Managing the Digital Firm, Seventh Canadian Edition
CHAPTER 15
Managing Global Systems
LEARNING OBJECTIVES
After reading this chapter, you will be able to answer the following questions:
1. What major factors are driving the internationalization of business?
2. What are the alternative strategies for developing global businesses?
3. How can information systems support different global business strategies?
4. What are the challenges posed by global information systems and management
solutions for these challenges?
5. What are the issues and technical alternatives to be considered when developing
international information systems?
Teaching Suggestions
The opening case, “L’Oreal’s Global Makeover,” demonstrates that a global company
has the same information system requirements as a domestic company, just on a larger,
more complex, scale. The company operates in 130 companies around the world and has
42 manufacturing sites dealing with thousands of different recipes for its products. That
creates a lot of chances for human error and product waste. It needed a uniform system
for its production and quality standards.
Regional units were operating their own versions of SAP enterprise resource planning
Its new system, ISIS (Integrated Solution for Industrial Systems) consolidates all
transactional processing, financial controls, and purchasing into one database. ISIS runs
at the company’s central data centre in Montpellier, France. The system guides factory
operators through each product recipe to ensure uniformity and compliance.
Managing the Digital Firm, Seventh Canadian Edition
Section 15.1, “The Growth of International Information Systems.”
Figure 15-1 is an excellent example of the globalization of businesses and industries. This
figure shows how one product, the iPhone, involves operations in six different countries
around the world. That’s possible only through advanced networks and information
systems like the one Apple uses. Students might find it interesting to trace common
products through the design, production, and distribution phases to see the globalization
of industries first-hand. They can use the Internet to research this information for
themselves.
Section 15.2, “Organizing International Information Systems.”
It’s important for students to understand that a company’s corporate headquarters isn’t
always located in North America, as many people assume. There are many instances of
companies whose corporate headquarters are located in foreign countries and simply have
local or regional operations in the U.S. and Canada. This section defines four business
Section 15.3, “Managing Global Systems.”
Take all the problems and challenges that a domestic company faces in designing,
building, and managing its information technology infrastructure and magnify them on a
global scale. The subsection “A Typical Scenario: Disorganization on a Global Scale”
describes the more common situation occurring in global corporations – a hodgepodge of
Managing the Digital Firm, Seventh Canadian Edition
WINDOW ON MANAGEMENT: FONTERRA: MANAGING THE
WORLD’S MILK TRADE
Case Study Questions
1. Describe the various capabilities of SAP GTS. How does using this software help
Fonterra manage its export trade? What quantifiable benefits does this system
provide?
SAP’s Global Trade Service automates Fonterra’s import and export processes, while
ensuring that transactions comply with all customs and security regulations. The
system helps Fonterra standardize and streamline its trade processes across the entire
enterprise. It fosters the use of shared data and shared collaboration knowledge,
2. How would you characterize Fonterra’s global business strategy and structure
(review Table 15-3)? What kind of a global business is it? Has Fonterra’s
structure and strategy shaped its uses of SAP GTS? Would a transnational
company choose a different solution?
Fonterra procures its products from multiple countries to spread the risk beyond just
its home country of New Zealand. The cooperative exports out of Australia, the U.S.,
Latin America, Europe, and Asia. Fonterra appears to use a domestic exporter
strategy that is characterized by centralizing its corporate activities in its home
3. What influence does the global business environment have on firms like
Fonterra, and how does that influence their choice of systems?
The general cultural factors—global communications and transportation technologies,
global culture, the emergence of global social norms, political stability, and a global
knowledge base—drive specific business globalization factors affecting most
industries. Improved communications technologies and the emergence of world
cultures lead to global markets in which global customers consume similar products
Section 15.4, “Technology Issues and Opportunities for Global Value Chains.”
