CHAPTER 4 CASE DESCRIPTION AND ANALYSIS
3. C ASE C ONCLUSION
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the service itself than the applied information technology.
After all the proposal, planning, development and operation phases, the case analysis reviews the realization of lifung.com/StudioDirect and the decision to determinate the business. The implementation course showed that the mission of technology was made, though not that fluent and could be modified to be better. But back to the original thinking of the venture, the strategic defensive and offensive goals, under the condition of financial performance failure, and without the hypothesis of external intimidation, for Li & Fung to call a halt in time at the moment appeared to be justified and reasonable.
3. Case Conclusion
Lifung.com/StudioDirect’s IT, Managerial and Market Assets
The conducted case study summarizes the IT, managerial and market assets according to the lifung.com/StudioDirect implementation process. Table 3 and Table 4 are the IT assets and managerial assets, and Table 5 lists the market assets.
Lifung.com was an independent department from Li & Fung’s IT department, teaming up with Castling Group provided the capability to handle the front office IT system development and the integration with other service providers’ service components. Designed to interact with Li & Fung similarly the way the other Group’s key customers did, lifung.com could utilize Li & Fung’s existing extranet and intranet as its back office system, the rest were the interaction and integration components between each other. Besides lifung.com’s own middle office system development task, Li & Fung assigned a senior manager to provide an interface between the two groups, and programmers from Li & Fung’s IT department helped dealing the connection. In short, Li & Fung’s existing IT systems implementation laid a good foundation for the
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online venture, the skill and experiences from Castling Group and Li & Fung’s IT department joined force to solve the IT assets acquisition, and technically accomplished the task.
With regard to the managerial assets, first is the strategy thinking subject, the goal and objectives were definite, lifung.com/StudioDirect was a defense against online trend as well as an offense to extend the services to unsatisfied SMEs. Second, since the driving force behind it came directly from the Fung brothers, then Li & Fung could throw in many resources to the single largest investment at that time.
Meanwhile, the dot-com trend and the expert standing in the business industry made it easier for Li & Fung to fund for the venture, and the knowledge about the business model made it facile to cooperate with the experienced Castling Group and design the new business process, and we can assume that the background of the Fung brothers benefited seeking supports and the recruiting need. Under the determination of top management, decisions like co-investing with an outside company, setting up the new group lifung.com, assigning key managerial positions, adjusting the process between departments, requiring the department to operate in coordination to the new service, fulfilling the required resources, planning and monitoring the plan, and other management-related issues were handled well. On top of that, even though it was an idea from the top executives, Li & Fung took market research survey to prove the concept and convince the investors and the Group, and used internal training to solve the gap between old-economy and new technology of their employees. In a few words, the involvement of the Fung brothers made lots of organizational, intra-organizational and managerial level issues not that big deal. Once the team was built, the rest were the teamwork and the culture, and Li & Fung took appropriate measures to ensure the operation of the new model. But from the result, what went wrong was the too optimistic expectation about SMEs, and the unexpected physical salespeople input
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became a fly in the ointment.
As for the market assets, the case happened just before the dot-com crash, there were a proliferation of B2B portals, and the trend approved lifung.com/StudioDirect at that time. Li & Fung targeted U.S. SMEs first, and viewed European and Japanese SMEs as next, the communications systems were much advanced in these areas.
Unless it required some special equipments to access the new service system, otherwise we can assume the circumstance were in favor of both Li & Fung to move and SMEs to try. About the collaboration/competition topic, Castling Group played a big part of external supporting force. At that time, Li & Fung faced most threats coming from Internet background online sourcing company, the combination of two parties was a trading background dot-com company. And with such a big investment to the new model, there were no big competitors right away, or we can assume others were just on the fence. In the meantime, the way Li & Fung originally designed for the interaction and the connection between two groups obviated the possible resistance from suppliers and large buyers. Those suppliers still connected to Li &
Fung, and SMEs were arranged in a new channel that was separated from traditional customers. Besides, with the market research results and the transaction incentives that lifung.com/StudioDirect provided, Li & Fung did find a target and set to attract them to the new model. To conclude, Li & Fung made use of the dot-com trend, and found a suitable partner to start the venture. The traditional market research pinpointed the SME target market, and Li & Fung utilized motives to attract the involvement of targeted new customers. There were no big competitors chasing them or could threaten them right away at that time, and channel conflict wasn’t even an issue to them in top management’s mind. Li & Fung seemed to have acquired the required market assets, but it turned out that some deployed assets were not enough, and the too optimistic forecast and some unexpected events issues became serious
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barriers, and then led to the end of the venture.
