CLASSIC CASE STUDIES FOR CLASSROOM DISCUSSIONS
Please read the four short case studies that are considered classic. They are older but have timeless lessons. .
Deliverable: Develop a short report (3-4 pages) to discuss the key lessons learned from each and the similarities/differences between the case studies.
Suggestion: for each casestudy, list 5 key lessons learned and then discuss (few sentences) how these lessons are related to each other. It is best to use a table of the following format for this analysis:
Note: Please do your own research to get some additional information about these companies.
Case Study Highlights Relationship (similarities and differences with other case studies, if any)
GE Highlights (5 key lessons learned)
Relationship to Other Case Studies (common lessons, new lessons)
Owen-Corning Highlights (5 key lessons learned)
Relationship to Other Case Studies (common lessons, new lessons)
Rand McNelly Highlights (5 key lessons learned)
Relationship to Other Case Studies (common lessons, new lessons)
Boo.com (5 key lessons learned)
Relationship to Other Case Studies (common lessons, new lessons)
CASESTUDY1. CAN GE REMAKE ITSELF AS A DIGITAL FIRM?
General Electric (GE) is the world’s largest diversified manufacturer. Fortune named GE “America’s Most Admired Company” in 1998, 1999, and 2000. Jack Welch, GE’s CEO and chairman since 1981, is often cited as the most admired CEO in the United States. Headquartered in Fairfield, Connecticut, the company consists of 20 units, including Appliances, Broadcasting (NBC), Capital, Medical Systems, and Transportation Systems. With the acquisition of Honeywell, announced in October 2000, GE became a company of $155 billion in revenue and 460,000 employees in 100 countries. Despite GE’s size and old-economy businesses, Internet Week named GE its e-business company of 2000. Did GE transform itself into a digital firm?
At a January 1999 meeting of 500 top GE executives in Boca Raton, Florida, Welch announced a new initiative to turn GE into an Internet company. Earlier initiatives transformed GE and are partially responsible for its phenomenal rise in profit over the past two decades. Those initiatives were globalization of GE in the late 1980s, “products plus service” in 1995, which placed emphasis on customer service, and Six Sigma in 1996, a quality program that mandated GE units to use feedback from customers as the center of the program.
Welch announced that the Internet “will forever change the way business is done. It will change every relationship, between our businesses, between our customers, between our suppliers.” By Internet-enabling its business processes, GE could reduce overhead costs by half, saving as much as $10 billion in the first two years. Gary Reiner, GE’s corporate CIO, later explained “We are Web-enabling nearly all of the [purchasing] negotiations process, and we are targeting 100 percent of our transactions on the buy side being done electronically.” On the sell side Reiner also wanted to automate as much as possible, including providing customer service and order taking.
GE had quietly been involved with the Internet years before the Boca Raton meeting, conducting more purchasing and selling on the Internet than any other noncomputer manufacturer. For example, within six months after beginning to use the Internet for purchasing in mid-1996, GE Lighting had reduced its purchasing cycle from 14 to 7 days. It also reduced its supply prices by 10 to 15 percent because of open bidding on the Internet. In 1997, seven other GE units began purchasing via the Net. The company even sold the concept to others, including Boeing and 3M.
Polymerland, GE Plastic’s distribution arm, began distributing technical documentation over the Web in 1994. It put its product catalog on the Net in 1995 and in 1997 established a site for sales transactions. Its on-line system enables customers to search for product by name, number, or product characteristics, download product information, verify that the product meets their specifications, apply for credit, order, track the shipment, and even return merchandise. Polymerland’s weekly on-line sales climbed from $10,000 in 1997 to $6 million in 2000.
Welch ordered all GE units to determine how dot.com companies could destroy their businesses, dubbing this project DYB (destroy your business). Welch explained that if these GE units didn’t identify their weaknesses, others would. Once armed with these answers, managers were to change their units to prevent it from happening. Each of GE’s 20 units created small cross-functional teams to execute the initiative. Welch also wanted them to move current operations to the Web and to uncover new Net-related business opportunities. The final product was to be an Internet-based business plan that a competitor could have used to take away their unit’s customers, and a plan for changes to their unit to combat this threat. Reiner ordered GE units to “come back with alternative approaches that enhance value to the customer and reduce total costs.”
The Internet initiative started by trying to change GE’s culture at the very top. GE’s internal newsletters and many of Welch’s memos became available only on-line. To give blue-collar workers access to the Net, GE installed computer kiosks on factory floors. One thousand top managers and executives, including Welch (who also had to take typing lessons), were assigned young, skilled mentors to work with them three to four hours per week in order to make them comfortable with the Web. They had to be able to evaluate their competitors’ Web sites and to use the Web in other beneficial ways. Every GE employee was given training. Welch announced in 2000, that GE would reduce administrative expenses by 30 to 50 percent (around $10 billion) within 18 months through use of the Internet.
