Expert answer:summarizing and analysis

Expert answer:read the article and write Executive Summary for this reading. Which are the three most CRITICAL ISSUESfor this reading? Please explain why? and analyze, and discuss in great detail … Which are the three most relevant LESSONS LEARNEDfor this reading? Please explain why? and analyze, and discuss in great detail … Which are the three most important BEST PRACTICES for this reading? Please explain why? and analyze, and discuss in great detail …
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TOOL KIT
Mastering the Three Worlds
of Information Technology
by Andrew McAfee
I
CLAUDIA NEWELL
n the information era, the best of
times are the worst of times. Computer
hardware keeps getting faster, cheaper,
and more portable; new technologies
such as mashups, blogs, wikis, and business analytic systems have captured the
imagination; and corporate IT spending
has bounced back from the plunge it
took in 2001. In 1987, U.S. corporations’
investment in IT per employee averaged
$1,500. By 2004, the latest year for
which government data are available,
that amount had more than tripled to
november 2006
$5,100 per employee. In fact, American
companies spend as much on IT each
year as they do on offices, warehouses,
and factories put together.
However, as IT’s drumbeats become
louder, they threaten to overwhelm general managers. One of the biggest problems companies face is coping with the
abundance of technologies in the marketplace. It’s hard for executives to figure out what all those systems, applications, and acronyms do, let alone decide
which ones they should purchase and
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YEL MAG CYAN BLACK
There are three
categories of IT, each
of which provides
different organizational
capabilities – and
demands very different
kinds of management
interventions.
T O O L K I T • M a s t e r i n g t h e T h re e W o r l d s o f I n f o r m at i o n Te c h n o l o g y
how to successfully adopt them. Most
managers feel ill equipped to navigate
the constantly changing technology
landscape and thus involve themselves
less and less with IT.
Adding to executives’ diffidence, corporate IT projects have often delivered
underwhelming results or been outright
failures. Catastrophes – such as the one
at American pharmaceutical distributor FoxMeyer Drug, which went into
Chapter 11 and was sold in 1997 when
a $100 million IT project failed – may
be less frequent today than in the past,
but frustration, delay, and disappointment are all too common. In 2005, when
IT consultancy CSC and the Financial
Executives Research Foundation conducted a survey of 782 American executives responsible for IT, 50% of the
respondents admitted that “aligning
business and IT strategy” was a major
problem. The researchers found that 51%
of large-scale IT efforts finished later
than expected and ran over budget.
Only 10% of companies believed they
were getting high returns from IT investments; 47% felt that returns were
low, negative, or unknown.
Not surprisingly, any fresh IT proposal sparks fiery debates in boardrooms. Some boards say “Why should
we bother? IT isn’t strategic, so it doesn’t
matter in a competitive sense. We should
be minimizing our technology expenditures.” Others argue “Whether IT matters or not, we shouldn’t be doing it ourselves. Companies are becoming virtual,
and software is becoming rentable, so
why do IT the old-fashioned way?”Thus,
executives try to delegate, outsource,
rent, rationalize, minimize, and generally remove IT from their already long
list of concerns.
But managers who distance themselves from IT abdicate a critical responsibility. Having studied IT for the past
12 years, I believe that executives have
three roles to play in managing IT: They
must help select technologies, nurture
Andrew McAfee (amcafee@hbs.edu) is an
associate professor at Harvard Business
School in Boston. Visit his blog at blog.hbs
.edu/faculty/amcafee.
142
their adoption, and ensure their exploitation. However, managers needn’t
do all those things each time they buy
a new technology. Different types of
IT result in different kinds of organizational change when they are implemented, so executives must tailor their
roles to the technologies they’re using.
What’s critical, though, is that executives stop looking at IT projects as technology installations and start looking
at them as periods of organizational
change that they have a responsibility
to manage.
