Information Technology (IT) alignment has become one of the primary factor for the development of business strategy and process in industries. It helps the industries to increase its productivity and quality without compromising cost thus having competitive advantage in the market. Information systems and technology has given edge to many industries to make revolution in their business performance. However, adopting to certain information technology involves risks and depends on firm wants and needs.
In this study, I have discussed about IT and Business strategy of Wal-Mart using Strategic Alignment Model (SAM) developed by Henderson and Venkatraman (1993). Each and every factor of this model has been analyzed in a better way and also pointed inhibitors and exhibitors later in this report. I have used interrelations of Supply Chain Management, Radio Frequency Identification (RFID) and Post of Sales (POS) to explain the IT architecture with respect to the Strategic Alignment Model used.
CONTENTS PAGE NO
Executive Summary 2
1. Introduction 5
2. Literature Review
2.1 Importance and benefits of IT Alignment 6
3. Strategic Alignment Model (SAM)
3.1 Strategic Alignment and Its Concerns
3.2 Strategy Alignment – Business, IT, Organization and Infrastructure 7
4. IT in Supply Chain Management (SCM) 10
5. RFID in Supply Chain Management (SCM) 12
6. Strategic Alignment in Wal-Mart
6.1 Wal-Mart and its Business Alignment
6.2.1 Business Strategy
6.2.2 Business Model
6.2.3 Core Competency
6.2 Wal-Mart’s IT Alignment
6.2.1 IT Strategy and its Processes
6.2.2 IT Governance
6.2.3 IT Architecture
6.2.4 IT Skills
6.2.5 Technologies in Wal-Mart 13
7. Wal-Mart’s Key Enablers 25
8. Wal-Mart’s Key Enablers
Content Contâ€¦ 26
9. Conclusion 26
10. References 27
List of Table:
Table 1: SCM Elements and its Components 9
List of Figure:
Figure 1: Business Strategy – Key Drivers
Figure 2: Functional Role of IT in SCM
Figure 3: The Family of Auto-ID Technologies
Figure 4: Business Alignment of Wal-Mart
Figure 5: IT Alignment of Wal-Mart
Figure 6: Wal-Mart’s RFID in Supply Chain Management
Figure 7: POS Dataflow
Word Count (Table Included) 4138
All industry environment requires businesses to modify and extend their traditional approach to change and achieve success. Businesses are in must in situation to undergo strategic change and transform themselves into flexible enterprises in order to face and react to increasing complexity and uncertainty in the environment. In order to achieve this goal industry should have to align information technology (IT) with business strategy.
According to Venkatraman (1994) & (R L Hsiao & R.J Ormerod, 1998), IT gives edge and renders innovative strategic choices to the industries so that their businesses can effectively manage the critical factors such as quality, lead time, cost, risk and their relationships with customers and suppliers.
But a strong IT alignment should have a synergy between strategy, organization, processes, technology and people in order to sustain the quality and to achieve competitive advantage (Rockart & Short 1991).
In response to these objectives, strategic planning or strategic alignment has been traditionally viewed as an essential function of business, and as a necessary aspect of enabling sustained competitive advantage through coordinated planning between the business and IT.
2. LITERATURE REVIEW
2.1 IMPORTANCE AND BENEFITS OF IT ALIGNMENT
Recent researches and studies proved that IT and business alignment is an important factor and one of the key concerns in today’s scenario to have competitive advantage. Some of the key concerns that have been identified are IT and business alignment, Knowledge and skills of IT professionals and their retention rate, IT strategic planning etc. It does have its impact in the areas such as,
â€¢ End-User Technical Support
â€¢ Network Management
â€¢ Voice and Data Communications
â€¢ Strategic Technology Planning
â€¢ Project Management
IT has utmost importance in the industries as it derives the following benefits,
â€¢ Value Creation
â€¢ Cost Advantage
â€¢ Increase in productivity
â€¢ Centralization of operations
â€¢ Business Profitability
• Competitive Advantage
3. STRATEGIC ALIGNMENT MODEL (SAM)
SAM helps business executives and information technologist to bring strategic business opportunities to lights that call for an integral IT strategy and to focus both on specific domains of strategic choices and on relationships between these domains.
