Zara Case Study

Running head: Zara Case Paper Analysis 1

Zara: IT for Fast Fashion Case Analysis

Sonal Bhagwat

University of Houston-Victoria

MGMT 6352-2011FA-25125

November 2011

Zara Case Paper Analysis 2

Table of Contents:

• Abstract 3

• Case Description 4

• Goals and Strategy 5

- Speed and Decision-making 5

- Marketing, Merchandising, and Advertising 6

- Information Technology 6

• Problem Analysis 7

- Firm-based-value chain model 7

o Model Application 7

- Implementation Opportunity Analysis 9

• Evaluation of IS Implementation 12

- Tangible Costs Analysis 12

- Tangible Benefits 13

- Intangible Costs Analysis 14

- Intangible Benefits 15

- Conclusion for Evaluation of IT Implementation 16

• Conclusion and Recommendations 16

• References 19


Abstract

This case paper presents the business analysis of Zara, the leading and the profitable brand of

Inditex. The case paper’s objective is to discuss whether to update the current DOS/IT

infrastructure and evaluate the effects of the upgrade. By using the Michael Porter’s value chain

analysis, we can understand Zara’s core business model of vertical integration and assess the

areas where IS will add value to the system. The case paper also presents the IS implementation

opportunities and evaluating the effectiveness of the implementation. The case paper concludes

by providing recommendations for updating the current OS along with its advantages.


Case Description

Zara is one of the largest international fashion brands of Inditex. The company first

opened in La Coruna in 1975, still lives by the simple idea of Amancio Ortega to link customer

demand to manufacturing, and link manufacturing to distribution. The customer is at the heart of

the business model. In 1985, Inditex became the holding company atop Zara and other retail

chains, and Jose Maria Castellano Rios joined the company. Castellano and Ortega shared the

same beliefs that quick response to customers, use of computers, and disintegrated decision-

making were important to build the business (McAfee, Dessain, & Sjoman, 2007).

Inditex operates 1,558 stores in 45 countries out of which 550 stores are a part of Zara

chain. Zara generates a major portion of Inditex’s sales accounting for 73.3%. Zara offers a great

choice of new style clothes for Men, Women, and Children along with moderate prices every

time. The women clothing account for 60% of Zara’s revenue. Zara has developed the business

model to sell the garments by following trends and styles, with virtually no advertising and trust

the decision of a group of employees called as “commercials” on what clothes should be in

stores.

Zara has pioneered the niche market and has presence in all continents: Europe, America,

Asia, Middle East, and Africa. Zara’s core business model is vertically integrated, it specializes

in speed and efficiency and the fast fashion trend. Zara’s approach to information technology is

consistent with its core business model (McAfee et al., 2007). The website www.zara.com serves

only as display window and Zara does not use the Internet to make sales.

Zara prefers developing applications internally for its use, instead of buying the

commercial available software. At the time of the case, the company relies on an out-of-date

operating system, the P-O-S (Point of Sale), for its store terminals and has no full-time network

in place across the stores. The P-O-S system runs on DOS, which is not supported by Microsoft.

As much this system is outdated, it is still easy to maintain and operable and with this Inditex has

built an extraordinary well-performing value chain. However, in 2003, Zara’s CEO must decide

whether to upgrade the retailer’s present system and risk the reliability with the current system,

or continue with the old system that will not be compatible for future changes or improvements.

The case describes this value, concentrating on its operations and IT infrastructure.

http://www.zara.com/�


Goals and Strategy

Zara was developed with the initial goal to link customer demand to manufacturing, and

link manufacturing to distribution. Zara has been successful to remain focused on its core fashion

philosophy that creativity and quality design together with a rapid response to market demands

will yield profitable results. The goals such as short lead times, decreased inventory risk, and

great choice of style and clothes have helped formulate a unique value proposition and shape

Zara’s current business model.

Zara’s strategy requires the generation of a great deal of product variety throughout the

year (Ferdows, Lewis, & Machuca, 2003). Zara introduces 11,000 new items in comparison to

2000-4000 of its competitors. Zara treats the items as starting point instead of treating them as

end of its design and procurement efforts (McAfee, 2004). Zara competes in the market with a

strategy where a vertically integrated supply chain is dedicated to customer responsiveness. Zara

has differentiated itself from its competitors by focused differentiation strategy, where it focuses

on young, fashion-conscious city dwellers. Their commitment to this goal and their capabilities

that they have developed to achieve it, have provided significant competitive advantage to Zara

especially in the areas of product development, strategic partnerships and cost of production,

advertising and marketing, and information technology infrastructure.

