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Zara: IT for Fast Fashion This case is part of the course Managing in the Information Age (MIA) at Harvard

Business School.

Managing in Infor ation Age IT !ategories

IT Category Function IT (FIT)

"efinition IT that assists e$ecution of discrete function or tas%

#$a ple Si ulators Spreadsheets !A"&!AM soft'are Statistical soft'are #nterprise *esource +lanning (#*+) s)ste s Suppl) chain anage ent (S!M) s)ste s !usto er *elationship Manage ent (!*M) s)ste s Sourcing&procure ent soft'are

#nterprise IT (#IT)

IT that integrates ultiple functions () i posing ne' 'or% structure

,et'or% IT (,IT)

IT that integrates ultiple functions 'ithout i posing ne' 'or% structure

#- ail Instant essaging .i%is Social Media

#IT !apa(ilities:

"esign and redesign of (usiness processes/ Standardi0ation of 'or%flo's across an ar(itraril) large 1footprint2/ Monitoring of activities and events3 often in so ething close to real ti e.

!o ple ents: 1!o ple ents2 and 1'or% structure2 are s)non) ous. !o ple ents to IT are organi0ational. The) are changes in organi0ations4 configurations that a$i i0e the positive i pact of the ne' technolog). *esponsi(ilities:

Selecting IT (ased on desired capa(ilities. Adopting the ne' technolog) () putting in place appropriate co ple ents. Adoption is defined as preparing (oth the technolog) and the organi0ation (efore the 1go live2 date. #$ploiting technologies once the)4re up and running to delivered. a$i i0e the capa(ilities

1. What are the important points to be summarized using one or one and half pages? (Comment: This section should serve as an introduction to the entire case. Avoid being too specific about any details. However, their ma or products, typical features, and the issue under discussion should be briefed.) Zara is a large chain of stores run () Indite$3 a ultinational clothing retailer and anufacturer. For closel) %nitted clothing-industr)3

Zara anage ent 'anted to integrate the retail and anufacturing unit of the (usiness for Zara future successful turn-around. To assi ilate the retail re5uire ent 'ith anufacturing units3 Zara criticall) needed a net'or% of co puters3 'hich fills the gap and helps the (usiness onto an effective and successful path. Through Indite$3 Zara opened a chain of retail store outlets supported () the internall) o'ned suppliers. These retail stores are located in (us) pri e retail districts and (est %no'n streets of a to'n. All the inventories in a retail store are geographicall) (ased3 in others 'ords3 the clothes availa(le in each store are different and ost locall) popular. The a6or issue under de(ase 'ithin Zara anage ent ) 'as 'hether to upgrade the +7S ter inals 'hich ran on "7S3 an outdated soft'are. The +7S 'as sta(le (ut e$ecutives 'ithin the co pan) 'ere concerned that their hard'are vendors could upgrade their achines or so e peripheral soon3 so that the) 'ould not (e "7Sco pati(le an) ore. 2. Please analyze the business model and the major strategies at Zara. Business Model 8 9erticall) Integrated *etailer in apparel industr)3 lin%ing custo er de and to anufacturing3 and lin% anufacturing to distri(ution and to retailing (usiness. Their goal is to respond 5uic%l) to ar%et de ands 'hich are al'a)s changing.

Ma6or (usiness strategies at Zara include Speed 8 :uic%l) respond to the de ands of target custo ers ()oung3 fashionconscious cit) d'ellers). ;se <IT anufacturing philosoph) to eet fast changing fashion ar%et de and and trends. This strateg) is to ti e fashion trends and stri%e 'hile a trend is hot3 and not (e stuc% 'ith inventor) 'hen it dies off. "ecentrali0ed "ecision Ma%ing 8 !entrali0ed at =a !oruna () a group of co ercials ade up of store product anagers3 (ut decentrali0ed 'ithin functional groups. Those centrall) located store product anagers served as the ain interface (et'een centrall) located design tea s and Zara stores around the 'orld. The) could initiate store-to-store transfers 'hen gar ents selling slo'l) in one area 'ere popular in another. #ach design tea of 1co ercials2 consisted of t'o designers and t'o product anagers3 dedicated to a section of the store (Men3 .o en3 or !hildren). Those tea s purchased aterial3 placed production orders 'ith the factories3 and set prices for retail stores. Zara relied on those tea s to decide on the fashion trends. 7ther e plo)ees 'ithin the co ercial function also e$ercised a great deal of autono ). The) decided 'hich clothes each store 'ould (e a(le to order. .hen total orders fro stores e$ceeded availa(ilit) for an ite in an) period3 co ercials decided 'hich stores 'ould get clothes and 'hich 'ould not. ,o Advertising Mar%eting Strateg) 8 =o' ar%eting e$penditures of >.?@ on average. Zara spent relativel) heavil) on its stores to drive (usiness. These retail

