(solution) Background The SI organisation builds and sells computers in 35 different countries. A customer can

(solution) Background The SI organisation builds and sells computers in 35 different countries. A customer can

Background The SI organisation builds and sells computers in 35 different countries. A customer can order a computer by telephone, mail order or the Internet. The computer is then built to the customer’s specification using parts manufactured by SI or supplied from one of 86 different suppliers. The completed computer is then shipped to the customer and installed by SI technicians. The whole process takes between five and seven days. Following installation, the customer is given access to the country-specific support sys- tem of SI. This comprises a country-specific Internet site containing detailed information on installation, errors with SI computers and answers to Frequently Asked Questions. The errors database is the same as that used by SI staff, so customers are effectively being given access to SI own systems. Technical staff are also available to provide human assistance if customers cannot find the answer to a query within the other support systems. Databases are maintained in each country and contain information on the different customers, types of computer sold, queries raised and solutions to those queries, along with standard accounting and financial data. No other computer manufacturer provides this type of service. Most other manufactur- ers prefer to sell computers via retail stores on the assumption that customers wish to “try out” the computers prior to purchase. This strategy of differentiation from competitors has provided SI with a substantial market share, along with significant profits. Customers are prepared to pay for the enhanced service. SI’s distribution costs are slightly less than those of its competitors although selling prices are the same, providing additional contribution for SI.SI organisation structure Within each country, the SI organisation is run as a separate company. Each company has its own unique information system, resulting in a range of hardware, software and database formats being used. Although this is unusual, the philosophy of SI has been to allow each country to establish systems to meet its own individual requirements. This has resulted in an extremely successful SI company in each country, at the expense of worldwide compatibility. Similarly, local suppliers supply parts for SI computers, so the SI company in that coun- try can form good working relationships with the suppliers. Again, this has worked to the benefit of SI, as the quality of parts supplied has consistently exceeded expectations and resulted in fewer hardware failures in SI computers compared to other brands. Each SI company is therefore run as a separate business unit. The head office of SI is located on a small island close to Western Europe. Budgets for each SI company are set after dis- cussions with head office. Apart from this, as long as each company meets budget, no other intervention by SI’s head office is considered necessary. There is a centralised R&D unit, which provides model specifications for new SI computers to all locations. This unit employs 75 research and developmental specialists. Their main activities include: Research into existing SI products in order to make them more reliable and economical to run; Amending existing SI products incorporating minor design changes such as larger hard disks or additional RAM; Reviewing current developments in computing; Building and testing new products; Providing specifications for new SI computers to the individual SI companies in each country. Information is provided by the R&D unit on a regular basis to sales and other departments in SI. However, the information flow is one way. The R&D unit does not have access to the sales staff of databases within each SI company.Recent developments In the last few years, the sales pattern of SI has shifted significantly away from individual customers purchasing one or two computers, to larger organisations purchasing up to 1,000 computers at a time. These requirements cannot always be met by the production capacity in one SI company, so orders are transferred to other SI companies in other countries. Many customers also request additional support, including 24 hour telephone hotlines and access to worldwide databases of errors and information, which SI currently cannot provide. The Chief Executive of SI recently made a decision to provide this support, effectively authorising a worldwide network to be put in place to link all SI compa- nies. All accounting, customer, financial, support and similar databases are to be linked within one year. Failure to meet this target may result in significant loss of sales if the larger corporate customers move to other suppliers. Requirements Explain Porter’s concepts of differentiation and cost leadership Using Porter’s differentiation and cost leadership concepts as a framework for your answer, discuss whether the recent decision of the Chief Executive of SI will detract from the overall customer-focus strategy of SI.