Lulu Hypermarkets In Dubai Commerce Essay

Lulu Hypermarkets belongs to EMKE Group which is a leading consortium in Dubai. There are 78 hypermarkets of the group that are operating within the GCC – Gulf Cooperation Council Countries (Bahrain, The Kingdom of Saudi Arabia, Kuwait, Oman, Qatar, and the UAE). The hypermarket competition in Oman is composed of: Lulu Hypermarkets with the French company Carrefour Hypermarkets, the Kuwait-based Sultan Center Hypermarkets, Oman-based Safeer Hypermarkets, the Dubai-based KM Trading Hypermarkets, and the new entrant from Dubai Al Maya Hypermarkets (opened in April 2009).

Lulu is operating currently four (three in Muscat, one in Sohar) hypermarket retail outlets (in the metropolitan areas) and eight supermarket retail outlets (in small towns and upcountry areas) in Oman and will be opening its fifth hypermarket in Salalah the third largest city in Oman after Muscat and Sohar. The Company’s central warehouse for Oman is located in the capital city Muscat.

The Problem Situation

Lulu Hypermarkets has been facing tough price competition from the Dubai-based: KM Trading Hypermarkets and the new entrant Al Maya Hypermarkets. With the current global economic crisis and fluctuating oil prices Oman too is facing the need to tighten finances and the same applies to consumers in Oman. The result is consumers have become more careful and frugal in spending and sometimes end up cutting their volume of purchases and are more motivated here in Oman by discounted prices and ‘Sale’ since the middle of year 2008.

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A major proportion of the inventory of Lulu Hypermarkets is made up of imported grocery items and consumer electronic items, fashion goods, clothes, stationery, toys, and furniture) from Australia, India, China, the EC, Malaysia, the Kingdom of Saudi Arabia, and Thailand. This merchandise goes into stocking via Lulu’s vertically integrated supply chain.

The stores staff in Lulu hypermarkets and supermarkets report to their floor supervisors and each of the supervisors (there are 3 floor supervisors one for each floor in each of the hypermarkets and 1 floor supervisor (only ground floor) in each of the supermarkets) directly report to the purchasing supervisor in each hypermarket and supermarket. The purchasing supervisors directly report to the Purchasing Manager (see Figure 1 below for a simplified Lulu’s organisation structure of its purchasing department).

Figure 1: Organisation Structure of Lulu’s Purchasing Department, Oman

The purchasing manager receives orders from the purchasing supervisors who base their order requisitions from the informational output generated from the EPOSs at each hypermarket/supermarket outlet. Thereafter the purchasing manager orders stocks from abroad and liaises with overseas suppliers through and with the Tendering & Contract Specialist. [As is common here in the GCC countries, Lulu too has a very conservative top management that includes its Board of Directors].

However, currently Lulu is actively engaged in replacing the old IT architecture and revamping its Management Information Systems (MISs), including a Inventory Management System, soon (around end of September 2010) to take advantage of online ordering systems with the introduction of its own web-portal.

Customer retention is a key factor for successfully operating any business at all times (Hurley, 2004). This is all the more critical now given the global economic crisis which most of the countries worldwide, including Oman, are going through.

Of late (since mid 2008) there have been frequent shortages of stocks (spray dried milk and other staple grocery items – leading international brands) and as a result Lulu’s customers (both the Omanis and expatriates) are unhappy over the non-availability of items/brands of their choice that were retailed by Lulu.

In certain lines of grocery items there were excess stocking and on others there were shortages. And in order to overcome the shortages orders were made to be transported by air which significantly increased the freight cost of imported goods.

On the other extreme, some grocery items (low bulk) that are supplied to small institutional buyers (e.g. coffee shops in Muscat) could not be sourced from the exporters in time for delivery as several orders had to wait to be bunched to make up the bulk to obtain low cost freight from the shipping companies. These mistakes have been caused by weak or bad decision making resulting from poor information and communication flows between the store outlets (sales) and purchasing department (purchases). For example, the ‘Inventory Status Analysis Report’ and ‘Customer Sales History’ have been found to be not that accurate during a specially commissioned operational audit in February 2009.

