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International Journal of Information Management 32 (2012) 294298

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InternationalJournal ofInformation Management

j ournal homepage: www.elsevier .com/ locate / i j infomgt

Case study

The role ofIT in achieving operational agility: A case study ofHaier, China

Pei-Ying Huanga,, Tao Hua Ouyangb, Shan L. Pan c, Tzu-Chuan Chou d

a Department of InformationSystems, School of Computing,National Universityof Singapore, 13 ComputingDrive, #COM2-01-02, Singapore 117417, Singaporeb Schoolof Economicsand Management, Beihang University, 37 Xueyuan Road, Beijing, PR Chinac Department of Information Systems, School of Computing, National University of Singapore, 21 Heng MuiKeng Terrace, ICube #03-05, Singapore119613, Singapored Department of Information Management, National TaiwanUniversity of Science andTechnology, 43,Sec. 4, Keelung Rd., Taipei, Taiwan, ROC

a r t i c l e i n f o

Article history:

Available online 25 February 2012

Keywords:

Operational agility

IT leveraging competence

Order fulfillment

China

a b s t r a c t

Operational agility has increasinglybecome essential for survival and prosperity for contemporary orga-

nizations. Given its significant role in a turbulent business environment, this concept has garnered

considerable research attention over the past ten years. However, due to the complex nature ofopera-

tional agility, how to achieve this importantorganizaitonal capability is still not clearly understood. Thus

the present study attempts to open this black box through examing a case study ofHaier, the largest

household appliances producer in China. The findings of this case highlight the significant role played

by IT leveraging competence in achieving operational agility. It shows that IT leveraging competence

helps enhance firms ability to process information in a turbulent business environment, which results

in information processing efficiency and information processing effectiveness.With the enhancementin

the ability to process information, the focal firm is capable to sense and respond to market changesmore

readily.

2012 Elsevier Ltd. All rights reserved.

1. Introduction

The new business era in 21st century has made change as

one of its major characteristics. This critical situation is rooted in

factors such as hyper-competition, globalization, time-to-market

pressures, and technological advancements. With the increas-

ingly turbulent business environments, the capability to sense

and respond to market threats and opportunities readily has

graduallybecomeessential for survival andprosperity forcontem-

porary organizations (Pan, Pan, Chen, & Hsieh, 2007). Operational

agility, which is defined as the ability of firms business pro-

cesses to achieve speed, accuracy, and cost economy in the

exploitationof opportunities for innovationand competitive action

(Sambamurthy, Bharadwaj, & Grover, 2003), is suggested as a cru-

cial capability that helps organizations to achieve this end.

As the business environments in China become increasingly

complex and turbulent, research on operational agility in this con-text is particularly pertinent and valuable. Since the admission

to World Trade Organization (WTO) in November 2001, the local

Chinese companies, who are familiar with the business environ-

ments, have seizedthese opportunities andgrown very fast. To get

a stake in Chinese market, thousands of international competitors

entered the market on a grand scale. Meanwhile, Chinese con-

sumers preference has been continuously changing over the past

Correspondingauthor. Tel.: +65 92340008.

E-mail address: peiying@comp.nus.edu.sg(P.-Y. Huang).

ten years, from purchasing low-end or premium products to pur-

chasing good-enough products (Gadiesh, Leung, & Vestring, 2007).

Furthermore, the transition from a centrally planned economy to

a market economy constantly challenges the political system gov-

erning the economy (Tsui, Schoonhoven, Meyer, Lau, & Milkovich,

2004), which results in frequent changes in regulations. All the

conditions lead to the turbulent business environments in Chi-

nese market, making thecapability to sense andrespond tomarket

changes readily particularly important. Thus this new economy

provides a unique context that fits the research on operational

agility, which in turn, will offer valuable feedbacks to companies

striving to survive and thrive in the environments.

Given its crucial role in enabling business success, the con-

cept of operational agility has garnered considerable research

attention over the past ten years (e.g. Sambamurthy et al., 2003;

Tallon, 2008). The majority of operational agility research centers

on examining the antecedents of operational agility. For exam-ple, in Sambamurthy et al.s (2003) conceptual study, information

technology (IT) is posited as an enabler of operational agility.

