Copyright P. Konana, 2010, The University of Texas at Austin
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IT-Enabled Transformation
The automobile industry has long envisioned making customized cars on demand and delivering them in 5 to 14 days, just the way personal computers are manufactured on demand at Dell Computers and delivered within 1 to 3 days. However, there is a big gap between the reality and the vision. According to various studies (e.g., AMR, Goldman Sachs, Roland Berger), in 2001 (somewhat dated but gives you an idea of the problem), an auto manufacturer took anywhere between 49 days to 77 days, with an average of 53 days, to build and deliver a car after an order was received. This long lead-­‐time (i.e., time taken between ordering and delivering) has many ripple effects. In the U.S. alone, the estimated inventory sitting idle, from the automakers to the car dealers, is around $230 billion. Firms lose $25 billion in promotions aimed at getting rid of idle inventory. Furthermore, excess inventory adds between $2000 and $3600 to the cost of a $25,000 car (Goldman Sachs, Business 2.0)! But why is this example relevant to Information Technology (IT)? This scenario typifies serious inefficiency problems that are pervasive throughout the economy, and that can be mitigated through the judicious use of IT. What causes the high levels of inventory in the auto industry? Do the manufacturers spend bulk of their time making the car? The auto industry boasts one of the most sophisticated, advanced and automated manufacturing setups – the flexible manufacturing system1. An analysis of the time delays from when a customer places an order to when a car is manufactured and delivered provides a startling revelation. While it takes about 2 days to assemble a car, and 2 to 4 days to transport it, approximately 47-­‐49 days are lost in “interactions” – communicating, collaborating, and coordinating various activities – needed to make this car. These activities include designing products, establishing product specifications, checking parts availability, ordering and receiving parts from suppliers, communicating the requirements to various departments (e.g., manufacturing, operations, planning, finance and accounting), scheduling, and arranging logistics. Physical processes – the actual processes of making and transporting goods – may take just a few days. The bulk of the delay is incurred in arranging and managing the physical processes, generally referred to as business processes. If service itself is the actual product (e.g., insurance claim or customer complaint resolution), the bulk of the time is expended on activities for arranging the service rather than on delivering the service (from now on, we will use the term product to imply both physical products and services). It is believed that interaction costs – information processing and coordination of activities – account for 70% and 55% of all labor costs in services and manufacturing sectors, respectively2. We will see that IT can play an important role in reducing interactions costs, and in shrinking the time needed to deliver a product or service. 1
Flexible manufacturing systems are highly automated and computer-controlled manufacturing setups that provide high
quality adjustable systems for quick product changes or customization, with the benefits of mass production.
2 Discussed in a remark by Roger Ferguson Jr., Vice Chairman of the Board of Governors at the U.S. Federal Reserve
System in the year 2001.
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Definition: Business processes are a set of activities – such as information collection, processing and transmission, work routing, and decision-­‐making – that are coordinated across various entities within the firm and across different organizations, according to organizational rules and procedures to achieve certain objectives. The above automotive example illustrates, in simple terms, a broader set of problems in the overall economy. With increasing competition, firms are struggling to eliminate non-­‐value added activities and to improve customer value3 through IT-­‐enabled business processes to improve financial performance. The global communication platform provided by the Internet offers new opportunities (and challenges) for innovative services and the ability to lower coordination costs with customers and suppliers. These opportunities can impact the firm, the industry and the economy in a significant way even when basic economic principles have not changed. The commercialization of the Internet has hastened the innovation rate among IT producers (e.g., Intel, Apple, and Cisco), pure IT-­‐driven businesses (e.g., Amazon.com, Ebay, Yahoo! and Priceline.com, Google), and IT users (e.g., General Electric, Proctor and Gamble and Nestle) with implications for the global economy in terms of growth, productivity and inflation. The Value of IT and the Internet
It is difficult to even think of any activity we perform in day-­‐to-­‐day life or in the corporate world that does not involve IT. Just think of all the activities you perform routinely -­‐ ordering a movie online from Netflix, withdrawing cash from an ATM machine, buying groceries, executing a stock trade online, ordering pizza online, checking your credit card balance, paying at a gas station using a credit card, registering for courses, etc. In each of these actions, you interact with a database directly or indirectly through a communications network. In the near future, we will have embedded databases in our laundry machines or refrigerators that can keep track of usage, consumption patterns, and reorder points. Likewise, IT embedded in the environment (e.g., sensors) or the human body can monitor the status and take corrective actions (e.g., sensors in human body can sense the temperature, pressure and/or heart rate and transmit the data in the case of any abnormality). Radio-­‐frequency identification (RFID) chip embedded in human body or passport can monitor the movement of people within airports or anywhere (in fact, GPS on your cellphone can identity your location at any given time). The last few examples have been deliberately used to provoke discussion, since some may not agree with the value of these IT applications. Whether IT has value in certain applications can be debated, but the fact that IT is now pervasive cannot be ignored. The need for a thorough analysis of the expected and realized benefits of IT has never been more important than now. In the last decade, nearly three trillion dollars have been invested in Kotler (2000) defines customer value as the difference between expected customer benefits from a product and the
cost incurred in evaluating, obtaining, using and disposing the product.
