This chapter defines the potential for savings according to existing IT business inefficiency; the greater the inefficiencies, the greater the cut. The first solution for companies with little inefficiency including those on the path of pennies or the path of profits should cut 10-20% of costs. With little to cut, reduction can be handled from a technological approach with little input from business groups. This includes increased efficiency in operations, re-negotiation of contracts, limited off-shoring, and re-examination of labor. The next group, where most reside, lies between the path of profits problems and needs to cut spending by 20 to 40%. Unlike the first, business groups should be combined with IT staff in the cost analysis because more of the expenses cut will come from daily operations in which business groups have the most experience. Combining business units and IT staff could create conflict where some units don’t want their budgets cut, but management should emphasize that spending less will benefit the entire company. The final group includes companies burdened with a 40% or more cut because they’ve let spending get out of control for many years. This group has the same savings opportunities as the former groups, but unlike the rest, this group has to change almost everything! With most people resistant to any change, this is a tough issue to overcome.
Next, the chapter introduces a three step process to cutting costs effectively. First, IT groups examine capacity to examine ways to maximize current technologies. I see this step as a way to cut costs in the long run, but in the short run, this step could incur possible costs such as re-training, re-programming, etc. The second step, capital, includes business units and IT groups reaching agreement on which technologies address business needs. This creates conflict as favorite applications that don’t generate return will be challenged. Hopefully, a fair compromise can be reached because I see resentment stemming from this step if a unit’s favorite technology is cut. If departmental mindsets really create a problem, management could create a reward system based on department savings. The amount of money saved through reduced IT spending could be partially re-imbursed to employees in the department. Money would be spent on rewards, but amount spent would be much less than the amount saved by providing employees an incentive. Clear goals with deadlines and feedback are beneficial as well. The final step, cleverness, is led by business units focusing on return and whether a technology provides benefits. I am sure companies commonly used ROI and sales during this step, but evaluation must include measures of customer satisfaction since they are such a large provider of ROI and sales.
Tuesday, November 20, 2007
Ch 9: The Four Paths of IT Spending
This chapter classifies the IT spending practices of companies into four distinct approaches: path of propaganda, path of problems, path of pennies, and path of profits. First, the path of propaganda, probably occurs in companies lacking strong knowledge in IT. Because the sellers say the software will provide a positive ROI in months, they buy. Even when management is aware that the seller is acting in their own interest, industry spending averages can be a dangerous promoter of this approach. “If their company spends less than the industry average, they will lose profits” is an inaccurate assumption. Next, due to poor technology management in the 1990’s, it makes sense that many companies still struggle on the path of problems. I think an important process companies on this path could do is a serious asset/inventory reduction to rid unused technologies adding to costs. Then, there’s the path of pennies where companies consider the little picture (cost) and not the big one (how IT can be a powerful strategic tool). Conservative spending is great but spending the bare minimum can cost in the long run when cheap systems are updated and improved. Finally, the difficult yet beneficial path of profits. On this path, companies combine the strengths of previous paths by using caution with how they spend but aggressiveness with how they use IT. I found the importance difference to be a strong focus on business goals and what should be obtained by any expenditure.
Reading how different companies, Harrah’s and JetBlue, followed the path of profits was interesting because some practices were similar where others varied. I found Harrah’s most valuable practice to be using a single technology for many uses. Their CRM system integrates all customer information into a single repository for the marketing, operations, finance, customer service, restaurant, and other departments to use. So instead of buying a system for the finance department to evaluate pricing, another system for the marketing department to determine promotions, an additional system for operations to predict demand, etc., Harrah’s buys one system and has the staff using it customize it to their own likings. Also, by profiling customers individually, this system enhances the experience of the customer. This is impressive since consumers often view technology as a barrier to service.
Next, I was impressed that despite the weakness of the airline industry, JetBlue operates at a cost model 40% below traditional airlines but enjoys much higher returns. I think its best cost-savings approach is their partnership with Microsoft. My only concern is in a past chapter, Microsoft has proven to work best with smaller companies. JetBlue is not a small company but does practice simplicity in their IT processes. As the business continues to rapidly grow, will the Microsoft systems and IT spending practices currently used need to be updated? Finally, I love how their customer service agents operate from their homes using VOIP technology. This innovative idea must save tons in rent and labor expenses.
