Fluent Essays

Discussion questions:IT Savvy Organizations: Both the IM Integrative Framework and the Weill and Aral model of an IT Savvy organization paint an abstract view of the modern enterprise. Do these representations of the enterprise accurately express your sense of the nature of your own organization? Please explain.KLs Competitive Advantage: KL Enterprises faces many challenges as it competes in the global economy. What would you do to improve KLs competitive advantage? article_1___kl_worldwide.pdf w1_reading___it_portfolio_management___alignment_article.pdf Unformatted Attachment Preview 9B05E023 KL WORLDWIDE ENTERPRISES, INC.: PUTTING INFORMATION TECHNOLOGY TO WORK Professors Richard M. Kesner and Patrick D. Laughran wrote this case solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. This publication may not be transmitted, photocopied, digitized or otherwise reproduced in any form or by any means without the permission of Ivey Publishing, the exclusive representative of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) cases@ivey.ca; www.iveycases.com. Copyright © 2005, Northeastern University, D’Amore-McKim School of Business Version: 2015-11-11 In 2005, the Boston-based sports apparel retailer KL Worldwide Enterprises, Inc. (KL) faced several new threats to its business. Margins were tightening, as competitors with lower cost production capabilities in China began posing a serious threat to the firm’s private-label business. And the Internet had become cluttered with KL look-alike sites. Company Chief Executive Officer (CEO) Joseph Campbell and Jens McCreary, chief operating officer (COO), were concerned. Noted McCreary: We can’t let others steal KL’s thunder. We must reinvent our use of IT [information technology] to both improve our production capabilities and capacity and facilitate the rapid and economical integration of anticipated KL acquisitions. We need to be able to turn on a dime and leverage our supply chain management expertise to outpace our competitors in our markets. But to do that we need timely, accurate data that we can slice and dice to forecast where we are headed and what to do next. KL was also witnessing serious challenges in its key demographic markets — teenagers and young adults — from Web-based enterprises with manufacturing largely sourced in mainland China. McCreary felt the need to add “more sizzle” to the KL experience while keeping costs down. It is a cliché that we need to do more with less. I would go beyond that, we need to find creative ways to cut our operating costs so that we can invest more in product innovation and quality and sales growth. At that point in time, neither Joseph Campbell nor Jens McCreary realized KL was about to experience a decade of transformation that would leave the company profoundly changed and yet agile enough to continue to adapt with the times. While the competitive marketplace served as an impetus for KL’s metamorphosis, innovations in information management, information technologies, and social media also played a large role in setting the direction and pace of change at KL. 1 Page 2 9B05E023 KL WORLDWIDE ENTERPRISES, INC.: A BUSINESS OVERVIEW AND HISTORY KL Worldwide Enterprises, Inc., was established in 1983 through the merger of several small but highly regarded sports equipment and clothing manufacturers, all of whom were located in the United States. Incorporated in the state of Delaware but operating out of a headquarters facility in Boston, Massachusetts, the founder of KL, Scott Porter (CEO and Founder of Skateworld USA and subsequently of KL Worldwide) envisioned a global company engaged in the production, marketing and distribution of footwear, fitness and sports apparel, and equipment, favoring winter sports, such as skiing and ice hockey, and rugged outdoor activities, including boating, camping, hiking, rock climbing and hunting. The initial offering of KL stock took place in 1983 through the American Stock Exchange but as the firm grew into a multi-national conglomerate, KL moved up to the New York Stock Exchange where it traded under the letters KLWE. As he put it to his board of directors at their first stockholders’ meeting, Porter’s vision was simple: At KL Worldwide Enterprises we will expand rapidly and globally within our niche to become the very best provider of high quality, yet eminently affordable sportswear and equipment. We will become a household name among those devoted to outdoors activity from professional athletes to the typical active family of sports enthusiasts. To that end, we will acquire other quality providers of sporting goods — both at home and abroad, teach them the “KL” ways of doing business, and integrate them into a thriving global enterprise. KL Worldwide Enterprise remained true to its founder’s strategy. When Porter stepped down as CEO and president in 2003, KL stood at $720 million in gross sales and, as of the end of fiscal year 2005, eclipsed the $1 billion mark. His