stores 'ere al'a)s located in a cit)4s pri e retail district3 often on the (est-%no'n street. Store la)outs 'ere co pletel) changed ever) four to five )ears3 'ith art'or%3 'indo' displa)s3 and sales rac%s changed ore fre5uentl). All ne' store la)outs 'ere designed and tested in =a !oruna3 (efore (eing rolled out around the 'orld. Fashion "esign Strateg) 8 =o' cost3 fast turnaround of trends. *esponsive to instant changes ,o staple fashions (classics). +roduce high fashion product in li ited production runs 'ith short life span. +roduct anagers 'ere encouraged fre5uent repeat visits to store to see 'hat4s ne'. ,o elite designers. ;tili0e tea concept in design3 pairing product anagers and creative designers in groups of four to strea line the design process. IT Manage ent Strateg) - ,o traditional IT depart ent. ;tili0e technolog) that is si ple3 cost-effective and eas) to use for the co pan) and does not re5uire a lot of IT support. This strateg) had supported Zara operations up to this point3 (ut as the technolog) (eca e o(solete3 and ne' technolog) changes adopted () the co petitors3 the issue 'as to a%e their IT sta) in line 'ith the strategies detailed a(ove. +lease thin%: Ho' 'ell is Zara4s (usiness to ensure a continuous gro'thA odel 'or%ingA Ho' scala(le is this odel

. What is Porter!s firm"based #alue $hain model? Why use this model in this $ase analysis? The +orter4s fir -(ased value chain odel is a se5uence of internal activities of a co pan) involved in creation3 anufacturing3 and distri(ution of the co pan)4s products and services. These activities are differentiated into t'o t)pes: pri ar) activities and secondar) activities. The pri ar) activities are pertaining to the co pan)4s core co petencies of producing the good and services. Secondar) activities are supportive of the pri ar) activities. This value chain is a hori0ontal vie' of a fir 'ith a process-product perspective versus a depart ent vie' of the fir . The co pan)4s surviva(ilit) depends on the effectiveness of perfor ing these activities. The (usiness processes of a co pan) are usuall) co ple$. The use of +orter4s fir (ased value helps an anal)st to (rea% do'n the processes into s all value-added activities for (etter understanding. 9alue chain anal)sis helps a co pan) to find areas of 'ea%ness and ineffectiveness for a%ing i prove ents3 for the purpose of strengthening the co pan)4s co petitiveness and profita(ilit)/ (etter understanding of the fir -(ased value chain also helps to identif) areas 'here IT can (e i ple ented to i prove perfor ance e$cellence.

%. What is the #alue $hain model at Zara? What is the de$ision"ma&ing stru$ture at Zara?

Support Activities: (#as) to find in the case) +ri ar) Activities: (#as) to find in the case. Starting on page B) "ecision- a%ing structure: #$hi(it C> and IT part of the case (page D) gives details. Both a diagra and te$t e$planations are re5uired in the paper.