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IT Driven Value
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Figure 1: Components of IT Driven Value
IT in the U.S. alone, which represents nearly 50% of all capital expenditures. This significant level of IT investments raises genuine questions as to the value of IT and how it impacts economic activities. At the same time there is considerable skepticism as to whether certain IT investments have had any productivity or bottom line impact. As shown in Figure 1, the benefits of IT can be mapped into three overlapping and interrelated categories: (a) operational efficiency, (b) business partner value (customers and suppliers), and (c) strategic value. Some values may not necessarily add to the bottom line to justify investments, but not investing in certain types of IT may have serious consequences in terms of lost customers. Operational Efficiency: Operational efficiency can be broadly defined as the extent to which a firm’s resources (e.g., labor, material, time, etc.) are used well to achieve desired results in the firm’s daily operations. Some operational efficiency metrics include better response time (the time needed to respond to customer requests), cycle time (the time taken to deliver a product from the time a request is made), inventory levels, frequency of stock out (e.g., running out of parts) situations, and inventory turnover (computed as the ratio of annual sales to inventory). Improving the efficiency of operations reduces cost and often enhances both business partner and strategic values. For instance, IT can enable a firm to achieve a “touchless” process that impacts all aspects of the firm’s operations, from a customer’s initial order to the final product delivery and service. All the processes required to execute the order are automatically triggered without having to re-­‐enter any information. By automating expensive and repetitive manual processes, firms can provide immediate and accurate services. IT provides the capability to automatically monitor and take actions when certain events or patterns of behavior occur in Copyright P. Konana, 2010, The University of Texas at Austin
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the environment (e.g., the stock market declines below a pre-­‐specified level, a stock-­‐out situation occurs, process defects exceed a certain threshold, a fraudulent transaction is detected in the accounting system, etc.) in real-­‐time. Some of the root causes of holding inventory due to lack of information can be minimized, if not eliminated, with immediate access to, and sharing of, vital information. In an unprecedented way, IT and the Internet provide a means to effectively reach distant customers, which previously required expensive human presence. Furthermore, easy-­‐to-­‐use interfaces enable customers to manage their ordering, status verification, payment and other activities online without depending on humans or other expensive options. Business Partner Value: Business partner value is the value accrued to customers, suppliers and other business partners. Although a firm exists to maximize shareholder value, such value can be delivered only when the customers’ willingness to pay exceeds the cost of a product or service. Likewise, a firm’s ability to provide high-­‐quality products at a low cost depends on its relationships with suppliers, channel partners (where applicable) and complementors. IT helps firms to enhance this value by providing personalized content based on customer preferences, product customization features, convenience, one-­‐stop services, immediate feedback, and real-­‐
time information access (e.g., product information, order status, contact information). Through the intelligent use of IT, firms can discover buying behavior and target customers to sell additional products and services. IT enables a firm to have seamless communication with suppliers, and other trading partners to efficiently deliver products that enhance customer value. The IT-­‐enabled partnership between Amazon.com and FedEx is a recent example of creating customer value (see sidebar story). Amazon.com and FedEx Home Delivery: Harry Potter and the Goblet of Fire Amazon.com and FedEx Home Delivery partnered to deliver the book “Harry Potter and the Goblet of Fire” on its release date to 250,000 customers’ doorsteps on a Saturday. Customers submitted orders with their home address through Amazon.com’s website. This information was electronically transmitted to FedEx, which then assigned the nearest warehouse, delivery person, and delivery vehicle for that customer order. Each delivery person received a map with the customer’s exact address and driving directions. All of this coordination occurred electronically. FedEx operated at a 99.6% service level – that is, they delivered 99.6% of the orders on time. Imagine coordinating these various tasks manually, face-­‐to-­‐face or by phone! Without IT, FedEx’s novel and complex logistical task would have been both physically and economically infeasible. Strategic Value: In a competitive environment, firms will have to constantly scan the environment to position themselves for sustained profitability or above-­‐average returns. There are many examples of how firms leverage IT to differentiate their services, increase the power they have on customers or suppliers, break into new markets by substituting traditional products, and lower barriers in traditional markets. Some critics have suggested that IT is similar to other innovations (e.g., railroads and the electric dynamo) that everyone has access to and, therefore, has no long-­‐term competitive benefits. Such arguments focus narrowly to the Copyright P. Konana, 2010, The University of Texas at Austin
