Module 7

Decisions and Information~

Technology

7.1 Introduction

7.2 Technical Issues

7.3 Applications7.3.1 IT in Retailing7.3.2 IT in Manufacturing and Distribution

7.4 Past and Present7.4.1 The 1960s7.4.2 The 1970s7.4.3 The 1980s7.4.4 The 1990s and up to the Present

7.5 Benefits7.5.1 Communications7.5.2 Efficiency7.5.3 Functionality7.5.4 Management7.5.5 Strategy

7.6 Implications for the Individual7.6.1 What Are the Right .Attitudes?7.6.2 What Is the Right Approach?7.6.3 What Skills and Knowledge Are Needed?

7.7 The Future

7.8 Concluding Remarks

Review Questions

Case Study 7.1

7/2

7/2

7/47/47/6

7/67/67/77/77/8

7/107/107/117/117/127/12

7/137/137/147/15

7/16

7/18

7/20

7/22

Decision techniques are now inextricably linked with information technology(IT). In particular decentralised or 'end-user' computing has made the tech-niques accessible to managers at all levels and greatly added to their day-to-dayrelevance. This module describes what has happened in the context of IT devel-opments in general. By the end the reader should know why IT has become soimportant, what the benefits of IT are likely to be and how the implementationprocess should be tackled. The module will cover technical issues only to theextent 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 thesort of person who would use such words. In fact the term refers to nothingmore frightening than a computer system which produces information speciallyprepared to support particular decisions. Everyday examples are the systemsproducing bank statements, fuel bills and television (teletext) travel information.

Since, apart from a few eccentrics or masochists, no one would now dreamof applying any of the decision techniques described in the previous moduleswithout computer help, they are rightly viewed as decision support systems.They take raw data and refine them to produce information directly relevant toparticular decisions. In some cases, such as linear programming, the refinementgoes to the ultimate extent of advising exactly what the decision should be.

There have not always been close links between computers, managers anddecision techniques. Until the advent of microcomputers in the early 1980s,the calculations underlying the techniques were carried out either by handor on a mainframe computer. The former was tedious and time-consumingand resulted in errors; the latter put the organisation's computer departmentbetween the decision maker and the information the techniques were producingand tended to reduce the effectiveness of the information. The computerisationof the techniques and their role as DSSs have revolutionised their relevance today-to-day management. The techniques and their output are now immediatelyaccessible, through microcomputers and off-the-shelf software, to managers atall levels.

DSS software, especially that for decision techniques, is readily available: it isnot usually necessary to wait in the data processing department's priority queuefor months or years before finally receiving something which is not quite whatwas wanted. The software is also easy to use and this has increased accuracyand, more importantly, the usage of the techniques.

The primary purpose of this module is to deal with the role of informationtechnology (IT) in applying decision techniques. However, the issues are thesame if the general role of IT, and DSS, in organisations, which is inevitablymuch wider, is considered. Consequently, the module, while primarily devot-ing itself to IT and management decision making, goes further than just thecomputerisation of the techniques which were the subject of the earlier modules.

To appreciate fully the role of IT, some technical knowledge is needed andthis is supplied on a 'need to know' basis in section 7.2. Section 7.3 describessome applications of IT. Section 7.4 shows how this role has developed since the1960s,and this leads on to a section describing the benefits which are now beingachieved. Section 7.6 considers the implications of the availability of DSS forthe individual manager, emphasising what can be done to promote successfulimplementation. Finally a brief look at possible future developments is taken.

A manager does not need to become a technical expert but he or she doesneed to know when technology might help solve business problems and how

to liaise with experts. IT users need enough knowledge of the terminology toallow them to express their points of view in meetings with experts, even inthe face of appalling jargon. A dividing line must be drawn between necessaryand unnecessary knowledge in much the same way that a car driver willfind a certain amount of technical knowledge helpful in making proper useof the vehicle but prefers not to trespass on the role of the mechanic. Thissection explains some simple technical terms. People who already have a basicunderstanding of IT should pass it by.

IT has six basic elements, according to one definition (other definitions maybe different):

(a) Computers. The machines that process the data. They vary from largecentralised mainframes to desktop microcomputers.

(b) Software. The sets of instructions or programs which tell the computer whatto do. Software can be bespoke (speciallywritten for a particular application)or generally available off-the-shelf programs such as word-processing andspreadsheet packages.

