Korbel Wines Case Analysis Essay
Korbel Wines Case Analysis
Korbel Champagne Cellars had started back in the mind 1800’s by three brothers that had emigrated from Czechoslovakia. Initially the business started as a materials company for the building industry. However, the brothers had to divest their materials company once they discovered that the sector was slowing down. Eager to take advantage of the Russian River Valley’s growing opportunities they soon discovered that they could grow Pinot Noir grapes and experimented with wine making.
Due to this success in 1882 much of the ranches’ land was transformed from a normal farm into a vineyard. Surviving Prohibition, the champagne maker’s ownership was transferred from family hands to Adolf Heck under conditions that the buyer would carry on the tradition of making champagne from methode champenoise. When Adolf retired from the business, Korbel’s reigns were handed off to his son Gary. Unlike most bosses this owner of the company grew up with the product that was produced learning the ins and outs of the business from his father.
With ingenuity and dedication the Korbel name is internationally recognized, has become the 9th largest wine maker in the US, and also hosts a variety of wine properties such as Kenwood Vineyards and Valley of the Moon Winery. SWOT Analysis: Strengths – 1) Gary has grown up in the wine making process (from the grapes to the selling of wine) – This can be seen is a strength to the company because hits current owner has had experience in making the product from start to finish. Because of this experience Gary is able to make sound decisions as to how his wine is going to be made and what needs to be done to make a quality product.
2) Korbel sells more than 1. 3 million cases a year – This is a strength for Korbel because the sales show how popular and well know this brand is to the public. 3) $150 million in revenues – This financial information points to how well Korbel is doing and possibly what it can spend for improvements. 5) Cheap price (about $10 – $15 per bottle) – The pricing point for these wines/champagnes means that the company is shooting for a more mass production type of manufacturing model. Instead of high profits per bottle, the company is shooting for selling more products at lower margins.
Weaknesses – 1) Still using an unsupported Pansophic ERP system to document data – This is one of the internal IT weaknesses that the company is experiencing in the case study. Not only is there no one out there to help this company if this software does go down but it causes significant waste in time an effort to gather data needed. As the saying goes “Time is money”. 2) “Cognos BI is dumb as a brick” (inconsistent inventory levels because of system) – This factor is an internal risk because it is an inefficient information system that cannot tally the correct amount of bottles available in inventory.
This can lead to loss sales if the inventory is not correct (Korbel could be selling bottles the company does not have or it might be not selling enough bottles, both of which will lead to losses). 3) Revamp of Pansophic ERP is a mess and required a consulting company to help fix it – This factor is an internal weakness because the new system that was supposed to have replaced Pansophic is completely out of budget and well past the initial due date. The case also states that this new system is testing and rolling out too many modules causing a backlog. 4) Current datacenter is a converted office.
– This factor can be considered a weakness for it seems that despite how large Korbel’s organization is. This information points out that a mere converted office is used to house its current data center. This hints that the datacenter itself is not living up to expectations and could be the cause of all of the IT headaches that this organization is experiencing. 5) IT investment was not managed well, nor was it integrated into the rest of the business – A business that does not have a good IT back bone in this day and age is viewed as a weakness for IT helps streamline the communications and much of the data flows within any organization.
An inadequate system can lead to waste in time and other resources, threatening the competitiveness of the company itself. 6) Has all data on wines but cannot get information fast enough – This factor points to the fact that the current IT system is a mish-mash of IT systems that do not efficiently and possibly effectively communicate with each other. For example, if the FDA invokes the 2002 Bioterrorism scenario, Korbel can face fines and possible company closure for not getting information to the government agency on time.
Opportunities – 1) IT has become an integral part of wine making – This is an opportunity for Korbel after it has addressed its current IT difficulties to overtake its competition in this area. 2) Internet is another way to sell and market product – Physical retail stores require the product maker to pay a stocking fee to put their items on the shelves because there is only so much space physically to store items. If a company decides to open up their own internet retailer they can cut out this middle man and sell directly to the customer.
