Reference no: EM133211

QUESTION 1

Interpret the CASE study underneath and answer to the questions that follow

United Parcel Service throughout the 1990's, United Parcel Service (UPS) grew from a $14 billion package delivery business to a $30 billion global enterprise activity offering international shipping, logistics, financial, and linked services. UPS administration adopted a strategy of "enabling global commerce" which combined the physical movement of goods with the movement of information and resources (capital). As it entered the 21st century, the firm planned (decide) to drive deeper into its customer's bring in chain.

Fortune Magazine named UPS as both America's and the World's well-liked mail, package and freight delivery company in 2000 and by Forbes magazine as the company of the year. Increasingly UPS was gathering the benefits of IT capabilities that generated efficiencies in the firm's core operations and produced opportunities for new adjacent lines of business. Eskew, the Vice Chairman and incoming CEO, intended to further add on influence the firm's information technology capabilities to grow the company, as he prepared to take over the CEO role from James Kelly in January 2002.
The UPS growth strategy incorporated both expansion in its core small package delivery business and entry into new markets. Both efforts leveraged existing competencies and exterior acquisitions and alliances.

In the core business, UPS expanded its existing product and customer service offerings. Extension to the core built-in offering existing U.S based services to a new geography or the introduction of new services such as Guaranteed Ground. External lean-to to the core included alliances with SAP and Oracle to include UPS functionality in their software packages and the acquisitions of Mail Boxes Etc® to provide 4,400 retail locations to sell UPS services.

UPS moved into what management called "adjacent businesses" which led to the manufacture of subsidiaries. Through its strategy and corporate development organisations, UPS piloted small scale initiatives. Those that proved successful were developed into subsidiary units. The higher risk initiatives regularly involved investment in new technologies - either externally or through internal development that had the potential for long term impact on UPS.

Until the mid 1980s, UPS offered a single package delivery service at a single price to all customers. Spurred by competition from Federal Express, Roadway Package System (RPS) and others, and by the opportunities to exploit excess capacity in the delivery network, UPS began to broaden its manufactured goods offerings and customer services. UPS lengthened its set of products by introducing Time Definite Services, offering air and ground shipment with delivery times such as UPS Next Day Air®, UPS Next Day Early AM® , UPS 2nd Day Air® and UPS 3 Day Select®. In non-U.S. markets, UPS accelerated its expansion by shifting from an organic growth model to an acquisitions and partnering strategy. This strategy was executed in two parts. First, UPS expanded country-to-country delivery services by acquiring regional players and partnering with local companies. Then, UPS began to acquire local companies with target foreign companies to replicate in domestic delivery business.

In addition to product extension, UPS developed multiple channels for reaching its customers. Customers were able to schedule pickup and track package movement through call centres, the Web, and electronic connections to client shipping systems. Mobile devices, such as PDAs, could be used to track packages. UPS also began to integrate deeper into customer business processes by developing grouping with software companies such as SAP and Oracle to provide interfaces to UPS functionality within their enterprise systems. Parallel with efforts to increase revenues, UPS realised operational efficiency gains. For example, the company optimised its ground and air transportation networks to deliver packages via the most cost-effective means. UPS automated manual operations in all areas of the business, such as driver reporting processes, package sorting, customer support and back office functions (accounting, billing, payroll).

Management believed that appropriate "adjacent businesses" and important new technologies offered significant opportunities for long-term growth. By 2001, the company launched seven subsidiary units. UPS's entry into logistics and financial services were illustrative of the opportunities and challenges that the firm encountered in new markets.
UPS founded its logistics group in 1995, combining several small, home-grown operations and acquiring several companies that provided geographic coverage or specific capabilities. The logistics business grew rapidly, achieving over $ 1 billion in revenues in 2000.

To achieve high growth, UPS Logistics was entrepreneurial in selling its services, capturing customers across multiple industries and performing broad number of customer-focussed services. For example, UPS reconfigured the outbound distribution of finished goods of a major manufacturer from facilities to retail outlets and implemented a customised tracking system to lessen delivery time. For Samsung Electronics, UPS had arranged to design and manage the entire global chain, including design and implementation of a global technology infrastructure.

