Dilemma of Dairy Farm Group between Redesigning of Business Processes and Rebuilding of Management Information Systems

Citation preview

The Dilemma Of Dairy Farm Group Between Redesigning of Business Processes and Rebuilding of Management Information Eugenia M. W. Ng Ali F. Farhoomand Probir Banerjee IDEA GROUP PUBLISHING

The Dilemma of Dairy Farm Group 1

IDEA GROUP PUBLISHING 1331 E. Chocolate Avenue, Hershey PA 17033-1117, USA Tel: 717/533-8845; Fax 717/533-8661; URL-http://www.idea-group.com

IT5601

The Dilemma Of Dairy Farm Group Between Redesigning of Business Processes and Rebuilding of Management Information Systems Eugenia M. W. Ng Hong Kong Institute of Education, Hong Kong Ali F. Farhoomand University of Hong Kong, Hong Kong Probir Banerjee City University of Hong Kong, Hong Kong

EXECUTIVE SUMMARY The Dairy Farm Group of Companies (DFG), is a leading food and drugstore retailer in the AsiaPacific Region. DFG and its associates operated supermarkets, hypermarkets, convenience stores and drugstores in nine territories and had sales of US$6.9 billion in 1997. However, the profit margin of DFG was low compared to its competitors in Hong Kong and China and other retailers in Europe and the U.S. Consequently, a new chief executive officer was hired in June that year. The new management team hired the services of two consulting firms to independently carry out a preliminary investigation of existing systems at DFG and to recommend solutions. Firm A stressed primarily the development of a management information system and use of emerging trends in technology and firm B focused on the re-engineering of crucial business processes with supporting technology. If you are the management team, which firm will be awarded the contract?

BACKGROUND The Dairy Farm Group of Companies (DFG; http://www.dairyfarmgroup.com/dfarm_graphic/ corporate/default.html), is a major Hong Kong-based food retailer with operations in a large number of major cities in the Asia-Pacific region. DFG’s shares were listed on the Hong Kong, Singapore, Bermuda, London and New York Stock Exchanges. The primary share listing of the parent company, Dairy Farm International Holdings Limited, was in London and the bulk of its shares were traded in Singapore. The Company was incorporated in Bermuda and its businesses were managed from Hong Copyright © Idea Group Publishing. Copying without written permission of Idea Group Publishing is prohibited.

2 Ng, Farhoomand & Banerjee

Kong by Dairy Farm Management Services Limited through regional offices in Asia and Australasia. Fifty-five per cent of DFG’s shares were owned by Jardine Matheson Ltd. and the balance was held by the public (http://www.dairyfarmgroup.com/dfarm_graphic/corporate/annual/97/ann10.htm). Sir Patrick Manson, a Scottish surgeon, and five prominent Hong Kong businessmen formed Dairy Farm with the objective of supplying cow’s milk to Hong Kong people in 1886. In 1904, the Company began importing frozen meat and opened its first retail store at the Central District depot, and by 1957, it had three retail stores and had started expanding its product range, marking the start of its transformation into a major food retailer and distributor. By 1986, its centenary year, it had more than 300 retail outlets, including the Wellcome grocery chain. It had become a leading force in the manufacturing, wholesaling and distribution of dairy and other food products in the Pacific region and in China. In the same year, the Company acquired a 50 per cent interest in the Maxim’s chain of restaurants in Hong Kong. In 1987, it acquired 25 per cent of Kwik Save Group plc - the sixth largest grocery retailer in the UK–and commenced supermarket operations in Taiwan. The Company subsequently acquired 228 branches of the 7-Eleven convenience stores from Jardine Matheson in 1989, followed by acquisition of the 108-store Simago chain in Spain and the 61store Woolworths chain in New Zealand in 1990. Other major expansion activities included the establishment of a 49 per cent-owned joint venture with Nestlé to develop dairy factories throughout China in 1992, acquisition of the 142-store Cold Storage chain in Singapore in 1993, establishment of a 50/50 joint-venture with Cold Storage and joint ventures to develop supermarkets and discount stores in Malaysia and Japan in 1994 and 1995 respectively. In 1995, it also signed agreements with the Hero group in Indonesia and the RPG group in India to manage and develop supermarket chains in the two countries. In 1996, Guardian pharmacy joint ventures were established in Malaysia and India and a 51/49 supermarket joint venture was formed in Sichuan. By 1997, it had operations in all major cities in the Asia-Pacific region, Australia, New Zealand and Europe with the Asia-Pacific being the most profitable region (Exhibit 1) 1 . In order to concentrate on its core retailing business in the Asia-Pacific region, DFG disposed of its 49 per cent interest in Nestlé Dairy Farm to Nestlé and decided to close down the loss-making Mannings drugstores in Taiwan and the Wellsave discount stores in Japan. As of December, 31, 1997, DFG operated 1,352 outlets, principally supermarkets, convenience stores and drugstores, and employed some 45,600 people. It had also entered into the restaurant business through a 50 per cent interest in Maxim’s Caterers Limited, Hong Kong’s largest restaurant and catering company with more than 300 outlets in Hong Kong and Mainland China. The reported sales and profit figures for the year 1997 were US$6.9 billion and US$154 million respectively (Exhibit 2). While DFG operated on a sales-to-profit margin of 2.23 per cent in 1997 and 1.98 per cent in 1996, competitor A.S. Watson Group, comprised of the Park’N Shop, Watsons and Fortress chain of stores in Hong Kong and China, had a 9.22 per cent sales-to-profit margin in 1997, up from 5 per cent in 1996. Another competitor, US-based Wal-Mart, reported a 2.92 per cent margin in 1997. The profit margins of DFG was low as compared to its competitors in Hong Kong and China and other retailers in Europe and the U.S . DFG’s business mission was: “To be the leading food and drug store operator in sales and shareholder value creation in Asia-Pacific”. To successfully pursue its business mission it was crucial for DFG to redefine its business strategy towards “sensing and responding to customer needs” as opposed to the traditional “buying and selling”. In order to retain its dominant position in the AsiaPacific region, DFG had decided on a new business strategy. Firstly, the strategy entailed defending its existing markets through a process of rationalisation focused on the disposal of, or closure of, its non-core operations. Such a process was expected to put DFG in a position to expand its core operations and become a dominant player in each of its chosen markets. A combination of acquisition and rapid establishment of new formats funded from its cash-rich position was decided upon. The second component of the strategy was to respond to the increased competitive threat through changes to its organisational structure, and in this respect it had decided to de-federate its businesses and

