Is Management and Success of an Italian Fashion Shoe Company

IS Management and Success of an Italian Fashion Shoe Company Donatella Sciuto IDEA GROUP PUBLISHING Italian Fashion ...

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IS Management and Success of an Italian Fashion Shoe Company

Donatella Sciuto

IDEA GROUP PUBLISHING

Italian Fashion Shoe Company

IDEA GROUP PUBLISHING

701 E. Chocolate Avenue, Hershey PA 17033-1240, USA Tel: 717/533-8845; Fax 717/533-8661; URL-http://www.idea-group.com

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. c n I p u and o r G IS Management a e d I t h g i r py CoSuccess of an Italian Fashion Shoe Company . c n I p u o r G a e d I t h g i r y p Co Donatella Sciuto Politecnico di Milano, Italy

Giacomo Buonanno Universita Carlo Cattaneo, Italy Aurelio Ravarini Universita Carlo Cattaneo, Italy Marco Tagliavini Universita Carlo Cattaneo, Italy

c. n I p u o r G a e d I t h g i EXECUTIVE SUMMARY r y p o C Paolo Faverio Universita Carlo Cattaneo, Italy

This paper presents the case study of a well-known Italian company (that we will call “LSB”) producing and selling high quality shoes all over the world. Today, LSB employs about 250 people and has 30 self-owned shops in many important cities like New York, Paris, and London. Until the beginning of the 90s, LSB was unquestionably considered the leader of its sector, while today, the situation has changed. Even if the overall performance indicators still show a healthy company that succeeds in its industry (thanks to its high quality products and the strong brand name), during the past few years, LSB has clearly underperformed with regards to its competitors. The analysis of LSB processes and organizational structure shows that the information management is a crucial issue; this case study aims at investigating the possible influence of the IS management on the evolution of LSB performance.

c. n I up o r G a e Id t h g i r y Cop

This chapter appears in the book, Annals of Cases on Information Technology, Volume 5, edited by Mehdi Copyright © 2003, Idea Group Inc. Copying or distributing in print or electronic forms without written Kosrow-Pour. Copyright © 2003, Idea Group Inc. Copying or distributing in print or electronic forms permission of Idea Group Inc. is prohibited. without written permission of Idea Group Inc. is prohibited.

564 Sciuto, Buonanno, Ravarini, Tagliavini & Faverio

BACKGROUND History of the Organization Founded in 1950 by the current President, LSB has now become one of the most famous shoe manufacturers all over the world. Nowadays, LSB, employing about 250 people, is a noteworthy occupational basin in an industry branch and is characterized by a multitude of very small firms and handicraft laboratories. Synonymous of high quality and fashionable shoes, LSB is situated in a little city near Milan, site of the best-known pole of the shoe industry. The firm is located in a roomy and modern building, where the administration offices and the manufacturing department find their place. Considering its dimension and the company image at the international level, LSB is one of the most brilliant realities of the sector, thanks to the three product lines offered: men and women’s shoes, which generate 90% of the turnover (about $35 million in 2000), leather clothes and fashion accessories. LSB Holding is the leader of an industrial group with 30 self owned shops, and controls “LSB Shoe Manufacturing,” “LSB France S.A.,” “LSB Ltd” (London), and “LSB New York Ltd.,” as well as some licensees in Spain and Turkey. The share capital is entirely owned by the family who is up to the second entrepreneurship generation. However, a trend analysis of the shoe industry shows that LSB has lost the leadership role held in the early 90s. In spite of an always appreciated qualitative production and the strong brand name during the past few years, LSB has clearly underperformed with regards to its competitors; this case study aims at investigating the possible influence of the IS management on the evolution of LSB performance.

a e d I t h g ri y p Co


c. n I up o r G

c. n I up o r G

The Company Philosophy


During its whole life, LSB has always aimed to seek a clear and coherent strategy, based upon the quest for the maximum harmony between tradition and technology in order to reach a perfect balance between quality and price. The engineering cycle is an enlightening example: shoes are designed and engineered by means of a Computer Aided Design (CAD) system to get a precise definition of all of the technical aspects ensuring the best reliability of the product. The production plant is modernly organized and equipped. Though LSB is still obliged to carry on some production phases in a handicraft way, this constraint is not felt by the firm as an obstacle to the adoption of new technological solutions. On the contrary, technology represents a fundamental strategic weapon as far as it supports LSB in increasing the gap (in terms of production volume) with the handicraft workshops.

Type of Business, Products/Services Provided Two collections are shown every year: the spring-summer collection and the autumnwinter collection. The men’s collections are divided into six lines: only one of them (the classic and stylish “LSB for men”) is shown in both collections. There are four lines for ladies, with a well-known “LSB for women” standing out. In the year 2000, LSB designed about 600 models and sold about 350,000 shoes all over the world. The LSB collections are targeted towards an international customer who pays maximum attention to the quality of both the leather and the accessories used, and seeks the highest care in the manufacturing phase, as well as the best comfort possible.

c. n I p u o r G a e d I t h g i r y p Co

Copyright © 2003, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.


