Boston Technical Recruiter

Copyright Gene Leshinsky, distribute freely with proper crediting

Organizational Background

Techruiter, Inc. (TECHINC) is a consulting firm specializing in providing IT solutions to a wide range of industries and clients. TECHINC has a Staffing Division that operates as a staffing agency performing individual Staff Augmentation projects.

TECHINC competes with other systems integrators as well as staffing agencies by providing solutions and staff augmentation services.  Solutions are project based work when a TECHINC sales team approaches a client and bids to resolve a certain issue the client is having with its systems. If the bid is successful, TECHINC produces the plans as well as the talent to solve the problem. When TECHINC participates in staff augmentation projects it is often for one resource to augment a project team already onsite and not managed by TECHINC.

TECHINC is a very small company compared to its rivals such as Accenture, Ajilon, and Keane, amongst thousands of other companies in the industry.  TECHINC has a very simple technological footprint that is anchored in Microsoft Office with Outlook and Yahoo messenger anchoring on a base of laptops, PC’s, and phones.

TECHINC has two important asset and competitive advantages: 1) its people and the ability to find and recruit these people, 2) its clients and the ability to sell effectively to these clients.

The sales organization at TECHINC will have the same benefits as the recruiting. Substituting sales for recruiting as it pertains to the Staffing and solutions business is equitable since each side succeeds by building strong relationships.

Technology Introduction

Applicant Tracking System (ATS) that is geared toward recruiting and is often bundled with a sales CRM. The system enables the user to create a database that stores all the information about a candidate and a client and allows detailed search functions. Currently there is no ATS system installed at TECHINC and all candidate relationships are manages haphazardly through email and old service order agreements. The ATS database enables the recruiters to search for candidates based on skill sets and various parameters. The system can be web based or server based and can support multiple users simultaneously. The ATS also has integration functionalities and can integrate into legacy email and browsing applications. [Dmoz]

The ATS provides reporting services to recruiters and managers that are displayed on a dashboard and allow the users to know exactly what is happening in real time including active candidates, open positions, upcoming opportunities, terminations, “hot sheets” recent contact lists, gross profit, and Revenue. Additional information may be configured on an as needed basis, such as birthdays, company events, and news items.

The ATS system will also enable TECHINC to follow government discrimination and information collection policies through automated questionnaire distribution and collection.

Use and Benefits

Adopting an ATS will have the effect of enabling TECHINC recruiters and managers to recruit and evaluate the talent pool effectively. Currently there is no process of candidate review and if one recruiter finds a candidate that may be good for a project another recruiter is working on, the two recruiters have no way of coordinating their knowledge to identify the opportunity. TECHINC recently lost an opportunity due to this communication inefficiency potentially as large as $21,000 in revenue.[i] Currently a recruiting meeting to discuss 5 open jobs takes 30 minutes; an organized ATS would reduce this time to less then 5 minutes, likely eliminating the meeting since the manager would have a dashboard with all current activity and the ability to delegate from this dashboard with a  drag and drop approach. The less time recruiters spend in meetings the more time they have on the phones recruiting.

Furthermore, an effective ATS will enable TECHINC to track its applicants and comply with Federal reporting guidelines.[ii] Failure to comply can lead to heavy fines and duress when an implementation is no longer optional.

Competitive Uses and Benefits.

An ATS will increase TECHINC competitive advantage over time by aggregating a large database of qualified candidates that will not be available to other recruiting or solutions companies and that will add value to every TECHINC sales presentation whether on the staffing or the solutions side of the business.  A TECHINC recruiter can enter 250(8 per day) candidate entries in a month, or about 3000 candidates per year.[iii] Given its 30 year history, TECHINC should have 90,000 candidates in their database all specializing in database design and development within information technology. The actual number of candidates in the TECHINC database is 0(since there is no database). Since staffing firms all have some version of an ATS and more then one recruiter, TECHINC is competing at a large historical disadvantage. For example, searching for a fringe skill on the public job boards is elusively difficult, while a well maintained database can yield excellent candidates in seconds.

The competitive advantage of data mining passive candidates and those who have worked on TECHINC projects in the past cannot be valued since the effectiveness of a database depends on the skill of the recruiter using the database as will as the efficiency of the search mechanism within the database. However, the ATS would enable TECHINC recruiters to quickly access a known pool of candidates forgoing the public job portals and making use of their historic data to staff both projects and staff augmentation opportunities in significantly less time then is possible without an ATS database. TECHINC would have candidates ready to go faster then the competition, getting the candidates to the projects and client sites faster and achieving a “first to market” advantage.

The ATS must be implemented immediately at TECHINC. Further hesitation only leads to a continued disadvantage in the face of highly skilled recruiting engines of the competition.  Implementation of the ATS/CRM will build the foundation for the future growth of the company by building the infrastructure to support new sales and recruiting staff and facilitating communication within the company.

Technology Analysis

The technology of an ATS/CRM is a natural extension of the human capabilities of individual recruiters and sales managers. An individual recruiter cannot memorize 3000 names and recall in an instant the candidate with a specific skill set that was submitted to particular opportunity 7.5 months ago. Nor can a sales manager remember the birthdays of all the client managers or when to congratulate them with a graduation and take the opportunity to build the relationship. The ATS/CRM does this and all the user has to do is remember a very general skill set or look at a dashboard and realize that it may be a good time to reach out to a prospect.

Without these technological advances that are readily available on the market and that will continue to evolve in the next 5 to 10 years, recruiting and sales cannot compete with everyone else who uses these systems to augment relationship building acumen. The risks of losing data associated with a large repository are insignificant to the risk of losing competitive advantage through not having an ATS. While there are alternatives to the ATS such as Outlook and Excel, these are so standard in the market that not having them would drive you out of business, while having them gives no advantage at all since they are ubiquitous.

ATS/CRM are evolving constantly and adding capabilities. Integrated search engines, contact managers, tools that automate recruiting to the nth degree are emerging in the market. However, these innovations cannot have a drastic effect on the current systems unless they completely take the human element out of recruiting and that is science fiction for the present time. The individual recruiter will always be the relationship builder even if he only has to think to put in motion the IT functions of his tools.

Addressing Operational and Competitive Risks

The cost of adoption depends on whether the software is ASP based or out of the box.  Out of the box software can cost $500 - $1000 per license, while an ASP or SaaS package may cost $1000 to $2000 annually. Since there is no legacy system to integrate with at TECHINC nor is there a server that acts as the central database for collaborative software to be installed on the server, TECHINC will have to select the ASP. The initial cost is that of purchasing the license for the number of users who will have access to the system.  TECHINC currently has 20 employees, with an estimate of $1000 per seat, which is $20,000 per year.

The ROI will come in 3 months as $20,000 is less then what 1 TECHINC contractor brings in gross profit in 3 months.  This is just the payback since the true benefit of having a comprehensive business intelligence tool and database is essential for the company to stay competitive.

Furthermore, a careful analysis of a recruiters[iv] output in 1 year clearly illustrates the tremendous value of having a database. The recruiter contacted, spoke with, and submitted close to 900 candidates in 1 year. This means that if the recruiter were to call these 900 and ask for 3( conservative) referrals or references, that would put him in contact with an additional 1800 viable prospects/ candidates, assuming a very conservative 10% lead generation from the 1800 prospects, that’s 180 new potential clients, assuming a further 10% conversion rate of 18 new clients per year, with every client having at least 5 requirements that are filled by TECHINC recruiting at an average gross profit of $30,000, that’s $2.7 million in gross profit per year just from prospecting. Assume further, that TECHINC entered its client data from the last 100 engagements and had a sales manager call these companies systematically inquiring about opportunities, suppose 20 companies had active requisitions and knew TECHINC for a good company, and further assume that each company gave TECHINC 5 reqs that year; that would be another $3 million in gross profit. Thus in a single year, TECHINC could make nearly $6 million in gross profit simply by having an effective ATS/CRM coupled by a lead oriented recruiting process.[v]

The ATS will also enable managers to measure sales and recruiters metrics in a more organized methodical nature.  The tracking functions will tell managers which recruiter contacted how many candidates and the results of those contacts. The manager will also have a dashboard that will enable him to see all the current activity without spending countless hours in meetings.