According to Thomas E. Curtin (n.d,), aligning your organization’s business and IT strategies so as to deliver a positive return presupposes a strategic business opportunity to which information technology is integral.
In this study I have used the Strategic Alignment Model (SAM) developed by Henderson and Venkatraman (1993) to discuss about business alignment and IT alignment of Wal-Mart with inhibitors and exhibitors. SAM model focused more into business strategy, information strategy, organizational structure, and information technology structure.
According to F. Bergeron & L. Raymond (2002), Strategic alignment model states that effective management of IT requires a balance among the choices made across all four domains. The model also gives us insight about the importance of cross-domain relationships where any domain can act as the key driving force.
3.1 STRATEGIC ALIGNMENT AND ITS CONCERNS
Strategic alignment can be defined as the art and science of formulating, integrating, and implementing decisions between the business and IT, which enables an organization to achieve its objectives. Strategic alignment has been, and remains, one of the top concerns for both business and IT management.
Few studies have shown that strategic alignment is inadequate because the business climate is in a state of dynamic change and innovation. Also it has been proved is very temporal in nature and that it falters over time.
However, the role of strategic alignment is an essential aspect of organization performance to achieve competitive advantage which improves organizational effectiveness, maximize return on investment, and provide opportunity for the companies to better manage their overall business needs, technology, and competition, and provides balance within the organization (Lawrence R. Ness 2005).
3.2 STRATEGY ALIGNMENT – BUSINESS, IT, ORGANIZATION AND INFRASTRUCTURE
Aligning IT with business strategy accelerates the value of organization in an Enterprise. ‘The IT strategy may also include shifting investment rights from the core to the lines of business and into the shadows. This can work if the investment portfolio is kept visible. In industries where technology is inherent in the business, such as financial services, IT needs to get into the shadows to really differentiate’ (Strategy Planning n.d)
‘According to Vitale, Ives and Beath (1986) two fundamental modes of arriving relationship between business strategy and IT strategy are: the dependent approach and the impact approach’ (F. Bergeron & L. Raymond 2002). The dependent approach deals with interrelation of IT strategy and business strategy (how one supports another). The impact approach deals with IT function, which could give lead to the organization’s mission and goals, and thus becoming determinant of the business strategy
Many studies proved that IT strategy and Business Strategy complements each other by the way of its function. Porter and Millar (1985) expressed his views about the contribution of IT in enhancing the competitive position of the firms. Many studies and research argued about the four dimensions that related to the strategic deployment of IT: (competencies, role of IT, design and the development of information system and infrastructures) support business strategy and leads to business performance. Figure 1.clearly explains how IT Strategy supports Business strategy.
According to (Leifer 1988). A complex structure needs a coordination, control and communication mechanism which in turn requires enabling information technology. Henderson and Venkatraman (1993) also explained the relation between business strategy and IT strategy, which they defined in terms of three components: technology scope, systemic competencies, and IT governance.
Figure 1: Business Strategy – Key Drivers
From the figure 1, we can understand that organization business strategy depends on four mail factors based on the key driver they choose .If the key driver is IT then the result will be IT transformation. If the key driver is Process the effect will be business process re-engineering. If the key driver is Cultural changes with roles and responsibilities of individuals the result will be Human Renewal If the driver is structure the result will be structural reconfiguration (R L Hsiao & R.J Ormerod 1998).
4. IT IN SUPPLY CHAIN MANAGEMENT (SCM)
According to Cooke (1997), SCM is the coordination and integration of all activities associated with moving goods from the raw materials to the end user, for sustainable competitive advantage. This includes systems management, sourcing, production scheduling, order processing, inventory management, transportation, warehousing, and customer service. SCM depends strongly on the three main elements when aligned with the IT and its structure. It has been explained in the table 1.