successor, Joseph Campbell, continued KL’s winning ways by acquiring, improving and growing a host of smaller sports product providers and merging them into KL. He has also moved KL globally through the extension of KL’s manufacturing and distribution arms in India, Brazil and Singapore. Between 2005 and 2015, KL manufacturing operations opened several acquired facilities, supplemented by partnerships, in China, Germany, Turkey, Mexico, and Canada. KL still had its headquarters in Boston, Massachusetts, and regional offices in all of the firm’s primary markets, namely the United States, Canada, Europe, and more recently China and Korea. In addition, KL operated a highly successful eCommerce arm through its Web site, KLBrand.com. In fiscal year 2005, the eCommerce branch of KL Enterprises reached the same level of sales as KL’s own boutique sporting goods outlets, and by 2015, online sales were nearly ten times that of KL’s brick and mortar outlets. Campbell was the first leader to bring a focus on business-driven information technology (IT) investment to KL. He explained, If we are to remain competitive, KL must retain its brand recognition, maintain a commitment to high quality and reasonable prices, and leverage its worldwide manufacturing, design, and distribution capabilities. Effective and efficient use of IT is essential here. This is why I have pushed for ever-improving eCommerce capabilities and the very best, global supply-chain management that money can buy. As always the challenges are around coordinating the various, and at times conflicting, business priorities across the enterprise. We sure could use better IT tools for this as well as ready access to timely performance data. 2 Page 3 9B05E023 However even when he penned these words in 2005, Campbell had no clear sense of what it would take in the first two decades of the 21st Century to keep up with and leverage the transformative power of IM and IT. The new business world would be both global and intimately connected. It would operate 24 × 7 and at a pace that eclipsed even the vision and sense of purpose of KL’s new CEO. While the current state (in 2005) of KL’s business was built upon the distribution of KL products through established retail chains in its three primary markets — the United States, Canada and Europe, consumers began to demand a more participatory role in the design and manufacturing of products. Whether they liked it or not KL was entering an era of customized manufacturing and social network-driven marketing. As noted by Evan McGinnis, executive vice-president (VP) of Global Marketing and Sales in his report to the board in 2010: Like its competitors, KL must strike a balance in its approach to the marketplace. For those who want the cache of the KL brand and our latest designs and product innovations, and who are willing to pay a premium, we offer KL sports stores and KLBrand.com. This includes the customized design and development of product for individual consumers through our Web sales platform. For those who don’t care to use the Web and don’t live in an urban center that offers access to a KL boutique, consumers can get products from an array of middle-tier to up-scale sports retailers. But in this highly competitive market and given our competitive edge in manufacturing and logistics, we can also provide low-cost, private-label goods for retailers who promote their own branding. In the end, it’s all about numbers (what is in the pipeline, where is it headed, who needs what when) and KL’s ability to respond to changing patterns of sales and consumer interests. The company’s sales figures suggested that this approach had served KL Enterprises well (see Exhibit 1). KL ENTERPRISE ORGANIZATION STRUCTURE As of December 31, 2004, KL Enterprises had approximately 15,737 employees, including management. In 2005, KL Enterprises that totaled 16,680 employees stationed in facilities throughout the world with 1,242 of these being management personnel. By 2015 those numbers had grown but not as substantially as production numbers and sales might suggest (see Table 1). While existing facilities grew slightly in terms of capacity and headcount, and while new locations were added in both Latin America and Asia, the substantial increase in KL manufacturing and distribution capabilities came from third-party partners, especially in China but also in Germany, Mexico and Turkey. This agile, organic approach to capacity growth at KL had many implications for its ability to compete in global markets. According to Jackie Terrazas, the VP of Customer Service: As KL has added more and more operations overseas, maintaining a common vision and a common sense of the company’s value proposition has been a real challenge. It shows up particularly in the issues around product design and quality where our salespeople have achieved considerable success in translating customer inputs into improved product offerings. The use of social networking platforms and a supply chain capability built around mass customization now drive sales, design and manufacturing. Given the seasonal nature of our business, we can be very flexible and high responsive to the needs of our third-party retailers as well as our eCommerce customers. 