Module 7
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Decisions and Information Technology
7.1
Introduction
7/2
7.2
Technical Issues
7/2
7.3 7.3.1
Applications IT in Retailing
7/4 7/4
7.3.2
IT in Manufacturing
7.4 7.4.1 7.4.2 7.4.3 7.4.4
Past and Present The 1960s The 1970s The 1980s The 1990s and up to the Present
7.5 7.5.1 7.5.2 7.5.3 7.5.4
Benefits Communications Efficiency Functionality Management
7.5.5
Strategy
7/10 7/10 7/11 7/11 7/12 7/12
7.6 7.6.1 7.6.2 7.6.3
Implications for the Individual What Are the Right .Attitudes? What Is the Right Approach? What Skills and Knowledge Are Needed?
7/13 7/13 7/14 7/15
7.7
The Future
7/16
7.8
Concluding
Remarks
and Distribution
7/6 7/6
7/6 7/7 7/7 7/8
7/18
Review Questions
7/20
Case Study 7.1
7/22
Decision techniques are now inextricably linked with information technology (IT). In particular decentralised or 'end-user' computing has made the techniques accessible to managers at all levels and greatly added to their day-to-day relevance. This module describes what has happened in the context of IT developments in general. By the end the reader should know why IT has become so important, what the benefits of IT are likely to be and how the implementation process should be tackled. The module will cover technical issues only to the extent that managers, rather than technical experts, need to know them.
The term 'decision support system' (DSS) sounds like typical computer jargon, as irritating and nebulous as all the rest: it is not difficult to imagine the sort of person who would use such words. In fact the term refers to nothing more frightening than a computer system which produces information specially prepared to support particular decisions. Everyday examples are the systems producing bank statements, fuel bills and television (teletext) travel information. Since, apart from a few eccentrics or masochists, no one would now dream of applying any of the decision techniques described in the previous modules without computer help, they are rightly viewed as decision support systems. They take raw data and refine them to produce information directly relevant to particular decisions. In some cases, such as linear programming, the refinement goes to the ultimate extent of advising exactly what the decision should be. There have not always been close links between computers, managers and decision techniques. Until the advent of microcomputers in the early 1980s, the calculations underlying the techniques were carried out either by hand or on a mainframe computer. The former was tedious and time-consuming and resulted in errors; the latter put the organisation's computer department between the decision maker and the information the techniques were producing and tended to reduce the effectiveness of the information. The computerisation of the techniques and their role as DSSs have revolutionised their relevance to day-to-day management. The techniques and their output are now immediately accessible, through microcomputers and off-the-shelf software, to managers at all levels. DSS software, especially that for decision techniques, is readily available: it is not usually necessary to wait in the data processing department's priority queue for months or years before finally receiving something which is not quite what was wanted. The software is also easy to use and this has increased accuracy and, more importantly, the usage of the techniques. The primary purpose of this module is to deal with the role of information technology (IT) in applying decision techniques. However, the issues are the same if the general role of IT, and DSS, in organisations, which is inevitably much wider, is considered. Consequently, the module, while primarily devoting itself to IT and management decision making, goes further than just the computerisation of the techniques which were the subject of the earlier modules. To appreciate fully the role of IT, some technical knowledge is needed and this is supplied on a 'need to know' basis in section 7.2. Section 7.3 describes some applications of IT. Section 7.4 shows how this role has developed since the 1960s,and this leads on to a section describing the benefits which are now being achieved. Section 7.6 considers the implications of the availability of DSS for the individual manager, emphasising what can be done to promote successful implementation. Finally a brief look at possible future developments is taken.
A manager does not need to become a technical expert but he or she does need to know when technology might help solve business problems and how
to liaise with experts. IT users need enough knowledge of the terminology to allow them to express their points of view in meetings with experts, even in the face of appalling jargon. A dividing line must be drawn between necessary and unnecessary knowledge in much the same way that a car driver will find a certain amount of technical knowledge helpful in making proper use of the vehicle but prefers not to trespass on the role of the mechanic. This section explains some simple technical terms. People who already have a basic understanding of IT should pass it by. IT has six basic elements, according to one definition (other definitions may be different): (a) Computers. The machines that process the data. They vary from large centralised mainframes to desktop microcomputers. (b) Software. The sets of instructions or programs which tell the computer what to do. Software can be bespoke (specially written for a particular application) or generally available off-the-shelf programs such as word-processing and spreadsheet packages. (c) Telecommunications. The means for transferring messages and information over distances. This includes the cables which connect one computer to another in the same building, switchboards which link computers in different buildings and satellites which connect computers in different continents. The biggest example of a telecommunications system is the Internet. (d) Workstations. The collection of computer-based equipment at which a person works. Typically it includes a microcomputer, a screen, a printer and a means of storing information. (e) Robotics. Machinery operated by a computer. For example, the automatic assembly and welding machinery on car production lines is linked to a small-scale computer which tells it what to do and feeds information about the type of car that will arrive next on the assembly line. (f) Smart products. Equipment which has built-in computer intelligence. For example, credit cards naye been developed which incorporate tiny computers to record and update information such as bank balances and creditworthiness. A succession of technical breakthroughs has resulted in astonishing reductions in the cost of computing power which is now thousands of times cheaper than thirty years ago. If Rolls-Royce cars had become cheaper at the same rate, they could now be bought for a few pence. Consequently, IT is increasingly important to business organisations as the computerisation of more and more applications becomes cost-effective. The primary reason for the most recent cost reductions is the silicon chip. This is a small sliver of silicon, the size of a fingernail (Figure 7.1) into which a whole electronic circuit can be etched. The cost reductions have continued as improved technical processes have allowed ever more complex circuits to be included on a single chip. This is known as LSI (large scale integration) or sometimes VLSI (very large scale integration).
