This case focuses on the Spanish retail giant, Inditex and how its largest retail chain Zara has been so successful through its simple business model of speed, flexibility, and high fashion. As of 2002, Inditex had six separate chains: Zara, Massimo Dutti, Pull & Bear, Bershka, Stradivarius, and Oysho. Each chain operates independently and is responsible for its own strategy, product design, sourcing and manufacturing, distribution, retail. Zara is by far the largest, most profitable, and most internationalized of the chains.
In 2003, Zara's CIO must decide whether to upgrade the retailer's IT infrastructure and capabilities. At the time of the case, the company relies on an out-of-date operating system for its store terminals and has no full-time network in place across stores. The problem to the company is to decide whether it has to upgrade the present system and by doing so, risking the reliability they have with the current system or to continue with the present DOS based system which will not be compatible for future changes or improvements. Part 2:Issues Identification
In 2003, Salgado, head of IT for Inditex, must decide whether to upgrade their pilot retailer - Zara's IT infrastructure and capabilities. At the time of the case, the company relies on an out-of-date operating system MS-DOS for its store terminals and has no full-time network in place across stores. In the short term, the going MS-DOS based system seems to be working perfectly without any issues since it has been in place for decades, however, in the long run, Salgado has two major concerns:
1. Software - Operation system
Zara’s POS is running on MS-DOS operation system which has no longer being supported by Microsoft Inc. DOS has completely been replaced by Windows when Windows XP was released in early 2001 and since then Microsoft Inc. stopped supporting DOS. This means Microsoft Inc. is no longer updating DOS or releasing any new version. All the computers will not have DOS installed and no more application software or hardware drivers, will be developed based on DOS.
2. Hardware - POS terminal
Normally the life of computer hardware is 5 years, but in average, it takes only 3 years for a new generation to arise. By 2003, the PDA had been discontinued in the market for several years and was replaced by smart hand device with larger screen, higher resolution, faster CPU and bigger memory. In case of massive new store opening, there is chance that not enough POS terminal to support the needs. Also, the hardware vendor for the POS terminals could upgrade their machines or some peripheral for them, so that they are not DOS-compatible anymore.
Phone line dialing internet is at max of 56K/s, which has been replaced by Ethernet and Wireless which with a speed thousands of times faster. Take a 10 page order as an example, using modem would take half an hour and easy to get interrupted, but with Ethernet would be only a couple of seconds. Part 3:Root Cause Analysis
Zara was founded by Orgega who had started with clothing factories. Ortega and Castellano believe:
1. Zara needed to be able to respond very quickly to the demands of target customers, who were young, fashion-conscious city dwellers. 2. Take advantage of the intelligence and trust the judgment of employees throughout the company, instead of relying on a small set of decision makers.
Zara’s information technology approach was consistent with Ortega and Castellano’s belief of speed and decentralized decision making. Zara had no CIO (Chief Information Officer) and no formal processes for setting an IT budget or deciding on specific technology investments or projects.
1. No CIO: This means IT (information technology) has not been given enough attention in Zara and they do not realize the importance of IT is the same as manufacturing and sales. Because of no dedicated IT leader, IT team customized program for each department...