Building an Effective
IT Model
Everyone who has studied companies’
frustrations with IT argues that technology projects are increasingly becoming
managerial challenges rather than technical ones. What’s more, a well-run IT
department isn’t enough; line managers have important responsibilities in implementing these projects. An insightful
phenomena into categories, and, within
categories, it makes statements of cause
and effect. Yet even state-of-the-art models of IT’s impact consist only of statements about individual technologies,
such as “CRM lets you get closer to customers” and “SCM enables you to reduce inventory.” Such declarations don’t
help executives; they’re more akin to
sales pitches than statements of fact.
These assertions are also silent about
why technologies will deliver to companies the benefits they have promised.
Why will customers start confessing
their deepest desires to your customer
relationship management system? Why
will suppliers start delivering just in
time when you set up a supply chain
management system? Existing models
don’t help executives choose among
technologies, either. Every business
wants both to be closer to customers
and to keep inventory levels low–but is
it better to first invest in CRM or SCM
improvements?
Executives need to stop looking at IT projects as
technology installations and start looking at them
as periods of organizational change that they have
a responsibility to manage.
CIO once told me,“I can make a project
fail, but I can’t make it succeed. For that,
I need my [non-IT] business colleagues.”
Managers I’ve worked with admit privately that success with IT requires their
commitment, but they’re not clear
where, when, and how they should get
involved.
That’s partly because executives usually operate without a comprehensive
model of what IT does for companies,
how it can affect organizations, and
what managers must do to ensure that
IT initiatives succeed. As HBS professor
Clayton M. Christensen and Boston University professor Paul R. Carlile point
out in their working paper “The Cycles
of Theory Building in Management Research” (Harvard Business School, February 2005), a good model or theory
does two things: It groups important
One way to build a comprehensive
model is to place IT in a historical context. Economists and business historians
agree that IT is the latest in a series of
general-purpose technologies (GPTs),
innovations so important that they
cause jumps in an economy’s normal
march of progress. Electric power, the
transistor, and the laser are examples
of GPTs that came about in the nineteenth and twentieth centuries. Companies can incorporate some general purpose technologies, like transistors, into
products, and others, like electricity, into
processes, but all of them share specific
characteristics. The performance of such
technologies improves dramatically
over time. As people become more familiar with GPTs and let go of their old
ways of thinking, they find a great many
uses for these innovations. Crucially,
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M a s t e r i n g t h e T h re e W o r l d s o f I n f o r m at i o n Te c h n o l o g y • T O O L K I T
rights – allow process GPTs to deliver
improved performance. For instance, in
the early twentieth century, factories in
America replaced central motors driven
by waterwheels or steam engines with
newly invented electric motors. These
large motors were connected to a driveshaft, which was connected by belts to
the factory’s machines. At first, electric
motors were bolted onto the old driveshafts. As time went on, businesses built
smaller electric motors and connected
one to each machine. The new motors
gave companies the freedom to redesign
work flows. They were able to build
long, low factories instead of high, narrow ones, for example, and to arrange
machines in rows that later became assembly lines. However, businesses had
to hire workers who were both more
skilled and better able to independently
make decisions at each station. Once all
the organizational complements to electric motors were in place, they maximized the technology’s impact and
boosted productivity in the U.S. manufacturing sector.
These insights are also true of IT, but
with one distinction: Information technologies, my research shows, don’t enjoy
YEL MAG CYAN BLACK
general purpose technologies deliver
greater benefits as people invent or develop complements that multiply the
power, impact, and uses of GPTs. For
instance, in 1970, fiber-optic cables
enabled companies to employ lasers,
which had already been in use for a decade, for data transmission.
The complements of process GPTs are
organizational innovations, or changes
in the way companies get work done.
Research suggests that four organizational complements – better-skilled
workers, higher levels of teamwork, redesigned processes, and new decision
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T O O L K I T • M a s t e r i n g t h e T h re e W o r l d s o f I n f o r m at i o n Te c h n o l o g y
the same relationships with the four
organizational complements that other
process GPTs have. Some information
technologies can deliver results without
the complements being in place; others
allow the complements to emerge over
time; and still others impose the complements they need as soon as companies deploy the technologies.