Furthermore, Lulu’s warehousing space in (Muscat) Oman is limited. Although the EMKE Group is capable of building a new warehouse in Muscat, the mountainous terrain makes it difficult to construct warehouse buildings in the short run.

In consequence, poor inventory management is a serious issue which is threatening Lulu’s efforts in customer retention and loyalty and the profitability of its business in Oman.

An attempt has been made in this paper to analyse the above issue in Lulu, Oman by applying Checkland’s (1981; Checkland & Scholes, 1990) Soft Systems Methodology (SSM).

Metaphors

Problem situations such as the above can be effectively tackled by the application of critical systems thinking (Jackson, 2003). Critical systems thinking approach employs a wide range of organisational metaphors (‘images’) which can help in understanding the organisations as well as to explore and analyse the difficult problem situations which managers need to tackle (Flood & Jackson, 1991).

Metaphors can be viewed as cognitive lenses through which people make sense their situations for obtaining a better understanding of the same (Kendall & Kendall, 1993).

The most common archetypal metaphors that can be used to guide systems thinking are (Jackson, 1993; Morgan, 1997):

Organisations as machines

Organisations as organisms

Organisations as brains

Organisations as cultures

Organisations as political systems

Organisations as psychic prisons

Organisations as flux and transformation

Organisations as instruments of domination

Metaphoric expression of the organisation helps to understand how its stakeholders make sense of their organisation and their worldviews and also encourages its managers to think creatively about their organisations as well (ibid). This is because metaphors provide a useful avenue to make creative assumptions in organisational analysis for describing and exploring the problem situation effectively (Morgan, 1980 & 1997).

To guide the critical systems thinking, in relation to the above problem situation, the ‘organisms’ metaphor has been chosen at the dominant metaphor and the ‘machines’ metaphor as the dependent metaphor. The ‘organisms’ metaphor represents open view and the ‘machine metaphor represents closed view (Flood & Jackson, 1991).

According to Jackson (1993) an organisation when viewed as a ‘machine’ is seen as a tool created for achieving the purposes of the owners of the organisation. Managers are assumed to be rational in their decision-making (ibid). Control in the organisation is enforced through strict rules and procedures within a rigid organisational hierarchy of authority (ibid).

An organisation when viewed like an ‘organism’ appears as a complex system composed of sub-systems that coexist together (ibid). The main aim of the organisation is survival from which the derivatory objectives are set for each of the organisation’s sub-systems to accomplish (ibid). If there are functional failures then the sub-systems should be examined as whether they continue to meet the organisation’s objectives and needs and also the organisation should be cross-checked as to whether it is properly aligned with and well-adjusted to its environment (ibid). To this end the managerial sub-system must be entrusted with this important task (ibid).

Accordingly with regard to the Lulu’s problem situation above, the ‘organism’ metaphor is considered as the dominant metaphor as the inventory management and costs involve external environmental participants (for e.g. suppliers and customers) and the ‘machine’ metaphor as the dependent metaphor since it produced negative effects through poor information and communication flows in relation to purchases and sales as well as wrong decision making in relation to ordering supplies.

Hard Systems Thinking and Soft Systems Thinking

Problem situations in organisations can be tackled by managers by using a ‘hard’ systems thinking approach or soft thinking approach.

Hard systems thinking approach is useful when systems exist and the objectives of the system/s can be easily defined (Checkland, 1981 & 1988). Hard systems thinking approach is based upon rational and scientific methods where a single optimal solution is found (Checkland, 1981). However, the hard systems thinking approach is not useful to handle messy, unpredictable, and ill-structured problem situations wherein the human participants constitute an important variable in the complex problem situation (Checkland, 1981 & 1989).

‘Soft’ systems thinking approach does not require systems to exist and views the human activity systems (HAS), which indicates the human activity to accomplish a certain goals, quite distinct from other systems in the organisation (Checkland, 1981).

The strong emphasis placed upon ‘systemness’ sets hard systems thinking approach distinctly separate and different from soft systems thinking approach (Checkland & Holwell, 1998).