Cost reduction is one of the reasons for the recent trend to decentralising computer facilities. Instead of one or two large mainframes presided over by a computing department, companies now have, in addition, microcomputers located throughout the organisation and under the control of local users. These computers are usually networked together: a manager's workstation may be extensively linked to other managers' workstations, to other company locations, to the company's mainframe computer, to external information sources, and to other types of technology-based office equipment. The linkages are by means of cables which may be telephone wires, coaxial cable or optic fibres. Networks can give a range of new facilities, particularly electronic mail by which memos, reports, etc. are communicated in electronic form by computer rather than paper. An associated facility is the electronic diary: manager's diaries are held on computer and meetings can be arranged by searches which take a matter of seconds to find the participants' free times. Most importantly, the networks supply management information shared by many users. Databases hold locally generated information, corporate information downloaded from mainframe computers and the output of decision techniques.
Large high street retailing organisations have invested heavily in electronic point of sale technology (EPOS)- see Figure 7.2. When the customer takes purchases to the check-out desk an optical character reader takes information from the barcodes on the products. A barcode is a series of lines which, by being of differing widths, contain coded information about the product: type, brand, size, etc.
Central information
II
Stores information Barcode reader
Local computer
Central computer
The optical reader can be hand-held or it can be fixed in which case the product is passed over it. The product information is passed to the local store computer which returns the current price of the product to the cash desk. At the end of a customer's transactions the total amount owed can be paid in the usual way by cash or cheque but, since the store's computer is linked to banks' computers, funds transfer systems allow the amount to be deducted directly from the customer's bank account. Meanwhile, information about this sale and all others is stored on the local store computer and, at the end of the day, forwarded to the company's central computers. Sales information from all stores is assembled and analysed allowing short-term decisions about purchasing to be taken as well as creating databases of information for longer-term planning. Analysed information will also be passed back to the stores to help with decisions about restocking. Organisations such as Wal-Mart have used this concept to create 'seamless' reordering systems. Its suppliers can see when products are sold and so they can automatically replenish the store hour by hour. Such information systems make stock control theories obsolete. Rules on reorder levels are not needed when products are immediately (well, almost ipunediately) replaced. There are three main reasens for companies to make such huge investments. First, EPOS can speed customer throughput at the cash desk. Second, it provides operational information of a highly detailed kind to improve the effectiveness of distribution systems and inventory control and to allow prices to be changed very quickly and to reduce stock costs dramatically. Third, it can provide high level management information for planning new products and developing strategies. This last benefit is potentially the most valuable but undoubtedly the most difficult to achieve since it requires managers to adopt new informationbased ways of working. They must be able to spot potential value in data and to use decision and other techniques to refine such data into useful information. The organisation has to see information as a corporate resource and find ways of using it profitably. Research suggests that organisations and managers are finding it difficult to adapt, even to monitoring the use of information.
Large car manufacturers have multinational operations. Components are taken from international suppliers and brought to assembly plants in different locations. The final products are then shipped to customers all over the world. Computers control these systems, monitoring the movement of components and completed products between suppliers, assembly plants and customers by air, rail, road and sea. For example, a large multinational car manufacturer claims to be able to find the whereabouts of any part, whether a completed car or a small bolt, at any point in time within seconds. The system was gradually built up over a number of years. Early versions of the system reportedly provided information which arrived later than the components themselves. Such systems provide operational advantages just like EPOS. Distribution is faster and stock levels can be kept to a minimum. In effect stock is being substituted with information. These systems provide management information about, for example, the utilisation of vessels, causes for delay and stock costs. They also provide high level information of strategic importance. For example, a customer looking for a particular model and colour of car with chosen extras can, in theory, make an order and then have the car built to these specifications and delivered anywhere (well, nearly anywhere) in the world within a matter of days. Global courier services such as Federal Express use the Internet to allow customers to see for themselves where in the world their shipment is. But, as in retailing, organisations find it easier to achieve these operational benefits from information than they do the ones associated with higher level management information.
The introduction of large mainframe computers into organisations in the 1950s and 1960s was successful, success being defined by projects which worked effectively, achieved the anticipated cost savings, were perceived by users as successful and which were, more or less, on time and within budget. Closer scrutiny, however, revealed that the successes were in particular areas: (a) Accounting, e.g. the payrolls and budgeting systems in nearly all large organisations. (b) Operations, e.g. inventory control in the car industry, customer accounts in banking. (c) Technical, e.g. missile control systems in the defence industry, computeraided design (CAD) in shipbuilding. The success was therefore in systems which supported specific functions and operations and it contrasted with a lack of progress in applying computers to the management of organisations. Specifically there were many failures in developing MIS (management information systems) which were supposed to provide
managers with the necessary information for running and developing the organisation, and non-routine decision taking. For example, the data in computerised banking systems were potentially available for management decisions to do with marketing, planning and defining strategy, but were not so used. This was the era when large amounts of data from mainframe computers were printed out on vast stacks of paper, circulated to managers monthly and called management information systems. In effect this amounted to the dumping of data rather than the provision of focused information and, as a result, the print-outs gathered dust in the corner of offices or were immediately filed in waste-paper baskets.