Meanwhile empirical research on operational agility, such as the

study examiningtherelationship among managerial ITcapabilities,

environmental dynamism, technical IT capabilities and opera-

tional agility (Tallon, 2008) and the research investigating the

effects of a firms IT infrastructure on operational agility (Raschke,

2007), mainly apply variance models to investigate the impacts of

antecedentsonoperational agility.Yet,despite thegrowingbodyof

research on operational agility, how to achieve operational agility

is still not answered by previous research. Given the indispensible

0268-4012/$ see front matter 2012 Elsevier Ltd. All rights reserved.

doi:10.1016/j.ijinfomgt.2012.02.001

http://localhost/var/www/apps/conversion/tmp/scratch_7/dx.doi.org/10.1016/j.ijinfomgt.2012.02.001http://localhost/var/www/apps/conversion/tmp/scratch_7/dx.doi.org/10.1016/j.ijinfomgt.2012.02.001http://www.sciencedirect.com/science/journal/02684012http://www.elsevier.com/locate/ijinfomgtmailto:peiying@comp.nus.edu.sghttp://localhost/var/www/apps/conversion/tmp/scratch_7/dx.doi.org/10.1016/j.ijinfomgt.2012.02.001http://localhost/var/www/apps/conversion/tmp/scratch_7/dx.doi.org/10.1016/j.ijinfomgt.2012.02.001mailto:peiying@comp.nus.edu.sghttp://www.elsevier.com/locate/ijinfomgthttp://www.sciencedirect.com/science/journal/02684012http://localhost/var/www/apps/conversion/tmp/scratch_7/dx.doi.org/10.1016/j.ijinfomgt.2012.02.001

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P.-Y. Huang et al. / International Journal of InformationManagement32 (2012) 294298 295

roleof operational agility in contemporary business environments,

it is an imperative to investigatehowtoachieve operational agility.

So the objective of this case study is to examine the approach

to operational agility. Specifically, we draw on the literature of IT

leveraging competence (Pavlou & El Sawy, 2006) to investigate the

process of achieving operational agility in the case company. IT

leveragingcompetence is theability toeffectivelyuse IT functional-

ities to support IT-related activities (Pavlou & El Sawy, 2006). Since

IT is considered as an enabler of operational agility, the ability to

leverage IT functionalitiesmight play a significant role in achieving

operational agility. Thefindings of this case show that IT leveraging

competencehelps enhancefirms ability toprocess information ina

turbulent business environment, whichresults in information pro-

cessing efficiency and information processing effectiveness. With

the enhancement in the ability to process information, the focal

firmis capable tosenseand respond tomarket threats andopportu-

nitiesmorereadily.Bydoingso,thisstudyhighlights thesignificant

role played by IT leveraging competence in achieving operational

agility.

2. Case background

The case company we selected is Haier Group. It started as

the Qingdao Refrigerator Factory in the early 1980s, originally an

importer of refrigerator production technologies from Germany.

Since the current CEO Ruimin Zhang took over the company in

1984, the company has grown from a near-bankrupt enterprise

with deficit financing of up to US$230,000 to a prospering Chinese

multinational corporation over the past few decades. Nowadays,

Haier Group has over 240 subsidiary companies, more than 110

design centers, plants and trading companies as well as over

50,000employeesthroughout theglobe.Fromthe statisticsof Euro-

monitor, thecompanywasrankedthirdin GlobalMajorAppliances

Millionaires Club 2010 ranking by unit volume, with the strongest

growth of 13% among the top four appliance companies.

With thefast growth, thecompany faceda myriad of challenges.

For example, one challenge came from its expanding productlines. Haiers product range had developed from a single line of

refrigerators to 96 product categories with over 15,100 different

specifications.Astheproductsdiversified, managementof thelarge

product linesbecame extremelydifficult.Meanwhile, the company

hadestablishedan extensivesalesnetwork globally to facilitate the

sales of its products. Key partners in respective markets included

Sunning and Gomechain stores inChina, 10 leading chain stores in

America, 12 of the top 15 chain stores in Europe, and 10 retail-

ers in Japan. Among them, sales network in China contributed

most to Haiers global revenue and was particularly complicated.