The Dilemma of Dairy Farm Group 3

operate as a single entity wherever possible. Such a move, it was felt, would enable DFG to capitalise on both its size and resources and work cohesively as a single company with a single vision, identity and brand where appropriate. The third dimension of the strategy was to improve on its market share and customer base through exploiting new markets and opportunities consistent with its core market capitalisation strategy.

SETTING THE STAGE Existing Systems The existing systems within DFG were built according to business functions to provide transaction information rather than providing information for management or decision making. Basically, there were two systems, namely, the Store Systems and the Operational Systems. Store Systems These systems were those deployed at the retail stores of various business units of DFG. The retail store applications were point-of-sale systems, procured from several vendors and customised for each store’s requirements. Each store had its own local area networks (LANs) on which the store system was implemented. The store systems did not interface with any of DFG’s operational systems. Some stores had optical scanners while some had cash registers at the customer checkout points. Sales data was transmitted to the related business unit data centres through fax and modem for the purpose of consolidation and operational decisions. Historical data storage at the store level was minimal, owing to the high volume of daily transactions. Operational Systems The operational systems that supported DFG’s retail operations were the following: • Central Merchandise Management, which included Item and Vendor Management, Pricing and Promotions, Stock Management, Trading terms/costs and Store Replenishment • Financial and Accounting Management • Inventory Management • Warehouse and Distribution Management • Human Resource Management Operational systems in DFG’s business units were large in scale, complex in operation and business-critical in nature. Each business unit had its own merchandising, inventory and warehousing systems, implemented on diverse hardware and software platforms. Managers did not have direct access to the database in the mainframe. Some standard reports were generated for management analysis. Any new reports required coding by programmes, and turnover rate of IT staff had been fairly high as elsewhere in Hong Kong.

Problems With Existing Systems Historically, information systems developers had developed systems to meet the requirements of specific business functions within an organisation. DFG was of no exception. It had a wide range of disparate, independent application systems, each built around specific business functions such as finance, merchandising, warehousing, etc. These systems were closed walls, with no provision for information exchange across business functions. Furthermore, as DFG expanded its operations into various countries in Asia-Pacific, the applications had to be customised to adapt to the multilingual and multicultural environments of the various countries. As a result, several different versions of the software existed, significantly increasing the maintenance overhead. Additionally, many business processes within DFG were manual and inefficient, thereby slowing information processing and decision-making. Store replenishment was an example of one such system that required considerable manual action and intervention.

