Chapter 1Technology Transforms the Organization
Chapter 1: Technology Transforms the Organization
Information technology divides managers into three types. The first group consists of individuals who “get it;” they understand what technology can do, and they want to take maximum advantage of it. Managers like Michael Dell of Dell Computer, John Chambers of Cisco, and Jack Welch, who recently retired as chairman of General Electric, all belong in this category. They believe in technology and they encouraged the people working with them to exploit IT to change the way their companies do business.
A second group of managers includes those who understand the technology, but are not quite as committed to it as the first category of managers. These individuals use IT to augment their existing ways of doing business, and in doing so make more local changes to their firms. A company like Grainger is a good example of a leading firm that uses the Internet as a very successful sales channel to provide new sources of revenue.
The third group of managers consists of those who are highly skeptical of information technology. They provide little IT leadership and look at money spent on technology as an expense rather than an investment. Jim Roberts’ predecessor at Victor Electronics below is an example of this third category of manager. He minimized spending on technology, and as a result, missed many opportunities. Victor has avoided any kind of commitment to electronic commerce, even as customers and competitors embrace it.
My hope is that this book will encourage students to join the first category of managers above who believe in the technology and are willing to use it to create a real electronic business. Those who “get” technology are the managers who will build successful organizations in the 21st Century.
The purpose of this book is to prepare the reader to make strategic decisions about information technology in an organization. Each chapter of the Instructor’s Manual begins with the “Management Perspectives” introduction from the book chapter; this section tries to communicate the importance of a chapter to the reader.
In Chapter 1, the key issue is motivation. Why should a student study information systems and technology? The IS field has a great story to tell: technology has transformed organizations, industries and markets. We must communicate the excitement of this impact to students, and motivate them to think of information technology as a key driver of 21st Century business. Why are some firms so successful applying IT while others report failures? The answer is the quality of management; do managers understand technology and its capabilities? Are managers able to make good decisions about the technology and execute them?
The book looks at IT value in each chapter, as the question of what return the organization receives from technology is still important to senior managers.
Students need to be able to respond to questions about the value of their proposed IT initiatives, and understand both the direct and indirect affects of IT investments.
Chapter 1 introduces Victor Electronics, a case that appears throughout the text. Victor is based on a real firm, one that has experienced numerous problems because its CEOs have fallen into the third, skeptical category above. In the book at least, we have a new CEO who believes that IT can be an important part of Victor’s strategy.
In an early class, I recommend discussing some of the key management decisions about technology that are included in the book and listed as follows in Chapter 1:
- Strategy. IT and corporate strategy are closely intertwined. The manager needs a business model and a strategy that takes into account the fact that IT is a fundamental driver of modern business. The firm will have to continue to invest in technology as it becomes an integral part of its operations.
- Value of IT. There are many different types of value, and different kinds of IT investments differ in their ability to show a return. It is important to understand the nature of IT value, and to have ways to develop capital budgeting for IT initiatives.
- Investing in Infrastructure. The organization needs a process for making IT investment decisions. How should you set priorities and allocate scarce resources to competing requests for IT investment? How do you decided whether or not, and when to replace existing legacy systems?
- Deciding on Applications. Vendors have developed packaged solutions for three major activities in the organization; these packages are called Enterprise Resource Management (ERP), customer relationship management (CRM) and knowledge management systems. Does your firm need one or all of these solutions? If so, should you purchase or develop them?
- The Role of Knowledge. Knowledge is one of the key resources that a firm possesses, one that may give it a competitive advantage. What is the role of knowledge in the firm? How does it help manage better and change the structure of the organization? How does technology contribute?
- E-Business. We will argue that all business is or will become e- business. The benefits of e-commerce to consumers and producers are so great that e-commerce is or will become a component of every firm’s strategy.
- Options for Service. A modern organization can outsource all of part of its IT operations. What are the pros and cons of outsourcing? How do you manage an outsourced relationship?
- Change Management. Implementing technology is all about change. If you are satisfied with the status quo, there is no reason to adopt new technology. Managing change is one of the most important and most difficult management tasks.
- Managing Value Nets. The capabilities provided by modern technology encourage firms to outsource various activities to partner firms, for example, you might hire a logistics firm to operate your warehouse. You are now faced with managing and coordinating work with an outside firm instead of your own employees. How do you manage in this environment?
This first chapter describes one type of transformation, the restructuring of organizations and their relationships with each other that is enabled by information technology. An instructor could expand on this discussion to talk about how industries are being impacted by IT (digital goods purveyors like the music industry), and how IT brings about new markets (eBay and the ECN securities markets). Woven into this discussion is the notion of change; all of this transformation means that people, organizations and industries must change their behavior, business models, and the way they do their jobs.
1.1 The problem consists of a conversation between two consultants. The question for the student is “How do you think managers can get the most return from a consulting engagement? How do you manage consultants and a consulting firm? What should your staff expect and how should they work with the consultants? What factors create friction in the relationship between consultant and client, and how can they be minimized?”
