Opening Pandora's Box

Problem/Issue Statement

In December, 2007, Tim Westergren, founder and chief strategist of Pandora was stuck at a crossroads; he was struggling to balance the interests of investors while staying true to his dream for Pandora.  At the Company’s current growth rate, they were going to run out of cash by the end of the following year.  Westergren had a big decision in front of him – should he take a more conservative path, pull back on growth and raise just enough money to stay afloat for long enough to reach an exit; or should he go full throttle through viral growth and exploit the first mover advantage, raising a more significant amount of capital with the hopes of a possible future IPO?

Situation Assessment

Westergren and two friends began Pandora with the Music Genome Project, a music discovery engine to help connect listeners with artists.  Each song that was entered into the music library would be dissected by analysts to determine its “musical DNA.”  This was how the Pandora team would be able to determine what music listeners liked and recommend future titles/artists based on each individuals preference. 

Pandora began as a back end music recommendation engine for the likes of AOL and Best Buy, but in 2004, after receiving some additional financing, the Company changed strategies and became Pandora.com, an internet radio service that allowed users to state their preferences and find similar music that they may like based on those preferences. Internet radio had growing popularity, in January of 2007, Pandora.com had roughly 5 million registered users (5 million according to Exhibit 3, however it would appear to be more like 6 or 7 million from the text). 

Then in March 2007, the Copyright Royalty Board instituted a major increase in royalties to be paid by internet radio stations for streaming music during 2007 – 2010.  Westergren felt that the new rates would “kill all internet radio stations, including Pandora.”   In response to the CRB, Westergren sent a letter to all listeners requesting their help and asking them to sign petitions to urge Congress to take action to save internet radio.

Here is a snapshot of the music industry as a whole in 2007:

• CD’s were quickly becoming a thing of the past, prices were increasing and consumers were less willing to spend money for an entire CD when all they really wanted was 1 or 2 songs.
• Radio – while still a mainstay medium was seeing declining trends due to satellite radio and other emerging technologies of the time such as digital devices (iPods) and internet radio.
• Satellite radio was going through a transformation with the potential merger of XM and Sirius after both companies had a combined loss of $6B.
• Digital music had the highest trends with digital sales nearly doubling in 2005 and downloads projected to grow at compound annual growth rate of 16% by 2011.  Rather than buy entire CDs, consumers could go to iTunes and purchase individual songs for just $0.99.

Recommendation

Looking at the landscape of the music industry, if Westergren and his team are able to raise sufficient capital, I feel that the risk is worth the reward of “putting the pedal to the metal” so to speak.  The industry is in the midst of transformation, listeners are no longer buying CD’s and they do not seem to be happy with their existing radio offerings.  More and more people are switching to satellite radio and why not then switch over to internet radio and to a “station” that has such a broad offering of music with customizable stations.  We are moving into a digital age where consumers want to be able to customize as much as of their consumption as possible, why not offer customizable radio?

Presentation

My presentation to potential investors would emphasize the current state of the music industry and the declining trends in other mediums.  It is important to point out all of the things that people are currently unhappy with in the current environment and point to ways that Pandora resolves these issues.  A lack of “good music” on the radio?  Pandora provides customized stations based on user preferences.  Unhappy with current advertising on your local radio station?  Pandora advertising is almost discrete in nature and very non obtrusive.  Don’t want to pay for satellite radio?  Pandora is a free service; all you have to do is register.  It would also be important to show in the presentation, the increasing trend of registered users to the Pandora site as well as Pandora’s impact on the overall market.  Musicians/Artists are pleased with the exposure that they are able to get on Pandora as opposed to the lack thereof on local/satellite radio.  Pandora also complements retailers with links to purchase songs if users like them – say you like the latest Bon Jovi song, you can buy it for only $0.99 on iTunes.  It is reported that 34% of registered Pandora users actually spent more money on music after switching over to Pandora and finding new songs or artists that they liked and wanted to hear on their iPods as well.

