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Management Cases

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Chapter 15

Managing International Information Systems

Teaching Objectives

Students should be able to answer the following questions:

1. What are the major factors driving the internationalization of business?
2. What strategies are available for developing international business?
3. How can information systems support the various international business strategies?
4. What issues should managers address when developing international information systems?
5. What technical alternatives are available for developing global systems?

Key Terms

The following alphabetical list identifies the key terms discussed in this chapter. The page number for each key term is provided.

|Business driver, 499 |International information systems architecture, 499 |
|Cooptation, 508 |Legitimacy, 510 |
|Core systems, 506 |Multinational, 504 |
|Domestic exporter, 503 |Particularism, 502 |
|Franchiser, 504 |Transborder data flow, 502 |
|Global culture, 500 |Transnational, 504 |

Teaching Suggestions

The opening vignette, “Paul Hartmann AG Internationalizes with Global Systems,” shows the changes that are necessary when a company wants to implement an international information systems architecture. Discussing this vignette with your class is a great way to start the chapter. To facilitate class discussion, ask your students the following questions:

1. Why did Paul Hartmann AG decide that an international information systems architecture was necessary? 2. What technology was used? 3. What business drivers was Paul Hartmann AG responding to? 4. Referencing Figure 15-2, what system configuration was Paul Hartmann AG likely implementing? 5. What is the company's next goal? 6. Do you think the company is using an appropriate strategy for implementing its international information systems architecture? Why?

It is appropriate that the international business setting be described initially from the general perspective of the international manager. In this context, relevant international issues specific to the political, cultural, legal, and economic dimensions of the international business environment can be discussed. The breadth and depth of this coverage will depend on faculty preferences, student backgrounds, and the orientation of the course.

From this broad foundation, a conceptual model linking the IS function to its international business business environment can be developed in the context of the previous discussions. The model discussed by the authors provides a means by which to define the external environmental influences on the IS function. Specifically, this external environment is composed of foreign, international, and domestic components. An array of cultural, legal, political, economic, and technological characteristics that may directly influence the IS function can be incorporated in the context of this model.

Ask students why organizations become international. Let them consider all the business drivers that motivate firms and other organizations to “go global.” The cultural factors reduce the difficulty and unfamiliarity of working with foreign countries. Have students list how many of their friends and relatives work for organizations which are international. Pin them down. How are these organizations international? Why?

You might want to have students examine the difficulties of doing business in Eastern Europe, the former Soviet Union, and Vietnam. Case studies on these countries show students that political turmoil and cultural hostility, particularly in the former Soviet Union, are just as big a barrier as the lack of information infrastructure. What business drivers are encouraging firms to move to the former Soviet Union? Students who examine these questions may see that some countries are globalized in only some regions – Moscow and Vladivostok in the Soviet Union, Guangdong in China.

The business challenges need to be considered in some detail. Cultural barriers and misunderstanding, along with irredentist movements, mean that some nations or nationalist (irredentist) movements within a country will not share the global shared value. The resistance of some Islamic groups to Westernization is an example. The unwillingness, for cultural and political reasons, of China, Singapore, and Malaysia to allow unfettered intercommunication and Internet access are examples of the problems. Even in the European Union, there is resistance to transnational data flows, particularly outside the Union. While there has been some deregulation of the national telephone systems, it is still more difficult to hook up phones, use modems, or set up data and telecommunication systems than in North America. Further, some nations have local content rules that make it more costly or difficult to internetwork. A good suggestion is to have students investigate particular countries in order to find the reasons for being in the country (business drivers) and the barriers or disincentives. The kinds of barriers may be laws, cultural hostility to foreigners or businesses, government regulation or ownership of telecommunications, tax laws, unionization, laws and taxes that make it difficult to reduce the workforce or consolidate plants. Currently, North America is technologically superior in networking and internetworking, which creates resentment or hostility. After examination of these issues, you may have to reestablish the business drivers.

Using some of the sources found in business magazines and journals, such as The Globe and Mail, Canadian Business, Business Week, Fortune, or Forbes, have students examine some success stories of international integration. Students should discuss the management and organization issues, as well as technical issues.

