Mark C Shawa

210535127

MANAGING INFORMATION
SYSTEMS
Assignment 1

Mark Shawa 210535127

210535127@stu.ukzn.ac.za

Question 1.
Rakuten is a major internet power hound in the business sphere today. Having competition
from the likes of Yahoo! Japan and Amazon Japan since they were established in 1997.
Rakuten has seen itself evolve throughout its life in the business world in terms of
infrastructure and strategy. In the earlier years, Hiroshi Mikitani the founder of Rakuten, saw
the influence of the West on other online malls in Japan and strived to create a mall targeted
at the local market to empower the small to middle sized businesses. Merchants flocked at
the idea and joined Rakuten in numbers. This became the birth of Rakutens revenue.
Merchants were able to rent a spot on their website and paid a monthly fee with a fixed
product capacity. According to Applegate, Rakuten were focussed distributors, but with an
information technology infrastructure. They created the Rakuten Merchant Server which was
distributed to all merchants for the management of their products and personalisation of their
storefronts, meaning that Rakuten gave full powers to the merchants with how they handled
their own business. They offered technical support seeing that most of these businesses did
not have the expertise in or technology to facilitate their operations. This helped build a
learning community for the merchants. With the aid of Rakuten small businesses were able
to take off. Drawing in customers was another crucial part of Rakutens strategy. An email
magazine with featured products attracted customers. This later became another source of
revenue and merchants began advertising for a fee to increase traffic on their own store
fronts. Ideally Rakuten had an infrastructural distributor business model. As time passed by,
the number of joining merchants began to decrease and profits began to stagnate. Hiroshi
decided to evolve Rakutens business model to try and counter the current circumstances.
Rakuten focused on being a service provider to businesses which follows a Brokerage
Model. The sphere of the model is simple: bring consumers and distributors in an online
marketplace. Hiroshi formulated a new contract and fee system that implied that merchants
had a contract and as well paid transaction fees. This became almost 30% of Rakutens
source of revenue. A shift from their original online mall to a more diverse business plan.
Hiroshi still kept in mind the customers and sought for ways to attract and retain customers.
Affiliate programs were introduced to direct traffic to Rakuten website and online partners
received a commission for resulting sales. Inclusive to affiliate programs the company
introduced itself to paid searches to increase its chances to be stumbled upon during a Web
search. Rakutens business model exhibited attributes of a Portal infrastructure business
model which raked in 20-30% in gross merchandise sales. They expanded their services to
the likes of travel, books, auctions, golf reservations and all these served as portals to
Rakuten. Looking at the Rakuten they had managed to create a diversified kind of business
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model that enhanced, expanded and explored. It had different angles and approaches to it.
This ensured that they always were innovative, productive and increasing in returns.
Rakuten managed to create a virtuous cycle to keep afloat in the business world despite its
heavy competition.

Question 2.
We consider two key factors to examine the alignment of the Information Technology of
Rakuten to its business model, the impact of information technology on the strategy and also
its impact on the operations of the business model. Hiroshi had a simple strategy which was,
hypothesize, implement, test, and incorporate into the business, which followed an
incremental approach. Acquiring merchants was not a hurdle to tackle. They simply adhered
to the idea of an online mall, but Hiroshi needed to keep them from leaving. Since merchants
made use of the RMS, Hiroshi provided technical support to aid the merchants without the
technical expertise. This technical support was accessible through the Open Shop where a
merchant would call for assistance. E-commerce consultants also came on board to aid with
marketing strategies and merchandise plans. These were empowerment strategies to retain
merchants since the revenue did come from their loyalty to Rakuten. Merchants had control
of most of their operations from billing, to shipping and even the management of the look of
their storefront was entirely up to them. Rakuten did provide alternatives to payment
methods and negotiated introductions with big credit card companies to merchants. The
Information technology was simply a support system for the merchants mainly. The crucial
role that Information technology played in the business model alignment was the
internetworking connection made available by the Internet. When the Rakuten main server
experienced problems it also affected their merchants servers. They needed to keep their
website afloat to ensure the customer and merchant connection is available. The building of
traffic as well needed the power of IT. If Rakuten lacked the capabilities to attract or retain
customers, merchants sales would suffer and equally theirs too. Hiroshis wife, started a
magazine that was sent via email to notify customers of products. This attracted customers
and in addition merchants competed to be featured in the magazine. Advertisement through
the magazine meant more revenue for Rakuten. The impact of IT in this respect was crucial.
As time passed by and the rate of acquiring new merchants began to reach a standstill, new
strategies and operations had to rise to counter the situation. Rakuten began to expand and
diversify. The emergence of new affiliates, optimised searches for advertising, retain
schemes and new fee structure for the merchants needed Rakuten to take more control of
the operations and strategies with the aid of IT. Rakuten Books, Golf and Travel become vital
in increasing revenue and therefore needed the technology aligned with it, since they had
become part of their business model with respect to Market and Product expansion. Affiliate
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partners began directing traffic Rakuten to receive commission on sales. The number of
affiliate sites skyrocketed and the network expanded exponentially. The introduction of the
loyalty program which allowed customers to earn super points for extra purchasing power
helped retain customers. Customers had to only register through Rakuten to have this extra
benefit. All of these changes in the business model caused a massive change in the impact
of IT in the strategy and operations of Rakuten. By 2004 Rakuten became very reliant on IT
to keep their business afloat because of the structure of their business model.

