Paper within: IT investment & Procurement Author: Jimmy Johansson Hamed Radmehr Navid Naghdipour Nazmul Hasan Timothee

Pineau Johan Lindberg Tutor: Daniela Mihailescu

Jnkping 2011-05-14

Table of Contents

1. Introduction
Background
Founded in 1979, Canyon Ranch is a pioneering company in luxury business by providing services such as SpaClubs, Health and healing, Hotel and etc. They have a select range of customers that are usually women in their forties with a fairly high family income who join one of the branches to use the facilities offered. Canyon Ranch is the leading health resort and spa with two destination resorts and three SpaClubs. As they have mentioned in the company mission, its a place to relax, enjoy yourself and improve your health but also has a deeper impact in peoples lives by providing an experience that can influence the quality of life and bringing new perspectives. Their two main business divisions are Health Resorts and SpaClubs. They have two Health Resorts in Arizona and Massachusetts and there are three SpaClubs in Nevada, Florida and Cunard. Health and Healing department is the fastest in growth but has shown the least profitability while hotels are the most profitable their business. All the destinations are well equipped and are supported by high number of skilled staff and employee. There's a ratio of 2.5:1 for employee and customer which indicates each customer is being monitored carefully by several experts in different fields of health science. This has caused them to have a high cost for human resources but in returned it has provided satisfactory customer feedback. The customers are usually offered packages which involve their desired services and hotel stay and meals. Old customers that come back get some discount on their package and this system seems to be working as 55% of their in-house guests are customers who have been to Canyon Ranch before and 18% of them return more than once. So they count on their loyal customer base whom they have a good relationship with because as customers state, Canyon Ranch knows what they need and provides good facilities and services in accordance to their needs. To keep the natural outlook, they have tried to use as less IT as possible in their business but as their business grew larger they found out that its not possible to gain competitive advantage with weak IT. Therefore they already have some systems which are not that well designed and each branch has its own system with individual database. The main functionality of their current IS is property management system, reservation, scheduling, accounting and payroll and as it will be presented in this work, many other functionalities and capabilities can be added to the IS to reduce the costs and use of human resources.

Purpose
This paper is written as business analysis of Canyon Ranch as the project work for IT Investment course. In order to address basic concepts and issues in IS/IT investments and procurement, we have designed a business case which highlights shortcomings of their existing strategies whether in organizational or

IS/IT level. Some solutions are provided to solve the issues faced by this company which is based on the potentials and market position of the organization.

Limitations
The analysis and business case and suggested solutions are done to improve the functionality of Canyon Ranch as describes in the case Canyon Ranch by Piccoli and Applegate (2004). Most of the information that this report is based upon was drawn from this case and the analysis is also based on that. There some other sources that aided us in this project and will be mentioned in reference list as well as the paper.

2. Analysis and Evaluation

Customer Relationship Management Strategy
It is clearly stated that Canyon Ranch does not have a sophisticated customer relationship management or CRM system. Using traditional paper base record and customer base is no more effective in twenty first century. Therefore, we strongly suggest that Canyon Ranch should formulate a well define CRM strategy and implement it. The process will assist decision making, effective communication, reduce barrier of information flow and increase overall customer satisfaction. We cautiously consider and understand Canyon Ranch business characteristics and low technology useage. However, CRM can be used as a back end customer record system by diversifying current operational procedures rather than a complete change of the system. Canyon Ranch should see CRM as not only all about technology but also as a powerfell business process. Canyon Ranch CRM strategy includes the CRM process, people and technology (Rababah, Mohd, & Ibrahim, 2011), therefore Canyon Ranch needs to formulate a well defined CRM strategy and processes that ensure a proper continuity of their business strategy. Everyone needs o be enguaged and play a roole in the implementation of this CRM strategy. The appropriateand technology or database for the CRM system has also to be intentified. Business links (n.d.) design different stages for successfull CRM implementation in organization. Base on the implementation process, we proposed some strategies for Canyon Ranch CRM:

Collecting process:

Customer

Information

and

interaction

Collecting Customer information is the most important part of Canyon Ranch CRM strategy. CR has a 17000 customers large database (Canyon Ranch, 2005) with valuable behavioral information which could be used for customer profiling. The collection of these information could be used by CR for paper

based information source on the customer, but also for tailoring adapted customer rewards and related marketing activities. Another important source for customer information is Canyon Ranch website. This website attracted about two million potential customers during 2003. This shows that online customer service and interation is important for CR and should be recognized as a major source of valuable customer input. The online collected informations could then be used by CR to formulate adapted solutions to the market needs and adapt their marketing strategy towords these visitors.

Information storing, accessing and analysis process:

A centralized relational database could help significantly Canyon Ranch to sort customer related information. Then, this information needs to be accessed through customized tools that allows the employees to efficiently acces and use the data. This datamining activity allows CR to retrive and analyze data to identify a specific cutsomer type focusing on specific behaviours, preferences, like and dislikes and many other criteria.

Top management involvement

Canyon Ranch Top Managers involvement and commitment are important to the success of the CRM program initiative. Sometimes CR Top Managers have to take tough decision regarding the approval of various initiatives and decisions requirements. In addition the CRM project must be owned, control, monitor and driven by the technology and senior business managers.

Highest priority areas

In the CRM system Canyon Ranch need to identify high priority areas and functionalities such as: customer service, marketing, promotional initiatives, technology and system.

Selecting right vendor and appropriate technology:

For successful CRM implementation in the long run, it is important to select right vendors, suitable systems or platforms, appropriate database systems and the cost of total CRM implementation.

Company-wide initiative:

Canyon Ranch CRM system needs to be carefully evaluated befor impletation throughout the whole organization.

Establishing proper Metrics:

Establish a measurement system that identifies the CRM performances is important. Its only after a five year period of time that CR is going to see and appreciate the results driven by the implementation of the CRM strategy within the organization. They will also be able to record an increase of customer satisfaction, profitability and an overall increased return on investment.

Major identified Problems and analysis

While going through the case, we decided, as part of the IT investment decision process to conduct the analysis of the major identified problems encountered by the company. If most of the problems are regarding IT related matters, some of them related to marketing but also it branches needed to be analysed too to get a concrete view before identifying the value of a potential investment.

IT-infrastructure The IT infrastructure of Canyon ranch started pretty early in the existence of the company (even if seen as a threat in the early beginning by the board) and quickly aimed to play a role within their business model. The first system was developed in classic languages that still now a days are reputed for their strength of stability and efficiency. But as the company grew, the IT

department took more and more importance but the core system didnt evolved and is now surrounded by sub non-interrelated systems that each complete a task. We are in the following lines detailing the issues encountered with the IT Infrastructure and details explain why these points are problematic for the actual system as is. The Old Server The main service run by this server is all elements that concerns billing and financial activities recorded by Canyon Ranch. The Problem is that this server runs the core program coded in and old language called Basic. The CLS that is also found on that server collects the customer data but is too old to be used in order to intercommunicated with new services required by Canyon ranch vision. Static Website Todays Canyon Ranch website is completely static. This means, no pages are changing or are inter-reacting with the customer. Each modification requires getting into the web code and connections with Facebook and external websites nor online reservations for customers are not possible. Major changes need to be done for the future e-business oriented strategy. Low IT Staff response At crucial times of Canyon Ranchs evolution towards new IT platforms and under pressure from the board tom implement new features to its IT resources, the IT department is overbooked and due to constraints, wrong decisions could be taken with consequences on the future of the IT department. Interconnection of the IT services Across Canyon Ranchs existence, the IT infrastructure got modified and modules were added here and there. These modules have no inter-connection link. Important resources requires to be engaged n the process of accessing all the information contained and mashed up by each module in order to give managers better decision tools.