(c) Telecommunications. The means for transferring messages and informationover distances. This includes the cables which connect one computer toanother in the same building, switchboards which link computers in differ-ent 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 per-son works. Typically it includes a microcomputer, a screen, a printer and ameans of storing information.

(e) Robotics. Machinery operated by a computer. For example, the automaticassembly and welding machinery on car production lines is linked to asmall-scale computer which tells it what to do and feeds information aboutthe type of car that will arrive next on the assembly line.

(f) Smart products. Equipment which has built-in computer intelligence. Forexample, credit cards naye been developed which incorporate tiny comput-ers to record and update information such as bank balances and creditwor-thiness.

A succession of technical breakthroughs has resulted in astonishing reductionsin the cost of computing power which is now thousands of times cheaper thanthirty years ago. If Rolls-Roycecars had become cheaper at the same rate, theycould now be bought for a few pence. Consequently, IT is increasingly importantto business organisations as the computerisation of more and more applicationsbecomes cost-effective.

The primary reason for the most recent cost reductions is the silicon chip. Thisis a small sliver of silicon, the size of a fingernail (Figure 7.1) into which a wholeelectronic circuit can be etched. The cost reductions have continued as improvedtechnical processes have allowed ever more complex circuits to be included ona 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 decentralisingcomputer facilities. Instead of one or two large mainframes presided over bya computing department, companies now have, in addition, microcomputerslocated throughout the organisation and under the control of local users. Thesecomputers are usually networked together: a manager's workstation may beextensively linked to other managers' workstations, to other company locations,to the company's mainframe computer, to external information sources, and toother types of technology-based officeequipment. The linkages are by means ofcables which may be telephone wires, coaxial cable or optic fibres.

Networks can give a range of new facilities, particularly electronic mail bywhich memos, reports, etc. are communicated in electronic form by computerrather than paper. An associated facility is the electronic diary: manager's diariesare held on computer and meetings can be arranged by searches which take amatter of seconds to find the participants' free times. Most importantly, thenetworks supply management information shared by many users. Databaseshold locally generated information, corporate information downloaded frommainframe computers and the output of decision techniques.

Large high street retailing organisations have invested heavily in electronic pointof sale technology (EPOS)- see Figure 7.2. When the customer takes purchasesto the check-out desk an optical character reader takes information from thebarcodes on the products. A barcode is a series of lines which, by being ofdiffering widths, contain coded information about the product: type, brand,size, etc.

I ICentral

information

Storesinformation

Barcodereader

Localcomputer

Centralcomputer

The optical reader can be hand-held or it can be fixed in which case theproduct is passed over it. The product information is passed to the local storecomputer which returns the current price of the product to the cash desk. Atthe end of a customer's transactions the total amount owed can be paid in theusual 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 directlyfrom the customer's bank account.

Meanwhile, information about this sale and all others is stored on the localstore computer and, at the end of the day, forwarded to the company's centralcomputers. Sales information from all stores is assembled and analysed allowingshort-term decisions about purchasing to be taken as well as creating databases ofinformation for longer-term planning. Analysed information will also be passedback to the stores to help with decisions about restocking. Organisations suchas Wal-Mart have used this concept to create 'seamless' reordering systems.Its suppliers can see when products are sold and so they can automaticallyreplenish the store hour by hour. Such information systems make stock controltheories obsolete. Rules on reorder levels are not needed when products areimmediately (well, almost ipunediately) replaced.

There are three main reasens for companies to make such huge investments.First, EPOScan speed customer throughput at the cash desk. Second, it providesoperational information of a highly detailed kind to improve the effectivenessof distribution systems and inventory control and to allow prices to be changedvery quickly and to reduce stock costs dramatically. Third, it can providehigh level management information for planning new products and developingstrategies. This last benefit is potentially the most valuable but undoubtedly themost difficult to achieve since it requires managers to adopt new information-based ways of working. They must be able to spot potential value in data andto use decision and other techniques to refine such data into useful information.The organisation has to see information as a corporate resource and find waysof using it profitably. Research suggests that organisations and managers arefinding it difficult to adapt, even to monitoring the use of information.

Large car manufacturers have multinational operations. Components are takenfrom international suppliers and brought to assembly plants in different loca-tions. The final products are then shipped to customers all over the world.

Computers control these systems, monitoring the movement of componentsand completed products between suppliers, assembly plants and customers byair, rail, road and sea. For example, a large multinational car manufacturer claimsto be able to find the whereabouts of any part, whether a completed car or asmall bolt, at any point in time within seconds. The system was gradually builtup over a number of years. Early versions of the system reportedly providedinformation which arrived later than the components themselves.