It took some time for people to realise what was happening, but by the 1970s the failure of MIS became generally recognised. There was much discussion and analysis of the causes of this failure, a wide range of behavioural and technical reasons being put forward, including: (a) Effective user participation was absent. Although users were often involved in the development process, they were rarely able to have a significant influence on events. As a result not only were their knowledge, experience and needs not incorporated into the design but also they became disillusioned and opted out, reacting adversely to what was eventually delivered. (b) Many systems did not match the management style of users. Managers had no experience of working systematically with computerised information and the concept of MIS was therefore diametrically opposed to their usual management style. (c) The information was often poorly formatted. Little attempt was made to transform masses of data from the computer into information that might be useful to the decision maker. Accordingly these MIS confused rather than clarified decisions. (d) Many systems were unrelated to organisational structures. Managers at different levels require. information at differing levels of detail. There was a tendency for everyone to receive the same dumped data. (e) Some users had unrealistic expectations of the systems. Many users regarded computers as a panacea and thought that, more or less automatically, they would provide benefits. Strangely, this view seemed to cause greater problems than that of cynical users who would not give the computer a chance. Surprisingly, these factors are still the cause of the failure of present-day IT projects.
The situation started to change in the 1980s when microcomputers became available. Technically they could do nothing that a terminal linked to a mainframe computer could not do but their key effect, underlying the massive growth in their application, was that they allowed control of computing to be shared
between technical experts and users. A manager no longer had to deal with a centralised data processing department or consultants to obtain computing assistance. There was no question of a project having to wait in a lengthy queue with other projects until the department had the time and resources to be able to tackle it. He or she could use computers with very little outside help: hence the name, end-user computing. The relatively low cost of micros allowed them to be purchased without resorting to formalised capital expenditure procedures and this was another factor contributing to the demand for them. When cheap, easy-to-use software became plentiful, continued growth was assured. These events have run counter to predictions: initially it was thought that micros were going to be successful in homes rather than businesses. The decentralisation of computing meant that managers were better able to define their own information needs and then to implement the relevant systems. The availability of excellent software meant that micros could be used for the execution of decision techniques, but this was just part of the picture. Other applications, then and now, include9. developments in areas away from the operational successes of the past: (a) Information handling. Corporate data from local sources, from other parts of the organisation and from external sources can be made available on the manager's desk. These data can then be manipulated in tables and graphs and used effectively in decision making. (b) Statistical analysis. Off-the-shelf packages are available for most analytical techniques such as forecasting methods. (c) Financial planning. Spreadsheets are used to compile financial plans and for budgeting. (d) Office automation. Standard officeprocedures such as typing, filing, mailing and arranging meetings can be carried out electronically.
Organisations are continuing to develop large company-wide computer systems with operating/technical! financial applications. However, the real growth and spread in the use of IT comes from local applications, especially those involving strategic initiatives and management tasks. This growth has centred on the use of micros and is mainly in the following three areas: (a) The analysis of corporate information downloaded from the mainframe. Micros linked to the organisation's mainframe can receive the masses of data which caused such a problem when printed out in the 1960s and 1970s and work on them locally to provide information which has been reduced and refined to suit the local decision makers. For example, if a customer of an insurance company should telephone to amend a policy or to ask a question about his cover, he or she will probably be answered by a member of staff dedicated to customer service. She (it's usually a she) will already have the customer's details in front of her on a
,_/
computer screen. The computerised switchboard will have recognised the customer's telephone number and automatically downloaded his or her file from the mainframe where the records reside to the customer care officer's personal computer. She will be empowered to deal with the customer's query whatever it is. Such a situation contrasts with the recent past when a telephone enquiry would often result in the customer being passed from department to department and kept waiting while the 'right' department, when it was located, tried to find the customer's record. (b) Internal linkages. Local area networks, or LANs, link groups of microcomputers. This means that expensive equipment such as high quality printers can be shared. It also means that information and documents can be passed around and that users can communicate electronically with one another (electronic mail). For example, such internal infrastructures have supported better team working, as a team is able to use software such as Lotus Notes to share information and co-ordinate activities. As another example, the mid-1990s management craze for BPR (Business Process Re-engineering) was based, in some part at least, on the availability of internal IT infrastructures. The idea was that cross-functional decision-making processes, which depended fundamentally on the movement of information, could be redesigned in radically new ways by taking advantage of significantly improved information handling facilities. (c) External linkages. Wide area networks link micros or locally networked micros with the outside world. Information can be transferred across city blocks, countries or continents very rapidly. In particular, company offices in different locations can communicate with one another, and this is a major factor permitting the global integration of the management of multinational organisations. The technical aspects of these links are telecommunications and involve complex equipment such as digital switchboards and satellites. For example, the 1990sview that IT could create competitive advantage was frequently based on the availability of these cross-organisational links. In the 1990s the Chief Executive of American Airlines was quoted as saying that given the choice between selling his aircraft or his computers he would 'probably sell the aircraft'. The reason was that AA was making a significant proportion of its profits from its CRS (Computerised Reservation System) which linked AA to its travel agent customers. This process of bringing organisations closer to customers continues with the Internet. The ability of the Internet to link organisations to individual customers and prospective customers worldwide has spawned many new organisations with a totally new way of doing business. The jury is still out on the long-term success of these organisations. It probably does not need to be said that the picture is not one of universal success. There are plenty of horror stories. At the time of writing the UK government is receiving reports on a new air traffic control system. It was supposed to start operating in 1996. The date has been continually put back and is now several years overdue. The building to house the system and its operators was completed some time ago. Similar project failures are reported
in many countries. Technical knowledge, technical breakdown and inadequate software receive much publicity in the context of IT failure but it seems more likely that the real problem is that many general managers are not adapting to the implications of computerised management. Important implications of computerised management are in areas such as: (a) Controlling information. Information saturation can be a problem: more data do not automatically imply better decisions. They may just cause confusion. (b) Keeping information consistent. Lots of data sources in different parts of an organisation may result in inconsistent information and therefore inconsistent decisions. (c) Developing analytical abilities. Additional management skills are needed to use the available information for management purposes and avoid the misuse of techniques. (d) Avoiding behavioural conflicts. Using IT throughout an organisation presents behavioural problems which are not evident when IT is used on an individual basis. (e) Aligning business and IT strategy. IT does nothing by itself. It needs to be part of the business objectives of the organisation.