The most significant risk associated with having a central database with thousands of candidates is that an employee may decide to steal it and start their own company. The best way to defend against this is to restrict export and download capabilities within the ATS and this threat is eliminated.  Not even the administrator of the ATS systems should have total access to the database export and download controls. Only the owner of the company should hold the key to the database. If the data leak occurs then the company can rely on non disclosure and non confidentiality agreements to sustain proprietary information, however to rely solely on an NDA will probably mean that the company will eventually lose its database. Regardless of this risk, the company will not lose its competitive advantage while allowing a consideration such as this to stop an ATS/CRM implementation is unwise.

The company can do nothing and follow its present course leaning heavily on the sales side to bring business and scrambling to find qualified candidates on the public job boards and outsourcing recruiting to other companies. The cost of doing nothing is equal to the lost opportunity ROI. Not adopting the new technology is like closing your eyes to the obvious and suffering the consequences of your competition having the technology as a standard operating procedure while you wonder why your organization is being out recruited.

At this time, the adoption is urgent because it is 30 years overdue. Due to the small size of the company, TECHINC does not need an extensive network infrastructure or other IT applications. However, if TECHINC grows as they intend to do these upgrades will be come necessary and the ATS implementation will be necessary if more recruiters are added to the team.

The organization is a laggard. Most recruiting organization have an ATS or some database of candidates they have recruited in the past.[vi] However, since there are only 2 recruiters, both of whom have such different styles of recruiting as not to interfere with each other, the ATS is only necessary because one of the recruiters can start building the database for the company. Since there is no database, the recruiter will not have the tools to build it.  The company can wait until it grows to several recruiters who will begin to step on each other by calling candidates who have already been called but there is no way to track that in the non existent ATS. When this becomes a problem then implementation will be absolutely necessary to avoid the recruiting team from imploding in a political battle.[vii]

Adoption Consideration Process

The process for implementing an ATS is simple. First TECHINC will need to engage all stakeholders and sell them on the idea. Then a software package needs is selected and installed. [Hr-Guide] After the users are trained in the new system the business is ready. The entire process should not take longer then a few weeks.

The business process would not change much as the same processes will have to be followed by sales and recruiting but they will need to be documented using the new system. The adoption of the ATS will also mean immediate payback for managers who will have activity and performance metrics in front of them the same day the system goes into effect.

The benefits of implementing the ATS/CRM far outweigh any risk, and the ROI is excellent, both in monetary terms and those of business process.

 

 

 

References:

 

[Dmoz]

http://dmoz.org/Computers/Software/Human_Resources/Recruitment_Management/

[Hr-Guide]

http://www.hr-guide.com/data/206.htm

 

 

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[i] A recruiter was working on one opportunity and did not realize the candidate was good for a different opportunity. If the candidate had placed at the missed opportunity the resulting revenue would have been $21,000.

[ii] Federal guidelines require the accurate collection and storage of information pertaining to applicant and applicant diversity. Companies’ larger then 15 employees are mandated by EEOC to perform this tracking. See http://www.eeoc.gov/

 

[iii] I have developed ways of measuring my own metrics without an ATS.

[iv] I submitted 250 candidates, generated 100 leads in 9 months, and the total conversion gave the company probably around 20-25 reqs. Of which we filled around 50%.

[v] In reality, one of these companies could give TECHINC 50 reqs per year. I tried to be conservative, but strong relationships in this business can mean millions to the bottom line.

[vi] Smaller shops and individual recruiters can make due with Excel spread sheets and Outlook, however once a company gets beyond the 2-3 recruiters, it is extremely poor planning not to have an ATS and will cost the company its competitive edge.

[vii] I have seen this happen, “candidate ownership” is a thorny issue in agencies. Recruiters guard their candidates with extreme jealousy and management usually takes great pains to make sure the ownership is respected though out the organization. If not the “recruiting pit” becomes a nightmarish place to work and the “recruiting engine” loses efficiency.

[1] A recruiter was working on one opportunity and did not realize the candidate was good for a different opportunity. If the candidate had placed at the missed opportunity the resulting revenue would have been $21,000.

[1] Federal guidelines require the accurate collection and storage of information pertaining to applicant and applicant diversity. Companies’ larger then 15 employees are mandated by EEOC to perform this tracking. See http://www.eeoc.gov/

 

Techruiter School Papers Applicant Tracking System, boston job candidate, boston resume help

Copyright Gene Leshinsky, distribute freely with proper crediting.

IT enabling

IT makes loyalty programs more feasible by facilitating the creation of large volumes of researchable data that describes the consumer, thereby providing sustainable competitive advantage to the company through effective use of knowledge systems. Reward programs have existed for more the 100 years from as early as 1896 with S&H Green Stamps[Wikid] beginning to issue redeemable stamps to the present with Nectar and Tesco reward programs dominating the British market and numerous reward programs through out the world from the corner Star Bucks to Credit card sky miles.  The idea of a reward for loyalty has existed since the beginning of commerce since every discount, bargain, and trade treaty is in essence a loyalty program designed to bring the customer back.

The difference between reward programs as they were run by S&H and Canadian Tire [Wikic] 50 years ago and today is the advent of IT. While the loyalty programs of yesterday were mainly paper based redeemable stamps or coupons that one had to meticulously collect and redeem, today the swipe of a Shaw’s card is all you need to get your discounts taken off your purchase. The ubiquity of reward programs has made it easier for consumers who were not ordinarily price conscious to become price conscious through the ease of redeeming loyalty points. The stunning difference lies in the amount of data that a company is now able to quickly aggregate without hiring an outside marketing and research company. Every time a loyalty card is used, whether it is a frequent flyer miles card or a Mobil Speed pass, a new set of data is added to the existing tables and archived.

The advent of IT into the rewards market has produced quantities of data that early market research companies could only imagine. This data is neatly stored in data warehouses and data mined for information that could lead one consumer to receive four coupons of particular value as opposed to his neighbor next door receiving one coupon. [Dei05]

Many companies still use the methods of pre-IT to market to their customers and attract them through colorful coupons and “Buy 10 get one free” offers, however the real players in the rewards market are those companies that have fully adopted IT into the research and reward programs and are quietly stockpiling information on their customers to learn better and more effective ways of selling the same products at higher margin.

Competitive Advantages

The competitive advantage that Nectar achieved was the information that the sponsors gained form participating in the program. Nectar also showed that if a customer could redeem his reward points at two or more locations then the incidence of the customer actually shopping at the first location increased.[Dei05] This is a fundamental behavior modification that Nectar achieved establishing a clear competitive advantage for the firms that participated in the program over those that were recalcitrant. The firms achieved a sustainable advantage as long as their neighbor across the street did not participate in the program. This also ensured that the participating sponsors knew more about their customers then those that did not sustaining their competitive advantage.

The market efforts by the Nectar team that composed the coupon mailings targeted these businesses and diminished their marketing costs far below that of ordinary mailings.[Dei05] Thus, the participating stores were able to attract new customers, but more importantly Nectar collected information on how certain customers behaved allowing the sponsors to tailor their ads with that information.[Dei05] This approach to marketing allowed Nectar sponsors that had a lagging program to compete with a state of the art system enhancing their own marketing prowess.

Such market correlation makes good sense especially with targeted marketing campaigns that were conducted on carefully aggregated consumer data. IT enabled Nectar to enable its participating businesses to gain comparative advantage by exposing their consumers to more choices and by educating the consumers about their business because of the data collected through Nectar.