Many students may assume that all countries have the same technology and
telecommunications infrastructure as the United States and Canada. Many students are
also under the impression that North America leads the world in technology usage and
advanced applications. Spend some time discussing how both of these assumptions are
Managing the Digital Firm, Seventh Canadian Edition
WINDOW ON ORGANIZATIONS: COMBINENET ASAP HELPS
PRIMARK MANAGE ITS GLOBAL SUPPLY
Case Study Questions
1. Why is supply chain management so important at a company such as Primark?
Primark has 156 stores in the United Kingdom, 38 stores in Ireland, 27 in Spain, 7 in
2. What set of business conditions prompted Primark to look into upgrading its
supply chain management system?
3. What problems was Primark having managing its suppliers and global supply
chain?
The company’s third-party logistics service provider did not extend beyond
comparing bids between competing shippers and it could not help Primark with
4. How did the CombineNet ASAP software provide a solution to these problems?
CombineNet ASAP software is a Web-based supply chain execution system used to
optimize all supply chain processes. It can process requests for information, requests
5. How does the CombineNet ASAP software improve supply chain execution for
Primark?
CombineNet ASAP software allows Primark to coordinate with carriers to optimize
Review Summary
1. What major factors are driving the internationalization of business?
2. What are the alternative strategies for developing global businesses?
3. How can information systems support different global business strategies?
4. What are the challenges posed by global information systems and management
solutions for these challenges?
5. What are the issues and technical alternatives to be considered when developing
international information systems?
Key Terms
The following alphabetical list identifies the key terms discussed in this chapter. The
page number for each key term is provided.
Business driver 461
Legitimacy 470
Managing the Digital Firm, Seventh Canadian Edition
Review Questions
1. What major factors are driving the internationalization of business?
List and describe the five major dimensions for developing international
information systems architecture.
According to Figure 15-2, the five major factors are the need to:
Describe the five general cultural factors leading toward growth in global
business and the four specific business factors. Describe the interconnection
among these factors.
According to Table 15-1, the five general cultural factors are:
• Global communication and transportation technologies: A global village has
been created in which global communications of all kinds are no more difficult
The specific business factors are:
• Global markets: Patterns of consumption of goods are becoming similar around
the world.
• Global production and operations: Far-flung production facilities are
Managing the Digital Firm, Seventh Canadian Edition
• Global workforce: The location of business activities is based on workforce
availability.
• Global economies of scale: Production is concentrated where it is best
accomplished; lower production costs are exploited wherever they emerge.
These factors are interrelated. The spread of global communications has led to the
emergence of a global culture and global social norms. This, in turn, has led to the
development of global markets. Emerging global technologies make possible the
List and describe the major challenges to the development of global systems.
According to Table 15-2, the general challenges are:
• Cultural particularism – Regionalism, nationalism, language differences,
Explain why some firms have not planned for the development of international
systems.
For some companies, the competition has not yet been powerful enough to drive them
towards developing international systems. Other companies lack the global strategy
2. What are the alternative strategies for developing global businesses?
Describe the four main strategies for global business and organizational structure.
Referencing Table 15-3, there are four main strategies.
• Domestic exporter: Heavy centralization of corporate activities in the home
country of origin. Production, sales, marketing, finance, and other such functions
are set up to optimize resources in the home country. Foreign marketing is totally
reliant on the domestic home base.
Managing the Digital Firm, Seventh Canadian Edition
• Multinational: Concentrates financial management and control in a central home
3. How can information systems support different global business strategies?
Describe the four different system configurations that can be used to support
different global strategies.
According to Figure 15-3 there are four different system configurations:
• Centralized: Systems development and operations that occur totally at the
domestic home base.
4. What are the challenges posed by global information systems and management
solutions for these challenges?
List and describe the major management issues in developing international
systems.
The major management issues in developing international systems are listed in Table
Identify and describe three principles to follow when organizing the firm for
global business.
According to Figure 15-4, a sensible strategy is to reduce agency costs by developing
only a few core global systems that are vital for global operations, leaving other
Managing the Digital Firm, Seventh Canadian Edition
Identify and describe three steps of a management strategy for developing and
implementing global systems.