The company decomposed the sales network in China into over

33,000 minimal sales network grids. These network grids were

recomposed to form over 5,000 management units. Each unit was

occupied by one salesperson that was responsible to handle salesissues of customers falling into the unit. Over all there were more

than 10,000 salespersonsconstitutingan intricatesales network in

China. The geographical distribution of the sales network covered

cities in south China such as Guangzhou and Shenzhen as well as

cities innorthChina such asChangchunandHarbin. With this large

scale of sales force andthebroad geographicaldistribution, detect-

ing and responding to market demands accurately and efficiently

relied heavily on the capability to process information from enor-

mous distributed pointsof sale. Management of theextensive sales

network was faced with great amountof uncertainty,which posed

another big challenge to the company.

Despite various challenges, the constant endeavors in creat-

ing and improving innovative management practices guarantee

the companys success, which also enables the transformation of

a near-bankrupt enterprise to a thriving multinational corpora-

tion. Started from April 26th, 2007, the company began its new

journey toward improving its business processes and launched the

program of 1000 days information revolution, which intended

to restructure 20002500 business processes under the support of

IT. Through this program, the company integrated its fragmented

information systems andachieved thealignment of ITandbusiness

processestocreate innovativebusinessprocesses.Order fulfillment

process,whichwasamong thebusinessprocesses improvedduring

this program, formsthecontextof this study.We will examine how

the company achieves operational agility and the role of IT lever-

aging competenceunder thecontext of order fulfillment process in

the subsections that follow.

3. Order fulfillment process inHaier

Order fulfillment process is commonly defined as the complete

business process from points of sale inquiry to delivery of a prod-

uct to the customer. Order fulfillment in the case company goes

throughthreemainbusinessprocessessequentiallyanditeratively:

order forecasting, sales and production planning, and goods pro-

duction. Each of them will be examined in the following sections.

3.1. Forecasting process

The order fulfillment in Haier began with the order forecast-

ing process which aimed to acquire accurate customer demands.

This process included acquiring customers orders for production

andforecasting customersfuturedemands forprocurement. Itwas

challenging to cope with the process for the reason that customer

demands kept changing in contemporary business environments.

Meanwhile the large sales force in Haier made the process more

complex by increasing the difficulty to trace and monitor the per-

formance of salespersons. Thus it was imperative for the company

to find solutions to deal with these challenges. As it was stated by

Haier CEO:

If every customer is a flying target, then the number of flying

targets is countless. It is impossible to rely merely on a small

number of decision makers to understand all the flying targets

thoroughly since every target is different. Therefore, it is imper-

ative for each employee to face market directly. Everyone has

to find his or her own target and market; otherwise we cannot

win the market.

In order to acquire accurate customer requirements timely,

Haier established direct information exchange channels between

salespersonsin pointsof sale alloverChinaandsalesdepartment in

theheadquarters basedin Qingdao.Oneexample is thesalesperson

portal. In thepast,marketdemands gathered bysalespersonswent

through several levels of hierarchies to approach sales department

in theheadquarters, through which information became distorted.This phenomenon couldbevividly describedas thebullwhipeffect.

Thesalespersonportal solvedthisproblembyenablingdirect infor-

mation exchange between salespersons that were close to local

market and sales department in the headquarters. The Director of

Division One described as follows:

We provided a portal for product representatives (salesper-

sons). They can not only make sales orders, but also view the

sales of their own customers . . . They can view the balance of

their individual goal combination account. They can see the

amount of income and loss every day. They can also see new

tasks assigned by the headquarters. If they have any problems,

such as some problems in customers model machine, they can

feedback to the headquarters directly.

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Haier also relied on performance management program to

motivate salespersons to actively communicate with their cus-

tomers to ensure theaccuracy of customer demands acquired. The

performance management program was named as salespersons

individual goal combination.1 Salespersons performance was

evaluated and classified based on the extent to which the perfor-

mancewas consistentwithorganizationalgoals.Therewereseveral

evaluation criteria, such as accuracy of order forecasting andorder

fulfillment. While desired performance would be rewarded, unde-

sirable outcome was punished monetarily. Thisprogram enhanced

salespersons responsibility to ensure the accuracy of customer

demands collected. The Manager of Division Two introduced the

performance management program:

If you can finish your plan completely, you can get your salary

and season rewards completely. If you want to get your salary,

you have to develop a reasonable product structure, which is

to sell profitable products and to sell fast. This is the premise

to increase income. Individual goal combinationmechanismis

the combination of individual and order as well as the combi-

nation of individual and loss. If individual is combined with his

order, he can make money; otherwise, he will lose.