Justin King [Dei05] pointed out another important strategic advantage implicitly when he described the re-hauling of ASDA program without the loyalty platform. While a company can concentrate it’s efforts on creating better values for people and attracting customers in the fashion of Wal-Mart, the rewards program is a more long term approach that can predict consumer behavior so that the company will know when and how to react giving it a competitive advantage over the company that has no rewards program and does not meticulously observe the behavior of its customers.

Technologies

Nectar is reminiscent of m-Business technology as it uses a highly internetworked approach to marketing. From the perspective of the UPS [Max03] example each reward card can be see as an individual package and each customer as part of that package. Every time a customer hits the package the systems is carefully tracking the customer’s progress. Over time Nectar learns everything about the customer from the kind of cookies a customer may like to eat during the fall to how many kids a customer has to an innumerable number of details, purchasing habits and even more obscure behaviors that many consumers would not even know they possessed. Through this the tracking system keeps a very close eye on the changing habits of a customer not unlike the tracking system of UPS can always tell you where a package is at any given time. 

Nectar also takes advantage of the internet by promoting its products aggressively on line and on its website. Nectar goes so far as to create games [Nec07a] for children that create brand loyalty to Nectar from a young age. This approach ensures that Nectar stays a dominant part of British purchasing psyche, much like the TTCP/IP foundations of the internet are critical to any future development of information technology.

Payback

Nectar provided its value by educating consumers about various products and services while collecting terabytes of useful purchasing behavior information for the program partners.  The payback is the information gleaned from the consumers participating in the program. The 1% [Dei05] cost of the program is justified by the information collected and the business intelligence collected through careful data mining of the information. This information is the competitive advantage that Nectar brings to its sponsors and enables them to know how and when to market products to its patrons. Another major payback was that Nectar allowed Sainsbury to concentrate on their business model without the distraction of running a huge reward program. Nectar freed resources that before were handling the program to concentrate on creating a more efficient retail chain.

The quality of Nectar justification to those of IT projects in general is sound. The driving business model for Nectar was that through innovating on the existing systems of customer loyalty schemes and adopting a more networked approach of open relationships, Nectar enabled the participating companies to reward profitable customer behavior at a tiny margin of their profits. At the same time, Nectar became a hugely successful business that became profitable within 2 years [Dei05] of operation.  Many IT projects are aimed at improving the communication between business users, clients, suppliers, and buyers as well as internal communication; Nectar successfully created the framework for such collaboration with a hefty profit margin of 23% [Dei05].  

The complaint against Nectar and many loyalty programs is that they give back a deceptively small “Reward” percentage and seldom redeem for cash.  Nectar makes money on the spread between the points sold and purchased, but also on those that are never redeemed [Dei05]. These points are like rebates for customers following the “use them or lose them” principle.  A reasonable modification would be to begin to reward consumers more and to treat them almost as partners. The effectiveness of the loyalty card could be measured by how enthusiastic customers are beyond the 59%. [Dei05] An approach that would actively seek out increasing loyal consumers can only add to the data gathered and further reduce the cost of the enterprise.

Nectar already issues credit cards [Nec07] that enable shoppers to collect automatically on every purchase regardless of whether the retailer is in the program or not thereby creating a total rewards scheme.  One way to enhance this program in particular is to automatically enlist companies where the credit card is used on a free basis and send those potential partners sample market data about their consumers that would convince them to join the program and make Nectar even more popular.

System Extent and Visibility

The Salisbury Reward program was dropped as a direct result of the outsourcing of the loyalty program to Nectar. This may have had the BPO effect of elimination the departments that ran the rewards program such as the marketing wing that analyzed the data from the program. The cross functional impact on the internal working of the company was a scaling down of their resources and cutting the cost associated with running a reward program.  Nectar took an internally visible system and transformed it into a complete external facing operation where everyone could observe the working of Nectar from the individual consumers to the suppliers and partners.

The dismantling of the internal rewards program was a major business structure impact on Sainsbury. All the employees and departments that operated the Sainsbury rewards program such as marketing, procurement, and IT had to be retrained, reassigned, or terminated. The managers that previously gave their attention to managing the reward program could now concentrate on enhancing operational agility and cutting costs, while growing Sainsbury’s revenue without the distraction of a large internal project. The cashiers that signed up the Salisbury patrons for the Nectar program had to be trained and motivated to promote an outsourced program. The data collecting mechanisms of Sainsbury had to be re-architectured to embrace the inputs from Nectar, while the POS systems that process the internal rewards program and in I/O devices that fed the in-house data marts had to be reorganized and reengineered, potentially at cost to Sainsbury’s.  While cutting out a large operational wing of Sainsbury, Nectar cost the company more then 120 million pounds [Dei05] per year, which gave Justin King a pause when it came to re-evaluating the program.  King’s concern was that the cost of the business structure impact of spending millions on Nectar while competitors where investing in staff and infrastructure and internal reward programs may not be justified.

Sainsbury did not massively outsource any of its operational functions before the introduction of Nectar. [Dei05] This change in culture of outsourcing operations was a major break with their traditions and ushered in a profound change for the management of Sainsbury. The individual managers down to the line cashiers had to contend with a third party marketing one of their most effective promotional tools and sharing that marketing mechanism with their competitors. [Dei05] The collaboration of internal and external resources that market Nectar to customers is a cornerstone of Nectars’ success. This new culture of working with an outside force was a major realignment of the Sainsbury culture and the psyche of its employees. The culture of working within the organization had to transform into one of external visible federation as each partner benefited directly from Nectar running the reward program while the partners improved on their core business model without distractions.

Reference:

[Wikia] “Loyalty Programs”

http://en.wikipedia.org/wiki/Loyalty_program

 [Wikib] “Tesco Clubcard”

http://en.wikipedia.org/wiki/Tesco_Clubcard

[Wikic] “Canadian Tire Money”

http://en.wikipedia.org/wiki/Canadian_Tire_money

[Wikid]“S&H Green Stamps”

http://en.wikipedia.org/wiki/S%26H_Green_Stamps

[Dei05] Deighton, John. “ Nectar: Making Loyalty Pay” Harvard Business School, 2005

[Max03] “UPS to deploy next-gen wireless handheld”,  April 2003, www.maxis.com.my/business/MBAOnline/archive/mba200307a/mba_cs200307.htm

[Nec07] Nectar Website

http://www.nectar.com/earnpoints/americanexpress.nectar

[Nec07a] Nectar Website

http://www.nectar.com/dynamic/nirvana/noleftnav/fun

 

Techruiter School Papers

Copyright Gene Leshinsky, feel free to distribute with proper citations

 

Common Factors for Difficulties

There were many common factors for difficulties for Nestlé and Nike as each embarked on projects of vast proportions that had not been attempted by companies of their size before[Wor02,Koc04]. Neither company realized that changing their supply chain and resource planning structures would mean very prolonged planning and analysis of their core business systems. They failed to implement broad business process changes before rolling out the software that would make them more agile and competitive.  Neither realized which modules of the SCM and ERP would integrate seamlessly and which would not, i.e. i2 and AFP.  Both companies outsourced the software implementations to SAP this was at once a success factor but also a point of difficulty since Nestlé had to make a last minute change in demand planning software from a core SAP product to Manugistics while Nike turned to i2 which in turn led to their SCM debacle. Nike turned to i2 because the SAP module that Nike wanted was not ready for implementation and such companies as Reebok [koc04] had serious issues aligning their legacy systems and the new modules. Nestlé on the other hand did not trust the existing version of SAP demand planning tool for their forecasting and went with a SAP partner, Manugistics. However even this did not save them from an initial rejection of the system by the planning team.

Nestlé and Nike attempted the plunge methodology to implement their demand planning systems and did not take a parallel or phased approach; had they done so both problems could have been avoided. However, both did adopt a phased approach after the initial difficulties. Although it could be argued that Nike approached the i2 issue as a pilot approach to see if the i2 would work better then the existing SAP module, they failed because the pilot methodology should be used within a business system such as the planning and forecasting shifting a small part of the division onto i2 instead of rolling it out company wide without addressing the legacy incompatibility issues that would have quickly become evident.[Koc04] They mixed the plunge and the pilot approach and spent an extra $100 million for their efforts.

