to increase flexibility and cut time of response to environmental changes, without increasing cost and inventory. In order to achieve the target, strategy is analysed first, in relation to environmental changes. Various types of flexibility are determined according to the firm’s uncertainty and variability. Finally, the correlation between flexibility and variability determines the type of information technology that needs to be adopted and increase competitive advantage. The model proposed is based on the alignment theory and the strategy execution perspective. A “strategies map” model is constructed to help the decision regarding the strategy and information technology to overcome the variability problems and increase competitive advantage. This Copyright chapter © appears 2004, Idea in the Group book, Inc.Annals Copying of Cases or distributing on Information in printTechnology or electronic 2004, forms Volume without 6, edited writtenby Mehdi permission Khosrow-Pour. of Idea Group Copyright Inc. is ©prohibited. 2004, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.

158 Theodorou

BACKGROUND Information technology (IT) is generally accepted as a strategic tool that can create a competitive and distinctive advantage. IT can be used to catch-up the “primer” and decrease the pre-emption potential (Feeny & Ives, 1997). But these benefits can be attained only if a strategic perspective of IT selection and implementation is used. Strategic alignment theory provides the appropriate framework for the strategic utilization of information technology applications (Figure 1; Theodorou, 2003). Henderson & Venkatraman (1996) argue that any given planning process must consider the interaction between the functional integration and the dimension of strategic fit. They identify four alignment perspectives: strategy execution, technology potential, competitive potential and service level. The fit among the internal and external domain (strategic fit) is critical to economic performance. Strategic fit creates a competitive advantage when it is combined with functional integration at the strategic and operational level. According to Luftman (1996) business strategy (in strategy execution and technology potential perspective) is the anchor domain that drives the planning process. In the strategy execution perspective, business structure is the pivot and IT structure is the impact domain. In the technology potential perspective, IT strategy is the pivot and IT structure is the area that will be affected by the change. Both in the competitive potential and in the service level perspective, IT strategy is the anchor domain. In the case of competitive potential, business strategy is the pivot and business structure is the impact. In the service level, IT structure is the pivot and business structure is the impact domain (Figure 2). Figure 1

Environmental Uncertainty Structure

Strategy IT

Figure 2 Business Strategy

IT/IS Strategy

Strategic Alignment Process Business Structure

IT/IS Structure

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A DSS Model that Aligns Business Strategy and Business Structure 159

In the beginning of this work, a literature review of strategic alignment is presented and will follow a theoretical discussion upon the elements of alignment: business strategy, strategic priorities and business structure. Furthermore, the case of a company will be analysed who wants to invest in an IT project in order to close the competition gap. The planning process will be approached in a strategy execution perspective based on alignment theory among strategy, structure and IT. Business strategy will be analysed at first in order to determine strategic priorities. Strategic priorities and environmental uncertainty will determine the structural characteristics that information technology should enhance in order to create competitive advantage. The strategic alignment model will be applied in the case of the company in order to aid the information technology selection and planning process.

LITERATURE REVIEW As previously mentioned in strategic alignment theory, the main participants for information technology alignment are business strategy and structure. Thus, we will first analyse the theoretical discussion of the main factors of the model and, finally, we will present the specific case study.

Manufacturing Strategy Manufacturing strategy according to the organisation theory and business policy is distinguished in the level of the content and the level of the application procedure (Hayes & Wheelwright, 1984; Skinner, 1985; Storper & Scott, 1988). The content of manufacturing strategy consists of four strategic dimensions (DeMeyer et al., 1989; Panzar & Willing, 1981) that are: 1. Cost 2. Quality 3. Flexibility 4. Dependability (dependable deliveries) On the above set, Giffi, Roth & Seals (1990) add two more dimensions, innovation and customer service. The order of the above strategic targets in manufacturing is the one that the leading Japanese manufacturing companies have adopted (DeMeyer et al., 1989; Nakane & Hall, 1991). Hill (1993, p. 45) adds to the previous list the following priorities: colour, product’s range, design, brand name and customer support. Ferdows & De Meyer (1990) adopt a different prioritisation of manufacturing dimensions by prioritising quality before dependability, flexibility as a third priority and cost at the end. The same order is adopted by Swing & Way (1995). According to Hall (1987), quality becomes the first goal, second comes dependability, followed by cost and flexibility. A slight difference is observed between Ferdows, De Meyer and Hall in the order of flexibility and cost. Hall & Nakane (1990) add to the previous list another two dimensions: culture (that precedes quality) and innovation as the 6th priority. Noble (1997) changed Hall’s progression, with a distinction among dependability and delivery that comes after, and set innovation at the end of the list. Regarding Skinners prioritising, Chase at al. (1992) believe that service is the fifth dimension, unrelated to dependability. Some