Providing tools to support order forecasting wasalso helpful in

improvingforecasting accuracy.An order forecasting system which

integrated complex forecasting models and large amount of sales

data was developed to assist order forecasting.

The salesperson portal and the order forecasting system were

leveraged to support theorder forecasting process, which was fur-

ther complementedby theperformance management program. By

doing so, information was gathered from points of sale timely;

meanwhile, it guaranteed that information collected wasaccurate

and comprehensive. Through achieving information processing

efficiency that denotes processing information in a timelyandcost

economic manner and information processing effectiveness that

indicates that the information processed is accurate and compre-

hensive, thecompanywascapable todetectmarket changes timely

and accurately.

3.2. Planning process

Once sales orders were determined, sales department initiated

thesales andproduction planning process with other departments

including production, procurement, logistics, finance, design, etc.

The objective of this process was to generate a congruent plan to

guide the actions of diverse departments. It was particularly chal-

lenging tocoordinate theiractions dueto diverse requirementsand

goals of differentdepartments.Oneexample wasthat salesdepart-

ment considered whether their sales orderscould be fulfilled while

production department cared about how many products it could

producewith limited resources.It waspossiblethatthe salesorders

generated by sales department exceeded the capacity of produc-tion department. Thus diverse situations of different departments

placed a big challenge of planning and required a large amount of

interaction and communication across departments. The Director

of Division Three stated:

Everyone must pay close attention to the whole process. For

example, logisticsdepartment mustcommunicatewithproduct

developmentdepartment. Theyhaveto findthesourcesofprob-

lems inadvance, to solve suppliers problem, toprovide support

1 Individual goal combination is a performance management program which

evaluates employees performance and provides incentives based on their perfor-

mance.

for modulization. In fact it is a coordination process, including

order delivery, production progress, and product delivery.

The key to perform this task was to facilitate tight communi-

cation and information exchange across departments. To achieve

this end, the company restructured its IT infrastructures and inte-

gratedexistinginformationsystemstoboost extensiveinformation

exchange across departments. For example, the company inte-

grated a myriad of existing systems and established the data

sharing platformto expedite information sharing. TheGlobal ValueSystem (GVS), which wasHaiers ERP system, also played a pivotal

role in facilitating timely information exchange across depart-

ments. The Director of Division Four explained:

When the company becomes larger, responding slowly (to

customer demands) is undesirable. To be fast, we have to use

information technology to achieve process synchronization. In

the past, it is in serial. For instance, sales department received

sales order then passed to production department, and then

passed to procurement department, and so on. But now all

the departments, including salespersons, production staff and

research staff will receive orders at the same time, this is also

the goal of developing information systems.

To further guarantee sufficient communication and coordina-tion acrossdepartments to support sales andproduction planning,

Haier established a series of clear procedures for coordination.

Theseprocedures formulated concretetimeand activitiesto beper-

formed by specific department as well as individual. For instance,

the company conducted routine cross-departments meeting every

Wednesday to communicate and negotiate sales and production

issues. Apart from theclear procedures, thecompany developedan

order reviewsystemtocheckthealignmentbetween requirements

and constraints of different departments so that the outcomes of

planning were accurate and feasible. The Manager of Division One

stated:

We have a set of procedures and mechanisms to cope with

coordination between sales and operation. Sales persons will

report results of order prediction on every Monday; the head-quarters will adjust the results of order prediction on every

Tuesday; then estimate short-term order prediction on every

Wednesday; estimate long-term order prediction on each Fri-

day.

In the sales and production planning process, the data shar-

ing platform, GVS, and the order review system were leveraged

to support planning activities, with the support of a series of clear

procedures. Through these mechanisms, accurate and consistent

information was exchanged across departments timely. With the

achievement of information processing efficiency and effective-

ness, the company was capable to conduct effective sales and

production planning to respond to market opportunities more

readily, which is reported by the Director of Division Three:

Technically,we implemented an information sharing platform.