Students benefit from approaching the international technology issues from several perspectives. Two relevant themes that emerge include issues relevant to the flow of data and information across national borders and those related to global communication networks and connectivity. An array of issues might be incorporated into the discussions at this stage of the course. The issues of significance will vary over time. Transborder data flows and international implications of electronic data interchange (EDI) are topics of particular relevance for the multinational firm. International telecommunications standards are playing an important role in efforts to move toward worldwide communication. Lack of international standards, the proliferation of products and vendors, and the rapid changes in technology contribute to the difficulty of integrating information technology across national borders.

Students are very familiar with Canada Post. Consider the Postal, Telephone, and Telegraph (PTT) companies in other countries and how they may pose particular obstacles for multinational corporations. Price and quality of telecommunications is directly linked to the PTT issue and may vary considerably from one country to another. The available telecommunications infrastructure may limit the available alternatives especially in developing countries. The size of the local market may dictate the number of available vendors and the quality of the service that is provided. Movement toward deregulation of telecommunications both in North America and outside will influence these concerns. Establishing an international or global network with communication capabilities without regard for geographical boundaries is difficult at best. An array of unique issues including legal restrictions, government regulations, cultural barriers, and increased data security concerns contribute to the difficulty of setting up global information systems and worldwide communication networks.

“Window On” Boxes

Window on Organizations: GN Netcom's Global Systems Challenge

What were the management, technology, and organization problems that GN Netcom had to face when implementing its global systems?

The scenario suggests that GN Netcom needed to standardize its information systems. GN Netcom wanted to centrally run its production, supply chain, distribution, finance, and customer relationship management systems. The company also consolidated its manufacturing and assembly operations to a plant in China. When implementing its systems, the company was faced with agreeing on common user requirements, introducing changes in business processes, coordinating application development, and encouraging local users to support global systems. The company was also faced with culture and political differences, different accounting practices, standards, language, and currency fluctuations. From a technology standpoint, the company needed systems that could handle diversity and had software versions for the local languages and countries.

How well did GN Netcom deal with these problems?

Michael Young established a single development methodology and made a tremendous effort to include the affected units in on the development process. For instance, he assigned a champion to each country and made every effort to listen. He also made sure that the managers were well-trained. By standardizing its information systems, the company can move employees around as needed, has reduced its headcount in finance, administration, and inventory management, and maintained its sales and marketing staffs, even though the business volume is growing.

Window on Technology: CIBA Vision Brings Worldwide Inventory into Clear Sight

How did a new supply chain management system help solve CIBA Vision's supply chain problems?

The new system improved coordination between manufacturing, distribution, and supply- chain management. The new system has enabled CIBA Vision to reduce its cycle time for introducing new products, raised the global inventory visibility, made information more readily available, provided support for more accurate and item-level forecasting, helped determine optimal inventory levels, tracked forecasting trends, and tracked performance-to-forecast.

What value did it provide for the company?

Achieving 99.9% product availability while reducing inventory and inventory costs and reducing cycle time for introducing new products result in significant value for CIBA Vision.

What difficulties do you think CIBA may have encountered in implementing this system?

CIBA went from a highly decentralized operation to a centralized operation. Additionally, it needed to cleanse and standardize the data from its different sites. Making these changes would require careful management and planning. Many of the challenges outlined in Tables 15-2 and 15-4 were likely encountered by CIBA.

For Discussion Questions

1. If you were a manager in a company that operates in many countries, what criteria would you use to determine whether an application should be developed as a global application or as a local application?

There are many general cultural factors and specific business factors to consider. The growth of cheap international communication and transportation has created a world culture with stable expectations or norms. Political stability and a growing global knowledge base that is widely shared contribute also to the world culture. These general factors create the conditions for global markets, global production, coordination, distribution, and global economies of scale.

As the text points out, not all systems are candidates for coordination on a transnational basis. The focus should be on the business's core systems, those systems that support functions that are absolutely critical to the organization. Figure 15-3 is a good tool to help differentiate core systems from regional coordinated systems and local option systems.