3 Page 4 9B05E023 Table 1 — KL Enterprises Employment Data, 2015 Location Boston, MA, Headquarters Waltham, MA, data center KLBrand.com operations and fulfillment KL stores, U.S. KL stores, Canada KL stores, Europe M&D, U.S.A. M&D, Brazil M&D, Europe M&D, India M&D, Singapore After 2005 additional sales offices in China, Germany, Korea, Poland, and Russia After 2010 satellite management offices overseeing partner relationships in China, Germany, Mexico and Turkey Total KL personnel Management 92 45 258 180 39 95 242 187 212 493 270 72 37 2,222 Staff 425 236 2,755 1,823 575 996 2,437 2,828 3,546 6,745 4,309 215 125 27,015 PRODUCTS, MANUFACTURING AND DISTRIBUTION KL originated in the United States and its core product line manufacturing capabilities for sports equipment remained U.S.-based until the end of the 20th Century, supplemented after 2000 by an expansion into Brazil and Singapore, followed by China Germany, Mexico and Turkey. Over the past decade, KL migrated the majority of its clothing and sportswear manufacturing to India, Mexico, Singapore and Turkey, with some sports gear production going to China and Germany. As of 2015, KL employed its own and partner-provided facilities at home and abroad to enable a highly flexible and responsive manufacturing platform for its products. Even in 2005, it was clear to KL leadership that to manage and innovate within this more disbursed and complex global supply chain, how KL planned, communicated and operated would need to change. As of 2005, with the exception of clothing lines that required tight coordination between KL M&D India facilities, where cloth was produced and then sent on to Singapore, all of KL manufacturing was selfcontained, including the sourcing of raw materials through final assembly and distribution. After products were manufactured, they were stored in distribution and warehousing centers located in Canton, Massachusetts; São Paolo, Brazil; Tanjong Pager, Singapore and Mumbai, India, as well as several sites in China, Germany, and Tukey until such a time as they were shipped to regional KL distribution warehouses or directly to KL customers in the United States, Canada and Europe. This massive operation posed a variety of logistical challenges for KL but even these paled in comparison to the requirements associated with the emerging demand for the mass customization of product lines. From the perspective of those involved, some things needed to change. The U.S. operation is the oldest within KL and the most capital-intensive, yet we run on the most outmoded SCM [supply-chain management] system. It is taking forever to move us over to SAP, which is a state-of-the-art commercially available SCM system we desperately need to fully implement. It is also nearly impossible to get information about the status of work that will require additional finish work once the product reaches the States from our Brazil and Singapore facilities. — Jack Powell, Director of Manufacturing, U.S.A. 4 Page 5 9B05E023 The operation in India is complicated by the number of outsourced services that we employ to supplement and complement our in-house capabilities. The legacy systems we use are also a barrier to managing our supply chain and logistics activities efficiently. But the move to SAP is slowed by the product’s inability to address the unique compliance requirements imposed by the Indian government as well as by the different business and manufacture processes already in place here. — Mukesh Vishal, Director of Manufacturing, India Everything in Brazil takes a little longer to accomplish. We try to be responsive and our new SAP system really makes a difference. However, we cannot get what we need from corporate in terms of production line and delivery requirements. The designs emerging from our colleagues in the U.S. do not work well with the factory configurations and production capacity in KL’s Brazilian facilities. — Pepe Simmon, Director of Warehousing and Distribution, Brazil Planning and coordination between KL and global manufacturing and distribution partners is daunting. Our systems are not compatible with one another and it is therefore difficult to get timely data on where we stand with orders for raw materials, semi-finished goods and warehoused finished goods. The robustness of our communication and collaboration tools still are not what they need to be. — Elizabeth Tan, Director of Global Supply Chain Coordination, USA SALES AND MARKETING By 2005, KL Enterprises sold its products domestically and internationally through third-party retailers, as well as directly through its own eCommerce Web site (KLBrands.com) and its own specialty stores. To manage the associated sales processes, KL Enterprises employed