Speed and Decision-making

Ortega and Castellano believed that Zara needed to respond quickly to the changing

fashion trends, which were very hard to predict and hard to influence. It needs to target the

young, fashion-conscious city dwellers. Zara wanted to deliver styles when they were in fashion,

rather than persuading the customers through marketing. The hallmark of Zara is its pull process.

Another added advantage Zara has is of disintegrated decision-making. Instead of relying on the

decision of a small group, it has given the autonomy to all the employees to delegate on behalf of

the company. For example, the store managers decide what clothes would be on sale, and another

small group called as “commercials” decides the design and production of clothes. Unlike other

stores where the design teams decide the clothes design first and then introduce it in the market,

Zara’s commercials scan the market and then decide on the design. The senior managers hardly

challenge the decision made by the commercials.


Marketing, Merchandising, and Advertising

Zara’s unique approach to advertising and marketing is an additional factor to its success.

Zara uses only 0.3% of revenue for its marketing expenditure, instead of 3%-4% used by its

competitors. According to the marketing executive Miguel Diaz, stores and word-of-mouth are

more influential than advertising (Ferdows et al., 2003). Hence, Zara maintains a cost advantage

over its competitors. This cost advantage helps Zara concentrate on its stores. Thus, it can invest

heavily in prime store locations, and store layouts. They are also able to change the store layouts

more frequently as compared to its competitors.

Zara does not produce “classics”, but rather sells clothes with short life spans, both in

terms of fashion and durability. Customers know that the store inventory changes frequently,

about 75% of the merchandise is changed three to four weeks, so they need to buy it on the spot

(McAfee et al., 2007). Zara’s unique merchandising philosophy features small shipments and

frequent remerchandising (Thomas, 2006). To aid this shipment philosophy Zara is able to afford

the air shipment than the ocean shipment (Capell, 2008). Even though Zara makes use of the

internet, it does not sell merchandise over the internet as the distribution centers (DC) are not

configured for small sales and the rate of return is as high as 50% - 60%. Diaz stated that the

customers needed to try the clothes, which is not possible over the internet (Ferdows et al.,

2003). Zara has a cost advantage and ability to maintain brand recognition, and customer loyalty,

which are essential elements of Zara’s capabilities that build value in the company.

Information Technology

Zara’s use of information technology is consistent with speed and decentralized decision-

making. Zara makes minimal investment in IT and so does not have any specific IT budget and

cost/benefit analysis. Zara makes standardized and targeted use of IT (McAfee, 2004). Zara

believes on human intelligence rather than the computers to make the decisions. As they operate

in various continents, Zara prefers to develop its own accounting software rather than buying the

commercial available ones. It has an internal IT department of approximately 50 people, which is

divided into three groups: Store Solutions, Logistics Support, and Administrative Systems. In

addition, Zara’s IT department has a very low turnover rate. All the Zara’s IT operations are

centralized from the headquarters located in La Coruna. Therefore, Zara makes the hybrid use of

process and information for its smooth and rapid market response.


Problem Analysis

To understand the problems faced by Zara, we need to review the primary and the

secondary activities of the company using Michael Porter’s value chain model as below.

Firm-based-value chain model

Michael Porter has identified a set of interrelated generic activities to analyze the firms’

competitive advantage. It is useful to model the firm as a chain of value-creating activities. The

value chain is useful to assess the areas of weakness and then strengthen those areas for

company’s profitability and competitiveness. The model is useful in determining the ways in

which an organization can implement IT or add value to the products and services. The goal of

these activities is to create value that exceeds the cost of providing product or service, thus

generating a profit margin. The generic chain consists of five Primary activities and four Support

activities. The primary activities are business functions that relate directly to the production of

the organization’s products and services and the support activities include functions that assist

and facilitate the primary activities (Kroenke, 2012). The company’s survivability depends on

the effectiveness of performing these activities.