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use of IT, particularly the Internet, for operational efficiency, and ignore the dramatic changes IT can enable through product substitution and incorporation within products that can be patented. These changes irrevocably alter the competition and industry structure, as is evident in the photographic, financial brokerage, and travel industries. The IT capabilities and knowledge (e.g., customer knowledge) of a firm can change the boundaries of a firm and alter the competitive landscape. For instance, IT capabilities have allowed Microsoft to enter travel industry and car dealership business, while Amazon.com could venture into selling products other than their core products. E-business and IT-Enabled Transformation
IT-­‐enabled transformation can be broadly termed as electronic business (e-­‐business). Although the definition of e-­‐business in the popular press assumes the use of the Internet for coordinating, accessing, sharing and processing information for the purpose of buying, selling, and internal operations, this article assumes a broader perspective. Businesses operate within an economic system which can be thought of as business ecosystem. Webster dictionary defines an ecosystem as “A system formed by the interaction of a community of organisms with their physical environment.” A business ecosystem can be defined as: “A system formed by the interaction of a community of businesses with its customers, suppliers, partners (e.g., banks, credit agencies) and non-­‐business entities (e.g., government, social networks) physically and/or virtually within a local and global environment.” Any firm always operates within the business ecosystem involving interactions, coordination and collaborations with other entities (See Dell’s Ecosystem below). Thus, e-­‐business transformation can be defined as: “The transformation of the interactions of a firm in the business ecosystem using IT and the Internet for increasing value for itself and members in the business ecosystem.” E-­‐business is a holistic approach of transforming all activities within and outside a firm for strategic and business partner value creation, and operational efficiency through the innovative use of IT. The activities of a firm include primary and support activities that create value as proposed by Michael Porter. The primary activities include inbound logistics, operations, outbound logistics, marketing and sales, and service. The support activities include firm infrastructure (e.g., finance, accounting, legal, planning), human resources management, technology development, and procurement. In e-­‐business transformation, all these activities are impacted by IT to eventually create one or more of the three facets of IT value as shown in Figure 1. Some of the major transformations of value activities are described below. 6
Copyright P. Konana, 2010, The University of Texas at Austin
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Mapping Dell’s Ecosystem
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IT-­‐enabled Touchless Process: A touchless process for work routing and processing is almost a necessity for businesses, government and individuals for operational efficiency. For a business, a touchless process implies that once a customer places an order online, the information is not manually entered again anywhere in the system, and that the information cascades throughout the firm and to its partners immediately (See sidebar story for a touchless process at Dell). While a touchless process can quickly propagate any incorrect first-­‐entry through the organization without being able to correct itself, to a large extent, much of processes are executed faster and in an errorless manner. It can shrink order-­‐to-­‐delivery cycle time while improving response time. The high velocity of information movement has major implications for the productivity of the firm. A touchless process is relevant for any sector including the government. Most developed and developing countries are increasingly touting the potential of electronic governance (e-­‐
governance). Even some of the hardest tasks, like filing income tax returns, can be made largely touchless. From an information perspective, the U.S. federal and state governments can be considered as a network of databases holding most of the relevant data related to individuals’ income tax including wages earned from employers, identification number (e.g., social security number in the U.S.), home mortgage interest, local and state taxes, birth, death or divorce, dividends, investment interests, etc. In fact, for a majority of the population, the government itself can compute the taxes for final approval and/or changes from individuals. Once approved by the individuals, money can be immediately deposited into or withdrawn from individual accounts electronically. Copyright P. Konana, 2010, The University of Texas at Austin