Such systems provide operational advantages just like EPOS. Distribution isfaster and stock levels can be kept to a minimum. In effect stock is beingsubstituted with information. These systems provide management informationabout, 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 extrascan, in theory, make an order and then have the car built to these specificationsand delivered anywhere (well, nearly anywhere) in the world within a matter ofdays. Global courier services such as Federal Express use the Internet to allowcustomers to see for themselves where in the world their shipment is. But, as inretailing, organisations find it easier to achieve these operational benefits frominformation than they do the ones associated with higher level managementinformation.

The introduction of large mainframe computers into organisations in the 1950sand 1960s was successful, success being defined by projects which workedeffectively, achieved the anticipated cost savings, were perceived by users assuccessful and which were, more or less, on time and within budget. Closerscrutiny, however, revealed that the successes were in particular areas:

(a) Accounting, e.g. the payrolls and budgeting systems in nearly all largeorganisations.

(b) Operations, e.g. inventory control in the car industry, customer accounts inbanking.

(c) Technical, e.g. missile control systems in the defence industry, computer-aided design (CAD) in shipbuilding.

The success was therefore in systems which supported specific functions andoperations and it contrasted with a lack of progress in applying computers tothe management of organisations. Specifically there were many failures in devel-oping MIS (management information systems) which were supposed to provide

managers with the necessary information for running and developing the organ-isation, and non-routine decision taking. For example, the data in computerisedbanking systems were potentially available for management decisions to do withmarketing, planning and defining strategy, but were not so used. This was theera when large amounts of data from mainframe computers were printed outon vast stacks of paper, circulated to managers monthly and called managementinformation systems. In effect this amounted to the dumping of data rather thanthe provision of focused information and, as a result, the print-outs gathereddust 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 1970sthe failure of MIS became generally recognised. There was much discussion andanalysis of the causes of this failure, a wide range of behavioural and technicalreasons being put forward, including:

(a) Effective user participation was absent. Although users were often involvedin the development process, they were rarely able to have a significant influ-ence on events. As a result not only were their knowledge, experience andneeds not incorporated into the design but also they became disillusionedand opted out, reacting adversely to what was eventually delivered.

(b) Many systems did not match the management style of users. Managershad no experience of working systematically with computerised informationand the concept of MIS was therefore diametrically opposed to their usualmanagement style.

(c) The information was often poorly formatted. Little attempt was made totransform masses of data from the computer into information that might beuseful to the decision maker. Accordingly these MIS confused rather thanclarified decisions.

(d) Many systems were unrelated to organisational structures. Managers atdifferent levels require. information at differing levels of detail. There was atendency for everyone to receive the same dumped data.

(e) Some users had unrealistic expectations of the systems. Many usersregarded computers as a panacea and thought that, more or less auto-matically, they would provide benefits. Strangely, this view seemed tocause greater problems than that of cynical users who would not give thecomputer a chance.

Surprisingly, these factors are still the cause of the failure of present-day ITprojects.

The situation started to change in the 1980swhen microcomputers became avail-able. Technically they could do nothing that a terminal linked to a mainframecomputer could not do but their key effect, underlying the massive growthin their application, was that they allowed control of computing to be shared

between technical experts and users. A manager no longer had to deal witha centralised data processing department or consultants to obtain computingassistance. There was no question of a project having to wait in a lengthy queuewith other projects until the department had the time and resources to be ableto tackle it. He or she could use computers with very little outside help: hencethe 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 anotherfactor contributing to the demand for them. When cheap, easy-to-use softwarebecame plentiful, continued growth was assured. These events have run counterto predictions: initially it was thought that micros were going to be successfulin homes rather than businesses.

The decentralisation of computing meant that managers were better able todefine their own information needs and then to implement the relevant systems.The availability of excellent software meant that micros could be used for theexecution of decision techniques, but this was just part of the picture. Otherapplications, then and now, include9. developments in areas away from theoperational successes of the past:

(a) Information handling. Corporate data from local sources, from other partsof the organisation and from external sources can be made available on themanager's desk. These data can then be manipulated in tables and graphsand used effectively in decision making.

(b) Statistical analysis. Off-the-shelf packages are available for most analyticaltechniques such as forecasting methods.

(c) Financial planning. Spreadsheets are used to compile financial plans andfor budgeting.

(d) Office automation. Standard officeprocedures such as typing, filing, mailingand arranging meetings can be carried out electronically.