2. Describe ways the Internet can be used in international information systems.

Companies can use the Internet for international communication by creating global intranets. Companies can also use the Internet to create virtual private networks. Although the Internet is an attractive option, caution must still be exercised, since many countries still lack the infrastructure for its successful use. The Internet can be used in international information systems to co-opt widely dispersed foreign units into one Internet connected unit. Factors of production can be coordinated on a global scale. Transnational firms can use the Internet to permit considerable decentralization of development and operations. It can also increase centralized financial controls.

Review Questions

1. What are the five major factors to consider when building an international information systems portfolio?

The five major factors are the need to: • Understand the global business environment in which your firm is operating. • Consider a corporate strategy for competing in that environment. • Consider how to structure your organization to pursue the strategy. • Consider management and business processes in implementing the strategy. • Develop an appropriate technology platform.

2. Describe the five general cultural factors leading toward growth in global business and the four specific business factors. Describe the interconnection among these factors.

The five general cultural factors are global communication and transportation technologies, development of global culture, emergence of global social norms, political stability, and global knowledge base. Global communication and transportation technologies reference the fact that a global village has been created in which global communications of all kinds are no more difficult and not much more expensive than domestic communications. The development of a global culture has created shared values and beliefs around the world. The emergence of global social norms references the fact that proper attire, proper consumption, good and bad government, and other norms are more and more shared. In reference to political stability, the world is living through the longest period of world political stability in the modern age. In reference to the global knowledge base, educational, scientific, and industrial knowledge and skills are no longer centered in North America, Europe, and Japan, but have spread to Latin American, China, Southern Asia, and Eastern Europe.

The specific business factors are global markets, global production and operations, global coordination, global workforce, and global economies of scale. Global markets reference the fact that patterns of consumption of goods are becoming similar around the world. Global production and operations refer to the fact that far-flung production facilities can now be coordinated at central headquarters thousands of miles away. Global coordination means the coordination of business factors has expanded beyond production to include all major business functions, such as accounting, marketing, sales, and human resources systems development. Global workforce means that we can locate our business activities based on workforce availability. Global economies of scale means that production can now be concentrated where it can be best accomplished; lower cost factors of production can be exploited wherever they emerge.

These factors are interrelated. The spread of global communications has led to the emergence of a global culture and global social norms. This, in turn, has led to the development of global markets. Emerging global technologies make possible the transportation of raw materials and finished products throughout the world and have given businesses the ability to act globally. Global production and coordination and the ability of businesses to make use of global economies of scale all depend upon the emergence of sophisticated global communications. The existence of global markets has been one of the factors making global production and operations attractive.

3. What is meant by a global culture?

A global culture is a shared culture in which people around the world share such cultural artifacts as news programs and movies. These, in turn, result in the emergence of shared social norms in such areas as proper attire, proper consumption, and values concerning good and bad government.

4. What are the major challenges to the development of global systems?

The general challenges are cultural particularism, social expectations, and political laws. Specific challenges include standards, reliability, speed, and personnel. Table 15-2 provides examples of each challenge.

5. Why have firms not planned for the development of international systems?

For some companies, the competition has not been powerful enough yet to drive them to plan for the development of international systems. Other companies lack the global strategy needed for such development, or they have inherited a patchwork of international systems built with outdated technologies and standards.

6. Describe the four main strategies for global business and organizational structure.

The four main strategies for global business and organizational structure are domestic exporter, multinational, franchiser, and transnational. The domestic exporter is characterized by heavy centralization of corporate activities in the home country of origin. Production, sales, marketing, finance, and other such functions are set up to optimize resources in the home country. Foreign marketing is totally reliant on the domestic home base. A multinational company concentrates financial management and control in a central home base but decentralizes production, sales, and marketing to suit local market conditions. Franchisers create, design, and finance the product in the home country, but rely on foreign personnel for further production, marketing, and human resources. Often, the product must be produced locally because it is perishable. The transnational organization is a stateless, truly globally managed firm. It has no single national headquarters but instead has many regional headquarters and perhaps a world headquarters. Nearly all of the value-added activities are managed from a global perspective without reference to national borders.

