Business Case of Casa del Libro

Introduction

Casadellibro is leading online book retail store in Spain since 1995. Owners of the company decided to revamp the product and turn the company around in 2001. They already bought new expensive IT equipment, but before putting it live, economic crisis hit the world reducing revenue prospects. As a result of market turmoil, new Casadellibro management has to decide whether to continue in implementation of already purchased solution and bear higher than appropriate development and maintenance costs than appropriate given current market conditions or purchase cheaper solution based on Microsoft technologies.

Assumptions

• Casadellibro is on line store that operates in the mode 24/7 and any outages would negatively influence customer perception. Hence, the application could be considered being mission critical. Drawing from this fact Casadellibro needs at least two set of servers (application, database, and web server). One set as a main production servers able to maintain high load of daily operations and second set for a fail over in case of both failure and regular maintenance.
• Additionally, all data have to be backed up regularly.

Decision Criteria

As Casadellibro already purchased hardware and software, this already invested amount represents sunk costs, hence should not be considered in the decision.

Decision Criteria

• Purchase cost of new hardware and licenses of Microsoft solution
• For both solutions is necessary to compare
• Implementation costs
• Maintenance costs
• Which SLAs can I agree on with vendors of both hardware and software. How quickly can I receive support in case of failure?
• Scalability in terms of possibility to increase processing power in case of need
• Future functions expandability. Will Microsoft standard solution limit choices of customization?

Recommended Solution

As 2001 is the time of the case, irrespective of the choice I would also consider option of renting the hardware equipment rather than purchasing it. Moreover, the equipment could be placed in the outsourced data center so that Casadellibro would not have to worry about choosing the proper bandwidth as it would be scalable. Also, outsourced data center would provide backup power plan in case of power failures, necessity for mission critical systems which could become very expensive to realize in house.

Hence, my decision would be to deploy cheaper Microsoft solution to the rented HP server, which would be placed in a outsourced data centre. By doing that I would reap benefits having cheap solution now, when the demand and excepted load is lower and later I could scale up the solution taking advantage of falling hardware prices in the future.

What could be done today?

Best option at today's IT market would be to transfer the whole application to the cloud and pay per computing power usage and bandwidth usage. By doing that Casadellibro would not have to worry about customer traffic and load projections as the application would have been completely scalable. Additionally, the cloud computing services provider would be able to assure higher availability of the application at lower costs than Casadellibro's IT department.

Tesco as Pioneer in the Customer Intelligence

Retail stores chain Tesco suddenly overtake its grand rival Sainsbury in 1996, which was result of successful deployment of customer loyalty card called “Clubcard”. Clubcard is a sophisticated version of previous loyalty program used in the UK already from 1958 called the “Green Shield Stamp”. Green Shield Stamps concept was based on collecting stamps for purchases and then exchanging the stamps for goods at the Green Shield catalogue. Before 1995, both Tesco and Sainsbury were part of the Green Shield scheme. In fact, the Clubcard and Green Shield Stamps fulfill the same purpose of stimulating purchases and incentivizing customers to return to the shop. Then, why the Clubcard made such a difference to Tesco market position?

Before answering the question, let’s see some facts behind the Clubcard. The new loyalty program cost Tesco £300 million over the first three years, which represented about 4.5% of Tesco profits. Despite of that Tesco gained back the initial investment in just seven months. In the first six months after Clubcard introduction, Tesco increased its market share in retail grocery by 3%. Six years after Clubcard launch, the scheme attracted 20 million customers, 10 of which were regular shoppers.

The main difference between the Clubcard and Green Shield Stamps lies in the fact that Clubcards are personal. For every Clubcard owner, Tesco knows her name, surname, address, and if she has children. Additionally, if the card owner presents the card at the purchase, information about all purchased products will be saved in the customer database. Customer receives in exchange “Clubcard points” that can be later used for shopping in Tesco or participating in Clubcard deals.

Tesco gets extensive amount of data about its customers, which is handled by NCR Teradata Datawarehouse, into deep insight into customer behavior. This insight allowed Tesco to adjust its discounting policy, send personalized offers to customers, and shape its product categories. Additionally, Tesco is a pioneer in internet retailing as it realized first on-line sale of groceries already in 1984 using videotext. Also, it operates its homes shopping service from 1996 and Tesco.com platform from 2000. Both Tesco’s brick & mortar and internet operations are powered by the Clubcard. Hence, Tesco can track customer behavior across all retail channels.

In conclusion, I believe that Tesco generates substantial competitive advantage by being pioneer in the use of new technologies. As being pioneer, Tesco might not do everything right for the first time, but the benefits of learning are tremendous. Therefore, Tesco will stay at the top for some while.

Should companies adjust their processes to ERP or other way around?

Enterprise resource planning (ERP) systems attempt to integrate several data sources and processes of an organization into a unified system.

There was a big hype around ERP system in the business community around the world in the 1990s. ERP systems have been seen as an ultimate weapon against disintegrate unclear processes. They promised to lift company to the next level of information and process maturity and at the same time reduce inventories, lead times, and overhead costs. Additionally, they carried with themselves industry specific “best practice” process models, which were previously highly valued and guarded possession of the consulting companies.

Yes, implementation of ERP system had its drawbacks too. Among others, following are frequently mentioned:

· Large ERP systems are very expensive both in terms of license fees and implementation costs (According to Panorama Consulting, Average costs of ERP implementation are $6.2 mil. Also, license fees have sometimes character of a tax as they represent percentage of sales volume, number of employees, etc.)

