Articles

After nearly ten years of IT outsourcing, managers are beginning to look for other ways to manage IT investments. Three factors make rethinking the logic of managing IT resources important: (1) there is increasing use of a hybrid multimedia platform to link business processes with suppliers and buyers; (2) managers expect more business value from IT investments; (3) there are fundamental changes in the external market for IT products and services. Venkatraman introduces a framework, the value center, for managing IT resources. The center consists of four building blocks of value from IT resources to allow companies to balance the role of IT in today's operation with tomorrow's requirements. The cost center is the traditional way that companies have managed most IS activities. They allocate resources based on quantitative payback criteria, operate the infrastructure independent of business strategy, design the IS organization as a support unit reporting to finance, and assess it with cost-based indices. The second building block, the service center, is distinguished from a cost center in several ways. There is no presumed classification of activities into cost or service centers. A help desk may be a cost center activity or a service center activity, depending on whether the expected benefit relates to business strategy. A company can assess a help desk in terms of the degree of perceived contribution to specific business processes, rather than in terms of operating costs. The degree of service orientation further distinguishes the service center. The investment center, the third building block, has a strategic focus and tries to maximize business opportunity from IT resources. It focuses on scanning, selecting, evaluating, and transferring emerging technologies to the business. IT also licenses technology and does beta testing to create new future-oriented business capabilities. The final building block, the profit center, focuses on delivering IT products and services to the external marketplace. When a company intends to leverage its best-of-industry IT proficiency, it can go beyond licensing to create a new unit to market the expertise commercially and create new products and services. Not only a source of incremental revenue, the profit center provides valuable experience and market knowledge to IT managers. Venkatraman provides questions that business and IT managers can ask in reorienting their IT operations and managing from a value center perspective. Is the IT organization's purpose to repair current weaknesses or create new business capabilities? How much should we spend on IT to support the value center and how should we measure that allocation of resources? What should we outsource? How can we assess the value from IT resource deployment? Who has overall responsibility for the value center? The author proposes designing the IT organization as a solutions integrator to join the various components in delivering business solutions. Overall, companies need to find ways to approach managing IT resources that go well beyond outsourcing.

When a cigarette company lowered its price per pack, its sales exploded. Even after competitors retaliated by cutting prices, the market shares stayed the same. After a pharmaceutical company set its prices above the government-established reimbursement amount, it lost ten market share points. Three weeks later, management cut the price to the reimbursement level. The company never regained market share, despite the lowered price. The marketing effect in both these cases, says Simon, is hysteresis, a phenomenon in which a temporary change in one factor causes a permanent change in another. It can work positively, so that sales remain at a higher level despite competitors' responses. Or it can work negatively, so that the lost sales position is never recovered. From five case studies and a survey of executives, Simon determined that hysteresis not only occurs in marketing but has managerial implications. In each case -- West Cigarette, Sigma Pharmaceutical, Ehrmann Dessert, Southwest Airlines, and Wodka Gorbatschow -- he found evidence of permanent change in sales or market share that resulted from a temporary change in marketing stimuli. Factors such as public attention, press coverage, and, most importantly, price changes combined to create the hysteresis phenomenon. Simon reaches several conclusions: a strong shock in marketing stimuli or an unusual situation produces hysteresis; changes in several marketing instruments combine to cause hysteresis; price drives the phenomenon, while advertising alone is unlikely to generate it; an innovative use of a marketing variable may lead to hysteresis; and a delayed reaction by competitors may raise the probability that hysteresis will occur. Can managers control hysteresis in marketing? According to Simon, while companies cannot fully plan for it, they must be aware of the conditions that foster it. They can spot favorable conditions early and take an unusual innovative action to surprise the competition. Managers can also prevent a company from being a victim of hysteresis by monitoring the market so they can react quickly. The pharmaceutical company waited too long to lower its prices; after one month, negative hysteresis had already occurred.

Feedback from customers is vital to companies in their efforts to improve service. But companies must ensure that they have multiple perspectives from different customer groups. The authors advocate a listening system that uses many research approaches in combination to capture, organize, and disseminate information. Four in particular are essential: transactional surveys; customer complaint, comment, and inquiry capture; total market surveys; and employee surveys. The five elements of the service-quality information system are: 1. Measure service expectations. Companies frequently measure only customers' service perceptions, when they should be including their expectations about level of service, both what they desire and what they deem adequate. Expectations provide a frame of reference when considering customers' perception ratings. 2. Emphasize information quality. In evaluating information, companies should ask if it is relevant, precise, useful, in context, credible, understandable, and timely. 3. Capture customers' words. The system should include both quantitative and qualitative databases. Quantified data are more meaningful when combined with customers' verbatim comments and videotapes. 4. Link service performance to business results. What impact does service performance have on business results? Companies need to calculate lost revenue due to dissatisfied customers, measure customers' repurchases, and gauge the relationship between customer loyalty and propensity to switch. 5. Reach every employee. Companies should disseminate customer feedback to all employees. They are decision makers who affect the quality of service at all levels. Berry and Parasuraman suggest that managers need to make listening to customers a habit and find ways to personally hear customer feedback. Only then can they make decisions to improve service.