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Global Review of the Market The information provided last year in Düsseldorf during the annual “Shoe Fair” clearly showed how the shoes manufacturing branch was still loosing ground in comparison with the well-trained Asian competitors. For the first time in a long period, in 1999, the European Community (EC) production went below one billion shoes, showing a drop of 6% with regard to previous year. On the other hand, the European purchasing of shoes has shown signs of growth: per capita consumption in 1999 stood at 4.5 pairs, 3.5% more than 1998. The greatest benefit has turned at import’s own advantage, showing an increase by 10.6% in the light of 898 million pairs of shoes bought from foreign countries. On the contrary, the exports, number of firms and employees experienced negative trends, recording respectively a drop of 13%, 0.7% and 4%. As noticed by Antonio Brotini, President of ANCI (National Association of Italian Shoes Manufacturers), “the sector is dealing with a crisis that brought to a decrease (13.7%) of the export towards non-EC countries due to the lengthening of the effects of the shocks that took place in Asia, then in Russia and finally in South America. It did not take long for those shocks to reflect on the Italian market so that “the adoption of new technologies,” concluded Brotini, “represents an ideal scope, even if not the only one, to plan the international competitive re-launching of the sector.” Data collected by ANCI, with regard to the first half of 2000, proved that the economic climate of the shoe industry was marked by the first signs of recovery from the still situation which has characterized the sector so far. The production performance was as positive as the trend of prices, showing more awarding dynamics not only in the domestic market, but also, more important, in the foreign ones. After a painful period, shoe manufacturers could possibly look at the future with less skepticism, even if the economic climate should have led neither to a state of euphoria nor to a review of the defensive approach that, so far, had characterized the competitive strategy of the companies within the shoe industry. In fact, the competitive scope is still extremely selective and these signs of recovery were valid only for particular kinds of products.

. c n I p u o r G a e d I t h g i r Copy

. c n I p u o r G a e d I t h g i r y p Co

c. n I p Financial Status u o r G a e d I t h g i r y p o CManagement Structure

Under both the profitability and the financial performance profiles during the past ten years, LSB has followed the same trend as the high-quality shoe market. After being a leader of its sector in the first 90s, LSB had to face the crisis that involved the whole industry. During last two years, LSB has been showing a recovery, even though it has lost the leadership of the Italian market, substituted by new firms established in the course of the industry crisis.

Organizational Charts As shown in the organizational charts, LSB is characterized by a high level of complexity in both its group (Figure 1) and the shoe manufacturing company (Figure 22, Figure 33, Figure 4 and Figure 55).

c. n I p u o r SETTING THE STAGE G a e d I t h g ri y p Co

The typical focus on production activities, together with their limited investment budgets, often leads SME entrepreneurs to exclude Information systems (IS) issues when-



Figure 1. Organizational Chart—LSB Group

LSB (holding)


LSB Shoes manufacturing

Production plant

Shops (Italy)

LSB Belgium

LSB International

LSB France

Shop Bruxelles

Controlled Company

c. n I up o r G

Shops Paris 1 Paris 2


LSB U.K

LSB U.S.A

Shops London 1 London 2

Shops New York Chicago

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Figure 2. Organizational Chart—The Production Function of “LSB Shoes Manufacturing”

c. n I up o r G a e Id t h g i r y Cop Property

Production manager

Vice director

Stock renewing manager

Time Study Engineer

Semi-manufactured warehouse manager

Person in charge of leather cutting

Production scheduling and progress

Purchasing and order entry

Finished goods warehouse manager

Person in charge of sewing together

Person in charge of leather warehouse

Person in charge of production line 2

External production monitoring

Person in charge of production line 1

c. n I p u o r G a e d I t h g i r y p Co External workshops



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Figure 3. Organizational Chart—LSB Commercial Function

Top management


Marketing manager

Sales manager

Person in charge of shops coordination

LSB international

Secretary of sales manager

Secretary of shop coordination manager

Company store

Branches (Italy)

Foreign branches

Sales agents (foreign countries)

Assistant to marketing manager

Sales agents (Italy)


Figure 4. Organizational Chart—The Design Function of “LSB Shoes Manufacturing“

c. n I p u o r G a e d I t h g i r y p o C Coordinator of the design division

Person in charge of technical matters

Product manager

Person in charge of coding

Stylistic consultant “LSB for men”

Stylistic consultant “LSB for women”

Stylistic consultant sporting line

Designers “LSB for men”

Designers “LSB man” and woman sporting line

Designers “LSB woman”

C.A.D.

Designers sporting line

Person in charge of the “bags and leather accessories” division

c. n I up o r G a e Id t h g i r y Cop Assistant



Figure 5. Organizational Chart—The Administrative Function of “LSB Shoes Manufacturing” CEO

Managing director

a e d I t h g ri y p Co Person in charge of the relationships with suppliers

c. n I up o r G Budgeting and cost accounting

Person in charge of the relationships with customers and banks

Accounting

ever planning organizational development. As a result, SMEs usually devote scarce resources to the IS department and, whenever they do, IS staff competence are strictly narrowed to technical issues (Palvia, 1996; Soh, Yap Raman, 1994; Zinatelli, Cragg & Cavaye, 1996). The consequent lack of internal expertise limits ICT specification and selection policies (Monsted, 1993; Schleich, Carney, & Boe, 1990), and inevitably leads SMEs to develop an IS, which is inadequate to the organizational needs (Cragg & Zinatelli, 1995; Lai, 1994; Lang, Calatone & Gudmundson, 1997). The fast pace of ICT innovations amplifies the issue of the worth of IS management. Among SMEs, it is definitively questionable whether IS has been developed according to efficiency and effectiveness requirements, and whether it is aligned with the business strategy. Even more critical is the question whether anyone in the company does consider at all IS efficiency, effectiveness and strategic alignment as issues. LSB does not seem to differ significantly from this general picture. Like many other SMEs in the fashion industry, LSB management seems extremely concerned about production activities, while leaving only marginal attention to the influence of ICT applications on the company strategy. Nevertheless, a lot of research has been devoted to the topic of IS effectiveness at the strategic level. More precisely, two main key issues are highlighted in the literature: • IS strategic alignment is claimed to be verified when business strategies are enabled, supported, and stimulated by information strategies (Broadbent & Weill, 1993), or, from a different point of view, when choices within content and process dimensions of IS planning are mutually supportive, the two dimensions themselves are harmonized in a manner that is consistent with competitive strategy (Das & Zahra, 1991); • IS organizational support is defined as “the adequate IS support to organizational goals and activities at every level” (Lederer & Mendelow, 1989; Woolfe). In order to analyse such key issues within LSB, a “business process-based” analysis has been adopted. This approach is coherent with a lot of empirical results. A process-based approach is claimed to be more adequate to support any managerial activity, since it should help addressing a number of common organizational problems, such as fragmentation or the lack of cross-functional integration (Galbraith & Kazanjian, 1986; Garvin, 1998; Harrington, 1991), while enabling individual workers to identify and anticipate new business opportunities (Brooke, 2000; Davenport, 1993). In particular, a process-based approach seems to properly fit SMEs, where employees carry out inter-functional tasks and do not have a precise formalization of roles (Dutta & Evrard, 1999).