It helps to save money, save time and save efforts. Saving time

meansaccessingto information is very fast. Savingmoney actu-

ally means information is shared and there is no necessary to

purchase additional devices. In the past some tasks took us lots

of efforts, such as we had to negotiate a lot for the procurement

task and it tookus 40 days to deliver. But now it only takes one

day.

3.3. Production process

The outcomes of sales and production planning process served

as guidance for production process. The objective of this process

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was to manufacture various products to fulfill customer demands.

As a household appliance giant with the large product lines, pro-

duction in Haier was extremely complex. This was because the

production task required manufacturing various types and a large

number of products, meanwhile assembling various types and a

largenumberof elementary components into each item.Thus, how

to manage the complex product structure in an effective and effi-

cient manner raised a big challenge to the company. The Director

of Division Four explained:

From the traditional data management view, it (the modules

management system) is a very large components warehouse

or modules warehouse. (In the past) which one was universal,

which one could be combined, did the inventory increase or

decrease, all of these cannot be observed directly. For manager

and user, this problem is very complex.

To cope with the challenge, information systems, such as the

GVS, were used to support the information dissemination to the

manufacturingplants. Forexample,whensalesorders arrived,pro-

duction department used GVS to transform the sales orders into

production orders which were then sent to factories distributed

in different regions. Accordingly, each factory deployed its own

production plans based on its resources. Thus information of sales

orders was transformed and distributed through information sys-

tems to approach each manufacturing plant. One technical leader

of Division Three stated:

The systems are used to confirm and distribute sales orders.

After some manual adjustments, production orders will be

transferred to factories. Production department in each factory

will organize its production accordingly. All of these are imple-

mented by systems.

Accurate and rapid production relied on clear rules and pro-

cedures. Although the complex product structure was particularly

tough to cope with, establishment of clear rules and procedures

enabled division of the complex task into simple and orderly ones.

These rules and procedures pre-specified detailed processes to be

followed by individuals. Furthermore, information systems werealso used to control and record the execution of the pre-identified

procedures. Similar to the forecasting process, Haier implemented

performance management program in production department,

which served to motivate individuals. The performance of indi-

vidual was evaluated and payment was provided based on the

evaluation outcomes. The Manager of Division Two articulated:

(The evaluation criteria for production department include,)

first, deliver on time; second, accuracy of order delivery. Fur-

thermore, we also evaluate fulfillment of production capacity.

For example, our production capacity is 5000 per day, but we

onlyproduce4000 (whichis notdesired).This canbe considered

asusagerateofproductioncapacity.Anotherexampleis product

type contract. We will evaluate that whether the typesof prod-

ucts produced are the same as what sales department ordered.

Theevaluation criteria aredifferent from that forsalespersons.

Again, the company leveraged its GVS to support the produc-

tion process, which was complemented by a series of procedures

and the performance management program. With these mecha-

nisms, information was distributed across departments timely and

orderly; meanwhile these mechanisms ensured that information

disseminatedwasaccurateandcomprehensive. Through achieving

information processingefficiency and effectiveness in thisprocess,

the company was capable to accomplish accurate and rapid pro-

duction, which is reported by Director of Division Four:

We look at the efficiency of the whole supply chain, from the

input of customer orders to output of products. The cycle is

only around 21 days. I cannot remember exactly the number,

but it does improve a lot. Our delivery cycle is the best in our

(household appliance) industry. Our delivery efficiency is quite

high.

4. Lessons learned

In general terms, this case shows that IT leveraging compe-

tence plays a crucial role in achievingoperational agility. Given the

turbulentenvironments andthecomplex businessprocesses,orga-

nizations are facing with great uncertainty that stops them from

sensing and responding to market changes readily. As a result, the

ability to process information in an efficient and effective manner

becomes particularly significant for the reason that it allows orga-

nizations to reduceuncertainty andmake more accuratedecisions.

This case further indicatesthat IT leveraging competence enhances

organizations ability to gather, synthesize and disseminate infor-

mation,enablingthemto achieve informationprocessingefficiency

and information processing effectiveness. Theenhancement in the

ability to process information facilitates sensing and responding

activities during the exploitation of opportunities for innovation

andcompetitiveaction, sothatoperationalagility isachieved.Some

implications from the case are discussed as follow.