Many projects came out of the initiative. For example GE Medical Systems, which manufactures diagnostic imaging systems, such as CAT scanners and mammography equipment, identified its DYB threat as aggregators, such as WebMD, which offered unbiased information on competing products as well as selling those products. GE products on these sites looked like just another commodity. The GE unit’s major response was iCenter, a Web connection to customers’ GE equipment to monitor the equipment operation at the customer site. iCenter collects data and feeds it back to each customer who can then ask questions about the operation of the equipment through the same site. GE compares a customer’s operating data with the same equipment operating elsewhere to aid that customer in improving performance. In addition customers are now able to download and test upgraded software for 30 days prior to having to purchase it. The unit also began offering its equipment training classes on-line, allowing clients to take them at any time. The aggregators were also auctioning off used equipment that was in demand in poorer countries. Medical Systems established its own site to auction its own used equipment, thus opening new markets (outside the United States). GE Aircraft adapted iCenter and now monitors its customers’ engines while they are in flight.
GE Power Systems then developed its Turbine Optimizer, which uses the Web to monitor any GE turbine, comparing its performance (such as fuel burn rate) with other turbines of same model anywhere in the world. Their site advises operators how to improve their turbines’ performance and how much money the improvements would be worth. The operator can even schedule a service call in order to make further performance improvements.
Late in 1999 GE Transportation went live with an Internet auction system for purchasing supplies. Soon other units, including Power and Medical, adopted the system. GE later estimated the system would handle $5 billion in GE purchasing in 2000, and the company would do at least 50 percent of its purchasing on-line in 2001. The system lowers prices for GE because approved suppliers bid against each other to obtain GE contracts. It also results in fewer specification errors and speeds up the purchasing process. GE estimates it saves between 10 and 15 percent of purchasing costs altogether.
GE Appliances realized that appliances are traditionally sold through large and small retailers and that the Internet might destroy that model, turning appliances into commodities sold on big retail and auction sites. GE wanted to maintain the current system, keeping consumer loyalty to their GE brand (versus Maytag, Whirlpool, and Frigidaire). Appliances developed a point-of-sale system, which they placed in retail stores such as Home Depot, where customers enter their own orders. The retailer is paid a percentage of the sale. The product is shipped from GE directly to the customer. GE Appliances claims it can now take products from its factories and get them shipped anywhere in the United States virtually overnight on a cost-effective basis. In 2000 Appliances reported 45 percent of its sales, totaling $2.5 billion, took place on the Internet. It estimates 67 percent of its sales will be on the Internet in 2001.
The corporation and its units have issued a blizzard of press releases touting the successes of each of GE’s Internet initiatives and the consequent positive effect on financial results. “In 1999, 30 percent of our orders came in via the Web,” announced Marian Powell, the senior vice president for e-business at GE Capital Fleet Services. And in 2000 “we’ll have over 60 percent. That’s over a billion dollars in orders.” CIO Reiner said, “We are not talking about incremental change. We’re talking total transformation.”
A January 2001 article by Mark Roberti of The Industry Standard was skeptical. Roberti commended GE for embracing the Internet so quickly. He also noted that “these endeavors are unlikely to make GE vastly more profitable . . . because the company isn’t using the Internet to reach new markets or create major new sources of revenue.” Roberti questioned the great savings through Internet-based cost cutting that GE claimed. To cut costs by moving business processes on-line, a firm “must eliminate—or redeploy—a significant number of employees” and “GE hasn’t.” For example, Roberti says, 60 percent of orders to GE Capital Fleet Services are now placed on-line, but it has not reduced its call center staff. GE reports that its selling, general, and administrative expenses as a percentage of sales fell for the first nine months of 2000 from 24.3 in 1999 to 23.6, a minor drop at best. Moreover, he notes caution coming from GE executives themselves. For example, although Reiner had projected a $10 billion saving over the next 18 months in 1999, in December 2000 he revised the 2001 savings to about $1.6 billion—not an insignificant sum, but far from the gigantic savings predicted. Reducing costs by having customers and employees serve themselves via the Web has proved elusive at other companies as well, such as IBM and UPS. Roberti claims that the Internet has not brought GE a significant number of new customers.
Overall, Roberti points out, “Through the third quarter of 2000, GE still hadn’t demonstrated any significant improvement in its financial results that can be directly attributed to e-business.” Although GE has achieved genuine progress and even leadership, the company could not be generating the savings management had been predicting. He speculates that the purpose of the continuous declarations of great savings may be to boost the price of GE’s stock. Perhaps, most importantly, Roberti claims that although GE’s Internet activities will give the company a boost, it will take its competitors only a few months to catch up, leaving GE without any competitive advantage.