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160 Theodorou

Table 1 Priorities

Cost Quality Flexibility Depend/lity Innovation Service

Skinner, Buffa, Wheelright

1 2 3 4

Giffi, Roth, Seals

1 2 3 4 5 6

Chase

1 2 3 4

Swing & Way, Ferdows, DeMeyer

4 1 3 2

Hall & Nakane

4 2 5 3 6

5

… studies have focused only on quality (Adam, 1994; Flyn et al., 1994), while others have focused on productivity as a criterion for prioritising (Hayes & Clark, 1985; Schmenner, 1988; 1990; 1991; Noble, 1997). We can partly summarize the previous discussion in Table 1. To reach business and corporate goals, supportive cost, time, quality and flexibility targets must be developed (Skinner, 1969). These manufacturing goals are achieved and sustained by a “pattern of decisions” (Hayes & Wheelwright, 1984) and have to be aligned with business and IT strategic targets. According to Skinner (1985), these priorities integrate manufacturing and business strategy. Skinner (1996) contends that one of the major problems in implementing strategic objectives is a proven inability of management to step back and access the coherence of their strategies. Skinner (1996) endorses that insufficient research in the process of strategy-making has held back the adoption of manufacturing strategy priorities and ideas.

Business Structure IT proved capable for the creation of competitive advantage, as it alters the competition rules among the industry participants. Unfortunately, research indicates that competitive advantage cannot be sustained infinitely due to the external environment’s volatility. Strategy should adapt according to circumstances and structure should accomplish the strategic direction. Strategic alignment and strategic fit models established in strategic management literature try to explain that change (Earl, 1990; Morton, 1991). Among the variables in strategic alignment models, structure obtains a central role. Structure should be organised in a flexible way in order to interface with environmental uncertainty and take advantage of IT potential. Structure is approached from the internal and the external perspective. From the internal perspective, the estimation of the structural variables can be used in order to specify the organisational form. Organisation theory and design define structure using structural dimensions and structural variables. Pugh et al.’s (1968) theory was based on the following structural dimensions: degree of standardisation, degree of routines, formalisation of procedures, specialisation of roles, stipulation of behaviour, concentration of authority and line control of workflow. Pugh used these dimensions for the classification of a sample of “52” English organisations and derived seven structural forms. Generally, it can be observed

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A DSS Model that Aligns Business Strategy and Business Structure 161

that the exact form and number of the structural dimensions is not universally accepted (Sanchez, 1993; Rich, 1992). Thus, some researchers adopted a more generic definition of structural dimensions and progress in a more detailed level by the definition of the structural variables. Blackburn & Cummings’ (1982) theories are based on this generic concept and define the following three core structural dimensions: complexity, formalisation and centralisation (Robbins, 1990). Earlier, Hage (1965) made that distinction and referred that those structural characteristics can vary in their presence from high to low, thus proposing a qualitative construction for the measurement of core dimensions. Later, in 1991, Miller underlined the new capabilities which the role of information technology brings over the previously mentioned dimensions. Furthermore, Burton & Obel (1995) add to the previous list the following three dimensions: configuration, coordination and control. A different viewing angle is proposed from the organisational information processing theory; communication, coordination and cooperation are the essential structural dimensions (Stock & Tatikonda, 2000). Edmondson (1990) and Moingeon et al. (1998) referred to organisational learning as another important determinant of organisation structure. Organisational learning determines how a firm develops its capabilities and competencies over time (Eden & Spender, 1998). Furthermore, Miller (1987), as well as Raymond et al. (1995), underlined the importance of structural sophistication, whose role emerged due to information technology. The previous discussion partly can be summarized in Table 2. In that case, a set of structural variables was applied that determines the general parameters of structural design. The general set of structural variables adopted was based on the work of Blackburn & Cummings (1982), Reimann (1974), Mintzberg & Quinn (1996), and Parthasarthy & Sethi (1992). The effect of those variables on performance determines the structural effectiveness. Those structural parameters are the following: formalisation, complexity, centralisation, coordination-cooperation, control and reward system. The above mentioned parameters are determined from the following structural variables: (x1) level of programmed work coordination, (x2) level of decentralisation in decision-making, (x3) level of defined procedures for control, (x4) level of interdepartmental co-operation, (x5) use of liaison personnel for coordination, (x6) low levels of hierarchy, (x7) interdepartmental communication without rules, (x8) reward system based on skills, Table 2

