In
today’s business world, many companies focus on profit. Companies can obtain profit through the
increase of their sales or by the decrease of their costs. In an article in Bloomburg Businessweek,
LG focuses on decreasing their costs by innovating its supply chain.
Even
with the increase in sales of their new products, such as the LG Cookie, LG
truly cut costs in their supply chain.
In LG’s former supply chain, divisions within the company made their own
deals with suppliers. This means
that information was not being shared between managers within the same
company. In the new supply chain,
LG created a 50-page procurement list of suppliers to create more centralized
purchases. Moon Ihlwan writes, “By
centralizing purchases, LG has cut more than $2 billion from it annual $30
billion shopping bill” (Moon).
This
scenario shows a classic case of a company moving from a silo structure to more
of a matrix structure. In a silo
structure, each division controls its own function. No collaboration runs across the different units. This creates difficulties in obtaining
price advantage, as one does not know the price that other divisions are
obtaining. A matrix structure
allows for collaboration throughout all of the divisions. For example, in a matrix structure,
different divisions are able to know the price that each paid to their
suppliers. This gives the company
the ability to lock in premium prices due to cooperation along the divisions.
Other
articles support LG’s move of focusing on the supply chain by innovating
horizontally. Greater profits do
not always have to come from the innovation of a new product. Sure, a new iPhone or laptop would
increase sales and profits, but it is not the only solution. Success can come from the integration
of existing capabilities within the company. Breaking down silos and thinking horizontally provides
collaborative innovation within the company. The CIA, Central Intelligence Agency, found success in
integrating horizontally. Saul
Kaplan writes about CIA turning to more of a matrix structure:
With no security risk, disruption
of agency activities, or incremental cost, the CIA has opened up a treasure
trove of valuable data to scientists from academia, government, and industry for
environmental research. To
replicate the capture of this information would be silly and cost-prohibitive,
and I was encouraged that the data were being shared to make progress on an
important social issue. (Kaplan)
This shows how success does not always have to be measured
in profit. The CIA used
information technology principles of integrating horizontally to protect the
United States. The free sharing of
information allows the different divisions of the CIA to be on the same page. This gives the CIA an advantage in
protection as they are not barred from any information within the CIA.
These
two cases prove how information technology exists throughout many fields for
many different purposes. LG did
not use information technology to innovate in product design, but they also
used it in the supply chain. The
CIA used IT principles to help protect the United States through horizontal
information sharing. With its many
uses, information technology is important in today’s world.
Word Count: 519
Resources:
Ihlwan,
Moon. “Innovation Close-up: LG
Electronics.” Bloomberg Businessweek.
Bloomberg, 15 Apr. 2010. Web. 6 Feb. 2012.
<http://www.businessweek.com/magazine/content/10_17/b4175037784791.htm>.
Kaplan,
Saul. “Innovators, Break Down
Those Silos.” Bloomberg Businessweek.
Bloomberg, 8 Feb. 2010.
Web. 6 Feb. 2012.
<http://www.businessweek.com/innovate/content/feb2010/id2010028_390003.htm>.
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