UPS also developed a service parts logistics business to rapidly deliver parts to high tech customers and, in some cases perform minor repairs. In each industry it served, UPS Logistics would learn the specific requirements of the business through a core customer, investing significant resources to integrate into the customer's systems and connecting to its external suppliers and clients. UPS would then leverage its experience and existing systems into attracting additional customers within the industry. UPS Logistics identified three logistics processes in customer firms i) pre-manufacturing: managing raw materials movement into manufacturing facilities ii) post-manufacturing: managing finished goods from manufacturing facility to distribution centers to end-customers; and iii) reverse and spare parts logistics: managed returned goods and spares parts inventories for post-sale service. Initially, UPS developed capabilities in the post-manufacturing and reverse logistics processes, as they were most adjacent to the core business.

Founded in 1998, UPS Capital offered traditional commercial finance products such as insurance on packages deliveries and expedited C.O.D payments. UPS Capital offered asset-based lending and import/ export finance solutions to strengthen the UPS Logistics offering. UPS Capital believed that bundling financial services with package delivery and logistics services would present a compelling customer offering that financial services firms could not match. In addition, leveraging aggregate data trends collected by the core and logistics businesses would provide a distinct informational advantage that would allow UPS Capital to better manage risk and price products.

Technology played a critical role in UPS's growth. Between 1986 to 1996, UPS invested more than $11 million in information technology, building a massive infrastructure of telecommunications networks, data processing facilities, and application portfolios to support package tracking, airline management and business operations. Convinced of the importance of moving aggressively on IT, senior management gave the IT organisation the freedom to build infrastructure with a long term view and prioritised IT projects in some instances without detailed business cases. While the initial impetus for the UPS technology investment was to develop a package tracking capability to compete with Federal Express and RPS, the technology infrastructure that UPS led to process improvements and product extensions in the core business. A shipping label imaging system developed in the early 1990's represented the firm's initial foray into package tracking. In parallel, the firm was investigating a tool to electronically collect package data that would make the imaging system obsolete within three years. UPS rolled out the Delivery Information Acquisition Device (DIAD) primarily to collect delivery information, including collecting customer signatures on commercial deliveries, and records of delivery (e.g. back door, front door, garage) for residential delivery.

A Package Level Detail (PLD) program was developed and same contained all of package shipping information such as sender and consignee data, product data, package contents and data required for international shipping, including information about its value and purpose. PLD provided end to end (i.e. pickup, sorting, feeds and delivery) real time tracking and tracing information which UPS made available to its customers via multiple peripheral devices (e.g. telephone, web, PDA and shipping systems).

Over time UPS realised many benefits from PLD, including service line extensions such as guaranteed delivery. In 1999, UPS initiated the development of Production Flow System (PFS), providing the next generation of PLD, and allowing UPS to continue to improve the efficiency of operations. PFS enabled UPS to use pre-loaded PLD to configure expected flow and tracking information. PFS could then generate intelligent package loading instructions and optimise driver route scheduling.

As technology became an integral part of UPS business, ensuring highly reliable and scalable systems for running its high transaction volumes became a priority for the IT organisation. Towards this purpose UPS emphasised centralisation and standardisation of IT in the organisation. The architecture in place also had to accommodate non-standard technologies as UPS acquired companies to build the international business. Through these acquisitions, UPS inherited applications developed outside the core architecture. While UPS developed new core systems and modified existing core applications to support non-USA markets, UPS maintained and operated the acquired systems. Over time, non-standard technologies were replaced and the acquired ones were integrated into the core architecture. Unlike the core's centralised approach to IT, the subsidiary managed IT in a highly decentralised manner. Each subsidiary unit has its own CIO, who led an IT organisation composed mostly of application development staff. Subsidiary managers felt that decentralisation was necessary to be responsive and flexible in support of their entrepreneurial initiatives.

UPS Logistics purchased and integrated third party supply chain applications to develop its offerings. Despite limiting its scope by focussing on serving a select set of industries, customisation requirements within each industry for each client let a proliferation of solutions. Logistics managers found that systems built for one purpose often did not translate well to the needs of another.
Overtime, UPS Logistics found itself supporting multiple software packages for each supply chain component, such as warehouse management systems, that catered to specific industry requirements or individual customer needs. Minimising on the number of supported technologies would allow UPS to take advantage of scale and increase profits.