Marketing IT Limitations The marketing strategy of Canyon ranch is experiencing limitations in that last years due to some IT and non-IT related problems. Here are the major ones that we could identify with IT related concerns.

Advertisement The companys advertisement is nowadays very limited. Canyon ranch doesnt have people in charge of preparing advertisement strategies of the online but

also offline markets. It seems to be difficult for Canyon ranch to invest the growing internet business as long as they dont have a dedicated online team / webmasters advertising the site through search engines robot catches etc.

Email Newsletter Canyon ranch is using newsletters in order to reach to clients and offer them new services or tell them about the company. Sadly, only already clients are targeted this way. An open newsletter subscription combined to an online advertisement strategy and communication strategy through global social networking would be a massive plus in Canyon ranchs online brand awareness. Non-Believe in Concurrence Power Canyon Ranch manger seems to be at peace with the concurrence. In their view, they are far behind in the way they offer similar services to their customers. The IT services offered by more recent companies at it has been demonstrated by scholars in similar cases, have chances to be much more developed and attract in the upcoming years more and more Internet connected customers that found out about them online of through electronic medias.

Competition and decentralized organizational structure While competition is growing, the organizational structure of Canyon ranch is also playing an important role for its future and the future of its IT resources. Involved and used in almost all processes of canyon ranchs business, IT as an organizational structural resource needs to be taken into account. Right now, the IT infrastructure is decentralized. Each destinations as local Spas or resorts are working on independent systems. Each of them has its own IT infrastructure that is suited to its needs but none of them are able to communicate with each others and more sadly with the central management. POS system is not able to keep track of the detailed activities and it makes it impossible for managers to retrieve decision data from these. This decentralized structure also has an impact on the marketing strategy but also organizational strategy, as subsidiary informations cannot be identified through search. Tanging or the usage of key words to parse through is not possible in neither of the systems. Before doing any changes, these problems need to be assessed and discussed between each of the divisions as they are all concerned by the required centralization solutions that could appear.

Measuring the IT investment value

In some cases like Spa clubs where their customers are escaping from the machinery world to find a calm place for resting. Financial techniques are not optimal decision-making tools for IT investment decision-making because the majority of these kinds of benefits are intangible. In decision-making we should focus on tangible elements. In our case we should focus on customer satisfaction: Improve old IT systems(IS,IT) like centralized database for CRM data mining between different part of CR (Restaurant, hotel, training, healthcare and etc.)
1-

Using new methods for customer interface like information website, systematic answering machine and etc.
2-

In the first part all the benefits are intangible. When we cant quantify our assets but obviously when we can satisfy our customer more when we know more about their interest. For example from data mining, we will achieve that which person likes massage, vegetarian food and so on, then they will give him/her better services and never will lose their customers. In the second part the investors or stake holders will see the changes and never ask what the benefits are. For example employees can be reassigned or dismissed by changing the method of replying to telephone calls. This can be done by installing a full answering machine that is aligned with the database and booking system when developing an online website for booking and payment and etc.

We think the best method for decision-making is ROI because of the following assumptions:

Total investment: 200000$

Increasing customer: between 5% till 10% of their old customer

Text says

Total customer People who buy packages Cost for every night Period of staying Total income of packages Net profit (30%)

17000 7% till 10% 2000$ 2 nights 4760000$ till 6800000$ 1428000$ till 2040000$

We make with our assumption

Total IT investment Annual maintenance The least increase The most increase ROI(least&most) 200000$ 30000$ 238000$ till 340000$ 476000$ till 680000$ 0.19 & 2.4

In both of increases we have covered the breakeven point and we will make a good profit from 2nd year.