Structural Dimensions Pugh et al. Blackburn & Cummings Burton & Obel Stock & Tatikonda Edmondson, Moingeon et al Miller, Raymond et al

Standardization, Routines, Formalization, Specialization, Stipulation, Authority, Control Complexity, Formalization, Centralization Complexity, Formalization, Centralization, Configuration, Coordination, Control Communication, Coordination, Cooperation Communication, Coordination, Cooperation, Organizational Learning Communication, Coordination, Cooperation, Structural Sophistication

…

…

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162 Theodorou

(x9) infrequent management decision control, (x10) level of work specialisation, (x11) level of task non-standardisation (versus written tasks), (x12) range of training variety (versus specialisation), (x13) level of responsibilities non-standardisation, (x 14) flexibility in production schedule, (x15) concurrency in design, (x16) production structure, (x17) production in quality (variety in design), (x18) frequency of change in production level, (x19) number of suppliers, (x20) frequency of subcontracting, and (x21) departmentalisation. Flexibility of production is nowadays more imperative than ever before for every business, because flexibility enables a fast response to the continuous variations of demand.

THE CASE STUDY The company insisted upon anonymity and decided to withhold financial or other data that indirectly identified it. The firm belongs to the food industry and is also a supply chain that employs approximately 200 permanent blue and white collar staff. The company has four different parts, each of which is a different department: production, central warehouse, headquarters and two retail outlets (Figure 3). Production is in the same location as the central warehouse and the headquarters. The place where the production department operates was constructed later as an extension of the central building where the headquarters and warehouse are located. The main function of

Figure 3

Supplier 1

…

Location –1…

Location 1

Headquarters Production

Warehouse

S.Market 1 S.Market 2 Location 2 Location 3

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A DSS Model that Aligns Business Strategy and Business Structure 163

production is the labelling and packaging of selected products, partly manufactured by three different subcontractors, each in a different location. Labels have the brand name of the firm and products are promoted at the firms’ stores. Central warehouse is responsible for the dispatch of goods to the stores. Moreover, inventory of materials used in production are also kept at the central warehouse. Stores are supplied by the warehouse and are located in different strategic market places (S. Market). Each store has a small storage capacity and the provision is made by tracks from location 1 (Figure 3). A pull system of orders exist among the stores and the central warehouse. The organizational structure of the firm is determined by high formality, decision centralization in the directors, high work specialization and responsibilities strictly determined along with job description. Each store has separate director, a member of the board, who is completely responsible for the management of the store: ordering, shelve management, hiring, etc. The warehouse’s director is also a member of the board, and is completely responsible for the appropriate operation and goods dispatching to the retail outlets. The above mentioned directors have part of the common share of the company as a whole; they take part in decision making at the board of directors and are jointly responsible for the company’s investment program. The remaining part of the common equity belongs to the CFO and CEO, who are positioned at the headquarters and are also members of the board of directors (Figure 4). Information technology in this firm is in its infancy, only a LAN exists with a Novell operating system and six workstations located at the headquarters under the management of CIO. CIO is in close cooperation with CFO. The system administrator is responsible for the appropriate functionality of the system and cooperates with the finance division for the payroll, the accountancy system, the balance and income statements, the invoice entry, budgeting, materials and product monitoring, placing orders, inventory control, etc. A central database for the products and materials is installed on an IBM AS/400 system and is updated from 6 workstations, mainly for data entry. Moreover, four stand-alone PC’s exist for MIS in Access and Excel. Each of the