Harrah's IT Gamble

Dear Mr. Harrah

In response to your request Strategic IT Consultants would like to review with you some lessons learned regarding your data warehousing/mining and business intelligence/analytics achievements over the past couple of years.  As you are well aware Harrah’s has been very successful in its implementation of a data warehouse, customer loyalty program (as well as further enhancements to the same), and closed loop marketing.   These combined efforts resulted in a 62% internal rate of return on investments in information technology, 14% revenue growth in same store sales and increased frequency of visits by customers.

Along the way, the first lesson to be learned is that sunken pirate ships and roller coasters may not be the best investment in a casino’s customers.  While some other Las Vegas casinos were spending millions of dollars on frivolous items as previously mentioned, Harrah’s invested in a data warehouse which was used to support its customer loyalty program and closed loop marketing efforts.  While extravagant items may bring people to your casino, it may not bring them there to gamble – as you are aware, visiting a casino and gambling at a casino are two different things.  You want to attract those customers that are going to keep coming back while continuing to gamble.  It is important to continue enhancements to the data warehouse while possibly integrating a more dynamic analytical tool to further evaluate customers and what they would possibly prefer in the future.

Another lesson to be learned is with regard to marketing.  Rather than using “Harrahisms” and extending offers based on perceived future gaming worth, the closed loop marketing allowed Harrah’s to learn what types of marketing campaigns provide the highest net value.  Thousands of experiments can be done with results evaluated and analyzed to provide feedback into which campaigns provide a higher relative value.  For instance, $60 in chips was better received than $30 in chips, a free room and steak dinner for two at the Tunica casino.  It is important for Harrah’s to continue this research and find which campaigns are best received in each of it’s geographies.

Closed loop marketing also assisted with cross-market penetration.  Viewing Harrah’s as a whole rather than as individual properties assisted with better marketing.  Harrah’s cross-market play more than doubled from 1997 – 1999, during a time when billions of dollars were being spent on luxury casinos in Las Vegas.

Harrah’s has learned a lot on its journey about its customers and the casino industry and should continue to build on this knowledge base.  First and foremost, Harrah’s should continue to invest in its customers, knowing your customers, having the largest client database in the industry has served you well; continue to enhance the workbench and data warehouse to capture as much information as possible about customers in order to enhance marketing in the future.  In that vein, Harrah’s should continue to run experimental marketing campaigns through the closed loop process.  Cross market play is an important part of revenue and being able to increase this two-fold in two years is significant.  Geographic marketing based on which casinos customers have visited in the past and trying to gauge where they may be interested in going in the future could increase this revenue even more.

A new project to look at in the future would be enhancements for mobile devices and social media/networking.  Possibly create an app that could be used for Android phones, iPhones, iPads, etc that could replace actually having a loyalty card.  The app could be scanned in at slot machines or tables and customers could keep track of their loyalty rewards.  The internet is also something that is growing at a staggering pace.  It might be worthwhile to link the Rewards program to customers e-mail addresses.

Please let me know if you would like for my team to come in for a formal presentation. 

We look forward to hearing from you. Thank you for this opportunity.

Bombardier Reflection

Case: Bombardier:  Successfully Navigating the Skies of a Large Scale ERP Implementation

Members of the Board

I would like to follow-up with you after our presentation by the consulting team on Tuesday night.  The consultants had some interesting ideas and our management team learned some good information about the overall industry 12 step standard for ERP implementations.  My research had come across various “industry standard” practices, while the consulting team’s overall framework appears to definitely be more useful.

The consulting team presented us with 3 recommendations:

• Include function specialists in design and implementation activities with formal processes in place that can be based on a scorecard to show progress for both design and implementation. 
• Hire 3 full time subject matter experts (SME’s) with industry knowledge as well as an SAP knowledge base in order to remove IT consultants from the equation.  
• Either enhance the SAP features to accommodate our current specialized contract management process or standardize the contract management process to conform with SAP functionality.

I would agree that both the formal process and function specialists as well as enhancing the SAP features to accommodate the contract management process would be beneficial in our 3^rd round of implementation, I am a little hesitant with regard to the consultant’s second recommendation of hiring 3 SME’s to replace the existing > 400 IT consultants.  According to the consulting team’s presentation, hiring three SME’s would save roughly $130,000 annually, however I feel that more than 3 SME’s would be needed which would no longer make this option as cost effective as suggested.  While subject matter experts are probably something we should discuss in a little more detail as they are probably beneficial to the implementation, I feel that they would not completely take the place of the IT consultants.  This may be a good proposal, but I feel that we may need some more information and/or discussion around this topic before we could offer it as a true recommendation. 