· Implementation of ERP system is risky (according to Robbins-Gioia survey in 2001, 51% of ERP implementation were considered unsuccessful)

· Implementation of ERP takes more time than you think (according to Panorama Consulting, average project duration is 18.4 months and in 57% cases the project takes longer than expected)

· Companies fail to adjust its processes to the ERP system and therefore unable to capture the benefits

Let’s look a bit deeper into last point of adjusting the processes. Is it good that ERP comes with pre-defined processes? The answer is yes and no or it depends (choose, which one you like).

Firstly, the pre-defined rules & processes can help you if the company should comply with various international standards like ISO:9001, IFRS, Basel II, etc. as the system already has it all. Moreover, the company will get regular updates should the international standards change. Secondly, in case of building a company from scratch, using pre-defined processes in the ERP system, allows for rapid company build up without lengthy process design. Thirdly, ERP implementation project cost and duration is significantly reduces if pre-defined processes are used.

However, using any kind of “best practices”, pre-defined processes etc. makes your company look alike any other companies in the industry. Then, what if your competitive advantage is in distinctive operational process? In theoretical example that all companies would be using ERP system with the same processes, their operational models would be identical and only differentiating factor would be product itself and marketing. In reality it is not yet the case, but both consulting companies with benchmarking and GAP analysis tools and ERP system integrators contributed to standardization of within and among industries. No wonder, that many consulting companies teamed up with ERP system integrators often forming joint ventures.

In summary, ERP system implementation brings tremendous benefits in integrating the whole company’s data into one system. Following pre-defined processes, which come with the ERP package, helped many companies to strengthen internal discipline, increase informational quality, and make better decisions. Despite that ERP system is not for every company and not to be applied to every functional area. Stand alone software packages for areas like CRM (Customer Relationship Management) are still far better than CRM modules included in the ERP system. Additionally, if your company has a distinctive operational model, which is part of its competitive advantage, it might be sensible thinking about custom developed software or flexible standard package that allows to follow company’s process instead of changing it.

Dell Hell

Now when you screw your customers, your customers can fight back and publish and organize. (Jeff Jarvis)

Jeff Jervis is a blogger, journalist, and university professor. Jeff wrote an insightful book “What would Google Do?” and regularly writes at his blog “Buzzmachine” about new media in the information age. In June 2005, Jeff decided to buy a notebook, which comes with a home repair service in order stop worrying about technology and focus on writing. The notebook was from the pioneer of direct sales over the Internet Dell. It broke on the very first day Jeff received it. Jeff thought that such things can happen and contacted Dell’s customer service. Unfortunately, technician, who came to his home, could not repair the notebook on the spot as the home repair service advertised. Moreover, Dell could not fix the notebook even in its repair centre. Also, Jeff’s repeated interaction with Dell’s customer service did not get him closer neither to the solution nor did make him happy.

Jeff decided to write about his experience at the blog. First reaction was hoarding comments from other unsatisfied Dell’s customers at his blog. When he wrote an open letter to Michael Dell, Jeff got cited at on line version of prestigious business journals like BusinessWeek and Financial Times. Eventually, Dell’s shares significantly dropped at the top of the negative publicity verge.

What is most surprising that Dell’s reaction to Jeff’s blogging was close to zero. Dell was sitting quietly watching as the situation unfolded. At one point, Dell even closed its general customer forum as if it was the only platform, where their unhappy customers could speak up. But, what should have Dell done? Here are some general advices.

1. Actively seek for customer complaints at the internet. Analyze them differentiating between isolated incidents and systemic problems.

2. If the forum allows company intervention, professionally answer on comment at the forums especially those negative ones e.g. by referring to own company technical support forums.

3. Act on complaints. Customer complaints represent best opportunity to turn complaining customers into active company promoters by providing excellent customer service.

4. Set up a company blog, ideally run by members of Dell’s management, where Dell could comment on recent development in a lighter manner than in official PR announcements. It would give Dell additional channel of communication, which could prove extremely useful in case of Jeff’s blog attacks.

5. Engage into social media. Create pages at Facebook and other major social sites and gather a fan base. These people could help Dell to counter attack Jeff’s blog posts by comments on their Facebook walls.

I believe that Dell learned its lesson as the Dell vs. Jeff Jarvis is taught at the business schools and today Dell actually has a Facebook page with more than 173,000 fans. However, did other companies learned from Dell?

Facebook in two years

Facebook is most popular social network today with more than 400 mil. users. Oddly enough, nobody can really determine what was Facebook’s competitive advantage over social networks like Orkut, My Spaces, … that gave Facebook such a head start over them. I believe that it was from a great part luck and from the other part ease of use that Facebook gained critical mass of users quickly enough to became number one in the world (Although, in some countries like Brazil or Russia, social networks like Orkut and Odnoklasniky dominate the market).

Facebook, as a private company, does not publish its financial data. Therefore, all numbers about revenues, which are on internet blogs are just rumors or estimates. According to blog InsideFacebook, Facebook reached up to $700 mil. revenues in 2009, most of which came from advertisement.

In its early days, Facebook used to be a place to connect with your friends and find new friends. Today, it is a major place for searching and consuming multimedia entertainment recommended by your friends. At times, Facebook even surpasses Google in internet traffic. However, how will Facebook look like in two years?

Firstly, I believe that Facebook is here to stay at least for another five years unless there will be a huge problem with security or performance and at the same time, users could easily switch to available alternative. Secondly, importance of social games at Facebook platform and sale of virtual goods will grow both in usage and revenue. Thirdly, Facebook might extend use of its virtual currency at the expense of PayPal and credit card payments, which could create another stream of revenue (approx 1.5% of value of each transaction ). Last but not least , there will be more emphasis on privacy of personal information, where Facebook will have to prove itself as a reliable and trustworthy partner.

Marketers are ready to put even more money in executing their campaigns on Facebook, now it depends if Facebook stands the challenge.