The System of Systems Methodologies (SoSM)

For exploring the complex problem situation of Lulu Checkland’s (1981; Checkland & Scholes, 1990) Soft Systems Methodology has been chosen from Jackson and Keys (1984) the System of Systems Methodologies (see Table 1 below).

The reason behind choosing SSM was that Lulu’s problem context involved unique participants separated by locations and the unique nature of the inventory system which is significant both in the problem context as well as for Lulu to satisfy its customers’ needs.

Table 1: The System of Systems Methodologies (Jackson & Keys, 1984).

PARTICIPANTS

Soft Systems Methodology – SSM

Checkland’s (1981; Checkland & Scholes, 1990) Soft Systems Methodology is a useful methodology for applying systems thinking to complex problem situations in organisations to analyse both qualitative and quantitative information for the same, since Lulu’s problem situation involves complex human, political, and social elements.

SSM Process

The SSM is a 7 stage process of enquiry wherein the logical connections of the SSM process help the actual ‘problem solving’ activity to move more flexibly between one stage and the other in the SSM (Flood & Jackson, 1991).

Although the SSM is a 7 stage process the stages need not necessarily to be used in a strict sequential order (Checkland & Scholes, 1990). Figure 2 below illustrates the 7 stage SSM process.

Figure 2: 7 Stage Model of SSM

(Source: Adapted from Checkland & Scholes, 1990)

Stage 1- The Problem Situation

In this first stage of the SSM the participants of the HAS start investigating the ill-structured problem situation without any assumptions which eventually lead to a common understanding of the messy-problem which requires immediate attention (Jackson, 2003).

Lulu’s messy problem situation represents the shared need of the participants of the organisational (Lulu) human activity system (HAS) to collect the available information together as a team in order to explore.

The HAS in Lulu’s problem situation is represented in the form of a Review-Group composed of: the Director and Assistant Director – Purchasing & Warehousing -, Purchasing Manager, Purchasing Supervisors (Muscat only), one floor staff from each of the Lulu Hypermarkets, two general stores staff members from Lulu hypermarkets and supermarkets, and the Tendering & Contract Specialist.

Accordingly, the information was gathered and sorted through data collection on physical and social structures and processes (departmental, for e.g. Accounts & Finance) by studying the inventory records, large samples of daily till rolls, minutes of the purchasing department meetings, interacting with customers, etc. In addition to this 3 workshops were conducted, at Lulu’s Head Office (its first Hypermarket at Darsait – a metro in Muscat) with the above participants where open discussions were encouraged.

Stage 2- Problem Situation Expressed through Rich Pictures

Rich picture/s is/are used to represent the available information which was gathered from stage 1 of the SSM process to depict the actual situation involving the human activity (Paucar-Caceres & Rodriguez-Ulloa, 2007).

In other words, the rich picture helps to visualise the generalised characteristics of the problem situation better. The following key characteristics emerged from the workshop with the participants of the Review-Group:

Poor Inventory Management

Stock-out situations

Limited inventory storage space

May lose customers to competitors

Poor information and communication flows between the store outlets and purchasing department

Inadequacy of the existing inventory management system.

The rich picture shown in Figure 3 (on the next page) illustrates the review groups impressions and viewpoints on Lulu’s problem situation.

Figure 3: Rich Picture for Lulu

The above rich picture in Figure 3 illustrates the concerns of the Lulu staffs and the members of the Purchasing Department in the problem situation. Dotted line indicates the inadequacy/ lack of good communication and information flows.

Stage 3- Root Definitions

After examining the rich picture in detail, a systematic description of the viewpoints or ‘the worldviews’ from different angles are made. Root definitions help capture the core purpose of the activity systems to explore effectively into the problem situation and improve it (Checkland & Scholes, 1990). Root definitions in effect are verbal descriptions about the systems which are being examined (Hicks, 1991). The root definitions help to describe the transformation processes and the situational-changes in the real world (Paucar-Caceres & Rodriguez-Ulloa, 2007).