Model Application

The primary activities will differ as the model of service changes, but the support

activities will not differ. An application of the Porter’s value chain model is as follows:

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FIGURE: MICHAEL PORTER’S VALUE CHAIN MODEL FOR ZARA

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The above figure suggests that Zara performs a number of operations. The primary

activities at Zara are comprised of ordering, fulfillment, design and manufacturing, and among

these activities, ordering was the most regular, precisely defined, and standardized around the

world. Zara has differentiated itself from its competitors by adding value in the every step right

from manufacturing to distribution to sales.

Zara has a flat and decentralized decision-making. The store managers at Zara had the

autonomy to select the inventories at each store rather than depending on the headquarters to

make the decision. The store managers decided items on sale, and deal with the customers,

property owners, and contractors. The store managers communicated with the commercials and

worked in close proximity. The commercials decide on the clothes production and design and

higher-level managers typically did not review their decisions.

Zara’s distribution centers manage the inbound logistics of receiving, warehousing and

inventory control of input materials. Zara’s distribution centers (DC) receive bulk quantities of

each garment and then recombining each garments for shipment to each store. The use of

information systems helps keep track of the SKU’s (Stock- keeping units). Zara does not stock

inventory and so reduces the inventory risk. There is little inventory anywhere in the Zara’s

supply chain. The clothes reach from the factories to the DC’s to the stores for sale. Zara has

pioneered its operations, which enables the constant introduction of new items in short lead

times. Zara owns factories around the world and so can consistently move a design from

conception to production and from production to DC to retail stores. Zara’s SKUs and the DC

manage the outbound logistics where they match the supply and demand. The production of the

items was determined according to the demand of the item to reduce the overall cost and

inventory risk. Zara believes that its customers and stores are the form of marketing rather than

advertising. Zara spends only 0.3% of its revenue on advertising as compared to 3%-4% of those

of its competitors (McAfee et al., 2007).

Zara is supported by various activities such as procurement, technology development,

human-resource management, and firm’s infrastructure. Most of the activities are common to

other industries. On the support activities for Zara, it has an internal IT department for the

development of various applications. The CEO managed the IT department instead of CTO or

CIO. This IT department is divided into three groups: Store Solutions, Logistics Support, and


Administrative Systems. This use of information technology has reduced the overhead costs and

has developed a cost advantage.

Implementation Opportunity Analysis

Zara has used information technology and systems in terms of functional area processes

and decision levels. Zara’s business model uses P-O-S terminals, which run on DOS operating

system not supported by Microsoft. Zara also uses the PDA’s for ordering and for tasks such as

handling garment returns to DCs and transmitting information from headquarters to all stores

(McAfee et al., 2007). Looking at the table it is clear that Zara can enhance its primary activities

by implementing IT in its system. Currently, Zara uses the outdated OS (operating system), and

so the operations such as ordering, fulfillment, design and manufacturing, and the in store

operations are not that efficient. The PDAs cause redundancy. The POS terminals make it

difficult to check in-store inventories, check inventories in other stores, and share information.

The store managers would have to call to check for available SKUs, which is a time-consuming

process.

Zara makes no use of the internet to make sales. The website is only there to maintain

presence. Zara makes minimal investment and use of IT. It believes in the word-of-mouth

marketing and investment in stores rather than relying on advertising. Zara has decentralized

decision-making, the store managers are responsible to decide what items are on sale, and the

commercials decide where to allocate the SKU’s. The above shows the areas where Zara can

make the use of proper IT/IS infrastructure. The present system followed by Zara has been very

effective, and so the company has continued using it without any changes so far. Although there

is no immediate urgent need to change the P-O-S, the question still remains is whether to invest

in an obsolete technology. Hence, the change is unavoidable. The proper implementation of IT

and IS can provide great opportunity for Zara to improve its value chain operations.

The table below shows in detail the functional areas with the problems and opportunities and the

associated decision levels.


Primary

Activity

Already Has Problems/Needs Decision making

level

Ordering -Manual checking of inventories for ordering -Handheld computers (PDAs)

Problems: -The screen of the PDAs is small. -Lack of in-store computers to check inventories and sales. Also cannot match the exact inventory. -Cannot look at inventories in other stores. Needs: -In-store computers to check inventories

-Store Managers

Fulfillment

-Commercials cannot match the exact supply and demand

Problems: -The commercials ship items not ordered by the store. Lack of in-store computers makes it difficult to check which store needs the items. Needs: -To make use of IT

-Commercials

Design

-Commercials decided on the design

Problems: -Commercials within the design teams make a guess of the design and communicate it with factories. -Commercials surveyed the market by talking to people. Needs: -Use of IT will help track sales data, and ease the communication with the store managers.