4 Ng, Farhoomand & Banerjee

Another handicap with DFG’s systems was that the store systems were not designed to capture the full details of customer transactions. As such, the customer database allowed only vague notions about the customer to be developed. The anonymity of cash transactions, personal privacy laws and the sheer volume of transactions prevented DFG and other similar retailers from developing the intimate customer knowledge that was taken for granted in many other industries. This lack of customer knowledge was seen as a formidable barrier to realising the quantum-level leap that DFG intended to achieve in “sensing and responding” to customer needs. There was also a dearth of information for management decisions. The relatively scant information that was available was fragmented, voluminous, spread across diverse formats and not current. As such, it was difficult to integrate or analyse. Sometimes, important information was not available at all. As an example, calculating lost sales opportunity at the stores arising out of stock outages was not possible because such data was not captured. Information was exclusively made available in paper form and to analyse it in any other way required that the information be entered into a spreadsheet and modified into a new structure. Like other retail businesses, DFG’s business was also highly distributed. Mobile employees such as the travelling salesmen and those in the warehouse and distribution functions had problems accessing corporate information from remote locations. All DFG employees were tied to specific locations in order to access corporate information resources. In the first instance, this occurred due to the specific nature of the access devices (i.e., an IBM 3270/5250 terminal) and their corresponding dedicated networks. Subsequently, access locations had been fixed because the wide variety of system security services had not extended to allow access from more than one location. User identity was often combined with the notion of a fixed location-dependent network identity.

Problems With Existing Processes DFG operated as a federated organisation, more by compulsion than by choice. The compulsion stemmed from the fact that a large number of small companies at geographically dispersed locations had been acquired over a period of time. Since there was no communications network, each of these companies operated independently. There was duplication of some assets and waste of human resources. For example, although Wellcome operated in the daytime and 7-Eleven mostly at night, each had its own fleet of trucks for stock movement, thereby increasing transportation costs. In terms of business processes, store replenishment was one process that required significant manual intervention. Each company had its own set of suppliers from whom goods were purchased. This resulted in different prices being paid for the same items because they came from different suppliers. Economies of scale were not possible. There was little power over vendors in terms of negotiating terms of trade, particularly in regard to discounts on bulk purchases. Monitoring of stock “shrinkage” was also a major problem. Sometimes excess goods were supplied and charged to the stores. Average stockholding for some items (except fresh food) was about 35 days, against the industry norm of seven days. A consequence of high inventory cost was that DFG’s business units operated at margins that were much lower than those of other operators such as Tesco in the UK and Wal-Mart and K-Mart in the U.S. Another business process that wasted human resources was the accounting function. The function being centralised, copies of purchase orders raised by the stores were sent to the Central Office. Copies of goods receipt note and supplier invoices were also received at the Central Office. Manually matching such a large number of orders with supplier invoices and goods receipt notes was a daunting task, with phenomenal waste of man-hours. In 7-Eleven alone, 375,000 invoices were matched annually by 120 people. The shareholders were critical of the extant management’s ability to provide DFG with the direction needed to fulfill its mission. They were worried that 1997 was the beginning of a slump in retail sales for DGF. The economic crisis that gripped Asian countries during the later part of 1997 could be

The Dilemma of Dairy Farm Group 5

one reason for the downturn. A second and more important reason was the increasing competitive pressures that DFG faced from European and U.S. retail chains which were prepared to gain a foothold in the Asian market. Consequently, a new CEO was hired in June 1997. The new management team hired the services of two consulting firms through an “open bidding” system to independently carry out preliminary investigations of existing systems at DFG, and to recommend solutions. The final contract was to be awarded to the firm whose recommendations were seen as being actionable and directly contributing to the bottom line (i.e., competitive advantage through quantum-level leaps in customer satisfaction and shareholders’ wealth, at significantly reduced costs). The two consulting firms locked horns to win the contract.

CASE DESCRIPTION After a detailed investigation and analysis of the existing business operations, systems and procedures, and the supporting infrastructure, the two consulting firms submitted the following recommendations:

Firm A The firm felt that DFG had an excellent network of retail stores and product lines, which gave it a head-and-shoulders advantage over its competitors. The snag was management control, attributable to geographically disperse, disparate and close-walled systems. It found that significant improvements in DFG’s operations and profitability could be achieved by building a corporate management information system, supported by the right technology and communications infrastructure. It would enable managers to access corporate information in various ways and across all functions, thereby facilitating the decision-making process. The systems could also provide an arena to develop electronic commerce (EC) with business partners and customers. As the telephone density in Hong Kong was 70 telephones or 55 exchange lines per 100 population, which was one of the highest in the world, the B2C service is surely an area for growth. The major recommendations were as follows: Store Operations It was felt that DFG could significantly improve sales and customer satisfaction by adopting electronic retailing as a subset of its retailing function. In this respect it suggested that the store operate in two environments–the physical and the virtual (electronic). (A schematic view of the proposed application is shown in Exhibit 3). Features suggested for inclusion in the electronic store application were as follows: • It would be a World Wide Web (Web)-based retail system using client-server architecture, aimed at providing an Internet-based home shopping system consisting of an Electronic Store and an Electronic Distribution Centre (E-DC). The E-DC was to provide the services of a fulfillment centre, including product availability, delivery status, physical delivery and product warehousing. • The application would interface with other functional units linked to the retail operations, such as the head office, distribution centres, vendors, consumers, and the financial institutions for settlement of electronic transactions. • It would provide full retail capability, similar to that provided by a physical store, to the virtual customer. The functions recommended for inclusion in the application were product browsing, product purchasing, product information, purchase methods, purchase status, purchase history and personalised customer service. Network Computing and Application Re-Design The development of the Web and its corresponding Web-server and browser technologies had created an opportunity for organisations such as DFG to re-think the architecture of their applications.

6 Ng, Farhoomand & Banerjee

It was recommended that applications, centrally deployed in the mainframe environment, be rewritten and ported on the latest n-tier client server architecture, with the Internet browser (or other thin-client access device) providing the user interface and an application server or information broker as the middle tier. This design model would help in realising the benefits of information access and data sharing. Other benefits of adopting such a topology would be scalability, application maintenance and software component reuse. To support the rewritten applications, it was recommended that an organisational intranet be developed wherein the LANs at the stores would be interconnected with each other through Common Gateway Interfaces (CGI), forming a Wide Area Network (WAN). (See Exhibit 4 for a suggested plan for the communications network). Application Integration and Information Sharing The firm’s investigation revealed that DFG’s applications had developed over time, independent of one another. Stove-piped applications all communicated with their own databases. Little attention had been paid to the requirement to exchange information between applications, or to reliably create new information from data sets derived from two or more applications. The firm recommended that it was important for DFG to have an integrated set of applications within each business unit so as to facilitate information interchange across business functions. In this regard, it was recommended that store applications interface with all the operational systems, such as finance, merchandising, warehousing and human resources. Remote Access DFG had three distinct classes of mobile users with three different requirements for mobile services. They were the telecommuters, travelling employees and task-oriented mobile users working for the warehouse, distribution, inspection departments and the stores. It was recommended that these users be provided with secured, location-independent access to corporate information resources. Such facilities had to be usable, secure, manageable and provisioned at acceptable cost. Data Warehouse and Data Mart Like most organisations, DFG only stored transaction records arising from inputs to the operational systems in the course of daily business. It was the only repository of raw data. Analysis of raw data was a time-consuming and tedious process. Data aggregation, collation etc. was a repetitive process in such analysis. The consulting team recommended that DFG should develop Data Warehouse and Data Marts to facilititate data analysis and decision-making. Inventory Management Firm A found that inventory was the largest single cost-factor in DFG’s retail operations. DFG had an average inventory holding of 35 days, as against a norm of seven days for the industry. The high stockpiling was attributed to delayed processing of purchase orders. It was recommended that access points on the proposed corporate intranet be provided to the vendors so that in cases where direct buying by the stores was involved, store orders could be sent to the vendors in EDI formats. Similarly, vendor invoices could also be sent to the Central Office in EDI formats. The method would facilitate faster processing of orders, leading to reduced inventory at warehouses. Additionally, it would enable computerised matching of orders with invoices and thereby significantly reduce manpower overheads. Development of Core Competencies Firm A believed that in seeking to maximise IT effectiveness, an organisation should not seek to minimise the cost of its technology but maximise the effectiveness of its staff. To this end, it recommended that a systematic assessment of the required technical skills be made, and

The Dilemma of Dairy Farm Group 7

necessary training plans and recruitment schemes be charted out so as to have core competence within the organisation.