Table 3 IT Assets of lifung.com/StudioDirect
Sets Examples
Lifung.com used Sun Microsystems for its hardware platform. ([17], p. 12) UI & functionality
Integration:
existing systems to support new ITeS
Other applications/
services support
Lifung.com offered a wide array of customization options to its clients. ([17], p. 12)
Lifung.com was designed to interact with Li & Fung in the same way as one of the group’s key customers, with orders place through an extranet. ([17], p. 13)
Lifung.com used Selectica for online configuration of products; Oracle for its database software;
Broadvision for its transaction system; an interface to CIT, the U.S’s largest factor, to evaluate credit risk; an interface to Danzas AEI, a bulk-freight specialist, which would allow door-to-door tracking; and Andersen Consulting, a leading systems integrator, to
“wrap” the entire package for a seamless experience.
([17], p. 12)
In 1995, Li & Fung launched an intranet to link the Group’s offices and manufacturing sites around the world. ([17], p. 6)
In 1997, Li & Fung launched secure extranet sites.
([17], p. 6)
Successful implementation of these systems provided the initial building blocks of Li & Fung’s e-commerce solution. ([17], p. 6)
Li & Fung’s IT division had 60 people, all based in Hong Kong. ([17], p. 6)
(Source: Organized by this Research) Table 4 Managerial Assets of lifung.com/StudioDirect
Sets Examples
Strategy
Business strategy
Goal and objectives
Execution plan
Lifung.com was not only a defensive move, protecting the traditional markets of Li & Fung from local online sourcing companies such as GlobalSource.com and Alibaba.com, but it also offered an offensive thrust at new markets that these B2B pure plays were aiming for. ([17], p. 13)
By aggregating their smaller orders via its B2B portal, the Fungs projected that they could
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profitably offer SMEs an array of products with the option of limited mass customization. ([17], p. 10)
StudioDirect’s ability to cater to smaller retailers was expected to bring in revenue that Li & Fung could not access before the Internet. ([16], p. 1)
By 2001 Li & Fung planned to expand its online B2B penetration with a new platform known as
“Electronic Stock Offer.” Whereas lifung.com aspired to aggregate the orders of retailers, Electronic Stock Offer, code-named ”eSO,” would target the other side of the butterfly model and attempt to aggregate suppliers to post surplus inventory for sale on the Internet. ([17], p. 13)
Organization
Li & Fung added two new technical directors to its board. ([17], p. 8)
In December 1999 Hsieh joined Castling’s board, and LF International invested in Castling. They subsequently co-invest in an initial round of financing for lifung.com, and Castling committed key managerial staff to lifung.com. ([17], p. 9)
In one fell swoop, San Francisco-based lifung.com’s management team was immediately staffed with Castling’s professionals serving as vice president of Business Development, vice president of Operations, director of Marketing, and CTO.
([17], p. 9)
By Q3 2000, lifung.com had 40 full-time professionals and 25 consultants, with 80 full-time expected by year’s end. ([17], p. 9)
Located near Silicon Valley, lifung.com would be close not only to the heart of Internet culture, but to its SME clients in the United States. ([17], p. 12)
To facilitate the integration of the new online entity into the Li & Fung fold, a senior manager was tasked to provide an interface between the two groups. ([17], p. 9)
Finance
Capital
Financial evaluation
Li & Fung raised $250 million by placement of 60 million shares through underwriter Goldman Sachs to fund the new online venture. ([17], p. 11)
Lifung.com was expected to bolster earning s by an operation margin of roughly 6%, or 14% of total revenue. ([17], p. 12)
Lifung.com was developed and operated independently of Li & Fung’s IT department. ([17], p. 13)
Lifung.com was designed to interact with Li &
Fung in the same way as one of the Group’s key customers, with orders paced through an extranet.
