Managing Technology

Over the last decade, the Internet has transformed many aspects of the way business is conducted -- from how goods are bought and sold to where work is done. To explore what might constitute the next generation of Web technologies and what effect they will have on the nature, purpose and management of organizations, MIT Sloan Management Review contributing editor Martha E. Mangelsdorf talked with two leading experts: Erik Brynjolfsson, director of the MIT Center for Digital Business and the George and Sandra Schussel Professor of Management at the MIT Sloan School of Management, and Andrew P. McAfee, associate professor of business administration in the Technology and Operations Management Unit at Harvard Business School. Brynjolffsson and McAfee are confident that the future emphasis of some businesses will be on the use of Web 2.0 technologies to support innovation, creativity and information sharing rather than just to achieve cost cutting. They discussed the complementary relationship between traditional managerial tools, such as ERP and CRM, and the evolving modes of collaboration and communication, such as wikis. McAfee pointed out that one set of tools allows good ideas to percolate upward, after which the very structured process-management technologies can be used to replicate the innovation -- with brutal efficiency in some cases. Companies in very turbulent, information-intensive industries tend to be the ones that have gone the furthest with deploying the new Enterprise 2.0 infrastructure and the mindset that goes along with it, said McAfee. There are "softer cultural things" that companies can do to promote creativity among employees, Brynjolfsson said, which gives them the freedom to work laterally or diagonally within their organizations. The cultural shift away from the classic notions of productivity and output, such as billable hours, is more difficult for some companies to manage, and neither Brynjolfsson nor McAfee sees any technology that by itself will resolve this dilemma. According to Brynjolfsson and McAfee, technology innovation is engendering a whole set of complementary innovations in organizations that actually heighten the role of managers and executives. In fact, they said, it will be managers who will have to increase the ambient level of participation in and contribution to these Enterprise 2.0 environments. Companies cited in the discussion that are integrating the new technologies and cultivating the complementary cultural changes include Google, retail pharmacy chain CVS, Spanish fashion retailer Zara and Canadian software developer Cambrian House.

Although the Internet has become an indispensable tool for 21st-century organizations, a 2005 report of the President's Information Technology Advisory Committee bluntly states that the information technology infrastructure of the United States is highly vulnerable to terrorist or criminal attacks. In a brief overview of this sobering situation, MIT applied mathematics professor and Akamai Technologies chief scientist Tom Leighton, who served on PITAC and chaired its cyber-security subcommittee, describes two of today's big Internet security threats: denial of service attacks and "pharming" -- both of which could be used to disable individual companies or critical infrastructure, such as the nation's utilities. At the present time, little is being done to fix these problems, says Leighton, though the advisory committee recommended that the U.S. government lead the way by funding long-term, fundamental research on cyber-security issues. Doing so, would promote wider adoption of improved Internet protocols, and that, he says, would lead to a more secure, reliable Internet infrastructure.

When conflicts aren't managed well, a company's ability to innovate may be at risk.

The multitrillion-dollar IT industry's status of freedom from liability for consequences of product and service failure is historically unique and extraordinary, argues the author, and it is nearing its end. In a world increasingly dependent on software to run critical systems, including cardiac devices, financial markets and transportation systems, the potential for catastrophic and lethal failures increases. However, in the U.S. and elsewhere, at least where life and limb are not involved, it is technology users, not providers, that are regulated. Technology providers have benefited from a series of inhibiting factors including early legal settlement, corporate users being unwilling to offend their IT providers, and aggressive self-regulation in the industry. Eventually, the author argues, this will not be enough to stem the tide of IT regulation, and IT providers must be prepared for that day.

The author re-examines the role of IT as a commodity and considers whether IT can still be used to provide strategic advantage. In discussing regulation, outsourcing relationships and corporate dependence on IT, this article further clarifies the argument that IT will soon be handled by larger corporate utilities. While agreeing that most IT functions can be outsourced to utility-style providers, the article suggests that in-house corporate computing can still provide a strategic advantage. By examining failed IT outsourcing relationships, the author identifies key aspects of IT, including auditing and reporting procedures and customer-facing resources that are too important to a firm's success to outsource. The author argues that to better exploit these advantages, managers should embrace the fact that IT is no different than any other corporate function, instead of placing it in its own silo separate from other business practices. Only then will the real commoditization of IT be complete and the long-promised benefits be seen.