One additional recommendation that I would have in addition to the above would be enhancements to training.  While the consultants felt that our training practices were acceptable, I feel that they could be adjusted after some feedback from employees at the Maribel and Saint-Laurent sites.  Similar to my initial discussions with you on this topic, a more generalized training before implementation may be beneficial with more specialized follow-up training sessions once employees have had the opportunity to use the system.  Feedback from several employees was that from the time they had training to the time they started using the system they had forgotten things.  It would seem that having more follow-up training once people are slightly familiar with the functionality would ease the transition along.

Thank you for your time and please let me know if you would like for me to set up a follow-up with the consulting team.

MS Project

Dear Lee Ann

I would just like to follow-up with you regarding our initial discussion of possible cost-cutting measures.  I was surprised to learn that all of the employees in the Investments Department have Microsoft Project pre-loaded on their laptops. 

While the program is a “nice to have,” at a cost of $442,493 (750 Investments employees * $589.99), this is not a program that is a “need to have” for all associates.   For those employees that are managing projects, the project manager should have Microsoft Project in order to manage the overall timeline of the project with dates for specific deliverables and necessary milestones for the project.   However, this should be limited to the project manager as this person will be responsible for keeping track of the project and making sure that tasks are being achieved within the specified time period.  Not all employees will need to monitor this level of detail of a project.  Also, not all employees are involved in projects of this nature.

It appears that all of our laptops are leased with the Microsoft Project software pre-loaded.   We lease our laptops for a three year period so the annual cost of the Project software for Investments is roughly $147,498 ($442,493/3 years).  We should work with our laptop lessor to see if we could reduce the cost of the laptops if we were to lease them without the software.   This does not necessarily help with money that has already been spent, but going forward this could save us money over time. 

As an alternative we could add Microsoft Project to our Marimba desktop management site.  Project managers could then log in to Marimba and request the software.  This approach will allow only those employees with a legitimate business reason to download the software. 

There are web-based alternatives to Project such as QuickBase for example but this is not necessarily any cheaper.  The most basic version of QuickBase costs $299/month for up to 10 users.  Assuming only 100 employees would require the application, that comes out to $35,880 annually ($299 * 12 months * 10) compared to an annual cost of $19,666 for MS Project ($589.99*100 = $58,999/3 years).   Also if we moved away from having Project pre-loaded on all laptops, the cost could be spread out over a 4 or 5 year period as opposed to just the three years that we lease our laptops for.

Overall, for project management software, I feel that Microsoft Project would be the best alternative however we currently have too many employees that have the software but are not using.  I was not even aware I had it, if we can find a way to limit the number of licenses, this could be a good route to cut some costs without it even affecting employees.

Bombardier Case

Case:  Bombardier -- Succesfully Navigating the Skies of a Large Scale ERP

Implementation

 

Problem/Issue Statement

In the early 2000’s Bombardier committed to replacing its legacy systems with a state-of-the-art integrated system that would allow efficiency and effectiveness throughout its operations.  Senior management felt that given the competitiveness in the aerospace market, moving to an ERP system was necessary. 

However, these large systems efforts are complex and frequently result in lower than expected performance.  Bombardier went through multiple rounds of ERP implementations; with the Company’s first attempt – in 2000 – being scrapped mid-project after $130MM had been spent.   After hiring a consulting team, establishing a new “One Company” vision throughout Bombardier, getting senior leadership on board and creating a project plan, Bombardier was ready in late 2001 to move forward with their Bombardier Manufacturing Information System (BMIS) – a new integrated manufacturing system that would be implemented through SAP.  All of these practices proved valuable as the second round of implementation was much more successful.  Bombardier successfully implemented BMIS at its Mirabel plant and followed suit with implementation at Saint-Laurent.

Seeing the improvement and success with these plants, Bombardier would like to further analyze their implementation efforts and look at a Best Practices approach to ERP implementation to further enhance their project.  Senior management would like to evaluate their situation and see how a Best Practices approach could assist with an even more successful next round of implementation.

