Miscellaneous / Analysis Of Pirelli'S Drive Toward A Global Strategy
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Autor: anton 18 May 2011
Words: 3452 | Pages: 14
Table of Contents
Analysis of Pirelli's Drive Toward a Global Strategy 2
Systems Development 4
Range of Methods Available 4
The Systems Development Life Cycle 5
Issues raised by the case study 8
Evaluation of the effectiveness of the Information System for its Users 9
Health and safety 10
Appendix A 12
Appendix B 16
Analysis of Pirelli's Drive Toward a Global Strategy
Arrigo Andreoni, Pirelli's corporate director of information, believes that in order to keep up with the erratic nature of the global economy Pirelli's worldwide Information Technology (IT) infrastructure needs to be redesigned and standardized. The Pirelli group initially had not incorporated a global IT infrastructure hence they had not established international standards. The information systems within individual units were developed locally and operated independent of each other. Consequently this decentralization and lack of integration made data sharing across national borders difficult, tainting effective management and strategic decision-making.
This inefficient IT infrastructure may be the reason Pirelli has suffered a dynamic reduction in revenue, other influences may be the consistent rise of competition and the introduction of new technologies (See Appendix A.1). As a result, managements goals are returning the company to its accustomed level of profitability, their objectives; focus on core products, cut costs, improve competitiveness by developing new technologies and improving response to customer demands (See Appendix A.2).
The IT reform is to support the Information Systems at all levels of the company and to allow sufficient information flows among all units regardless of location so corporate management will have immediate access to the information they need to carry out their executive planning and management functions (See Appendix A.3) i.e. Pirelli seeks to promote a multinational strategy, whereby the headquarters in Milan, Italy would act as the central home base that concentrates on financial management and overall control while there would be decentralization of Production, Sales and Marketing operations to the units in the other countries.
To develop this fully-fledged networked a UNIX server would be used to link each unit in each country to the headquarters in Milan. The use of this server should allow the rapid flow of information from one location to the next with a clear connectivity. Pirelli has to take into account the high costs and low quality of European inter-country communication, which leads to poor communication between sites. Pirelli also has to take into account that European standard for networking and EDI (Electronic Data Interchange) are very industrial and country specific i.e. banks in Europe use the SWIFT protocol for international fund transfers, whereas the United States use the ANSI standard for EDI. The systems in both locations will be incompatible and hence weak exchange of information. This therefore will not conform to Pirelli's corporate strategy.
To facilitate a standardized infrastructure in which all units would be integrated, SAP's R/3, a client-server-based Enterprise Resource Planning system that includes integrated modules for most business functions would be the projects centerpiece. Andreoni decided that this software would be best effective in responding to the company's corporate strategy. By introducing SAP R/3 in the various countries, the company moves closer to achieving corporate objectives due to the eventual availability of information from all its locations worldwide.
Range of Methods Available
To satisfactorily develop Pirelli's global network Andreoni is responsible for using his expertise to decide on the most appropriate method of development. In doing so, the systems development should undergo a more structured and precise formation.
In each of Pirelli's local units, the country relied on outsourcing to handle both the new and old systems. Outsourcing is whereby Pirelli hired an outside organization that specializes in IT to undertake the project whilst Andreoni, who comprehends the necessities of the new system, would portray his IS plans and ideas and negotiate with the performing vendors who would then apply them to the project.
Another methodology used is External Acquisition of Software i.e. Off-the-shelf software with a high quality and high probability of fulfilling Pirelli's business needs would be selected as the basis of the system. The external acquisition system selected was SAP R/3, a client-server based Enterprise Resource Planning system with integrated modules for Production, Factory Automation, Finance, Sales, etc, is recognised for providing collaborative business solutions. It would allow employees, customers, and business partners to work together anywhere and anytime, hence fulfilling an important aspect of the strategy i.e. globalization. It is also open and flexible to upgrades by supporting databases, applications and operating systems and almost all hardware.
Finally, the effectiveness of prototyping was applied (See Appendix B.1). Effectiveness? Prototyping allows for a feel of the system even before it is completed. Employees would be given the opportunity to clarify their information needs as they review iterations of the new systems, as a result they would become familiar with the system while being trained by the outsourcing consultants. Consequently since user interaction is particularly important managers will quickly witness the impact of the system on their prime resource (employees) and would also be able to determine whether a full implementation could improve business operations.
The Systems Development Life Cycle
This includes the feasibility study and the technical, economical and behavioral feasibility of the system. Would this system improve Pirelli's growth? Would the implementation of this system be successful and cost beneficial? How would the units cope with the new system? Would they accept it?
Knowing the necessities of the new system and the impact it could make, positive and negative is crucial. These factors are important in determining whether the task of designing the system should be taken. Here we consider the physical aspects of the design, for instance the hardware and software that would assist in development. We also consider how the introduction of the new system would affect Pirelli's employees and we take into account their views of the new system.
