INFO 410Chapters 3-4 1 IT Infrastructure Chapters 3 & 4 INFO 410 Glenn Booker Images are from the text author’s slides

INFO 410 Chapters 3-41

IT InfrastructureChapters 3 & 4

INFO 410

Glenn Booker

Images are from the text author’s slides


IT Impact on Organizations

Some thought the computer revolution would turn hierarchical organizations into a global networked economy

While the impact of IT has been huge, maybe not quite that extreme– Large firms need to be agile to stay afloat– Small firms need to be networked to stand a

chance


IT Impact on Organizations

Organizational design choices affect the flexibility and efficiency of the business– Org helps manage info complexity, uncertainty

Org must be aligned with strategy and environment to respond to opportunities and threats

IT can facilitate new and improved organizational structures and processes


Organization Design Challenge

How simple or complex is the structure of our enterprise?

How stable or not is the business environment in which we’re operating?

Like we saw in the IT Impact Map, these answers can change over time for a single organization


Need new capabilities

The late 20th century saw much corporate downsizing, reengineering, and general reduction of hierarchical structures, all needed to help compete with customized solutions in a newly global market– And increased use of strategic alliances and

partnerships

But hierarchy lives on!


Need new capabilities

So there was motivation to reduce hierarchy– Yet don’t want to lose speed or efficiency– Giving up control is hard, even if you want to

empower others!

Like GE and ABB in mid-90’s – Want to be global and local, big and small – Decentralized but with central control and

reporting


LeapFrog

For example, LeapFrog went from a startup in 1995 to the #3 toy company in 2002– Five platforms running 100+ software titles, 35+

toy products, plus educational software division

Need constant innovation to stay competitive, but use IT to control operations


Organization Design Challenge


Hybrid or matrix organizations

The big/small problem was first solved with the matrix org structure in the 60’s– Want control & efficiency, flexibility & speed

Often done by combining functional organization with a project-based structure

Looks good on paper, but hard to control– Strategy too complex for actual capabilities!– Hard to tell how fast environment is changing


Hybrid or matrix organizations

So why try another hybrid organization?– IT can now help handle the info demands

Data was often paper or verbal, hence communication channels were slow

Now electronic and networked information can share information fast enough to keep up– E.g. IBM’s Business on Demand to unite info,

processes, and people


Barings Bank

Barings collapsed in 1995 due to $1.2B in trading losses by one trader – Trader also had access to the system which

reported on trades– Wiped out the capital reserves of the bank

A similar problem was averted at Societe Generale when sudden growth and profits caused suspicion


Hierarchy not all bad

Both bank examples show that having limits on responsibilities and decisions, standardization of jobs, and restricting access to information can help protect org from a single point of failure– Except if that point is at the top? (Madoff)

Hierarchical control systems keep processes in line via checks and balances


Contrast hierarchy vs. hybrid orgs

Hierarchical org approach based on mgmt making decisions to meet predefined goals– Do what you’re told!– Controls over transactions help with risk mgmt

‘Newage’ organizations want to empower people and expand their responsibilities– Hard to define new rules if old ones thrown out


Lessons from the ’80s and ’90s

Speed is good, but not if you lose control– Need new products, fast cycle times– But bad fast decisions can quickly go awry– So need constant monitoring, and high expertise

Empowerment is not anarchy– Empowering might pass decision authority lower,

but often isn’t clear who’s in charge– Authority connected to complex org design


Lessons from the ’80s and ’90s

– Org design features include structure, reporting relationships, and compensation

– Empowered structure needs more sr mgmt involvement, clearer communication, and monitoring

Org is more than just structure– That’s why the matrix alone didn’t work – Need the rest of the features to change too


IT impact on capabilities

Organizations are information, communication, & decision-making systems– So how fast information is processed limits an

organization, and how fast they respond to market changes

Common mistake is to change part of org, and omit the controls and reporting aspects


Frito-Lay

In mid-80’s tried to speed product development alone– Many new product variations, marketing

campaigns, promotions– Ignored supply chain, mfg, and order fulfillment– Field sales tried to adjust for local needs,

competition; without distribution support– Chaos


Frito-Lay problem


Frito-Lay

Then coordinated operating process changes– Left out org and mgmt systems to control them– Resulted in missed opportunities, overlooked

problems

Need to redesign processes from end to end, with org, control, and incentive structures– Change is an enterprise function– Faster processes need faster info, more authority


Redefining Control Systems


Con-Way, Inc

Con-Way freight used IT to support global org and control systems– Consolidated into one IT platform across three

divisions, supporting shippers, receivers, carriers– Further improvements with WiFi and RFID


Accountability and collaboration?