Accordingly a single root definition was derived from the above rich picture and has been reproduced below:

An inventory management system owned by the Company with the objective of improving the inventory control through timely and efficient procuring and purchasing of goods by utilising the available resources effectively in order to sell profitably. This inventory management system will be used to manage the purchase routines effectively through better communication and exchange of information among all the staffs for satisfying customers by providing improved customer services.

The abbreviation ‘CATWOE’ is consisting of the six key elements: Customer, Actor, Transformation, Worldview, Owner, and Environment, are used for formulating the root definitions.

The CATWOE elements for the above root definition are:

Customers: Lulu and its customers

Actors: The entire staffs of Lulu

Transformation: Improved inventory control and better communication flows

World view: Provision of improved customer services

Owners: The Managing Director and Shareholders

Environment: Market competition and the organisational sub-systems.

Stage 4- Building Conceptual Models

The root definitions serve as the basis for building the conceptual models for the problem situation.

The conceptual model (see Figure 4 on the next page) from the above root definition indicates the following:

The purchasing department of Lulu must establish an effective feedback system to improve decision making in purchasing as well as in inventory control.

Effective management of information and communication flows.

Motivate the staffs to participate positively in the inventory management.

This feedback system should also inform Lulu about its customers’ needs.

Figure 4: Conceptual Model

The conceptual model in Figure 4 depicts the activities that are required to carry out the transformation processes from the above root definition. The conceptual model indicates that for timely imports to be made a number of key activities have to be carried out like inputting the customer history, maintaining an active cooperation with the overseas suppliers etc for improving the inventory management system and thus ensure that Lulu’s business operations run efficiently and effectively with least disturbances.

Stage 5- Comparing Conceptual Models with the Real World

This stage is to promote constructive debate (open discussion among the Review-Group participants) based on the conceptual model. This is carried out by comparing the conceptual model with the real world and identifying the differences therein to determine any changes for implementing them successfully in such a way that the reality matches closely to the conceptual model derived from the application of systems thinking approach (Jackson, 2003).

Stage 6- Systematically Desirable and Culturally Feasible Changes

The debate in the form of open discussion is continued in this stage as well. The main aim of this debate is to identify ‘systematically desirable’ changes – relevance – and ‘culturally feasible’ – people oriented -. The purpose here is to determine changes that need to be made for improving the problem situation rather than the conceptual models (Checkland & Scholes, 1990).

The Review-Group identified the following systemically desirable and culturally feasible changes for intervention:

Introduction of an up to date Inventory Management System (new application software) which is capable of keeping the stock levels under control such that adequate (optimal) quantity levels and lines of stocks are available at all times.

Ensure that the staffs are motivated to work in a cooperative way, especially, the staffs that are involved in Lulu’s purchasing function.

It would be necessary to incorporate customer sales history for having control over slow moving items (that still have customers who buy them but not frequently).

Although Lulu maintains an excellent rapport with all its overseas suppliers, the group felt that more active cooperation from the suppliers should be elicited.

Timely imports through enhanced purchasing procedures.

With improved purchasing procedures and optimal re-order sizes better discount deals from the suppliers should be actively negotiated and obtained. This could give a competitive advantage for Lulu over its rivals in Oman through competitive pricing.

Increasing the capacity of storage space for holding stocks would involve capital budgeting procedures by the Top Management.

Stage 7- Taking Actions to Improve the Problem Situation

This stage involves taking systematically desirable and culturally feasible actions for improving the problem situation. The taking of systematically desirable and culturally feasible actions can help further to improve the problem situation (Jackson, 2003).

Accordingly, the information gathered from the 3 workshops with the Review-Group participants was helpful for Lulu in creating recommendations that require intervention in the real world for improving the problem situation, through the possible implementation of the systemically desirable and culturally feasible changes identified in Stage 6 above.

Conclusion

This paper attempted to apply the ‘Soft Thinking’ approach to complex problem solving in the case of Lulu Hypermarkets, Oman through the application of Checkland’s (1981; Checkland & Scholes, 1990) Soft Systems Methodology. Lulu’s operations in Oman is driven by the need to totally import all of its stocks from overseas (which is inevitable in Oman as the industrialisation is being developed only since 1995 after the implementation of privatisation by the Omani Government) and the objective of Lulu to keep all its customers satisfied with availability of goods as and when the customer requires.