-Commercials within design teams.

Manufacturing -Zara has vertically integrated manufacturing operations, which enables constant introduction of new items with short lead times. -Zara has large computer-controlled equipment to cut cloth into patterns. -Has internally developed simple applications to plan production.

Problems: -Simple applications used do not have sophisticated mathematics to generate optimal plans and schedules. -Plans and schedules are almost communicated manually instead of using IT. -Internally developed software applications are not compatible with the outside applications. Needs: -Use of IT for easy communication of plans and schedules. -Use of universal compatible software.

-Factory Managers. -Commercials

Distribution Centers

-DC relies heavily on automation and computerization. -IS tracks each SKUs. -DC’s use internally developed applications to control the DC’s automation often in collaboration with the vendors of conveyor equipment.

Problems: -The Internally developed software may not be compatible with the vendors. Needs: -

-DC Managers


Primary

Activity


level

Stores -Uses PDAs and POS systems. -Used the DOS operating system. No IT support is required to open new stores. -Use floppy discs to transfer information. -The store managers manually check the inventories.

Problems: -Stores did not have computers beyond the PDA and POS terminals. -PDAs and POS could not share information within a store and other stores to check for available SKUs. The store personnel needed to call to check for SKUs -.POS terminals used the outdated DOS operating system. -No in-store networking available. Needs: -In-store networking should be available.

-Store Managers

Support

Activity


level

Administration and Systems

Administration: -Uses standard commercial applications for office productivity (word-processing, e-mails) IT: -IS department responsible for the internal development of applications. -The IS department have three groups: Store Solutions, Logistics Support, and Administrative Systems. Human Resources: -Training and development

Problems: -Internally developed applications by the IT department may not be suitable for use. -Lack of IT use. Needs: -Vendor compatible software. -IT use can enhance efficiency.

Administration: -Senior Level Managers IT: -Senior Level Managers -Middle Level Managers Human Resource: -Senior Level Managers

Procurement

-Supply Chain Management There are fewer inventories in the entire supply chain.

Problems: -Lack of computers in stores, makes it difficult to match the exact inventory. Needs: -In-store computers

-All Levels of Management -DC Managers

Business Support Areas

-Has support areas for Expansion, Real Estate, International, Logistics, Raw material, Manufacturing Plants.

Problems: -Communication is difficult -Time consuming -Offices need to be near the location for communication Needs: -Use of IT for easy communication -Enhanced efficiency -Use of IT can make centralized operations possible.

-Development Officers -Middle Level Managers -Senior Level Managers


Evaluation of IS Implementation

In this case, Zara believes less is more and makes minimal use and investment in IT. The

competitive advantage Zara has over its competitors is not so much due the use of IT, but

because of its quick response to the changing market. Zara does not have a chief information

officer or any formal process for setting an IT budget. Castellano estimated Inditex’s IT budget

for 2002 was 0.5 % of the revenue, as compared to the 2% of the revenue of other North

American retailers (McAfee et al., 2007). As there is no formal justification of IT efforts, there is

also not any cost/benefit analysis. However, to maintain business competitiveness is the most

important factor to consider when making any decision regarding the upgrade of IS. Zara needs

to analyze and compare the Tangible (quantitative) costs and benefits as well as the Intangible

(qualitative) costs and benefits of the old system and the new system.

Tangible Costs Analysis

Current system: Zara has minimal cost involved due to its vertically integrated

operations. Zara’s use of POS terminals based on the DOS system, which requires minimal

maintenance, and thus, keeping the costs down. In addition, Zara has its own IT department,

which develops the DOS compatible software instead of purchasing the commercial available

software. As Zara has operations, worldwide managing accounting using the commercial

available software is difficult. For these reasons, Zara maintains an IT department of 50

employees, which accounts for less than 0.5% of the company’s workforce (McAfee, 2004). This

has proved to be very cost effective. Earlier Zara used fax for ordering, but due to the long time

as well as large cost, Zara switched to PDAs to resolve the issue. As the stores are not connected,

the store employees make telephone calls to check for inventories, this increases the phone cost

as well as this process is time consuming. This lost time also decreases productivity. Due to

improper communication, more employees are required to manage the inventory, which

increases the cost. However, no specific numerical data is available to make the complete

evaluation.