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A Touchless Process at Dell Computer Assume you place an order though the Dell Computer website to buy a personal computer. The order information cascades throughout the organization and to the suppliers within minutes. Once in, the order information is never again re-­‐entered manually. A customer can verify the status of his/her order any time from any place, while relevant employees have complete on-­‐
demand visibility of customers and their orders. All the suppliers and logistics service providers (e.g., UPS or FedEx) receive order information electronically and make necessary arrangements to ship their products; that is, the processes in other organizations are electronically triggered once an order is received at Dell. The logistics service provider electronically assigns a shipping tracking number that will be used for that order for all items that need to be shipped by different vendors. The logistics service provider assembles packages from multiple companies and delivers those to the customer. The order payment is also processed electronically through the bank, and credit-­‐card company without reentering customer information. In the entire process, from order processing to delivery, customer information is never re-­‐entered or touched. Dell calls this a “touchless” process. The level of coordination of different agents within and across firms through electronic linkages makes Dell Computer one of the most efficient companies in the world. IT-­‐enabled/driven Product Substitution: Digital substitution of traditional physical products is dramatically altering industry structure. For example, digital photography has had a major impact on the traditional film-­‐based photographic industry attracting numerous competitors, and innovative services to process and print digital photographs. In film-­‐based photography, the industry had a few large competitors (Kodak, Fuji and Agfa) who controlled much of the market. However, digital photography has attracted numerous competitors from the electronic gadget, computer, printer and software domains. The famous Encyclopedia Britannica had to alter its expensive, printed-­‐material only, hardbound book volumes strategy after losing huge market share to Microsoft’s electronic encyclopedia Encarta – a new entrant into tradition-­‐rich encyclopedia market. Britannica now sells electronic encyclopedia on compact discs at less than $50 relative to over $2000 for its hardbound book series. The music industry, probably, has no parallel in terms of the impact of digital technology. The advent of Napster and Gnutella software that let millions of users to swap digital files, primarily songs and videos, created unprecedented havoc among music artists, producers, distributors, retailers and regulatory agencies. In response to the threat, the entertainment industry is exploring new ways to price, distribute and sell music and video content. These digital substitutes have increased customers’ perceived value, and given firms in different sectors an opportunity to enter a market that had huge entry barriers. IT-­‐driven Service Transformation: The Internet has opened new avenues to buy, sell and exchange products that create high customer value. Consider the online bookseller Amazon.com. It provides an IT-­‐enabled alternative way to buy books, which are exactly the same books whether one buys online or by driving to the nearest bookstore. Consumers can Copyright P. Konana, 2010, The University of Texas at Austin
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search for information, compare prices, and order online at their convenience. Amazon.com can immediately notify customers of new books or products electronically based on their preferences. They can tailor products and services to meet customer choices. The ability to provide such services without building bookstores in every neighborhood and incurring huge setup and overhead costs enables Amazon.com to sell books at reasonable prices. In a competitive world, selling a non-­‐differentiated product like books forces competing firms to become more efficient and pass some of the savings to the customers. IT enables firms like Amazon.com to leverage their IT infrastructure and customer knowledge to diversify to sell other types of products with relatively low risk. Likewise, the ability of the airlines and online financial brokerages to reach consumers directly has put enormous pressure on traditional agents (e.g., travel agents and stock brokers). The direct access has enabled airlines to cut agents’ commission from 12% to even 0%! Further, to hasten the change in consumer buying behavior, airlines are giving incentives to consumers in the form of frequent flyer miles. At the same time, companies like Priceline.com and Expedia.com have introduced new business methods that let airlines bid for consumer purchases (called reverse auction) that are further challenging the traditional thinking of both airlines and travel agents (Priceline has changed its business model to sell tickets without reverse auction). Airlines are increasingly replacing ticketing agents with electronic self-­‐check-­‐in capabilities. Airlines are also reevaluating their pricing