Figure 4

Board of Directors

CEO Director4 CFO Director1 S. Market1

Director1 S. Market2

Director5 CIO Director2 Warehouse

Director3 Production

1

Director 1

2

Director 2

3

Director 3

4

Director 4

5

Director 5

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164 Theodorou

shops also has a PC for local handling of orders and merchandise management. The pricing policy is proposed by CFO and it is under discussion within the board of directors. The warehouse doesn’t have any computerized system and the control and movement of goods is made with cards — something like a kanban system.

The Problems The first contact with the company was made in late 1999. CIO suggested to the board of directors an investment programme in information technology. The project basically proposed a barcode system which would be installed at the front office (at the shops) in order to decrease the entry time of the cashier and thus, the waiting time of the customer’s queue. That system was installed at most of their competitors with very good results and, for this reason, it was believed a necessity in order to close the competition gap and increase competitive advantage. The company wanted a consulting service regarding the investment on a front office barcode system. The barcode system doesn’t create switching cost for the client and cannot create sustainability of competitive advantage unless the system is engaged with the unique structural characteristics of the firm. But after an examination and a discussion with management, it was found that the structure lacks the characteristics that the system needs to be aligned with. For example, the software that monitors the warehouse and the movement of merchandise and materials was not properly informed in time and other indication of materials get someone from the warehouse and other from the system. That happened because the warehouse was not linked onto the system (AS/400), and was not linked due to certain perceptions. Decision centralization and notification and control mechanism was an obstacle, since direct control prohibited the free flow of the information. Moreover, unfamiliarity with advancements in networking and PCs directed employees to work with cards. Decision making was centralized to the director and cooperation with the other departments was made by cards under high formality. This time lag of information updates to the system resulted in inaccuracy, thus, when information entered it was too late, as major changes had happened in the mid-span to the warehouse. A just-in-time update of the system was a necessity. Inconsistency existed among the inventory held in the warehouse and the inventory reported by the system. Thus, increased personnel was used for continuous stocktaking.

The Model Proposed The CIO approach seemed like Luftman’s technology potential perspective, but he underestimated the role of business strategy and structure. What was proposed was a strategy execution perspective based on the alignment theory. The model that was formed, prioritised, at first, the strategic targets according to importance for the competition in the next 3-5 years, and further determined the environmental uncertainty and the structural variables that have to fit with the information technology proposed. The general structure of the model proposed is given in Figure 5. Thus, business strategy was the anchor domain, organizations’ structure the pivot and, finally, IT infrastructure the impact domain.

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A DSS Model that Aligns Business Strategy and Business Structure 165

Figure 5 Cost, Quality, Dependability Flexibility, Service…

Strategy Execution Perspective

Business Strategy

Strategic Alignment Process Business Structure IT/IS

?

Coordination, Formalization, Centralization, Complexity, Control, Reward System…

The Applications and The Solution Under such circumstances it seemed that a front office solution will not work properly if appropriate support from the back office is not given. It was proposed that computerization should first start at the back office, and mainly from the warehouse, which is the heart of the firm, otherwise the front office will fail to achieve its ultimate purpose. In our analysis, we started from ends in order to determine the means. Thus, the business strategy was analysed at first, based on the strategic priorities previously mentioned. We first analysed the competition in close cooperation with the management and using a qualitative Likert scale determining the importance of each strategic priority. A rating of 1 to 6 was used to measure the importance of each priority. Scale increased in a positive way with the importance of the priority. At this stage it was important to assess the importance of each priority for the next 3-5 years. Furthermore, the management’s perception was compared with the achievement of the other competitive firms in the branch. At the end, the following strategic priorities map was formed (Figure 6). Figure 6 Innovation 6 Flexibility