Elements Sub- Components
Supply chain network structure â€¢ Structural dimensions and process
Supply chain business processes â€¢ Customer relationship management,
â€¢ Customer service management,
â€¢ Demand management,
â€¢ Order fulfilment,
â€¢ Manufacturing flow management,
â€¢ Product development,
â€¢ Returns/reverse logistics
Supply chain management components â€¢ Types of Links/Level of Integration,
â€¢ Managed process links
â€¢ Monitored process links
â€¢ Not-managed process links
â€¢ Non-member process links
â€¢ Components of Management critical to SCM
â€¢ Planning and control
â€¢ Work structure
Table 1: SCM Elements and its components
‘Porter (1997) defined SCM as a process for achieving a clear line of sight from the supply base to our customers with buyer and seller working jointly to drive out non-value-added costs, improve quality, speed order fulfillment, and introduce new product and process technology’ (Stanley E. F and Gregory M 2001). Figure 2 gives us a clear view about the various factors that have impact on SCM because of IT functional roles.
Figure 2: Functional Role of IT in SCM (J. Auramo n.d)
Main role of IT in SCM is reducing the friction in transactions between supply chain partners through cost-effective information flow. According to Simchi-Levi et al., (2003. p.354) objectives of IT in SCM are:
â€¢ Providing information availability and visibility
â€¢ Enabling single point of contact of data
â€¢ Allowing decisions based on total supply chain information
â€¢ Enabling collaboration with supply chain partners
Bowersox and Daugherty (1995) briefed that IT is an important factor in supporting companies creating strategic advantage by enhancing centralized strategic planning with day-to-day centralized operations.
5. RFID IN SUPPLY CHAIN MANAGEMENT
In the recent yrears RFID is seen as an enabler of supply chain transformation thats the reason many firms who are into strong supply chain management started adopting the technology (eg. Wal-Mart). It was also proved that RFID could enhance and supports quality control processes with minimum or no human interaction.
According to D.C Wyld (2006) RFID belongs to the family of auto-id technology (Figure 3) and d’Hont (2003) also argued that it is ‘a wireless link to identify people or objects’.
Figure 3: The Family of Auto-ID Technologies (D.C Wyld 2006)
‘The promise of RFID could indeed make the technology the next big thing – as the total RFID market (including tags, readers, software, and services) has been forecast to grow almost exponentially. The overall RFID market, which stands at approximately $3 billion today, has been forecast to grow to over $25 billion by 2015, or roughly 800 per cent!’ (Robert E. Spekman 2006).
‘A correctly designed RFID network can answer many of these questions without human involvement, and the system is capable of taking action based on predetermined set of heuristics. If a store is getting low on a particular SKU, the system would recognize that because it sets thresholds based on replenishment speed and automatically generates orders based on RFID information tied to forecast systems. Automatic replenishment systems are not new, but RFID does improve the accuracy of the process’ (Robert E. Spekman 2006).
6. STRATEGIC ALIGNMENT IN WAL-MART
6.1 WAL-MART AND ITS BUSINESS ALIGNMENT
“The best part is if we work together, we’ll lower the cost of living for everyone, not just in America, but we’ll give the world an opportunity to see what it’s like to save and have a better life.” -Sam Walton (Wal-Mart 2007)
In his autobiography Sam expressed that (Wal-Mart 2007) ‘The secret of successful retailing is to give your customers what they want, And really, if you think about it from the point of view of the customer, you want everything: a wide assortment of good quality merchandise; the lowest possible prices; guaranteed satisfaction with what you buy; friendly, knowledgeable service; convenient hours; free parking; a pleasant shopping experience’.
Company’s business success undoubtedly relies on its business alignment. Figure 4 can better explain the components that are associated with Wal-Mart’s Business Alignment.
Today, Wal-Mart is a global company with more than 1.9 million associates worldwide and nearly 6,500 stores and wholesale clubs across 13 countries and planning to start its operations in India in late 2008. According to FORTUNE magazine Wal-Mart is the “most admired retailer” and has just completed one of the best years in its history: Wal-Mart generated more than $312.4 billion revenue in 2006, and demonstrated a new record and an increase of 9.5 percent. The company earned $11.2 billion in net income in 2005. (Wal-Mart Stores.com n.d.).
‘Ironically, technology plays an important role in helping Wal-Mart stay customer focused. Wal-Mart invented the practice of sharing sales data via computer with major suppliers, such as Proctor & Gamble. Every time a box of Tide is rung up at the cash register, Wal-Mart’s data warehouse takes note and knows when it is time to alert P&G to replenish a particular store. As a result, Wal-Mart stores rarely run out of stock of popular items’ (Wal-Mart Stores.com n.d.).