This stage is critical in the development of the system. Some requirements are already known from the systems investigation, but these are by no means sufficient to start building the system. Pirelli's existing system would be examined, its inefficiencies identified to understand Pirelli's company-wide problem and the need to develop a new system (See Appendix B.2). Information about its current operations would be gathered and analyzed and then its noted inefficiencies would be identified to understand what solutions would be necessary to make business operations more effective (SAP's R/3). The main purpose of this analysis is to gather information about the existing system and to determine the requirement of the new system. The end product of this stage is a set of system requirements.
This is the technical aspect that describes how the system would accomplish the systems requirements. This stage encompasses both logical design, which refers to what the system will do i.e., outputs, inputs, processing, etc and the physical design which states how the system would perform its functions including the design of hardware, software, database, telecommunications and procedures.
Since External Acquisition of Software (SAP R/3) was used, much programming is not necessary. However, the software must be customized at each location to meet the needs of its culture therefore various adjustments would be made to various program codes.
Consequently, customizing the software means it is essential that sufficient testing be done to detect any errors or bugs in the altered or newly inserted program codes to ensure that the code will produce the expected results under certain conditions.
Implementing the new standardized platform to Pirelli's multinational environment of local control is of main concern and a critical stage to the systems development. Would the conversion from the old system to the new be successful? In order to ensure a positive answer to this question the implementation stage of this project must be taken with caution.
Andreoni decided on a pilot conversion process, whereby the new system would run on a function with a strong likelihood of success in each unit. Its purpose: after the pilot is successful, staff support will grow for the overall project. When the pilot is successful, the system would then become a prototype for the rest of the implementation.
Parallel conversion would also be used, where both old and new systems would operate simultaneously for a period of time until eventually the old system would phase out to a complete change over to the new.
Operation and Maintenance
After the system has been implemented it will operate for a period of time during which it may undergo three types of maintenance until it is phased out and a new system is developed. Corrective maintenance i.e. putting right any errors that remained in the system; perceptive maintenance which is done to improve the system so that it meets the needs of the business better and finally adaptive maintenance which is done when there are changes needed because the organization has adapted to new changes or perhaps legislation has changed.
Issues raised by the case study
Since each unit managed itself and was accustomed to its own way of business planning and operations it is quite possible that those CEOs would object to a new centralized governance. Even if they understood that the system could improve business operations they may still reject the idea thinking their business operations would completely change including their adapted lines of authority.
Employees perception of the global network would be coloured by the way they believe their work will be changed by the proposed development. If they believe this new implementation would be a threat to them e.g. unemployment, they would not anticipate the implementation, instead they may choose to rebel and sabotage it.
Evaluation of the effectiveness of the Information System for its Users
How secure is the system and its data against human errors, machine malfunction or deliberate misuse? With its new capabilities a great deal of data and information sharing would be taking place, as such, Pirelli should be prepared to pay a high price to ensure that the use of the systems are properly controlled. After full implementation, the units' reliance on the system to perform business operations may be total. For this reason it is necessary for the system to be ready for authorized users on demand. This can be facilitated by clear indications of what the system should and should not be used for and at what times the system would be occupied e.g. times for batch processing.
The system should be controlled in relation to who uses it and at what times, how much time and most importantly what tasks or application users are permitted to e.g. email, web surfing, etc. In so doing productivity will be maintained along with priority control.
Security threats to the system may be attributable to employees who are authorized or unauthorized to use the system. These threats may involve actions that deliberately breach security, or may relate to actions done unintentionally. The counter measures that are required may be as simple as locking doors, assigning passwords and installing firewalls to prevent unauthorized access to the systems in addition to using Anti- viruses to protect the system from threats from communication lines. Pirelli's Security policies addressing the above should be used to control the accessibility and usability of its system as vital company information is at stake.
Health and safety
Pirelli would have and must continue to consider the health and safety aspect of their employees. Pirelli may have already published a Health and Safety at Work policy but it is now necessary for that policy to be upgraded to incorporate the new system.
Since the new system is a foundation of computerized operations it is necessary that employees are educated on proper use of computer terminals. The main problem users will experience will be associated with their vision, posture, stress and limp. For this reason the ergonomic principles, the way in which employees best fit into their working environment, must be evaluated and put to effect.
Pirelli has demonstrated persistence and structure in the conversion to their new IT infrastructure, where particular effort was paid to ensure that their planning and development process was done to match their IT strategy with their corporate strategy. From the results seen by the implementation of SAP R/3, one can conclude that the strategy implemented is helping and would continue to achieve Pirelli's corporate goals despite the fact that the project has not yet been fully implemented and the company's strategy of establishing a fully-fledged global network was a wise and successful corporate decision.
Threat of New Entrants - The easier it is for new companies to enter the industry, the more cutthroat competition there will be for Pirelli.
Power of Suppliers - This is how much pressure suppliers can place on Pirelli. If one supplier has a large enough impact to affect Pirelli's margins and volumes, then they hold substantial power.
Power of Buyers - This is how much pressure customers can place on the company. How strong is their position, can they work together to order large volumes.