Step 1: A company must define its core business processes before it can build an
information system that supports them.
1. Define a short list of critical core business processes by conducting a business
process analysis. The list should include about ten business processes that are
absolutely critical for the firm.
2. Identify centers of excellence for these processes. Some areas of a company, for
3. Rank-order the business process of the company and decide which processes
should be core applications, centrally coordinated, designed, and implemented
Step 2: Identify the core systems to coordinate centrally. Keep the list to an absolute
minimum. By dividing off a small group of systems as absolutely critical, the
Define cooptation and explain how it can be used in building global systems.
Cooptation is defined as bringing the opposition into the process of designing and
implementing the solution without giving up control over the direction and nature of
the change. The idea is to find a way whereby local units in transnational companies
are brought into the process of building transnational core systems by becoming part
5. What are the issues and technical alternatives to be considered when developing
international information systems?
Describe the main technical issues facing global systems.
Hardware, global software, and telecommunications are the main technical issues.
Hardware issues arise because the firm needs to standardize the computer hardware
Identify some technologies that will help firms develop global systems.
The main hardware and telecommunications issues are systems integration and
connectivity. The choices for integration are to go either with a proprietary architecture
Discussion Questions
1. If you were a manager in a company that operates in many countries, what
criteria would you use to determine whether an application should be developed
as a global application or as a local application?
There are many general cultural factors and specific business factors to consider. The
growth of cheap international communication and transportation has created a world
culture with stable expectations or norms. Political stability and a growing global
2. Describe ways the Internet can be used in international information systems.
Companies can use the Internet for international communication by creating global
intranets and extranets. Companies can also use the Internet to create virtual private
networks. Although the Internet is an attractive option, caution must still be
Managing the Digital Firm, Seventh Canadian Edition
Hands-On MIS Projects
Management Decision Problems
1. United Parcel Service: UPS has been expanding its package delivery and logistics
services in China, serving both multinational companies and local businesses. UPS
drivers in China need to use UPS systems and tools such as it handheld Driver
Information Acquisition Device for capturing package delivery data. UPS wants to
make its WorldShip, CampusShip, and other shipping management services
accessible to Chinese and multinational customers via the Web. What are some of the
international systems issues UPS must consider in order to operate successfully in
China?
UPS is likely to face these international systems issues:
• User interfaces: Which language will be used, Chinese or English? The Chinese
2. Selling hockey sticks outside Canada.:Your company manufactures and sells
hockey sticks and would like to start selling outside Canada. You are in charge of
developing a global Web strategy, and the first countries you are thinking of targeting
are Brazil, China, Germany, Italy, and Japan. Using the statistics in the CIA World
Factbook, which of these countries would you target first? What criteria would you
use? What other considerations should you address in your Web strategy? What
features would you put on your Web site to attract buyers from countries you target?
Managing the Digital Firm, Seventh Canadian Edition
students may use to help them decide which country they would target first to sell
hockey sticks. Since the sport is associated with colder climates, weather would be
important. In addition, playing sports requires some level of income so household
income is important.
Other considereations to address in the Web strategy may include language
Achieving Operational Excellence: Building a Job Database and Web Page for an
International Consulting Firm
Software skills: Database and Web page design
Business skills: Human resources internal job postings
KTP Consulting operates in various locations around the world. KTP specializes in designing,
developing, and implementing enterprise systems for medium- to large-size companies. KTP
offers its employees opportunities to travel, live, and work in various locations throughout
North America, Europe, and Asia. The firm’s human resources department has a simple
database that enables its staff to track job vacancies. When an employee is interested in
relocating, she or he contacts the human resources department for a list of KTP job vacancies.
KTP also posts its employment opportunities on the company Web site.
1. What type of data should be included in the KTP job vacancies database?
Students must first be reminded that before coding ever begins, it is the responsibility of
Managing the Digital Firm, Seventh Canadian Edition
Data that probably should not be included in the database: Position salary, race,
religion (although it may be a significant consideration in some geographic locations).
