Information Technology Management at ZARA - Essay Example

Executive Summary Information technology has been expanding and becoming one of the most important factors of our lives. Similarly for organizations, information technology has been a key driver for generating business. It helps companies to bring in speed & efficiency, perform multi-tasking, and carry out operations at low cost. This research project investigates Zara’s towards the management of information technology. On the basis of the findings, the report will also analyze whether the company should upgrade its existing information technology infrastructure or not. The study reveals that the company remains consistent with its information technology management and also remains focused with its preference for decentralized decision making and speed. Since Zara operates in the retail industry, Information Technology (IT) plays a crucial role in its business activities. Information technology is helping the company to manage queues inside the outlet, control inventory and handle POS-terminals (Point-of-Sale terminal). In addition, IT is playing the all important role in managing Zara’s online store. The report also uncovered that, with the use of information technology, the company has been able to achieve competitive advantage over its competitors. One of the key findings of the study is that, Zara is using outdated software. According to the technical lead of ZARA, the software may be outdates but is highly stable. However it has been identified that any changes in the system configuration by the hardware vendors may negatively impact the company’s POS terminal operation. Therefore to get rid of this issue the report has provided some recommendations to the company. These recommendations comprise of how the company can update its software without affecting the stability and easy-to-understand interface. Table of Contents Introduction 4 ZARA: A brief Synopsis 4 Theory 5 Application of Theory 7 PESTEL Analysis 7 Porter’s 5 Forces 10 SWOT Analysis 11 Results 12 Conclusions 13 Recommendations 13 References 15 Introduction The study is about analysing the most important aspects of Zara’s approach to information technology management. Apart from that the report will also shed light on whether or not these approaches are applicable and appropriate anywhere in the organization. In order to satisfy these objectives, the study will carry out an in-depth analysis of the external business environment of Zara and a brief internal analysis of the company. However the focus will be mainly on the information technology management of the company. Based on the findings, the report will draw a conclusion and provide some recommendations regarding how to improve the productivity of the company. Nevertheless, before getting further deep into the study, a brief overview of Zara is presented below. ZARA: A brief Synopsis Zara is a Spanish company involved in manufacturing and marketing of clothing and accessories. The company is the sister concern of Inditex, which is one of the leading distribution groups of the world. Zara was founded by Amancio Ortega and Rosalía Mera in the year 1975. Presently it is headquartered at Arteixo, Spain. The first store of the company was opened in La Courna. Zara is considered to be one of the largest multinational fashion companies (Zara, 2010a). The major competitors of Zara in the global context are Uniqlo, H&M, Marks & Spencer and United Colors of Benetton. According to reports, the company owns 5,527 stores around the world. Apart from the store operations, it also operates through online platforms. The net sales value of the company in the year 2011 was 13,793, and the operating profit was 3,258 which reflect the company’s financial stability (Inditex, 2011). The company is best known for continuously developing and launching new products. The company comes up with a number of innovative designs each year, which helps them to compete in the market. According to the CEO of the company, Zara’s business idea is very much straightforward. The primary objective is to make a link between manufacturing and demand of the customers; and also to link distribution with the manufacturing process (Mcafee, Dessain and Sjoman, 2007). One of the strong points of the company is that it gives equal attention to each department. Now, in the context of its information system and technology department, the company remains very much consistent in maintaining speed and accuracy of the systems. However, interestingly the company did not have any official Chief Information Officer (CIO) or any standard procedure to set budgets pertaining to information technology. In addition, there are hardly any processes based on which Zara makes investment decision. The current study is about identifying the most important aspects of Zara’s approach to information technology management. Apart from that, the current study also deals with the issue of whether or not the company should upgrade its existing technical infrastructure. Theory In order to satisfy the objectives, the study will perform an in-depth external and internal business environment analysis of the company. While doing so, tools such as PESTEL framework, Porter’s five forces model and value chain analysis will be used. PESTEL analysis is a strategic management tool, which is employed by