Availability of Substitutes - What is the likelihood that someone will switch to a competitive product or service? If the cost of switching is low, then this poses to be a serious threat.
Competitive Rivalry - This describes the intensity of competition between existing firms in Pirelli's industry. Is there a strong competition between the existing players, is one player very dominant or all equal in strength/size.
Inbound logistics. Activities associated with receiving, storing and disseminating inputs to the product, such as material handling, warehousing, inventory control, vehicle scheduling and returns to suppliers.
Operations. Activities associated with transforming inputs into the product form, such as machining, packing, assembly, equipment maintenance, testing and facility operations.
Outbound logistics. Activities associated with collecting, storing, and physically distributing the product to the buyers, such as finished goods warehousing, material handling, delivery vehicle operation, order processing and scheduling.
Marketing and sales. Activities associated with providing a method by which buyers can purchase the product and inducing them to do so, such as advertising, promotion, sale force, channel selection, and pricing.
Service. Activities associated with providing service to enhance or maintain the value of the product, such as installation, repair, training parts supply and product adjustment.
Procurement refers to the functions of purchasing inputs used in Pirelli's value chain, not to the purchased inputs themselves.
Technological development every value activity includes some aspect of technology, be it know how, procedures, or technology in process equipment. Technology development is important to competitive advantage in all industries, holding the key in some.
Human resource management consists of activities involved in the recruiting, hiring, training, development and compensation of all Pirelli's personnel.
Pirelli's infrastructure consists of a number of activities including general management, planning, financial accounting, legal, government affairs and quality management. Infrastructure, unlike other support activities, usually supports the entire value chain and not individual activities.
2. Pirelli's SWOT Analysis
Ð’â€¢ Each unit is customized to satisfy the needs of its local culture, i.e. the local language, currency, legal systems, etc.
Ð’â€¢ The systems structure does not abide to international standards for hardware or software, resulting in ineffective information sharing within the company.
Ð’â€¢ Pirelli's decentralized IS infrastructure is unlikely to successfully compete with the global economy.
Ð’â€¢ The system is unorganized, otherwise a flatter organization would be possible. It is expected that unnecessary business processes and personnel exist hence an increase in expenditure and redundant labour.
Ð’â€¢ Due to insufficient data sharing throughout the company the executive managers would be unable to make effective strategic decisions and forecasts.
Ð’â€¢ Each unit can market research appropriately to fulfill the requirements of its country, in an attempt to become most favored as to attain new customers as well as maintain their loyal ones.
Ð’â€¢ Poor communication and interaction within the company can lead to individual units becoming isolated and free from the company as a whole, in turn they may object to even the idea of an integrated company.
Ð’â€¢ Because of failed integration the main headquarter would be unable to act as the governing body and would be unable to make appropriate decisions that could positively impact on the company, as a result some units may flop due to bad decision making.
Ð’â€¢ Owing to lack of standardization Pirelli may lose business opportunities (suppliers and partnering companies) and may lose competitiveness and cease to advance as a part of the global economy.
Ð’â€¢ Pirelli IT infrastructure would bear national, international standards and regulations thus improving it's compatibility with partnering companies and it's competitiveness in the global economy.
Ð’â€¢ Because of a more sufficient IS infrastructure there would be better communication within the company, which may result to a flatter organizational structure.
Ð’â€¢ Standardized hardware and software would support a more simplistic and structured fashion of working.
Ð’â€¢ The Sap R3 incorporates a lot of business functions along side communication feature. This would improve productivity within the company.
Ð’â€¢ Adjusting the new system may be necessary to meet the needs of the locations of each branch.
Ð’â€¢ The implementation and maintenance processes along with the special customization needs may be a lot more costly than the old system.
Ð’â€¢ There could be a significant increase in sales because of more effective decision-making.
Ð’â€¢ Better opportunities in customer service area with the introduction of Internet facilities e.g. online sales.
Ð’â€¢ Pirelli's competition within the global economy may now rise to its advantage.
Ð’â€¢ Improved unit-to-unit and employee-to-employer relations because of better communication facilities.
Ð’â€¢ Although the implementation of the new system may be costly, the net income in due time may significantly increase.
Ð’â€¢ Pirelli could adopt an EDI (Electronic Data Interchange) system to improve business operations with external companies.
Ð’â€¢ The implementation of the new system may fail to be a successful global IT infrastructure.
Ð’â€¢ Some CEOs may choose to not make the change over from the old system to the new hence they would have fault the purpose of the implementation in the first place i.e. the drive toward a multinational company.
1. Laudon K.C and Laudon J.P "Essentials of Management Information Systems", fifth edition
2. Laudon K.C and Laudon J.P "Management Information Systems: Organisation and Technology in the Networked System," sixth edition
3. Stair R. M. and Reynolds G. "Fundamentals of Information Systems", first edition
4. Stair R, Reynolds G. W. and Reynolds G "Principles of Information Systems: A Managerial Approach", sixth edition
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