Creating a business-driven IT infrastructure requires that executives thoroughly understand their firm's strategic context. By formulating a series of business and IT maxims -- short simple statements of the business's positions -- they can identify the IT infrastructure service suited to their company. The authors' framework has four components: 1. Considering strategic context. What business demands, roles, and relationships are critical to infrastructure decisions? Keeping in mind the firm's strategic intent, business units may be able to coordinate and leverage some approaches across units, while keeping some autonomous and local. 2. Articulating business maxims. Using insight gained from examining the strategic context, both business and IT managers formulate business maxims and articulate agreed-on positions that they can readily understand and act on. The maxims should focus employees' attention on the firm's competitive stance, the extent of coordination across units, and the implications for information and IT management. 3. Identifying IT maxims. From the business maxims, executives identify IT maxims that describe how the firm must lead or follow in the deployment of IT in its industry, electronically process transactions, and share data across the firm and with other strategically allied companies. The maxims specify the role of IT and levels of investment relative to competitors, whether processing is tailored or standardized, and how different types of data are accessed, used, and standardized. 4. Clarifying a firm's view of IT infrastructure. A company should determine how it sees infrastructure from among four views: none, utility, dependent, and enabling. It can forgo synergies among units and not invest in infrastructure services. It can take a utility view and use the infrastructure primarily to reduce costs. With a dependent perspective, it can make investments primarily to respond to current strategies. With an enabling view, the company can overinvest in IT infrastructure to provide flexibility in responding to long-term goals. According to Broadbent and Weill, some companies may be prevented from developing clear maxims by two barriers -- expression and implementation. Managers may not understand the firm's strategic intent, executives may not have communicated strategy to operational managers, and the firm's culture may deter use of maxims. Organizational, political, cultural, and reward system issues, as well as a lack of IT leadership, may form implementation barriers.

Companies can successfully challenge industry leaders even without radical technological innovation.

Distorted information along a supply chain can lead to tremendous inefficiencies. How can companies mitigate them?

Most of the existing frameworks for strategic management assume an environment that is stable and simple. But technological advances and global changes have created dynamic, complex climates in which companies must operate. Chakravarthy examines the industry he calls Infocom & #8212; information providers, information processors, communication providers, and communication support. Technology has lowered many entry and mobility barriers among the industries; Microsoft is an example of a company that has exploited many strategic opportunities now available to Infocom companies. Chakravarthy compares and contrasts the popular frameworks for formulating competitive strategy. Porter’s framework assumes stable competitors, suppliers, and buyers. The company finds an appropriate strategy and erects the necessary barriers. But, says the author, technological change quickly makes the barriers obsolete, Infocom players have deep pockets, and government policy has a diminishing role. In the Hamel and Prahalad approach, the role of strategy is not to accommodate an existing industry structure but to change it. However, the author comments, Infocom is not evolving predictably, so benchmarking against its current structure is futile. The D’Aveni framework assumes that strategy must continually seek to change the rules of the game because companies will quickly retaliate against any new strategy. Chakravarthy points out that a firm cannot continuously move from one advantage to another. His proposed framework, applied to the Infocom industries, has three elements: Reconceptualizing strategy. Companies must repeat innovation; e.g., Canon’s successful launch of inkjet printers damaged its position in laser printers but was necessary to respond to competition. Companies must build customer networks around products or services. They must also be able to sense market flow, as Microsoft did when it found that its proprietary strategy for Microsoft Network would isolate it from the Internet. Sharing responsibility for strategy broadly within the firm. Employees must share a vision that is purposely vague but describes the firm’s guiding philosophy. Strategy must come from the bottom up and from small, focused units. Focusing on organization capabilities as the source of competitive advantage. Companies must leverage, strengthen, and diversify their competencies. In the end, according to Chakravarthy, “going with the flow” may be the best strategy for a firm in a turbulent environment. Rigid top-down strategies may be counterproductive. Firms should concentrate instead on growing distinctive competencies for the future.