Source: Mark Roberti, “General Electric’s Spin Machine,” The Industry Standard, January 15, 2001; Meridith Levinson, “Destructive Behavior,” CIO Magazine, July 15, 2000; Diane Brady, “GE’s Welch: ‘This is the Greatest Opportunity Yet,’ ” Business Week, June 28, 1999; Jon Burke, “Is GE the Last Internet Company?” Red Herring, December 19, 2000; Geoffrey Colvin, “How Leading Edge Are They?” Fortune, February 21, 2000; Cheryl Dahle, “Adventures in Polymerland,” Fast Company, May 2000; David Bicknell, “Let There Be Light,” ComputerWeekly.com, September 7, 2000; David Drucker, “Virtual Teams Light Up GE,” Internet Week, April 6, 2000;David Joachim, “GE’s E-Biz Turnaround Proves That Big Is Back,” Internet Week, April 3, 2000; Mark Baard, “GE’s WebCity,” Publish, September 2000; Faith Keenan, “Giants Can Be Nimble,” Business Week, September 18, 2000; Marianne Kolbasuk McGee, “E-Business Makes General Electric a Different Company,” InformationWeek, January 31, 2000; and “Wake-Up Call,” Information Week, September 18, 2000; Pamela L. Moore, “GE’s Cyber Payoff,” Business Week, April 13, 2000; Srikumar S. Rao, “General Electric, Software Vendor,” Forbes Magazine, January 24, 2000; and Jim Rohwer, Jack Welch, Scott McNealy, John Huey, and Brent Schlender, “The Odd Couple,” Fortune, May 1, 2000.
2. RAND MCNALLY MAPS OUT A TRIP TO A DIGITAL FUTURE
In 1856 William Rand and Andrew McNally founded a small printing shop in Chicago, which they called Rand McNally. The company did not begin printing maps until 1916, but it has been the leader in maps ever since, credited with creating the mapping conventions for our current numbered highway system. In 1924 Rand McNally published its first Rand McNally Road Atlas. The various versions of this atlas have sold 150 million copies in the years since, making it the all-time best selling map product from any publisher. Today Rand McNally has 1,200 employees, mostly at its Skokie, Illinois, headquarters.
Through the following decades the company continued to develop and maintain its position as the most well known and respected publisher of geographic and travel information. As recently as 1999 it sold 46 million maps, which accounted for more than half of all printed maps sold in the United States. Of course Rand McNally also produces many other products such as globes, a wide range of geographic educational materials, travel-planning software, and products for trucking fleet route planning and optimization. Its products are currently sold in more than 46,000 outlets, including 29 of its own retail stores.
As the digital economy developed at the beginning of the 1990s, Rand McNally’s management did not understand the full impact of the new Internet and other computer-related developments. The company did respond to changing business conditions by producing travel and address location software it then sold on CD-ROMs. It also established a modest Web site in 1994 in order to support its customers’ use of its CDs. However, the Internet soon offered many other opportunities, and Rand McNally failed to maintain its leadership and pioneering spirit.
AEA Investors purchased Rand McNally in 1997 expecting the company to modernize itself using new technologies such as the Internet. Despite new ownership and leadership, little changed as the company remained staid and unwilling to take risks, apparently because of fear of losing money. “We proposed putting maps on-line, but senior management was not interested,” observed Jim Ferguson who later became director of product management for Rand McNally.com.
When they realized that nothing was changing, the investors intervened and, in July 1999, appointed Richard J. Davis as president and CEO. Davis already had 25 years of experience managing emerging high-tech companies, including seven years with Donnelley Cartographic Services and GeoSystems. (GeoSystems was the company that established MapQuest, Rand McNally’s chief competitor in the new on-line environment.) Davis said his goal was to develop technology solutions and corporate growth rising above the historical 5 to 6 percent range.
Davis immediately brought in Chris Heivly to head up the recently created RandMcNally.com group. Heivly promptly put Rand McNally maps and address-to-address driving directions on the Web. Prior to the arrival of Davis and Heivly, management had feared that putting the company’s maps on-line would undercut the sales of the company’s traditional paper maps, something MapQuest, then still known as GeoSystems, had risked doing in 1996.
The most important goal of the new management was to transform Rand McNally from a map company into a travel planning and advisory service so that it would not become obsolete. Management plans included:
Making Rand McNally’s Web site indispensable to travelers.
Updating map products for the fast-growing Net environment.
Linking the company Web site and products to other services on the Net.
Generating more bricks-and-mortar store business from Web site visitors.
Remaining overwhelmingly a business-to-consumer company and not try to become a business-to-business company.
To accomplish these objectives, the company had to address two needs that all types of travelers experience: the need for quick information about travel conditions and recommendations on meeting those needs along the way. To accomplish this, the Web site must not only help travelers to plan the trip but travelers must also be able to bring the Internet with them as they travel. Travelers need on-line road maps, detailed driving instructions, and road condition updates while they are on the road, which means they will have to be delivered through wireless technology as soon as it matures. The Rand McNally Web site also needed to work with third parties to provide other travel information, such as timely weather and hotel reservations. The site also had to have a very user-friendly interface, one that could be used comfortably by people who are not highly skilled Internet users. Profitability remained a critical goal for both management and the investors. Profitability requires services that are good enough that customers will be willing to pay for them.