Reading how different companies, Harrah’s and JetBlue, followed the path of profits was interesting because some practices were similar where others varied. I found Harrah’s most valuable practice to be using a single technology for many uses. Their CRM system integrates all customer information into a single repository for the marketing, operations, finance, customer service, restaurant, and other departments to use. So instead of buying a system for the finance department to evaluate pricing, another system for the marketing department to determine promotions, an additional system for operations to predict demand, etc., Harrah’s buys one system and has the staff using it customize it to their own likings. Also, by profiling customers individually, this system enhances the experience of the customer. This is impressive since consumers often view technology as a barrier to service. 
Next, I was impressed that despite the weakness of the airline industry, JetBlue operates at a cost model 40% below traditional airlines but enjoys much higher returns. I think its best cost-savings approach is their partnership with Microsoft. My only concern is in a past chapter, Microsoft has proven to work best with smaller companies. JetBlue is not a small company but does practice simplicity in their IT processes. As the business continues to rapidly grow, will the Microsoft systems and IT spending practices currently used need to be updated? Finally, I love how their customer service agents operate from their homes using VOIP technology. This innovative idea must save tons in rent and labor expenses. Monday, November 19, 2007
Ch 8: Cutting the IT Budget
This chapter discusses the reasons and rational for the contraction in technology spending in the future and different approaches to cost savings companies will take. The contraction in technology spending is due to so many factors such as off-shoring, standardized hardware, new conservative spending patterns, open-source software, etc., and the combination of these trends makes me worry about the future of the IT industry. If these current trends continue, new trends emerge, and companies aggressively cut IT spending, will the IT industry come to an end?
The traditional view of IT spending assumes that with GDP growth of 3% or more, spending should increase by 5 or 6% per year. The author tends to disagree with this traditional view and because of the many factors mentioned in previous chapters, he assumes spending will decline. I am not sure when the author thinks this decline in spending will begin, but I was curious to see if his prediction had begun to occur yet. According to the GDP report from Moody’s, GDP increased 3.9% this quarter with real investment in equipment and software growing 6%. Therefore, the traditional view is dead on, and the author’s prediction of reduced spending has not begun. I still believe his prediction is likely to occur especially since what has happened with hardware over the last thirty years is positioned to occur with software and internal labor. Also, as the risks to the economy increased appreciably over the past few months, it may just take time for the decrease in IT investment to become apparent.
Another reason I support the author’s assumption of a decline in spending is because the next new IT thing, which has included innovations like the Web and Y2K drive IT spending to unnatural levels. However, the new IT thing now includes open-source software, free-ware, and off-shoring, which have the opposite potential to decrease IT spending to unnatural levels. The next new IT things in the past required companies to spend millions on initial costs, implementation, and maintenance, but the new IT things of today focus on saving companies millions. This will allow companies to pay less to get more out of IT.
The traditional view of IT spending assumes that with GDP growth of 3% or more, spending should increase by 5 or 6% per year. The author tends to disagree with this traditional view and because of the many factors mentioned in previous chapters, he assumes spending will decline. I am not sure when the author thinks this decline in spending will begin, but I was curious to see if his prediction had begun to occur yet. According to the GDP report from Moody’s, GDP increased 3.9% this quarter with real investment in equipment and software growing 6%. Therefore, the traditional view is dead on, and the author’s prediction of reduced spending has not begun. I still believe his prediction is likely to occur especially since what has happened with hardware over the last thirty years is positioned to occur with software and internal labor. Also, as the risks to the economy increased appreciably over the past few months, it may just take time for the decrease in IT investment to become apparent.