Future system: As Zara uses the P-O-S terminals that operate on the outdated DOS

software, installation of new OS such as Linux, Windows, or UNIX will enable Zara to develop

its capabilities. According to McAfee et al., the following costs can be identified in upgrading

the current OS. By comparing the cost of OS for POS terminals, we find that Linux does not

have any One-time license cost, whereas, Windows has a One-time license cost of €140 and


UNIX has a One-time license cost of €160. Thus, Linux offers cheapest implementation costs for

Zara. However, Linux has higher ongoing costs, such as service contract cost, ranging from €10 -

€150 as the Linux service contract depends highly on IT staff’s knowledge in Linux

programming and maintenance. As Zara will install the new OS on a large number of computers,

it needs to consider the costs of each OS. To upgrade the system Zara will also have to install

new hardware and replace the old POS terminals. The cost of POS terminals is €5000, which will

also require installation of new cables, routers etc. The Wireless routers and Ethernet cost, staff

training cost, software installation and maintenance cost, and the per store connectivity cost of

€240 etc. will also add to the upgrade costs. Apparently, this seems to be an immediate expense,

but the cost will depreciate over the years.

Tangible Benefits

Current system: Zara’s choice of its current IT system has allowed Zara to reduce

expenditures, reduce operational cost, and increase efficiency. Zara develops the software

internally instead of purchasing the commercial available software. Thus, Zara employs just 50

employees and its IT expenditure is less than one-fourth the fashion industry average. These

software have enabled Zara perform 95% of its daily activities and maintain a low software

upgrade cost. These internally developed software help save Zara 15,000 development hours,

outside vendor costs, and provide a 22.9% ROE over the period of 1996-2002.

When comparing the financial data of Inditex and key competitors, we find that the cost

of goods sold of Inditex (€1,955) is very less as compared Gap, and H&M. Thus, the firm was

able to operate with high profit margins. Inditex also has less operating expenses as compared to

its competitors, and so is able to have operating profits and a higher net margin of 11.02%. In

comparison between the years 1996 and 2000, the company’s earnings have tripled (31%

increase in profits) indicating a trend of rapid and profitable growth. In addition, Zara collects

cash faster than it pays out i.e. Zara operates with a “negative working capital” (Ferdows et al.,

2003). Inditex, the parent company, has a higher market capitalization (equity to market value)

of €13,981 (in thousands) for 2002, and the market value has remained somewhat stable over the

period of 1996-2002. Thus, the IT strategy has enabled Zara to have the second highest net

margin of 11.02% in 2002 of the four highest competitors in the industry and the highest net

margin of 10.49% in 2001.The firm is able to reduce its operating costs by maintaining an

efficient supply chain.


The company has operations in 45 countries with 1,558 stores in 2003 and has a wide

market reach. The company introduces 11,000 new items as compared to its competitors

averaged 2000-4000. Inditex’s ROA is also increasing as compared to its previous years, such as

the ROA in 2002 is 14.54% as compared to 13.07% of 2001. Forty-six percent of the group’s

sales are in Spain, which is also the company’s headquarters. For the fiscal year 2002, Inditex

reported a net income of $502 million U.S. dollars. The Inditex executives believe that Zara has

the potential to grow given the current market conditions. For example, Italy has very few stores,

but Zara’s Italian stores are popular and thus, Castellano expects growth prospects. With the

current Zara’s infrastructure of production and distribution networks, it can support future

growth.

Future system: The installation of the new system will enable Zara improve the

efficiency, which will directly influence Zara’s revenue. With the smooth communication among

the stores as well as the headquarters, Zara can better predict the future needs of material, and

save cost by hedging them at a low cost. The system will also enable Zara to make clothes

prototypes at a quicker rate and get a faster response from the customers. Therefore, there will be

more sales, less cost, more revenue, and more profit. For example, the system upgrade will

provide better efficiency and networking between the stores and thus, reduce the operational

costs and the number of per store employees. However, no specific numerical data is available to

make the complete evaluation.