Nike and Nestlé underestimated the initial budgets that they would need to accomplish the project. These cost overruns were in the millions of dollars and could easily have scrapped the projects at smaller companies or those that did not have such a strong vision of what they needed to accomplish. Nike spend $400 million on the implementation; $100 million of which was spent on the i2 “glitch”.[Koc04] While Nestlés’ Jeri Dunn estimated that 5% of her $210 million project cost named BEST[Wor02].

Budget variations were exacerbated by the time constraints placed on each project. Time constraints were not realistic. Nestlé pushed its implementation goal to be over by Y2K and failed to meet this deadline, while the rush to meet the deadline caused many of the initial problems of communication within the rank and file of the company. Nike expected the demand planner implementation to be over quickly with the installation of i2 without taking into account the heavy customization that i2 would require and effects that the poor messaging between the legacy systems and i2 would have on the supply chain. They paid a heavy price for failing to analyze the integration demands of i2 and the legacy systems[Koch04] Nike survived because of its size, but the after effects of the debacle have put other companies out of business.

Both companies failed to adequately train and prepare its core staff for the software rollout. This failure was evident both in the technical aspects of training users how to use the systems and failing to prepare users in the BPR for the vast changes that the new systems would usher in. Nestlé was particularly bad at this and had to shut down the project and change management in order not to flounder [Wor02]. The Nestlé management failed to communicate to the demand planning team that would be using the software system about the software system. This was the worst mistake Nestlé made and they repeated it several times until the Manugistics crisis. The upper management took great pains to communicate to stakeholders, but failed to communicated with the right stakeholders that would be most affected by the new system. [Wor02] When the projected was rolled out the demand planning turnover came to 77% yearly, a figure that showed a disastrous discontent among the workers using the system and enough to bring a company to a standstill. The workers did not want to change their business process and culture of demand planning and not even the executive management could move them. Only after reassessment and training could the project go forward.

Nike committed a similar error in failing to prepare its demand planners in the requirements of the i2 systems resulting in the demand process overloading the i2 systems connectors and slowing the entire system to a dead crawl. Had Nike communicated with its planners and trained them on the systems as well as conducting careful business analysis as to how the two systems would integrate they could have avoided the $100 million dollar pitfall.

Both companies failed to evaluate their legacy IT infrastructure and assess the effects of new software systems on their legacy systems. The mistakes were almost identical as each company found out that their legacy systems and business process where not able to properly communicate with the new systems. The connectors of the i2 systems could not properly translate the data from the legacy system.  This resulted in the slowing down of systems to such a degree that effective forecasting became impossible and a minor error reverberated throughout the entire cycle like a tsunami. Nestlé did the same thing by failing to align its existing business process with the new business rules of the Manugistics module and then failed to train the end users on how to use the system. 

Unique Factors for Nike’s Difficulties

The specific instance of demand planning software known as i2 was a unique factor as it cause the major problems discussed in the article[Koc04]. Nike failed to properly evaluate how the demand planning software would integrate into its legacy system. They rushed the implementation before their main SAP package was ready for deployment resulting in the i2 system failing the Nike supply chain.

Nike had a unique supply chain process that required stores to pre order merchandise 6 months in advance, the difficulty of this is that Nike could never know if the sneakers that a store ordered would still be in style 6-9 months later when they would deliver them to the store. The fashion designers and the demand planners could not accurately judge how much they should order with such a long lead time and depended solely on Nikes’ brand name that the new sneakers would actually sell. In the market where stores increasingly demanded a short order to ship time, Nike was under competitive pressure to get their supply system to work in 3 to 6 months. The risk of not getting their SCM in place would open them to losing market share in a fiercely competitive market. Thus when Nike implemented the i2 system and the system could not hold up to the vigorous demands of the planning the 9 month cycle began to collapse and the forecasting data completely threw off the supply chain resulting in some $100 million in direct damages and untold millions in consequential damages such as reputation, law suits, and SEC investigations. [Koc04]

Unique Factors for Nestlé’s Difficulties

One unique difference for Nestlé is the extent to which they failed to involve the key stake holders for the groups that would be most influenced by the new software in the planning process. This is both a factor of difficulty and one of success since these early blunders helped Nestlé leadership adjust and reassess. Nestlé made a good effort to bring together its business leaders and stakeholders but failed to let the rank and file know what was taking place.

To add to the confusion, Nestlé had to deal with many different suppliers that were not all paying Nestlé the same for goods and services. They had highly fragmented system and even within departments the left hand did not know what the right hand was doing. The 29 different flavors of vanilla [Wor02] illustrated the frustration Nestlé had with all of its thousands of products. The waste that went on during demand planning and the lack of coordination between the different departments was a glaring difficulty that had to be addressed and that the ERP implementation aimed to cure. At the same time Nestlé failed to realize how much the ERP system would change their entire business process and the pushback that they would receive from the end users when these changes became evident. Nestlé operational problems stemmed from its massive acquisitions drive in the early nineties. The company was comprised of so many different units and held together in a loose network that each subsidiary had a unique business process and any attempt to change the process was regarded by management as an attempt to take away autonomy and in the worst case decrease competitiveness. Thus, when the new changes were thrust upon the unsuspecting management the pushback halted the project and necessitated emergency measures, including the reassignment of one key project manager to a different country [Wor02]. 

Common Factors for Success[i]

The common factors for success are that at both companies the projects had unwavering support from the executive leadership and were driven through all difficulties by the strong management. Both Nestlé and Nike knew that to retain competitive advantage in the market place and to sustain their competitive advantage they needed to make drastic changes to align themselves with new market realities of leaner competition and cost cutting. 

Both companies were wiling to spend more money and time to complete projects effectively and to roll out their implementations. Neither project was terminated because of mistakes or glitches even if the glitches cost $100 million. This flexibility is one of the key reasons that the projects did not fail and became successful. This option however is not always viable for a company and many have gone out of business when they tripped over a “speed bump”[Koc04]

Nestlé and Nike adjusted their business process to reflect the new realities of their new systems. Nestlés demand planning department had to learn a new computer system and go from using spreadsheets to using new SAP interfaces, a move they initial rejected out of hand [Wor02] Nike on the other hand had to train it’s personnel first on a failed i2 product then on a new SAP product reengineering the business process in each case to adjust to the new systems and ways of demand planning and forecasting. A major factor in the success of these systems was that each company learned from their mistakes and involved everyone in the company including the rank and file employees. Nike was especially good at this since they enshrined the business plan of the company to the point were everyone knew it and supported it. For Nike the problem was more of teaching the employees new systems rather then realigning their entire mindset. For Nestlé the problem was twofold, not only did they have to teach the employees how to use the new system to become more effective, they also had to change the way the employees thought about the business. Nestlé success can be attributed to the way in which the key stakeholders adapted to gauge the atmosphere of the various divisions before rolling out new business process and software so as to do it at a time that was just right by administering surveys to key user groups.[Wor02]

Nike and Nestlé believed the ROI on the projects would be greater then the cost and the cost over runs. Nike planned on spending about $400 million dollars on the project hat ballooned by 25% as a result of the i2 fiasco. Nestlé on the other hand planned to about $200 million that ended up being $210 million dollars including the Manugistics project halt. Although exact figures are not available, Nestlé claims to have Made back some $325 million dollars, or roughly 150% of the dollars they put into the project. Nike claims that their manufacturing lead time has gone down from 9 month to 6 and in some instance even shorter [koc04], however other ROI indicators are still coming in. What is undoubtedly true for the ROI of Nike is that their systems are more agile and work better with their suppliers, their cash flow is more manageable and their data is easier to access and assess; this part is perhaps more important the figures of ROI. The real return will show itself when Nike is able to introduce another system into its legacy infrastructure without a hitch reacting quickly to market forces and retaining their competitive advantage.