Another reason I support the author’s assumption of a decline in spending is because the next new IT thing, which has included innovations like the Web and Y2K drive IT spending to unnatural levels. However, the new IT thing now includes open-source software, free-ware, and off-shoring, which have the opposite potential to decrease IT spending to unnatural levels. The next new IT things in the past required companies to spend millions on initial costs, implementation, and maintenance, but the new IT things of today focus on saving companies millions. This will allow companies to pay less to get more out of IT.
Ch 7: Offshoring, The New Trend
This chapter discusses how off-shoring is rapidly emerging as a competitive reality for corporations, workers, and consumers. I definitely see the benefits for U.S. companies; the potential for better quality at a significantly less cost. However, I am weary of how off-shoring will affect the labor market and the overall economy in the future. For IT-related employees, off-shoring will cause their salaries and job security to greatly decrease. According to a McKinsey and Company study, 11% of service jobs could potentially be moved overseas. I see the vast majority of service jobs remaining in the U.S. because the nature of these jobs require face to face customer interactions or a worker’s physical presence. For example, it would be impossible to send the work performed by a dental hygienist or a sales clerk offshore. However, given the growth of high-speed networks, the Internet, and low-cost labor, I would not be surprised if the majority of the 11% of service jobs off-shored were IT-related jobs. Also, as this chapter points out, historical figures of jobs lost when the manufacturing sector was off-shored cannot be used to predict the potential number of IT-related jobs lost. IT-related employment will actually shift from the U.S. at a much faster rate than seen in the manufacturing sector. This fact along with the trend of more conservative IT spending makes me worry about the IT profession in the U.S. I think I would support off-shoring more if their was a better safety net for displaced workers including maybe better unemployment insurance or retraining programs for those who do lose their job.
One section that caught my attention was the “Quality Rules” paragraph. Measuring quality usually seems like a subjective process to me. However, the standardized CMM ratings used by the software industry seem more accurate. With CMM Level 4 and 5 representing the highest levels of quality, I was shocked to find that over 65% of level 4 and 5 certifications are held by Indian companies. This contradicts my allegations that all offshore work is of poor quality. I think I held this assumption because of the many horror stories in the news of recalls of imported products, many that have caused injuries. However, the need for U.S. companies off-shoring to continuously investigate the human rights practices and quality procedures used by the foreign company was greatly understated.
In the end, this chapter proves whether you’re for or against off-shoring it’s a rapidly approaching reality. Companies failing to off-shore will experience higher costs than reduce overall profits. Companies off-shoring their entire company will lose too much control and lose contact. However, blending domestic and off-shore resources will give companies the best in costs, productivity, quality, and responsiveness.
In another class, a group presented a debate on off-shoring and showed this clip as a joke. I wanted to include it because I kinda thought it was funny.
http://youtube.com/watch?v=YR_-aMVQWZI&feature=related
One section that caught my attention was the “Quality Rules” paragraph. Measuring quality usually seems like a subjective process to me. However, the standardized CMM ratings used by the software industry seem more accurate. With CMM Level 4 and 5 representing the highest levels of quality, I was shocked to find that over 65% of level 4 and 5 certifications are held by Indian companies. This contradicts my allegations that all offshore work is of poor quality. I think I held this assumption because of the many horror stories in the news of recalls of imported products, many that have caused injuries. However, the need for U.S. companies off-shoring to continuously investigate the human rights practices and quality procedures used by the foreign company was greatly understated.
In the end, this chapter proves whether you’re for or against off-shoring it’s a rapidly approaching reality. Companies failing to off-shore will experience higher costs than reduce overall profits. Companies off-shoring their entire company will lose too much control and lose contact. However, blending domestic and off-shore resources will give companies the best in costs, productivity, quality, and responsiveness.