Threats – 1) IT in winemaking industry is still in its infancy – This is a threat to the industry as a whole for there are not that many models that wine makers can adopt in regards to how to successfully integrate IT into their businesses. 2) Winemakers exist in a very highly regulated industry – Rules and regulations increase cost and time because they have to be followed to the dot in order to avoid fines and possible company closure if they are not followed. 3) Internet wine distributors/stores have to conform to various state commerce laws – Interstate wine sales are governed differently by each state.
For example, certain states do not allow non-state created wines to be sold to its citizens. A web based company would have to make sure they abide by all of these regulations which are why companies that do sell wine online have the customer choose what state they are ordering from and then the wine selections change accordingly. 4) Telecom infrastructure of Russian Valley is intermittent and vulnerable to weather – This is a significant threat to Russian Valley for emails and land line based phone calls can disappear should in climate weather roll across that particular region.
Delays in information can lead to lost sales. One such example would be an email that was sent to notify the vineyards of an upcoming frost that was never received could lead to a massive crop failure. Analysis of SWOT: The following section details the issues that this company faces internally and externally. The SWOT analysis shows that internally the company is doing well in the age-old occupation of making wine. However, this is offset by a really big weakness found in the IT area of the business.
Information and data such as what wines Korbel has in inventory at its warehouses, what is contained within those wines, and the origin of those ingredients can take days to gather together and require employees to be taken off their original tasks and put onto this request. This indicates that the IT infrastructure is in need of repairs in order to bring this aspect of running a business in the twentieth century up to date and online. Externally the company has opportunities. One of these is online retailing. This could open up doors to more revenue streams for it will cut out the middle man in the alcohol equation.
However, the alcohol industry as a whole has to abide by many rules and regulations that affect how one does business. On major obstacle is how each state treats its alcohol sales. For example, certain states forbid the sale of out-of-state wines so any customer from that state would see a different alcohol listing compared to a customer that is ordering from a state that does not have such a regulation. Should Korbel not decide to take advantage of this opportunity of online retailing it will still have to deal with obtaining information needed to satisfy the FDA should a Bioterrorism inquiry be initiated on any of its wines/champagnes.
In both internal and external environments, it seems that Korbel needs to fix its IT infrastructure first before going ahead to other agendas. Current Corporate Strategy: According to the history found in the case it seems that Korbel is focused on stability as its main corporate strategy. It is currently capitalizing on its cash cows, in this case champagnes. The company seems to have stopped acquiring new vineyards and has already developed eight families of champagne. It is already a well known brand and sales currently make it one of the biggest producers in its industry.
Business Level Strategy: The business level strategy is focused on holding its market share. The company would also like to increase its market share, by possibly entering new markets, including overseas markets. Recommendations: Based on the information given by the case study, this company should focus more on the IT infrastructure improvements in order to shore up its weaknesses and then be in a better position to take advantage of the opportunities and weather future threats. Currently the business’s corporate and business level strategy points to the fact that it is focused on stability.
We believe that this is the right place for this organization to be right now for its champagnes are well known and profitable, sales are relatively strong, and it already has a diverse product line of wines and champagnes. In order to enable its growth into foreign markets, however, it must have better information, and information that is faster to obtain. For this reason, the company must reexamine its information systems infrastructure, and make the following changes: 1)Create a new data center: a.
The data center that currently exists at Korbel is not robust enough to meet the current demands of retrieving information accurately and on time. A new data center would require a significant expenditure in equipment such as cooling units, servers, routers, data storage drives, cabling, and personnel that are trained to keep this center up and running. Depending on the amount of data that this center needs to process the current office that the old one is housed in may not be enough. It may come to the fact that a new room or building is to be used to house all of this and will add to the cost.
However, the benefits of this upgrade will far exceed the costs of getting there. For example, information from one vineyard can be integrated with other vineyards to make sure that they are operating at peak efficiency. Data that is stored in a single system can be easily accessed and cross referenced so that Korbel can more readily meet any demands the FDA or other agency might have. 2)Get rid of old IT systems and move onto one general system or new replacement systems at a stepped or phased process: a.