Organisations often take too narrow a view of the benefits that can accrue from an IT investment, thinking only in terms of cost and manpower savings. Appraisals show that a much wider set of benefits can be achieved. All of the following benefits have been achieved as a result of IT investments. The benefits can be classified into five main groups, which are related to decision making and information.
This type of benefit is concerned with the links between one system and others. Internal Communications (a) Wider circulation of information: for example, details of product changes can be transmitted to an entire sales force rather than only to a sales manager who must then pass these details on. (b) Improved quality of communication: for example, up-to-date information on price changes can be delivered to the sales force quickly and accurately. External Communications (a) Wider circulation of documents and information: for example, published financial information can be immediately available to an analyst. (b) Standardised information: for example, retailers can share consistent planning information with suppliers.
(a) Document transfers: for example, reports can be brought in from other internal systems rather than re-entered. (b) Compatibility with customer systems: the range of potential applications can be extended and closer customer links forged.
Direct Time Savings
(a) Professional: for example, engineers can change designs more quickly and accurately. (b) Management of functions: it is easier to control the flow of documents and communications when all are on one system. (c) Clerical: reduced staff levels or cancelled staff increases. Indirect
Time SaVings
(a) Reduced turnaround: for example, getting a new product to market sooner. (b) Meeting document production deadlines: for example, preparing technical supporting documents on time can lead to improved product delivery performance.
(a) Distribution: for example, saving printing costs by circulating documents electronically. (b) Storage: for example, producing documents on demand instead of storing. (c) Reduced subcontracting: for exampk desktop publishing systems may allow more documentation to be produced in-house.
This type of benefit is concerned with what the system can do. It might have features a previous system or method lacked, or carry out existing activities at an improved quality level or be easier to use. Range of System Capabilities
(a) Organising: for example, producing a complex document all on one machine and avoiding cut and paste operations. (b) Graphics. (c) Design: systems may provide better design capabilities. (d) Providing new technical facilities: for example, enabling a client to calculate the cost of an enhanced leasing arrangement.
(a) Document quality: for example, producing reports that look more professional and maintain a standard company 'look and feel'.
(a) Ease of learning: for example, a system may mean that inexperienced staff can be trained more quickly. (b) Flexibility: changes to documents can be made more easily. Management This type of benefit is concerned with the internal management of an organisation and with the way individuals do their jobs. Human Resources Management (a) Improving morale: for example, increasing job satisfaction and job enhancement. (b) Decreasing staff turnover. (c) Decreased absence.
(a) Professionals retain control over jobs. (b) Easier to make corrections. (c) Independence from IT department. Individual Management (a) (b) (c) (d) (e)
Style
Better information support. Increasing mobility. Skill development. Personal development. Reduced pressure from queries.
This type of benefit is concerned with systems that have had an impact across the whole organisation, perhaps by giving competitive advantage, enabling major corporate objectives to be met or influencing company policy in a substantial way. Business Impact (a) Supporting business growth. (b) Increasing business activity: for example, improved service levels may lead to increased market share. (c) Ensuring business survival by increasing competitiveness. (d) Improving the corporate image.
Improved
Information (a) More accurate. (b) More timely. (c) Better distribution and exchange. All the above benefits have been found in IT projects (although of course they were not all found in the same project). Surprisingly, not many organisations evaluate IT projects after implementation. As a result they may have achieved benefits without knowing it.
The purpose of this section is to investigate what an individual manager or administrator needs to know and can do to promote the effective use of IT for management decision making. The findings are based on research into IT projects which had a management rather than operational emphasis. In the main, surveys have investigated projects where things have gone wrong. They have shown that technical issues are less important than people issues and that in general people get the systems they deserve. The implications of the research can be classified into three dimensions: attitude, approach and the need for specific skills.