Improving Decision Making: Conducting International Marketing and Pricing
Research
Software skills: Internet-based software
Business skills: International pricing and marketing
You are in charge of marketing for a Canadian manufacturer of office furniture that has
decided to enter the international market. You have been given the name of Sorin SRL, a
major Italian office furniture retailer, but your source had no other information. You want
to test the market by contacting this firm to offer it a specific desk chair that you have to
sell at about $125. Using the Web, locate the information needed to contact this firm and
Managing the Digital Firm, Seventh Canadian Edition
depending on the day the assignment is completed. The two other sites for the Europages
Business Directory and UK Business Directory may or may not be available when the
CASE STUDY: NESTLÉ TRIES FOR AN ALL-FOR-ONE GLOBAL
STRATEGY
1. Analyze Nestlé using the competitive forces and value chain models. What
challenges did Nestlé face?
Potential Entrants: Nestlé is the largest food and beverage company in the world. As
such, the threat of new entrants would be low as it would not be easy for new
competitors to enter the market.
Industry Competitors: Nestlé must be able to get their products to market quicker and
cheaper than their competitors in order to maintain their dominant standing. Margins
tend to be low in this industry and the consolidation of global data is one way of
keeping their costs down and their efficiencies high.
Managing the Digital Firm, Seventh Canadian Edition
Nestlé faces the challenge of making all of their facilities function as one single-
minded business. Traditionally, they allowed local organizations to conduct business
as it saw fit, taking into account the local conditions and business cultures. This
decentralized strategy resulted in having 80 different information technology units
Other challenges included:
• Standardization of the business to the new mySAP Internet-based software by
established deadline and within budget.
• Maintaining confidence in the project in light of rigid deadlines and complexity of
the project.
• Implement new system wihtout affect customers.
• Overcome managers resistance.
2. What type of global business and systems strategy did Nestlé adopt? Was this
strategy appropriate for Nestlé’s business model?
Nestlé are developing a multinational global business and systems strategy. With this
strategy they will centralize key business functions such as material, distribution, and
accounting while decentralizing production, sales, and marketing operations to units
3. What management, organization, and technology challenged did Nestlé have to
deal with to standardize its business processes and systems?
Achieving global standardization of operational processes was a very complex task.
None of Nestlé products are considered a “truly global brand” as the majority of their
products are rebranded, repackaged, and reformulated to create over 200 product
versions for different regional preferences.
Management:
• Centralize management of the company’s business operations.
Organization:
• Convince market managers worldwide to adopt a centralized culture
• Convert and implement 70 percent of the business to a common set of best
Technology:
• Consolidate SAP R/2 (older version of ERP software) into new GLOBAL system.
• Move disparate systems into one system known as GLOBE (Global Business
Excellence) into the new mySAP Internet-based software.
4. What strategies did Nestlé management use to deal with these challenges? How
successful were these strategies? Explain your answer.
Strategies used by Nestlé incuded:
• Chris Johnson was asked to lead the GLOBAL initative to find a way to
Managing the Digital Firm, Seventh Canadian Edition
• Adjustments had to be made to the original parameters of the project (more staff,
more funding, longer time frame, and schedule adjustments (GLOBE-enabled the
majority of the company’s key arkets — rather than 70% by the end of 2005,
instead of 2003).
• Utilized a diverse group of business managers (rather than technology managers)
who had experience in a variety of business sectors including manufacturing,
finance, and human resources.
• Test site for the back-office systems was supported by Jose Lopez who would
become an instrumental as a project champion.
• By 2003 the project was achieving operational efficiences. These were directly
attributed to the implementation of GLOBE standards.
• GLOBE system required careful project management throughout its
implementation. Scope, scheduling/rollouts, and project costs were carefully
maintained.
• In the rollout period, each country had a GLOBE manager who facilitated in the
adoption of the system.