Organisations are continuing to develop large company-wide computer systemswith operating/technical! financial applications. However, the real growth andspread in the use of IT comes from local applications, especially those involvingstrategic initiatives and management tasks. This growth has centred on the useof 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 ofdata which caused such a problem when printed out in the 1960sand 1970sand work on them locally to provide information which has been reducedand refined to suit the local decision makers.For example, if a customer of an insurance company should telephone toamend a policy or to ask a question about his cover, he or she will probablybe answered by a member of staff dedicated to customer service. She (it'susually a she) will already have the customer's details in front of her on a

computer screen. The computerised switchboard will have recognised thecustomer's telephone number and automatically downloaded his or her filefrom the mainframe where the records reside to the customer care officer'spersonal computer. She will be empowered to deal with the customer'squery whatever it is. Such a situation contrasts with the recent past whena telephone enquiry would often result in the customer being passed fromdepartment 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 microcom-puters. This means that expensive equipment such as high quality printerscan be shared. It also means that information and documents can be passedaround and that users can communicate electronically with one another(electronic mail).For example, such internal infrastructures have supported better team work-ing, as a team is able to use software such as Lotus Notes to share infor-mation and co-ordinate activities. As another example, the mid-1990s man-agement craze for BPR (Business Process Re-engineering) was based, insome part at least, on the availability of internal IT infrastructures. Theidea was that cross-functional decision-making processes, which dependedfundamentally on the movement of information, could be redesigned in rad-ically new ways by taking advantage of significantly improved informationhandling facilities.

(c) External linkages. Wide area networks link micros or locally networkedmicros with the outside world. Information can be transferred across cityblocks, countries or continents very rapidly. In particular, company officesin different locations can communicate with one another, and this is a majorfactor permitting the global integration of the management of multinationalorganisations. The technical aspects of these links are telecommunicationsand involve complex equipment such as digital switchboards and satellites.For example, the 1990sview that IT could create competitive advantage wasfrequently based on the availability of these cross-organisational links. Inthe 1990s the Chief Executive of American Airlines was quoted as sayingthat given the choice between selling his aircraft or his computers he would'probably sell the aircraft'. The reason was that AA was making a significantproportion of its profits from its CRS (Computerised Reservation System)which linked AA to its travel agent customers. This process of bringingorganisations closer to customers continues with the Internet. The ability ofthe Internet to link organisations to individual customers and prospectivecustomers worldwide has spawned many new organisations with a totallynew way of doing business. The jury is still out on the long-term successof these organisations.

It probably does not need to be said that the picture is not one of universalsuccess. There are plenty of horror stories. At the time of writing the UKgovernment is receiving reports on a new air traffic control system. It wassupposed to start operating in 1996. The date has been continually put backand is now several years overdue. The building to house the system and itsoperators was completed some time ago. Similar project failures are reported

in many countries. Technical knowledge, technical breakdown and inadequatesoftware receive much publicity in the context of IT failure but it seems morelikely that the real problem is that many general managers are not adaptingto the implications of computerised management. Important implications ofcomputerised management are in areas such as:

(a) Controlling information. Information saturation can be a problem: moredata do not automatically imply better decisions. They may just causeconfusion.

(b) Keeping information consistent. Lots of data sources in different partsof an organisation may result in inconsistent information and thereforeinconsistent decisions.

(c) Developing analytical abilities. Additional management skills are neededto use the available information for management purposes and avoid themisuse of techniques.

(d) Avoiding behavioural conflicts. Using IT throughout an organisationpresents behavioural problems which are not evident when IT is usedon an individual basis.

(e) Aligning business and IT strategy. IT does nothing by itself. It needs tobe part of the business objectives of the organisation.

Organisations often take too narrow a view of the benefits that can accruefrom 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 thefollowing benefits have been achieved as a result of IT investments. The benefitscan be classified into five main groups, which are related to decision makingand 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 changescan be transmitted to an entire sales force rather than only to a sales managerwho must then pass these details on.

(b) Improved quality of communication: for example, up-to-date informationon price changes can be delivered to the sales force quickly and accurately.

External Communications

(a) Wider circulation of documents and information: for example, publishedfinancial information can be immediately available to an analyst.

(b) Standardised information: for example, retailers can share consistent plan-ning information with suppliers.

(a) Document transfers: for example, reports can be brought in from otherinternal systems rather than re-entered.

(b) Compatibility with customer systems: the range of potential applicationscan be extended and closer customer links forged.