7. Describe the four different system configurations that can be used to support different global strategies.

The four different system configurations are centralized, duplicated, decentralized, and networked. Centralized systems reference systems development and operations that occur totally at the domestic home base. With duplicated systems, systems development occurs totally at the home base, but operations are handed over to autonomous units in foreign locations. With decentralized systems, each foreign unit designs its own, totally unique solutions and systems. With networked systems, systems development and operations occur in an integrated and coordinated fashion across all units.

8. What are the major management issues in developing international systems?

The major management issues in developing international systems are listed in Table 15-4. These issues include agreeing on common user requirements, introducing changes in business processes, coordinating applications development, coordinating software releases, and encouraging local users to support global systems.

9. What are the three principles to follow when organizing the firm for global business?

Three principles to follow when organizing the firm for global business are: 1) organize value-adding activities along lines of comparative advantage; 2) develop and operate systems units at each level of corporate activity; and 3) and establish at world headquarters a single office responsible for development of international systems, a global chief information officer (CIO) position.

10. What are the three steps of a management strategy for developing and implementing global systems?

The three steps are divide, conquer, and appease. First, define the core business process and then identify the core systems to coordinate centrally. Second, choose an approach. Third, make the benefits clear.

11. What is meant by cooptation, and how can it be used in building global systems?

Cooptation is defined as bringing the opposition into the process of designing and implementing the solution without giving up control over the direction and nature of the change. The idea is to find a way whereby local units in transnational companies are brought into the process of building transnational core systems by becoming part of the process rather than by being brought in through raw power. One cooptation approach is to permit each country unit to develop one transnational application first in its home territory, and then throughout the world. Another approach is to develop systems based upon existing centers of excellence. The centers of excellence perform the initial identification and specification of the business process, define the information requirements, perform the business and systems analysis, and accomplish all design and testing. This approach uses a phased rollout strategy.

12. Describe the main technical issues facing global systems.

Hardware, global software, and telecommunications are the main technical issues. Hardware issues arise because the firm needs to standardize the computer hardware platform when there is so much variation from operating unit to operating unit and country to country. Finding applications that are user friendly in an international environment and that truly enhance productivity is a critical software challenge. Making data flow seamlessly across networks shaped by disparate national standards is a major telecommunications challenge.

13. Describe three new technologies that can help firms develop global systems.

DSL, satellite systems, digital cell phones, personal communication services, VPNS, and the Internet are several technologies. Students will identify others.

Application Software Exercise

Students must first be reminded that before coding ever begins, it is the responsibility of the developer to fully understand the task at hand, the company’s needs, and the external business environment. The second step is to plan for the development of the Web database construction. Planning tools include entity relationship diagrams, relational schemas, and dependency diagrams. Once the developer understands and has made plans, then the coding and construction of the Web database can begin. Laudon, Laudon, and Brabston do an excellent job of steering students in the right direction of the understanding step with their questions about data types and exclusion data.

Students are asked to create a database. Most will use Microsoft Access; however some MIS/CIS programs may have SQL Server or Oracle in their programs. If this is the case, you may want to have students work using different database packages and compare the time to build, populate, and mine. The finished result should be a relational database with at least 20 records, and many programs are teaching Macromedia Dreamweaver. The following is a “mockup” of a potential Web menu page for the database system.

[pic]

In an earlier application exercise, students worked with simple Web page creation in Netscape. They may do this again, or you may want to introduce them to other Web creation software. Remind them that simple HTML can be created in notepad. Microsoft FrontPage is an intuitive program that students familiar with Microsoft Word pick up quickly.

[pic]

Group Project

With a group of three or four students, identify an area of information technology and explore how this technology might be useful for supporting global business strategies. For instance, you might choose an area such as digital telecommunications (e.g., e-mail, wireless communications), enterprise systems, collaborative work group software, or the Internet. It will be necessary to choose a business scenario to discuss the technology. You might choose, for instance, an automobile parts franchiser or a financial institution, such as TD Trust. What applications would you make global, what core business processes would you choose, and how would the technology be helpful? If possible, use presentation software to present your findings to the class.