(Part A: 3,021 words without Contents & References)

Part B

The present day business environment is dominated by rapid and continuous global changes, which businesses and other organisations as well as their managers cannot afford to ignore these changes today and continue (Turban et al, 2005). Further organisations have become and are becoming more complex due to the changes in the business environment in economic activity, population, and technology as a result of which organisations need to build their ability to adapt to these changes in order to meet the challenges imposed by the changes (Sterman, 1994).

Today’s managers require effective strategies to facilitate their organisations to adapt to the changing business environment and allow their organisations to continue their operational existence successfully into the future (Hitt, 1996).

Fifth Discipline

In order to face the changes in the business environment an organisation need to be a ‘learning organisation’ (Senge, 1990). A learning organisation is one which is expanding its capacity continually for the purpose of obtaining a sustainable continued operational existence into future (ibid). In other words a learning organisation is one where it continually renews itself to stay in step with the changing times in the present as well as into the future.

A learning organisation is distinctly unique from the other forms of traditional organisations in terms of the following five disciplines (ibid):

Building shared vision

Mental models

Personal mastery

Team learning

Systems thinking.

The Five Disciplines of Learning Organisation

Building Shared Vision

‘Shared vision’ according to Senge (1990) is the common mutual image /view which people in an organisation have in regard to the activities of the organisation they are in and the organisation itself. The main purpose of the shared vision discipline is to ensure that the individual’s goals and objectives are aligned with the organisational goals and objectives in order to promote a mutual shared understanding of the organisation to which they belong. The discipline of shared vision is aimed at bringing about voluntary and wilful commitment from the people in an organisation.

Mental Models

Mental models are the embodiment of deeply seated generalisations and assumptions, images and pictures as to the worldview held by individual from his or her own perspectives (ibid). In other words, the mental models allow an individual carry out introspection for deeper exploration within him or her for the mutual benefit of the individual and the organisation.

Personal Mastery

This discipline involves the continual clarification and strengthening one’s personal vision to facilitate concentrated focus of human energies by learning to be patient and developing the ability to see the real world in an objective way (ibid). This is usually the highest of human aspirations which we all strongly endeavour to achieve.

Team Learning

The team learning discipline is about individuals thinking in a unified way where ‘US’ is more important than ‘I’. The core of the team learning discipline is about mutual dialogue that permits s ‘thinking together’ (ibid). Team learning is indispensable for the learning organisation where teams are the dominant resource for learning in order to remain adaptable to changes in the organisational environment.

Systems Thinking

Systems thinking is a modern approach to decision making that is composed of valid knowledge that help in the understanding of the problem patterns more clearly to formulate better improved solutions (ibid).

Systems thinking is the key discipline of the learning organisation. That’s why Senge (1990) calls it as the ‘Fifth Discipline’ in his book. Senge states that the systems thinking discipline integrates the previous four disciplines of the learning organisation. In his view the systems thinking discipline facilitates managers to obtain a better understanding of their organisational systems in order to plan and carry out action that are more appropriate to the problem situations in question.

‘Systems thinking’ implies and indicates to the modern approach to thinking about systems that systems are important (Forrester, 1994). Systems thinking can help managers to handle complex problems more effectively by allowing them to view their organisational systems holistically (Checkland, 1981). In other words, the systems thinking approach helps managers to reconceptualise complex issues as well as find workable solutions to them (Senge & Sterman, 1992).

Using the conventional approach, assuming linearity, managers used to break a problem into their separate constituent parts to formulate a solution by analysing each of these parts and form conclusions in a scientific way (Kofman & Senge, 1993). However, the modern problem situations which managers face in today’s complex world do not yield to the conventional linear approach and hence would require systems thinking that forces to look into the circularity of the variables that make up the problem situations (ibid).

Further ‘systems view’ manifest systems thinking approach by helping and banding people to make their mental models that can foster group learning and obtain a shared understanding of the purpose (Turban et al, 2005).

Given the current globalised world it is imperative to understand the importance of systems thinking in making decisions to address the challenges imposed by the changes in the global business environment (ibid).