IT project team members, whether users or experts, should demonstrate the following mental attitudes to the project. (a) Commitment. The signs of commitment are that personnel, departmental and corporate resources (especially management time) have been put into the projects. A typical sign of a lack of commitment is when attendance at project team meet~gs is repeatedly cancelled because of other shortterm problems and junior staff members are sent, without being briefed, as replacements. Another negative sign is when a lowly clerical member of staff is given the job of System Administrator or Co-ordinator - in addition to existing responsibilities. Senior management must be committed. It is their responsibility to ensure that the project is part of a corporate IT strategy which should in turn be linked to the business objectives and strategy of the organisation. This senior level commitment is frequently lacking, on the old-fashioned grounds that computers are to do with operations and do not concern the board of directors. (b) Realistic expectations. System users should anticipate substantial benefits but not immediate perfection. Rather they should expect to make adjustments as the project is implemented. And they should appreciate that making changes, just like turning an aircraft carrier, will take time. Although computing power is enormous there are limits to what can be done. Ambition is commendable but users should not expect too much. A
marketing manager of a UK bank believed that he could build up extensive computerised information on the banking activities of the entire UK population of 57 million. (c) Motivation. Most senior managers like to obtain information from personal, trusted sources. When they want information they prefer to call an assistant into the office and ask, rather than search on a computer screen. Before making large investments in management information systems, organisations should try to ensure that managers really want them and will use them. One of the most important positive signs for an IT project is the existence of a champion - a user who sees the benefits and will drive the project forward from the user side of the fence. Research has shown repeatedly that the presence of a champion indicates success and the absence, failure. (d) Persistence. This means a willingness to formulate detailed plans, to follow through the details of the plan and to monitor performance. Many organisations do not attempt to-quantify benefits. Many more do not measure whether benefits have been- achieved or not, even though views are expressed that the project has-been a great success or failure. (e) Fear (or lack of it). Users should have the right balance between respect for IT and paralysing fear. Surveys have shown cases of managers refusing to have anything to do with IT projects: refusing to use computer output or to use keyboards. It is never clear whether this means they are showing too little respect or too much fear.
7.6.2
What Is the Right Approach?
Research shows that the wayan organisation/project team/individual sets about an IT project should have the following characteristics. (a) Top-down. The question should not be 'how can IT be used?' but 'what help can IT give so that business objectives are met?' In particular this means that there should be an IT strategy which is a plan showing what IT investments are to be made and how they are to be used to meet corporate business objectives. An IT strategy should therefore be linked to corporate strategies. It is surprising how few organisations have meaningful IT strategies. 'Always buy Microsoft' is not an IT strategy although it may be a part of one. Surveys have even revealed consultancy companies which advise other organisations on how to develop IT strategies but do not have one themselves. (b) Planning based. Planning is of course important for any type of project but is more so for IT projects, where the objectives and technologies may not be equally clear to all participants and where there may be large differences in the attitudes and understanding of those taking part in the development process. (c) Substantial user involvement. No one would seriously question the premise that managers should be involved in the development of the systems they are to use. However, research shows that their involvement must allow
them to feel that they are able to influence what is going on. It does not augur well for a project if users attend meetings only to listen to what computer experts have to say. It does augur well if users feel ownership of the project: they should talk about 'our' project rather than 'their' project. (d) Flexibility. This means including plenty of contingencies in the plans. In the 1960s and 1970swhen banking systems were being computerised, some banks made provision for interest to be paid on current accounts. Others did not, and are now regretting it. Flexibility also means that users should be prepared to change their management practices in order to make more effective use of the system. In the earlier example of a customer telephoning the insurance company, the company had to restructure itself, creating a new customer services group and recruiting staff with different skill sets from the existing workforce. (e) Monitoring. During development and after implementation the system should be monitored to find out whether the system is working properly, whether it is achieving the expected benefits and whether its running costs are within budget. Post-implementation project evaluations let the organisation know whether its investment has been worthwhile and show what adjustments are needed. They provide valuable lessons for other projects. (f) Commitment to continuing development. The development and use of a system is a continuing process, not a once-for-all event.
Participants in the development of an IT system should have, between them, the following skills and knowledge of planning processes. (a) Planning and management of time. Planning is about taking decisions today which affect future events, and commitment is the most important ingredient; bad planning is when there is no real plan or no action plan. The benefits of pla~g according to a McKinsey survey include that it is the key to success. The other benefits are that it leads to better resource management, improves communications, brings control and influences the future. (b) Project planning techniques. Critical path methods can help to manage system developments. (c) IT project stages. Computer experts will have to set out the standard stages of an IT project. The users should also know what the stages are if they are to playa full part. The stages are as follows: • Feasibility study. • Requirements. • Specification. • Programming. • Testing. • Parallel running of new and existing systems. • Install.
• Review. (d) Managing a transition. Change is exciting for those carrying it out, but it can be frightening for those on the receiving end. Managing a transition successfully means adopting the following rules: • Set clear objectives for which the organisation can aim. They should be simple, practical, understandable and attainable. They must be known to all concerned. • Establish proper plans including defining tasks, estimating the effort involved, cost, duration, priority, sequence, etc., and assign responsibility. • Formulate a people policy by analysing the effects of change on people, assessing the adjustments that may be necessary, deciding how to allow for them and devising a scheme to put them into action. If jobs are to be radically changed or lost they should be dealt with explicitly. • Communicate objectives and progress clearly to all involved, giving opportunity for people to voice their own views. Bad news may be better than uncertainty. • Ensure an orderly transition by encouraging active involvement in the process, anticipating what can go wrong and being prepared to deal with unexpected developments. Research shows that when transitions, whether to do with IT projects or not, go wrong they do so because of a lack of funds, communication and understanding, time and education. Few projects fail because of a lack of technical skills.