Both companies did phased roll outs starting first with a smaller department or division and moving on once the implementation was complete. This was initially what caused the Nike SCM problem; they had thought that a simpler implementation would be easier and did not check the software for compatibility before implementation.[Koc04] This oversight causes the entire debacle; had Nike analyzed the technical requirements for i2 and their legacy system and had done a parallel implementation testing out a small portion of the demand infrastructure they would have seen the problems. By taking the plunge with an untested i2 system cost them 100 million dollars and untold stress. To fix the problem they literally had to build infrastructure bypasses to take the load of the floundering i2 system. [Chi03]

Another factor that saved both implementations was SAP. Both companies outsourced their ERP and SCM projects to SAP that provided guidance and support and also customized the packages to suit the particular needs of the clients. SAP had the experience and know-how to advise the two companies on the technical roll outs. It is unfortunate that SAP could not have better advised their clients on the business process aspects of the rollouts as SAP did not have an intimate understanding of the BPR that would need to take place.

Unique Factors for Nike’s Success

Nikes success lies in the top down understanding on the Nike Business plan by all of it’s employees and their willingness to be flexible in the eyes of great difficulties. Nike’s CEO and CIO both knew that they would gain competitive advantage with the new system or at the very least retain Nike’s competitive edge.  Roland Wolfram( VP Global Operations) and Phil Knight(CEO) both understand that they need to cut down the time it takes for Nike to manufacture the sneakers and deliver them to the stores. [Koc04] This unique understanding of the process and the alignment of the goals of the company, management, and employees was something that Nestle desperately lacked and why their implementation almost floundered.

Nike is one company with its suppliers belonging to Nike and within Nikes system. So while the time to market for Nike is 9 months, Nike did not have the difficulty of integrating between different companies, rather they just needed to make everyone in their company conform to the new system. This is a success factor because everyone in the company understood without too much effort and hand holding exactly what the goals of the implementation were. The effects of a vertical delivery model where the supply chain is under the same management brings not only efficiencies of scale but also better operational agility.

Unique Factors for Nestlé’s Success[ii]

Jeri Dunn led the effort and was completely supported by the corporate headquarters in Switzerland. Dunn almost single-handedly drove the entire process and involved as many key stake holders as was feasible. She was also willing to be flexible and admit mistakes carefully learning and revising the process as the projected progressed. Nestlé would slow down their project and wait for input from the end users to gauge their readiness to accept the new process. [Wor02] Nestle sheer size is also an important success factor as the company gained momentum and could not be easily stopped once a project of such magnitude was underway. With the global implementation happening close to the same time as the USA one, the project was inline with the global company mantra about process change and competitive innovation.

 

Reference:

[Chi03] Paul Chin, “Cold Case File: Why Projects Fail”, Datamation, May 6, 2003, http://itmanagement.earthweb.com//article.php/2201981

 

[Wor02] Ben Worthen, “Nestlé’s ERP Odyssey”, CIO Magazine, May 15, 2002, www.cio.com/archive/051502/Nestlé.html

 

[Koc04] Christopher Koch, “Nike Rebounds”, CIO Magazine, Jun 15, 2004, www.cio.com/archive/061504/nike.html

 

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[i] POWS analysis for Nike

 

Nikes biggest problem was its traditionally long 9 month manufacturing cycle. This cycle evolved from the 70’s and 80’s when consumer did not much care for the brand but cared for supply. Retailers could always depend on Nike to sell and did not mind the long manufacturing time. Recently, retailers began demanding faster turn around and did not want to order 6 months in advance creating a competitive pressure on Nike to establish a faster delivery mechanism. Nike would have to reengineer its demand forecasting engine and therein lay the biggest challenge for the SCM project.  The opportunities presented by speeding up the manufacturing and demand planning time was that Nike could cater to smaller stores that did not have the capacity to buy 6 months in advance as well as to a greater extent follow styles and fashions better and adjust to trends faster making itself more agile and responsive to ongoing market pressures. The weakness of Nike was its long manufacturing cycle that may produce sneakers that were no longer in style by the time they arrived at the store. Another weakness was that the demand planners could not really coordinate with the fashion designers and were going more on instant then on hard facts. The strength of Nike is its brand name as well as its business plan. The brand guarantees that Nike will remain the top player in sports apparel market and remain a competitive force. While the business plan is an operational strength that allowed Nike to pull through the SC implementation project by ensuring that everyone in the company knew why the implementation was taking place and bought into the implementation. Nevertheless the implementation did not go smoothly, but it ultimately succeeded because everyone in the company wanted it to succeed, from the CEO to the individual demand planners and supply managers who would have to change their business process entirely.

 

[ii] POWS for Nestle

 

Nestlé faced an ever competitive market with a distributed franchise like conglomerate of companies. The business process within each division was different, forecast demand planning varied from one group to another and vendor management was non existent. One vendor could charge the company 29 different ways for vanilla and there was no way of catching this glaring incongruity.[Wor02] This presented at once a challenge and an opportunity for the company to create a single system that would eliminate the waste, create greater efficiencies of scale and cut costs by charging the vendors the same price and forecasting demand in a manner that was respected by the factories[Wor02]. There was also opportunity to bring down cost for consumers that would result in greater sales due to the decreasing cost of production, planning, and delivery. The main opportunity lay in the promise to eliminate the weaknesses of the present system by changing the business process and strengthening the internal structure of the company thereby eliminating weaknesses in the eyes of the competition.

Another weakness was the giant size of the project that Nestlé was embarking on. Communication would have to be flawless for the projects succeed and this turned out to be another weakness that the key stake holders did not realize and indeed may stake holders were left out of the planning process completely.

The main strengths of the Nestlé project were its vast size and large IT budget. This ensured that no matter what glitches the company encountered along the way, it would not scrap the project due to budgetary or time constraints. Nestlé market position is another major strength as it is the market leader and the strategy behind implementing the ERP system was designed to keep Nestlé in this position thus the justification for the project was extremely strong, ensuring that the project would have top level management support through out its life. This support is crucial since at one point Nestlé had a planning fiasco with the implementation of Manugistics that threatened to bring the company forecasting to a standstill, yet with the strong management support Nestlé pulled through.

 

Techruiter School Papers

Copyright by Gene Leshinsky, feel free to reproduce with proper credits

Past Competitive Challenges and Strategies

Blockbuster faces challenge from the traditional video rental market as well as from new entrants such as Wal-Mart, BestBuy, and Netflix. The Wal-Mart challenge came in the form of pricing and the creation of a competing video rental business [Gop05]. Best Buy began offering DVD and video at very low margins that would force Blockbuster to cut into its margins significantly. Netflix introduced the online rental system that eliminated late fees and the trip to the video store. Movie Gallery is consolidating and entrenching itself within the traditional video rental market further diminishing Blockbuster margins and increasing direct competition through mergers and acquisitions of other chains such as Hollywood Video.

Blockbuster has chosen a new direction to follow in the footsteps of Netflix and develop an online presence closely copying the model of Netflix, eliminating late fees (at a cost of $250 million)[Rae05], and spinning of Blockbuster Online to attract some of the customers lost to Netflix. Blockbuster realized that an online presence is necessary to stay competitive and win customers, while traditional movie renting companies such as Movie Gallery [Man05], the largest Blockbuster competitor, depend on the traditional model and are not expected to embrace the online model. Over the short term the traditional model may continue to work, however in the medium term the online strategy will be the difference between the companies that stay in business and those that are forced out.