([17], p. 13)
To facilitate the integration of the new online entity
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into the Li & Fung fold, a senior manager was tasked to provide an interface between the two groups. ([17], p. 9)
Victor was determined to “demystify” the technology among the offline staff with internal training courses and daily exposure to the new technology. ([17], p. 13)
(Source: Organized by this Research) Table 5 Market Assets of lifung.com/StudioDirect
Sets Examples
Infrastructure
Supportive operation environment
The company doesn’t connect its system to the thousands of manufacturers who make its products, partly because communications systems aren’t advanced enough in China, the Philippines, Bangladesh and other Asian countries, not to mention Africa and the Caribbean. ([17], p. 20)
Trend
Economic/industry trend
Incentive
Legislation(N/A)
William discovered that Internet companies could use the money that was pouring in to them to damage offline competitors, either by acquiring them or their key people. ([17], p. 7)
Other possible threats came from online companies acquiring an old-economy trading company, or from offline companies like Japanese trading companies or local sourcing firms that could partner with a dot-com and become a competitor overnight. ([17], p. 7)
Lifung.com planned to charge SMEs a 10%-15%
commission, far less than what these small retailers were used to paying. ([17], p. 11)
By not requiring a minimum order, Li & Fung added further value by allowing SMEs to reduce their inventory levels and use the system for replenishment buying. ([17], p. 11)
Collaboration
Both the evolution of Castling from B2C to B2B and Li & Fung’ needs complemented each other nicely. ([17], pp. 8-9)
Li & Fung and Castling Group co-invested in an initial round of financing for lifung.com, and Castling committed key managerial staff to lifung.com. ([17], p. 9)
William dismissed the risk of channel conflict between the SMEs and key client business. ([17], p. 12)
William discovered that Internet companies could use the money that was pouring in to them to damage offline competitors, either by acquiring them or their key people. ([17], p. 7)
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was chasing them, such as a copycat old-economy sourcing company what would see the success of lifung.com and mimic its well-publicized model.([17], p. 15)
Not surprisingly, the small guys want what the big guys want-a differentiated product line at good price. ([17], p. 10)
Market research was well received by industry analysts, who unanimously endorsed Li & Fung’s preliminary research of its target SME market.
([17], p. 10)
(Source: Organized by this Research)
Issues about Implementing lifung.com/StudioDirect
Although Li & Fung did acquire or possess many IT, managerial and market assets, the result showed that some issues were beyond their expectation and control.
Table 6 lists the Issues of lifung.com/StudioDirect.
For the IT-related part, notwithstanding Li & Fung worked with the experienced Castling Group, StudioDirect’s functions and the user interface didn’t cater to SMEs suitably. With the help of Castling Group’s experiences and skills, Li & Fung built and tested lifung.com in a short period, but when it came to the operation of StudioDirect, they failed to get users go online easily, the adoption process fallen behind the expectation. Although Li & Fung tried to modify the customer interface and viewed the registration and online trading progress in the initial as satisfactory, this issue did affect StudioDirect’s operation and promotion progress. To conclude it, in this case, the IT-related issue was a challenge to the ITeS implementation, but a solvable one.