Firm B Firm B believed that technology alone could not bring competitive advantage unless it was planned in the context of an organisation’s present and future business needs. In addition to technology, it placed emphasis on business processes, viewing them as major determinants of an organisation’s ability to develop and retain competitive advantage. Accordingly, the identification and re-engineering of business processes supported DFG’s business strategy while having IT as the essential enabler (Hammer & Champy, 1993). The ultimate goal is not just to cut cost but to reduce time and improve quality (O’Neill & Sohal, 1998). In this regard, it recommended a technology planning process, the output from which was to be known as “DFG’s Technical Architecture”, essentially a framework enabling rapid changes in DFG’s business processes and its supporting applications by providing a clear definition of endorsed standards, technologies and policies governing their use for the whole DFG rather than individual business enterprises. [A schematic representation of the Technology Planning Process is shown in Exhibit 5]. Technology Planning Process The recommended technology planning process comprised of a business component and a related technical component. The business component consisted of the identification of business processes and the re-engineering of business processes considered critical to the successful pursuit of DFG’s business strategy. The technical component pertained to the identification of technologies to support the business processes and an implementation plan. Business Component The business component included the identification and re-engineering of crucial business processes. In trying to address this issue, Firm B viewed the entire set of operations within DFG’s business units as a set of Business Process Domains (BPDs). These were essentially the logical grouping of business processes and their associated systems dedicated to a common purpose, with the possibility of such grouping being geographically dispersed. Five such BPDs were identified: In-Store Systems, Business Unit Operational Systems, Business Unit Analytical Systems, Group Systems and Core Infrastructure Services (see Exhibit 6 for a schematic view of the BPDs and associated processes). The primary purpose of grouping the processes under BPDs was the ability to specify the desired system characteristics for a BPD as a whole, as opposed to individual processes. Specifically, the following characteristics were considered crucial for success of systems within each BPD. • Availability, specifying recovery plans, tolerance for system outages, etc. • Assurance, specifying security, integrity and credibility requirements • Usability, specifying user interface requirements • Adaptability, specifying interoperability and porting requirements The following systems and business processes were identified for re-engineering: Store Systems In respect of store applications, the recommendation was that common store applications be built around standardised technology. The store applications would be resident on a back-end server, which would also store transaction data so as to facilitate stock monitoring at the store level. Store LANs would be networked with the data centres and the central office at Hong Kong for data transmission. In order to have scalability, the client-server architecture was proposed for its deployment. (See Exhibit 7 for the suggested application partitioning logic). It was also recommended

8 Ng, Farhoomand & Banerjee

that the store applications be redesigned to ensure that all data conducive to decision-making was captured at the transaction points. The application would be extended to support new channels of marketing, such as facsimile and telephone, IVR and ITV. It was suggested that Store Systems have the following attributes: • Share a common information base • Be integrated • Support coordinated actions. In-store systems needed to support distributed transactions • Interface with systems external to the Store Systems • Be flexible to accommodate changing business requirements and operation in multiple geographic territories • Be scalable from a minimum of two to a maximum of 50 shopping lanes • Be adaptable to operate across DFG’s multiple retail formats • Be extensible to accommodate new technologies and releases • Be remotely maintainable • Integrate with standard DFG management mechanisms Inventory Management It was felt that the suggested business strategy of operating as a single entity in a de-federated organisational structure would enable DFG to achieve economies of scale in terms of inventory management. It was recommended that store systems would integrate with operational systems and also be extended to include the buyers and suppliers. A central merchandising system within each business unit would monitor the inventory levels at each store and generate individual store orders. The store orders would then be routed to the respective stores for their approval. Approved orders would be consolidated and purchase orders generated to suppliers. For example, if a certain soft drink is running low at some 7Eleven store and at Wellcome Supermarket, an order will be put together but goods will be delivered to respective stores. In generating purchase orders, leverage would be obtained in respect of the terms of trade with different suppliers. (A descriptive model of the suggested method is shown in Exhibit 8). Significant benefits were expected to accrue from such a process. While stock outages at stores would be minimised, it would also ensure that the stores maintained optimal stock levels. It would also provide DFG with additional power to negotiate terms of trade with its suppliers and substantially reduce the number of purchase orders and invoices. The process entailed the integration of the POS, merchandising and the warehousing functions across the in-store and the operational BPDs. A future direction recommended in this regard was the integration of the supply chain across business units (Copacion, 1997), and continual stock level monitoring at individual stores directly by the suppliers, who would then supply stocks as necessary. Category Management Traditionally, DFG, like all retailers, maintained separate buying and selling functions. Buying was not fully geared towards customer requirements. The selling function entailed selling whatever was available in the stores. The result was warehouses carrying large inventories of slow-moving stocks and stock outages at stores for fast-moving items. The establishment of a common process, one that would enable customer requirements to be sensed and catered to, depended to a large extent on detailed, accurate and timely information on customer transactions. While the suggested changes in the store operations would enable detailed data capturing on customer transactions, it was recommended that data warehousing technology be adopted to facilitate organisation and analysis of data for marketing to customer segments. Electronic Commerce The firm felt that DFG could benefit from advertising its products on the Web. They however expressed reservation in regard to buying and selling through the Internet, particularly because of the