c. n I up o r G





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In this case study, we suggest a qualitative assessment of IS strategic alignment and IS organizational support of each process. From the methodological point of view, this choice is widely recognized by the literature. Kaplan and Duchon (1988) performed a detailed analysis of research in the field of IS that made use of an interpretive approach and qualitative methodologies. More recently, a relevant number of studies underline the intrinsic interpretive nature of IS; interpretive methods of research in IS show to be effective since they attempt to understand phenomena through the meanings that people assign to them (Boland, 1991; Kaplan & Maxwell, 1994; Orlikowski & Baroudi, 1991). Basing on this general theoretical framework, this case study aims at questioning whether an inadequate integration between strategic business planning and IS management could lead to reduce IS organizational support (Luftman, Papp, et al., 1999; Teo & King, 1997; Teo & Ang, 1999), and, finally, to affect overall company performance.


In particular, the case analysis could address three main research questions: RQ1: Is the IS strategic alignment verified within LSB? Or, in other words, does the IS provide an adequate support to the information requirements of the strategic processes? Step 1: LSB’s strategy analysis identification — the main strategies of LSB have been settled by the means of direct interviews with both the CEO and the top management. Step 1: LSB’s processes identification — a set of strategic processes has been identified through direct interviews with the CEO as well as with managers and operatives. The detailed identification of the information flows has been achieved by the means of direct interviews with the persons in charge of each process. Each process has been represented through data flow diagrams (DFD). Finally, interviews with top level managers have led to identify the most strategic processes. Step 1: Determination of the information requirements of each process — DFD has also allowed highlighting the specific information requirements related to each activity carried out within a process. RQ2: Does a possible lack of IS strategic alignment and IS organizational support lead to decrease the effectiveness and efficiency of a process?


c. n I p u o r G a e d I t h g i r y p o C

Figure 6. The Steps for the Assessment of IS Strategic Alignment

LSB’s business strategy analysis (step 1.1)

Strategic processes definition (step 1.2)

c. n I up o r G a e Id t h g i r y Cop Identification of information flow requirements (Data Flow Diagram) (step 1.3)

Does the IS provide an adequate support to the information requirements of the strategic processes? (RQ1)



And, as a consequence at the corporate level: RQ3: Does a possible lack of IS strategic alignment and IS organizational support lead to decrease the overall company results? The lack of IS strategic alignment in a business process does not necessarily represent in itself a problem. In fact, it is necessary to highlight how such lack is related to IS organizational support. The case study provides a description of the main issues arising in each of the strategic processes, highlighting the possible gaps between the existing and the needed IS organizational support. This information should be used as a basic input to assess how IS management can affect business performance, at the process level and finally at the corporate level.

c. n I up o r G

a e d I Issues t h LSB Business g ri y p Co

From the strategic and organizational point of view, LSB is quite similar to other medium-sized companies. The explicit strategic orientation refers to a few main objectives while the whole business is driven by a number of non-formalized strategic choices.

“Collection Development/Trade Fairs/ Order Gathering” Cycle

c. n I up o r G

Within LSB, all the operative, organizational and strategic choices are strictly conditioned to the peculiar time constraints that characterize the high quality shoe industry as well as the whole fashion industry. The “production/commercial” cycle is strongly affected by the seasonal factor that requires the firm a very rigorous compliance with the time schedules for both the design and engineering of the product and the purchasing of raw materials. In fact, as a final step of this cycle, all of the main companies of the shoe industry attend the trade fairs scheduled according to a timeline that can not be changed by a single company. During these fairs, LSB agents perform a “sale by sample” and collect the majority of all the sales orders. Obviously, the more complete the collection is (i.e., the shoes models being suitably priced) that LSB is able to present at the fair, the better the results will be.


c. n I up o r G a e d I t h Built to Order gProduction i r y Cop

LSB aims at reducing the leftover stock by producing the shoes only after receiving the confirmation of the orders, which are gathered during the trade fairs or during the rest of the year by the sales agents. Consequently, the handling of goods refers almost exclusively to products that are already sold and waiting to be shipped to the property shops or to firms holding a sale concession.

c. n I p u o r G a e d I t h g i r y p Co Centralized Management of Purchasing

The purchasing phase is entirely performed by LSB internal staff, and a particular attention is paid to the purchasing of leather. The high strategic importance of this process makes LSB take care of this task for its external workshops, too. Such a choice is mainly due to the need to avoid the risk of unacceptable differences (in terms of the tone of the leather) for the same model produced by different external workshops. Copyright © 2003, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.


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Centralized Management of Relationships with Partners LSB manages the relationships with its foreign branches, sales agents and shop directors by means of procedures marked by both a very high centralization and a reduced operational and organizational autonomy. The relationships with external workshops are carried out in the same way.

