CASE STUDY: SPARTA MOTORS

Background

Sparta Motors (SM) is a large automaker with over 225,000 employees in 32 countries. Additionally, it also has vehicle production relationships with select other automobile manufacturers. Its nonvehicle ventures include Specific Transmissions (manufacturer of medium- and heavy-duty transmissions), Specific Locomotives, and a 30% share of Macro Electronics (producer of satellites and communications). SM Subsidiary, SM Financial Corporation is a major financing organization that specializes in financing SM vehicle purchases and mortgages.

SM's auto sales have been declining, from about 39% of North America's vehicle market in the early 2000s to only 18% today. The company continues to face stiff competition from the local manufacturers such as Ford and Chrysler as well as the Japanese manufacturers, all of which have lower production costs than SM - and reputations for cars with better styling and quality.

SM's size has proved to be one of its greatest burdens. For 70 years, SM operated along the liens laid down by the CEO, who rescued the company from impending bankruptcy by separating the organization into five separate operating groups and divisions. Each division functioned as a semi-autonomous company with its own marketing operating. SM remained a far-flung vertically integrated corporation that at one time manufactured up to 70% of its own parts. This model of top-down control and decentralized execution had once been a powerful source of competitive advantage, enabling SM to build cars at lower cost than its rivals. Over time, however, it worked against the company. Domestic competitors were able to make vehicles at lower costs because they could purchase their parts from outside vendors and bargain on pricing. SM was not able to move quickly to update its selection and styling, and the quality of its cars lagged the Japanese automakers and even U.S. rivals. It took SM more time and money than competitors to produce a car because the firm was saddled with a lumbering bureaucracy, inefficient production processes, and thousands of outdated "legacy" information systems that could not communicate with each other.

Recently, Nick Nader was appointed Chief Executive Officer (CEO) of SM.At that time, Smith stated four main goals for the corporation, including his intentions to focus on innovative products and services and the development e-business. Smith's management team believed that by intensively weaving Internet technology into all of its business processes, SM could become a smarter, leaner, faster company, more in tune with customers. It also hoped this technology would help SM reduce from 24 to 12 months time to design, engineer, and manufacture a new vehicle, cutting up to 10% of the cost of making a vehicle by eliminating supply chain inefficiencies. It could be the catalyst for SM to reconstruct its entire value chain, transforming, itself into a customer-focused business that provides many different electronic services to consumers, as well as cars.

Here are some of the areas where SM is continuing to rely on Internet technology.

Selling Vehicles Online

The role of dealers is fundamental to the sale of automobiles.In fact, laws in most states and provinces make it extremely difficult for anyone other than licenced auto dealerships to sell new vehicles, thanks to the lobbying power of the National Auto Dealers Association (NADA). Dealers are vital to SM for several other reasons, including their close connections to their customers. In addition, the dealers are essential because of their role in vehicle inventory.The process of making decisions about how many of which vehicles to produce requires a large inventory. The auto producers begin by making a guesstimate as to the number of each model to produce each year and in what color and with what options. The dealers in turn decide which of these vehicles they think they can sell and then make their purchases. Only then do customers begin to purchase, selecting from dealer inventories. To make the system work, the industry maintains about a two-month inventory of new vehicles. The value of SM's inventory is usually about $20 billion, making inventory costs very high. The dealer's role is crucial, as they hold most of this inventory and so assume much of the risk and expense of the owning the vehicles.

SM has been experimenting with ways to sell vehicles online, although mostly with opposition from its dealers. While SM does not actually sell vehicles directly online, yet, but provides websites with a range of services for both consumers and dealers. On these sites, visitors can browse for SM cars; search by color, options, and availability; and find a dealer in their area that stocks the car they want. Dealers involved in this program are trained to work with customers who have performed online car buying research and must surf most likely auto websites that the customers could potentially have visited before landing at SM. This approach is proving to be highly successful.In the last quarter, it has generated more than 2,000 leads to dealers per week and over 20% of those leads convert into auto purchases.

The SM Owner Center stores maintenance records and manuals for current SM owners and also provides service reminders and tools for estimating vehicle value. The SM Dealer Center is a web portal featuring applications such as Vehicle Identification Number (VIN) lookup, which helps dealers determine which incentives a buyer qualifies for on a specific model. Lastly, SM Auction Center is a website where dealers can bid for leased vehicles that were returned to dealers and are now owned by SM's finance arm - SM Financial Corporation. This system is faster than live auctions and reduces the chances autos will be damaged while being transported to a physical site.