In another class, a group presented a debate on off-shoring and showed this clip as a joke. I wanted to include it because I kinda thought it was funny.
http://youtube.com/watch?v=YR_-aMVQWZI&feature=related
Ch 6: Business Lean & Simple
Because of low-cost alternatives, Microsoft, freeware, and other factors, sellers are experiencing intense pricing pressures. First, the information on Microsoft and its steady spread into the corporate account was new to me. The chapter states, “an accepted rule of thumb has been that Microsoft technology is the most appropriate for small workloads and companies, Unix for medium, and IBM mainframe for large”. At first, this rule seemed to be a threat to Microsoft limiting the size of the company that Microsoft could be used for, but since small businesses represent more than 99% of all employer firms, small companies are the majority. Therefore, Microsoft’s appropriate target market is already much greater than the market for Unix and IBM. In addition to this, the table from Gartner predicts that by 2007, which has already occurred, Microsoft’s operating system will become as good as those offered by Unix and IBM. I was curious if this prediction was true and found mixed results on whether the operating system offered by Microsoft in 2007 is comparable to those offered by Unix and IBM. The lower costs of Microsoft products has saved some companies millions, but on the other side, Robert Schindler, a mechanical engineer for various Fortune 100 companies, wrote, “I believe that Gates and his empire have done more to lower the standards of society than anything else in my lifetime. If my product had the same quality as theirs, airplanes would be falling out of the sky hourly.” I am still up in the air on this issue.
Next, I was aware of open-source software but am shocked at how many companies are adopting it, but with the great debts created by irrational spending patterns in the 90’s, freeware does seem like a logical approach to saving in IT costs. However, my personal experience with freeware proved that the best things in life aren’t always free. I downloaded a freeware program for editing photos, and after I installed the program, my laptop became infected with lots of spy ware. It slowed down my computer so much that I had to spend lots of money at Best Buy having them clean my entire hard drive. If I had read the instruction manual prior to downloading the freeware, I would have seen the recommended list of anti-spy ware programs to download before. Probably the cost of buying software for photo editing would be much less than the costs associated with the problems caused by the freeware. However, in the corporate setting, carefully implementing freeware can save the company millions. As the chapter points out, custom programming accounts for two-thirds of all software spending. With freeware, the source code is available for free which provides a great savings in cost for those companies seeking to build custom solutions from existing software. Internal customization does have costs, but for companies with IT departments capable of evaluating and managing such technologies, internal customization is preferred to the greater costs of external customization.
Next, I was aware of open-source software but am shocked at how many companies are adopting it, but with the great debts created by irrational spending patterns in the 90’s, freeware does seem like a logical approach to saving in IT costs. However, my personal experience with freeware proved that the best things in life aren’t always free. I downloaded a freeware program for editing photos, and after I installed the program, my laptop became infected with lots of spy ware. It slowed down my computer so much that I had to spend lots of money at Best Buy having them clean my entire hard drive. If I had read the instruction manual prior to downloading the freeware, I would have seen the recommended list of anti-spy ware programs to download before. Probably the cost of buying software for photo editing would be much less than the costs associated with the problems caused by the freeware. However, in the corporate setting, carefully implementing freeware can save the company millions. As the chapter points out, custom programming accounts for two-thirds of all software spending. With freeware, the source code is available for free which provides a great savings in cost for those companies seeking to build custom solutions from existing software. Internal customization does have costs, but for companies with IT departments capable of evaluating and managing such technologies, internal customization is preferred to the greater costs of external customization.
Friday, November 16, 2007
Ch 5: Too Much of a Good Thing
My first thoughts were haven’t I already read this chapter? It seems very repetitive of content in the former chapters by declaring that companies will practice more conservative spending because of overbuying in the 1990’s. One new point that caught my attention was maintenance costs. It was uncommon for buyers who initially purchased software at a 50% discount to then incur maintenance costs of 40% or more every year after on the software’s current list price. How had companies not predicted these hidden costs? I guess they used the same lack of attention with negotiating contracts that they had with purchasing new technologies. Hopefully in the future, these contracts will be re-examined and negotiated for savings before signing checks for maintenance with little thought.