For many companies, staying competitive means they must keep up with emerging technologies. This project should help students think along those lines, as well as orient them toward the emerging relevance of global strategies. This text contains many examples of uses for emerging technologies, including many that can be or are global in scope. Consider open systems architecture to establish a global network, and earlier case studies that discuss the use of artificial intelligence to support such processes as authorizing charges. All are related to telecommunications and can easily be applied globally, and all rely on recently emerging technology. To take an example from the question itself, if the students selected Nygård to explore, they might want to consider the following systems (depending on what technology they were focusing):

• A collaborative work group software product that allows their style experts around the world to work better together to predict (and even partially control) the coming styles. • An e-mail system that their buyers can use for better communications among themselves and with the home office. • A digital network that allows buyers to send instant graphic images to their offices from anywhere in the world so that new opportunities can be taken advantage of immediately. • Point-of-sale systems in stores around the world to better control inventory and allow management to discover trends while they are emerging. • A standardized accounting package to be used in stores around the world to allow consolidation of local financial data in terms meaningful to the home office. In non-North American countries such a system would probably be installed with an automated interface from the local Canadian. accounting system.

Some of these systems may already exist in that company, and the students can easily come up with more. Students should present their answers to the class, explaining the system and its underlying technology. They must be careful to relate the technology to the global strategy and to a business scenario to carry out that strategy.

Case Study – Nestlé Struggles with Enterprise Systems

1. Evaluate Nestlé SA and Nestlé USA by using the competitive forces and value chain models.

Nestlé's decentralized strategy created inefficiencies and extra costs for the company, increasing its vulnerability to external threats. Although Nestlé competes against some heavyweights, one interesting threat is the company's suppliers. Because of its decentralization, Nestlé was unable to leverage its buying power to obtain the best prices for its materials.

The company obviously was not receiving the greatest benefit that it could from its information systems. This was primarily the result of its decentralized strategy. However, Nestlé recognized that it could use technology to better its competitive position. Nestlé decided to standardize and coordinate its information systems and business processes. Specifically, Nestlé wanted to integrate its material, distribution, and accounting applications in the United States, Europe, and Canada. Nestlé is extending its enterprise system to all of its facilities.

2. What were the problems and issues that Nestlé SA faced that caused the company to be so decentralized?

Nestlé allowed each of its local organizations to run its business in its own way, reflecting the local conditions and business cultures. This focus on localization resulted in inefficiencies, inventory mismanagement, extra costs, lack of data sharing, and lack of data integration. Nestlé USA was organized around its brands, and each brand operated independently. Although Nestlé later reorganized itself and brought the brands under the parent American control, its division headquarters were still dispersed. This decentralization approach resulted in 80 different information technology units running 900 IBM AS/400 midrange computers, 15 mainframes, and 200 UNIX systems.

3. Do you think it was appropriate for Nestlé to distribute decision making so widely? Explain your answer.

The distribution of decision making created many problems for Nestlé. These problems included inefficiencies and extra costs, overstock and spoilage, inability to share data among subsidiaries, inability to gauge the effectiveness of its promotional activities, paying different prices for its vanilla, using different names for the same product, having different general ledgers, and having multiple purchasing systems.

4. Why did Nestlé's initial enterprise system project encounter so many problems? What management, organization, and technology factors contributed to those problems?

The Nestlé USA project was trying to bring together 8 or 9 autonomous divisions, and the global headquarters was dealing with more. Integrating the company meant changing the company's culture, people, standard operating procedures, business processes, and politics. One of the biggest problems was the reorganization of the business processes. Another issue was the lack of communication that existed among management, the development team, and the end users. Nestlé SA is moving from decentralized systems to standardize and coordinate the whole company's information systems and business processes. From a technology standpoint, the company must select appropriate hardware, software, and communications technologies. Nestlé USA originally chose to use SAP and Manugistics. Using this software required training Nestlé employees on how to use the software and also required changes to business processes.

5. If you had been in charge of the Nestlé enterprise system project, what could you have done to prevent these problems?

Although Ms. Dunn seemed to understand that the entire business would change as a result of the system integration, she did not go out of her way to make clear the benefits that would be derived from the new systems. She did not function well as a change agent. As the authors point out, when developing a transnational information system architecture, you should agree on common user requirements, introduce changes in business processes, coordinate applications development, coordinate software releases, and encourage local users to support it.

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