. c n I p u o r G Non-Formalized Strategies and Contradictions a e d I t h g i r Copy

Everyday, LSB entrepreneurs take decisions at the operational level that have an impact on the company strategy. Certainly, each of the following issues represents a subject requiring a deep evaluation of the opportunities and identification of the corresponding implementation practices. Like many other medium-sized companies, LSB top managers struggle in a dilemma between the actual consistency of declared strategies and the effectiveness of the efforts aiming at making such strategies explicit.

. c n I p u o r G a e d I Qualitative t Standard Preservation h g i r y p Co Outsourcing Part of the Production

Most of the decisions made on this subject are strongly related to the insufficient production capacity of the internal factory. Thus, LSB could consider a specific production activity as strategic, and, at the same time, decide to outsource it because of the inadequacy of its production plants.

This topic is usually an expression of a strategic issue, and its fulfillment should be normally achieved by the implementation and management of a formalized quality control system. So far, such a system has not been implemented in LSB, yet. Thus, the quality issues can be defined as a critical success factor, but, at the same time, LSB does not promote any strategy supporting the product quality. As an example, a third-party manufacturer located in Romania provides LSB with the assembling of uppers. It would be reasonable for LSB to perform a rigorous quality check and a precise cataloguing phase of the defective parts, particularly because of the peculiar geographic position of the partner which does not allow a continuous interaction. On the contrary, this external workshop is not subject to a severe quality control procedure; it is treated exactly like the Italian ones, often located nearby LSB.

c. n I p u o r G a e d I t h g i r Rise yin Productivity p o C

LSB top managers have always stressed out the need of boosting productivity, keeping at the same time the high qualitative standard. To achieve that aim, LSB should have at least renewed its machinery. Instead, no action has been actually undertaken in that direction; moreover, the skilled personnel have diminished from 115 to 86 units.

c. n I up Hierarchical Stratification o r G a e Id t h g i r y Cop

ORGANIZATIONAL CULTURE AND HABITS 1. 2.

The hierarchical structure of LSB can be described by the following four level scheme: Owners; Top managers (sales manager, managing director, shop director, production manager) and designers;



3. 4.

Employees (production, administration, warehouse, sales, marketing, EDP); and Skilled personnel. The choice of positioning designers at the top managers’ level depends on their importance, related to the kind of product offered (high quality and originality as a distinguishing mark).

. c n I Clear-Cut Division of Tasks p u o r G a e d I t h g i r yTechnology Description p o C

From the organizational point of view, LSB shows a rigid functional structure, with a clear-cut division of roles and tasks even within the same function. Nevertheless, there are some exceptions (like the Purchasing Manager or the Time Study Engineer) whose role will be analyzed in detail.

From the technological point of view, it is interesting to underline two issues. The first is the coexistence of two separate networks both based on Microsoft Windows NT™ operating system: one for the CAD department and the other for the rest of the firm. The second peculiarity is that all the software applications used within LSB have been developed by the Chief Information Officer (CIO) using the COBOL programming language. These applications run only under the Open VMS™ operating system (an operating system quite popular in the 80s, very different from the operating systems currently used because it has no graphical user interface). The ICT tools supporting LSB information system can be summarized in the following way: • Production, Accounting, Salary and Wages, shops (seat), Sales, Time Study Department

a e d I t h g ri y p Co HW:

•


Digital Alpha Server

O.S.:

Open VMS

CAD Department

c. n I up o r G

Assembled PC Server

Win NT

Assembled PC

Win 98

Hardware: Stand alone network with a dedicated server (WinNT) 5 workstations 3 cutting machines (FC4/CAM)


•

Shops

Hardware: assembled PC’s Operating System: MS-DOS Software: BASIC application for sales management



•

573

Sales agents

Hardware: notebook Operating System: MS-DOS Software: BASIC application for order entry

•

. c n I p u o r G a e d I t h g i r Copy Total amount: 28 PC’s + 15 terminals (Open VMS only).

CASE DESCRIPTION EDP Role and Function The EDP department is made of two persons, the CIO and another employee who is in charge of the management of remote connections with shops. From the hierarchical point of view, the CIO is just one level under the CEO, but they do not take part in any strategic meetings. With reference to strategic decisions, the CIO’s opinion is requested only when an “IT-related” feasibility judgment is needed; therefore, their role seems to be much closer to a consultant figure than a manager. Even though the CIO is not directly involved in the strategic planning process, their tasks are not limited to the ones concerning the development and implementation of customized software applications. They also deal with the fulfillment of the information requirements of both employees and top managers. Such a situation, which is due to a peculiar attitude of the company owners, is also related to a lack of autonomy in the research and gathering of information by LSB staff. Likewise, due to the decision by the property that no external partners are needed, the CIO has to personally carry out the technical assistance on any hardware component. Finally, they are in charge of the download of the files containing the orders gathered by the sales agents by remotely accessing the agents’ laptops.


c. n I p u o rUse Personnel Attitude Towards Technology G a e d I t h g i r y p o C Top Managers’ Roles and Tasks

LSB is characterized by employees with diversified IT skills. A meaningful part of LSB staff prefer not to deal with IT tools, and every time they need any information or report, they would ask the CIO to provide the required data. Obviously, this often means a work overload for the CIO.

The founder and President, even if not dealing with any specific activity, still holds a fundamental role because he still keeps a global sight about the firm, and has the last word about the most important decisions. His age (he is about 80 years old) and cultural background (he used to work for the design department) do not allow him to be aware of the ICT opportunities. The eldest son supervises the marketing and sales departments and represents LSB at the trade fairs. The second son is the director of the design department, where the shoes are created, designed and coded. The last-born son mainly deals with the production department and with choices regarding the purchasing of raw materials.