The steps mentioned that companies should take in downsizing were wise. In order to inventory assets, manual inventory counts that include IT and business unit members combined with the tools such as those offered by BDNA for discovering hidden and underutilized assets will work. Next, writing off waste could be a painful experience for people not wanting the blame but not nearly as painful as paying for technologies being used. Redundant capabilities including hardware, software, networks, etc. must be eliminated. One idea not mentioned was centrally locating resources. Motorola was mentioned in this chapter as having several different types of Oracle sitting on different hardware platforms at scattered data centers, which is a very inefficient use of resources. With centrally located resources, equipment, applications, facilities, staff, and other resources are together. Rather, instead of downsizing to get more out of the IT buck, relocating to get more through efficiencies and economies of scale. Perhaps, companies should downsize first, and when they cannot downsize any further, centrally locate resources.
In conclusion, I agree with principles discussed in this chapter. IT spending will decrease as companies as technology bills and budgets are being scrutinized. I think this assumption is definitely apparent today because of the recent turmoil in credit markets and continued uncertainty about the future economy. Uncertainty of the future causes concern for consumers who spend less in general. This is likely to spill over into business and IT spending. In the business conditions class that I am currently taking, we read a an article by the research group Gartner that advised CIO’s to create two separate budgets; One regular budget and a back-up one that assumes the need to cut IT spending in response to the arrival of a business slowdown. The potential of a business slowdown combined with harmful spending in the 1990’s will likely cause the growth of IT investments to slow.
The steps mentioned that companies should take in downsizing were wise. In order to inventory assets, manual inventory counts that include IT and business unit members combined with the tools such as those offered by BDNA for discovering hidden and underutilized assets will work. Next, writing off waste could be a painful experience for people not wanting the blame but not nearly as painful as paying for technologies being used. Redundant capabilities including hardware, software, networks, etc. must be eliminated. One idea not mentioned was centrally locating resources. Motorola was mentioned in this chapter as having several different types of Oracle sitting on different hardware platforms at scattered data centers, which is a very inefficient use of resources. With centrally located resources, equipment, applications, facilities, staff, and other resources are together. Rather, instead of downsizing to get more out of the IT buck, relocating to get more through efficiencies and economies of scale. Perhaps, companies should downsize first, and when they cannot downsize any further, centrally locate resources.
In conclusion, I agree with principles discussed in this chapter. IT spending will decrease as companies as technology bills and budgets are being scrutinized. I think this assumption is definitely apparent today because of the recent turmoil in credit markets and continued uncertainty about the future economy. Uncertainty of the future causes concern for consumers who spend less in general. This is likely to spill over into business and IT spending. In the business conditions class that I am currently taking, we read a an article by the research group Gartner that advised CIO’s to create two separate budgets; One regular budget and a back-up one that assumes the need to cut IT spending in response to the arrival of a business slowdown. The potential of a business slowdown combined with harmful spending in the 1990’s will likely cause the growth of IT investments to slow.
Thursday, November 15, 2007
Ch 4: Show Me the Productivity
This chapter highlights the difficulties of translating the benefits of information technology into quantifiable productivity measures. Because information technology is so complex and new, it is hard to develop return and productivity numbers, but researchers should look beyond conventional productivity measurement techniques. According to traditional measures, a high percentage of the productivity created to IT is attributed to its production and sales. However, traditional measures fail to measure some areas IT increases productivity. Unquantifiable benefits such as quality, timeliness, customer-service, flexibility, innovation, customization, etc all add to productivity but aren’t accounted for. Because of this, consumers are generally in a great position to assess the value they gain from technology purchases, so researchers could look to IT purchasers for an estimate of productivity. Hopefully in the future, productivity measures and research methodologies will improve so that returns on investments in IT can be calculated in advance.
One point that really stuck out was that technology has allowed many people in the labor force to work longer hours. Even with my own job that I really care little about, I spend hours at home working on assignments. Instead of the twenty hours I get paid to work, I am actually working 40 or so hours. Therefore, I would think the productivity numbers are much lower than stated.
A final point that this chapter proved to be important is that spending averages illustrate how much organizations spent, not how well they used the technology. Many managers don’t realize this and believe they must spend more to do “better” than the competition. Any productivity gain is highly dependent on how the technology is used; not on simply whether it is present. Investing in technology to keep systems functioning is a better and less risky approach than maintaining technological equality with than the competition. In some industries, risk-taking is acceptable, but when it comes to millions of dollars in untested technologies, investments in IT must be carefully analyzed.