companies to gain insights into the external business environment of a country. It helps companies to understand the political, legal, social, technological, environmental and economical factors of the target nation (Henry, 2008). On the other hand Porter’s five forces model is used by the companies to gain knowledge about the industry (Porter, 1985). Zara is a Spanish clothes retailing company. Therefore, with the help of Porter’s five forces framework, the retail clothing industry of Spain will be analysed. Lastly, the SWOT analysis is carried out by an organisation to assess the strengths and weaknesses internal to the organisation and opportunities and threats presented by the external environment of the organisation. Now, the primary rationale behind performing these analyses is to gain insights into the business environment of Zara. Moreover, the prime criterion is to determine whether better information technology can provide competitive advantage to the company. Also it is imperative to know, how the changes in the business environments are actually having an impact on the company’s IT strategy. Application of Theory This section of the study will put into practise all the aforementioned analytical tools to understand the business environment of Spain and also the internal environment of the company. In addition, with the help of PESTEL analysis, the study will assess how the company’s approach towards information technology is getting impacted by the changes in the external environmental factors PESTEL Analysis . Political Factor: - The political factors of a country play an important role in shaping the future of a clothing company due to the high control of government on apparel products (Kleindl, 2006). The Spanish government is in a highly stable state and the country also encourages the domestic companies to increase productivity. Hence, with a stable political scenario and less interference of the government, the company’s information technology infrastructure does not get affected. Economical Factor: - The economic aspect of a country acts as a critical factor for the growth and development of a business. Similarly, for the apparel industry economic stability is vital. The GDP of Spain is $1.49 Trillion and the per capita income is 31,943. Hence, the country is economically stable. Furthermore, according to sources the disposable income is also high (The World Bank, 2012). Thus, the stability in the economic condition reflects that consumers have a high buying power and hence would like to use technology for convenience. Social Factor: - According to Nybo and Lama (2010), society is the most important factor for any business to prosper. The significance of society is even more in the apparel industry. The total population of Spain is 47,042,984 and the major religions are Roman Catholic (94%) and others (6%). Moreover, with a 97.7% literacy rate it is expected that the consumers will be looking for high end technologies. Technological Factors: - In order to successfully carry out a business, it is important to have a strong technical infrastructure (The Wall Street Journal, 2001). In the context of an apparel retail company, technology plays a major role in queue management, inventory management, POS-terminals (Point-of-Sale terminal) and also managing the online sales channels. In the context of Zara, technology is also of a similar importance. The company gives high importance to decentralized decision making and speed in the operation process with the implementation of information systems. Moreover, the company also looks after the opportunities of implementing new and improved technologies to satisfy the needs of the customers. Figure 1 – POS terminal of Zara Environmental Factors: - Environmental factors are of high significance to any kind of business (Williams, Champion and Hall, 2011). The weather pattern and climatic conditions plays a crucial role in the success of apparel industry. In some parts of Spain, the weather remains cool throughout the year and hence demand for woollen garments can be high. Legal Factors: - The legal factors of a country such as custom duties, tax structure and legal regulation play a crucial role in the success of a company. The country has a well defined tax structure and legal frameworks and so it offers a favourable business to Zara. Porter’s 5 Forces Bargaining Power of Buyers: - The bargaining power of the buyers in the apparel retail industry of Spain is low due to limited a number of apparel retail players. Moreover, the existing players such as Zara, has a large number of loyal customers. This factor further reduces the bargaining power of the buyers. Bargaining Power of Suppliers: - The suppliers are some other companies which provide raw materials to the client companies. However, the suppliers are in general small or medium sized companies. In this context, the suppliers of an apparel retailing industry are apparel manufacturers and wholesalers. In Spain the suppliers of apparel products are large in numbers. Moreover, with the opening up of world economy, retailing companies are also considering importing from other countries. These activities are making the bargaining power low. Threat of New Entrants: - Threat of a new entrant can be regarded as the possibility of new companies entering the industry and increasing the intensity