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Free Essays - Information Technology Essays
Information Technology Availability
It is suggested that InformationTechnology availability is driving management's usage of IT, rather than, theorganizations need for obtaining and/or maintaining competitive advantage.
In Today's businessworld, technology has become ubiquitous, essential for many of the companiesoperations. Other that the smallest of businesses no company could today keeptrack of accounts, transactions, customer information, payroll etc. Entirelynew, more complex and more efficient business models have been made possible bynew IT capabilities.
Having built theirbusiness models around IT capabilities, companies are heavily reliant on it.For many, a technological failure is not just a nuisance; it costs a lot ofmoney in terms of lost business. Let us consider the example of Travelocity, anInternet travel booking company. This business would not have been possibleseveral years ago. Technology enabling high-speed Internet and secureconnections, not to mention the data management systems that are required, are necessaryfor this business to function. Any disruption that occurs to these systemsmeans Travelocity loses business, customers and earnings.
Thus it can be arguedthat for Travelocity, information technology is not a competitive advantagebut, because it is used for its frontline and primary business, a necessity. Ifwe suppose that another company wants to compete with Travelocity and has thesame business model. It clearly cannot do this without the required technology,which is thus a barrier to entry. Suppose it purchased expensive, newtechnology more powerful than that of Travelocity. Does it have a competitiveadvantage? It would be natural to assume that it does. However if Travelocity'ssystem is adequate for the demand it is facing and easily upgradeable to meetfuture demand, the other company has not achieved any competitive advantage onthe basis of its technology. It has only overspent on IT. For IT to be acompetitive advantage it clearly must also be in line with business strategy.
Information technologyhas undoubtedly transformed business, given it new capabilities and channels tomarket. It has in increased the sheer volume of possible customers andtransactions. However the rapid progress in IT innovation causes the cost of ITto fall rapidly, allowing for a kind of democratization of IT. That is, any newcapabilities are quickly shared. Neither demand nor business strategy can keepup with the escalating capabilities. Thus there comes a point when new, morecapable IT is no longer a competitive advantage, but an avoidable cost and arisk.
Nicholas G. Carr ofHarvard business school talks about the dangers of overspending in Does ITMatter?. He points out that businesses in the US buy over one hundred millionnew PC's every year mostly for replacement of older models. He claims that alot of this is unnecessary as the majority of workers don't use sophisticatedapplications and software but e-mail, Internet, spreadsheets etc. Theseapplications don't require the comparatively enormous processing poweravailable, yet companies continue to upgrade. This is a clear example of overspending, as the information technology is not creating any competitiveadvantage. It seems therefore that at least some of IT spending is indeedfuelled by its availability rather than need. According to an estimate done bythe Financial Times less than half of a company's IT capacity is ever used.Because of the fast turnaround time the extra hardware and software is neverused. There is a strange paradox here in that many companies invest in IT alsobecause they expect it to cut costs. Carr argues that it is now essential forcompanies to distinguish between unnecessary investments and necessary ones.They must distinguish between opportunities and passing trends. This is thehardest part and the biggest challenge for IT departments. Not knowing whethera new technology will be the next big opportunity or not probably contributesto the purchase of whatever is available.
We need to examine theother possible reasons for this perceived over spending in IT. One reason isthat some companies are in an on going IT race not dissimilar to the arms race,afraid to be left behind. IT budgets are allocated so as to compete with theindustry instead of proportionally to the benefit derived from it. This wasparticularly true in the 1990 but in a 2003 survey by Mckinsey, 64 % CIOsreported that their IT budgets were allocated at the beginning of the year andthat they didn't need to compete with other business units for resources.Technology is being used as a benefit in itself, not in line with the company'sbusiness strategy.
Many organizations make hastydecisions when it comes to technology. Technology purchasing by crisis (such aswhen the latest computer virus attacks) is never very effective. It would bebetter to anticipate these crises, have one or two contingency plans in place,and save money in the long run. The cost of a little preplanning and backuphardware, software, and training is so much cheaper than the cost of recoveringfrom any IT disaster.
Investing in technology merelyfor the sake of technology has always been a bad idea. Although this may seemridiculous, some companies find themselves caught in this trap. Examples ofprojects pursuing technology without a clear purpose include companies buildingout wireless networks for no apparent reason, as is the case of Motorola, orengaging in such projects simply because that is what competitors are doing.This is easy to overcome if you couple your technology strategy with yourbusiness strategy and clearly define the objectives the technology is supposedto accomplish.