One point that really stuck out was that technology has allowed many people in the labor force to work longer hours. Even with my own job that I really care little about, I spend hours at home working on assignments. Instead of the twenty hours I get paid to work, I am actually working 40 or so hours. Therefore, I would think the productivity numbers are much lower than stated.
A final point that this chapter proved to be important is that spending averages illustrate how much organizations spent, not how well they used the technology. Many managers don’t realize this and believe they must spend more to do “better” than the competition. Any productivity gain is highly dependent on how the technology is used; not on simply whether it is present. Investing in technology to keep systems functioning is a better and less risky approach than maintaining technological equality with than the competition. In some industries, risk-taking is acceptable, but when it comes to millions of dollars in untested technologies, investments in IT must be carefully analyzed.
Ch 3: Less Bang for the IT Buck
I am glad to see, as this chapter demonstrates, disturbing stories of IT spending finally emerging in the news. Management needed a wake-up call, and hopefully these horror stories encouraged management to pay closer attention to the business and costs of technology.
First, the headings of the horror stories all point to a faulty system or implementation provided by a software company. From this, buyers should realize that sellers may not have their best interests in mind. The chapter discusses references as an important tool in analyzing how software functioned for a previous client, but they could also be used to analyze the seller. Sellers refusing to offer references should be considered risky. They are hiding something; either that the software has not yet been tested, that it performed poorly, or some other hidden reason.
Next, the horror stories printed the costs of associated failures. This is interesting since management rarely considered costs, just benefits, before adopting new technologies, but as the headings point out, the “guaranteed” benefits never came. Massive losses printed in headings will shift the focus from derived benefits to technology costs, but management must not forget to include costs of internal and external customization, cost overruns, maintenance, and any other associated costs. Sometimes management is so mesmerized by a new technology, that their calculation of total cost is biased. Forecasts by an unbiased employee with financial expertise may be more accurate. A final thought in improving the cost estimation could be to use sensitivity analysis. Potential benefits and losses of the technology for the best, worst, and probable scenario could be computed. Therefore, before spending large amounts on new technologies, the company will know of potential risks or losses.
A final section that caught my attention was the Survival Guide for Buyers’ advice that technology knowledge is not as important as operational capabilities. I think the two are equally important. Operational capabilities are important because managers must identify the business process the technology will be designed for and determine if business goals can be met by the technology’s operational capabilities. Technology knowledge is just as important because management must understand the difficult details of what it takes to get the system working. I understand that sometimes sellers create technology investments too complicated in order to baffle buyers, but a combination of business knowledge with knowledge of the technology improves decision making. Lack of technology knowledge in my opinion led to many of the irresponsible purchases in the 1990’s.
First, the headings of the horror stories all point to a faulty system or implementation provided by a software company. From this, buyers should realize that sellers may not have their best interests in mind. The chapter discusses references as an important tool in analyzing how software functioned for a previous client, but they could also be used to analyze the seller. Sellers refusing to offer references should be considered risky. They are hiding something; either that the software has not yet been tested, that it performed poorly, or some other hidden reason.
Next, the horror stories printed the costs of associated failures. This is interesting since management rarely considered costs, just benefits, before adopting new technologies, but as the headings point out, the “guaranteed” benefits never came. Massive losses printed in headings will shift the focus from derived benefits to technology costs, but management must not forget to include costs of internal and external customization, cost overruns, maintenance, and any other associated costs. Sometimes management is so mesmerized by a new technology, that their calculation of total cost is biased. Forecasts by an unbiased employee with financial expertise may be more accurate. A final thought in improving the cost estimation could be to use sensitivity analysis. Potential benefits and losses of the technology for the best, worst, and probable scenario could be computed. Therefore, before spending large amounts on new technologies, the company will know of potential risks or losses.