four independent sales teams located in the United States, Canada, Europe, and Russia/China/Korea respectively, all reporting to the same EVP for Global Marketing and Sales. Each sales office was responsible for maintaining working relationships with customers, including private-label and third-party retailers. KL eCommerce sales through KLBrand.com were managed by a separate marketing and sales team, and KL Stores operated as a separate entity with its own direct relationship to KL operations, manufacturing and distribution. Both the KL stores and eCommerce organizations utilized local KL distribution centers for their inventory management and order fulfillment needs. These arrangements were not without their issues, especially concerning inter-operating unit communications and coordination, as noted in the following comments. But as both social media and business analytics grew in importance as business process enablers, KL established the role of Chief Marketing Officer in 2010 to oversee all sales channels and more importantly to manage and leverage marketing and sales business intelligence. Our new web platform [ca. 2010] allows customers the ability to custom design high-end products within our product lines, including clothing, footwear, and even some equipment lines. However, timelessness of delivery and error rates in the customization process remain issues. — Ivan Henderson, VP of eCommerce We need to offer a “boutique” experience and therefore the latest and greatest in design but it takes too long to work our designs through the system to get new and improved product out the other 5 Page 6 9B05E023 end. We also need to better integrate launch efforts with our Facebook and Twitter communities and to sort out what we should offer versus our colleagues at KLBrands.com. — Alex Johnson, EVP for KL Store Operations The design ideas and customization requests that we get from KLBrands.com, KL Stores, and their respective social network communities make sense and often look nice but at times require a lot of work and time before they can be integrated into our manufacturing processes. Manufacturability is a real issue and it is increasingly difficult to get all the right players involved to decide how best to move from a concept to production. — Jens McCreary, COO The private-label portion of our market is still very strong but our margins keep getting tighter. Broadening our manufacturing base to include Chinese partners has helped with costs and responsiveness but coordinating all the orders and dealing with language and cultural issues in communication and sales processes has been a challenge for my entire staff. The added element of customer-driven design/product choices has further complicated these overseas arrangements. — Ed Griffin, VP of Sales, U.S.A. Same here! I need to be able to create forecasts from real-time data to focus my team and grow the business. — Leslie Lambert, VPP Sales, Europe European consumers have a greater sense of style than their U.S. counterparts. I need a way to provide feedback to Boston as the fashion sense of my customers change. — Ramero Cohen, VP of Store Operations, Europe The operation in Canada is stable in the face of fierce domestic competition and profitable, especially in the Eastern part of the country where we have great brand recognition. Unfortunately, we do not seem to be as connected as we need to be with plans and developments across the rest of the enterprise. — Helen Irving, VP of Store Operations, Canada ORDER FULFILLMENT AND DISTRIBUTION In the United States, sporting equipment, footwear and apparel products were mainly distributed through third-party retailers, such as athletic stores, sporting goods stores and department stores, either under the KL label (high end) or private labels (low end). Some specialty products (such as leather accessories) were also distributed through specialty stores. Lastly, KL’s own store chain served as a showplace for the latest in KL product offerings, especially at the high end of each KL product line, which was differentiated by the level of customer care provided at each sales location. KL International regional offices were located in Canada China, Korea, Poland, and Russia, as well as in a number of major Western Europe cities. Similar to the United States, KL Enterprise products are marketed and distributed internationally through third-party and private-label retailers as well as through KLBrands.com and KL’s own boutiques. As always, the challenge for KL is to model customer demand, forecast sales for each product line and ensure that at the end of a season, there is little left in inventory. Our capabilities to forecast 6 Page 7 9B05E023 sales and manage our product and cash flows are not what they need to be in today’s electronic marketplace. Prior to 2000, product life cycles were 12-16 months on average but they now [ca. 2015] run 6-8 weeks, not to mention the dynamic ... Purchase answer to see full attachment