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.