Intangible Costs Analysis

Current system: Zara’s advantage over its competitors is not because of the use of IT

advantage, but because of an efficient supply chain and fast response to the changing market.

The sustainability of its competitive edge might be at risk due to the lack in the IT investment.

Zara’s use of an aging IT infrastructure is hampering the growth of the company by limiting its

efficiency by lost information due to the lack of proper IT structure. The DOS system used by

the POS terminals maybe operable currently, but in reality Microsoft does not support the

outdated DOS system. Therefore, building a future on shaky foundation is risky. Zara has an IT

department with just 50 employees who share the work of the whole organization. The

employees develop software, as the company does not use the commercial available software.

With just 50 employees, these employees are overworked. The current system is unable to

predict the sales, plan for or estimate losses as the system is inefficient to match the inventory.


The Zara stores are not connected and so the inventory management is difficult. The store

managers make calls to check for the inventories, which is time consuming and less productive.

The store managers use the PDAs for ordering whose screens are small and incompatible, which

can cause errors in the ordering system. In the era of rapid IT development such as wireless,

mobile commerce, etc. the company’s decision to use the old system could hamper company’s

efficiency and deplete its corporate image. Another area of concern is the unreliability from of

the change in the IT system from the supplier side.

Future system: Zara has been using the POS terminals for over a decade, without any

essential change. Changing this system to a new system would require training of the employees.

Acceptance of the new system by the employees might be difficult due to the inertia to change.

Currently, store employees can easily operate the POS system without worrying about the

procedures.

The probable problems that would arise in adopting the new system will be difficulty in

training the staff, more IT staff experts etc. Zara has always treated IT as a cost center rather than

enabler. This explains the lack of CIO and CTO. This mentality can crush ambitious projects in

the company that lacks the management expertise and experience of a senior IT official. The new

OS will nurture future inventions. The adaption period required for the new system would lead to

less productivity. The employees could face problems such as faulty hardware, incompatible

software, and possibly updating of the other equipment. Zara has a decentralized and an informal

current culture. However, if the new system requires too many tasks then this could dissolve

creativity and autonomy of the personnel over time.

Intangible Benefits

Current system: Zara currently uses the POS terminals, which operates on the DOS

system. Zara has been using this system for more than a decade, as the system was operable. The

current POS system did not require any IT assistance as software installation, and reinstallation

in case of serious event was straightforward. Therefore, no additional training of employees is

necessary. With the current system, Zara was able to make quick decisions and the managers at

each Zara store were able to manage their daily business operations. Thus, Zara had a

competitive advantage over its competitors. The current system did not require Zara to expand its

IT department and hire any CIO or CTO. The IT department internally developed POS

applications, which were stable, effective, and easy to roll out and maintain over time


Future system: The new OS system will offer managers with tools that will provide them

with more timely information. They will not have to match the sales record at the end of the day,

but rather the data will be automatically updated not only at store levels but also at the

headquarters. The managers will be able to locate the inventory in the supply chain easily and

ask for a particular SKU immediately rather than calling and checking which store has one. The

managers will be able to manage inventory on an ongoing basis on the frequency of the

shipment. All the stores will share the inventory information, which will enhance the inventory

management. The communication between the stores will be faster. The employees will be less

stressful due to the reduced workload. The time spent by the managers in looking and matching

inventory and making calls can now be utilized in more productive decision-making, planning

and further improve organizational earnings. In addition, the store managers could learn about

trends and development at each store, which is currently not possible in this decentralized group.

All of this will lead to increased employee satisfaction, higher efficiency, and enhanced

goodwill. Another benefit the new system can provide is the efficiency in matching the demand

and supply at the order entry process rather than using the old batch process. It will enhance the

ordering process. The use of PDAs for ordering will prove useless just to process orders. This

will lower operational cost as well as increase productivity. By the use of this modern internet

system, stores will be able to transmit information related to inventory and orders easily to the

headquarters or to the other stores. This will enable to match the supply and demand more

accurately and reduce the inventory risk.

Conclusion for Evaluation of IT Implementation

To conclude, the tangible and the intangible benefits outweigh the costs. Thus, Zara

should consider upgrading the current operating system (OS) with the new OS. While the cost of

the new software will be a one-time charge, the maintenance cost will be distributed over the

long run.

