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“The Commodity Adoption Paradox”

“The Commodity Adoption Paradox”. Dr. Brad Poulson Business Systems Director, Retail Operations - Store Systems, Boots The Chemists brad.poulson@boots.co.uk. Introduction Share findings from research I did in a major UK retailer Background to the research Findings Conclusions. Agenda.

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“The Commodity Adoption Paradox”

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  1. “The Commodity Adoption Paradox” Dr. Brad Poulson Business Systems Director, Retail Operations - Store Systems, Boots The Chemists brad.poulson@boots.co.uk

  2. Introduction Share findings from research I did in a major UK retailer Background to the research Findings Conclusions Agenda

  3. My background Questions and timing Introduction

  4. Who architects the business? If a process is truly a commodity then why don’t companies just adopt it? The research examines the ability (logic) of organisations to adopt commodity work business processes Background to the research

  5. Overview of the cases Four case studies taken from within one major UK retailer and contain the call centres business process as the focus of the research. They were chosen for their contrasting approaches to the business problem and diversity of the final outcomes thus encouraging theoretical replication. The ventures were approached as independent activities and were launched during a thirteen-month period between March 1997 and April 1998. The four cases are: Loyalty scheme (LS), Mail order (MO), Insurance (INS), Customer service (CS).

  6. The context of ‘Boots The Chemists’ "Not many companies today can claim that their core business activity benefits from the cumulative experience of trading in the 19th, 20th and now 21st centuries." • Boots have been operating for 132 years • 1000 stores by 1933 • 1311 stores upon entering computing in 1960 • Over 500 systems keep our business running • 80,000 employees Steve Russell, Boots Chief Executive April 2000 - May 2003

  7. Jesse Boot Lord Trent of Nottingham Historical context...

  8. The Boots Company PLC Boots Retail Handbag.com Boots Healthcare International The UK and Ireland businesses work together as Boots Retail Boots Healthcare International allows us to grow our share of the global self-medication markets Boots Retail International operates as the international extension of Boots Retail Group structure The UK’s leading lifestyle website for women

  9. The first of these, Customer Service, is a redesigned internal venture That developed and implemented a new in-house call centre capability. Case Study 1: Customer Service (CS) Boots Customer Services: • Launched March 1997 • Effective management of customer complaint handling • Development of a customer relationship strategy • Centralised facility handling 1,000 calls and 500 letters, faxes, and emails daily

  10. Case Study 2: Loyalty Card (LC) The second case, Loyalty Card, was a completely new venture that started with an outsourced call centre, which was later brought in-house. Boots Advantage Card: • Launched September 1997 • Loyalty card (Smartcard) • 4 points for every £1 spent • Lifestyle positioning rather than discount • 14 million cardholders (93% women) • 52% of sales linked to card • First serious step into CRM • Advantage Credit Card

  11. The third case, Mail Order, was another new venture but with a completely outsourced call centre. Case Study 3: Mail Order (MO) Mother & Baby Direct: • Home shopping catalogue • Launched April 1998 • 1500 products • Home delivery experience • Outsourced call centre • Early Internet ordering capability • Channel learning's

  12. Finally, the Insurance case is a new joint venture with the call centre operated by the partner organisation. Case Study 4: Insurance (INS) Boots Health & Travel Insurance: Boots Insurance Services (BIS) provides a range of health and travel insurance products including: Dental; Family Health; Accident Insurance (especially for children).

  13. Longitudinal multiple case studies (over 5 years) Interviews, documents, archives, observation ‘Involved with the culture’ Three techniques: Activity Records (Werner & Schoepfle 1987) Strategic Choice Analysis (Friend & Hickling 1987) Actor Network Theory (Callon & Latour 1992) Research Methodology

  14. Commodity work business process‘A process that is not specific to any particular business, is readily obtained, and is more or less equally valuable to any number of businesses’ Leveraged business process‘A process that, while not specific to a particular company, is more valuable to it than to others’ Proprietary business process‘The company-specific processes around which an organisation builds a business’ (Based on Thomas Stewart 1997) Terminology (i)

  15. Inscription“The notion of inscription refers to the way technical artefacts embody patterns of use” (Hanseth & Monteiro 1998) Translation“Actors within a network will try to enrol (manipulate or force) the other actors into positions which suit their purposes. When an actor’s strategy is successful and it has organised other actors for its own benefit it can be said to have translated them” (Somerville 1998). Terminology (ii)

  16. (Low) Non-aligned Transformation Legacy Degree of Inscription (What & How) Bespoke Black-Box Aligned (High) Commodity Proprietary (Low) (High) Degree of specialisation (What & How) Process Inscription/Specialisation Framework