methods, operations, and required resources. IT-­‐Enabled Product Design, Testing and Training Transformation: While IT is transforming business processes and how firms interact with various agents in the economy, it is also having a significant impact on physical product design, testing and training. Large manufacturing firms spend billions of dollars on these activities, and there is a radical transformation and rethinking of these activities to incorporate IT for better design, quality, control, monitoring, training, and time-­‐to-­‐market. Traditional product testing involves destroying millions of dollars worth of products, and training is often expensive and time consuming. IT-­‐enabled simulations are replacing traditional testing and training activities to reduce cost and time while improving quality. For instance, Caterpillar Inc., the largest construction and mining equipment manufacturer, uses an IT-­‐driven simulation environment to test equipment and train customers with sustained productivity and quality improvements. In 1995, Boeing completed the entire design of the Boeing 777 aircraft in a virtual environment using computer-­‐aided 3-­‐dimensional collaborative software. Boeing advertised its 777 series jets as “100% digitally designed.” It invested over $1 Billion for this computer-­‐aided design (CAD) infrastructure that included creating a database of 3 million parts that go into the manufacturing of the airplane. The final outcome of transforming the design philosophy from a traditional face-­‐to-­‐face, paper-­‐based manual process to a virtual collaborative environment has been spectacular: 90% reduction in engineering change requests, 50% reduction in cycle time for engineering change requests, 90% reduction in material re-­‐work, and significantly better quality. Copyright P. Konana, 2010, The University of Texas at Austin
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IT-­‐embedded Products: Increasingly most automobile and heavy equipment manufacturers embed several computers to monitor, control and operate engines. Sophisticated IT enables real-­‐time sensing of the environment and location (e.g., through Global Positioning System4) to better navigate, control and monitor machines. Embedding IT into physical goods enables firms to track problems and breakdowns, and perform remote maintenance and improve customer service. Forward looking firms will use data captured from embedded computers to improve product design and quality, differentiate their products, plan marketing strategies, and lower warranty costs. In the early nineties, Lexus Motors introduced a centralized database system that would capture the history of maintenance and repair for all vehicles at any Lexus dealership in the United States. In addition to allowing any Lexus dealership to quickly look up the history of any vehicle, this capability enables Lexus engineers to improve the quality of its automobiles. Innovative services are being introduced to capitalize on IT embedded within physical goods. For example, Onstar, a subsidiary of General Motors, uses GPS to provide services such as pinpointing the location of stolen cars, unlocking cars, and directing emergency needs (e.g., medical attention). IT-­‐enabled Operations Transformation: New types of applications relying on wireless technologies are being deployed to alter how firms operate, move material, manage supplier relationships, and increase customer value. Wireless Radio Frequency Identification (RFID) tags hold much promise in improving security, resource utilization, and movement and tracking of material, equipment, and people. Several large firms such as Wal-­‐Mart, Proctor and Gamble, and Gillette are exploring RFID technology to improve security and to better manage their product distribution. Many retailers, including grocery chains, are exploring retro-­‐fitting their layout and shelves – called Smart Shelves – for using RFID and wireless technologies so that consumers can locate items and check out on their own, while the firms can implement innovative marketing and price promotions based on each customer’s buying behavior. However, these new technologies affect privacy and security of consumers; thus, assimilating them within the organization is not straightforward. Furthermore, firms need to carefully dodge the criticism that not all consumers are technologically sophisticated or have access to such technologies, and that the benefits may accrue only to those parts of the society that have knowledge of IT. IT-­‐enabled Outsourcing: The last decade has observed a dramatic shift in firms outsourcing their production, customer service, software development, information systems maintenance and other activities. Outsourcing refers to using the resources of an external firm to complete certain activities that were historically performed within the firm. A firm may choose to outsource when the other firms have the expertise, additional resources and/or lower cost structure than itself. Performing those activities internally may entail higher total cost since it may need to own expensive infrastructure (like manufacturing plants) and expertise. However, 4
Global position system is satellite navigation system to track, control and monitor vehicles or any objects on land, sea,
or air through radio signals.
