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Isetan and Mitsukoshi are two of Japan’s leading department stores. In 2008, the companies merged to form Isetan Mitsukoshi Holdings Ltd. Following the merger, the company adopted a single managerial accounting system based on Oracle Hyperion Planning, shortening the time required to produce budget reports and providing store managers and management staff with greater visibility into store profits.
The merger of Isetan and Mitsukoshi to create a holding company for a range of diverse businesses was a major event in the Japanese retail industry. The synergies between the two department store giants would allow the merged entity to improve service, reduce costs, and expand market share—which neither company could do independently.
“The merger was not about ‘adding and dividing’ but finding ways to leverage the excellent knowledge of the whole Isetan Mitsukoshi group,” said Toshinori Shirai, executive officer, strategic planning division, strategic planning headquarters, Isetan Mitsukoshi Holdings Ltd. “The aim was to promote enterprisewide integration wherever possible.”
The merger of Isetan and Mitsukoshi was completed in March 2011, well ahead of the original 2012–2013 schedule. A critical part of the merger process was system integration. Isetan owned an IT systems subsidiary and a credit card company, and it had long made use of sales and customer data to improve business performance and customer satisfaction. It now wanted to extend the same systems and practices to Mitsukoshi’s assets.
“We anticipated many benefits from system integration and consolidation,” said Shirai. “For example, in the past Isetan maintained an in-house loyalty card system but Mitsukoshi outsourced its loyalty card program to a third party. As a result, Mitsukoshi did not always get a complete picture of customer transactions. By moving to a single loyalty card system after the merger and integrating it with other business systems, we hoped to obtain more detailed customer data—such as their purchasing history across different stores—and to increase the accuracy of analysis and forecasting for future promotions. Integration also enabled customers to use one card at Isetan and Mitsukoshi stores, increasing satisfaction.”
In 2010, Isetan Mitsukoshi integrated the three most critical systems for department stores: its merchandising, customer relationship management, and store loyalty card systems. “The large-scale implementation was successful because we had a clear picture of how our business process and system integration should work,” said Shirai.
As part of the system integration project, Isetan Mitsukoshi consolidated onto one managerial accounting system, of which Oracle Hyperion Planning is a component. The system collects information, such as what and how many items to purchase to sell in department stores, and it provides staff with better visibility into profits and costs by business unit. By keeping staff informed of profit and loss, they will be more accountable and motivated to act when they see store profits faltering or costs rising and will follow management’s directions.
“We realized it makes good business sense to create an environment where employees can evaluate data to identify and solve problems,” said Shirai. “For example, Mitsukoshi has a gift business that incurs large distribution costs. Previously, these costs were charged back to stores on a pro rata basis. Now, Mitsukoshi store managers are accountable for their own distribution costs, so they have to start thinking about how to improve logistics to reduce these costs.”
Isetan’s use of Oracle Hyperion Planning goes back to 2005, when the company reviewed vertical and lateral practices that caused decision-making issues. Vertical practices include each store’s management of its profits, while lateral practices refer to administrative and cost management functions handled by the general affairs and personnel departments at head office.
A few of the merits of vertical decision-making are that the responsibility for profits can be clarified and decisions can be made faster under each store’s authority. However, the disadvantage of decentralized decision-making is that it is difficult to make optimal decisions for the entire company.
“For example, take parking lot management,” said Shirai. “A store may decide it needs more car spaces to accommodate customers, but the general affairs department at head office will say that building extra parking spaces is too costly. These two opposing views make decision-making challenging.”
To avoid these conflicting situations, Isetan had to move away from vertical-oriented management practices and clarify and expand the scope of lateral-oriented functions. In the parking spaces example above, Isetan employed a specialist in parking lot management, who was ultimately responsible for deciding if it was feasible to build car parking spaces at stores.
In 2005, Isetan extensively reformed administrative and cost management functions, including those in its general affairs and personnel divisions. Under the new structure, management at head office is accountable for overhead, budget planning, and allocation; the general affairs department is responsible for the costs related to property and distribution; and the human resources department looks after employee time and labor.
The administrative and cost management reforms required the company to make changes to its managerial accounting system and how business reports were presented. Oracle Hyperion Planning was implemented to support planning, budgeting, and management.
According to Shirai, the flexibility of the Oracle architecture enabled Isetan to adjust the system to align it with changes the company made to vertical and lateral management practices. “Because Oracle Hyperion Planning was easy to modify, we could implement the process and management improvements we wanted to clarify roles and responsibilities,” said Shirai.
“That’s also why we integrated the organization, staff evaluation, and managerial accounting system into one,” added Shirai. “It was important for us to have a staff evaluation system that matched the organizational structure, whether vertical or lateral, as no-one wants to be accountable for a task that is not in their capacity to control.”