The Wal-Mart and BestBuy challenge is the most difficult short term challenge. Both chains are known for selling with a very low profit margin, introducing prices that would not work well with the Blockbuster model. To further challenge Wal-Mart and BestBuy Blockbuster began to sell used videos and provide a place where customers could trade used videos approaching a BestBuy retail model.[Lor05] This strategy will be successful in the short and medium term because short term it will introduce a service to Blockbuster customers that they will not find anywhere else, and long term because the customers will know if they want to come and sell or buy a used DVD or video then the place to go is Blockbuster and not BestBuy or Wal-Mart. Furthermore, [Gop05] Wal-Mart exited the rental business in 2005 and transferred its members over to Netflix further increasing the competition from the online sector.

While Movie gallery acquired Hollywood Video[Lor05], extending their market share and customer base without embracing the online markets, Blockbuster attempted to extend it’s own model on the retail side by entertaining an agreement with RadioShack[Cnn01] that would place RadioShack boutiques into it’s stores offering a wider selection to its customers. It does not seem to have worked as Blockbuster remains a video rental store and seems to be concentrating in this area. Blockbuster also runs a highly effective video game rental segment that is unheard of at its retail rivals and is also better then Netflix; offering unlimited game rental time for a flat fee.[Rae05] Thus, while facing the challenge from all sectors, Blockbuster is showing great operational agility by adapting their business model to changing market condition and establishing an online presence while it’s chief competitors hold on to the old model of in store rentals and late fees. In the short term both strategies will be effective, while in the medium term the more agile company will hold the largest market share. The medium term the market share will increase due to more customers gaining access to online ordering services and seeking the convenience of omnipresent online stores. The cost of improving its infrastructure now pales in comparison to the benefit that Blockbuster will derive from improved IT infrastructure systems.

The Challenge of VOD

Blockbuster will face new VOD challenges as more people have access to VOD enabled services from their home TV sets and PC’s. There are numerous cable and telecom companies that are currently offering PPV and OnDemand options that are helping to put companies such as TiVo on the defensive, snatching market share and providing fierce competition to traditional video rental players. Over the next 5 years the market will continue to see innovations that will mold the PC and the TV into one enabling online video delivery companies such as Netflix to skip the distribution step of mailing the video and deliver it straight to the customers’ living room.

Massively Online Multiplayer Games are invading the traditional out of-the-box games by providing the entire package online. By providing subscription fees these gaming companies are enabling consumer not to buy new games, but to provide upgraded services through the wire without ever needing to go to the store and purchase the setup disks. This is a trend that will take over the video rental industry as well. Many people prefer to rent on demand from their cable providers; if the same selection was giving to cable providers and online renting companies why would people go to the video store at all?

With increased bandwidth and fast download times it is more efficient to click a button then to drive over to the local video store. For now, movie distributors such as Universal prefer to keep a 45 day window between releasing videos to video stores and to online providers due to the large differential in royalties. [Lor05] When these companies relent and release the footage to online providers and video stores at the same time, the customer will have thousands of titles at his disposal, many more then he would at a video store. All titles would be organized and much more browser friendly then the often time disorganized and out of stock rental shops. With VOD there is no concept of out of stock and the customer will always find the video he is looking for .

Pricing for these services will continue to drop. Currently Netflix has several packages priced from $4.99 to $23.99 per month and Blockbuster has similar rate structure [Blo, Net]. There is no point of going to the store if you can get the same value online. Thus, over the next 5 years, competitive VOD forces may erode the traditional brick and mortar video stores and gravitate towards the telco and broadband providers at which point there will be a price war between the 3^rd party online vendors and companies such as Comcast for who can provide a cheaper more efficient service. Brand name and customer service will have a direct impact on the survival of the rental business.

The idea of VOD is mature, but the technology is lagging, while everyone can afford a $30 DVD player and a $15 subscription, and $150-$300 internet and broadband charge is harder to justify for many consumers. Paying for a video once a month or paying for a delivery service that you may not use will remain a hurdle for VOD taking the market from traditional video rental companies.

Recommended IT-Oriented Business Strategies

Blockbuster will need to continue repositioning itself in the marketplace as a hybrid shop with both brick and mortar and online stores. Blockbuster cannot remain competitive if it concentrates only on the market segment that is still focused on coming into the store rather then shopping online. Leaving Netflix as the dominant online video rental store is a big competitive disadvantage over the next 5 years as Netflix will continue to consolidate and add services to its existing program growing its customer base and expanding overseas. Movie Gallery will eventually lose its status as a big player in the rental industry because it is not preparing itself for the onslaught of online and VOD markets. Thus, changing the business model to accommodate an online operation is absolutely necessary for Blockbuster to survive as a viable service company.

Blockbuster must continue building relationships with studios to enable it to bring videos on demand to market faster then competitors. The company will need to continue to expand its business model to encompass online and VOD markets to stay viable as a rental business in the technologically transforming market. Blockbuster’s competitive strategy needs to be agile to adapt quickly to new market moves as VOD is quickly growing and the internet is spreading. Building strong relationships with its affiliate marketing partners will assure a strong grassroots marketing campaign that will challenge the Netflix first mover advantage and help win customers for Blockbuster. The affiliate marketing model pays for itself by paying small website operators a commission of all sales. The Blockbuster program is more aggressive then the Netflix Program [Net,Blo], giving higher rewards to its marketing partners. The affiliate businesses model is absolutely necessary for online survival and Blockbuster is doing the right thing by following in Netflix’ footsteps.

Building a strong sustainable competitive advantage model by investing in its online infrastructure, Blockbuster ensures that it will remain a force not only in the retail industry but also online as the business strategy on Blockbuster Online is tied closely to that of Netflix. The blockbuster approach may also be stronger then that of Netflix due to its presents and ability to leverage its stores as support centers and distribution points.[Lor05] This is an excellent way to utilize in store resources and leverage existing workforce to achieve an advantage over Netflix. While Netflix needs to mail everything from its distribution center. Blockbuster offers the option of returning movies in the store or mailing them back as well as picking them up in the store. This flexibility allows the customer to choose what to do giving them an impression of Blockbusters’ greater flexibility and better customer service.

Blockbuster must to invest into the look and feel of its stores ensuring that the shopping experience is superior to those of other video rental stores.[i] The new model of selling used videos should be expanded into selling used PC and video games. This would draw younger buyers to the store as video games are very expensive to buy and some older games are hard to find even on the internet. Expanding complementing offerings enables Blockbuster to create an image of the complete video shopping/rental solution. Blockbuster needs to continue exploiting the brick and mortar video rental market as long as there is money left in the business.

Blockbuster should continue to build its online [Blo] site that supports the sale of used videos, DVD’s, and games. The company should consider setting up an auction site such as eBay to allow the active trading of video games and DVD’s. This would further differentiate Blockbuster and make it the one stop shop for all the needs a rental customer could have. By differentiating into different segments of the online market Blockbuster becomes a real threat to the first comer Netflix. The online video rental market is extremely competitive with many choice for consumers[Top], thus the company with the best selection and ease of use will win out.

IT Planning Recommendations

Blockbuster needs to make sure that it stays competitive in all markets that are interesting to people who rent videos. To enhance this plan, Blockbuster needs to enhance its affiliate marketing [Blo] program and aggressively infiltrate all segments of the online gaming and movie industry. Expanding the online presence means IT will have to step up its efforts to create new portals and sites that are dedicated to promoting Blockbuster and that aim to cater to all customers within its key demographics.

Blockbuster will also need to improve its VOD delivery infrastructure and enable its web based services to deliver streaming video on demand into living rooms to compete with providers who are actively implementing on demand and VOD subscription plans. Improving infrastructure means either negotiating working deals with Telco and cable companies or building their won server farms to support the massive infrastructure demands that a live VOD business will need. On the copyright side of VOD, Blockbuster will need to negotiate with its studio vendors to enable them to release these movies and encompass every service that an online or a Telco service provider can with added features and extended customer service. Blockbuster has not yet implemented downloadable movies on its site, but it is a capability that IT must provide for the company to create an extra feature that Netflix does not have and that would be very favorable to a vast college community that watches a lot of boot legged films but also makes use of computers to watch videos more so then DVD players.[ii]

The customer service wing of Blockbuster Online needs to be improved with live 24/7 customer service representatives, a feature that Netflix has but Blockbuster Online lacks[Top]. The customer experience is a crucial aspect of building and retaining a customer base regardless of the market conditions. With online rivalry heating up, and Netflix ahead of the curve in video selection y some 10,000 titles[Top], blockbuster needs stay competitive and create a sustainable competitive advantage through building a stronger customer base the their rival Netflix. IT needs to step up the efforts of building a strong communication backbone for the company and provide the call center infrastructure.

