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“eBusiness from within: The Organizational Transformation of Glamox” Final Individual Case Study For IS 679 By Ashok Ambashanker Agenda • Introduction • Analysis • Solutions • Recommendation • Case Study • References Introduction Basic Description of the Case • Glamox is one of the largest commercial lighting companies in Europe and is headquartered in Norway. Glamox supplies lighting all over the world to large office buildings, international airports, multinational industrial companies, offshore installations and luxury cruise liners. The company has production capacities in five countries across Europe, Asia and North America. • Glamox had grown from a small local manufacturer of industrial light fixtures to a significant player in the international lighting business. Glamox had been into many acquisitions. Also Glamox revenues had gone down and operating margins were below expected levels. Customer and employee satisfaction were low, and clear indications were present of suboptimal order processing and delivery system. At this point Glamox came up with a gameplan of revitalizing Glamox and reclaiming the industry leadership. Key Players in this Case • Corporate management • CEO • Members of Glamox management • Stockholders • Customers • Competitors • Suppliers • Wholesalers • Electrical and Building Contractors • Architects & Consultants Chronological Sequence of Events @ Glamox Year Events 1947 Glamox founded 1957 Glamox opens factory in Molde 1960-1970 Est. subsidiaries in several European countries 1989 Glamox acquired its largest competitor in Norway, Ifa Electric A/S Beginning of 1990’s Glamox troubled by the integration of Ifa Electric Glamox initiated further expansions, most important acquisitions being -Norwegian company Adax Fabrikker (manufacturer of heating equipment) 1993 -Aqua Signal (Bremen) (manufacturer of maritime lighting products) Jan, 1998 Christian H. Thommessen taking position as CEO of Glamox Glamox acquired the industry group Hovik lighting (well-established brand 1999 with emphasis on design recognized by architects worldwide) Glamox was -1250 employees - 19 subsidiaries - Located in most of European countries, Asia, USA and Canada. - Revenues of 1,300 MNOK (USD 145m) - Largest manufacturer in Scandinavia Dec, 2000 - One of the six largest in Europe Largest and third largest player merged forming a comparative giant with a 2000 10% share of the European lighting market What is happening @ Glamox • When Christian H. Thommessen sponsored – “Value Chain Reengineering” (VCR) project – Project goals set were • delivery precision • reduced delivery time • reduced annual costs • making Glamox e-business ready. – Important changes to be brought about by the reengineering process was concepts of • mobile salesman • Single point of contact (SPOC) logistic centers • a virtual central warehouse • EDI-based communication with wholesalers. • Before VCR project operating margin had sunk below two percent, debts had increased to 500 MNOK during the 1990’s, market share in the traditional business had decreased. Following were the growth strategy envisioned by Glamox: growth strategy within selected market segments a redesign of the value chain restructuring of the manufacturing function What is happening at Glamox • The financial objectives: Boosting the operating profit margin from 1% to 8% to establish as position among the industry leaders To achieve a profit before tax in 2001 above 150 MNOK • Goals for the project were set based on key buying factor analysis: “Define a new industry standard for delivery precision (at 98%) Reduce delivery time dramatically Reduce annual costs by 65 MNOK Make Glamox e-business “ready” But after an investment of 110 MNOK and 2 years the company’s situation can be summarized with the statement from Glamox’s Chairman of the Board “We haven’t reached the expected results. Perhaps we over-invested in the VCR process? Still, we probably didn’t have any choice.” Analysis What are the problems? Why? Problem Area Solution Objective Why? Situation reference/proof that it is a problem "An initial financial analysis was undertaken, showing that average operating margin had sunk below two percent" [1, p. 6]. Even after VCR project - "the Operating Margin Need to improve Organizations Profit Margin goal of gross margin around 8% still hadn't been reached." [1, p. 16] Highly competitive industry. "Most of the customers emphasized product price as their first or second buying factor" [1, p. 7]. Most customers also ranked Product pricing Need to make Product Pricing competitive Glamox as worse than the competition on price. Poor delivery precision prominent when salesmen approached customers. Sales Improve delivery precision and reduce person had quoted that his customer "had an order that were due last week, and Product delivery delivery time still isn't delivered" [1, p. 5]. "Customer - who often already had a negative experience with Glamox" [1, p. Customer