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