Blockbuster needs to have tough security and privacy controls not only ensure that the customer data it collects on millions of subscribers is safe, but also to make sure its own database of movies is not a target for content thieves. The TJX scandal illustrated how vulnerable IT systems are in large organizations [Lan07]. Blockbuster IT needs to ensure that the sites are completely secure by maintaining protection against brute force and social engineering attacks on its visible online infrastructure as well as keeping an eye on its ports and patches at all times. Being one of the larges online rental agencies, Blockbuster will be a target for hackers in the future. Having multiple open streaming channels opens the company to data thieves and malicious hacker attacks.

Blockbuster needs to provide POS terminals to turn its retail customers into online customers. On the spot sign up will allow blockbuster to gain new customers not just from the web site but also from the stores. The terminals can be very simple to use and the CRS can promote the online store by getting people to sign up. This approach can be as simple as a Loyalty program and the customers would return to the stores as well since the desire to brows and congregate is a truly human habit[Lev99].

Blockbuster can create a game to cater to younger audiences much like Nectar had done in England. Blockbuster can further cater to the online gaming community by sponsoring tournaments and promoting its brand inside the virtual game lands that attract millions of gamer’s world wide. This is a niche market that is beginning to be infiltrated by corporations much like MySpace has corporate profile promoting brands. The sustainable online advantage derived from such differentiation strategy makes Blockbuster a household name not only in the households where it is well known but also for people that do not like mass pop culture; for the younger generation.

Blockbuster can also create an application portal that will enable people to edit movies and create montages such as they do on YouTube. This may violate certain copyright laws, however if Blockbuster has a strong enough relationship with its studios an independent site sponsored by Blockbuster that features these remakes could make Blockbuster even more popular. Blockbuster would need to create an IDE that would support this development, however once the environment is complete it would attract software and video enthusiasts alike.

All of these strategies are designed to make blockbuster an omnipresent force able to compete in all video and entertainment markets brick or virtual without holding to a single outdated model of video rental. Blockbuster needs to use its IT to enable its marketing and product wings to seamlessly create content and add functionalities to its core business. In this manner Blockbuster with the support of its IT can dominate Netflix, Movie Gallery, and giant wholesalers by delivering content and flexibility to its clients.

[Top] Top Ten Reviews

http://dvd-rental-review.toptenreviews.com/

[Net] Netflix Online Movie Rentals

http://www.netflix.com/Register

[Blo] Blockbuster Online

http://www.blockbuster.com/corporate/affiliates

[Rae05] Janet Rae-Dupree, “Blockbuster: Movie Business Remains a Moving Target”, CIO Insight, Aug 10, 2005, www.cioinsight.com/print_article2/0,1217,a=157500,00.asp

[Lev99]Levine, Locke, Searls & Weinberger, “the cluetrain manifesto”, 1999, http://www.cluetrain.com/

Tim Laseter, Eliot Rabinovich & Angela Hunag, “The Hidden Cost of Clicks”, strategy+business, Feb 28, 2006,

www.strategy-business.com/enewsarticle/enews022806?pg=all

[Lan07]Frederick Lane “TJX Says 45 Million Credit Cards Hacked” 2007

http://www.sci-tech-today.com/story.xhtml?story_id=0020007DLIQM

[Cnn01 ]Blockbuster, Universal team for streaming video

http://archives.cnn.com/2001/TECH/internet/03/01/blockbuster.universal.idg/index.html

[Gop05]C. Gopinath. “War in US video rental arena — Will Blockbuster’s strategy pay off?” 2005

http://www.blonnet.com/2005/05/30/stories/2005053000820900.htm

[Man05]Manly, Lorne P. “ Video stores hang on despite new challenges” 2005

http://www.iht.com/articles/2005/08/23/business/video.php

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[i] Every time I go into a Blockbuster store I have the feeling that the store is about to smother me. The video sections look old and decrepit, the isle are close together and towering over head. It is not the most pleasant atmosphere.

 

[ii] This is from my personal experience. Dorm rooms are rather tight and it’s always easier to watch a movie on your laptop if you can download it with no hassle. This approach would also beat out free P2P exchanges of boot legged movies since you need to be savvy enough to find those. While going to the Blockbuster site and downloading a movies is very simple.

Techruiter School Papers

I wrote this for a Networking Class, feel free to use this paper with proper credits. Also feel free to comment.

Federated Identity Management

Introduction

The increasingly complicated enterprise networking and security environment of 21^st century business demands a solution that is flexible and secure. The job of the network manager is becoming increasingly difficult as new technologies emerge to further integrate business and create better economies of scale. In this environment of integration, company mergers, and everyday security threats the network manager must use the best tools at his disposal to perform mission critical functions, namely the design and upgrade of existing network and the day to day operations of the network. Identity management is a significant aspect of both design and operations and lies within the narrower field of security.

Security can take on many guises particularly in controlling the flow of information internally and externally. Increasingly distributed architectures such as Service Oriented Architecture are raising new questions about how to best maintain corporate security. Identity management systems address this issue by providing authentication and provisioning services to the network managers. Key aspects of Identity Management systems include adding and deleting users, assigning permission for file and document access, designating outside partner permissions and granting access to the network and facilitating Single Sign On(SSO) procedures that eliminate waste and redundancy within an enterprise architecture.

Federated IdM In Detail

IdM greatly facilitates the mundane task of managing system access across the enterprise. Federated identity management systems allow partner companies to access the secure networks and attain certain permission privileges on each others servers. [Car03] This eliminates the time needed to set up individual accounts and to perform repetitive tasks in every situation where the partners IT infrastructures connect. For example, in large organizations such as SuperValu Supermarkets, the user base is close to 1.5 million users, both internal and federated. The task of managing their identities is daunting even for their 12 man team and the SunOne IdM platform.[1] It is therefore easy to see the significance and relevance of IdM systems for huge enterprises that need to manage access permissions efficiently and quickly; it cannot be done without an automated IdM solution acting as the workhorse of the IdM team.

Identity management has several critical components. The fundamental framework of IdM is Role Based Access Control(RBAC).[NIST95] Defined in the 90’s RBAC outlines the behavior of the access granting system and is the basis of provisioning of users based on their roles within an organization. The components that spring from this model include access management, Provisioning, Authentication, and SSO. Access management relies of authentication to validate the identities of the clients attempting to gain access. It is akin to the token network system where every client needs a token to be able to transmit. In the IdM world every user has a role defined by certain environmental and hierarchical variables.

Provisioning is the act of the system or the administrator setting attributes that determine what permissions the user will have and what roles are encompassed in the workflow for that particular user. Some systems require manual provisioning, however one of the large incentives of purchasing and implementing an enterprise IdM is automatic provisioning that can be done on the user level automatically by the user without administrative interference. Many functions can be delegated to the users that free the hands of the administrators to focus on other pressing matters. Once the authentication server receives the request, it finds the keys associated with that request in the authentication server and matches the identity to the password. It then determines how the user was provisioned and what workflows he is eligible to participate in assigning to him permissions for various applications and databases.

As Federated IdM began to emerge as the idea in the market, the Liberty Group, created in 2001, became the body that oversees SSO authentication standards [Wikic], as well as providing authentication for SSO. Liberty works in hand in hand with the standards group OASIS[Oasis07] to provide standard delineation and definition to emerging technologies such as SAML.