Situation Assessment

The first step in a Best Practice approach to ERP implementation would be to define clear goals and objectives.  An ERP system will affect many departments and business processes throughout any organization. Making sure goals are clearly defined as well as what objectives and deliverables each group within Bombardier is looking to achieve will help better ensure the system is capable of effectively achieving the overall goals. Having goals and objectives goes along with having strong management support. 

Another best practice is to ensure that you are choosing the right software.  To gain full value from an ERP system, Bombardier must match the software to the organization’s information needs, processes, functional requirements, and workflows. After much consultation, Bombardier chose to use SAP and implement the BMIS system for manufacturing facilities as management felt it was the best option for the Company.

Bombardier should also prepare for business transformation.  ERP is fundamentally about transforming information flows through an organization.  By definition, therefore, both roles and processes are likely to change during the ERP implementation. Bombardier will need to devote time and resources to change management – ensuring that a clear process is defined and implemented to help workers through the process of change from the old system to the new.

Training and support resources are also essential.  A new ERP system will need highly qualified consultants experienced at implementation and training. The vendor chosen should have consultants readily available to train and support users on the daily use of the system and any problems and questions that could arise. A training program should also be established for new hires.

The next step in ERP best practices is to have a clear implementation plan and timeline.  A crucial part of implementing an ERP system is deciding the exact steps of how it will be done and when. Management at Bombardier will need to make sure all affected departments are consulted as to when the best time is to implement the new system. (For example, choosing to implement an accounting ERP system at year-end accounting closing would be a bad decision.) Making the cut over to a new system in the most crucial periods of business is not a good decision.

Bombardier will also need to allocate the necessary resources.  Allocating the necessary resources, across financial, managerial and end to end support for training and change management is necessary in order for a successful implementation of an ERP system.

Recommendation

Looking at the differences between Bombardier’s implementation at both the Mirabel and Saint-Laurent plants, while both were successful, the process went smoother at Saint-Laurent.  Bombardier had more management support, clearer goals, and better training when beginning the implementation at Saint-Laurent.   The changes made during the process made the implementation at Saint-Laurent go smoother.  Below I will outline some of the missteps at Mirabel that were corrected at Saint Laurent and what Bombardier could do to improve even further.

While the VP of Operations and Project Sponsor continued to show support for the project, the plant manager at Mirabel did not agree with the scope of the project and some internal managers and users felt that the system was being forced upon them.  They were not as eager to implement – attendance at meetings was being delegated downward and IT was complaining that users were not providing sufficient information for training materials.  When examining the Saint-Laurent plant, management was much more involved.  The plant managers felt that the project was theirs, not just IT’s, and took control early on in the process.  This aided with getting all other employees on board.  The vision for the project was clearer when it came time for implementation at Saint-Laurent.  Employees had presentations that preceded training which enabled users to have a better understanding of the change leadership that would be occurring.  Employees felt that there was a need for change and were all on board.  These visual aids/presentations should be continued for all further facilities.  It was good for employees to see how Bombardier was doing versus its competitors and to see that the new ERP system will aid in the Company’s vision.

Training was another key issue.  The Mirabel plant felt that they had insufficient training too far in advance of implementation.  When it came time for implementation they could not remember everything they had learned during training and felt “behind the eight ball” when the BMIS system was launched.  Training materials were re-vamped and the users at the Saint-Laurent plant were more satisfied.  Both facilities however felt that support left too soon after implementation.  Management at the Mirabel plant noted that issues may not arise within the first few weeks of implementation, but rather several weeks or even months later (at this point there was no support staff on the premises – other than power users).  At Saint-Laurent there were similar issues, however the issues that came up after the “Go Live” were more specific in nature and not necessarily general.  These required more in-depth and detailed follow-ups without necessary professionals on site.  For the next round of implementation, Bombardier should make sure that there are at least 1 or 2 people that stay on for an extended length of time at facilities to provide needed support.  Even if it is done on a part time basis, users of the new system need to have the proper training and support available to them in order for the implementation to be truly successful.