Conclusion and Recommendations

For Zara to upgrade the current system, I would recommend Zara to implement the

change gradually. In the short term, there is no immediate need to upgrade the system. Zara

needs to make the change over a long period. For Zara to sustain in the competition, it should

first develop a strategy for the change. At present, Zara should stop more investment in the

current system and probably conduct a pilot test of the new OS to collect the data of its effects. It


should assign a budget for implementing the whole upgrade. Instead of investing at a time, Zara

should make the investment in sequential stages. Zara will need to design a formal chain of

decision-making. The PDAs used for ordering are inconvenient to use and so, Zara should

replace them with convenient equipment such as the PCs. In addition, the PDAs and the POS are

not connected. In order to improve the networking capabilities at each store level, Zara should

switch from a modem-based network to a broadband-based network. This will allow Zara to stay

connected with the other stores as well as with the headquarters.

As Zara uses POS terminals that operate on the outdated DOS system, it needs to update

the POS terminals with a more modern and compatible operating system. Modern POS terminals

that are available operate on modern OS such as Windows, UNIX and can use a variety of

physical layer protocols, though Ethernet is currently the preferred system. For example, HP-

intuit retail solutions operate on Windows OS. The POS should have the customer-based

functionalities that will record sales, returns, exchanges, layaways, etc. In addition, “Back-

office” computers of the POS system should handle functions such as inventory control,

purchasing, and receiving and transferring of products to and from other locations. Zara should

also use CRM software such as Sap that not only help to address the short-term imperatives- to

reduce cost and increase the decision-making, but can also help achieve differentiated

capabilities in order to compete effectively over the long-term. Initially, Zara should run the old

and the new systems side by side, until the new system is operating smoothly. Even when the

new system is operating smoothly, Zara should keep the old system for while. At the same time,

Zara should focus on the development of its IT department by hiring a CIO or CTO. Under the

expertise of the CIO, Zara will be able to tackle the IT related problems and undertake ambitious

developments. In addition, Zara should use the internet to make online sales, and take advantage

of the available free social media to promote itself. Zara has always used IT as an adjunct rather

a substitute (McAfee, 2004). Addition of such capabilities will enhance Zara’s operations. These

will add more entry barriers for the new competitors and the existing competitors will have to

enhance their operations in order to stay in competition with Zara.

The Zara IT case has a significant impact on the MIS field. It shows how a company can

enhance its operations by the necessary use of IT. The case suggests Zara to change the old

technology and adopt the new technology to stay in pace with the competition. This also shows

the importance of the IT and the emerging trend of MIS.


In conclusion, Zara has maintained an upper hand over its competitors by the response to

the changing market trends and fashion and by vertical integration. Zara, with its present IT

infrastructure has been effective and able to be consistent with its core business. However,

depending on an unreliable change from the supplier side, obsolete OS will not be compatible for

future improvements or growth. Although, there no immediate need to change the current

system, Zara should not invest more in the current obsolete IT infrastructure. It should adopt the

change to the new OS eventually. Making a gradual change to the new system will increase

Zara’s efficiency, without facing the sudden setback of implementing the change at once.


References

Capell, K., (2008, Oct.20). Zara thrives by breaking all rules. BusinessWeek, (4104), 66, 1 Color

Photograph Ferdows, K., Lewis, M., & Machuca, J. A.D., (2003). Zara. Supply Chain Forum: International

Journal, 4(2), 62-66, 5, 3 Black and White Photographs, 1 Graph

Kroenke, D. M., (2012). Experiencing MIS (3rd ed.), In Organizational strategy, Information

systems, and Competitive advantage (p. 51). Upper Saddle River, NJ: Pearson Education, Inc.

McAfee, A., (Spring2004). Do you have too much IT? MIT Sloan Management Review, 45(3),

18-22, 4p

McAfee, A., Dessain, V., & Sjoman, A., (Sep2007). Zara: IT for Fast Fashion. Harvard Business

School, 1-23

Thomas, R.J., (Jan2006). Uncovering Zara. Apparel Magazine, 47(5), 27, 3, 4, 1 Color

Photograph

Documents

Zara Case Study