The rapid evolution of IT over many years means that predictions are difficult and dangerous. However, there is general agreement that the following developments affecting decision making and information have high probabilities: (a) Further technical progress. Computers will continue to get faster and cheaper. This will open up new areas of management to computerisation. For example, many of the following are enjoying growing use (this is an illustrative not exhaustive list): • Expert systems. This is a piece of software which stores knowledge and mimics the role of the expert. A medical diagnostic expert system is fed details of the illness and then it 'thinks like an expert' to come up with a list of possible illnesses, usually with probabilities attached. • Artificial intelligence. This is software that does even more thinking for itself, mimicking intelligence. When an AI component is added to a statistical package the manager can ask questions such as 'which have been my most profitable customers recently?' The package takes the 'plain English' question and decides how best to answer it. The difference between an expert system and artificial intelligence is that the former only deals with specific structured issues.
•
(b)
(c)
(d)
(e)
(f)
Data mining. This is software that investigates vast quantities of data to search for particular or unusual patterns. For example, it is used by accounting auditors to detect fraud. When auditing a large organisation the auditors are faced with so many data they cannot check them all. Instead they use data mining to search for unusual factors which, from past experience, indicate fraudulent activity. • Decision mapping. This is a technique which helps a decision maker structure his or her problem. It can work for an individual or for a group. Those taking part brainstorm the situation they are dealing with and try to come up with relevant factors which have an impact on the decision, and possible solutions. The end result is a 'map' in which the factors are linked and grouped together to form a map of issues showing the way they relate to one another. It also produces guidance on the costs of different solutions and their effectiveness. Many software packages are available to carry this out. • Knowledge management. The 'learning organisation' has been a late 1990s hot topic. The idea is that an organisation needs to understand, protect and preserve the knowledge, or competencies, which enable it to carry out its work and which differentiate it from its rivals. The problem is how this knowledge can be gathered, stored and disseminated. Again, much software is now available. More integration within the organisation. The use of networks will continue to grow, resulting in better communications and reductions in the movements of paper. There is a high initial cost when networks are installed but once this investment has been made a whole range of other projects become feasible. For example, an office equipment manufacturer installed computer links for its entire sales force: each salesperson could key in an order on-site at the customer's premises and get an immediate response about availability and delivery. Once this investment had been made it was then cost-effective to use the network for other purposes such as communicating price changes and product updates to the sales force. More integration with suppliers and customers.An organisation's suppliers and customers will both have IT equipment that links with its own. For example, stock levels will be controlled by linking retailers with their manufacturing suppliers. Customers will have smart cards to speed financial transactions. Information will be used better. After managers have learned how to use the technical equipment the next logical step will be for them to learn to make proper use of all the information available because of it. There will be an increase in the use of the decision techniques described in the earlier modules. Companies will co-operate over IT. Companies within the same value chain will form strategic alliances linking their IT strategies to ensure proper communications; competing companies will form alliances to afford the IT developments that will enable them to protect and expand their market positions. IT will form a major part of corporate strategies. Instead of being a
peripheral cost-saver, IT will be inherent in organisations' activities. For example, plans to expand into different overseas markets will depend on IT to provide the necessary management information for planning and control.
IT is bringing about a revolution in the business world and in the way both public and private sector organisations are run. This revolution first had an impact on the operations of organisations as technical and clerical functions such as payroll and inventory systems were taken over by computers. More lately IT has made an impact on strategy and management functions at all levels. Decision making in all areas from strategy formulation to day-to-day pricing and purchasing has started to change. The changes are pervasive and affect many dimensions of the organisation but some issues are of fundamental importance to anyone in management. IT changes business. It is not just a question of being able to do the current job more efficiently but of doing it differently and more effectively. For example, Amazon.com is in the business of selling books, just like any high street book store. However, by doing so over the Internet it gives itself some significant advantages. First, it can reach customers anywhere in the world. Second, it has lower costs because it does not have the expense of a chain of stores. Third, it can provide better customer information by offering reviews and reader comments, and by proactively offering books which match an individual customer's tastes. These changes can go so far as changing the nature of the organisation's business. The main activity of a company in the building industry was installing bathrooms. Then the managing director came across some software for designing bathrooms. It allowed the customer to design the bathroom for his new house on-screen, being able to see immediately the effect of moving facilities around and to know the cost of different options. The company rapidly became a designer of bathrooms, a much more profitable area of business. IT changes management style. Not only do companies change their business, managers change the way they manage. For example, technical authors used to write first drafts in longhand and then send them to the typing pool. The material would then be returned, amended and so on for several iterations. Automated offices allow authors to make their own corrections on screen, speeding up the process and obtaining better results. Some authors even input their material themselves, leaving the typing pool to tackle difficult diagrams and generally to tidy up. In the past computer systems belonged to the computer department and the users were kept at arm's length - and generally preferred to be so. Newer systems, based on decentralised resources, belong at least as much to the users as to the specialists. The users feel responsible for them and feel able to generate new ideas for further developments and new systems. Although the benefits can be great, so can the problems and IT should be seen as an iceberg: seven-eight of an IT project is unseen. IT projects can be so complex and their effects on working practices so great that it is not usually