Based on those variations, we can
classify IT into three categories. (See
the exhibit “The Three Varieties of
Work-Changing IT.”) Each offers companies distinctive capabilities, delivers
unique benefits, and triggers organizational changes of different types and
magnitudes. This classification can help
leaders understand which technologies
they must invest in as well as what they
should do to maximize returns. It can
also indicate which IT initiatives are
going to be relatively easy to implement and on which projects executives
should focus. In that light, IT management starts to look less like a black art
and more like the work of the executive.
The Three Categories of IT
Executives often talk about the revolution that computers have brought about
in companies, but, as the IT model I’ve
described illustrates, that’s an oversimplification. IT sets off several kinds of
revolutions in organizations because
technologies fall into three distinct
categories.
Function IT (FIT) includes technologies that make the execution of standalone tasks more efficient. Word processors and spreadsheets are the most
common examples of this IT category.
Design engineers, accountants, doctors,
graphic artists, and a host of other specialists and knowledge workers use FIT
all the time. People can get the most
value from these technologies when
their complements are in place but can
also use FIT without all of the complements. For instance, an R&D engineer
can use a computer-aided design (CAD)
program to improve the way he does
his work without making any changes
in how the rest of the department functions. Furthermore, FITs don’t bring
their complements with them. CAD
144
software, for example, doesn’t specify
the processes that make the most of its
power. Companies must identify the
complements FIT needs and either develop them or allow users to create them.
FIT is powerful. Five years ago, Ducati
announced that it would enter the
MotoGP racing circuit in 2003. Its designers kicked off a project to build a
suitable motorcycle in November 2001.
and groupware like Lotus Notes. NIT allows people to interact, but it doesn’t
define how they should interact. It gives
people freedom to experiment instead
of telling them what they must do. Unlike FIT, network IT brings complements with it but allows users to implement and modify them over time.
In 2005, investment bank Dresdner
Kleinwort Wasserstein introduced three
Classifying IT into three types can help leaders
understand which technologies they must invest in
as well as what they should do to maximize returns.
They started by using simulation software to build and test virtual engines.
The simulations made the team realize
that a two-cylinder engine wouldn’t be
powerful enough to win races, so it decided to build Ducati’s first four-cylinder
engine. The team finished designing
the engine in August 2002; a motorcycle powered by the engine was zooming around test tracks two months later;
and the project was largely complete by
January 2003. The Italian company participated in the MotoGP circuit in 2003
and outperformed most of its rivals:
Ducati placed second in the manufacturers’ standings, a ranking of companies that race motorcycles on the circuit, and its riders finished fourth and
sixth in the individual standings.
Ducati’s experience with FIT vividly
demonstrates the capabilities of this IT
category:
• Enhancing experimentation capacity.
Ducati’s engineers built thousands of
engines and motorcycles and compared
their performance without touching a
sheet of steel.
• Increasing precision. The company’s
designers came to trust the software
so much that if test results disagreed
with a simulation, they told me, the
first reaction was to mistrust the test
results.
Network IT (NIT) provides a means
by which people can communicate with
one another. Network technologies include e-mail, instant messaging, blogs,
network technologies: messaging software, employee blogs, and a company
wiki, a Web site that employees could
contribute to or edit without needing
permission or HTML skills. DKW’s people generate data, get opinions, and find
answers by using the messaging software to contact the firm’s traders and
analysts across the world. Many managers write blogs or post comments on
others’ blogs. Some DKW directors see
the wiki as a way to deal with e-mail
overload and encourage their teams to
post agendas, to-do lists, and work in
progress on the wiki rather than circulating them via e-mail.
As the DKW example illustrates,
NIT’s principal capabilities include the
following:
• Facilitating collaboration. Network
technologies allow employees to work
together but don’t define who should
work with whom or what projects employees should work on. At DKW, ad hoc
teams have formed because employees
read one another’s blogs. These teams
have used the wiki to accomplish tasks,
and they have disbanded without orders
from senior executives.
• Allowing expressions of judgment.
NITs are egalitarian technologies that
let people express opinions. DKW employees use blogs to voice their views
about everything from open-source software to interest rate movements.