Also, training is so important for any new system; as previously mentioned some changes were made between the implementations at Mirabel and Saint-Laurent, these should be carried forward to the next stage of facilities for implementation with some further enhancements.  Training should be closer to implementation with a more generalized theme and then have follow-up, more detailed training once the system is up and running and users have a chance to see it with their own eyes and touch it with their own hands.  Going to training on something that you’ve never seen or used in some respects can be a waste of time.  People may not know the right questions to ask until they can “play” with it.

Bombardier now has clear goals and objectives in place, the most important steps are to continue disseminating the goals and objectives throughout all of the Company’s facilities so that they are aware early on of the changes that are going to be made.  Employee buy in is important for any system, if employees are not going to be willing to use the system it is bound to fail.  Everyone wants their life to be a little easier, showing how the system can and will do that is important.

Presentation

In order to present this case, the consultants should go through some of the Best Practice frameworks that exist and give a detailed approach that Bombardier could use.  It would be helpful to see the successes and missteps along the journey in order to see where the Company did a good job and where improvements could be made.

Is Ubuntu the right choice?

Sir

In our discussion of the Ubuntu operating system, I would like to refer back to our discussion of Google Drive. While it is important to save the company money, and Ubuntu is “free,” saving money may come at a higher cost through a need for a new IT infrastructure.

Although Ubuntu on the surface is free (i.e. no license fees), there is an annual service cost for professional use which I will touch on shortly.  The first important thing to note is that we are leasing our laptops currently, and they come pre-installed with the latest version of Windows.  Laptops are typically refreshed every three years and each computer has the most recent Windows operating system already pre-loaded.  The cost for Windows is therefore irrelevant as it is not something that we are technically paying a separate fee for.

Moving away from the discussion of the operating system itself, Ubuntu runs LibreOffice as an alternative to the Microsoft Office Suite of products.  Using the cost analysis of Microsoft from my earlier Google Drive report, the cost of MS Office 2010 professional for our department is roughly $262k ($349*750 employees).  The last time we upgraded the Microsoft suite was 3 years ago, assuming we can annualize the $262k over 3 years – it comes to approximately $87k/year for our department.   This cost savings would be offset by the cost of Ubuntu professional support services which run $165 per laptop or roughly $124k/year (750 employees * $165).  This would be a net increase in costs of $37k annually.

On top of the $37k annual increase in costs, we should definitely factor in downtime for all associates as they attempt to navigate through and find what they are looking for in a new environment.  While I found LibreOffice (which includes word processing, spreadsheet and presentation capabilities) fairly easy to navigate after just a short period of time, there are still many features that would take time before anyone would be at the same knowledge base as they are with Microsoft.   It could take several months before employees are at efficient usage levels of these products.

Going back to my earlier statement about a new infrastructure; in order to implement Ubuntu in exchange for Windows and MS Office, we would need to hire consultants to work with us for integration with our existing systems and programs.  In particular our trading systems and accounting systems to make sure everything can and will run smoothly.  While I am sure there is a way for everything to work well together, it would require a significant upfront cost.  My suggestion would be to work with Canonical as they are the leader of the Ubuntu project and in my opinion have the most knowledge of the system.  We would need to get an official estimate from Canonical (and other possible vendors), but this could run the Company approximately $1-5MM depending on the length of time and the necessary requirements and changes to our IT infrastructure.

To sum it up, while Ubuntu and Libre offer an alternative to our current technology, I do not feel that the costs would be warranted given our systems are running smoothly in our current environment.  Like Google Drive, Ubuntu seems free on the surface, but would take a significant amount of capital in order to implement.

Zara reflection

As a follow-up to Tuesday night's presentation by the consulting team and our further discussion afterwards, I feel that an upgrade of Zara's DOS based system will definitely be something that we should implement in the future. However, I don't feel that the implementation is absolutely imminent. I do fear that we will lose the ability to have our terminals run on DOS in the future and as such we should begin with new upgraded terminals for any new stores going forward combined with a very slow implementation at existing stores. What we are doing is working and working well, the risk of a complete overhaul and related "down time" in the event of any errors in implementation would be too high.

Overall, my recommendation to the rest of the Board would be to start a slow change over beginning with any new store openings. This will be a good way for us to monitor the new system and really be able to compare and contrast the two operating environments.