The Pirelli Group is one of the top tyre manufactures in the world, with headquarters in Milan, Italy, and 102 plants in 14 countries employing more than 51,000 people in 1991. The company also had sales and marketing presence in many other countries. They are major suppliers of higher-rated (performance) OEM tyres for the world’s leading performance sport cars such as Porsche, Jaguar, and BMW. Pirelli is known for its tyres, but they are also the known as the second largest provider of electronic cables worldwide.
In the early 1990’s, the company faced the challenge of the emergent evolutionary nature of the ‘Global Economy’.
Automobile sales fell worldwide in those years, resulting in drop in tyre sales. Coincidentally, sales in their second major product line fell when worldwide spending on telecommunications and energy also dropped sharply. The demands of the global market were high and competition was fierce. The company needed quick recovery to its accustomed level of profitability. The management team developed a plan that focused on the core products, cost cutting, and improving competitiveness by developing new technologies in response to customer demands; they needed fast access to information.
Pirelli needed to go ‘Global’ by changing various information systems in other countries to one standardised system. Pirelli’s corporate director of information, Arrigo Andreoni was given this challenge to implement his selection, SAP R/3 ERP software, and do some company-wide re-engineering and believes in a carefully measured pace with each change over. In order to have a competitive edge, cut costs, and meet customer demands, The Pirelli Group must rely on IT as a route to go ‘Global’.
In the early 1990’s, The Pirelli Group faced the challenge of the emergent evolutionary nature of the ‘Global Economy’, when automobile sales fell worldwide and it resulted in a drop in tyre sales. Sales in their second major product line, electronic cables, fell when worldwide spending on telecommunications and energy also dropped sharply. The demands of the global market were high and competition was fierce. The company need a quick recovery to its accustomed level of profitability.
Although, automobile sales fell, the fact that Pirelli is not a global company affected its overall profits.
Pirelli’s management team took practical steps to makes changes in their overall corporate strategy in order to have a competitive edge and maintain its profits. The first goal was to focus on core products, then cut costs, improve in its competitiveness and respond to its customer demands. Pirelli needed to implement a ‘Global Strategy’. To be effective, this strategy should be implemented through a series of stages. To develop a good corporate strategy, it is beneficial to use the ‘Competitive Forces Model’, which was developed by Michael Porter. It illustrated a firm that is faced with a number external threats and opportunities.
Competitive advantage can be achieved by improving the firm’s ability to deal with customers, suppliers, substitutes, and new entrants. Information systems work along with corporate strategy to standardise business transactions electronically.
There were numerous information systems being used in all the countries where Pirelli operated, these were all developed locally with no guidance from the corporate office because Pirelli had not yet established any international standards in either hardware or software.
This made data-sharing across national borders very difficult. Mr. Arrigo Andreoni, Pirelli’s corporate director of information, came up with an Information System Strategy in order to respond to the new corporate strategy. Pirelli’s worldwide IT infrastructure would have to be redesigned and standardised. Andreoni selected the SAP R/3 ERP readymade software that includes a module for production, factory automation, finance, sales, purchasing and personnel. He wanted to establish a fully-fledged global network, where each national unit will be linked to Milan headquarters, this would help to speed up executive planning functions.
This would also aid in greater communication of its employees no matter where they worked. Culture would be the biggest problem facing this Strategy. 2. 1. 2 Implementing the Information System Strategy In order for this new Strategy to work, all departments must be aware of the corporate strategy and must be willing to make the change. They must work in harmony with the overall goal of the business. This would be a challenge for the other units around the world, because they are used to doing things their way.
Andreoni’s plan for ‘Democratic Governance’ appeared to be good, because culture is very difficult to change in a business. It could be stated that in waiting for the other CEO’s to accept the new idea, and make their minds as it were, the business could have major losses. They need to be convinced that it is the best thing for the business, and if the company continued to reduce profits, they will be out of a job. Andreoni’s plan could go hand in hand to assist in the development of a Global company while bringing about the desired change.
Research has shown that global companies can be very effective in reducing production costs, and meeting greater customer demands, it can also improve its competitive edge. Some challenges of new system are; the legal aspect of Andreoni’s strategy. In some countries in Europe, information sharing across international boundaries is prohibited, this could be very disastrous, because business can be lost, and the reputation of the company is also at stake. Other problems such as foreign exchange rates, tax laws, accounting practices and language barriers are obvious to occur.
On the other hand, the new system can speed up the decision making process, and improve reliability of the products and services to a global market. When deciding on the software to use, it is good to keep in mind, the cost and the time it would take to actually have the software ready to use. Readymade software packages are being used worldwide, while some prefer to build their own systems. The use of SAP R/3 would be advantageous to the strategy, since it is a world leader in almost all industries and it is a proven product. While some companies opt for readymade, some prefer to design and build their own systems.
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