1. Is Zara’s use of IT different from similar firms?
First, I would like to highlight Zara’s business model and their business practices which are different from its competitors, from which I will draw comparison on use of IT among these firms. Zara’s business model and business idea are different from many of its peers. As mentioned in the case – “The original business idea was very simple. Link customer demand to manufacturing and link manufacturing to distribution. That is the idea we still live by”.
Accordingly, there are three major differences in practices can be seen from its competitors.
a) Zara believes that their target customers’ tastes in clothing are hard to influence. Accordingly, Zara wanted to be able to produce and deliver styles which are hot rather than relying on persuasiveness of marketing.
b) Zara’s collections were not conceptualized and designed by a small, elite team. Instead, collections were created, by teams of commercials each dedicated to a section of store.
c) Zara did virtually no advertising. Thus the marketing expenditures as percentage of revenue are very low compared to its competitors.
Zara’s approach to Information technology is consistent with its preferences for speed and decentralized decision making. Zara is using IT to have better linkages across the value chain – both internal and external. It has applications to prepare offers and to distribute it to stores, to receive orders and aggregate them, to keep track of ‘theoretical inventory’, to plan production, and to track SKU’s at the DC’s.
Most of the applications were developed in-house. There was no CIO and no formal processes for setting an IT budget. And according to the foot notes provided, Inditex’s 2002 IT spending is approximately 0.5% of annual revenue compared to average of 2% at other large retailers. Similarly, IT employees accounted for less than 0.5% of total workforce compared to average of 2.5% workforce devoted to IT at other large retailers. These show that even though Zara has used IT to deliver value to customers, its use of IT is tailored to match its business idea and business practices, and thus it is different from use of IT at other retailers or similar firms. Also, Zara doesn’t sell clothes over Internet where as its competitors Gap and H&M are into online retailing.
2) Does Zara have an IT strategy?
What is an IT strategy? – is a particular generation of an organization’s overall objective(s), principles and tactics relating to the technologies that the organization uses. Such strategies primarily focus on the technologies themselves and in some cases the people who directly manage those technologies. The strategy can be implied from the organization’s behaviours towards technology decisions.
The Information systems strategy should define ‘what’ the business needs for the foreseeable future, based on an analysis of the business, its environment and the general business strategy. An Information technology strategy defines ‘how’ the needs will be met based on the priorities in the IS strategy.
Zara has used IT extensively to deliver value to its customers. It has got many applications developed to match its business needs. Its IT infrastructure worked well for long time. But as mentioned in the case, the company had no chief information officer and no formal processes for setting an IT budget or deciding on specific technology investment or projects. Instead, head of IT and CEO were part of early discussion of initiatives. There was no formal justification for IT efforts, nor were cost/benefit analyses for proposed efforts. The Point-of Sales units are over 10 years old and use DOS-based operating system. The inventory count has to be done physically; also they can’t communicate in real-time with other stores. As mentioned in the case, Zara doesn’t sell clothes over Internet because the company’s distribution centers were not configures for picking small orders and shipping them. This shows that the systems decided their business strategy instead of other way. Thus I believe that Zara doesn’t have a long term IT strategy.
3) Should Zara upgrade?
Improved reaction time to trends, quicker responses to store inventory levels, strengthened competitive advantages and more effective communication are some of the benefits which can come from up gradation.
If we look at current use, Zara’s POS terminals are being run on a DOS based system, which is not supported anymore. The current practices put importance on human intervention – intuitive analysis, forecasting via commercials and decentralized decision making. But if we look at the business idea, it places a huge importance on rapid response to trend-influenced customer demand and relies on no advertising.
So I recommend that Zara should upgrade. So far the system has worked very well, but it cannot afford to be left behind in the technology application in the industry. It was mentioned that the POS vendors wouldn’t sign contract promising compatibility. It has threat of losing market share since the other retailers have real time communication. With evolution of technology, modern operating systems and internet connections are no longer luxuries, but are necessary for survival and growth. By upgrading technology, the feedback loop can be improved and Zara can have more accurate inventory numbers on which to base judgements.