Direct Time Savings

(a) Professional: for example, engineers can change designs more quickly andaccurately.

(b) Management of functions: it is easier to control the flow of documents andcommunications 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 deliveryperformance.

(a) Distribution: for example, saving printing costs by circulating documentselectronically.

(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 havefeatures a previous system or method lacked, or carry out existing activities atan improved quality level or be easier to use.

Range of System Capabilities

(a) Organising: for example, producing a complex document all on one machineand 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 profes-sional and maintain a standard company 'look and feel'.

(a) Ease of learning: for example, a system may mean that inexperienced staffcan 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 organisa-tion and with the way individuals do their jobs.

Human Resources Management

(a) Improving morale: for example, increasing job satisfaction and job enhance-ment.

(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 Style

(a) Better information support.(b) Increasing mobility.(c) Skill development.(d) Personal development.(e) Reduced pressure from queries.

This type of benefit is concerned with systems that have had an impact across thewhole organisation, perhaps by giving competitive advantage, enabling majorcorporate objectives to be met or influencing company policy in a substantialway.

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 theywere not all found in the same project). Surprisingly, not many organisationsevaluate IT projects after implementation. As a result they may have achievedbenefits without knowing it.

The purpose of this section is to investigate what an individual manager oradministrator needs to know and can do to promote the effective use of ITfor management decision making. The findings are based on research into ITprojects which had a management rather than operational emphasis. In themain, surveys have investigated projects where things have gone wrong. Theyhave shown that technical issues are less important than people issues and thatin general people get the systems they deserve. The implications of the researchcan be classified into three dimensions: attitude, approach and the need forspecific skills.

IT project team members, whether users or experts, should demonstrate thefollowing mental attitudes to the project.

(a) Commitment. The signs of commitment are that personnel, departmentaland corporate resources (especially management time) have been put intothe projects. A typical sign of a lack of commitment is when attendanceat project team meet~gs is repeatedly cancelled because of other short-term problems and junior staff members are sent, without being briefed, asreplacements. Another negative sign is when a lowly clerical member ofstaff is given the job of System Administrator or Co-ordinator - in additionto existing responsibilities.Senior management must be committed. It is their responsibility to ensurethat the project is part of a corporate IT strategy which should in turnbe linked to the business objectives and strategy of the organisation. Thissenior level commitment is frequently lacking, on the old-fashioned groundsthat computers are to do with operations and do not concern the board ofdirectors.

(b) Realistic expectations. System users should anticipate substantial benefitsbut not immediate perfection. Rather they should expect to make adjust-ments as the project is implemented. And they should appreciate thatmaking changes, just like turning an aircraft carrier, will take time.Although computing power is enormous there are limits to what can bedone. Ambition is commendable but users should not expect too much. A

marketing manager of a UK bank believed that he could build up exten-sive computerised information on the banking activities of the entire UKpopulation 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 assistantinto the office and ask, rather than search on a computer screen. Beforemaking large investments in management information systems, organisa-tions should try to ensure that managers really want them and will usethem.One of the most important positive signs for an IT project is the existenceof a champion - a user who sees the benefits and will drive the projectforward from the user side of the fence. Research has shown repeatedlythat the presence of a champion indicates success and the absence, failure.

(d) Persistence. This means a willingness to formulate detailed plans, to fol-low through the details of the plan and to monitor performance. Manyorganisations do not attempt to-quantify benefits. Many more do not mea-sure whether benefits have been- achieved or not, even though views areexpressed that the project has-been a great success or failure.

(e) Fear (or lack of it). Users should have the right balance between respectfor IT and paralysing fear. Surveys have shown cases of managers refusingto have anything to do with IT projects: refusing to use computer outputor to use keyboards. It is never clear whether this means they are showingtoo little respect or too much fear.

7.6.2 What Is the Right Approach?

Research shows that the wayan organisation/project team/individual sets aboutan IT project should have the following characteristics.

(a) Top-down. The question should not be 'how can IT be used?' but 'whathelp can IT give so that business objectives are met?' In particular thismeans that there should be an IT strategy which is a plan showing what ITinvestments are to be made and how they are to be used to meet corporatebusiness objectives. An IT strategy should therefore be linked to corporatestrategies.It is surprising how few organisations have meaningful IT strategies. 'Alwaysbuy Microsoft' is not an IT strategy although it may be a part of one. Surveyshave even revealed consultancy companies which advise other organisationson how to develop IT strategies but do not have one themselves.