6.1.1 BUSINESS STRATEGY
‘Our strategy is to put resources to work on what’s most important. Does this market improve our global leverage? What are the potential opportunities in that market? Can we unlock that potential and create value? Where can we get the greatest return and growth? All these things and more are taken into consideration as we look at our businesses around the world. (Wal-Mart 2007)
Internationally, we are leveraging the strength of Wal-Mart to provide innovation and benefits to all markets, including emerging areas, such as China and India. We honor the brand, such as Asda, where the brand is important locally to our customers. And, where it makes sense, we will use the strength of the Wal-Mart name’ (Wal-Mart 2007)
Wal-Mart’s growth during the first two decades was propelled primarily by following the strategy of establishing discount stores in smaller towns which everybody else was ignoring and thus capturing significant market share
In the 1980s by making heavy investments in information technology to manage its supply chain and by expanding business in bigger metropolitan cities. When Wal-Mart felt that the discount stores business was maturing, it ventured into food retailing by introducing Supercenters. Wal-Mart’s products were usually priced 20% lower than those of its competitors. Walton’s pricing strategy led to increased loyalty from price-conscious rural customers.
One of the key strategies is that ‘the company never spent more than 2 percent of sales on administrative costs, less than half the industry average’ (Term Paper n.d.)
6.1.2 BUSINESS MODEL
Wal-Mart became one of the first and the best retailing companies in the world to centralize its distribution systems, pioneering the retail hub and spoke system.
Under the system, goods were centrally ordered, assembled at a specially-built massive warehouse, known as the distribution centre (hub), from where they were dispatched to the individual stores (spokes) as per the orders received by the stores. Two key developments made the success possible: Distribution and Inventory flow are the two key developments made the success for Wal-Mart in achieving proper business model.
Distribution: Highly automated distribution centers, cutting down on delivery time and costs.
Inventory flow: Computerized inventory systems gave managers real-time information on their stocks, speeding up the re-ordering of goods. These are considered to be the best practices and those days (1970’s) it was revolutionary.
According to Term paper (n.d,), ‘Sam borrowed a lot of ideas for his early stores from Kmart and others. But it was what he chose to do differently – the ways he put his own stamp on the basic business model – that made Wal-Mart so fabulously successful. His model was the same as Kmart’s, but his strategy was unique’.
6.1.3 CORE COMPETENCY
Wal-Mart’s core competency lies in retailing. Wal-Mart’s primary strengths lie in the area of Operational Excellence, customer intimacy and product leadership are the other areas of its core competency.
Wal-Mart ability to coordinate complex information system and distribution network to manage their suppliers is also their core strength. According to Prof. M. Lawless (2001), Wal-Mart’s efficiency and relationships with suppliers represent a competency that could potential transfer very well to online operations.
Wal-Mart’s main competitors include department stores like Kmart, Target, ShopKo, Meijer, and Canada’s Zellers, Winners, or Giant Tiger.
According to Best Answer (n.d.), several smaller retailers, primarily dollar stores, such as Family Dollar and Dollar General, have been able to find a small niche market and compete successfully against Wal-Mart for home consumer sales.
‘Wal-Mart also had to face a fierce competition in some foreign markets. For example, in Germany, it had captured just 2% of German food market following its entry into the market in 1997 and remained “a secondary player” compared to competitor Aldi with a 19% share. In July 2006, Wal-Mart announced its withdrawal from Germany. Its stores were sold to German company METRO AG. Wal-Mart continues to do well in the UK, and its ASDA subsidiary is the second largest chain after Tesco’ (Best Answer n.d.).
‘In May 2006, after entering the South Korean market in 1998, Wal-Mart withdrew and sold all 16 of its South Korean outlets to Shinsegae, a local retailer, for $882 million. Shinsegae re-branded the Wal-Marts as E-mart stores. Wal-Mart struggled to export its brand elsewhere as it rigidly tried to reproduce its model overseas. In China, Wal-Mart hopes to succeed by adapting and doing things the Chinese way. For example, it found that Chinese consumers preferred to select their own live fish and seafood; stores began displaying the meat uncovered and installed fish tanks, leading to an increase in sales’ (Best Answer n.d.).