Rand McNally’s main on-line competition was MapQuest whose Web site has been highly successful. In March 2000, the site had 5.5 million visitors who viewed and printed its electronic maps. During the same period Rand McNally had only 255,000 visitors. In addition MapQuest had partnered with many corporate and Internet business forces whose visitors need to use maps on their sites, for example to locate their stores. These giants include AOL, Excite, Yahoo, Ford, Wal-Mart and many, many others. “We put out more maps in 36 hours than are sold in the United States in a year,” proclaimed MapQuest CEO Mike Mulligan. At the end of 1999, the company was sold to AOL for $1.1 billion.
Davis understood that he needed to shake up the very staid and conservative corporate culture dominating Rand McNally. He wanted to make the company agile again so it would be able to resume its leadership in the digital age. He tried to give all employees the feeling that they had a stake in the success of the entire company, both the print and digital arms. In the process he personally met with more than 900 employees to sell his vision of the company’s future. He responded personally to e-mails he received from employees, and as he walked through the halls, he greeted employees by name. He also made opportunities for longtime employees to join the new Internet group, although few took advantage of the opportunity.
As Rand McNally tried to become a major force on the Internet, its advantages were clear. It was an old, very well known and highly respected name in the field of travel and maps. The company was profitable and, therefore, had income from existing sales, enabling it to take the necessary time and spend the needed funds to design and develop its new businesses. Some of the technology that Rand McNally wanted to use, such as wireless travel services, was still not well developed, so no company had yet achieved a genuine lead. Also the need for on-line maps to aid and orient people was growing extremely rapidly.
Heivly and Davis both believed that MapQuest had weaknesses, and these too were Rand McNally advantages. They believed that Rand McNally maps were more accurate than those of MapQuest. Moreover, they concluded, MapQuest driving instructions were overly detailed, contained much information that was out of date, and usually did not select the most appropriate route to travel. Nor, in their minds, did MapQuest have the reputation and respect of and the personal relationship with the American people that Rand McNally had. “We’ve been on the backseat of everyone’s car in America,” said Heivly.
Davis reorganized the company into three divisions: RandMcNally.com, a unit that services businesses, and a unit that services consumers. However, the key to the future in the eyes both of management and of the investors was Rand McNally.com. In order to break into the Internet competition and become a force rapidly, Davis decided to create an auto club similar to the American Automobile Association (AAA) with its more than 40 million members to entice Internet visitors to pay something for their use of the Rand McNally Web site. Management’s expectation is that once customers pay for one service, they will be willing to pay for other products and services as well. The auto club was planned to provide standard services, including emergency roadside service and a network of repair shops. Rather than taking on AAA head on, management chose to create affinity groups such as recreational vehicle drivers and Corvette owner clubs. Management also wanted to create links for users while they were on the road using Net-capable mobile phones, car navigation systems, and other wireless devices when they become mature enough.
The Web site is linked to the RandMcNally.com store where visitors can purchase the more than 3,500 products that are sold in the bricks-and-mortar stores. Visitors can print customized free maps and address-to-address driving instructions. The “Plan a Trip” section has an improved ability to search out what travelers want on their trips. For example the site can answer such questions as “name art museums within 25 miles of the trip.” Visitors can also store their personalized trip plans and information on-line. At the time of launching, the site carried information on more than 1,100 U.S. cities, 379 national parks, and 4,000 other points of interest and local events. The site also supplies continuously updated weather information and twice monthly updates on road construction projects that might interfere with travel. Finally, it contains trip-planning checklists as well as a section that offers materials and ideas on traveling with children.
The print products have been affected as well. The Rand McNally Road Atlas has changed its rear cover so that it no longer advertises other companies’ products. It gave up the revenue in order to advertise its own Web site. A travel atlas for children is one of a number of new print products growing out of the development of its Web site. Rand McNally has also jumped into the GPS (global positioning system) market in a big way, selling GPS products to visitors who want to keep track of their current position for various reasons. For example, they sell a device that attaches to the Palm computer and another that attaches to a laptop PC. Both will pinpoint one’s current location.
The early experience at Rand McNally is that the Web site is drawing more visitors. Consumers attracted to RandMcNally.com have also shown up at the firm’s retail stores. But Rand McNally still has a long way to go to catch up to its more Net-savvy competitors. Has it found the right success formula for the Internet age?
Source: Miguel Helft, “A Rough Road Trip to the Net,” The Industry Standard, June 5, 2000; Bruce and Marge Brown, “Rand McNally TripMaker Deluxe 2000,” PC Magazine, November 17, 2000; and Rand McNally press releases, July 29, 1999; September 6, 2000; September 20, 2000; November 14, 2000.
CASESTUDY3. OWENS-CORNING’S ENTERPRISE SYSTEM STRUGGLE
In the early 1990s Owens-Corning was a U.S. leader in the production and sale of such building materials as insulation, siding, and roofing, but management wanted the company to grow. The company had only two possible paths to growth: offering a fuller range of building materials, or becoming a global force. To increase its range of products Owens-Corning decided to acquire other companies. To become a global force, management realized the company would need to become a global enterprise that could coordinate the activities of all of its units in many different countries.