To get products to market quickly, UPS Capital initially partnered with other financial institutions or technology companies to gain access to financial product applications and back end processing capabilities. Over time, UPS Capital business needs and strategy became more defined and began to buy packaged financial software to develop technology capability in key product areas, focussing on financial products that would enhance the service offerings of the core and logistics businesses.

UPS Capital believed that work flow automation would increase operational efficiencies and provide a customer service advantage. UPS Capital initiated a program to develop the capability to provide full transparency in an application going through the approval process, allowing UPS to provide application status to customers on a real-time basis. The challenge would be in tying siloed, product or process specific applications together to provide visibility for every product type across all functions.

Subsidiaries operated as autonomous business units responsible for their individual profit and loss results. Yet, senior management promoted a single identity for all UPS corporations. UPS Logistics and Capital leveraged the telecommunications infrastructure and applications hosting services of the central IT unit. Subsidiary management viewed the robustness, severance and cost efficiency of its operations as sources of competitive advantage for the businesses, especially as they experienced rapid growth.

The efforts of central IT to accommodate the unique needs of subsidiaries were bounded by principles and a standards-based architecture that stressed reliability, performance and efficiency. UPS's emphasis on reliable and scalable systems for high volume core business created a barrier to subsidiary use of central infrastructure. Technology purchased by central IT tended to be "high-end", "high cost" setting up designed to meet UPS performance requirements and expanding functionality in package delivery. Subsidiary requirements were much less demanding, necessitating negotiations with the core to accept a lower end, less expensive solution into the architecture. Responsiveness was also a factor that limited integration between core and subsidiary systems. The complexity of applications and interfaces between applications, and the processes to prioritise, approve and plan projects resulted in 6-month release cycles. The central IT organisation worked to accommodate the needs of subsidiaries, while maintaining control of the architecture. It expanded the set of standards to encompass subsidiary requirements, for instance Windows NT based platforms for UPS Capital since there were no other options for their specialised financial applications. Core IT also created a single point of contact for subsidiaries to procure central IT services and became more flexible for small-scale projects. In 2001, UPS continued to defend its market leadership in package delivery and was very rapidly expanding into adjacent businesses. Looking to the future, management intended to deliver on its vision of enabling global commerce by looking deeper into customer supply chains, and offering its customers an integrated product set across core and subsidiary businesses. These strategic objectives would require significant changes to sales and technology functions within the core and subsidiaries. To sell a bundled solution and take advantage of cross-selling opportunities, the sales organisation would need to manage relationships with all relevant decision makers in the customer supply chain, coordinate internally to manage the overall relationship, and bring specific expertise and knowledge as needed. The subsidiaries were already undertaking changes as the company looked to consolidate administrative (HR, legal, finance), sales and marketing, and IT functions into a shared services organisation. The new IT organisation would have two main objectives. First, it would be consolidate all application development, internal and customer-facing IT support, and governance staff under a single CIO. The new IT organisation would also define the enterprise architecture to support the integrated product strategy through consolidation and integration of current set of applications. Back office applications such as accounting and operational technologies such as brokerage systems would be included in the consolidation effort.

Developing and leveraging an IT capability to support integration of the core and subsidiary business would be difficult given the size, scale and breadth of UPS operations. Senior management believed, however, that an integrated product portfolio would allow UPS to differentiate itself from its competitors and achieve new levels of growth. Towards this end, UPS created Supply Chain solutions, a streamlined organisation that combined the sales, marketing, finance and technology resources for its supply chain subsidiaries. Supply Chain solutions was intended to make it easier for customers to access UPS expanding range of logistics, freight, financial, and consulting overhauls.

i) Identify core and side business activities of UPS and explain how same are driven by technology

ii) Identify and classify the IT infrastructure components available at UPS and its subsidiaries

(iii) What are the benefits or anticipated benefits from using the different information systems available at UPS

iv) What are the challenges or predictable challenges faced by UPS in harnessing Information Systems.

v) In your opinion, how have Information Systems(IS), infrastructure and IS strategy evolved since then