of competition. In order to enter the apparel retail industry of Spain, a company needs to invest huge amounts of money and even has to face the large entry barriers created by the existing companies. Threat of Substitutes: - The substitutes perform the similar function as the product. However in case of apparel products, there is hardly any alternative, but to some extent online clothes retailing companies can be cited as the substitutes. Hence the threats of substitutes are low. Existing Rivalry: - In Spain, the rivalry among the existing players of the apparel retailing companies is high. The reason behind this increasing rivalry is the large number of competitors. Therefore from an overall viewpoint the intensity of existing competition is high. SWOT Analysis The SWOT analysis of Zara is presented below: - Strengths The company has its presence in almost every part of the world and has a good market reputation. It targets all the age groups of the society. The company has a well defined animal welfare and environmental policy (Zara, 2010b). Wide range of products and services. The company also has a strong network of distributors. Weaknesses The production system of the company is centralized and therefore at times fails to match up with the ongoing trends. The information technology of the company is outdated and may cause difficulties in the future (Economist, 20005). The company undertakes less promotional activities. Opportunities The company can enter in the unexplored markets of the world, from where they can earn more revenue and cater to a wider customer base. The company also has the opportunity to initiate online sales. Threats The biggest threat of the company is the intense rivalry within the existing players. The economic downturn, which has negatively impacted the disposable income of the people, can also act as a threat to the company. Apparel retail industry is characterised by high customer switching. Results The study of the external and internal environment of the company revealed that Zara is currently operating in a favourable business environment. However, the company is facing certain challenges in the form of severe competition and high customer switching. In the context of the IT strategy, the company is currently using outdated software which may affect the customer service in the near future. The primary cause of sticking with the existing software is its high stability. However, changes in the configuration by the hardware vendors may severely impact the company’s current POS-terminal. Hence from the findings, it is absolutely clear that the company approaches to information technology is dependent on the convenience of usage and not on the ongoing trends. Conclusions The study was about the most important aspect of Zara’s approach to information technology management. In this context the study revealed that Zara mostly focuses on the stability of the information technology, rather than the ongoing trends. The study also pointed out the fact that the present POS- terminal software of the company is outdated and does not embrace certain features. Nevertheless, there are hardly any complaints about the application. This is the reason why the company wants to stick with its existing software. However, this approach is not applicable and appropriate anywhere. For example, the company cannot implement the similar approach for its product manufacturing strategy, as continuing with the same product line will reduce company sales figures greatly. Recommendations The recommendations to the company are as follows: - Although, the software used by the company is stable, an important feature such as inventory tracking is absent. Therefore, it is highly recommended that the company should upgrade its current software, keeping the existing features, interface and stability. The company should also focus more on the company’s online channel. As e-shopping is one of the fastest growing trends and the company can get highly benefitted by it. References Economist, 2005. The future of fast fashion. [online] Available at: < http://www.economist.com/node/4086117> [Accessed 01 February 2013]. Henry, A., 2008. Understanding Strategic Management. Oxford: Oxford University Press. Inditex, 2011. Inditex: Annual Report 2011. [pdf] Available at: [Accessed 01 February 2013]. Kleindl, B., 2006. International Marketing. Connecticut: Cengage Learning. Mcafee, A., Dessain, V., and Sjoman, A., 2007. Zara: IT for Fast Fashion. [pdf] Available at: [Accessed 01 February 2013]. Nybo, S., and Lama, D. 2010. Be generous and prosper: Reflections on how you can save the world. Copenhagen: BoD – Books on Demand. Porter, M. E., 1985. Competitive Strategy. New York: Free Press. The Wall Street Journal, 2001. E-Commerce: An e-Book Special Report. New York: Simon and Schuster. The World Bank, 2012. GDP per capita (current US$). [online] Available at: [Accessed 01 February 2013]. Williams, C., Champion, T., and Hall, I., 2011. MGMT. Connecticut: Cengage Learning. Zara, 2010. Company. [online] Available at: < http://www.zara.com/webapp/wcs/stores/servlet/category/us/en/zara-nam-S2013/11112/Company> [Accessed 01 February 2013]. Zara, 2010b. Campaigns. [online] Available at: < http://www.zara.com/webapp/wcs/stores/servlet/category/us/en/zara-nam-S2013/362003/Campaign> [Accessed 01 February 2013]. Read More