(9ersion C) The pri ar) activities at Zara co prised ordering3 fulfill ent3 design and anufacturing. It is interesting to note that of these processes3 ordering 'as the ost regular3 precisel) defined3 and standardi0ed around the 'orld. The decision- a%ing structure is flat (ecause each store anager has the discretion of 'hat gar ents 'ould (e on sale instead of rel)ing solel) on head5uarters directive. Further ore3 even lo' level e plo)ee ideas are integrated into the decision a%ing of each store. Managers are dependent on the input of the e plo)ees in order to create an aggregated for (eing an order that gets sent (ac% to the head5uarters. This t)pe of structure is i perative to Zara due to the fast paced changes that occur in the fashion industr). (9ersion E) Zara4s decision a%ing is decentrali0ed and individual store anagers are allo'ed to select inventor) for their individual stores. This allo's Zara to respond 5uic%l) to changing ar%et trends and eet the needs of custo ers. Store la)out design is centrali0ed in the head office/ after la)outs are deter ined3 the stores are (uilt according to the approved design. "esign decision is the responsi(ilit) of each tea of 1co ercials2 that forecast product sales on ne' ideas and i ple ent the . '. What (ere the needs in terms of fun$tional area) pro$ess) and de$ision le#els for I*+IT implementation at Zara? ,Information Te$hnology on page -. (evidence C) ;nrelia(le fa$ achines3 CB eter long inventor) re5uests3 inefficient inventor) control process3 disconnect (et'een the stores 'orld'ide and corporate office in Spain. (evidence E) "!4s relied on auto ation and co puteri0ation3 ho'ever3 the stores did not. (evidence ?) +7S ter inals and +"As could not share infor ation 'ithin a store or across stores/ specificall)3 inventor) could not (e shared (et'een stores to eet locali0ed de and if "! could not deliver in ti e.

(evidence F) 7utdated IT infrastructure - Flopp) discs still used in stores instead of odern da) technolog) to increase efficienc) and accurac). "7S 'as still in use and no longer supported. .hile the factories do have high tech achines for cutting the aterial3 there is no

sophisticated 'a) of scheduling. The distri(ution heavil) relies on people4s 'or%3 'ithout an) help of IT &IS. =astl)3 the stores are opened () inserting floppies3 and inventories are counted () records and orders are co anagers 'al%ing dail) around the store. Also3 the sales unicated () phone instead of using e ails or so e %ind issing a chief infor ation officer3 for al

of internal s)ste . Zara lac%ed a significant level of infrastructure and organi0ation in the IS&IT area. The co pan) 'as processes for IT (udgets3 and invest ents for strategies and IT pro6ects. Theoreticall) spea%ing3 Zara had an outdated (usiness process and i ple entation 'ithin their operations (IS&IT). The decisions for facilitating IT&IS infrastructure 'ere perfor ed internall) through develop ent of soft'are and applications. There 'as ver) li ited effort in appl)ing ne' IS&IT to the co pan) operations. In )our paper3 please use the provided ta(le structure at the class 'e(site. /. Please e#aluate the effe$ti#eness of I* implementation in support of a spe$ifi$ strategy or for operational problem sol#ing at Zara by $onsidering the tangible and intangible $osts and benefits of the implementation. ,Information Te$hnology on page -. Zara 'as a co pan) that follo'ed a ver) #uropean (usiness odel to so e e$tent. Zara preferred to invest internall) 'ithin its o'n soft'are develop ent rather than (u)ing ne' technolog) developed () e$ternal co panies. A perfect e$a ple of Zara4s (usiness solvenc) and accurac) 'as their inventor) control. Theoretical inventor) 'ould (e inaccurate due to several factors and e$ternalities. The co pan) follo'ed the GB percent accurac) rule is good enough. The greatl) outdated "7S s)ste 3 'hich Zara 'as operating in for decades3 stopped (eing supported () the vendor. At this point Zara does not have a relia(le s)ste 'hich 'ould support future planning3 'hatsoever. ,ot %eeping up an) historical data eans (eing una(le to predict an) sells3 plan or esti ate loses & gains and argins on particular designs. 7ne of the greatest costs of this operating s)ste is a stressful 'or% environ ent3 'hich could (e easil) resolved () adding IT&IS support. The cost of developing a ne' s)ste 'ould (e 5uic%l) offset () the (enefit of getting 'or% done ore efficientl) and accuratel). Telephones are less relia(le than co puters due to 'or%ers ista%es3 such as (asic pro(le s of ishearing and isunderstanding.

Zara needs to i ple ent spread sheets3 e ails3 and other %ind of co trans itting data features.

unicating and

Zara has (een successful3 (ut there is a lot of roo for i prove ent. The vision of i ple enting accurac) is ore cost effective 'ithout significant distortion of the revenue. Moreover3 these ad6ust ents 'ould unite the co pan)3 i prove internal integration3 and help esta(lish Zara as a long ter leader in the industr). In )our paper3 )ou have to anal)0e the i ple entation effectiveness using tangi(le and intangi(le costs and (enefits list provided at the class 'e(site. -. Was the I*+IT implementation a good mat$h to the business needs? What (ere the $urrent and potential problems (hi$h need a system upgrade?