The old Pansophic ERP and Cognos BI should be replaced eventually but the way that the replacement process is being handled is atrocious. A plan should be made to convert these two systems into one generic system that handles both sets of data or be replaced by better versions that allow both systems to communicate with each other. Right now, much of this has been muddied by multiple modules that are being implemented at the same time. A better way to do this would be to focus on the crucial modules first and implement them one by one.
Additional work can be done at a later stage for “wants” so that the project can be completed on time and will be on budget. It would not be appropriate to fire the consulting company that is working on the project at the moment. However, for future upgrades it might be necessary to consider other companies that would do a better job. Additionally, training will be required for Korbel employees who must maintain the new system after the consultants leave. 3)Partner up with current telecom provider to make infrastructure better: a.
One possible solution to the telecom issue is to partner up with the current telecom provider and see if the company can help in making the lines more durable during inclement weather. This is a very high cost option but the results may pay off because the community that relies on those telecom services will benefit as well. With clever marketing this can be transformed into some nice PR. Another solution would be to use satellite communications systems rather than ground-based systems, since these are less likely to be affected by weather conditions.
4) Have a back-up wireless internet connection: a. Instead of relying on the above strategy it could be possible to have a back-up system be made to rely on wireless communications. Currently many blackberry users are able to access internet via wireless so using that system only when inclement weather is in effect may help. This would not have the same PR impact as the remedy stated above but this one could cost less. These four suggested recommendations should be able to provide the revamped IT infrastructure that Korbel needs.
Once these are implemented much of the threats in the external environment will be neutralized and the internal environment will be shored up. Case Questions: 1. What steps should the CIO take to enable Korbel to comply with the government regulations regarding the required reporting? What kinds of information are needed? The first step would be to fix the WiPs program by evaluating an alternative to the WiPs program through a through cost and benefits analysis. Building out input validation controls for the data acquired will reduce the inconsistent data currently gathered.
The next step would be to explore the option of building a new system or purchasing a 3rd party product. The third step would be to generate back-ups. Finally they would move this data over to a new program that will be able to generate these reports on a much faster basis. This would ensure that Korbel would not be hit by extraneous fines should the FDA make a request and they miss the deadline by using the old system. The required information that needs to be gathered to comply with federal regulations area: the origins of glass, corks, and grapes for each bottle produced.
Other information that is required includes what casks the wine is stored in as well as the type of yeast used. Being able to produce the requested information in less than 24 hours is also required. 2. Why do you think it is difficult for the different packages to communicate among each other? What would you, as CIO, do, to change this? One of the main issues that would prevent the two systems from communicating with each other is that they could have been written in different code. Another reason would be that the systems were never created to communicate with other systems.
Considering that Pansophic does not have any support it means that the people that are trying to get these two systems to talk to each other have no assistance from outside tech support. I would use our second recommendation of retiring the old IT systems and moving towards a general system or new replacement system in a stepped manner to ensure that the avoid the debacle that occurred in implementing the BI and ERP. 3. One of the solutions proposed has been a new data center. What would be needed to establish such a data center?
Address this question in terms of what equipment might be needed, what kind of infrastructure (building, temperature control systems, and data storage) might be needed. How would you, as CIO, justify the cost of this investment? The first recommendation made answers this question. The recommended required materials for this data center would include: cooling units, servers, raised floor boards, routers, data storage drives, cabling, virtualization software, personnel, and support training. In terms of the building it would be determined by how much data this winery plans to have.
If there is a large amount of data that cannot be handled by the virtualized servers then it may require that a new building be built to accommodate these needs. Additional needs for the building include adequate fire extinguishers and physical security controls (e. g. , locks, biometrics, two-factor authentication). There is no doubt that this will be a large effort for the company to undertake. The advantages of having a reliable reporting environment that is compliant to industry regulations is worth the upgrade costs. This would mean they would be able to save millions in dollars by avoiding fines for non-compliance.
This can also help with better sales analytics which can help identify sales trends and pricing trends. 4. With respect to implementation of new projects, particularly the ERP system, do you think it is appropriate to implement all parts simultaneously, or should implementation be phased? What are the advantages and risks with these two approaches? The new systems should be implemented in a stepped or phased manner to ensure that the parts are actually working and that if there are system issues they can be addressed in a timely manner.