The Dilemma of Dairy Farm Group 9

security problems inherent in electronic transactions. It would be a long time before consumers would feel comfortable with giving their credit card information on the Internet for the purpose of settling Internet-based transactions. Technical Component For DFG to evolve from a federation to a group business structure as per its business strategy, significant additional investment in a common supporting infrastructure linking the various business units was required. The level of linkage required between the business units and the support required to integrate the supply chain across business units depended upon successful deployment of the services under the Core Infrastructure Services. (See Exhibit 9 for the applications planned for deployment within this BPD.) A corporate-wide area network to provide group-wide information systems through interconnections across the various BPDs identified within DFG was recommended. Over time, the Core Infrastructure Services BPD was seen to develop as the foundation for distributed computing within DFG and hence provide group-wide information management capability. It was initially planned to extend only up to the boundary of each business unit so as to provide interbusiness services. As the functions available within the BPD became more relevant to the information systems within business units, the domain was planned to be extended to provide intra-business unit services. To facilitate this progression, all internal services pertaining to a business unit were required to be provided in accordance with standards and technologies selected for the Core Infrastructure Services BPD. A key function of the Core Infrastructure Services was to provide enterprise-wide system security, integrity and credibility, particularly within the In-Store BPD. Some of these services were to be invoked explicitly by application programmes, while others were to be used implicitly through the use of operating systems, databases, communications, security or message-based components. In respect of each BPD, continuous or near continuous availability of systems, interoperability with other systems, usability in terms of user interfaces, etc., were other functions provided by the Core Infrastructure Services.

Technology Planning Team To carry out the recommended technology planning, it was proposed that a Technical Architecture Programme Group (TAPG) be established under the auspices of a Technology Strategy and Architecture Group (TA Team) which would be the body formally established to conceive, develop and maintain DFG’s Technical Architecture. TAPG membership would be drawn from three groups: the DFG TA Team, DFG’s Technology Partners and the consultant organisations with specific technology expertise.

CURRENT CHALLENGES/PROBLEMS FACING THE ORGANIZATION Both consulting firms had a successful track record. Firm A stressed primarily the development of a management information system and use of emerging trends in technology, but firm B focused on the re-engineering of crucial business processes having IT as the enabler. There were advantages and disadvantages of both proposals and some of the recommendations might not be mutually exclusive. Furthermore, it was difficult to put quantitative values on some of the qualitative benefits accruing from such projects. For example, Firm A’s solution has less disruption to the existing organizational structure with a good potential for reducing cost if e-commerce will be developed for B2B business (Fox, 2001). Re-engineering fits the vision of DFG to be the leader in food and drugstore retailer in the Asia Pacific Region (Whitman & Gibson, 1997). The high failure rate of BPR (Kliem, 2000) requires organisational and culture change (Olalla, 1999) which are of great concern. Even though most

10 Ng, Farhoomand & Banerjee

of the employees were ready for adopt IT widely, they were not too comfortable to have drastic job nature changed. Therefore, quantitative analysis such as cost benefit analyses such as payback periods, net present value of expected future cash flows etc. were only gross approximations. DFG’s management team faced this dilemma of selecting the proposal which would achieve customer satisfaction in an affordable and feasible way and yet accountable to shareholders. If you were one of the management team, what and how would you evaluate and recommend the proposal?

ENDNOTE 1 US$1=HK$7.74

FURTHER READING Altinkemer, K., Chaturvedi, A. & Kondareddy, A. (1998). Business process re-engineering and organizational performance: An exploration of issues. International Journal of Information Management, 18(6), 381-392. Caron, J. R., Jarvenpaa, S. & Stoddard, D. (1994). Business reengineering at CIGNA Corporation: Experiences and Lessons Learned from the First Five Yeas. MIS Quarterly, l8 (3), September, 23350. Cooper, R. & Markus M.L. (1995). Human re-engineering. Sloan Management Review, 36(4), 39-50. Dairy Farm Group (http://www.dairyfarmgroup.com/dfarm_graphic/corporate/default.html) Davenport, T.H. & Short J.E. (1990). The new industrial engineering: Information technology and business redesign. Sloan Management Review, 31(4),12-26. Dewar, R.D. & Dutton, J.R. (1986). The adoption of radical and incremental innovations. Management Science, 32(11), 1422-1433. Grover, V. & Kettinger, W.J. (1995). Business Process Change: Concepts, Methods and Technologies. Harrisburg, PA: Idea Group Publishing. Hammer, M. (1990). Reengineering: Don’t automate, obliterate. Harvard Business Review, 68 (4), 104112.