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outsourcing involves higher coordination costs that may dominate all other costs. IT can help lower this coordination cost significantly. For instance, Cisco Systems owns less than 10% of its manufacturing capacity and relies on contract equipment manufacturers such as Solectron and Flextronics to manufacture and assemble the parts and components. However, Cisco monitors production quality, tests products remotely, and manages processes in the outsourced firm through IT. Increasingly, firms have recognized that outsourcing some critical and non-­‐critical activities may be a valuable option given the low coordination costs enabled through IT. While one can debate the risks associated with outsourcing and its sustainability for competitive advantage, outsourcing activity is growing rapidly in virtually every business sector. Furthermore, since labor costs are significantly lower in developing countries, outsourced activities are often offshored to other countries. That is, using IT a firm is able to change the scope of its boundaries. IT-­‐enabled Mass Customization and Personalization: The advent of the Internet and related technologies raised great hope of customizing products to each customer’s preferences. While economies of scale5 still may make mass production the most economical form of manufacturing, firms may be able to customize certain aspects critical to the customer (e.g., body and seat color of a car, choice of fabric versus leather upholstered seats, entertainment systems, etc.) and for differentiating their products and services. Amazon.com captures user preferences over time and emails products of interests to consumers, and personalizes websites depending upon consumer preferences. Apple’s iTunes recommends music based on your preferences and what others have downloaded. Mass customization of personal computers or websites is not the same as that of traditional products like cars or even a simple toy. Although mass customization has received much business press in recent times, the concept itself is not new. High-­‐end manufacturers like Rolls Royce and Harley Davidson have successfully mixed some levels of customization within a mass production system with economies of scale. However, the advent of the Internet and other IT has enabled firms to capture consumer preferences accurately, quickly and cheaply, which impacts pricing, demand, and competition. The trend of incorporating customer preferences into products will continue to increase as the cost of capturing and processing information plummets. IT-­‐enabled Knowledge Discovery and Management: What items should we stock? When and how much should we have in stock? What is the effectiveness of certain promotions? Which customers are generally profitable for us? These are just a few of a myriad of questions managers ask in their day-­‐to-­‐day activities regardless of their functional areas. Increasingly, firms rely on sophisticated IT to process large amounts of organizational data to understand customer preferences and history. IT supporting these activities uses statistical techniques and powerful algorithms to extract hidden knowledge, a process generally referred to as data mining. Many large companies have invested heavily to capture organizational data in a very 5
Economies of scale imply as more units of a product are manufactured, the cost per unit decreases.
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large database – called a data warehouse – in a form suitable for decision making. Every major firm (e.g., FedEx, Wal-­‐Mart, Sprint and AT&T) in every sector is building massive data warehouses with several terra bytes (one terra byte is 1012 bytes) of data. For instance, Wal-­‐
Mart’s 500+ Terabyte data warehouse is used on a daily basis for distribution, inventory management and promotions. Several firms have introduced data mining tools (e.g., Enterprise Miner from SAS, Clementine from SPSS, Darwin from Thinking Tools, Mineset from SGI) to understand customer preferences, to efficiently manage supply chain processes, and to minimize risks. Firms are exploring ways to manage organizational knowledge with formal processes to capture information as well as tacit knowledge of experts. Although capturing users’ tacit knowledge is difficult and fuzzy at best, firms have realized its importance, and are trying their best to capture and reuse knowledge to improve productivity. IT-­‐enabled Customer and Supplier Relationship Transformation: The various transformations discussed above have fundamentally changed a firm’s relationships with customers and suppliers. There is increased coordination among the business partners to share information and to conduct transactions electronically without which the IT business value (see Figure 1) cannot be realized. New technologies to capture and to understand customer preferences are enabling firms to improve relationships with customers, thereby increasing customer retention rate and opportunities to cross-­‐sell and up-­‐sell products and services. IT-­‐Driven Online Social Networks: Numerous networks have evolved for social interactions such as Facebook, MySpace, and LinkedIn. Facebook has over 600 million users and is now valued at over $50 billion (source: Goldman Sachs, Jan 3 2011). These networks have grown at rapid pace that firms have begun to exploit the massive social networks for business value. Many retailers including Neiman Markus, Gucci, Starbucks, etc have large followings on Facebook. The cost of reaching millions of customers is dropping while the pace at which a firm can reach its customers has been shortened. However, the operators, businesses, and users have yet