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SWOT analysis
After reading the case and analyzing it in depth we thought the best approach to the problems Canyon Ranch are facing as well as to get a better understanding and a clear picture about the company, we decided to develop a SWOT analysis. In our opinion it is a good approach because it measures a companys Strengths, Weaknesses, Opportunities and Threats. It is a method that considers both external and internal factors, with this method it will provide Canyon Ranch with the information that is needed in order to see where they need to improve themselves as well as where they need to allocate more resources in order to be more successful; it is an important part for them during the strategic planning process (Burns,2008). If Canyon Ranch executes a SWOT analysis well, it will help them in the way that it will provide them with information that is helpful in matching the companys resources and capabilities to the competitive environment in which it operates(Burns, 2008). When we analyzed the company in depth we found that a SWOT analysis would provide us with the best information regarding what is needed to be done and what kind of problems that Canyon Ranch are facing. It was also possible for us to apply this approach on Canyon Ranch competitors as well in order to develop an understanding of what they are doing, how Canyon Ranch can be affected by it and how they should defend themselves against their competitors. It was also a good approach for us in order to develop a recommended approach how to deal with these kind of problems and how they should solve them. In our case we found that Canyon Ranch has several strengths that they can use as a base for developing a competitive advantages. Strengths We found a number of strengths, one of the most important in our opinion are that they are market leaders within their industry that is providing luxury spa treatment for customers. Their top management had also identified and was alert of the need and importance of having a sufficient IT system. They were also trying to integrate their IT with their business in order to collect benefits from it. They offered their customers a variation of products and services as well as they provided their customers with excellent service. They had an application called Guestware which was helpful in order to collect customer information and build a profile about each customer. They also had a strong customer base because Canyon Ranch had something unique within their business due to the fact that they offered their customers a variation of services including health and healing and it was located under one roof which their competitors did not, which made them to be market leaders. Another strong part of Canyon Ranch is that they prioritized their employees as well as

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fitting them to organizational culture before getting hired, meaning they understood the importance of human resources. Weaknesses One of the main weaknesses in our opinion is that they have divided their organization into different divisions without proper integration, which made it difficult to manage CRM, data mining and all the data for each customer that was generated. Another problem is that their IT-infrastructure is old and decentralized, as well as they did not have any in-house training for their employees to handle and manage all these information that were produced. They did not have any recognition program for returning customers. As well as they rely on mouth-to-mouth marketing, which means that they do not spend a lot of money on marketing and in these condition with more and more competitors they have to start promoting themselves more. They had a system called CLS- legacy system, which was used in the organization without any proper integration, which caused problems and affects the integration with new application such as CRM system. Opportunities In our opinion Canyon Ranch have many opportunities. For one, they have a nice website which they can improve and use in order to promote/marketing and to provide better customer service. One way of doing it can be to use it in a more interactive way in order to collect statistics about a specific customer that will arrive. When that person arrives to one of their locations they know everything about that customer and can provide that person with a better experience and service than before. Canyon Ranch top management need to promote the use of technology within the organization in order to develop an acceptance among their employees. This has to be done by the top management and it will help their employees to understand the importance of using technology in order to collect and create better customer profiles and in the end give their customers a better experience and treatment. If promoting in the right way it can help the organization in their day-to-day activities as well and enhance the efficiency and effectiveness among their employees. Threats In our analysis of the company we found that the most direct threats is from their competitors which have started copying Canyon Ranch services and products as well as offering similar products but to a much lower price and aligning themselves with the medical industry in order to add value to their organization.

Strengths and Weaknesses of Canyon Ranch competitors

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In order for us to develop a better understanding about Canyon Ranch competitors we analyzed their competitors and identified their strength and weaknesses. We did this because it is important for Canyon Ranch to identify what their competitors are good and bad at, because if they know that, they will be able to defend and protect their own organization in a better way because Canyon Ranch will understand their competitors. After analyzing the case we found that Canyon Ranch has many direct competitors and this is one of the major threats that Canyon Ranch faces. But these companies provide their customers with a small variation of services and products. From our point of view they were either strong at spa, health or healing, this is something that Canyon Ranch can use to their advantage but they need to promote this in a better way for their customers. Meaning their competitors are weak in their variation of treatments, which is good for Canyon Ranch. Another part that starts to make them strong is that they are trying to align themselves with the medical industry because there is a lot of experts and professionals within that industry that can help them to add value to their organization. This is one thing that Canyon Ranch needs to anticipate and regard as a high potential risk in order to defend themselves against it. There are other threats to Canyon Ranch such as other large luxury resorts which try to provide similar products and services, as well as the threat from a few hospitals that are adding wellness centers to their product portfolio.