As for the management-related part, first issue was the service process. Li &
Fung recruited and established a new department for the new service providing, and designed the business process to separate online channel from physical ones, but
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things didn’t work according to the script after the formal launch. For StudioDirect’s promotion and the operation needs, the unexpected physical salesperson input to the online business impacted the services to their existing clientele, this showed that Li &
Fung didn’t prepare the resources well to handle the marketing and operating activities for lifung.com/StudioDirect, neither planned contingency plan to tune up the business process in advance. The optimistic supposition about SMEs and the confidence about the model could be the reason that Li & Fung didn’t organize perfectly about the process and organization, after all, Li & Fung did have the power and had input every possible resource to ready the organization to implement the new service. To Li & Fung, this issue should be an avoidable or a controllable one. On the other hand, if the model were to be successful, we can assume that Li & Fung would need to handle the issues about the business and internal resources competition between online and physical units, and to decide the future and the position of lifung.com/StudioDirect in the Group. Furthermore, although The Castling Group was a good choice to Li & Fung, the “bubble in” alliance still signified the corporate culture issue as Suh had remarked: “At lifung.com, we have a great mix of people, individuals with 30 years of merchandising experience, a deep operations staff, seasoned technologists and wonderkids, rounded out by newly minted MBAs. It’s true a mix of old and new, but what’s united through this mix is the culture, and that’s what makes me most proud of our team.” ([17], p.9) The case displayed the management issues of cultural differences, not only the old economy and new technology integration issue, but also the mix of people with age gap and varied background problems.
With regard to the market-related part, besides the uncontrollable and unpredictable dot-com bubble and other economical events, the acceptance and adoption of the targeted new customers turned out to be the biggest challenge. Lacked
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sophistication and confidence, and not self-motivated enough, SMEs’ participation fell short of Li & Fung’s plan, or Li & Fung missed to have SMEs go online easily and adopt the model rapidly. Li & Fung failed to acquire new SEMs customers in a short time and faced the danger to the connections with existing clientele, the dot-com bubble crash and the 911 event further impacted the social environment and the impression about the Internet model, and these factors led to the end of the venture.
The result showed the issues about how to prepare customers for new service adoption, how to handle the situations for service transition, and the risk management planning about the economic situation change in advance.
In addition, these managerial issues happened to be interrelated. In this case, the system function and interface design affected the customer adoption. And we can assume that if Li & Fung had organized extra online department’s employees to help SMEs, maybe the customer interface wouldn’t even be an issue to the operation of StudioDirect.
Table 6 Issues of lifung.com/StudioDirect
Sets Examples
IT-Related
User-unfriendly System function and the interface.
Actually, the StudioDirect platform, order-tracking, and back-office functions are all performing well; it is perhaps the customer interface that is not as successful. ([16], p. 3)
Suh surmised that the front end might have been too complicated for its unsophisticated SME customer base, and his team had since been modifying the customer interface and changing the sales approach to customers. ([16], p. 3)
Management-
Most business was conducted through a physical sales force rather than the website. ([16], p. 2)
Clients still preferred to rely on Li & Fung salesmen rather than StudioDirect’s Internet services. This forced salespeople to spend time with SME customers that Li & Fung had previously avoided, rather than seeking new leads
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or assisting their existing clientele. ([16], p. 2)
What was the chance that Li & Fung’s offline operations would eventually migrate online after lifung.com had proven itself as a reliable and established model? ([17], p. 15)
It’s true a mix of old and new, but what’s united through this mix is the culture, and that’s what makes me most proud of our team. ([17], p. 9)
The social sentiment, the investors and the
Ironically, the company’s focus group studies showed that while SMEs enjoyed the low prices, the better margins, and the differentiated products provided by StudioDirect, they lacked the sophistication and confidence to create their own products and submit them as an order via the website. ([16], p. 2)
SME customers were not as “online” as the company as the company had originally expected.
([16], p. 2)
Management believed that unexpectedly slow adoption rather than a flawed concept was the cause of StudioDirect’s early weak performance.
([16], p. 2)
The general market sentiment seemed to be that B2B e-commerce was yet to be proven, and customers scaled back or abandoned plans to conduct transactions online. ([16], p. 3)
(Source: Organized by this Research)
Furthermore, if we look into the customer adoption and the unexpected service providing process issues, the case analysis led to some interesting questions about the service process design and the relationships between service provider and customer.
To service those unfamiliar SMEs, Li & Fung’s service providing process could be viewed as the selling process, the production management process and the manufacturing process in a general way. The selling process stands for getting orders from SMEs, the production management process is about managing each SME’s order
To service those unfamiliar SMEs, Li & Fung’s service providing process could be viewed as the selling process, the production management process and the manufacturing process in a general way. The selling process stands for getting orders from SMEs, the production management process is about managing each SME’s order