Empowerment, teams, and collaboration are hot buzzwords

Authority can be formal or informal– Includes job definitions, incentives, org, and

coordination

Traditional hierarchy balances centralization vs. decentralization


Hierarchical authority

A hierarchy is designed to limit local decisions, make the big mistakes centrally

Trend to decentralization of decision authority is key to new structures– “Self-managing teams”– But coordination and control difficult; may lead

to overchecking self – Overall business goals often left out


Hierarchy vs. On Demand


Phillips Petroleum

Phillips tried a matrix org, with ‘centers of excellence’– Didn’t get enough information to make good

decisions

Added a business intelligence system– Teams of ops managers could make decisions– Gave senior execs oversight, without slowing

processes


Chapter 3 summary

Keeping up with the 21st century requires more than a token re-organization!

Leaving hierarchical structures requires complete rework of management processes

IT provides real time information needed to guide good decisions


Chapter 3 summary

Need to define activities, decisions, and resources to fulfill our strategy

Determine which activities and decisions are inside organization vs outside

Integrate processes with business environment and mgmt cycle control times

Sense internal and external opportunities and threats


Chapter 3 summary

Group people and partners in teams and units to coordinate and control processes

Provide tools and incentives to make good decisions today, and innovate for tomorrow

Use creativity and potential of everyone Create culture of shared values, so everyone

meets personal and shared goals

The case for IT

Carr argued in 2003 that IT is no longer a key strategic emphasis– Major IT systems, like Sabre for AA, and

Walmart’s supply chain were critical for competitive advantage

– Now IT is a common commodity due to reduced price and plenty of development tools

– You still need IT, but it isn’t likely to be a strategic competitive advantage


IT overspent

Too many had been spending wildly on IT– Need more focused and thoughtful approach

Many insist compet. advantage still possible Easy availability of IT makes it valuable Carr’s idea based on old investment model of

IT – no longer true with open source, open standard infrastructures


On Demand IT

So IBM created ‘Innovation On Demand’ to emphasize the flexibility that is needed for business processes and organizations

The key is that the way IT provides value to organizations has changed, and we need to be aware of how to exploit IT correctly


Legacy mindset

The old way of IT was to budget IT expenses within each project– Based on IT systems supporting a single

application, e.g. HR, or manufacturing– Therefore each system ‘belonged’ to the project

that used it

Exceptions to this approach were rare Adoption of the Internet forced the change


The new mindset

As the worldwide network began to emerge, app development, deployment, and integration has become much faster– So there are few isolated systems!

So the new view of IT is as a string of investments, which provide value to the organization


How does IT provide value?


IT drives cost savings

We saw that IBM redid its IT infrastructure, and saved $2B/year– Drastic cuts in the number of data centers,

staffing, and CIOs– Consolidation into one corporate network, not 31– Reduction of the number of applications used

Reengineering back office processes saved another $1B/year


IT drives cost savings

Key vision behind IBM’s transformation was from decentralized silos to a centralized shared services model

IT serves everyone, so make it coordinated to meet those needs


IT drives revenue growth

While controlling internal costs is great, still need revenue to generate profit

Can use IT to streamline revenue-generating processes– Boston Coach optimized fleet schedules– Charles Schwab created online and self-serve

customer portals



– IBM redid its product development processes Reduced cost of abandoned projects 90% Warranty/revenue reduced 25% Time to market improved 67% Overall cost savings of $1.6B/year

– IBM redid global supply chain processes Time to complete orders went from 48 to 2.5 hours Procurement costs down 20% in one year 60% increase in procurement volume with no new staff