Figure 7. LSB Business Processes Information flows between LSB and commercial agents

Internal Production Progress

Sales campaign (trade fairs)

Collection preparing phase

External Production Planning and Control

Evaluation of manufacturing costs

Collection encoding

a e d I t h g ri y p Co Determinazione del costo ind.

c. n I up o r G Manufacturing phase

Definition of the Critical Processes

c. n I up o r G

This paragraph describes LSB five most “critical” processes, i.e., the processes that have a relevant influence on the business performance. Figure 7 provides a synthetic representation of the processes. The corresponding detailed DFD is represented in Figure 10. • Collection Encoding: coding of new collection components and data entry • Internal Production Progress: production progress in the inner plant • External Production Planning and Control: production planning and progress regarding the external workshops • Information flows between LSB and commercial agents: information transmission/ receiving to/from sale agents and shops • Evaluation of manufacturing costs The description of each process is carried out through data flow diagrams (DFD). In this case study, we refer to the formalization of information flows suggested by Francalanci, Schreiber and Tanca (1994) as shown in the legend below (Figure 8). In particular, according to this formalization, the term “Interface” indicates any organizational role which receives a specific information flow after a processing phase, addresses it to another organizational role.



Figure 8. Legend of DFD Representation

c. n I p u o r G a e d I t h g i r y p Co Interface

Information flow

Activity

Archive


Upper assembling phase (sample shoe)

Cardboard sample of leather to be cut + bill of materials+ production note

3


Shoe upper sample

Design department

1

Sewing up department

manufacturing

Sample shoe leather-cutting phase (to compute the leather consumption)

2

Component code data entry

Time Study department

. c n I p u o r G a e d I t h g i r Copy “Finished goods technical file” DB

Manufacturing cycles study and price list preparation

Possible adjustments and modifications to the bill of materials

Extraction of the production note from the CBIS

Purchasing (leather, small accessories)

Temporary bill of materials

Cardboard sample of the leather to be cut + bill of materials

1

Cardboard sample of the leather to be cut + bill of materials


Coding phase

3


Bill of materials final draft

Italian Fashion Shoe Company 575

In order to better understand how LSB works, it can be useful to aggregate the Collection Encoding and the Evaluation of manufacturing costs processes in the Collection Preparing Phase (as shown in Figure 7). Figure 9 shows the details of the information flows of such phase.

Figure 9. DFD Describing the Activities and the Related Information Flows of the Collection Preparing Phase


Customers and dealers


c. n I p u o r G a e d I t h g i r y p Co Purchasing department

“Finished goods” warehouse/billing/shipp ing (same department)

Block of batch extraction

Raw materials requirements determination

Order lines check “Finished goods price”

Bill of materials

“Semi-manufactured goods” warehouse unload

“Raw materials warehouse”

“Semimanufactured goods” warehouse

Warehouse unload due to a withdrawal from stock

c. n I up o r G Unloading of raw materials from warehouse due to the manufacturi ng progress

“Finished goods warehouse” Database

Sales department

Requests for computation of a new price list for custom-made shoes

Skilled labour efficiency computation

Wages

Warehouse loading

Working cycles

Manufacturing (internal plant + external workshops)

“Finished good technical file” Database

Manufacturing cost evaluation

Time Study department

Personal data variations

Production progress monitoring (internal plant + external workshops) Production progress (internal plant + external workshops)

Raw materials ordering phase (for internal /external manufacturing)

“Extracted bills” Database

Extraction of the manufacturing batch (internal plant only)

Stock renewing command

c. n I up o r G

Payability check

Accounting

Flag (CBIS level) to block batch extraction for insolvent customers

Customer portfolio

Seasonal orders

Order portfolio

Stock renewing evaluation phase

Shop manager

“Skilled labour” Database


Property

Stock renewing requests

Coding of components/new models


Possible modifications to order status

Price variations

Daily sales data

Seasonal orders

Design department


Processing of daily sales data

EDP department

Customer orders and personal data

Agents and sellers

Orders

Italian and foreign shops


Figure 10. DFD Describing the Activities and the Related Information Flows of all the Strategic Processes in LSB


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CURRENT CHALLENGES/PROBLEMS FACING THE ORGANIZATION Coding of New Collection Components and Data Entry (Design Department—Purchasing Department Manager)


This process requires the coding of both the finished product and its single components (leather, heel, sole). LSB considers it as a crucial process, with a very high priority and importance for the preparation of the collection. Thus, this process requires the accurate respect of time, roles and liability constraints. It is interesting to notice that even if LSB organizational chart includes the position in charge of the coding process (Figure 4), nobody has held that position for the last two years. At the moment, the staff working for the design department manually performs the coding of sample components, by writing the codes on paper. These codes are then inserted into a computer by a member of the purchasing department. While collecting orders from customers, LSB sales agents should have access on their notebook computers to all the codes related to the required products (for both the finished product and its single components). Most of the time this information is not available because the manual insertion of codes is a very slow process. One of the reasons is the need of coordination between many different roles. Furthermore, the code of a specific component stored into the computer based information system (CBIS) sometimes turns out to be incorrect, because data are copied from the CBIS to the agents’ notebooks without any check on the codes completeness and integrity. Not surprisingly, this lack affects the sales agents’ image and quality of work. The coding process is characterized by definitely redundant procedures. As the data flow diagram in Figure 9 shows, the envelope holding the cardboard model together with its codes and the provisional bill of materials (holding the same codes, manually copied from the envelope) follow different paths. It is essential to underline that codes are registered into the Finished Products Technical Form when information on the bill of materials is still provisional, because it refers to its first drawing up, while codes held into the envelope often undergo various changes. In fact, this information can be modified by a member of the Time Study Department as well as the chief of the cutting department (both of them receive the envelope with a copy of the original codes). Thus, the real problem is the lack of synchronization between the different copies of codes (envelope vs. bill of materials). One of the reasons for this situation is that LSB requires the printing of a production note before cutting the sample upper. Obviously, this procedure can be carried out only when the required information has been stored into the CBIS. Nevertheless, this constraint does not seem to be sufficient to justify the inadequate performance of the process. Because of its strategic importance, this process should be well formalized and effectively supported by ICT. Instead, roles, tasks and responsibilities (“who does what”) are not formalized at all, and the process is carried out completely manually. Moreover, the CBIS does not verify any integrity constraint. As an example, the insertion of an incorrect code or an incomplete bill of materials does not produce any alert. The lack of completeness of the coding process basically depends on the people in charge of it. They are often unaware of the coding operations. In addition, the coding process managers usually underestimate the importance of the coding incompleteness, and they do not consider themselves responsible for this problem.