Question 3.
The Strategic Grid consists of two critical factors in determining the overall impact of IT
initiatives in an organisation, the impact on core operations and on core strategy. Rakuten
had a diversified business model that evolved with time due to changes in market and
opportunity. This also had an effect on the IT infrastructure of the company. It underwent
changes as well to suit the business model or support it. As highlighted in the above answer,
at the begin Rakuten was not entirely reliant on IT in its core strategy but it was necessary in
its core operations that were being run more frequently. Rakuten started off as in the factory
quadrant of the strategic grid because they looked for ways to enhance operations.
Merchants who did not have the expertise were educated, trained and empowered so that
they could get the best out of their businesses. This was a marketing strategy which required
more of knowledge in the sphere of business than the sphere of IT. The impact on this
operations was crucial because the better educated the merchants were with the RMS the
easier it was to keep them using it and thus renewing their contracts. Rakuten kept a close
eye on the daily operations from sale transactions to monitoring customer traffic and
customer satisfaction mainly via email. Internet was the backbone so the influence of IT was
great on the operations of Rakuten. When the stagnation of merchant joining began new
strategies had to emerge and again changed the business model as well as the IT
infrastructure. Rakutens shift was more strategic than operational and thus the degree of IT
impact on the core strategy shifted. The introduction of affiliate programs as mentioned
above and new fee structures relied on IT. Any upsets in the IT would result in a loss since
new advertisement methods had been implemented through paid searches and search
engine optimization. The broader the strategy plan got, the more the need for a better IT
infrastructure to accommodate it. Their operations widened since there was an expansion in
their customer base due to the introduction of affiliate programs. The diversification and
expansion also meant that management had to change because of the rise in projects.
Different project teams had to form and new structure had to be established to manage all
the ongoing projects. For example, Hiroshi ensured that all employees were salespeople.
From your engineer to your accountant they had to be able to sell. This indicated a shift in
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the management from an original technical aspect to more business so that everyone
shared the one vision of Rakuten. Opportunities rose to expand Rakutens revenue. Rakuten
ventured into travel, financial services as well as golf reservations. The structure of their
business model again had shifted from its initial state. New venture developments were
taking form which in turn meant a shift in strategy. There was a greater need for a solid IT
infrastructure to support the business strategy. According to the strategic grid this is known
as a Turnaround. The impact of IT on operations is not as much in comparison to its impact
on the core strategies. The operations remained the same, but in terms of transactions of
sales, but the strategies to build more traffic became dependent on the IT infrastructure.
Rakutens evolving business model also influenced the different quadrants that it could be
placed in the strategic grid.