Headquartered in Toledo, Ohio, Owens-Corning had been divided along product lines, such as fiberglass insulation, exterior siding, and roofing materials. Each unit operated as a distinct entity with its own set of information systems. (The company had more than 200 archaic, inflexible, and isolated systems.) Each plant had its own product lines, pricing schedules, and trucking carriers. Owens-Corning customers had to place separate telephone calls for each product ordered–one each for siding, roofing, and insulation. The company operated like a collection of autonomous fiefdoms.
Owens-Corning management believed that these problems could be solved by implementing an enterprise system. The company selected enterprise software from SAP AG to serve as the foundation for a broad company overhaul. “The primary intent with SAP was to totally integrate our business systems on a global basis so everyone was operating on the same platform with the same information,” said Dennis Sheets, sourcing manager for the insulation and roofing business. Sheets wanted to centralize purchasing. “Prior to SAP,” he said, “we were buying widgets all over the world without any consolidated knowledge of how much we were buying and from whom. Now [using SAP’s R/3 software] we can find out how many widgets we’re using, where they’re being purchased, and how much we paid for them, [allowing] us to consolidate the overall acquisition process.” Now, he added, “we can . . . make better business decisions and better buys.” Sheets expected the company’s material and supply inventories to drop by 25 percent as a result.
However, the project to install SAP’s enterprise system would ultimately cost Owens-Corning about $100 million and take several years, too expensive and time consuming to be justified only by the reasons given by Sheets. The company hoped that the new system would also enable it to digest acquisitions more easily. Owens-Corning wanted to acquire other companies to expand its product line so it could increase sales from $2.9 billion in 1992 to $5 billion within a few years. That meant that Owens-Corning would have to digest the archaic, inflexible systems from the companies it purchased. If Owens-Corning were to become a global enterprise, it would need a flexible system that would enable the company to access all of its data in an open and consolidated way.
ERP experts point out that simply converting to ERP systems does not solve companies’ problems. “Unless a company does a lot of thinking about what its supply chain strategy is and articulating what its business processes are, these tools are going to be of little use,” explained Mark Orton, of the New England Supplier Institute in Boston.
Owens-Corning’s project began with its insulation group, and those on the project team understood this. They undertook a redesign process before implementing SAP’s R/3. They set up cross-functional teams to identify the handoffs and touch points between the various functions. For example, the process that runs from the time the firm needs to buy something through the payment issuance to the supplier touches logistics and accounting. The teams also kept in close contact with suppliers who needed to know what Owens-Corning would require of them. As a result of the redesign, purchasing decisions were moved from the plants up to a regional level, enabling commodity specialists to use their expertise and the leverage of buying for a larger base to improve Owens-Corning’s purchasing position.
How did the first ERP project go? During a weekend in March 1997 a team of about 60 people transferred legacy data into the SAP system, and on Monday morning the company went live. When Owens-Corning first went live with SAP, overall productivity and customer service dropped sharply during the first six months. “When you put in something like SAP, it’s not a mere systems change,” said David Johns, Owens-Corning’s director of global development. “You’re changing the way people have done their jobs for the past 20 years.”
The first problems that surfaced were technical. According to Johns, application response time had increased from seconds before ERP to minutes under the new system. Other technical problems also emerged. For example, Johns said the system wasn’t working the way it was supposed to. Johns believes the source of these problems was inadequate testing. The team further tuned the software, and during the next weeks response time reduced to an acceptable level. Slowly the software began operating smoothly.
However, after Owens-Corning fixed some of the technical problems, it saw that this was much bigger than a technology problem. There were problems in the business, problems with the way people’s new roles had been defined, communication and change management issues, and business process issues. For example, the SAP system demanded that the entire corporation adopt a single product list and a single price list. Staff members initially resisted. Owens-Corning employees had not been properly trained and they were overwhelmed, resulting in a lot of errors. Johns explained that at Owens-Corning “we underestimated the impact that swapping out all our old systems would have on our people.” Users had indeed been properly trained on their own functions, but ERP systems are integrated, and the users did not understand the impact their work was having on other departments.
ERP systems are complex and errors ripple throughout the system. When using the old systems, employees had time to correct data entry mistakes, and if they were not caught, they only affected the local function. However, now that they were using R/3, data that are used by the entire company are immediately updated. Thus, for example, the data flow instantly from sales to purchasing, production, and logistics systems. Johns offered another example. “If you’re at a warehouse, and you don’t tell the system when a truck is leaving the dock, the truck can still leave, but the customer will never get an invoice for the goods. Accounting won’t find out later because the transaction will never get to them.” Such errors can be costly. To motivate users to work with more care, they needed to know how their errors would affect other workers and even company profitability.
To address this problem the company quickly instituted a new training approach. Training now would include information on the larger system and its complexities, so users would understand the impact of their work. Under the new training regimen, all employees were denied access to the system until they had passed a test and became certified. Those who failed the test had to return to training until they could pass it. About 20 percent of Owens-Corning employees never passed the test and had to change jobs. This job shifting was massive and time consuming, causing organizational disruption. Whereas the original project budgeted training for 7 percent of overall costs, training eventually consumed 13 percent of the budget.