Another issue regarding data consistency is the uncontrolled management of the bill of materials (i.e., the opportunity to change its content all the time) does not allow the employee in charge of data entry operations to keep the correctness of the inserted data under control. Thus, this process lacks coordination of information flows. Each organizational area takes care of its output, without considering that it may be used as the input by some other area’s process. This is one of the main reasons for the inefficiency of the coding process. Delays and incomplete data mostly affect the performance of the last phases of the process. Consequently, it is often up to the employees who work on these last activities to find a solution to such problems, even if their cause depends on someone else’s activity. Moreover, the chance of making mistakes is higher because of the very high number of codes. Every pair of shoes belonging to a specific collection (there are two collections per year) is composed of about 20 codes (components and working processes). The average number of shoes within each product line is about 150 and there are four product lines. The high number of codes would definitely justify the process formalization. On the contrary, the current lack of formalization determines a superficial development of the process, itself. The misalignment between the actual strategic importance of the coding process and its poor ICT coverage mostly depends on the lack of formalization of the process itself, which does not allow a correct exploitation of ICT potential. Both the CIO and the Time Study Department manager are aware of this problem, but this turns out to be useless because of the top managers’ lack of trust in ICT.


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c. n I p u o r INTERNAL PRODUCTION PROGRESS G a eProduction Progress Manager) (Process Manager: d I t h g i r . y c p n I Co up o r G a e Id t h g i r y Cop This process is carried out completely manually by the production planning staff. Every end of the day, all production notes regarding the working day are manually collected and checked, and then (manually) inserted into the CBIS. It is interesting to notice that there are a number of terminals installed in key positions of a production line, but they are neither connected to the company network nor even used by LSB staff. The choice of manually managing this process is quite unusual for a company of this size. Besides the evident inefficiency due to the time spent by workers, another consequence is the late update of information regarding the inventory of semi-manufactured products. Thus, the person in charge of managing this stock can not access real time availability of components, but only inventory information regarding the day before.

EXTERNAL PRODUCTION PLANNING AND CONTROL (Process Manager: Production Manager and Production Progress Manager)


The management of LSB production process is quite complex, because of the presence of both internal and external production units. As an example, the line “LSB elegant man” is managed internally, while all women’s shoes are produced by third-party manufacturers. The situation is even more complicated for the sport line, because the processing of leather is outsourced while the assembly of sport shoes is managed by LSB production lines. Moreover, the production planning and control process significantly affects the whole Copyright © 2003, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.


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business performance, because its output is strictly related to the collection development and the commercial performance (in terms of order collection). In particular, LSB must necessarily complete the collection development and define the price-list before the beginning of the first shoe fair in October. If this requirement is not satisfied (LSB often does not succeed in defining the complete price-list before the beginning of the fair), then customer orders will be confirmed only about one month later, after the communication of the exact price of each model. Obviously, this problem makes the planning and management of external production much more difficult to be performed. In short, the correct carrying out of the coding process would allow a punctual definition of the price-list, a necessary condition to collect definitive orders. These, in their turn, would consent to correctly manage the external production planning. Today, instead, LSB often requires external partners to produce at excessive speed, because of the too short period between the order confirmation and the delivery terms. Another main problem concerns the external production progress control. Both the strategic choice of performing built-to-order production and the choice of partially outsource production activities, demand an efficient and effective integration with external partners during the production process, in order to assure the respect of the delivery terms. Regardless of production planning limitations, LSB finds it very difficult to get updated information about production activities from third-parties because of the total lack of information system integration. Thus, when a customer complains about a delay in delivery, the sales manager asks the production manager for an explanation. In such situations, the production manager should be able to provide real time information about the progress of outstanding orders. Instead, LSB production manager has to make many phone calls and send many faxes to achieve a clear view on the updated situation of the required order.


. c n I p u o r G a e d I t h g i r y p o CFigure 11. A Fax Sent by LSB to an External Partner


To: ,

Object: customers 6860 and 6870 urgent delivery

Please note that the following production notes should be delivered as soon as possible: Customer 6860 6860 6860 6860 6860 6860 6870 6870

Production note 69442 75827 69443 69444 70888 65534 70906 70907

Line

65046 64953 65042 64991 64920 65056 64991 64859

Leather

39563 60224 39563 39563 44676 44676 39563 39563

Pairs of shoes 8 5 8 7 7 6 7 7

c. n I up o r G a e Id t h g i r y Cop Best regards. LSB



Figure 11 shows a fax that was sent to an external partner by two customers complaining about a delay in delivery. This fax shows the very inefficient way of managing information, due to the lack of both technological and organizational integration. It is important to underline that the lack of technological integration not depends on LSB only because most of its external partners do not even make use of a personal computer. Actually, LSB tried to integrate its information system with one of its partners, which has a very similar software architecture (based on Open VMS operating system); but their way of managing information flows is questionable since data about the production progress are stored on a floppy disk which is every day manually transferred to LSB by an employee.