  17. It was concluded that while the core processes were the same across the cases:(i) the detail of the process, (ii) the variation in the contexts, (iii) the logic of the decision process as they evolved, and (iv) the view of the actors involved,combined together to lead to quite different approaches in each case. Findings (i)

  18. Confirmed that no established body of common language exists (Keen & Knapp 1996) A ‘complaint handling’ process (CS) An ‘account servicing’ process (LC) An ‘order taking’ process (MO & INS) Findings (ii)

  19. The research identified that there is a need to understand the closely coupled relationship between process logic, decision logic, and alignment logic. Processes are similar in the core but have a surround that is specific to a process, in a particular situation, at a particular time. Findings (iii)

  20. A commodity process has to be seen to be a commodity by the actors in the network. The mix and variety of the decisions taken compounds the difference between processes. Decisions take place at multiple levels within a business. Findings (iv)

  21. As time progressed and experience was gained and the situation evolved, actors changed their views (alignment) resulting in changes to the business process There appeared to be little transfer of knowledge across different parts of the organisation Findings (v)

  22. (a) Software (b) People (c) Telephony Transformation Legacy Transformation Legacy X MO Non-aligned Non-aligned X MO CS LC MO INS LC INS MO INS CS Aligned CS LC LC Aligned MO Bespoke Black-Box Bespoke Black-Box Commodity Proprietary Commodity Proprietary (d) Accommodation (e) Miscellaneous Transformation Legacy Key: Customer Service Loyalty Card Mail Order Insurance Movement (with direction) Redundant component Transformation Legacy Transformation Legacy Non-aligned Non-aligned Non-aligned CS MO LC INS MO Aligned Aligned Aligned MO LC INS CS X Black-Box Bespoke Black-Box Bespoke Black-Box Bespoke Commodity Proprietary Commodity Proprietary Proprietary Commodity Movement around the framework

  23. The three logic's (process, decision, and alignment) all have to mutually support a commodity approach for it to be successful and sustainable Findings (vi)

  24. Process Logic Characteristics What the process is about Decision Logic Characteristics What & how decisions are made Alignment Logic Characteristics Alignment of the actors in the network Transaction specific investment Few feasible decision schemes i.e. high number of option bars Legacy Hierarchical governance Inhibits Information Intensive High uncertainty ‘UR’ Low Information threshold Externalities/overflowing Optimising Tightly coupled (Integrated) Deeper Structure Bespoke Trials & pilots Appropriation Intermediate governance Crossover Slow/strategic-fast/tactical Cognitive Dissonance Innofusion Contracts Transformation Satisficing Loosely coupled (stand alone) Articulation Bounded Rationality High information threshold Low uncertainty ‘UR’ Facilitates Vanilla software Market governance Black-box Many feasible decision schemes i.e. low number of option bars Commodity components Process differences, focus, areas, sequence. The different conditions under which decisions are made: environments, focus, criteria, time, uncertainty. Different actors, inscriptions, translations

  25. Conceptual model of commodity business process adoption:Three central factors (Poulson 2002) Process Logic Characteristics What the process is about Decision Logic Characteristics What & how decisions are made Alignment Logic Characteristics Alignment of the actors in the network Transaction specific investment Few feasible decision schemes i.e. high number of option bars Legacy Hierarchical governance Inhibits Information Intensive High uncertainty ‘UR’ Low Information threshold Externalities/overflowing Optimising Tightly coupled (Integrated) Deeper Structure Bespoke Trials & pilots Appropriation Intermediate governance Crossover Slow/strategic-fast/tactical Cognitive Dissonance Innofusion Path dependency Contracts Transformation Satisficing Loosely coupled (stand alone) Articulation Bounded Rationality High information threshold Low uncertainty ‘UR’ Facilitates Vanilla software Market governance Black-box Many feasible decision schemes i.e. low number of option bars Commodity components Process differences, focus, areas, sequence. The different conditions under which decisions are made: environments, focus, criteria, time, uncertainty. Different actors, inscriptions, translations

  26. Why wouldn’t broadly similar processes located in the same overall business context adopt similar solutions in terms of commoditisation, governance, and resourcing (architecture)? The closely-coupled relationship between BPR and Information Technology Move away from in-house developments to outsourcing So why is this important?

  27. The increase in use of package software within businesses The growth in Application Service Providers (ASP’s) So why is this important? (ii)

  28. Case study key events and timescales

  29. Any Questions

  30. e-think2 ‘Improving capability through research; consultancy; coaching, and personal development’ email: brad.poulson@e-think2.com +44 (0)115 959 2630

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