IT can help provide business intelligence Provide real time relevant information to

employees (e.g. sales, customer service, marketing), thereby increasing revenue– Canyon Ranch did this– Aflac created a CRM system for insurance agents– IBM Global Services consultants used their new

supply chain processes


IT can help launch new products or services, or add value to existing ones– Embed IT into products

Boeing’s e-Enabled aircraft, Medtronic’s pacemakers

– Launch new products and services Apple iTunes, Boeing’s MyBoeingFleet.com

– Add value to existing products Nike shoe customization


IT drives asset efficiency

Recall asset efficiency = revenue/assets Assets include financial, tangible and

intangible assets Financial assets include cash, securities, and

accounts receivable Tangible assets include physical inventory,

facilities, equipment, and newer software



Tangible IT assets include– IT operating infrastructure; data centers, network

centers, call centers, middleware, – Enterprise solutions; ERP, CRM, payroll, HR, and

database management systems, email and collaboration tools

Intangible assets include ‘goodwill’, acquisitions, intellectual property



Intangible assets fails to capture expertise, experience, proprietary information about customers, relationships with other stakeholders, brand loyalty, etc.

IT intangible assets include– IT systems that support a specific activity, and

associated people– Executive leadership and governance systems


Another key intangible asset is your people!– Compensation, benefits, and the costs of hiring,

retaining, and incentivizing people

So calculating asset efficiency is messy!– Lower assets or higher revenue improves it– Shutting down, writing off, or selling poor assets

helps efficiency– Outsourcing IT infrastructure done for this reason

Why outsourcing fails sometimes

Removing IT functions can increase costs – Fees to outsourcing partners, costs of managing

the relationship, etc.

Can reduce revenue if outsourcing partner performs poorly

About half of world-class companies didn’t benefit from outsourcing

Often due to hidden costs

But not always

Tri*Source Title outsourced IT, and found that everything having to be digital (not faxed) improved efficiency, and reduced workload on servers reduced crashes– Costs per transaction down 20%– Increased costs 25% per year for outsourcing, but

improved flexibility and productivity make up for it

Assets not so simple

So while a computer has intrinsic tangible value as an asset, how that computer is used can produce wildly different intangible business values– IT assets need to be reliable, lean, and scalable

to help lower costs and increase efficiency– When they are also agile and leverageable, they

can help create custom products more easily

Assets not so simple

Since most companies’ IT assets are not lean and flexible, upgrading IT infrastructure is often worthwhile– IBM, Proctor & Gamble outsourcing to IBM

This is a key conclusion – understanding the intangible value of IT assets can help justify improvements to IT infrastructure

IT creates sustainable advantage

Sustainable advantage (i.e. competitive edge) is based on many possible approaches– Strategic position (iPod)– Novel capabilities (Wal-Mart)

Once a leader, need to innovate to stay there

IT creates sustainable advantage

Sustainable advantage comes from evolving a fit between business model with the opportunities and demands of the environment– This is the ‘virtuous cycle’ for which we strive– IT can help your business model evolve by

controlling costs and delivering solutions, using good IT people, partners, and infrastructure

Business case for IT

IT can create opportunities to help a business by changing its strategy and/or capabilities – As we saw, cost savings, revenue growth,

asset efficiency, and sustainable advantage are all possible benefits

Lots of metrics are available to quantify these (see page 124)

Business case for IT

But a business case must also tell a good story– Why this? Is this a good opportunity to pursue?– Why now? How long will it take to implement?

How long to be financially worthwhile?– Why you? Are we the right people to be doing

this? Do we have the resources needed? Do we have the commitment and vision needed?

Project life cycle?

Strategy is implemented via projects Funding for one project is great, but more

depends on how well that project is executed Be sure to learn from each project – what

was good, what wasn’t– Feed that into risk management for later projects– Recognize that projects might have to die if

assumptions change drastically during them

Summary

We’ve summarized the key ways IT can support a business model to produce value– Integrating new technologies into leftover legacy

systems is a key challenge– Uncertainty has led to more need for lean,

flexible, agile systems, not silo’d monoliths!– The business case for IT depends on

understanding its intangible benefits

Documents

INFO 410Chapters 3-4 1 IT Infrastructure Chapters 3 & 4 INFO 410 Glenn Booker Images are from the text author’s slides