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a e d I t h g INFORMATIONrFLOWS BETWEEN LSB AND i y p COMMERCIAL Co(ProcessAGENTS Manager: Not Formalized)

Managing the complex network that LSB has built with its commercial partners largely deals with the management of information flows (besides the interpersonal relationships). This process has a fundamental importance for LSB, both from the administrative and the operational point of view. In fact, the timing acquisition of ordered products represents an essential input for the effective planning of the production resources. On the other hand, descriptive data from the shops regarding the items sold (such as quantities, models and size) provide the role in charge of the commercial network with the information needed to determine the models to be delivered. Each commercial agent has a laptop computer with a software application for the input of collected buying orders. This program, developed by the CIO using the BASIC programming language, creates a sequential file containing the rows of the orders. Everyday, the CIO has the duty to download such file by remotely accessing the agents’ laptops. The procedure of data acquisition from the shops used by LSB is quite similar. Each shop is equipped with a BASIC application (running on a MS-DOS™ environment) that at the end of the day creates a file containing information regarding the shoes sold. During the night, a software application installed on a LSB computer downloads the file through a modem connection based on the ZMODEM protocol, which requires an international phone call. Considering that LSB owns 30 shops all over the world, four of which are located in the U.S., it is not surprising that the monthly overall cost of this procedure is incredibly high with respect to the ease of the task. However, being very expensive is not the only (and maybe not even the major) deficiency of this method that also lacks on feasibility. As an example, the German agent once accidentally stumbled into the AC power cable of his notebook computer just during the transmission of the file containing the orders. As a consequence, the file went damaged and the agent had to re-type all the data in order to create again the file to be downloaded by the CIO. The procedure of data transmission from the shops occurs into the same risks, but, even worse, whenever the transfer happens to be interrupted, the procedure repeatedly performs download attempts until it succeeds. For example, once the shop in New York had to be called from Italy 15 times in one night (international rate applying) just to transfer an 80 Kbytes file. The CIO is obviously aware that simple technologies such as e-mail could make this process both safe and inexpensive. Nevertheless, he believes that the replacement of


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hardware and software tools needed to carry out this process would be a failure because of the scarce technical competence of end-users and, most of all, because of the owners’ mistrust regarding ICT.

. c n I p uEngineer) (Process Manager: TimeG Study o r a e d I t h g i r Copy

EVALUATION OF MANUFACTURING COSTS

The correct and punctual assessment of the manufacturing costs represents a critical step within the overall set of LSB processes. In fact, the negotiation with the handicraft workshops is based on such costs, as well as it determines the distribution of the workload between the company and the external laboratories. Moreover, this process represents a necessary gate within the production cycle. Any delay within this cycle will inevitably lead to not complete the order gathering, thus increasing the uncertainty of the purchase budget, typically driving the company to conservative decisions. In LSB, the evaluation of the manufacturing cost is carried out by the Time Study Engineer in two stages: the assignment of a specific code to each shoe component and the subsequent assignment of the cost to each codified component. Being that the involved information is extremely structured, one should expect that this process is fully automated. On the contrary, a large part of the activity is performed manually. In fact, before calculating the overall cost of a shoe starting from the cost of each component, the Time Study Engineer has to check the consistency and completeness of the coding itself. This activity is necessary because of the procedure driving the process of the model manufacturing. Once the designer has finished the first prototype, data regarding the parts of which it is composed are: • archived in the database of the production notes, which is provided also to the commercial agents as reference for the products specifications; and • written on the bill of materials, a paper document accompanying the prototype along all the manufacturing process. However, while the bill of materials is continuously updated according to the modifications occurring during the further development of the model, the database is seldom updated accordingly. Therefore, the Time Study Engineer is required to compare data archived in the information system with the bills of materials. Whenever a discrepancy is revealed, he should ring all the roles dealing with the development of the model in order to trace back the route of the shoe and to identify possible changes of its components. Obviously, such a procedure does not avoid oversights. Besides, often it is not possible to find complete information about a model. In these cases, the Time Study Engineer has no choice but to make use of the data regarding the component that is the most similar to the one actually existing in the model.



c. n I FURTHER READING AND REFERENCES up o r G a e Id t h g i r y Cop

Boland, J. R. J. (1991). Information system use as a hermeneutic process. In R. A. Hirschheim (Ed.), Information Systems Research: Contemporary Approaches and Emergent Traditions (pp. 439-464). Amsterdam: North-Holland.