4

Strategic Priorities Q uality

2 0

Service

Cost

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166 Theodorou

Figure 6 shows that flexibility will be of greatest importance for the competition in the next 3-5 years, with dependability and service next. It should be mentioned that the previous prioritisation does not imply that cost, quality and innovation was not important. On the contrary, it means that the firm, in relation to the competition, has already achieved important competitive status on those targets, thus in the future they will not be of top priority. It can be observed that this prioritising is quite similar to those previously proposed by DeMeyer et al. and Giffi, Roth & Seals in that cost is not in the highest priority list. The difference is that flexibility is of higher importance than dependability and service (Theriou, 2002). Generally, flexibility, internal or external, refers to the ability of a production system to react and adjust economically and quickly to the variations (environmental uncertainty) inside and outside the company (Frazelle, 1986). The environmental uncertainty factors that were examined are the following: • Demand variability: caused due to qualitative and quantitative variations. The qualitative mainly refer to variations of consumer preferences in relation to products’ characteristics, such as colour, smell, design, etc. Efforts to satisfy the qualitative variations result in increased range of products produced or supplied. The quantitative demand variation for a product usually depends on seasonality. • Supply variability: derived due to three basic reasons: a) increase of materials and products variety. When the range of ultimate products is increased (increase in existing models variety, module products, to cover various qualitative preferences of consumers) then the range and variety of raw and intermediate materials also increases. The overall range of orders increased but small quantities ordered to many different suppliers. The number of suppliers is increased drastically and offsets the decrease in quantity ordered from each supplier. Thus, the complexity of logistics increases, b) variations in the quality of the ordered materials and the time of delivery, c) introduction of new products. • Process variability: is caused by the introduction of modern technologies and the application of novel administrative techniques. • Product variability: is increased because of the variety in goods produced and from the introduction of new products within the range of materials currently supplied. • Workforce variability: is caused by raining, absences, strikes, etc. • Equipment variability: is derived from planned and unplanned maintenance, repair, set-up, etc. The effect of these disturbances and variations in performance can be minor in a firm which succeeds in the strategy of flexibility. In order to decide which type of flexibility the enterprise needs, it was first defined which type of variance the firm faces. In our case, the environmental analysis show that uncertainty derived mainly from demand and supply variability (Table 3). Based on the discussion with the upper management and the environmental analysis, it was found that the firm — due to the volatile environment — needed to invest in the strategic target of external flexibility (Table 3) in order to overcome demand and supply variability. Labelling and packaging are very important functions because they determine the look of the product on the shelves. The look of the product is one of the most important marketing factors that has a high impact on customers’ choices. Other Copyright © 2004, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.

A DSS Model that Aligns Business Strategy and Business Structure 167

Table 3

EXTERNAL FLEXIBILITY Demand variability Supply variability

INTERNAL FLEXIBILITY Process variability Product variability Workforce variability Equipment variability

important factors are the product’s position on the shelf, of course the price and, finally, quality which will lock the consumer’s decision in relation with the availability (dependability). But all of the products manufactured by the company are competitive in terms of cost and pricing and have a good position in the stores’ shelves. The problem is mainly with dependability. The products produced which contribute significantly to the profit exhibit high variation in demand. Costumers’ choices on these products is not constant and the company suffers from high instability due to substitute competition. The instability is transferred to the ordering system and increases the uncertainty of supplies. The delivery time fluctuates but within low limits, and the main source of variability is the quantity ordered. This problem could be decreased by using a system for ordering and forecasting. According to Brown et al. (1984), manufacturing flexibility was distinguished in eight types. • Machine flexibility: the ability to replace, change and assemble the parts of a machine in minimal time. • Process flexibility: the ability to modify the necessary steps to complete a task. • Product flexibility: the ability to produce new products from the existing spectrum of parts from which the end items are composed. • Routing flexibility: the ability to vary the frequency of a machine serving without interrupting the sequence of production line. • Volume flexibility: the ability to operate efficiently in different quantities of production. • Expansion flexibility: the ability to expand production according to the occasional needs, easily and periodically. • Process sequence flexibility: the ability to alter the sequence of the different techniques of production are formed or the ability to interchange the ordering of several operations for each part type. • Production flexibility: the ability to alter quickly and economically the range and combination of parts a final product is comprised of and which can be produced in an FMS (the FMS can not be flexible, as far as production is concerned, unless all the above mentioned flexibilities are accomplished). In our case the focus should be on product, volume, expansion and process flexibility, as external flexibility is the key to bypass the environmental uncertainty (Figure 7). Copyright © 2004, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.

