Seven-Eleven's Digital Transformation: Can It Sustain Its Competitive Edge?


Added on  2019-09-26

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Question 1.Assume you are a Consultant to the new President of Seven Eleven (see caseattached), and you are presenting to the President and Executive Committee. Assessthe pros and cons of Seven Eleven’s Internet and digital approach to retailing, andwhat recommendations would you make to apply it outside Japan. Be specific.Question 2: Choose either Part A or Part BQuestion 2 A“A business model reflects management’s hypothesis about what customers want,how they want it and what they will pay, and how an enterprise can organize to bestmeet customers needs, and get paid well for doing so.”Do you agree with this statement? Why? Be specific. Feel free to use examples.Question 2 -B“The management of companies with unrelated diversification, and they are several around the world, leads to a basic problem: they experience difficulties such that all of the pieces of the strategic puzzle fall away together.”Explain why this problem can exist, and what it means for share prices. Be specific.Seven-Eleven - How to blend e-commerce with traditional retailing JUST as the Internet penetrated different countries at differentspeeds and in different ways, so its impact on traditionalcompanies, has varied from one part of the world to another.Consider Seven-Eleven, a convenience-store operator, whichsnatched the title of biggest retailer in Japan from Daiei, atroubled supermarket giant.Seven-Eleven's e-strategy is built mainly around proprietarysystems. For the most part, it has used the Internet to talk toits retail customers, not to run its business. Yet few companiesin Japan have been more admired for their use of electroniccommunications.1
Seven-Eleven's Digital Transformation: Can It Sustain Its Competitive Edge?_1

Unlike Daiei, and many other retailers, Seven-Eleven hasmanaged to overcome a stuttering economy and spirallingdeflation to raise sales and profits by 4% and 15% - its pre-taxprofits were more than double those of Fast Retailing, aclothing outlet that holds the second spot.One reason for Seven-Eleven's sparkling performance is itscautious management. Other Japanese convenience stores,such as Lawson and FamilyMart, the second- and third-biggest,expanded recklessly over the past decade. They have recentlyannounced the closure of hundreds of stores. In contrast,Toshifumi Suzuki, Seven-Eleven's chairman, says that he wouldstop opening new stores if sales at existing ones declinedsharply. His caution is reflected in Seven-Eleven's finances,which are largely debt-free.Yet solid management is not the only contributor to Seven-Eleven's success. The chain's other distinction lies in its deftuse of electronics. It pioneered many techniques for using theInternet that are still ahead of the curve.Seven-Eleven Japan was set up in 1973. By the mid-1980s it hadalready replaced old-fashioned cash registers with point-of-sale(POS) systems that monitor customer purchases. By 1992, ithad overhauled its information-technology systems four times.But the biggest overhaul of all took place in 1995. Withhindsight, the timing looks bad: that was the year when theInternet wave was beginning to swell in the United States buthad barely begun to touch Japan's shores. The new system thatSeven-Eleven installed was therefore based on proprietarytechnology—albeit state-of-the-art—rather than on the stillbarely tested open structure of the Internet.Convenience onlineBack in those days—and indeed, even now—it would have beenhard to build on the back of the Internet alone a system thatsatisfied all Seven-Eleven's complex demands. It wanted aneasy-to-use multimedia system with pictures and sound, sincemost workers are part-timers with scant computer skills. It alsowanted a system that could quickly repair itself if somethingwent wrong.Then the chain needed a network to speed up the transmissionof orders, ideas and feedback. It wanted all the companies in its2
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supply chain to use one common system, and it wanted asystem that could be easily updated to take advantage oftechnological advances. Then it wanted the system to run for atleast 15 years.Such connectedness—hooking up suppliers, stores, staff andeven banks—is the sort of thing that most retailers can stillonly dream of, even with the Internet around to reduce the costand the complexity. What made Seven-Eleven's task moredaunting was that the system had to serve some 6,000 stores(the figure is now more than 8,500 and growing) scatteredacross Japan.It built the system itself, creating the hardware withNEC, aconsumer-electronics company. Coming up with the rightsoftware was harder, and it eventually asked Microsoft,America's software giant, to help it build a tailor-madeWindows-based system.By 1996 the software was being installed in some 61,000computers at Seven-Eleven's stores, head office and vendorfirms. By 1998, the overhaul, which cost ¥60 billion ($490m),was complete. The new system replaced the ragbag of systemsused before. A pipeline to Microsoft's offices in Seattleprovided instant support. The software back-up constantlymonitored and automatically rebooted the system when itcrashed and alerted local maintenance firms if such errorsoccurred more than twice.All Seven-Eleven stores now have a satellite dish. Cheaper thanusing ground cables, this is often the only option for shops inrural areas. And in earthquake-prone Japan, the satellite dishprovides an extra layer of safety on top of two sets of telephonelines, and separate mainframes in Tokyo and Osaka.Win-win-win-winSeven-Eleven's new technology gave it four advantages. Thefirst was in monitoring customer needs, which were changingas deregulation made shoppers more demanding. “We believedthat the nature of competition was changing. Instead ofpushing products on to customers, companies were being3
Seven-Eleven's Digital Transformation: Can It Sustain Its Competitive Edge?_3

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