A final section that caught my attention was the Survival Guide for Buyers’ advice that technology knowledge is not as important as operational capabilities. I think the two are equally important. Operational capabilities are important because managers must identify the business process the technology will be designed for and determine if business goals can be met by the technology’s operational capabilities. Technology knowledge is just as important because management must understand the difficult details of what it takes to get the system working. I understand that sometimes sellers create technology investments too complicated in order to baffle buyers, but a combination of business knowledge with knowledge of the technology improves decision making. Lack of technology knowledge in my opinion led to many of the irresponsible purchases in the 1990’s.
Ch 2: IT Spending, A Brief History
This chapter provides a summary of IT spending over the years focusing on its dramatic growth during the 1990’s. During this period, companies either maintained their overlapping and incompatible systems or invested heavily in new systems and software. Ultimately, most companies adopted the second approach spending tens of millions of capital creating a trend referred to by the chapter as “irrational exuberance”. With the introduction of ERP, Y2K, and the Internet, I see the reasoning behind investing to stay ahead, but I am shocked by the lack of consideration put into decisions. With a project this expensive, management should assess business needs, cost versus benefits, risks of failure, and complexity of implementation before executing considerable change. Instead of listening to Business Week and self-interested consultants, companies should asses others’ successes and failures with the new systems, avoid untested products, and wait for the right moment to invest. Companies who are first to successfully adopt a new technology often achieve competitive advantage, so waiting too long could be costly but not nearly as damaging as failure costing tens or hundreds of millions.
One aspect I disliked about this chapter was it implied that all companies invested too heavily and failed. There is one paragraph discussing a client (Ernesto) who succeeded by moving slowly and spending minimally, but this can’t be the only successful approach. The chapter mentions that at Wal-Mart and Dell, IT investments and strategies were successful, so I googled Wal-Mart to find out why.
Wal-Mart’s electronic data interchange with suppliers was one technological innovation leading to their success. Wal-Mart adopted electronic data interchange in 1985, so five years later when information technology needed to be updated, they expanded the EDI system to include an extranet. I believe expanding a current technology rather than spending millions on a new and unknown system created success at Wal-Mart. Expansion requires less installation and training costs and overall less risk of failure because the company, already familiar with the system, knows it has worked in the past.
Another reason Wal-Mart succeeded when so many companies failed was their Information Systems Division that managed 95% of IT projects. Relying very little on commercial software and not at all on outsourcing, Wal-Mart spent below the average on IT for retailers; less than 1% of worldwide revenue. As the chapter notes, their was a great demand for good software talent due to the combination of ERP, Y2K, and the Internet. So programmers fees sky-rocketed and could cost companies over $1,000 a day. I assume internalizing software programming, as Wal-Mart did, could save companies significantly.
In conclusion, companies during the 1990’s irresponsibly spent millions on new systems, software, and technology, causing millions of dollars in damage. This could have been easily avoided if companies analyzed approaches to spend less to get more. Below is just a funny video I found reminding me of all the other great things people spent their money on in the 1990's. Just hold down control while clicking on it.
http://youtube.com/watch?v=b0c1P4kVN2g&feature=related
One aspect I disliked about this chapter was it implied that all companies invested too heavily and failed. There is one paragraph discussing a client (Ernesto) who succeeded by moving slowly and spending minimally, but this can’t be the only successful approach. The chapter mentions that at Wal-Mart and Dell, IT investments and strategies were successful, so I googled Wal-Mart to find out why.
Wal-Mart’s electronic data interchange with suppliers was one technological innovation leading to their success. Wal-Mart adopted electronic data interchange in 1985, so five years later when information technology needed to be updated, they expanded the EDI system to include an extranet. I believe expanding a current technology rather than spending millions on a new and unknown system created success at Wal-Mart. Expansion requires less installation and training costs and overall less risk of failure because the company, already familiar with the system, knows it has worked in the past.