satisfaction Improve customer satisfaction 9]. Complex organization, poor empolyee satisfaction, poor coordination. Fredly (then IT/logistics manager in Glamox) had "experienced firsthand the escalating problems of aggressive acquisitions without a matching aggressive integration Acquisition Complex organization due to mergers strategy" [1, p. 4]. Glamox targeting to improve market share and quoting "even in the professional market there was a move towards commoditization and increasing price competition" [1, p. 2]. Glamox's vision of "reclaiming the industry leadership" Competition Reclaim industry leadership (exhibit 5) Solutions Five Competitive Forces With Potential Strategic use of Information Resources Value Chain – Within Firm and Interconnecting Organizations Summary Of Possible Solutions Possible Solution Pros Cons Increasing margin / Make product pricing competitive Market analysis and decision support systems Starting from right product pricing to targeting Cost of the product the right product, can be derived using extensive Ensuring data availability to these systems will market intelligence software coupled with require additional workforce decision support systems These work on existing information and data already in the systems within the organization These systems can be directed to obtain valuable and high quality decisions which can directly impact competitive pricing and operating margins Meeting delivery commitments Integrated supply chains Links supply chains of vendors and customers Investment in integrating software to streamline the process and to increase Process reengineering would be required in some efficiency and accuracy areas Data integration tools Increased data and information flow between Detailed application study (like databases) systems and units, hence better synchronization required and availability of order status etc. without Additional support effort in technically syncing up elaborate enterprise solutions applications (like data loads etc.) Customer satisfaction Customer Relationship Management Formalized customer relationship management CRM Product cost solutions Customer have better access to the organization Dedicated team would be required to host and Opportunity to get direct feedback maintain the CRM solution Mobile work – mobile salesman Customer orders at point of sale (with High investment required on IT infrastructure accuracy) improve customer satisfaction Clear tangible benefits cannot be determined for Makes sales force more productive the investment Digital loyalty network Will help continuously monitor customer value Significant cost is setting up the required digital based on feedback about customer requirements, network purchase history, and potential purchases Enormous IT integration effort Summary Of Possible Solutions … Acquisition / Complex organization Collaboration tools Will help make a simpler organization and Cost of collaboration software bring in oneness through better Support costs of related solutions collaboration, communication and information sharing Incremental process changes Lesser risk of failure Implementation would get dragged on Data integration tools Increased data and information flow Detailed application study (like databases) between systems and units, hence better required synchronization Additional support effort in technically syncing up applications (like data loads etc.) Competition / Reclaiming industry leadership Value chain improvements Can compete better with increased overall High investment product and service value delivered to Benefits are not clearly tangible clients Market analysis and decision support systems Starting from right product pricing to Cost of the product targeting the right product, can be derived Ensuring data availability to these systems using extensive market intelligence will require additional workforce software coupled with decision support systems This will greatly strengthen the pricing system as well as optimize product variation and will be critical in ‘reclaiming industry leadership’ Recommendation My Recommendations to Resolve the Problem Areas: Recommendation Details Issues addressed Specific product Deployment strategy – Implementation process / incremental method methodology Acquisition / Complex organization NA Communication and information Collaboration tools sharing Acquisition / Complex organization Sharepoint Customer relationship Salesforce ( web based CRM solution management Customer satisfaction CRM) Data integration and application Meeting delivery commitments Data integration tool integration Acquisition / Complex organization Informatica Product similar to GHX Increasing margin / Make product Market Intelligence Market intelligence / Competitor pricing competitive Solutions pricing analysis and Competition / Reclaiming industry (GHX is targeted towards forecasting tools Market Intelligence Solutions leadership medical domain) Increasing margin / Make product pricing competitive Business