Dozens of markets of all types are in the early stages of a revolution as the Internet and related technologies vastly expand the variety of products that can be produced, promoted and purchased. Although this revolution is based on a simple set of economic and technological drivers, the authors argue that its implications are far-reaching for managers, consumers and the economy as a whole. This article looks at what has been dubbed the "Long Tail" phenomenon, examining how customers derive value from an important characteristic of Internet markets: the ability of online merchants to help consumers locate, evaluate and purchase a far wider range of products than they can typically buy via the traditional brick-and-mortar channels. The article examines the Long Tail from both the supply side and the demand side and identifies several key drivers. On the supply side, the authors point out how e-tailers' expanded, centralized warehousing allows for more offerings, thus making it possible for them to cater to more varied tastes. On the demand side, tools such as search engines, recommender software and sampling tools are allowing customers to find products outside of their geographic area. The authors also look toward the future to discuss second order amplified effects of Long Tail, including the growth of markets serving smaller niches.

Successful companies recognize that information technology can fundamentally alter the very nature of work. Such a transformation, however, often requires that an organization rethink its corporate strategy and remake its basic structure and processes. The authors, drawing on interviews with Schneider International as part of MIT's Management in the 1990s Research Program, show that the benefits to organizations are related to the extent that organizations adapt their internal structures, processes and culture to extract the greatest value from technology. Although IT has enabled the growth of new companies and even entire industries, these technologies have also transformed the opportunities and challenges facing established manufacturing and service firms. This article examines Schneider's implementation of technologies such as GPS and satellite tracking not only to improve dispatch but also to provide value to customer service such as pinpointing delivery times, driver availability and the ability to alter delivery pickup and drop-off locations. The authors demonstrate that if organizations invest in complementary assets (people skills, new organizational structures and new work processes) to support their IT, they can transform services into products that will evolve into yet more new services, creating a virtual spiral with enormous competitive advantages.

Fifteen best practices can accelerate learning and make outsourcing worthwhile.

Although IT portfolio management has been a best practice for some time, many companies still generate substandard returns from their IT investments. The authors note that investing the right amounts in the right IT asset classes is only the first step -- IT portfolio management techniques must be complemented by a suite of interlocking business practices and processes collectively labeled "IT savvy." The benefits of establishing such practices add up to a tangible IT savvy premium: The authors point to higher net profits and other performance gains for IT-savvy companies in the year following their investments in key IT asset categories. The article cites a range of organizations -- from 7-Eleven Japan and Amazon.com to Raytheon and Carlson Companies -- in which IT savvy is ingrained, informing many of the companies' business decisions and sharply focusing their IT investments. Starting with a refresher on the IT portfolio approach -- and noting best-practices portfolio players such as UPS, Eli Lilly and Mohegan Sun -- the authors draw on the findings of a multiyear survey to review the different IT assets in which companies invest before discussing the gap in IT investment returns that separates those with IT savvy from those without. They present five hallmarks of IT savvy and offer a series of practical suggestions for how managers can start to match IT savvy with the IT asset mix.

Futurists have long anticipated the day when computers would relieve managers and professionals of the need to make certain types of decisions. But for a variety of reasons -- including management skepticism and concerns about solution complexity -- automated decision making has been slow to materialize. Automated decision making is finally coming of age, the authors argue, and the new generation of applications differs substantially from prior decision-support systems. Today's applications are easier to create and manage than earlier systems. Rather than require people to identify the problems or to initiate the analysis, companies typically embed decision-making capabilities in the normal flow of work. Those systems then sense online data, apply codified knowledge or logic, and make decisions -- all with minimal amounts of human intervention. They can help businesses generate decisions that are more consistent than those made by people, and they can help managers move quickly from insight to decision to action. This can help companies reduce labor costs, leverage scarce expertise, improve quality, enforce policies and respond to customers. As automating decisions becomes more feasible, organizations need to think about which decisions have to be made by people and which can be computerized.