• Fostering emergence. “Emergence” is
the appearance of high-level patterns or
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information because of low-level interactions. These patterns are useful because they allow managers to compare
how work is done with how it’s supposed to be done. Emergence is also
valuable for users. For instance, employees can easily search and navigate DKW’s
blogs and wiki for trends and data even
though nobody is in charge of making
them easy to use.
Enterprise IT (EIT) is the type of IT
application that companies adopt to restructure interactions among groups of
employees or with business partners.
Applications that define entire business
processes, such as CRM and SCM – as
well as technologies, such as electronic
data interchange, that automate communications between companies – fall
into this category. Unlike network technologies, which percolate from the bottom, enterprise technologies are very
much top-down; they are purchased
and imposed on organizations by senior
management. Companies can’t adopt
EIT without introducing new interdependencies, processes, and decision
rights. Moreover, companies can’t slowly
create the complements to EIT; changes
become necessary as soon as the new
systems go live.
In 2002, American retail drugstore
chain CVS became concerned about
the long wait times at its pharmacies
and reexamined two steps in its prescription fulfillment process that it had
automated. Initially, its pharmacies
had performed the first step, a safety
check for drug interactions, one hour
before the customer’s desired pickup
time. After that, it checked whether the
insurer would pay for the medicine.
Despite automating the process, CVS
often was unable to resolve all of the
outstanding safety and insurance issues
by the promised pickup times, which irritated customers. CVS then decided to
reverse the order in which the steps
were executed. The change met with
resistance from many CVS pharmacists, who felt that since the drug safety
check was the more important of the
two, it should be the first step in the
process. The team that was rolling out
the project reasoned with the skeptics
but eventually realized that it would not
win them all over. So it instructed the
pharmacies to perform the insurance
review first, when customers dropped
off prescriptions, rather than immediately before pickup time. That allowed
technicians to work with customers
to correct small glitches, such as date
of birth errors in health insurance records, that would prevent drug reimbursements and to warn people if they
were likely to run into bigger issues,
such as the nonpayment of insurance
premiums. The new sequence also let
CVS’s pharmacists incorporate the
safety check into their quality control
procedures instead of treating it as a
separate step. Redesigning the fulfillment process cut wait times at CVS by
as much as 80%, which improved customer satisfaction.
As CVS’s experience shows, EIT’s primary capabilities include the following:
• Redesigning business processes. Because CVS employees couldn’t fill prescriptions until they had completed the
two checks in the new sequence, the revamped fulfillment process wasn’t just
a good idea in theory – CVS employees
had to execute the process in that particular sequence. EIT gives managers confidence that employees will execute processes correctly.
• Standardizing work flows. Once companies identify a complementary business process, they can implement it
widely and reliably along with the EIT.
CVS rolled out its new process in 4,000
IT Category
Definition
Characteristics
Examples
Function IT
IT that assists with
the execution of
discrete tasks
• Can be adopted without complements
• Impact increases when complements
are in place
Simulators, spreadsheets,
computer-aided design,
and statistical software
Network IT
IT that facilitates
interactions without
specifying their
parameters
• Doesn’t impose complements but lets them
emerge over time
• Doesn’t specify tasks or sequences
• Accepts data in many formats
• Use is optional
E-mail, instant messaging,
wikis, blogs, and mashups
Enterprise IT
IT that specifies
business processes
• Imposes complements throughout the
organization
• Defines tasks and sequences
• Mandates data formats
• Use is mandatory
Software for enterprise resource
planning, customer resource
management, and supply
chain management
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YEL MAG CYAN BLACK
The Three Varieties of Work-Changing IT
T O O L K I T • M a s t e r i n g t h e T h re e W o r l d s o f I n f o r m at i o n Te c h n o l o g y
outlets across the United States in less
than a year.
• Monitoring activities and events efficiently. EITs can allow managers to get
an accurate and up-to-date picture of
what’s happening throughout the enterprise, often in something close to real
time. CVS’s software lets executives
know how many prescriptions are filled
every day in each location, how long it
takes to fill each prescription, and what
kinds of fulfillment problems employees had to tackle.
Managing the Three Types
of IT
Across the three IT categories, executives have three tasks. First, they must
help select IT applications that will deliver the organizational capabilities they
desire. S …
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