Customers also suffered. Owens-Corning had been known for its excellent customer service, but the quality of that service declined sharply after the SAP system went live. Many customers were shocked, and some began turning to other suppliers. Owens-Corning began losing important customers. The company was forced to devote a great deal of personnel time rebuilding relations with its customers while simultaneously repairing both its organization and the software installation.
ERP implementation problems of this type are common. According to Barry Wilderman of the Meta Group, ERP projects often result in a negative return on investment (ROI) for five or more years. Why? Because ERP systems are so complex. The company may not understand all that needs to be done in preparation. Moreover, these systems are expensive, and testing and training often get cut for budgetary reasons. Not only do employees need to become accustomed to new ways of doing business, but customers and suppliers may need to change their business processes as well.
How successful was the whole project? Management believes it has been a success. Johns said, “We made each mistake only once. Each deployment [in the rollout] got better.” For instance, “We do a lot more testing now before we go live,” he said, “to make sure that all the different pieces of the system work together.” Customers now have a single point of contact for all orders. With Owens-Corning’s old system, it didn’t know what inventory was in stock. Employees would have to check around and get back to the customer. Now the firm can see what inventory is available, when it will be produced, and who is the lowest cost carrier. It can commit to the customer before hanging up the phone. The changes have been massive, with about 10,000 people involved with the reengineering effort.
The ERP system’s rollout was completed in 2000. During those years, Owens-Corning acquired and integrated 17 companies, successfully expanding their product offerings. Company sales have reached $5 billion annually. Because of the new system, Owens-Corning has been able to reduce its inventory significantly, while centralizing coordination of various functions and divisions. Lot size and machine allocations have become more efficient. The company can perform production planning and control globally because it has one uniform system with which to work. The integrated system lets the company leverage common carriers and take advantage of overlapping transportation routes. Managers can use the system to identify its biggest suppliers across the entire company and use that information to negotiate bulk discounts. A customer needs to call only one location to place an order. Factory production managers no longer have to concern themselves with taking customer orders, tracking logistics or after-sales service. Because centralization applied not only to U.S. operations but also to foreign activities, the corporation has been transformed into a truly globalized enterprise.
In the autumn of 2000, Owens-Corning filed for Chapter 11 bankruptcy protection which was caused by a massive liability from the settlement of asbestos-related lawsuits. The company is also facing softening demand for some of its products. Nevertheless, the firm is investing in a series of e-business initiatives designed to optimize its supply chain operations. It is installing Web-based versions of its SAP R/3 enterprise software and a new logistics system that will enable its workers to use the Web to check the status of shipments, interact with the carriers, and input data. These new system projects should improve Owens-Corning’s customer relationship management and business collaboration capabilities while further improving data accuracy and reducing operational costs.
Source: Marc L. Songini, “Owens Corning Pushes E-business Projects Despite Financial Struggles,” Computerworld, January 25, 2001; Rajagopal Palaniswamy and Tyler Frank, “Enhancing Manufacturing Performance with ERP Systems,” Information Systems Management, Summer 2000; SAP, “Owens Corning Builds Its Internet Future with mySAP.com,” September 14, 2000, www.sap.com; Christopher Koch, “From Team Techie to Enterprise Leader,” CIO Magazine, October 15, 1999; Tom Stein, “Making ERP Add Up,” Information Week, May 24, 1999, and “Key Work: Integration,” Information Week, September 22, 1997; Tim Minahan, “Enterprise Resource Planning: Strategies Not Included,” Purchasing, July 16, 1998; Janice Fioravante, “ERP Orchestrates Change,” Beyond Computing, October 1998; Bruce Caldwell and Tom Stein, “Beyond ERP,” Information Week, October 12, 1998; John E. Ettlie, “The ERP Challenge,” Automotive Manufacturing & Production, June 1998; and Joseph B. White, Don Clark, and Silvio Ascarelli, “Program of Pain,” Wall Street Journal, March 14, 1997.
CASESTUDY4. BOO.COM: POSTER CHILD FOR DOT.COM FAILURE?
Boo.com arrived on the Internet scene promising its investors and on-line shoppers the treat of a profitable Web site offering high-quality, stylish, designer sportswear that could be purchased easily from the office or home. Thanks to advanced widespread publicity, Boo.com became, perhaps, the most eagerly awaited Internet IPO (initial public offering of stock) of its time. However, the company declared bankruptcy only six months after its Web site had been launched and before the company could ever undertake an IPO. Investors lost an estimated $185 million, while shoppers faced a system too difficult for most to use. Many people are still wondering how it could have all gone so wrong so swiftly.
The idea for Boo.com came from two 28-year-old Swedish friends, Ernst Malmsten and Kajsa Leander, who had already established and later sold Bokus.com, which is the world’s third-largest on-line bookstore after Amazon.com and Barnes&Noble.com. The two were joined by Patrik Hedelin, an investment banker at HSBC Holdings.