Federated IdM relies on the Security Assertion Markup Language(SAML) to coordinate the SSO authentication between different intranets, in essence providing the glue to the Federated IdM platform. [Wikid] The technology rests heavily on XML and together with Active Directory and LDAP protocols provides the building blocks for IdM platforms.

While many companies rely on client server n-tier architectures to take care of the IdM architecture, a host based system that hosted the IdM platform would be highly effective in increasing security and minimizing the load of n-tier architectures that many IdM platforms invariably require. Thin clients can perform very well in an SSO environment especially since all the authentication is done on the server or the mainframe. The terminal can essentially be the presentation layer and leave all the application logic to the servers.

The cost of IdM systems depends on the vendor and how the client chooses to implement the solution. If the client is willing to have the professional services implement the solution the price can be 100% more then hiring an independent consultant with expertise in the implementation, but no guarantee in the case of failure implantation. On the other hand, the cost savings associated with a successful IdM implementation are found in reduced help desk and administrative costs as well as improved collaboration and user satisfaction.

Another useful feature of federation is SSO, Single Sign On. This is a key feature of identity management systems that allows for the creation of a single password to access multiple applications and network appliances without needing multiple passwords and combinations. SSO is useful for busy network manager as they attempt to juggle not only the design and maintenance of the network but also the security of the network. SSO allows for network managers to spend less time searching for lost passwords and more time doing administration work to improve the network. SSO also plays a large role in federating two disparate environments is one of the key forces behind IdM implementation.

There are many different vendor tools such as Tivoli, Openview, SunOne, and BMC. [Micro07, Nov07, Ora07, QUE07, Micro07, Sun07] There are many different vendors that offer network management solutions with identity management being a module in their platform. Each one has particular quirks and consultants that implement each one will vouch for the product they implement.[2]

The following is a comprehensive representation(courtesy of IBM Tivoli) of an IdM environment that splits into distinct layers that represent the workflow of the IdM process beginning with a SSO login and propagating through the systems attaining various permissions that are provisioned to the user.

[3]

IdM systems have the effect of securing large network segments by assigning permissions and authentication requirements to various user groups. If a user has certain permissions his password will send a script that will give him access to certain resources that are permitted to him under the system. Unauthorized personnel will not have that access and the number of network resources that will be allocated to dealing with single user authorizations will be decreased.

Furthermore, the need to have large databases that would store the keys and the identities of all these people is reduced. The number of servers that have to act as authentication servers is reduced increasing the capacity of the network and reducing the physical footprint of the resources assigned to identity management. For example, if company A is a large manufacturing company that needs to give access to its vendors to its SCM in order to facilitate parts ordering and re-supply. They can assign several administrators to monitor the voluminous password files that would result in all the different entities from the vendors trying to login tying up data communications and bogging down critical network resources or requiring for more to be purchased. With a Federated SSO, the account manager would have one password that would automatically authenticate them for numerous application accesses eliminating the need for costly upgrades and human resources.

In the increasingly competitive marketplace, having the ability to actively collaborate with your partners and clients by giving them access to your network systems without complicated red tape procedures in a well established and highly secure environment is a large competitive advantage to the firm. The ability to share documents, intranets, SCM, ERP, and CRM systems creates synergy that the enterprise can use to its advantage. Such federated networks increase the efficiencies of scale of large enterprise servers that are installed at the federated companies as they are sued not only by the company itself but by the partner companies, increasing the utilization and creating a higher data flow.

Federated IdM solutions are used both in the private sector and in the government sector. [EC302] Identity management is probably one of the oldest forms of government control and influence and in today’s turbulent times it is becoming more important then ever. Due to the ever growing size of the internet and the continuing growth of our reliance on technology to provide solutions and facilitate government transactions, IdM within the government space is becoming essential to provide a safe and secure body politic. While IdM in private corporations is becoming commonplace without any serious objections to civil liberties, the government is facing increasing pressure not to implement national identity programs that would in effect heavily rely on centralized IT IdM systems to drive these vast authentication networks due to concern over civil liberties.

As with every system that strives to reach across security borders and grants access to foreign organization there are risks involved with IdM. [Vnunet07] The risk of giving one client access to your secure system can mean the entire organization can be compromised. If one hacker gains access to one secure identity password that has access on an SSO basis across the entire organization, the whole idea behind the particular IdM set up can be throw out the window. While if this password happens to be a high level one the company can lose millions.

While IdM is useful it must be implemented carefully and federation must take place only with partner companies who have equally stringent security policies in order not to subterfuge the authentication and security measures of its partners. Failure to ensure proper security measures on the part of the partner can compromise the whole federated environment.

Conclusion

Federated Identity Management systems allow for crucial network and business communications assets to be managed effectively over a multi enterprise landscape. IdM is a security and a network management tool and it’s versatility in handling the end users makes it a very attractive application choice for any large corporation. Since companies are growing and constantly seeking to integrate partners and vendors into their ERP processes, Federated IdM plays a crucial part in providing these collaborative networks with the access that each partnering resource needs without employing an inordinate number of administrators or expanding a large amount on infrastructure.

It is likely that in the future, Federated IdM will continue to play an increasingly crucial role in the development of business partnerships and in building cooperation not only between large enterprises but also between smaller businesses, as well as governments on a national and international level. The effects of federated systems on business communications will be more and more evident as faster networks begin fusing with each other creating virtual circuits governed by IdM logic. Even with this positive outlook comes a word of warning regarding Federated Security and intrusion risks that can diminish the returns of an IdM system.

Following the pervasive networking ideology, every company will be plugged into all the suppliers, customers, and partners and having strong IdM systems to manage all of these will be a mission critical function within the Networking department. Furthermore, if business continues to rely heavily on IT for competitive advantage, Federated systems will play a large role in determining who is profitable and competitive.

References:

[Car03] Carr, David F. “What’s Federated Identity Management?”

http://www.eweek.com/article2/0,4149,1378436,00.asp

[EC302] NECCC “Identity Management: A White Paper”

http://www.ec3.org/Downloads/2002/id_management.pdf

[Inter07] Identity and Access Management

http://www.internet2.edu/pubs/200703-IS-MW.pdf

[Kau07] Nishant Kaushik Blog

http://blogs.oracle.com/talkingidentity/newsItems/departments/identityAsAService

[Micro07] Microsoft Identity Manager

http://www.microsoft.com/windowsserver2003/technologies/IdM/default.mspx

[NIST95] Ferraiolo, David “An Introduction to Role-Based-Access-Control”

http://csrc.nist.gov/rbac/NIST-ITL-RBAC-bulletin.html

[Nov07] Novell Identity Manager

http://www.novell.com/products/identitymanager/

[Oasis07] Oasis Web Site

http://www.oasis-open.org/home/index.php

[Ora07] Oracle Identity Management

http://www.oracle.com/technology/products/id_mgmt/index.html

[QUE07] Quest Identity Management

http://www.quest.com/identity-management/

[Sun07] Sun Identity Management

http://www.sun.com/software/products/identity/

[Vnunet07] “IDM projects must be implemented with caution, say experts”

http://www.vnunet.com/itweek/news/2166140/IdM-projects-implemented

[Wiki] Identity Management

http://en.wikipedia.org/wiki/Identity_management

[Wikia] Federated Identity

http://en.wikipedia.org/wiki/Federated_identity

[Wikic] Liberty Alliance

http://en.wikipedia.org/wiki/Liberty_Alliance

[Wikid] SAML

http://en.wikipedia.org/wiki/SAML

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[1] I worked on an Albertsons project staffing their team. I had to find an engineer who would supplement their 12 person IDM team.

 

[2] I spoke with an Openview Implementation consultant who disparaged the Microsoft platform, while Sun consultants generally prefer their platform.

 

[3] http://www.hrsltd.com/img/solutions/diagram_sso_itim2.gif

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