REFERENCES Copacino, W. C. (1997). Supply Chain Management: The basic and beyond. Boca Raton, Floria: St. Luci Press. Fox, P (2001). B2B: You can find success in private sites. Computerworld, 35(19), May 7, 24-25. Hammer, M., & Champy, J. A. (1993). Reengineering the Corporation: A Manifesto for Business Revolution. New York: Harper Collins. Hong Kong (1999). Hong Kong Year Book. Retrieved May 19 2001 from the World Wide Web: http:/ /www.info.gov.hk/hkar99/eng/18/18_11.htm. Kliem, R. L. (2000). Risk management for business process reengineering projects. Information Systems Management, Fall, 71-73. Olalla, M.F. (1999). Information technology in business process reengineering. Proceedings of FortyO’Neill, P., & Sohal, A.S. (1998). Business process re-engineering: application and success – an Australian study. International Journal of Operations and Production Management, 18, 832864.

The Dilemma of Dairy Farm Group 11

APPENDIX Exhibit 1: Summary By Regions

12 Ng, Farhoomand & Banerjee

The Dilemma of Dairy Farm Group 13

Exhibit 2: Five Year Summary of Financial Statements 1993

1994

1995

1996

1997

US$m

US$m

US$m

US$m

US$m

Sales

4,979.6

5,585.3

6,235.5

6,968.4

6,888.3

Sales including associates

9,605.1

10,402.7

11,695.4

12,766.8

12,658.1

Profit after taxation, minority interests and preference dividends

188.8

213.8

135.2

27.9

115.7

Net profit excluding discontinued activities and exceptional items

197.1

187.6

192.4

138.3

154.1

Earnings per ordinary share (US¢)

11.28

12.52

7.86

1.60

6.45

Earnings per ordinary share excluding discontinued activities and exceptional items (US¢)

11.77

10.99

11.18

7.94

8.59

Dividends per ordinary share (US¢)

5.65

6.00

6.00

6.00

6.00

--

--

--

1.4

1.1

967.2

1,105.9

1,221.8

1,369.3

1,267.6

234.3

284.5

332.1

338.4

333.0

(28.8)

131.1

(170.9)

160.7

61.4

(159.0)

(334.0)

(162.9)

(602.4)

(422.5)

(9.2)

(12.6)

(16.5)

(14.2)

(1.7)

1,164.9

1,203.6

1,253.2

1,238.9

SALES AND PROFIT

BALANCE SHEET Intangible assets Tangible assets Associates investments

and

Net assets/(liabilities)

other current

Term Loans Other non-current liabilities Net operating assets

1,004.5

14 Ng, Farhoomand & Banerjee

Exhibit 3: Electronic Store Application–Schematic View Electronic Store ESTORE Data Store

Customer Customer Interface

Customer

MIS CIS

CSR/ Store Management

ESTORE Communication

Courier

Banks Fulfillment Center

Head Office

Suppliers

Key: CIS - Customer Interface Server MIS - Management Interface Server CSR - Customer Service Representative Source: Technical Architecture document (v 1.0) of Dairy Farm Group

The Dilemma of Dairy Farm Group 15

Exhibit 4: System Schematic of Proposed Communications Network Leased Circuit Frame Relay Permanent Circuit (PVC)

Internet

OpenNet Hong Kong Convenience Stores Ltd.

Dairy Farm Group

Country Hub Australia

Country Hub HK

Country Hub Singapore

Sims Trading Company Ltd.

Australia Office

Manning Retail Ltd.

Singapore Office

Wellcome Company Ltd.

Oliver's

MDNS New Zealand Office

Indonesia Office

3

Taiwan Office

2 Malaysia Office

Traveling Users

PRC Office*

Japan Office *refer to section 2.5 for details in China connection

Source: Technical Architecture document (v 1.0) of Dairy Farm Group

16 Ng, Farhoomand & Banerjee

Exhibit 5: Recommended Technical Planning Process D F G D ire c tio n a n d B u s in e s s R e q u ire m e n ts