6.2 WAL-MART’S IT ALIGNMENT
6.2.1 IT STRATEGY AND ITS PROCESSES
Walt-Mart IT strategy depends on few IT dependent process and technologies such SCM, walmart.com, RFID, EDI and retail link system, which brings benefits to the company through various channels of IT alignment (Figure 5).
Wal-Mart had established state-of-the art SCM systems, using the most advanced communication technologies to link its retail stores, distribution centers, headquarters and all its suppliers.
Wal-Mart’s aim is to achieve higher efficacy in SCM through technology to drive down excess expenditure and time bound delivery. Through Walmart.com, the company is aliened to its customers and through RFID it is aligned with its Suppliers (Figure 6).
Figure 6: Wal-Mart’s RFID in Retail Supply Chain
Wal-Mart believes its proactive use of IT and Internet-enabled technologies made them to be the best supply chain operator of all times. Wal-Mart employed IT/Internet to enhance the efficiency of all the functions of supply chain that includes procurement, warehouse and logistics management, inventory management and demand forecasting.
Wal-Mart strongly focusing and aimed to replace bar code technology with RFID technology. It also believes that this replacement would reduce its supply SCM costs and enhance supply chain efficiency.
RFID is a chance to move to a more advanced system in their distribution centers. What the company sees at the base of all this information is efficiency; moving product more efficiently that translates into lower costs. This can be understood from the figure represented above.
RFID tags are essentially barcodes on steroids. Whereas barcodes only identify the product, RFID tags can tell what the product is, where it has been, when it expires, whatever information someone wishes to program it with.
Using EPC/RFID to Increase Product Visibility, the Wal-Mart executive detailed the tremendous benefits – current and anticipated – Wal-Mart and all its stakeholders. They expected that by using RFID, the company could save $8.35 billion per year, primarily in labour costs (International labour Organization 2006).
As Wal-Mart is a retail giant it is expected that benefits such as improvement in shelf stock rate, lower inventory levels, lower logistic costs and higher sales due to lower out of stocks that they can derive through implementation of RFID.
6.2.2 IT GOVERNANCE
Wal-Mart Information Systems – is to help make Business Customers the most efficient and effective in the World. Information Systems is in every aspect of Wal-Mart’s business. Wal-Mart’s Information Systems is their governance factor for driving Value for Customers, associates, and its shareholders
In 2006, Wal-Mart’s Information Systems Division won the Information Integrity Coalition’s Award for Innovation, an accomplishment that underscores its industry leading stature. Innovation is taking place in a number of areas. Nowhere is this more evident than in the application of RFID technology. Wal-Mart has been a critical catalyst that has brought this technology to business use and now is helping to foster worldwide RFID standards.
To ensure greater supply chain visibility, satellite-based tracking technology is being installed in the Company’s entire fleet of over-the-road trailers. The data generated by the system increases productivity, reduces costs and enhances security. Construction of an exciting Innovation Lab is under way. This centre will showcase leading-edge technology and demonstrate how it can lead to future products, as well as better ways to serve their shoppers (Wal-Mart 2007).
6.2.3 IT ARCHITECTURE
Wal-Mart’s core architecture is Network Architecture which gives real time connectivity to Suppliers and its stores. It connects their customers through Walmart.com and their latest adopted technology is RFID.
Wal-Mart’s network architecture is the base for their retail Link, the information is transformed and consolidated into a common environment. End result being an integrated Point of Sales (POS) reporting and analysis application giving business users the ability to easily track retail sales and provide them with a competitive advantage that identifies consumer purchasing preferences and trends (POSmart n.d,).
Wal-Mart also uses POSmart logical architecture (Figure 7) which is a unique and comprehensive application for cleansing, validating and consolidating POS data from all retailer POS data regardless of the data format. POSmart along with blue sky intelligence portal supports all major database vendors so that you can use whichever database your company has standardized on (POSmart n.d,).
POSmart has following advantages and brought benefits in Wal-Mart’s Business.
â€¢ Ability for a novice to quickly and easily create powerful reports whether presenting to your internal management, retail buyers or retail management.
â€¢ Support for all Retail Calendars and Retail Item Definitions for presenting the information to retailers in their terms.
â€¢ Allows taking the interactive reports when completely disconnected from your internal network.
â€¢ Allow easy accommodation of new retailers, stores, and items.