possible to plan every outcome in advance. There will always be surprises. When a retailing organisation first issued its own charge card, customers who had not used their card were surprised to receive statements telling them they owed ÂŁ0.00 which had to be paid by the 15th of the month. Meanwhile, customers who had used their cards a lot were surprised to receive the two pages of their statement in different envelopes, often at different times. This demonstrates the inevitability of there always being some errors, rather than pointing to negligence. Perhaps the biggest problem for managers is that IT changes rapidly. It is not easy to keep up to date with the latest developments and opportunities for the successful deployment of IT. The Internet is proving a very effective medium for selling software. It is a good place to search to see if the software you think might help you is available. Managers must also be aware of the 'information' part of information technology. Information is a corporate resource and should be treated as such. Just as cash would not be left lying around doing nothing and gaining no interest, so information is an asset which should be put to use. Managers should search for useful information not currently available which will support the decisions they have to take. The above discussion has looked at things from the point of view of 'what can go wrong?' Looking at the situation more positively, the opportunities are immense. The example of an American wholesaler supplying goods to drugstores shows how IT can affect companies and industries at the highest levels with immense benefits for those who use it properly and devastating effects for those who do not. The company was essentially a warehousing operation, buying goods from manufacturers and holding them in stock until ordered by a drugstore. Understandably the first computer development was inventory control, a typical first functional application. The next step was to computerise sales processing. Again, this was a straightforward cl:-oicebut what happened afterwards led to some exciting developments. The next step was to put, at the wholesaler's own expense, terminals in customers' stores. There were advantages on both sides. Customers could make an order electronically, know immediately whether the item was available and when it could be delivered. The wholesaler saved paperwork and manpower. This was quickly followed by a really creative move. Software showing the floor plans of the stores and giving guidance about the most profitable locations for different goods was installed. Customers were given this extra service, helping them manage their stores, at no charge. Once the terminals were in the stores, extra facilities such as this floor plan software could be added at low cost but it brought the enormous advantage to the wholesaler that it tied in the customer. It would be difficult for a customer to change to a different supplier and revert to the old ways of conducting business. Success encouraged the wholesaler to offer a further service. The customers reported that one of their major problems was cash flow because part of their business was medical prescriptions - and the government was slow to pay up. The wholesaler offered to pay the prescription fees to the drugstores immediately,
charging a fee for doing so. The computer link between wholesaler and retailer made it possible to do this efficiently. Again, there were advantages all round. The drugstores improved their cash flows and, presumably, had fewer excuses for late payments to the wholesaler; the wholesaler expanded its business. IT had given the wholesaler, and the drugstores, typical benefits such as cost and manpower savings but the later developments had gone much further. The wholesaler had gained competitive advantage by offering a better service and had in fact moved into a new line of business in a different industry: factoring in the financial services industry. The effect on the drugstore wholesaling industry was dramatic. Naturally other wholesalers could not stand by and had to take action quickly. Some had the expertise to develop their own systems; others had to buy in expertise. Some with expertise were taken over by others without expertise but with money. There were mergers and some companies went bankrupt. The net result was that the number of companies in the industry was reduced to about a tenth of the original. And it all happened very quickly. The conclusion has to be that IT has the power to affect companies at all levels as well as the industries of which they are a part. At the centre of what is happening is decision support systems: the use of management information and decision techniques for decision making. Not only are the techniques now more accessible because of the availability of hardware and software but also the IT revolution is providing the good quality information which feeds them. The encroachment of IT into all areas of management has created an environment in which systematic decision making is becoming essential.
7.1 Which one of the following A
An accounting
B
An electronic diary.
C
A laser printer.
D
A spreadsheet.
is hardware?
package.
7.2 A smart credit card: I
Can hold up-to-date
information
II
Contains a silicon chip.
III
Is a piece of equipment
about the holder's bank account.
usually found in a workstation.
Which is correct? A
I and II only.
B
I and III only.
C
II and III only.
D
I, II and III.
7.3 Which one of the following A
Coaxial cable.
is not used as cabling in local area networks?
B
Electric flex.
C
Optic fibre cable.
D
Telephone wire.
7.4 Is the following
statement
true of false?
In general during the 1960s and 1970s the computerisation of operational systems was successful whereas the development of computerised management information was not. 7.5 The lessons learned from the failure
of many MIS included:
I
Users played no part in the development.
II
There was little distinction
III
Users sometimes had a blind faith in the systems and made no attempt anticipate problems.
between
data and information. to
Which is correct? A
I and II only.
B
I and III only.
C
II and III only.
D
I, II and III.
7.6 Which one of the following is not a typical application puter resources in a large organisation? A
Electronic mail.
B
Payroll.
C
Statistical analysis of downloaded
D
Word-processing.
of decentralised
com-
data.
7.7 A car manufacturer has developed a computer system which links retail establishments with distribution channels and manufacturing plants, allowing customers to know when a car of some particular specification might be available. What type of IT benefit is this? A
Efficiency.
B
Functionality.
C
Management.
D
Strategic.
7.8 Is the following
statement
true or false?
An IT strategy is a document which lists computer and software manufacturers which have been approved by the organisation's computer department and can therefore be approached to tender for IT investments. 7.9 Adopting
a 'top-down'
approach means that the source of ideas for IT projects
should be: A
The board of directors.
B
An analysis of business needs.
C
The computer
D
A report on recent technical advances in computers.
department.
7.10
A patient describes his problem to his medical consultant who keys the facts into a desktop computer which in turn reports that there is a 72% chance that the patient has appendicitis, 26% influenza and 2% Lassa fever. What type of system is the consultant using? A
Artificial
intelligence.
B
An expert system.
C
A transputer.
D
Voice recognition.