168 Theodorou

Figure 7 Environmental Variability

Business Strategy

Business Structure

- Demand - Supply External Flexibility: - Product - Volume - Expansion - Process - Formalization - Complexity - Centralization - Coordination …

IT Applications as Flexibility Tactics Flexibility in co-ordination with IT offers the enterprise the ability to achieve competitive advantage (Kenney & Florida, 1993; Sayer, 1986). Competitive advantage can be increased if fit is gained among IT, business structure and business strategy. A classification of information technologies/techniques can be made into three groups. • Flexible engineering design automation (FEDA): FEDA refers mainly to automation which concern the product’s design. This kind of automation includes technologies and techniques such as computer aided design (CAD), computer aided engineering (CAE), solid modelling (SM), and finite element analysis (FEA). • Flexible manufacturing automation (FMA): The next step in production procedure after designing the product is manufacturing. The basic target of that kind of IT applications is machine programming. Techniques and technologies of that kind include: numerical control (NC), direct numerical control (DNC), computer numerical control (CNC), robots, flexible manufacturing systems (FMS), automated guided vehicles (AGVS), and automated storage/retrieval systems (AS/RS). • Flexible administrative planning and control automation (FAPC): In this category we find computer applications in accounting, logistics, warehouse management, management of stocks, quality control, etc. Also, management of information systems (MIS) and decision support systems (DSS) are also included. Other systems in this category are: electronic data interchange (EDI), electronic point of sales (EPOS), optimised production technology (OPT), group technology (GT), material requirements planning (MRPI), manufacturing resource planning (MRPII) (Manthou et al. 1996), just-in-time (JIT), computer aided production planning (CAPP), shop floor control (SFC), factory data collection systems (FCS), data acquisition systems (DAS), computer aided quality control (CAQC), concurrent engineering (CE), etc. (Theodorou, 2003; Nakane & Hall, 1991). Based on this taxonomy, a correlation can be made among flexibility, information technology and variability, shown in Table 4. Copyright © 2004, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.

A DSS Model that Aligns Business Strategy and Business Structure 169

Table 4 EXTERNAL FLEX.

INTERNAL FLEXIBILITY

Information Technology

Variabilities DEMAND

SUPPLY

PROCESS

PRODUCT

WORKFORCE

EQUIPMENT

CAD

MRP I,II

FMS

CAD

ROBOTS

OPT

CAE,

JIT

NC/CNC

GT

FMS

FMS

FEA EDI

EDI

AGVS

EDI

AGVS

SFC

EPOS

AS/RS

OPT

CAE

AR/RS

NC/CNC

CE

CAQC

GT

CE

NC/CNC/DNC

CAPP

SFC CE CAPP CAQC

In our case, the technologies proposed are CAD for labelling and packaging, EDI for the suppliers, EPOS for the front office (part of the barcode), MRPI for the orders, and JIT and CAQC for the suppliers checking. Following Luftman’s strategy execution perspective, we determined flexibility (Figure 6) as the most important priority according to the environmental analysis and among a set of strategic targets derived from the literature review section. Flexibility has been determined as the anchor domain and business structure as the pivot. Thus, structural variables should be redefined appropriately in order for information technology to make full potential of structural characteristics and increase competitive advantage (Theodorou, 1996). Generally, formalization, complexity, centralization, coordination and control are the structural parameters that have to be redesigned (Figure 5). A discussion with management based on a critical success factor analysis and the empirical evidence determine that the following structural variables should be redefined (Theodorou, 2001): (x2) level of decentralisation in decision-making, (x4) level of interdepartmental cooperation, (x6) low levels of hierarchy, (x10) level of work specialisation, (x11) level of task non-standardisation (versus written tasks), (x12) range of training variety (versus specialisation), (x13) level of responsibilities non-standardisation, (x14) flexibility in production schedule, (x15) concurrency in design, (x18) frequency of change in production level, (x19) number of suppliers, and (x20) frequency of subcontracting (Figure 8). Regarding the decentralization, it was decided that the employees at the stores, as well as the employees in production department, do not need any permission to order materials and products from the warehouse, they are only obliged to follow the suggestions of the orders system (DSS). Furthermore, in order to increase flexibility, it was decided that they can freely communicate for the commissioning of goods if inventory is below of the predetermined security level, and the ordering system as well as the MRP will alarm. Level of interdepartmental cooperation increased and decision making Copyright © 2004, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.