Cost-benefit analysis
We recommend Canyon Ranch to do a cost-benefit analysis in order to identify the benefits of the IT investment compared to what the investment costs. A cost-benefit analysis is done to help the decision-making process by considering the benefits that add value to the organization and comparing these to the costs. The cost-benefit analysis involves identifying the costs and benefits for each investment and the comparing these in order to select the best investment according requirements that have been specified beforehand. (Lundell, 2011) By performing a cost-benefit analysis Canyon Ranch will be able to determine which IT investment will add the most value in relation to what it costs. There are several ways of doing a cost-benefit analysis. Hanley and Spash (1993) have identified five stages that you undertake when performing a costbenefit analysis. These five steps have been made more straightforward and look like this (Lundell, 2011):

1. 2. 3. 4.

Definition of the problem Identification of the costs and benefits Quantify costs and benefits Comparison of alternatives

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5.

Sensitivity analysis

Step 1: Definition of problem Lundell (2011) recommends the first step to focus on defining the problem. The problem definition requires the organization to conduct a deep analysis of the currents situation by investigating the needs and requirements of the IT system. If the problem has been well defined it should result in a specification with objectives for the IT investment and in some cases a plan for how to achieve those objectives. Some possible objectives can be; improved customer service, better information etc. The plan for achieving the objectives should involve all alternative paths that the organization can take and eliminating unacceptable paths. Unacceptable paths may be ones that do not meet some basic constraints like budget, legal, social, political etc. (Lundell, 2011)

Step 2: Identification of the costs and benefits In the second step the costs and benefits of each investment are identified (Lundell, 2011). This includes both the tangible and intangible costs and benefits. Where tangible costs and benefits are easy to see and measure. One tangible cost can be hardware and a tangible benefit can be increased productivity. Intangible costs and benefits are difficult to see and measure. An intangible cost can be the resistance to change among employees and an intangible benefit can improved organizational planning (Lundell, 2011). Step 3: Quantify costs and benefits Intangible costs and benefits are difficult to measure and there are several ways of managing them. According to Lundell (2011) one way to manage the intangible costs and benefits is to simply ignore them because it is difficult to assign a value to them, but this might lead to a missed cost or benefit that will prove crucial for the decision to invest or not. Another way is to conduct the analysis without them but list them and describe the possible effects they might have. You can also conduct a survey amongst the employees and let them determine the value of the intangible costs and benefits (Lundell, 2011). Step 4: Comparison of alternatives The fourth step is to compare the different investment alternatives in order to determine which investment will bring the most benefits at the lowest cost. This can be done through some mathematical calculations. There are four criteria that often are used and they are (Lundell, 2011):

1. 2. 3. 4.

Maximize the ratio of benefits over costs Maximize net present value of net benefits Maximize internal rate of return Shortest payback period

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Step 5: Sensitivity analysis Lundell (2011) recommends that a sensitivity analysis should be performed in the fifth step to determine the reliability of the decision from the cost-benefit analysis. Since the actual values for every cost and benefit cannot be fully known, especially when it comes to intangible costs and benefits, an error can occur from time to time. By performing a sensitivity analysis the organization tries to determine the degree of error in the value estimations (Lundell, 2011).