Companies may be awareof these discrepancies but feel that they are prepared technologically to takeadvantage of an opportunity that may arise in the future. Thus companiescontinue to invest in newly available, often untested technology. These ITprojects have a very high failure rate, run over budget and over time.
The example of Sainsburyillustrates a company that rushed to invest huge amounts in IT and outsourcingdeals that were subsequently poorly managed and turned out to poorly serve thecompanies needs. In October 2004, Computer Weekly reported that Sainsburydropped a 260m supply chain project. The complex supply chain system had notworked as expected and Sainsbury's said it would continue to use itssupply chain IT systems and attempt to get better value from them, but whennecessary it would revert to manual support. It also planed to reduce spendingon IT and the supply chain.
Another reason forcompanies IT overspending is down to the IT vendors, who drive thisconsumption. They release new microprocessors and more complex applicationsevery few years that force companies to upgrade. Perhaps the most successfuland famous of these are Intel and Microsoft.
The companies that arenot falling in the technology trap are using a simple strategy. It is to cutdown on the waste and, given the fast pace of technological advance, delay ITinvestment. Furthermore it is necessary to align the IT investment with thecompanies' business strategy to provide real competitive advantage.
Dell, forexample, has been applauded for its IT strategy. It has gained a huge advantageover competitors by using IT to transform its supply chain and has cut costsdramatically. Dell relies on information Technology totightly control its value chain and achieve a high degree of coordination. Withits suppliers, Dell sets quality measures and builds data links to monitor inreal time how material is flowing throughout the chain. Suppliers are toldexactly what the daily production requirements are so nothing is wasted.
We can also look at T-Com, Deutsche Telekom's fixed network divisionprovides voice and data services to about 40 million consumers & very smallbusiness. It outsources most of its IT operations to it's sister companyT-Systems. T-Com has a huge IT infrastructure which once sat idle and wasted.Today they apply strict demand forecasting and capacity management, paying onlyfor what they use. In this way T-Com has the flexibility that it can have morecapacity if and when needed while cutting costs.
Another good example isthe low-cost airline industry that has in the last few years caused hugeproblems to the established incumbent operators both in Western Europe and inthe US. They have used technology to cut costs effectively, automating all thebooking procedures and even introducing self check in. Low cost airlines have been good at using new technology todrive change as soon as the benefit case existed. Now many traditional carriers areadopting one or some of the following practices that stem from the low-costmodel. They are using the Internet to drive lower distribution costs; usingDocument Imaging services to remove the costs of handling paper; using RFID andEPC code technology to enable electronic audit, pedigree and cargo security andto automate item-level tracking with lower process costs.
Many CEO's haveindicated that they are unhappy or unable to see the benefits of the ITinvestments the company has made, and their IT managers are not able to clearlycommunicate the benefits. Since it is very hard to measure tangibly thebenefits of IT in a company, lots of conflicting opinions exist and thereoccurs a rift between the IT department and the business departments.
According to Mckinsey,businesses in the US have spent over $1.2 trillion on information technologybetween 1995 and 2000. However, they claim IT spending has slowed downindicating more cautious spending and that companies are coming to realize thatjust because technology is available doesn't mean they need to buy it.Companies now want evidence of benefits from this huge investment in terms ofproductivity and advantage.
Increasinglynew technology is scrutinized; projects better managed and purchasing delayed.According to an article in Computerworld, for example, the IT department atPhilip Morris USA Inc. is aligning IT with the company's business divisions andstrategy. IT leaders work side by sidewith the heads of various departments to develop an IT strategy to supporttheir respective business plans. Over the past four years, the IT group hasalso put into place a more disciplined project management methodology that'shelping it deliver projects on schedule, on budget and within scope 85% to 87%of the time. IT leaders get together with business executives every quarter tofind out how well the IT department is meeting project requirements, deliveringon strategic objectives and supporting day-to-day operations.
In conclusion it seems thatavailability of new technologies is driving its usage by companies but there isevidence that companies are getting smarter. As they are increasingly lookingto integrate IT into strategy and vice-versa, usage of IT will be more demandand benefit driven. Increasingly vendors such as Microsoft and Intel will facemore and more competition and less demand as companies turn to opensourcesystems. This will mean that for more and more companies the availability of technologywill no longer be enough to drive usage. However, competition between companieswill always spur some on to make costly investments they don't need.
http://www.computerweekly.com/Article134515.htm
http://www.computerworld.com/printthis/2004/0,4814,98174,00.html
http://www.optimizemag.com/issue/009/roi.htm
http://www.mckinseyquarterly.com
Does IT matter? Nicholas G. Carr
02 Jun 2004, Harward Business School http://SearchCIO.com
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