Another reason Wal-Mart succeeded when so many companies failed was their Information Systems Division that managed 95% of IT projects. Relying very little on commercial software and not at all on outsourcing, Wal-Mart spent below the average on IT for retailers; less than 1% of worldwide revenue. As the chapter notes, their was a great demand for good software talent due to the combination of ERP, Y2K, and the Internet. So programmers fees sky-rocketed and could cost companies over $1,000 a day. I assume internalizing software programming, as Wal-Mart did, could save companies significantly.
In conclusion, companies during the 1990’s irresponsibly spent millions on new systems, software, and technology, causing millions of dollars in damage. This could have been easily avoided if companies analyzed approaches to spend less to get more. Below is just a funny video I found reminding me of all the other great things people spent their money on in the 1990's. Just hold down control while clicking on it.
http://youtube.com/watch?v=b0c1P4kVN2g&feature=related
Chapter 1: Paradise Lost?
In past years, companies believed significant dollars spent on “the next big thing” was a successful approach for using technology to improve business. However, the collapse of Internet dot.com companies and IT-driven corporations has proven this approach wrong. Perhaps, as the author suggests, companies will perform best if they abandon the technology-driven view of how to improve business and adopt a business-driven view of how to use technology. Companies that implement the business-driven view correctly by adopting more conservative buying and management will experience
greater IT efficiency at lower costs.
Reading this chapter reminded me of something I had read before. Skimming through my notes, I found a past case article, “Getting IT Right” that presents similar ideas. This article is similar to this chapter in that both believe many companies failed in the past by paying outrageous prices for the latest fad. While reading this chapter, I wondered why companies would continue to invest heavily in new technologies despite questionable returns and cost overruns. The case article answers this by pointing out that the IT field was born only forty years ago while the fields of manufacturing, finance, marketing, etc have been around for centuries with established practices and principles. Therefore, decision making in these established fields is straightforward, but established principles and common understanding of IT rarely exist among managers. So management does what it thinks is best; hands the IT expert a large allowance and looks the other way.
Another section that caught my attention was the idea that companies benefit more from cheaper and simpler technology than complicated technology systems. I agree using technology that is easy to understand is important, but striking a balance between the simplicity and complexity of a technology is also important. A technology that is too simple becomes a repetitive process for the employees, creating dissatisfaction, and taking away meaning in their job. Dissatisfied employees perform at less efficient levels, which could harm the company as a whole. Therefore, I think technology should be easy to understand but not so easy that it takes away meaning in one’s job.
In conclusion, I agree with this chapter that the buying and selling of IT is about to change. Increased labor outsourcing, low-priced software, cautious buying patterns, open source software patterns, and other trends prove corporate technologies are diminishing. Spending large amounts on technology did not work in the past because technology is not a strategy. Successful companies will follow the vision of spending less to get more.
Reading this chapter reminded me of something I had read before. Skimming through my notes, I found a past case article, “Getting IT Right” that presents similar ideas. This article is similar to this chapter in that both believe many companies failed in the past by paying outrageous prices for the latest fad. While reading this chapter, I wondered why companies would continue to invest heavily in new technologies despite questionable returns and cost overruns. The case article answers this by pointing out that the IT field was born only forty years ago while the fields of manufacturing, finance, marketing, etc have been around for centuries with established practices and principles. Therefore, decision making in these established fields is straightforward, but established principles and common understanding of IT rarely exist among managers. So management does what it thinks is best; hands the IT expert a large allowance and looks the other way.
Another section that caught my attention was the idea that companies benefit more from cheaper and simpler technology than complicated technology systems. I agree using technology that is easy to understand is important, but striking a balance between the simplicity and complexity of a technology is also important. A technology that is too simple becomes a repetitive process for the employees, creating dissatisfaction, and taking away meaning in their job. Dissatisfied employees perform at less efficient levels, which could harm the company as a whole. Therefore, I think technology should be easy to understand but not so easy that it takes away meaning in one’s job.
In conclusion, I agree with this chapter that the buying and selling of IT is about to change. Increased labor outsourcing, low-priced software, cautious buying patterns, open source software patterns, and other trends prove corporate technologies are diminishing. Spending large amounts on technology did not work in the past because technology is not a strategy. Successful companies will follow the vision of spending less to get more.