â€¢ Includes a web-enabled application (BlueSky Business Intelligence Portal) provides business users a method to easily analyze and track key POS measures, retailer and store level trends (Figure 7).
â€¢ Integration into an existing data warehouse strategy or as a stand alone data mart. (POSmart n.d,)
Figure 7: POS Dataflow (POSmart n.d,)
6.2.4 IT SKILLS
Wal-Mart is committed to finding and retaining the most talented associates, having a diverse, multicultural workforce at all levels is critical for their success.
Wal-Mart creates jobs, often in areas that need them the most. When Wal-Mart was close to opening its first discount store in the city of Chicago, more than 15,000 applications were received for 450 available jobs. In 2006, Wal-Mart de Mexico interviewed 100,000 applicants for 17,409 new positions thus give them the opportunity to hire the best people (Wal-Mart 2007).
Currently Wal-Mart’s workforce consists of more than 1.9 million associates. In several countries, a majority of our management team is comprised of associates who have advanced through the ranks. It is this opportunity to move ahead that makes working for Wal-Mart attractive to associates, as well as to external talent.
A majority of our markets have Stores of Learning where associates participate in classroom lectures along with in-store training. The Company’s efforts have been recognized in several countries, where Wal-Mart have been honored as the best place to work (Wal-Mart 2007).
In brief, Wal-Mart enhances its IT skills by providing computer-based training, classroom training, mentoring, on-the-job and in-store training to their employees. It also provides career improvement for their associates on their performance. They do provide opportunities to enhance the associate’s knowledge and skills that will serve as his or her guide in building a successful and abundant life.
6.2.5 TECHNOLOGIES IN WAL-MART
AS2 (Applicability Statement 2 protocol) helps users connect, deliver, validate and reply to data that trading partners move securely through the Internet. This protocol thereby establishes a standard point-to-point connection in B2B (Business to Business) document transactions. Stated another way, AS2 provides the means by which vendor applications communicate EDI (Electronic Data Interchange) documents, or other data such as XML, over the Internet using HTTP (Hyper Text Transfer Protocol). Further, AS2 defines a security system that wraps the data in an envelope with a digital certificate.
Recently, this AS2 protocol was adopted by Wal-Mart the world’s largest retailer for their trading partners. Wal-Mart, currently a Red Hat Linux customer, intends to use Windows Server and Suse Linux Enterprise Server in the expansion.
7. WAL-MART’S KEY ENABLERS
â€¢ World Wide Real-time Connectivity with suppliers and Company
â€¢ SCM Proficiency
â€¢ Lowering Its Excess Expenditure
â€¢ Single Window Data Access
â€¢ Reliable Supplier Support
â€¢ Real time Supplier Contact
â€¢ Transaction Time Optimization
â€¢ First Mover Advantage In implementing State of the art Technologies
â€¢ Process Automation Efficiency
â€¢ Highest Inventory Management and Tracking
â€¢ On spot information on all the departments from Transaction,
â€¢ Inventory Balance and Process.
8. WAL-MART’S KEY INHIBITORS
â€¢ Technology Not Fully tested so entering into troubled waters
â€¢ Real time Interface problems may occur due to RF Frequency Modulation
â€¢ Difficulty in Migration of the technology and adaptability
â€¢ Suppliers may be offended due to the pressure in migrating to new technology and process
â€¢ Process Redundancy Factors
â€¢ Huge Investment into new hardware and software.
Better IT alignment proves the efficiency of company’s better IT and business strategy. It is difficult to maintain the IT alignment in an Industry which is particularly huge. This case study company, Wal-Mart has come across ups and downs to align the IT alignment with the business without compromising any other factors that may cause any permanent disadvantages. It is evident that RFID will create revolution in the near future as expected.
Alignment of IT plays a very important role in any Industry of any domain, There are lot of advantages for companies in implementing IT but they need to properly know about what they want to implement and weather that is beneficial for them or not.(example: Wal-Mart’s RFID technology advantage).
Organisations should also be careful in analyzing regularly weather the system/Process is efficiently running i.e. evaluating constantly in looking at whether the technology implemented is aliened to the Business process or not. This constant endeavor of the company’s evaluation could bring the company benefits it wanted.