According to Senge (1990) systems thinking has three core elements that provide the basis for systems view of the organisations. These are (ibid, p.373):

“Practices: What you do,

Principles: Guiding ideas and insights,

Essences: The state of being those with high levels of mastery in the discipline.”

Leaders and managers can bring about the desired behaviour from their people in the organisation by focusing on the four levels of the behavioural perspectives of their people (ibid). These are (ibid):

Events – observable behaviours and actions;

Patterns of behaviour – repetitive behaviours and actions;

Systemic structures – the interrelationships between the patterns of behaviour; and

‘Purpose story’ – forming mental models that keep that hold the systemic structures.

Summary

The cornerstone of Senge’s learning organisation is ‘systems thinking’ discipline and systems thinking helps the individuals to learn in their organisations with a holistic view of their organisation as a ‘system’. This is because systems thinking is a unifying discipline which integrates all the other disciplines (the disciplines of: shared vision, mental models, personal mastery, and team learning) of the learning organisation to meet the challenges of changing and turbulent business environment in order to sustain the organisation’s continued existence.

Systems in the learning organisation are composed of interrelated mental models (composed of each of the individual’s perceptions) from its people. For a successful learning organisation to take place individuals must share their mental models without inhibition in order to obtain a coordinated understanding of the actual system holistically through a ‘shared vision’. It should be noted here that the concept of ‘shared vision’ help individuals to learn more willingly and actively in a cooperative way. However, to do so managers should be free willing and equally actively extend their cooperation as well. Also managers should come out of their traditional mindsets to allow new systems thinking to get in (Senge, 1990).

Fifth Discipline – Lulu Hypermarkets (Muscat, Oman)

Application of the Soft Systems Methodology, the soft systems thinking approach to Lulu’s complex problem situation, in Part A of this paper is good example of applying Senge’s Fifth Discipline – ‘Systems Thinking’.

Global Economic Crisis

The current global economic crisis has impacted Oman also. As a result the private sector as well as the public sector is facing challenges due to the global economic crisis. One of the major effect of the current global economic crisis is businesses in Oman, including Lulu Hypermarkets, are cutting back on their investments as well as their current pending capital projects.

A key challenge faced by Lulu is the reduced spending pattern that has become noticeable since August 2008 in Oman (as is indicated by the drastic fall in the resale-value of the beach-side prestigious properties of the ‘Wave’ project in Muscat).

Lulu wrongly estimated that its sales would remain either unaffected or marginally affected by the impact of the global economic crisis. This is because about 78% of Lulu’s sales revenue comes from selling food and grocery items.

But the inventory management problem situation coupled with reduced customer spending on food and grocery items threatened not only Lulu’s sales but also made it vulnerable to tough price competition from its rival hypermarkets.

Together these indicate the unpreparedness of Lulu to changes in the external environment such as the one caused by the current global economic crisis.

Systems Thinking

Systems thinking is the vital element for learning organisations that aim to continually have organisation renewal (Senge, 1990). And the use of systems thinking discipline implies that the organisation and its managers in question are willing to adapt to changes and meet the challenges posed by those changes to overcome them successfully.

Systems thinking presupposes (although not necessarily) the use of shared vision, mental models, personal mastery, and team learning disciplines. The above SSM study for Lulu from Part A can be used to illustrate these disciplines in order to obtain a better understanding of the reduced spending arising from the impact of the global economic crisis.

Shared Vision

The formation of the ‘Review-Group’ for applying the SSM process brought together the participants from Lulu’s different locations in Oman, though many of them were sharing similar job responsibilities, in a face-to-face and peer-to-peer contact with one another as a group as well as workshop participants, allowed direct personal and open interactions with the members of the top management (the Purchasing Director and the Purchasing Manager). During the entire period of each of the workshop debates within the SSM process the open interactions helped one another to share their ideas and opinions regarding the problem situation, more so due to the close proximity of the factors that revealed the inventory management problem.

In doing so the Review-Group members and the members of the top management and thus Lulu were on the same track to address the problem situation.

Mental Models

The exercise of