Each member of a jazz band embellishes and improvises on the same rhythmic structure. Similarly, a model for managing technological change recognizes the need to improvise in response to unexpected opportunities. According to Orlikowski and Hofman, traditional models, in which an organization plans for change, implements change, and tries to become stable again, no longer work in an environment that is turbulent, particularly when the technology involved can be customized. The authors propose that the changes associated with technology implementation, rather than having a beginning and an end, are ongoing. Managers cannot anticipate all the changes made during the process. Orlikowski and Hofman's alternative model recognizes three types of change. Anticipated changes occur as intended. Emergent changes arise during the process. And opportunity-based changes are introduced during the process in response to an opportunity, event, or breakdown. The three build on each other iteratively over time, much like the jazz band members improvise on the original structure of a musical composition. In a customer service department at Zeta, a large U.S. software company, the authors follow the implementation of Lotus Notes in developing a tracking system to log calls and record customers' problems. While the company anticipated some changes before introducing the technology, other changes emerged as specialists and managers began working in new ways. The department built on the anticipated and emergent changes to introduce opportunity-based changes. Zeta learned from practical experience to respond to unexpected outcomes and adapt the new technology to its needs. Not all companies are currently suited to an improvisational model. Two enabling conditions necessary are (1) alignment of the change model, the technology, and the organization and (2) resources dedicated to adapting the organization and the technology to changing conditions. Companies need to recognize the discrepancy between the way people think about technological change and the way they implement it.

Why are new products frequently canceled in midstream or introduced later than planned? Why do product developers often have no time to devote to “top priority” projects? Companies may not be integrating strategic, conceptual, and planning functions at the front end with the detailed design and development that follows. Khurana and Rosenthal isolated seven activities critical to product and project success. The foundation elements, those that require cross-functional effort and senior management support, include developing a clear product strategy, formulating a product portfolio, establishing a structure that facilitates product development, and sharing responsibilities throughout the organization. Project-specific elements, which focus on the individual project, include clarifying the product concept, defining the product and market requirements, and planning and estimating the project’s resource requirements. The authors point out that the interrelationships between the elements are as important as the elements themselves. Khurana and Rosenthal examine in detail how the eleven companies in their study implemented the seven activities. While the authors rated two companies as outstanding and two as satisfactory, they considered seven to have serious deficiencies in their development of product strategies. Some had product development teams and managers but no one in charge of formulating product strategy. Others made decisions on new product development based on project criteria rather than strategic fit. And others had an isolated R&;D department that funded projects based on technology rather than on their potential to satisfy product requirements. How can a company improve its front-end process? Khurana and Rosenthal offer a checklist and map for diagnosing a company’s integration of front-end activities. And they discuss how a company can make the transition to a better managed product development process.

Malone suggests that greater decentralization in business is a response to fundamental changes in the location of decision making; the changes are enabled by the dramatically decreasing costs of IT. A central issue for organizations in the twenty-first century, the author posits, will be how to balance top-down control with bottom-up empowerment. He proposes radically decentralized organizations such as the Internet as new models for organizing work. Malone examines the three stages in the relationship between lowered communication costs and the economics of decision-making structures. When communication costs are high, decision makers are independent and decentralized; for example, people in tribes, villages, and towns. When costs fall, decision makers become centralized, as in large, global corporations. As costs fall further, connected, decentralized decision makers can combine the best information from anywhere with their own local knowledge, energy, and creativity. Malone uses the history of retailing as an example. Mom and pop stores with unconnected, decentralized decision making are replaced by Wal-Mart type stores with connected, decentralized decision making via electronic ordering and inventory systems. The Internet is an even more decentralized form of retailing in which anyone can establish a global sales operation. The author sees three types of decision makers: cowboys, who are independent and decentralized and have low communication needs; commanders, who are centralized and, like military commanders, have high needs for communication; and cyber-cowboys, who are connected and decentralized and make independent decisions based on large amounts of information from electronic networks. Three IT-related factors determine where decision making in an organization occurs or is most desirable: (1) decision information & #8212; IT enables organizations to communicate information to people who have the knowledge, experience, and capabilities to make decisions; (2) trust & #8212; IT can increase trust by making remote decision makers more effective, controlling them, and socializing them; (3) motivation & #8212; IT enables people to make their own decisions about how to do their work. Autonomy makes them enjoy their work more. In radically decentralized organizations, Malone sees power emanating from the bottom rather than from the top. Who makes the decisions and who can overrule decisions will become crucial issues. In a growing knowledge-based economy, empowered decision makers enabled by new IT will have increasingly important roles.