Broadbent, M., & Weill, P. (1993). Improving business and information strategy alignment: learning from the banking industry. IBM Systems Journal, 32(1), 162-179. Brooke, C. (2000). A framework for evaluating organizational choiche and process redesign issues. Journal of Information Technology, 15, 17-28. Cragg, P. B., & Zinatelli, N. (1995). The evolution of information systems in small firms. Information and Management, 29(July), 1-8. Das, S. R., & Zahra, S. A. (1991). Integrating the content and process of strategic MIS planning with competitive strategy. Decision Sciences, 22(1), 953-984. Davenport, T. H. (Ed.). (1993). Process Innovation. Dutta, S., & Evrard, P. (1999). Information technology and organization within European small enterprises. European Management Journal, 17(3), 239-251. Francalanci, C., Schreiber, F. A., & Tanca, L. (1994). Progetto di dati e funzioni (Database schema design) (2nd ed.). Bologna: Progetto Leonardo. Galbraith, J. R., & Kazanjian, R. K. (1986). Strategy Implementation: Structure, Systems and Processes. St. Paul, MN: West Publishing. Garvin, D. A. (1998). The process of organization and management. Sloan Management Review, 33-50. Harrington, H. J. (1991). Business Process Improvement. New York: McGraw-Hill. Kaplan, B., & Duchon, D. (1988). Combining qualitative and quantitative methods in information systems research: a case study. MIS Quarterly, 12(4), 574. Kaplan, B., & Maxwell, J. A. (1994). Qualitative research methods for evaluating computer information systems. In J. G. Anderson, C. E. Aydin, & S. J. Jay (Ed.), Evaluating Health Care Information Systems: Methods and Applications (pp. 45-68). Thunder Oaks, CA: Sage. Lai, V. (1994). A survey of rural small business computer use: Success factors and decision support. Information and Management, 26, 237-304. Lang, J. R., Calatone, R. J., & Gudmundson, D. (1997). Small firm information seeking as a response to environmental threats and opportunities. Journal of Small Business Management, 35(1), 12-18. Lederer, A., & Mendelow, A. L. (1989). Coordination of information systems plans with business plans. Journal of Management Information Systems, 6(2), 5-19. Luftman, J. N., Papp, R., & et al. (1999). Enablers and inhibitors of business- IT alignment. Communications of AIS, 1. Monsted, M. (1993). Introduction of information technology to small firms: A network perspective. In Aldershot (Ed.), Entrepreneurship and Business Development. Orlikowski, W., & Baroudi, J. J. (1991). Studying information technology in organizations: Research approaches and assumptions. Information Systems Research, 2, 1-28. Palvia, P. (1996). A model and instrument for measuring small business user satisfaction with information technology. Information and Management, 31, 151-163. Schleich, J. F., Carney, W. J., & Boe, W. J. (1990). Pitfalls in microcomputer system implementation in small business. Journal of System Management, 41. Soh, P. P. C., Yap, C. S., & Raman, K. S. (1994). Impacts of consultants on computerization success in small business. Information and Management, 22, 309-319. Teo, T. S. H., & Ang, J. S. K. (1999). Critical success factors in the alignment of IS plans with business plans. International Journal of Information Management, 19, 173-185. Teo, T. S. H., & King, W. R. (1997). Integration between business planning and information



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systems planning: An evolutionary-contingency perspective. Journal of Management Information Systems, 14(1), 185-214. Woolfe, R. (1993). The path to strategic alignment. Information Strategy: The Executive’s Journal, 13-23. Zinatelli, N., Cragg, P. B., & Cavaye, A. L. M. (1996). End user computing sophistication and success in small firms. European Journal of Information Systems, 5, 172-181.

. c n I p u o r G a e d I BIOGRAPHICAL SKETCHES t h g i r Copy

Donatella Sciuto received her PhD in Electrical and Computer Engineering in 1988 from University of Colorado, Boulder. She is currently a full professor in the Dipartimento di Elettronica e Informazione of the Politecnico di Milano, Italy. She is member IEEE, IFIP 10.5, EDAA. She is member of different program committees of EDA conferences, and associate Editor of the IEEE Transactions on Computers and the Journal Design Automation of Embedded Systems, Kluwer Academic Publishers. Her research interests cover mainly the methodologies for co-design of embedded systems and the analysis of the impact of Information and Telecommunication technologies on business.


Giacomo Buonnano received the Laurea degree in Electronic Engineering and the Ph.D. degree in Computer Sciences and Automation Engineering from Politecnico di Milano in 1988 and 1993, respectively. He earned a master’s degree in Business Administration from SDA Bocconi, Milano in 1991. From 1993 to 1998 he has been an assistant professor at the Politecnico di Milano, ITaly. From 1998 to 2001 he has been associate professor at the Università Carlo Cattaneo - LIUC. Since November 2001 he has been a full professor at the Università Carlo Cattaneo - LIUC where he leads the research center on Information and Communication Technology and Economy (CETIC) and an observatory on the impact of ICT on SMEs (Osservatorio epmi). He is member of IEEE and IEEE Computer Society.


Marco Tagliavini got his degree in Computer Science at University of Milan in 1992. In the same year he obtained a master’s in Information Technology at the CEFRIEL Research Center in Milan. He is an assistant professor in Information Systems and has been teaching Computer Science and Information Systems for two Universities: the Cattaneo University in Castellanza (since 1993) and the Catholic University in Milan (since 1998). His research work concerns the management of business information systems and Internetbased technologies, especially focusing on the peculiarities of Small and Medium Enterprises.

Aurelio Ravarini received his degree in Management Engineering in 1994 at Politecnico di Milano. He is assistant professor in Information Systems at the Faculty of Business Administration at Cattaneo University, Castellanza, Italy. His activity involved empirical research, action research and consultancy. His research focuses on organizational issues of the adoption and use of ICT (and in particular Internet-based information systems), especially within small-medium sized enterprises. He published about 30 papers on international journals or conferences, one of which titled "An Evaluation Model for Electronic Commerce Activities within SMEs" in the journal Information Technology




Management, Vol. 2 (2001), No. 2, Baltzer Science Publishers, pp. 211-230. He is a member of the editorial board of the Journal of Electronic Commerce in Organizations and of the program committee of IRMA international conference.

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Paolo Faverio graduated from Università Carlo Cattaneo - LIUC in Business Administration in 1999. In 2000 he received a research grant at Università Carlo Cattaneo - LIUC in the Information System department, and has been member of the research center on Information and Communication Technology and Economy (CETIC) at the Università Carlo Cattaneo - LIUC. Since 2000 he has been researching in the field of Information Systems, with a specific focus on issues related to the adoption and use of ITC. At the moment his research interests cover the topics of the management of business information systems and ERP systems adoption, especially focusing on the peculiarities of Small and Medium Enterprises.



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