Boo.com planned to sell trendy fashion products over the Web, offering such brands as North Face, Adidas, Fila, Vans, Cosmic Girl, and Donna Karan. The Boo.com business model differed from other Internet start-ups in that its products would be sold at full retail price rather than at a discount. Malmsten labeled his target group as “cash-rich, time-poor.”
The Boo Web site enabled shoppers to view every product in full-color, three-dimensional images. Visitors could zoom in on individual products, rotating them 360 degrees to view them from any angle. The site’s advanced search engine allowed customers to search for items by color, brand, price, style, and even sport. The site featured a universal sizing system based on size variations among brands and countries. Visitors were able to question Miss Boo, an animated figure offering fashion advice based on locale or on a specific activity (such as trekking in Nepal). Boo.com also made available a telephone customer service advice line. In addition Boo was to feature an independently run fashion magazine to report on global fashion trends. Those who purchased products from Boo.com earned “loyalty points,” which they could use to obtain discounts on future purchases.
The company offered free delivery within one week and also free returns for dissatisfied customers. The Web site was fluent in seven languages (two of which were American and British English). Local currencies were accepted from 18 countries, and in those countries national taxes were also calculated and collected. “Boo.com will revolutionize the way we shop. . . . It’s a completely new lifestyle proposition, ” Ms. Leander proclaimed.
The founders planned to advertise its site broadly both prior to and after launching. “We are building a very strong brand name for Boo.com,” stated Malmsten. “We want to be the style editors for people with the best selection of products. We decided from day one that we would want to create a global brand name.”
Although many important financial firms rejected investment in Boo.com, J. P. Morgan & Co., an old-line investment bank, decided to back the project even though it had done no start-ups for many decades. According to the New York Times, Morgan liked the concept “because Boo wouldn’t undercut traditional retailers with cut-rate pricing as many e-retailers do.” The Morgan bankers were also impressed by the two founders who had previously successfully launched an Internet company (Bokus.com). They also were impressed by promised rewards of “55 percent gross margins and profitability within two years,” according to the Times. Morgan found other early-stage investors, including Alessandro Benetton (son of the CEO of Benetton), Bain Capital (a Boston high-tech venture capital company), Bernard Arnault (who has made a fortune in luxury goods), Goldman Sachs, and the very wealthy Hariri family of Lebanon.
With start-up funds in hand, Malmsten and Leander set a target date of May 1999 for launching the Web site. Boo planned to develop both its complex Internet platform and customer-fulfillment systems from scratch. Management originally planned to launch in the United States and five European countries simultaneously but soon expanded the number of countries to 18. It also wanted a system that would handle 100 million Web visitors at once. When the launch date began to loom close, management committed $25 million to an advertising budget, a huge sum for a start-up. The company chose to advertise in expensive but trendy fashion magazines such as Vanity Fair as well as on cable television and the Internet. Malmsten and Leander even managed to appear on the cover of Fortune magazine before the Web site was launched.
With so much technical development to be accomplished, the company moved the target date back to June 21. As June approached management decided to open satellite offices in Munich, Paris, New York, and Amsterdam. Several hundred people were hired to take orders from these offices once the site went live. However, the launch date had to be postponed again because of incomplete Web site development, and so many of the staff sat idle for months. “With all those trophy offices, Boo looked more like a 1950s multinational than an Internet start-up,” claimed Marina Galanti, a Boo marketing director.
By September the company had spent $70 million, and Boo undertook more fund-raising. With the prelaunch advertising campaign completed months earlier, the Web site was finally launched in early November. The promised mass marketing blitz never materialized. With the original advertising campaign long over, observers commented that raising people’s interest while delaying the opening resulted in many disappointed and alienated potential customers. Moreover, the site reviews were terrible. At launch time, 40 percent of the site’s visitors could not even gain access. The site was full of errors, even causing visitors’ computers to freeze. The site design, which had been advertised as revolutionary, was slow and very difficult to use. Only one in four attempts to make a purchase worked. Users of Macintosh computers could not even log on because Boo.com was incompatible with them. Users without high-speed Internet connections found that navigating the site was painfully slow, because the flashy graphics and interactive features took so long to load. Angry customers jammed Boo.com’s customer support lines. Sales in the first three months amounted to only about $880,000, and expenses heavily topped $1 million per month. The Boo plan quickly began unraveling.
In December, J. P. Morgan’s representative on Boo.com’s board of directors resigned, leaving no one from Morgan to advise the company. In late December with sales lagging badly and the company running out of cash, Malmsten was unable to raise enough additional investment, causing Boo to begin selling its clothing at a 40 percent discount. This changed Boo’s public image and its target audience. However, Boo’s advertising did not change to reflect this strategy shift.
On January 25, 2000 Boo.com announced a layoff of 70 employees, starting its decline from a reported high of about 450 persons, a huge number for a start-up. In late February, J. P. Morgan resigned as a Boo.com advisor. According to reports, it feared being sued by angry investors. In March, when sales reached $1.1 million, Boo was still spending far more than its income. In April, Internet stocks plunged on the stock market, and plans for a Boo IPO were shelved. Finally, on May 17, Malmsten hired a firm to liquidate the company, announcing his decision the next day. He also indicated that the company had many outstanding bills it could not pay.