to fully understand on how to monetize the large networks effectively. But, there is no doubt that social networks are here to stay and have significant impact on promoting and selling products and services. IT in Healthcare Even in developed economies, millions of people live in rural areas without adequate healthcare facilities. Doctors with specialized skills have little incentive to live and provide services in such regions. To a large extent, government subsidizes the cost of such services, which amounts to many billions of dollars. How can one use IT to provide some services remotely so that patients in rural and hard-­‐to-­‐reach areas have access to experts living in cities? There have been significant developments in the field of Telemedicine, which involves capturing and transmitting medical information, and monitoring, diagnosing, and treating patients remotely. IT is enabling medical care to be delivered at the point of need rather than moving patients to the source of the care provider (American Telemedicine Association (ATA)). Copyright P. Konana, 2010, The University of Texas at Austin
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For example, in Tele-­‐radiology, a digitized X-­‐ray film is transmitted to experts located in other places for diagnosis through communication networks rather than sending x-­‐ray films by traditional means, which are often slow and which are prone to being misplaced. Consistent with our theme in this book of IT being complementary with many other non-­‐IT factors, one must understand how medical care providers will adopt such technologies, what types of training will be required, how patient psychology works in trusting IT-­‐based medical care, what the legal ramifications are, etc., before making huge IT investments in the healthcare sector. Telemedicine has now become a critical issue for U.S. Department of Defense (DOD) to provide immediate medical care to the soldiers in the frontline (source: ATA). IT Evolution: Simplicity to Complexity
There has been a fundamental shift in how businesses view IT. In the past, IT was generally limited to bookkeeping (accounting) applications, primarily using back-­‐office mainframes with proprietary technologies. These applications were tied to hardware and other standards that made them inflexible and difficult to maintain. The limited role of IT created silos of functional applications such as order entry, inventory and manufacturing (See Figure 2), often on multiple, heterogeneous platforms (i.e., different hardware, operating systems, databases, etc.) that rarely interacted easily. The training of MIS professionals was generally limited to a narrow IT-­‐
centric point of view of hardware, software and telecommunications without focusing on the role of IT in the business context, business processes, and economic and strategic thinking. Functional View --> (Process View --> Enterprise-wide View)
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Figure 2: Process View and IT Applications
Now companies are beginning to understand that IT supports or enables improved processes, eliminates redundant and time-­‐consuming tasks, and improves firm operational and financial performance. There is an increasing trend toward group productivity requiring members in geographically distributed environments to collaborate and share information. This requires access to information from remote locations from multiple systems. Collaboration and Copyright P. Konana, 2010, The University of Texas at Austin
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coordination in a distributed environment also require immediate access to real-­‐time information so that updates can occur without delay. For instance, in supply-­‐chain management, Dell or Cisco may need to monitor quality as products are being manufactured at the suppliers’ or contract equipment manufacturers’ sites. Similarly, a product design team may need to verify the specification of components designed at another location (e.g., Computer-­‐
aided-­‐design – CAD). Many people have the misconception that IT has become simple because of improved tools, faster machines, and powerful programming languages. While IT has improved remarkably in its ease of use through Graphical User Interface (GUI) and “What You See Is What You Get” (WYSIWYG), the IT infrastructure, applications development, pricing, and maintenance have actually become more complex. From the simplicity of having a large mainframe computer running a few COBOL-­‐based applications accessed through dumb terminals, current business needs involve multiple access channels (Web based, traditional PC Client-­‐server applications, wireless access through laptops, cellular phone, PDAs), and the coexistence of different enterprise resource planning systems (e.g., SAP, i2, PeopleSoft, Oracle), hardware platforms (e.g., Unix, Windows, and Linux) and legacy systems (e.g., IMS or IDMS databases). The increasing pressure to provide real-­‐time access to information because of customer or supplier needs or for increased competition is ushering in an era of more complex IT environments. 14
Copyright P. Konana, 2010, The University of Texas at Austin
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Figure 3: IT Evolution - Simplicity to Complexity