intelligence and decision Competition / Reclaiming industry Decision support software support leadership Microstrategy Case Study Questions Introduction: : What were the characteristics of the processes for ordering from Glamox before the redesign of the value chain? • The processes for ordering from Glamox before the redesign of the value chain was, customer would meet a Glamox salesman, with his order book. The salesman had to spend time convincing the customer on the purchase. Once the purchase was finalized the sales person had to heavily co-ordinate between different units within Glamox to execute the order. The production was based on production-to-inventory. • Problems faced by the sales force: The old process had extremely poor order delivery precision. The mergers had left a suboptimal organization and the main victim of this less than optimal organization was the sales force. Lack of delivery precision led sales team to spend time trying to convince customers – who often already had a negative experience with Glamox – to purchase once more. Having completed sale the sales team had to spend quite a bit of time with inadequate ordering system, databases etc, and had to work with a number of counterparts throughout Glamox to help secure a prompt and correct delivery of the next order. Analysis: What are the differences between the previous way of producing lamp fixtures, and the new, componentized process in terms of the Lot Size • Glamox has moved towards modularized products and order-based production. Stock maintenance has moved away from production–to- inventory and towards production-to-order. With this new production approach, customer specific luminaries could be ready for delivery only an hour after the order. So delivery of the customized product was possible within 2-3 days (48 hours for transport) rather than 3 weeks. Differences between the previous way of producing lamp fixtures, and the new, componentized process in terms of the following factors, are: • Lot size: Since the inventory has changed from production-to-inventory to production-to-order the lot size is significantly smaller in the componentized process. Going by some statistics “total inventory was reduced by more than 30%” [1, p. 10], hence since inventory in running at 30% lesser stock, the lot size can be seen to be around atleast 70% of the initial size. Further since lots are made-to-order the lots are specific to individual customers, making them even smaller – maybe 50% of 70%. Overall we can see the lot size to be atleast half the size compared to the initial manufacturing process. Analysis: What are the differences between the previous way of producing lamp fixtures, and the new, componentized process in terms of the Reset Time and Design • Reset time: Significant points around reset time are that, now Glamox has moved towards order-based production and production-to-inventory. These are critical factors in bringing down the reset time, to the extent that in the new production concept, “customer specific luminaries could be ready for delivery only one hour after the order”. Hence the reset time can be seen to greatly reduced compared to the previous production approach. Going by overall timeline provided in the case – “customer could take delivery of the customized product after 2-3 days rather than 3 weeks” [1, p. 12] – reset time can be seen to have reduced to 10% from what it was in the old production process. • Design: Design is moving more to the hands of the customer. Old production model would have relied on internal design teams and mass produced products. Though in the new componentized process in-house design team’s still would be providing the base designs for the modularized products, the end product heavily would rely on the customer specifications. Also this has resulted in production units transferring control from computers to individual operators, there by increasing manual work. Analysis: What are the differences between the previous way of producing lamp fixtures, and the new, componentized process in terms of the following factors Management • Management: Delivery Time: The most important success factor, of the new modularized production process, is the delivery time. A European customer who needed 3 weeks for a customized product to be delivered by the old processes, needed only 2-3 days now. Delivery precision: Delivery precision is another key indicator of a successful process, also a critical factor for customer satisfaction. Before implementing the new production process Glamox scored 81.5% and after the componentized process was in place the delivery precision was 93.6% as against 95% target set by customers. Unit cost: The unit cost increased due to the new modularized process, as control was transferred from computers to individual operator, also increasing the amount of manual work. This was required to support the flexibility required in new modularized production process. Analysis: What are the differences between the previous