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.

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.

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

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.