There are many different types of consultants, ranging from those who help with developing a company strategy to individuals who are hired as contractors to perform a well specified job. For the latter, the task is operational, and it is relatively easy to evaluate performance. The more critical management challenge is with consultants retained to study a situation and offer advice. To obtain the most from a consultant, you want to provide him or her with access to yourself and other employees, and guidance on what you think the consulting assignment should be. A consultant solves the wrong problem because management fails to work with the consultant to define the problem and the assignment. People in the client organization often are defensive and even hostile toward “outsiders” who are “experts.” If senior management makes it clear that the firm needs the consultant’s expertise, and that retaining a consultant is not a criticism of current employees, working relationships should be better. The consultant brings expertise and an outside view of the problem; the firm can gain a lot from this contribution.
1.2 This management problem deals with managerial succession, and asks the student: “Given the increasing importance of information technology in all aspects of operating a modern corporation, what kind of development should a manager provide for her staff? What skills with respect to technology does a manager need? How much do the needed skills depend on your management level and/or the functional area in which you work? How can a manager best prepare for management succession?”
A manager should be sure that subordinates are familiar with the technology used in the work unit. Subordinates should be encouraged to join design committees and task forces that make decisions on technology. It has been said that most CEOs are in their position because they have not been associated with a large, failed IT project. A more positive approach is to see that managers learn enough about technology to participate in successful IT projects.
1.What is responsible for the explosion of information technology that has occurred over the past several decades?
Declining costs and increasing power of chips, databases and communications. The Internet represents a “frame-breaking change” in business by providing an inexpensive, standard, world-wide infrastructure for communications.
2.What role does the manager play in the management of information technology?
Managers need to have a vision for technology, encourage and fund suggested IT initiatives, and be sure that IT projects are managed successfully.
3.Why does the introduction of information technology in an organization create special challenges?
Because technology is often hidden and mysterious, and because one implements IT to change the status quo, there can and often is resistance to it. It helps a great deal if the CEO is behind the introduction of IT.
4.What are the characteristics of a technologically-enabled organization?
These organizations have few layers of management and extensive decentralization of decision making. They tend to join other organizations in a network of consumers and suppliers, and they are likely to outsource activities that are not seen as being their core competence.
5.What is the difference between using technology for computations and for communications?
The first use of computers was for computation, and that use continues today. The addition of communications and networking creates a technology that has changed the way we all communicate, from email to processing transactions to coordinating supply chains. Much of the technology revolution is from the Internet and new communications capabilities.
6.Can you think of definitions of information systems other than the one presented in this chapter? What are the advantages and disadvantages of these definitions compared with the one we adopted?
We see information systems as a combination of procedures and technology which can be used to build a variety of applications. The key to any definition is to stress the flexibility of IT and the fact that it provides components that you can put together in a number of different ways to innovate in the firm.
7.How can there be more than one interpretation of information? Can you think of examples in which the same information is interpreted in different ways by different individuals?
Just look at politics: Republicans and Democrats manage to see the same event in totally different ways.
8.What is the value of information? How would you try to assess the value of information to a decision maker?
Assessing the value of information is very difficult in a practical setting. Theoretically, if one is a Bayesean, you can compute the value of perfect information.
9.What different types of information exist? Develop categories for describing or classifying information, for example, timeliness and accuracy. Develop an example or two of information that would fall into each category.
Information can have a number of different characteristics; it can be detailed or aggregated detailed information is found in a transactions database for an online merchant. A data mining exercise would aggregate the details to draw conclusions about customer preferences.
10.Why has Cisco been used as an example of the successful deployment of technology?
Cisco is a company that builds equipment for the Internet; it has used the Internet, itself, to dramatically reduce cost and improve customer service.
11.How would you define successful change? How would you measure it?
Successful change occurs when the change effort reaches its objective. You measure success against objectives established before the change takes place.
12.Can you think of an example in which the failure of an information system led to a major disaster? What can we learn from such a catastrophe?
There are unfortunately many examples of failed systems; the good news is that often the implementation fails, but that after a few more years of effort, the system eventually provides benefits. In the case of Foxmeyer Drugs, the company went bankrupt, partially due to two failed IT applications, but also do to incredibly poor managerial decisions.
13.To what extent do organizations now depend on the success of information technology to stay in business?
Today, think about turning off the information at a company and figure out how long it could keep operating.
14.What factors would you consider if you were placed on a design team developing a new information system? What would be your major concern about the project?
There are many aspects of a design effort that have to be successful for the project to succeed. I would do some research on these factors, and be sure that the design team took them into account. I would worry most about the specifications (are we too ambitious, not ambitious enough?), about management commitment, and the ability of the organization to accept change.
15.What are the pros and cons of not providing workers like the sales force with a physical office, but instead equipping them with information technology for communications purposes, for example, notebook computers and Internet connectivity?
Pros: providing more time for selling and less down-time in the office. Cons: lack of social contact, less identity with the company.
16. What is the major flaw in the consulting report John Roberts at Victor Electronics
received?
It failed to provide priorities or directions on what to do.
17. Why does Roberts want to make major changes in IT at Victor? What factors do you
think led to the situation he found at Victor?
Roberts sees a great deal of potential contribution from IT. The situation he came into
at Victor is a direct result of a succession of “Type III” CEOs who not only failed to
“get IT,” they were actively skeptical about it.
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