Following the organizational restructuring, stores are now accountable for their gross profit and operating costs. Store profits are calculated after taking away controllable costs—such as marketing and labor costs—from gross profits, and excluding overhead costs, such as leases and fixed assets.
“Adopting Oracle Hyperion Planning as the single managerial accounting system was the first step in preparing our head office to start discussing and articulating issues related to store operations,” said Yasuo Okada, manager, strategic planning division, strategic planning headquarters, Mitsukoshi Isetan Holdings Ltd. “Thanks to better visibility into the operational performance of all stores, store managers can now use other stores as role models.”
“In addition, due to more visible information about each store’s customers and suppliers, the management team can play a central role in developing networks between stores and introduce new ways to diversify the business, such as introducing customers to stores in different regions. This was something we previously didn’t, or simply couldn’t, do.”
Isetan Mitsukoshi uses Oracle Hyperion Planning to prepare budgets, monitor costs against budgets, and forecast future spending. The company reviews its annual budget, second half-year budget, and earnings forecast every quarter.
According to Okada, Oracle Hyperion Planning has reduced workloads and enabled budget planning to be completed faster.
“Before Oracle Hyperion Planning, I completed budget planning using spreadsheets,” he said. “Oracle Hyperion Planning has made this work so much more efficient. I used to spend a week collecting and calculating profit and loss data to prepare budget plans; now I can use the data immediately as it comes in, without further reprocessing.”
Currently, around 160 employees use Oracle Hyperion Planning. These include staff in the planning department at head office and those who assist store managers. Okada said the company is using Oracle Hyperion Planning more extensively now than in 2005.
“Previously, each store’s managers could only view and examine operational profit and loss,” he said. “Now, they not only view and examine profits but also the numbers used to calculate the overall balance, such as sales revenue, operating costs, and gross profit.
“An earlier concern was that a manager could claim that their store was profitable, even without having a complete picture of the store’s performance,” explained Okada. “There may have been poor performing or unprofitable areas that they could not see needed improvement. Now, we give them the whole picture of their store’s total profit and loss, so they can see things completely and address any poorly performing areas.
“By giving store managers information on how each department in their store is performing, we can get them to take action to improve sales, which will ultimately help boost store profitability,” said Okada
He added that numbers have the power to influence employees. “Once numbers are available, you simply can’t neglect them. I used to have staff members who calculated monthly budgets by dividing the six-month budget by six, which resulted in forecasting inaccuracies from month to month. But once they could see the discrepancies, they were inclined to think harder about creating a realistic budget. Oracle Hyperion Planning helps staff develop more accurate budget plans. Overall, I see all employees involved in budgeting doing their work more carefully than ever.”
Isetan Mitsukoshi is now investigating how Oracle Hyperion Planning can be used to evaluate and compare the performance of Isetan and Mitsukoshi stores on a like-for-like basis.
“Mitsukoshi stores mainly sell goods procured from suppliers,” explained Shirai. “Isetan ‘rents’ retail space to brands internally, we refer to these in-store boutiques as ‘specialty stores.’ You could say Mitsukoshi runs a pure retail business while Isetan is more like a real estate business in that it earns fees from renting space to tenants.
“Due to this difference in business models, we can’t evaluate store performance on a level playing field and need to separate Mitsukoshi’s retail earnings from Isetan’s rental earnings. We hope Oracle Hyperion Planning will help us to do that,” he said.
Working with Isetan Mitsukoshi System Solutions Ltd, the IT arm of the company, and Oracle Partner PricewaterhouseCoopers, Isetan evaluated a range of budgeting products before selecting Oracle Hyperion Planning on the recommendation of PricewaterhouseCoopers.
“We were looking for an easily adaptable product that could accommodate changing management issues and challenges,” said Shirai. “In addition to its flexibility, Oracle Hyperion Planning supported the creation of ‘profit layers’ based on different parameters than those used for financial accounting.”
Isetan Mitsukoshi has plans to expand overseas and Shirai said the management accounts team will develop new business plans to support this goal. “We will also work on adopting International Financial Reporting Standards to measure profitability,” he added. “Oracle Hyperion Planning will help us with forecasting, budgeting, and measuring performance, and it is expected to play a major role in Isetan Mitsukoshi’s future.”
Isetan implemented Oracle Hyperion Planning in 2005. Mitsukoshi adopted Oracle Hyperion Planning in 2008 following the merger with Isetan.
“We recommended Oracle Hyperion Planning for its ability to support budgeting processes, as well as its flexibility to create ‘profit layers’ based on different parameters than those used for financial accounting,” said Taku Yamamoto, senior manager, PricewaterhouseCoopers Co., Ltd.
“PricewaterhouseCoopers helped us tremendously during the implementation,” said Shirai. “The team displayed a real understanding of our business requirements and was able to develop a system that met all our needs. We are very pleased with the end results.”