Figure 3 displays how IT systems have evolved over the years. Until the late 1980s, most businesses had large, fragmented, mainframe systems with business applications written in COBOL. IT embedded in equipment and machinery (e.g., real-­‐time control systems) was isolated from business applications. In a majority of firms, IT linkages to customers and suppliers were limited, and even when such linkages existed (e.g., Electronic Data Interchange), they were proprietary and highly restrictive. In the late 1980s and early 1990s, the advent of powerful PCs and networking capabilities enabled firms to exploit the benefits of enterprise-­‐wide coordination, collaboration and communication using complex systems like ERP. Existing mainframe systems were ported to operate in a Client-­‐Server (C-­‐S) environment where users could have immediate access to data. However, these C-­‐S systems were predominantly internally focused, while links to customers and suppliers remained unchanged. With the advent of the World Wide Web software in 1993, the Web browser (the universal interface today) enabled opportunities to improve interactions with customers, suppliers and internal constituents anytime, anywhere and on demand. Client-­‐Server applications are now being ported to the Web environment so that customers, suppliers and internal employees can access, enter and manipulate data on demand (secure access and dissemination of information to employees using web-­‐based systems within the organization are generally referred to as intranets, while secure systems to let customers and suppliers interact are called extranets). Copyright P. Konana, 2010, The University of Texas at Austin
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With the increased emphasis on using wireless access to connect while mobile, away from the office, or working in remote areas (e.g., construction sites), the above applications are now being extended to be accessed in a secure manner through wireless means using a plethora of handheld devices (e.g., Palm Pilot, cell phones). For instance, airlines push flight status and airline terminal and gate information to travelers via their mobile devices. In the event of a flight delay, travelers can be notified in advance. Also, there is a growing trend of linking business applications with embedded IT in machinery and physical products. For instance, sensors located in equipment will enable tracking of organizational resources (e.g., moving equipment, pallets used in distribution) and utilization for better decision-­‐making. Likewise, computers embedded in large earth-­‐moving machinery (e.g., Caterpillar) track quantities moved and can eventually input that data into business applications without manual intervention. Data from process control systems in manufacturing are captured into a database so that immediate actions are taken based on certain patterns or rules. The continued push for interoperability of systems within and across organizations is forcing firms to explore an IT infrastructure that is flexible, reliable and robust. Thus, end-­‐to-­‐end integration of all activities within and across firms is becoming a reality. This allows for better management of product, information, and money flows. Technological progress and the ability to capture data and process from anywhere, anytime also raises concerns about information overload, the inability to process large amounts of data meaningfully, and the value of additional data (marginal value). The above IT evolution highlights several issues of interest from an IT-­‐centric view. Information technology includes hardware, software and data communication infrastructure. A large, globally distributed organization probably has a complex network of different systems running an array hardware platforms and software applications, and the maintenance runs into millions of dollars each year. Despite the advances and sophistication, firms risk huge costs if they switch to another system that may better suit the business needs. The ability to change firms’ business practices may be held hostage to how quickly systems can be reconfigured to support new business processes. As firms attempt to reduce interaction costs with customers and suppliers, they will face an increasing cost burden to make systems from different firms inter-­‐
connect (referred to as interoperability). Thus, understanding IT and IT assimilation within a firm’s operation is quickly moving beyond the purview of a pure IT solution. It cuts across various functional areas and has vital strategic implications. 16
Copyright P. Konana, 2010, The University of Texas at Austin
Definitions: (these are simplified definition enough for us to work with) Mainframe-­‐Dumb terminal Era: Until 1987 or so, most large companies relied on large computers – possibly occupying massive room – that were connected to dumb terminals (i.e., those are the ugly green screen terminals with no processing capabilities). In a proprietary network, these terminals were connected to the mainframe. All the work was done on mainframes. IBM 390 & IBM System/370 Mainframe computers Source: IBM Visit http://www.columbia.edu/acis/history/36091.html for some pictures Copyright P. Konana, 2010, The University of Texas at Austin
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Client-­‐Server: With the advent of PCs, work load was distributed between the client (i.e., PCs) and server (including mainframe, minicomputers). Users could download data on to PCs and make further processing of data. Graphical user interface came into existence. Some of the work is done on your client before sending to server. Internet/Web-­‐based: This is still client-­‐server, but the browser became the universal interface (i.e., an interface that can be used for any type of data – text, audio, video, image etc. Communication relied on open, industry standards (like, HTTP that you type in the URL). Voice, video and data can be accessed and used in business settings. Ubiquitous computing: This is access to enterprise data using open standards using a myriad of devices (PDAs, cellphones, Blackberries, iPhone, etc.)