170 Theodorou

Figure 8 Structural Design

X20

X2 5 4

Before

3

X19

After

X4 X10

2 1 0

X6

X11

X18

X12 X15

X13 X14

regarding the orders fall to the level of the employees. A decision support system (MRP I) will provide the supporting base. The system was taking as input the lead time, the amount of security inventory, the quantity demanded, etc. Decision making will be centralized only regarding the orders to the subcontractors and the suppliers outside the company. A WAN based on a ISDN line will link location 1 with store 1 and store 2 (Figure 3), with no connection among the stores. A materials requirement planning system (MRP I) will control orders according to inventory from the warehouse and the production department to the stores. A neural network system was placed in the stores at the front office and will be used for sales forecasting. The bar code at the front office (stores) will adjust forecasting and update the merchandise shortages. Further, the MRP, taking into account lead-time and the lagtime of system’s notification, will put on the orders (Figure 8). Warehouse and the production department will cooperate in order deliveries, to be on time at the stores and fulfill demand. The forecasting system should use long and short-term estimates and will determine inventory. Furthermore, the capacity management mechanism will inform the production planning system for the preparation of a master production schedule and materials requirements, along with purchasing from suppliers. In such a system the hierarchy levels give ground into interdepartmental cooperation regardless of the employees position. Responsibilities are defined in a wider context and everyone is responsible for the good operation of the system. The employees need a wider training in the whole system (MRP) and job rotation is a necessity. Employees are trained in each task of their department and discrimination is only made regarding the control mechanism (Figure 9). The design of the labels and the packaging in the production department requires close cooperation with the stores (where is the sales promotion). Interdepartmental cooperation should be kept at high levels in order to achieve concurrency in design and fast and flexible response to market needs and competition demands. The ultimate target Copyright © 2004, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.

A DSS Model that Aligns Business Strategy and Business Structure 171

Figure 9 Outlets

Forecasting

Production

Production Planning

Warehouse/Heads

MRP I

Inventory Mgmt Ordering MRP I

for the system is flexibility and to decrease the time of response to demand fluctuations. The control will be made upon this strategic target.

CHALLENGES/PROBLEMS FACING THE ORGANIZATION Information technology does not belong to conventional fixed automation of mere bolts and nuts, but as a strategic weapon. Due to processors heritage, which is the reprogrammable character of IT, the strategy of flexibility seems to fit well. Because of that characteristic, information technology’s selection and planning should be made under the strategic alignment perspective. In our case, the company started from the front office and decided to replicate the application that the other companies apply as a “third mover,” ignoring that IT should take advantage of certain structural characteristics based upon certain business strategic targets (alignment). The bar code that was proposed could not cut-off waiting time if appropriate support from the back offices were not given. In the strategic level the overall system should be aligned with business strategy and structure. There was a missing link and what was missing was that competitive advantage is not created by technology per se, but from the technology and structure fit based on certain strategic objectives. Thus, a more holistic approach was proposed using Luftman’s strategy execution perspective. In our framework of analysis (alignment model), we included the strategic priorities of the firm and a link was created among the strategic priorities and the structural variables that determine the structural design model. Further, the alignment perspective was investigated taking into account the technology proposed. That case opened the ground for further work on the subject. The analysis presented was on a strategic level, further analysis interprets the structural variables previously mentioned and certain business processes in a BPR program, on the target that those processes must be linked in a more detailed level on strategic priorities in a time horizon of 4-5 years. Strategic alignment theory needs to be taken into account in