One problem leading to Boo.com’s bankruptcy was its lack of planning and control. “When you strip away the sexy dot.com aspect and the technology out of it, these are still businesses that need the fundamentals—budgeting, planning, and execution,” observed Jim Rose, CEO of QXL.com PLC, an on-line auction house. “To roll out in 18 countries simultaneously, I don’t think even the biggest global companies like IBM or General Motors would take that on.” Boo’s offices were rented in high-priced areas such as London’s Carnaby Street and in New York’s West Village. Numerous reports surfaced of employees flying first class and staying in five-star hotels. Reports even surfaced that communications that could have gone by regular mail were routinely sent by Federal Express.
Many in the financial community noted the lack of oversight by the board. Management controlled most of the board seats, with only four being allocated to investors. However, those four investor representatives rarely attended board meetings. Moreover, none had any significant retail or Internet experience. The board failed to offer management the supervision it clearly needed.
Serious technical problems contributed as well. Developing their own software proved slow and expensive. The plan required rich, complex graphics so visitors could view products from any angle. The technicians also had to develop a complex virtual inventory system, because Boo maintained very little inventory of its own. Boo’s order basket was particularly intricate, because items were actually ordered from the manufacturer, not from Boo, so that one customer might have a basket containing items coming from four or five different sources. The site also had to enable its customers to communicate in any one of seven languages and to convert 18 different currencies and calculate taxes from 18 different countries.
Industry analysts observed that 99 percent of European and 98 percent of U.S. homes lack the high-capacity Internet connections required to easily access the graphics and animation on the Boo.com site. No Apple Macintosh computer could access the site. Navigating the site presented visitors special problems. Web pages existed that did nothing, such as one visitors reported that displayed only a strange message that read “Nothing happens on this page—except that you may want to bookmark it.” Product descriptions were displayed in tiny one-square inch windows, making descriptions not only difficult to read but also difficult to scroll through. Boo developed its own, very unorthodox, scrolling method that people found unfamiliar and difficult to use. Moreover, interface navigation was too complex. The Boo hierarchical menus required precise accuracy, because visitors making a wrong choice had no alternative but to return to the top to start over again. Moreover, the icons were miniscule.
One annoying aspect of the site was the constant presence of Miss Boo. Although she was developed to give style advice to browsers and buyers, she was constantly injected regardless of whether the visitor desired her. Many visitors reacted as they might have if they were shopping in a bricks-and-mortar store and had a live clerk hovering over them, commenting without stop.
On June 18, Fashionmall.com purchased most of the remnants of Boo.com, including its brand name, Web address, advertising materials, and on-line content. (Bright Station PLC purchased the company’s software for taking orders in multiple languages to market to other on-line businesses that want to sell to consumers in other countries.) “What we really bought is a brand that has phenomenal awareness world-wide,” explained Kate Buggeln, the president of Fashionmall.com’s Boo division. The company plans to use the Boo brand name to add a high-end site similar to its long-existing clothing site. The new Boo.com was launched on October 30, 2000 with a shoestring $1 million budget. The site is much less ambitious than its earlier incarnation, acting primarily as a portal, and it does not own any inventory. Its design is much less graphics-intensive and flashy, enabling visitors to browse smoothly and easily through its pages. It features about 400 items for sale ferreted out by a network of fashion scouts as appealing to upscale buyers under age 31. Rather than getting bogged down in taking orders and shipping goods, Boo will direct customers to the Web sites that sell the merchandise they wish to purchase. Buggeln is optimistic about Boo.com’s chances of success this time.
Source: Michelle Slatalla, “Boo.com Tries Again, Humbled and Retooled,” New York Times, January 11, 2001; Andrew Ross Sorkin, “Boo.com, Online Fashion Retailer, Goes Out of Business” New York Times, May 19, 2000; Stephanie Gruner, “Trendy Online Retailer Is Reduced to a Cautionary Tale for Investors,” Wall Street Journal, May 19, 2000; Sarah Ellison, “Boo.com: Buried by Badly Managed Buzz,” Wall Street Journal, May 23, 2000; David Walker, “Talk About a Real Boo-boo,” Sydney Morning Herald, May 30, 2000; Andrew Ross Sorkin, “Fashionmall.com Swoops in for the Boo.com Fire Sale,” New York Times, June 2, 2000; Bernhard Warner, “Boo.com Trims its Bottom Line,” The Industry Standard, January 25, 2000; Polly Sprenger, “Boo Founder: Don’t Cry for Me,” The Industry Standard, February 11, 2000; Case Study Questions
Analyze Boo.com’s business model. How did it differ from more conventional retail Web site strategies? Why do you think the founders and investors of Boo were drawn to this unusual strategy?
What problems did Boo.com encounter trying to implement its business model? What management, organization, and technology factors contributed to these problems?
What could Boo.com have done differently that might have made the project successful?
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