way of producing lamp fixtures, and the new, componentized process in terms of the following factors Management • Management: Product variety: The new componentized process clearly increased the product variety available to customer, more importantly products which he needs – since partly he is creating the product. As can be summarized by statements from Glamox, “Three of the product families were initially designed to utilize the modularized concept. In 2000, these products represented 15% of the company’s total turnover and as much as 35% of the EPL division’s revenue. A share that was rapidly increasing.” [1, p. 13]. Further, Glamox’s future product development was focused towards modularized products. Stocks/inventory: Modularized products dramatically reduced the number of parts necessary. Old product family required 2000 parts, whereas now in the componentized process only150 parts were required. Also all components were stored at the assembly station reducing transportation costs. Total inventory was significantly brought down, as summarized in this statement from the case study, “as a consequence of rearranging the logistics, obsolete stock was lowered and total inventory was reduced by more than 30%” [1, p. 10] Alternatives: If you were Christian Thommesen, which part of the organization would be your next target for IT-enabled change? Suggestions with Pros and Cons Suggestions Pros Cons Spend management system Ariba Will help you capture savings, improve processes, Product cost and deliver information to improve business Time to integrate with internal systems performance and information sources Cost savings and visibility across sourcing, contracts, procurement, invoicing and payment Digital loyalty networks DLN Continuously collect and monitor their customer, This is just a business model, hence the product and supply chain data and more precisely company has to imbibe the model and adjust engineering, production, distribution and infuse into its existing systems sales/marketing activities to meet current and future Needs considerable management demand. involvement They can use the same data to enhance their Requires high level of system partnership with suppliers. integration They can increase the effectiveness of supply chain and customer relationship management initiatives Recommendation: Which alternative from those you just identified would you choose and why? • Digital loyalty network seems to be the next right step for Glamox. Having implemented the Value Chain Reengineering (VCR) project, DLN seems to a natural extension of it. DLN model will enable Glamox to continuously collect and monitor its customer, product and supply chain data and more precisely adjust engineering, production, distribution and sales/marketing activities to meet current and future demand. Glamox can use the same data to enhance their partnership with suppliers. Also DLN can increase the effectiveness of supply chain and customer relationship management initiatives. DLN will develop a solid network of digitized information that will tie together the value chain and create loyalty on both the front and back end of business operations. On the supply side, DLN will help continuously monitor customer value based on feedback about customer requirements, purchase history, and potential purchases and rely on digital technology to make certain Glamox’s most valuable customers are kept satisfied. Other issues: Is there anything about the history of the organization or its technologies that might be a risk factor management should be aware of? • Wholesalers approach is a negative trend • EDI needs lot of maintenance • Stop mergers still stabilization • Capitalize on all the assets – don’t throw away, even IT References •  Andersen, E. “eBusiness from within: The organizational transformation of Glamox”. NSM-2002-002a-CA- EN, August 30, 2002. •  Pearlson, E. K. & Saunders, S. C. (2006). Managing & using information systems: strategic approach 3rd Edition. New York: Wiley. •  “Enterprise resource planning (ERP). Referenceforbusiness.com. http://www.referenceforbusiness.com/small/Di-Eq/Enterprise-Resource-Planning-ERP.html •  “Spend Management for the Growing Enterprise”. Ariba. http://www.ariba.com/solutions/growing_enterprises.cfm •  Koudal, P & Wellener, P. “Digital loyalty networks: continuously connecting automakers with their customers and suppliers”. Strategy & Leadership. 2003, 31 (6), pp. 4-11. http://www.emeraldinsight.com/Insight/viewContentItem.do?contentType=Article&hdAction=lnkhtml&conten tId=872883 •  Salesforce. http://www.salesforce.com/products/ •  “Microsoft office sharepoint server”. Microsoft. http://www.microsoft.com/sharepoint/default.mspx •  Informatica. http://www.informatica.com/ •  Microstrategy. http://www.microstrategy.com/ •  “GHX Market Intelligence”. GHX. www.ghx.com/GHXDocumentRepository/tabid/127/DMXModule/1146/Command/Core_Download/Default .aspx?EntryId=88 Thank You !
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