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172 Theodorou

every IT project in order to avoid failure and highlight the distinctive competencies of the firm. Management noticed that competitive firms gained advantage (increased sales) due to shorter service time at the cashiers. Shorter time achieved was due to technology adopted. It was recognized that in order to catch-up, investment was needed in a similar system adopted by most of competitors: a front-office barcode system. The firm asked for advise in order to choose a provider, as most of the systems were off the shelf. The firm, in the past, did not make any important investments in flexible automation and it was time to reconsider the IT advancements. The firm wanted to act like Feeny & Ives’ second mover, which means that after they noticed the positive results of automation, then they consider replication. But the decision to be the prime or second mover is a matter of strategy and, except for money, it needs time. Moreover there was a missing link, what was missing was that information technology per se is not enough to gain competitive advantage. The simplistic approach is: “What system did the competitors adopt? We will implement the same as it is a matter of money,” but this is only half true and it is an easy and obvious conclusion. It is not a matter of money only, but also a matter of time and a matter of strategic alignment. The concept of strategic alignment presented and analysed by Theodorou in IT-based Management Challenges and Solutions (edited by A. Joia), also in the MIT 90’s framework, (Venkatraman in S. Morton, ed., The Corporation of the 90’s) and in the study of IBM on Enterprise Wide Information System (EwIS) was reviewed. According to this concept three forces have to be examined and should be aligned: business strategy, structure and IT. Theodorou developed a comprehensive and practical system for examination of strategy and structure in order for IT to be aligned. What should be discussed is whether the firm should follow the strategy execution, the technology potential, the competitive potential or the service mechanism in order to be aligned. Both mechanisms are well explained in Luftman’s book, Competing in the Information Age. Moreover, another challenge is (except the strategic appraisal) to develop a financial approach utilising the criterion of net present value and internal rate of return or, more sophistically, the real options’ Black & Scholes formula and further evaluate the delay of the project or any other available option. At the completion of the project, a more detailed business process reengineering approach needed to be taken in order to guide the change process regarding the structural characteristics in the form determined from the alignment model. That challenge, to support the shifting between the old and new organisational form, was overcome with the application of the matrix of change (presented by Brynjolfsson, Renshaw & Alstyne, //ccs.mit.edu/papers/CCSWP189/CCSWP189.htm). Today, a year after the system was implemented (3years of implementation and adaptation), important operational and strategic benefits have been encountered. Specifically, the average queuing time decreased about 40%, and increased sales by 15%. Customers prefer the firm in relation to competition due to shorter service time and availability of goods on the shelves. Increased sales also increased the need for personnel (cashiers) at the front office, but the speed of the barcode system offset that need and saved the firm from the additional cost. Moreover, a 15% inventory reduction was encountered at the warehouse, as well as at the personnel. Inventory was almost eliminated at the stores, thus, a total decrease of around 30% was achieved in operational cost. Conversely, an increase of maintenance and operational cost of the system encountered about 10%, but only for

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the first 3 years of implementation-adaptation. That cost was counterbalanced with longterm technical support contracts with providers. That maintenance and operational cost of the system has now started to decrease due to learning economies. The most important challenge for the firm now is to follow a growth strategic pattern by opening stores in other locations and thus taking advantage of the increased operational flexibility. That scheme is under consideration in the strategic plan and various models for financing are examined (like franchising) as well as location economics for store locations.

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BIOGRAPHICAL SKETCH Petros Theodorou holds a Ph.D. in Strategy and Management of Information Systems. Moreover, he holds the degrees of a Post Doctorate in Business Strategy and Finance, and a H.B.Sch. in Economics. Theodorou is currently working as a Senior Researcher at the Department of Strategy and Planning in the Public Power Corporation S.A, in Copyright © 2004, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.

176 Theodorou

Athens, a vertically integrated monopoly of the Greek electricity sector. In addition, the author is working at the Technological Educational Institution of Piraeus. His previous working experience was in Computer Logic, Astron/PEP, etc. Theodorou has also worked as an Adjunct Professor at the Technological Educational Institution in Thessaloniki and, moreover, as a Senior Researcher at the Aristoteles University of Thessaloniki. The author is a member of NYA, Economic Chamber of Greece, Management of Technology Organization, Who’s Who Marquis, etc. and holds positions on the Board of Directors of various firms. He has published as author and coauthor in various sources, such as Idea Group Publishers , Elsevier Science, the University Publishers of Crete, etc.

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