'It was a cold mid-January Monday morning - not the best day for a young man to come up from London to tell us about the Internet. He seemed a typical whizz-kid wearing a smart suit and a slick hairstyle. He spoke very enthusiastically but the room was stuffy and I wasn't quite sure why I was there. However, I did know that unless I got to grips with the Internet my future in the company might not ~e very rosy. I stirred myself and began to listen.' That was Jim Hamilton's first impression of the Internet implementation policy being implemented in the Electronics Group of BE (British Engineering) in the late 1990s. At the time he was Manager of Costing for BE Distributions, a company in the Electronics Group, in Manchester where he had worked for about 30 years. The young man giving the talk was Mike Driver who had been with the company for the five years since his graduation. During this time he had completed BE's Graduate Training Programme, specialising in Information Technology. In 1997/ he was given the responsibility for creating a policy for co-ordinating the introduction of the Internet in the Group. BE Structure and Management Style The British Engineering Company (BE)pIc is one of the country's largest engineering and manufacturing companies. For the year ending 31 March 1999/BE had a turnover of almost ÂŁ4 billion with a pre-tax profit of just over ÂŁ600 million. It employs about 50000 people in more than 14 countries and has over 50 subsidiaries. A small headquarters staff in London has overall control of cash, capital investment plans and acquisitions. Each company in BE produces an annual budget and sends monthly reports to London. These reports record the month's figures for about 30 factors, such as sales, orders, staff costs/ overheads and bank balance. In addition, details of seven key BE ratios are given, for example sales/capital employed, sales/ debtors, and sales per employee. The headquarters staff takes a direct interest in these monthly reports, particularly the ratios. Nevertheless, managing directors of operating units have a great deal of autonomy in deciding how to achieve their business-plan targets. This blend of firm central monitoring of business performance but with decentralised operational management control is the distinctive flavour of the BE style. Managing directors realise they have considerable freedom but will be held responsible for their company's success or failure.
There is, however, an organisational level between London and the operating companies in that each company belongs to a group. Group managing directors are expected to co-ordinate the work of companies in the group, keep a close eye on performance, hire and fire managing directors and seek ways of improving overall performance. BE's groups are continually changing and can be seen as the driving force of BE's organisational structure. The direct relationship between managing directors of operating companies and the London HQ is fixed but companies are frequently re-formed into different groups to take account of changing needs and opportunities. Over the years a flexible group structure has helped to integrate new acquisitions and start-up companies into the overall structure. Over the last ten years the groups have become more focused on distinct areas of business as BE has rationalised. There are still many distinct cultural streams within BE reflecting the origins of particular units. By their nature, groups within BE are seen primarily as an administrative and management overhead needed to aid communication and co-ordination between London and operating companies. As an overhead, costs and staffing are expected to be kept very low. Challenges
Faced by the Electronics Group
The Electronics Group had between five and ten companies within it during the years 1996 to 1999. The sizes of these companies in terms of annual turnover ranged from just over ÂŁ2 million to more than ÂŁ100 million. In 1999,the Group's total turnover was about ÂŁ350 million. The Group was originally formed in 1986 and its current Managing Director, James Houghton, was faced with the task of steering the companies through what were likely to be turbulent and competitive times. One of his key objectives was to stimulate management methods that would meet the challenges of the new millennium. How the Need for a Computer
Decentralisation
Strategy Evolved
In the early 1990s, the Internet was mainly being used in the home but by 1998 its potential for performing useful business work was well established as companies started to use it to handle typical business tasks. Houghton was aware of these developments and was beginning to get requests from managers to move in this direction. Computer services for the Electronics Group were the responsibility of BE Computers (BEC),part of another group of BE, although a substantial part of the mainframe operations were outsourced. Companies in the Electronics Group also had their own local IT managers (ITMs) who reported to BEC and were responsible for investigating IT needs within the company and liaising with BEC for the provision of an appropriate solution. Some, but not all, of these ITMs had local computer systems in their charge, such as large microcomputers which acted as 'front ends' to BEC mainframes. For some time, BEC had been thinking primarily in terms of more microcomputers linked to the mainframes. BECwas cautious about the introduction of the Internet because of the inability to control developments and ensure consistency and proper support.
Nevertheless, Houghton felt the Internet could be of value in helping managers rationalise the supply chain and provide better links with customers, which were his prime management objectives. He felt the Internet could stimulate a fresh sense of involvement among managers at all levels because it provided capabilities for sharing information and assisting in planning and decision making. He saw the Internet as an agent of change at a time when the Group was facing an urgent need to respond to a rapidly changing business environment. In 1996, Houghton was aware that Driver was looking for his next step up within BE. Driver had general IT experience but particularly with enduser computing and was keen to apply his expertise to Internet applications. The availability of Driver as a skilled resource was the final factor in leading Houghton to decide to establish an Internet initiative. So, in 1997, Mike Driver became the Electronic Group's Internet Co-ordinator, reporting directly to Houghton. As an IT enthusiast, eager for his first important job and anxious to move rapidly up the corporate ladder, Driver was keen to get started in implementing the new technology that so many people were saying was the key to success, individually and corporately. He soon learned that his job involved much more than sorting out technical problems: there were complex human and organisational interactions that lay beneath the surface of his formal job description (see Table 7.1). Table 7.1
Mike Driver's job description
(a)
To introduce
(b)
To ensure a maximum degree of cohesion within
and between different
in order to reduce costs and maximise utilisation
of resources.
(c)
Internet technology
into offices where it may benefit the company.
To evolve a Group Internet Strategy to include recommendations (i)
when the Internet is appropriate
(ij)
introducing
(iij)
communications
on:
compared to other alternatives;
new systems: personnel, training requirements,
departments
and back-up procedures;
including with suppliers and customers.
1 Comment on each of the three sections of Mike Driver's job description, elaborating on the task facing him and suggesting what the critical issues are. Concentrate on the main issues rather than points of detail.