Zara4s internall) developed application is not a good (ecause of the follo'ing:

atch for the (usiness needs

a. Zara is a rapidl) gro'ing co pan) 'ith a s all IT depart ent and in-house application develop ent 'ill use needed IT&IS resources. Zara4s IT depart ent 'as five ti es s aller than that of the industr) average. (. Internall) developed applications are difficult to upgrade and not co pati(le to other applications. Although3 'ithin the uni5ue situation at Zara the) felt that (ecause of their uni5ue (usiness strateg) that co ercial applications 'ould not (e suita(le for their needs. An e$a ple of one issue the) 'as faced 'ith 'as the need to perfor accounting practices in ultiple countries and currencies. c. Zara needs to upgrade their +7S ter inals as 'ell as the supporting soft'are to ensure that there is no ore infrastructure pro(le . If their ter inal a%er changed hard'are3 Zara 'ould (e on an updated s)ste to cope 'ith anticipated changes. d. Zara 'as not prepared for online and digital sales. In the current ar%et3 eco erce is (eco ing an essential part of toda)4s (usiness co petition.

0. 1our re$ommendation,s. for the system upgrade at Zara. Please pro#ide a sound rationale based on literature re#ie( and other e#iden$es. Please also pro#ide an a$tion plan. Student ans'ers var). Here are three e$a ples:

Zara should consider upgrading its "7S (ased +oint-of-Sale (+7S) s)ste to IntuitH+ *etail Solution3 the industr)-proven soft'are. This solution is ore sophisticated than a cash register and ore dura(le than a +!. In addition to (eing a cash register3 the Intuit-H+ *etail Solution could provide Zara a ro(ust solution to also trac% custo ers3 anage inventor)3 and get (usiness insights. These are the issing capa(ilities of the current "7S +7S that put Zara at a disadvantage co pared to its co petitors. As Salgado had pointed out3 the store anagers are increasing re5uesting the a(ilit) to loo% up inventor) (alances in their stores and other stores. In addition to "7S not (eing supported () Microsoft3 ost of the current +7S s)ste 'as 'ritten () onl) Sanche0. Therefore3 it put Zara4s (usiness continuit) at high ris% depending on Sanche0 and his %no'ledge. The Intuit-H+ *etail Solution co es co plete 'ith: H+Hs +oint of Sale S)ste 3 onitor3 ;SB %e)(oard and ouse3 *eceipt +rinter3 !redit !ard *eader3 !ash "ra'er3 Barcode Scanner3 and Intuit +oint of Sale soft'are. To upgrade Zara4s current +7S s)ste 3 Zara should %eep the old +7S s)ste running until the ne' s)ste is read) for cut-over. The first plan is to upgrade the Infor ation Infrastructure to support the ne' s)ste . Zara ust first upgrade its co pan)4s net'or% infrastructure fro ode (ased to (road(and (ased. Zara ust ensure the net'or% connectivit) is availa(le at ever) store. 7nce the net'or% infrastructure is in place3 Zara should contract 'ith Intuit-H+ professional services to install the IntuitH+ *etail Solution and necessar) servers at its head5uarter first. The installation contract should also entail training sessions and aterials for the users at head5uarter. .hen the i ple entation at the head5uarter is co pleted3 the ne' +7S and training should (e deplo)ed the local stores. .hen all the stores get their ne' +7S and all e plo)ees are properl) trained3 'ith the support of Intuit-H+ professional service3 Zara should perfor a dr)-run or integration testing of the solution after-hour to iron out so e final glitches or process issues. ;pon the co pletion of the integration testing3 Zara could decide on a cut-over da) 'here Zara stores s'itched to the ne' s)ste and old data (eing igrated to the ne' data(ase. The old +7S s)ste should still (e %ept for a short period of ti e after the cut-over to a%e sure the ne' s)ste running s oothl) prior to full) (e shut do'n per anentl). Zara should consider i ple enting SA+. SA+ is currentl) the leader in financial application and ver) co pati(le 'ith ost co onl) used applications in industr). SA+ can run on .indo's or ;,II and can (e applied to their +7S ter inals. SA+ application has relia(le tech support and installation tea availa(le at the ti e of purchase. SA+ is a co plete industrial suite providing the capa(ilit) to anage financial3 asset3 cost accounting3 production operations and aterials3 H*3 plant and records anage ent.

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