It may be a good idea to run the new set-up parallel to the old system to ensure that things are working correctly. However, this is a high-cost option. The risk of implementing everything at once is that you often cannot see where the origin of where an issue occurs. As a result, this will lead to a lot of down time and a lot of upset employees trying to figure out where the problem is. There is also the possibility that the entire system could crash during the implementation. Backup and recovery plans should be tested thoroughly before the implementation to help mitigate this risk.
The one benefit is that once it is implemented the project is technically done. The risk of implementing everything in parallel and tiers is the increased costs. Not only are you spending money on having resources take care of the new system but they are also being forced to address the issues on the old system as well. There is less business disruption with this approach. This also ensures that all of the previous functionality will be implemented eventually. This method also takes longer and if there are no defined milestones then the project can seem to stretch on for ages. 5. Should
consultants be hired to manage the implementation of new projects? Why? Why not? What are the risks and benefits? The company has bad history with consultants. Consultants were brought in for the implementation of the ERP, which ended up being disastrous. Proven track records from other consulting companies are important for Korbel when exploring consulting options. The risks for bringing consultants in would be higher supports costs and the possibility of additional costs for extra services. Furthermore, the company could become dependent upon consultants and may be subject to higher support costs in the future.
Many consultant agreements have a certain number of support hours included in the contract. However, additional support for large implementation or off-hours support may result in more hours used than originally budgeted and could result in unplanned expenses. The benefit to consultants is that you have access to individuals who are specialized in particular areas. The company would not need to invest in hiring IT employees and paying to train them. Nor would they have to deal with employee turnover, which could result in delays in projects/support.
Based on its past experience it would be a benefit to hire a consultant to assist the development of a better alternative to the WiPs, ERP, and BI systems but also have employees from the inside engage and learn from how the consultant came to those decisions if possible. 6. With respect to the Business Intelligence system’s outputs, why do you think the outputs were inconsistent? How would you approach a solution to this problem? Inconsistent, toxic, and incorrect data are some of the reasons why the report outputs are invalid. There is also a lack of controls to ensure the data is gathered and secured without tampering.
The best way to fix this would be to go through each of the data inputs at each point where it is gathered, to ensure that data is being correctly provided into the system itself. In addition, data input validation should be implemented to ensure the data inputs are correct at the source and at the time it is gathered. Additional access controls to ensure the data is securely transferred to the reporting engine should also be implemented. 7. Currently, email and internet access is periodically cut off due to the phone line failures.
What kinds of solutions do you propose for this telecom infrastructure problem? Can you see any other business advantages that could be gained by implementing a new system that is more reliable? Our recommendation was to have a partnership with a telecoms company to come up with a better system that is more robust. Also a good idea would be to have a back-up wireless connection so that the likelihood of losing all communications is hedged. The main business advantage in having a robust telecoms system is that the important information that is relayed ensures that the business is being operated properly.
For instance, if the business needed to know of an impending snow storm they can be contacted and take necessary precautions to avoid the loss of product. The same go for impending frost, which can kill of a lot of the winery’s crop if they do not know what is coming. Building a reliable infrastructure is very important to the company. Building out business continuity / disaster recovery plans to insure critical system are backed up and operations are part of this reliable infrastructure. 8. How would you improve communication between the executives and IT staff about the business?
The use of project scorecards to indicate the status of IT projects will allow executives to step in to mitigate issues and obstacles. The scorecards could report on the current projects progress (status, metrics, costs) using indicators such as stoplights. Monthly staff meetings between the executives should be used to ensure that all parties are on the same page and to go over the project scorecards. Implement a lessons learned meeting after each project is completed. 9. What kind of qualifications do you think the CIO should have?
What skills should this individual have? Technical? Business? Other? A CIO should have both technical as well as business skills. They should have a general understanding of the technologies being used in the business as well as an understanding of the wine industry. In addition, the CIO should have good communication skills also familiar with the regulations in the industry (federal and state). They should also have the necessary technical skills such as project management, resource management, as well as general IT knowledge.
University/College: University of Arkansas System
Type of paper: Thesis/Dissertation Chapter
Date: 19 March 2017
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