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3. Recommendation and Solutions

Improved marketing The suggested approach to solve these problems, and to be able to increase the efficiency and effectiviness within the organization is that first of all they need to generate a more interactive website, in which they can start to market/promote themselves in a better way as well as they can use it to collect information about their customers in order to provide them with better customer service upon arrival. It is also a way to record transaction over the website in order to track online sales, which can help them to provide better customer service. In the case they mention that around 75 percent of their customers are females, but because of that males are an increasing market they have to focus more efforts towards them. In order to attract more males we suggest that they should develop and offer special packages which specific targets male customers and generate a marketing strategy only towards them because males and females maybe looking for different experiences and therefore they should develop separate marketing strategies for these two segments. In order to do this they have to start focusing more efforts on marketing and not just rely on mouth-to-mouth method. They have to do this because of the increasing competition within this industry, if they do not market themselves they might lose market shares and customers. One solution is to start focusing efforts on marketing through different marketing tools as well as on different social medias in order to attract more customers. We believe that they have to develop a reward program for returning customers, because it is a good way of showing their appreciation towards their customers as well as increasing their brand name and customer loyalty. They should in our opinion start to collect more formal customer feedback through questionnaires in which customers can evaluate the services provided to them as well as conduct a research about what kind of services and products their customers want to have. This can be a cost efficient way to know what the customers need and want in order to become better at customer service as well as product development. Improve IS/IT: For now all their databases and systems are implemented separately in different branches and this results in weakness in central management. In order to have a more integrated management they will have to integrate their database system that includes data from all the branches which can also be accessed by assigned users. This will as well provide some added value for the company which will result in more accurate decisions. It also improves the communication between departments since they share same data sources. This

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will result in better performance of departments and efficient use of resources. It is also recommended that a cost/benefit analysis be done in order to assess all possible software and provider alternatives. Their application software is an old UNIX based version called CLS. This software mainly covers the area of property management. The capabilities are limited to accounting and payrolls and its not strongly maintained. In order to improve their services, they need to improve the capabilities of their software by adding more modules like reservation, online payment, customer service feedback and etc. They also lack efficient POS software to keep the track of payments. The main issue for Canyon Ranch is that they cannot integrate these added modules with existing versions of CLS, therefore they need to redesign the architecture in order to provide customers with better services. To increase customer satisfaction, CRM has to be part of the business, aligned with their business strategy and IS/IT strategy. For that, they need strategies that direct their efforts and also help them choose appropriate solutions. If done effectively, it will attract a wider range of customers and also keep the existing ones more satisfied. A cost/benefit analysis is advised in order to evaluate different CRM software alternatives. When choosing a provider, its important to take CRM strategies into consideration in order to achieve the full alignment.

4. Conclusion
In order for a company to implement a CRM system they first have to align their business strategy with their IT/IS strategy, meaning they have to look into what kind of impact their business strategy has on their IT/IS strategy this they have to do before implementing and customizing their system. It is important that a CRM system is flexible in order for a company to be able to change and adapt it to the changing environment that exists within in an organization such as culture, infrastructure and processes.

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References
Burns P (2008) Corporate Entrepreneurship Building the Entrepreneurial Organization 2d Edition China: Palgrave MacMillan Applegate, M.L., & Piccoli, G. (2005). Canyon Ranch. Harvard Business School Business link (n.d). Customer relationship management: How to implement. Retrieved 2011-05-12 from http://www.businesslink.gov.uk/bdotg/action/detail? itemld=1075422950&type Hanley, N. & Spash, C., (1993), Cost-Benefit Analysis and the Environment, Edward Elgar Publishing Limited Lundell, F., (2011), Lecture 5: Capital budgeting, Cost/Benefits and IT investments, Retrieved 2011-05-10 From: Jnkping International Business School, https://pingpong.hj.se/courseId/9224/courseDocsAndFiles.do? nodeTreeToggleFolder=4461533 Ward, J., &Daniel, E. (2006). Benefits Management - Delivering Value from IS & IT Investments. Wiley & Sons. Rababah K., Mohd H., and Ibrahim H., (2011), Customer Relationship Management (CRM) Processes from Theory to Practice: The Preimplementation Plan of CRM System International Journal of eEducation, e-Business, e-Management and e-Learning, Vol. 1, No. 1
5. 6.

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