Building Vehicles to Order

One major weakness in the system of determining what to build is that if manufacturers or the dealers guess wrong on total demand or on style, color, and other options, they must offer costly incentives to prod consumers to purchase these products. Auto producers are anxious to make cars that customers have actually been ordered."Build-to-order" has been around the auto industry for a long time, but only for very expensive cars, and it required a waiting period for 2 - 3 months before delivery. Automakers have recently reduced the wait time for ordered vehicles to 6 - 7 weeks. Build-to-order would greatly reduce finished vehicle inventory costs as well as generate other production cost savings, potentially saving SM $10 billion per year.

Achieving this goal will require heavy reliance on SM's Internet infrastructure and extensive organizational change, The company will have to be able to take orders online, link its factories and suppliers online, change vehicles designs so they can be built more easily using modules, and greatly cut shipping times. Build-to-order requires producers to carry larger work-in-process inventories, a reversal of the 20year trend of just-in-time component supply deliveries. According to Steve Samson, SM's Senior Vice President - Logistics, "You would now need to hold, skillfully, inventories of certain kinds of parts (modules), such that you can be flexible enough to take a generically defined car, then at the last minute suddenly have a defined car."

In order to link factories to suppliers via cyberspace and reduce procurement and inventory costs, SM and other major auto manufacturers have established a massive online marketplace. SM spends $over $33 billion per year on raw materials and components and believes this online marketplace could cut the cost of producing each vehicle by approximately $1,000 (estimates vary) as well as reduce the time from receiving a car order online to delivery from about 45 days to 10 days. This online marketplace is linked to SM's own supply chain management information system framework called SMSCM, which gives suppliers access to the latest information on production scheduling, inventory, and the quality of their parts.

Online Services

Another technology venture established by SM is its wholly owned subsidiary - InCar, a telematics system with onboard navigation, Internet, safety, and communications capabilities accessed through select buttons on the vehicle dashboard. A global positioning system (GPS) keep the system constantly informed as to the location of the vehicle on the road. InCar also provides services such as emergency roadside assistance, stolen-vehicle tracking, and concierge support such as making payments, dinner reservations, etc.

InStar Personal Calling enables drivers to make and receive hands-free calls with voice-activated phones. The InCar Virtual Advisor service allows users to retrieve personal data on the Internet, including e-mail, news, stock quotes, traffic and road-condition reports within a given radius of the driver's location, family and professional appointments, anniversaries, occasions, etc. Whether the hardware is standard or an option, any user of InCar will pay an annual subscription fee ranging $55 to $125 per month, depending on services taken.

With InCar, SM cars become a platform thar generates a continuous system stream of high-margin revenue from drivers downloading and paying by the minute for Internet, data, and telecommunications services. SM has also licensed InCar to seven other car manufacturers for a fee as well as rights to the underlying data with specific regulatory requirements around maintaining sensitivity and confidentiality of the data as well as its usage for consented purposes only.

InCar service already has close to 8 million subscribers (with 1 million subscribers from SM car owners and the remaining from customers owning non-SM brand cars with an arrangement to license InCar from SM). Customers are balking at the monthly subscription fees and nearly half of InCar subscribers don't renew their service after the first year.Since InCar subsidizes some of the cost of its hardware installed in SM cars, getting customers to renew is critical.

Key Requirements

1. Identify the top three current and potential challenges and business risks faced by Sparta Motors in its industry from its "Suppliers".
2. Based on the facts provided in this case study, evaluate Sparta Motor's current competitive organizational strategy in response to each business risk identified in #1 above.
3. What role has each component of information systems played in augmenting Sparta Motor's competitive strategy identified by the group in #2 above?
4. How can Sparta Motor leverage newer technology (not specified in the case study) in redesigning its business processes effectively to compete successfully and achieve a leading role in the new economy?
5. Lastly, briefly discuss the nature and role of cross-functional integrated systems, data management systems, online decision-making system, business intelligence systems, and social media information systems in strengthening SM's competitive advantage in selling online services embedded in cars through InCar. In doing so, provide specific examples, activities, key considerations, and potential challenges for management.