Strategic Approaches to Leverage Enterprise Systems

[Former Member]

This is a short paper that I have written for the unit BCO6615 - Strategic use of ERP Systems at Victoria University, Melbourne.

Introduction

In the current digital world, companies have access to various advanced technologies and they adopt these technologies based on their preferences and strategies. Hsu (2013) states that Enterprise systems (ES) like enterprise resource planning (ERP) systems and supply chain management (SCM) systems integrate the information flow across various business modules, automate the operational process and provide access to real time information to make quick decisions. However, just having the ES is not sufficient for the companies to have competitive advantage (CA) in the market. They would require business strategies to effectively use their ES and hold their position in the market.  Porter (2008) says organization structure drives profitability and competition, not just whether an organization is low tech or high tech, unregulated or regulated, mature or emerging. Organizations use strategic approaches like integration, niche, differentiation, growth and innovation, coupled with their ES to increase their revenues and market share, and achieve CA over competitors.  This paper focuses on Integration and niche strategies, and provides two case studies for each strategic approach.

Integration of Enterprise Systems

Enterprise integration ensures the communication between enterprise units to achieve the enterprise goals. Enterprise integration could be at various levels, namely physical integration – network of devices, computers and machines; application integration – linking various software and databases; business integration – integration of functions that control, monitor and manage business processes (Chen, Doumeingts & Vernadat 2008). Hsu (2013) says that information flow between enterprise systems of a company increases operational efficiency and provides CA over other companies. In addition, to create business integration capability, organizational resources are prominent than IT resources and they play an intervening role to achieve a CA in an organization. 

Integrating SCM with suppliers and customers systems provides the advantages of higher consumer satisfaction, lower operational cost and a prominent position in the market.  Moreover this integration leads to profitability for the entire supply chain members and gives the organization advantage over its competitors(Mzoughi, Bahri & Ghachem, 2008).

Mzoughi, Bahri and Ghachem (2008) state that by developing strategies in collaboration with suppliers and maintaining communication with them organization achieves a superior position in the market. For instance Proctor and Gamble (P&G) the largest producer of consumer and household goods in USA and spread over 80 countries world-wide uses the information technology to integrate its business with suppliers and consumers.

P&G has implemented SAP ERP system which is used to manage its core business processes like finance and SCM. The firm’s global IT strategy is to integrate the existing IT systems with SAP and implement the future SAP solutions globally. This would result in lower operational costs and increased business value across global locations. P&G focusses on SCM and is ranked in the global top 25 supply chains. P&G uses SAP SCM for forecasting their demand and resource planning. In addition it uses another IT system called Axway solutions to transfer files across to its supply chain partners. This managed file transfer (MFT) solution integrates with the SCM and securely transfers the files to its suppliers. It provides an effective and easy maintenance communication framework to transfer invoices, orders shipments and other messages to its supply chain members. It helps in maintaining relationship with its customers and improve success rate with product innovation and sustainability goals.  P&G estimates that the integration of IT systems with ERP would increase their cash flow by 100 million dollars globally (pbworks 2015).

Another company Kiva systems which is acquired by Amazon integrates cloud robotics with warehouse management systems (WMS) for effective warehouse handling and operational efficiency. D'Andrea (2012) says that cloud Robotics effectively integrates the new buzz technologies like Cloud, Big Data and Internet of things. Robots gather data and share the information on cloud which is like a central repository for them, and they learn and create patterns from this repository data. This capability of robots is utilized to automate the repetitive manual and operational tasks in warehouses. It uses local networks to track data and coordinate pallets, and integrates with mobile networks to move pallets. Kehoe et al. (2015) discuss that hundreds of mobile robots communicate and coordinate with each other to move the stock racks and bring the inventory to the workers. This saves the walking time of workers and pallet operation time. This has revolutionized the distribution facilities in warehouses and created opportunities for new markets. This model is successful because the technology focuses on a need in the warehouse operations rather than solving a problem. The technology integrates with the warehouse management system and improves the operational efficiency and decreases inventory delivery time to the customers.

Niche Strategy

According to Noy (2010), Niche strategy is a generic business strategy adopted by the companies to gain better than average profits in their sector, especially in a dense market segment. The marketing theories consider niche strategy as the ability to manage and drive organization resources towards the profitability and growth with effectiveness whereas the population ecology considers dense market competition as the factor that determines either the birth or death of a niche firm.The niche concept is a subset of market segmentation theories. Effective aggregation process of bottom to top approach, starting from customer then to micro segmentation maximizes the profits. A niche firm focussing on a homogenous product in a heterogeneous market could increase its profits. Niche marketing takes segmentation to next level by creating a discrete segment of consumers. On the other hand, niche companies face the danger of either reduction in demand or growth potential of the company or the growth in niche market attracts new entrants and competitors. For example, Nike a niche company known for its athletic shoes has expanded into other segments like clothing and technology integrated personalised shoes to sustain the competition from other shoe companies.         

Nike designs new products by integrating shoe dynamics with technology and has a good marketing strategy. It launched mobile apps and wearable tracking devices that integrate with the shoes and give the personalized experience to its customers about how many steps they have walked and how many calories they burnt in a given time. Nike has its own digital platform called Nike+ and collaborates with mobile companies to integrate their technology in mobile devices.  Nike uses enterprise systems like SAP and Seibel systems to integrate and manage their customers, suppliers, manufacturing and human resources globally. Nike is effective in managing their resources and using digital technology to integrate with their core competency of manufacturing athletic shoes. This capability to integrate and create new market segments helps Nike to retain its own discrete segment of customers and compete with other companies in the high density athletic shoe market (fastcompany 2013).

HSE24 is a prominent home-shopping network that reaches about 40 million households in Germany, Switzerland and Australia, and expanded into Russia and Italy. To be a niche company in retail-online sector, HSE24 uses real time data to analyse the customer buying patterns and changes its marketing strategy quickly according to the buying behaviour of the customers and the goods in stock. Mullich (2014) says that enormous data is available in retail-online segment and the effective use of this data to make quick decisions distinguishes a retail-online company from its competitors, particularly for companies like HSE24 that have to sell the goods live over online and telephone. The “now moment” is crucial for HSE24 and uses web, mobile and social network technologies coupled with in-memory computing to gather data and take actions in real time to engage customers personally and create targeted marketing campaigns. In addition, it uses this data to ensure that there would be less product returns and hence saving the return operational and delivery costs. This requires effective real time integration of its enterprise systems like ERP, SCM and CRM. The challenge for HSE24 is to maintain the relation with customers across different geographic areas, predicting their needs despite not having direct interaction. HSE24 uses predictive analysis and in-memory computing to track the customer behaviour and to micro segment customers in real time that enables the marketing department to launch campaigns according to customer preferences. This increases the sales and leads to more profits for HSE24.

Conclusion

Organisations adopt various business strategies based on their preferences, market segment and customer cohort. In the current high technology world, huge amount of data is available from various sources both internal and external to the organizations, and the ability to use this data in real time and make quick decisions in accordance with customer behaviour also gives CA in the market. Companies are integrating digital technology, cloud robotics and in-memory computing with their ES to improve their operational efficiency, market share and revenues. Hsu (2013) says that integrating firm’s ES along with suppliers systems provides a win-win situation to the firm and the suppliers. Companies that have a discrete segment of customers loyal to them use niche business strategy to hold their position in the market and improve their product and services using innovation and technology. Boehe and Cruz (2010) state that companies use different strategies to create their own unique brand image and make customers loyal towards them. By identifying a business strategy that suites their business and customer needs and coupling it with their ES, companies would achieve a competitive advantage in the global market.

References

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