Firstly, it is found that the way that organizations leverage ITto enhance information processing capability is contingent on the

nature of the business process they are confronting. This is consis-

tent with the findings from previous research that organizations

should leverage IT to facilitate the right amount of information

needed to cope with task uncertainty and achieve desired per-

formance (Mani, Barua, & Whinston, 2010). The case shows that

three different processes are facing different types of uncertainty

which require the company to leverage IT for information pro-

cessing differently. For example, the forecasting process is filled

with great uncertainty stemmed from demand uncertainty, which

indicates the changes in demand for products and the inability to

accurately predict these fluctuations. To deal with demand uncer-

tainty, the company leveraged IT to facilitate direct information

exchangebetween salespersonsand theheadquarters, aswell as toimplement performance management program to motivate sales-

persons. This is different from what had been done in other two

processes which confronted different types of uncertainty.

Secondly, this case informs us that the ability to process infor-

mationis crucial toorganizations facinggreatuncertainty.The case

shows that as the company grows, its operations become more

complex. A simplebusiness process will become complicated with

more actors involved and more procedures to go through, which

might stop information from flowingfluently. As a result, thecom-

pany becomes slow in sensing and responding to market changes,

which raises the importance of the ability to process information

in an efficient and effective manner. We found some potential

approaches used by the company to enhance the ability to pro-

cess information, such as greater investment in IT, establishingclear rules and procedures, and implementing performance man-

agement program.

Lastbutnotleast, this casedemonstratesthesignificant roleofIT

leverage competencein facilitating the executionof organizational

controls.Many studies show that IT canbeused to control business

processes and manage employees performance. This is also found

in ourcase. Forexample, as increasing information of salespersons

performance was gathered by the salesperson portal, thecompany

further leveraged the system to implement the performance man-

agement program to manage its salespersons performance. It is

a cost economic way to manage their performance, which other-

wise will be difficult to achieve due to the geographical boundary

between theheadquartersandsalespersons. Thus it is of greathelp

to leverage IT to execute organizational controls.

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5. Conclusion

While the significance of operational agility in contemporary

business environments is obvious, the approach to achieve opera-

tionalagility remains elusive to many firms. Findings from ourcase

study emphasized the essential role played by IT leveraging com-

petence in achieving operational agility, which is not examined by

previous research. With the findings abovementioned of this case,

we hope that this study will provide some practical implications to

attain operational agility, which is especially significant for firms

competing in large-scale and complex market places, such as the

Chinese market. Our study informs CEOs and CIOs the significant

role of IT leveraging competence in achieving operational agility.

Future research should also be conducted to extend our under-

standing of how operational agility is attained through leveraging

IT functionalities.

Acknowledgements

Funding for this researchwasprovided by Chinas NSFC General

Project (70772092 and 71072021).

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Pei-Ying Huangis a PhD candidate of the Department of Information Systems inthe School of Computing at National University of Singapore. His research inter-ests include IT-enabled enterprise agility, IT-enabled organizational informationprocessing, and other IT-related management issues. He has published his workin International Conference on Information Systems 2010 and 2011.

Tao HuaOuyangis a Professorof Schoolof Economicsand Management at theBei-hang University, China. She received her master degree of Economics from WuhanUniversity,China in1993and PhDdegreeof ManagementSciencefromKobeUniver-sity of Japan in 2002. Her researchinterests include strategicmanagement,modernbusiness management.

Shan L. Pan is an Associate Professor of Information Systems and the AcademicDirector of the StrategicTechnology Management Institute at the NationalUniver-

sity of Singapore (NUS). His research work has been published in various top tieracademic and practitioner journals such as Information Systems Research, MISQExecutive; IEEE Transactions on Systems, Man, and Cybernetics; IEEE Transactionson Engineering Management;and theJournal of theAmericanSociety forInforma-tion Systems and Technology.

Tzu-Chuan Chou is an Associate Professor in the Department of InformationManagement, National Taiwan University of Science and Technology, Taiwan. Hereceived hisPh.D.from Warwick BusinessSchool, theUniversity of Warwick,UK in1999. His researchinterests include IT outsourcing,IT governance,knowledgeman-agement, and E-government. He has papers published in a number of internationaljournals.