Question 4.
The difficulty to realise value from IT investments is firstly due to the lack of alignment
between the business and IT strategy of the organisations that are making investments, and
secondly due to the lack of a dynamic administrative process to ensure continuous
alignment between the business and IT domains.1 (Unknown, 2013). Hiroshi saw the
potential of Rakuten in the business sphere because he saw the value of the internet and
how it could be used as a leverage Rakuten to be a big business entity despite its already,
well established competitors. There existed online malls before Rakuten. This meant that
Rakuten had to find a way to stand out to the consumer. A business strategy that was aimed
at empowering small businesses was implemented. Merchants did not have the expertise
and technological support to establish themselves with other malls. Rakuten saw an
opportunity in this and created the RMS software that was distributed to merchants through
the Web. The software was simple enough to be understood by the computer novice. Since
Rakuten was a service company they offered on the hour technical support. Alongside the
technical support, educating merchants was also a key service offered by Rakuten.
Merchants made use of Rakuten University that focussed on marketing strategies and
technical issues and were offered other e-learning courses for a fee. This helped build a
merchant community where discussions devoted to promotional strategies could happen.
Seeing Rakuten focussed on services, the customer satisfaction was always a high priority.
Emails were sent to customers to keep them aware of promotions and featured products.
This helped build traffic. Rakuten encouraged merchants to communicate with their
customers to ensure they keep their relationship with them. Regularly Rakuten also
contacted customers directly to see their levels of satisfaction with the service and products.
The internet helped build a network between customers and merchants and Rakuten
1 Venkatraman Ramakrishnan (Unknown, 2013)
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through service delivery reviews. Rakuten had seen a gap in the market and capitalised on it
using the internet as the backbone to drive most of its operations. With regard to
competition, Rakuten had a hard to copy IT infrastructure. Merchants had a product
inventory capacity of a 1000, meaning they could have access to a large variety of products.
Even rare products could be found since the inventory was managed by the merchants. This
was not the only way that Rakuten stood out as strong competitors to Amazon Japan and
Yahoo! Japan, the diversification of Rakuten stood out. The internet enabled Rakuten to
venture into different types of businesses and that is how they shifted from being a simple
online mall to a business ecosystem. Building traffic changed from just emails, but to paid
searches and affiliate programs. Rakuten began to expand because of the vast capabilities
that their IT domain had. Greater connections were established and more business
opportunities come forward. Rakuten began to exploit their IT capabilities to give them that
added advantage over its competitors. This perspective allowed the modification of the
business model. With the shift came a vital role in management, being able to convey the
importance of understanding these capabilities and opportunities that arose through them.
Hiroshi paid attention to details, experimented before implementing an idea. If it worked then
it could grow big. Looking at this, as senior management he had to instil this culture into
employees. There was a vast amount of opportunities that could be pursued because of the
capabilities, but they had to be understood from an IT perspective. He developed an
incremental approach, which did encourage trial and error. All opportunities had to be
aligned to the business strategy as well before it could be pursued and that was a role of
upper management. Hiroshi encouraged everyone to think like a salesperson, so in turn they
had to be able identify and interpret trends in IT and how they could be able to bring in
revenue given the capabilities the Internet had given Rakuten. Internet broke the barrier to
entry in most of these businesses for Rakuten. Rakuten had managed to take full advantage
of the internet and aligned their business strategy accordingly to reap as much as they could
from it as they could.

Question 5.
South Africa is one of the countries in Africa that has grown with respect to IT infrastructure.
The expansion of broadband has given rise to more online services such as online shopping,
banking, auctioning and so forth. In terms of IT we are structurally sound, but that is not the
only factor that has to be considered if Rakuten were to further expand into South Africa.
Other vital factors would be demographics, politics, culture and the economy as well. In as
much as we have a rather advanced IT infrastructure, our culture has not got us to fully
utilise it. People still prefer shopping in an actual mall than online because it seems safer.
We are yet to understand the internet so we do not trust it. Another factor is demographics,
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since merchants are responsible for shipping that again can be a hurdle. The courier
services are more inclined to work with bigger business because of the profitable gain in
comparison with the smaller businesses and Rakutens focus is empowering smaller
businesses. Another simple reason is that broadband is expensive in South Africa in
comparison to other countries. Even though this is something that is currently being looked
at, it still serves as a problem. Electricity as well is a vital resource and the unpredictable
power failures can result in loss of data on the merchants side. So given these reasons,
South Africa would not be a viable expansion option yet.

Bibliography
Unknown. (2013, June 13). Aligning Business and IT Strategy. Retrieved from
Value Based Management:
http://www.valuebasedmanagement.net/methods_venkatraman_strategic_
alignment.html