S ta n d a rd s

F u tu re T e c h n ic a l A rc h ite c tu re

P rin c ip le s

In v e s tm e n t D e c is io n s

A p p lic a tio n s H a rd w a re S o ftw a re C o m m u n ic a tio n s

C u rre n t (d e fa c to ) A rc h ite c tu re s

P ro d u c t S e le c tio n

In d u s try T e c h n o lo g y T re n d s

Source: Technical Architecture document (v 1.0) of Dairy Farm Group

Exhibit 6: Business Process Domains GROUP

! Executive

Information Systems

Analytical

BUSINESS UNIT Operational

In-Store

! Data

! Financial

! Data Marts

! Human

! Analytical

! Merchandising

! In-Store

! Warehouse

! Labour

Very High Availability

! Time &

Disaster Recovery

! Loyalty

Warehouse

Applications

High Availability

! POS

Resource Merchandising Scheduling

Attendance

! Directories ! Enterprise ! Transaction ! Management ! Security Management Application • DNS • Network ! Office ! Time Integration • DHCP • System Automation (EAI) • Email • Application • LDAP CORE INFRASTRUCTURE SERVICES

! File & Print

Source: Technical Architecture document (v 1.0) of Dairy Farm Group

The Dilemma of Dairy Farm Group 17

Exhibit 7: Electronic Store Application–Suggested Partitioning Logic User Interface L

Application L

Data & Transaction L

Remote Application Services Browser

SSL / HTTP

Web Server

Active X

Application Services

Data

Source: Technical Architecture document (v 1.0) of Dairy Farm Group

18 Ng, Farhoomand & Banerjee

Exhibit 8: Store Replenishment–Suggested Logistics 6a 1 STORE 1

3

SUPPLIER

6

1a 2

4 5

MERCHANDISING SYSTEM

STORE 2

7

STORE N

n

2a 7a

TRADING TERMS

N WAREHOUSE

Na na

LEGEND: 1, 2, n 1a, 2a, na 3 4 5 6, 7, n 6a, 7a, na

Suggested orders for stores 1, 2 … N (raised by merchandising system) Confirmed orders (Confirmed by stores 1, 2 … N) Supplier wise orders (raised by merchandising systems with leverage of trading terms) Supplier delivery Warehouse delivery receipt Store delivery of allocated orders Store delivery receipt

Source: Technical Architecture document (v 1.0) of Dairy Farm Group

The Dilemma of Dairy Farm Group 19

Exhibit 9: Core Infrastructure Services–Suggested Application Topology Standard Client

Core Systems & DBMS

Application Services

User Interface

Data Management

Application Business Logic Software Engineering

Application Business Logic

Application Business Logic

Software Engineering

Software Engineering

Infrastructure

Infrastructure

Infrastructure

Data I/C - IBM MQSeries Dist. Computing & Objects - Microsoft DCOM Network - TCP/IP Transaction Process - Nil Security - IBM Tivoli Network, System & Application Management - IBM Tivoli

Data Interchange - IBM MQSeries Distributed Computing & Object Services - Microsoft DCOM Network - TCP/IP Transaction Processing - Nil Security - IBM Tivoli Network, System & Application Management - IBM Tivoli

Data I/C - IBM MQSeries Dist. Computing & Object - Microsoft DCOM Network - TCP/IP Transaction Process - Nil Security - IBM Tivoli Network, System & Application Management - IBM Tivoli

PLATFORM

PLATFORM

PLATFORM

WAN

LAN or WAN

Source: Technical Architecture document (v 1.0) of Dairy Farm Group

BIOGRAPHICAL SKETCHES Eugenia Ng is the Deputy Head of the Department of Information and Applied Technology, the Hong Kong Institute of Education. She is responsible for teaching information technology modules, ranging from the sub-degree to post-graduate diploma level. She has taught diverse learners ranging from primary school to master’s level locally and overseas. She is interested in various research areas and has had more than 40 articles published in conference proceedings, journals and as book chapters in the area of Web-based learning, Decision Support Systems, Information Systems Education, Information Systems Skills and Career Development. More information can be found at: http://www.ied.edu.hk/iat/staff/eugenia.htm. Ali F. Farhoomand is Director of the Centre for Asian Business Cases (CABC) at the University of Hong Kong School of Business (http://www.business.hku.hk/research.centres/cabc). He is the author of numerous academic articles and books, including Global e-Commerce: Text and Cases (Prentice Hall, 2001). Probir Banerjee is a graduate research student at the City University of Hong Kong (CityU). He has over 25 years of experience in a wide range of business and IT functions in India, Hong Kong and Canada. He has co-authored several business cases as a Senior Researcher with the University of Hong Kong and is currently actively engaged in research in the area of electronic commerce adoption. He has a B.Sc. (Engineering) from India and an MBA from Fort Hays State University, USA.