(b) Planning based. Planning is of course important for any type of project butis more so for IT projects, where the objectives and technologies may notbe equally clear to all participants and where there may be large differencesin the attitudes and understanding of those taking part in the developmentprocess.

(c) Substantial user involvement. No one would seriously question the premisethat managers should be involved in the development of the systems theyare 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 notaugur well for a project if users attend meetings only to listen to whatcomputer experts have to say. It does augur well if users feel ownership ofthe project: they should talk about 'our' project rather than 'their' project.

(d) Flexibility. This means including plenty of contingencies in the plans. Inthe 1960sand 1970swhen banking systems were being computerised, somebanks made provision for interest to be paid on current accounts. Othersdid not, and are now regretting it. Flexibility also means that users shouldbe prepared to change their management practices in order to make moreeffective use of the system. In the earlier example of a customer telephoningthe insurance company, the company had to restructure itself, creating a newcustomer services group and recruiting staff with different skill sets fromthe existing workforce.

(e) Monitoring. During development and after implementation the systemshould be monitored to find out whether the system is working properly,whether it is achieving the expected benefits and whether its running costsare within budget. Post-implementation project evaluations let the organi-sation know whether its investment has been worthwhile and show whatadjustments are needed. They provide valuable lessons for other projects.

(f) Commitment to continuing development. The development and use of asystem 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 decisionstoday which affect future events, and commitment is the most importantingredient; 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 isthe key to success. The other benefits are that it leads to better resourcemanagement, improves communications, brings control and influences thefuture.

(b) Project planning techniques. Critical path methods can help to managesystem developments.

(c) IT project stages. Computer experts will have to set out the standard stagesof an IT project. The users should also know what the stages are if they areto 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 transitionsuccessfully 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 knownto all concerned.

• Establish proper plans including defining tasks, estimating the effortinvolved, cost, duration, priority, sequence, etc., and assign responsibil-ity.

• Formulate a people policy by analysing the effects of change on people,assessing the adjustments that may be necessary, deciding how to allowfor them and devising a scheme to put them into action. If jobs are tobe radically changed or lost they should be dealt with explicitly.

• Communicate objectives and progress clearly to all involved, givingopportunity for people to voice their own views. Bad news may bebetter than uncertainty.

• Ensure an orderly transition by encouraging active involvement in theprocess, anticipating what can go wrong and being prepared to dealwith unexpected developments.

Research shows that when transitions, whether to do with ITprojects or not, gowrong 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 difficultand dangerous. However, there is general agreement that the following devel-opments affecting decision making and information have high probabilities:

(a) Further technical progress. Computers will continue to get faster andcheaper. This will open up new areas of management to computerisation.For example, many of the following are enjoying growing use (this is anillustrative 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 systemis fed details of the illness and then it 'thinks like an expert' to comeup with a list of possible illnesses, usually with probabilities attached.

• Artificial intelligence. This is software that does even more thinkingfor itself, mimicking intelligence. When an AI component is added toa statistical package the manager can ask questions such as 'whichhave been my most profitable customers recently?' The package takesthe 'plain English' question and decides how best to answer it. Thedifference between an expert system and artificial intelligence is thatthe former only deals with specific structured issues.

• Data mining. This is software that investigates vast quantities of datato search for particular or unusual patterns. For example, it is used byaccounting auditors to detect fraud. When auditing a large organisationthe auditors are faced with so many data they cannot check them all.Instead they use data mining to search for unusual factors which, frompast experience, indicate fraudulent activity.

• Decision mapping. This is a technique which helps a decision makerstructure his or her problem. It can work for an individual or for agroup. Those taking part brainstorm the situation they are dealing withand try to come up with relevant factors which have an impact on thedecision, and possible solutions. The end result is a 'map' in whichthe factors are linked and grouped together to form a map of issuesshowing the way they relate to one another. It also produces guidanceon the costs of different solutions and their effectiveness. Many softwarepackages are available to carry this out.

• Knowledge management. The 'learning organisation' has been a late1990shot topic. The idea is that an organisation needs to understand,protect and preserve the knowledge, or competencies, which enable itto carry out its work and which differentiate it from its rivals. The prob-lem is how this knowledge can be gathered, stored and disseminated.Again, much software is now available.

(b) More integration within the organisation. The use of networks will con-tinue to grow, resulting in better communications and reductions in themovements of paper. There is a high initial cost when networks are installedbut once this investment has been made a whole range of other projectsbecome feasible. For example, an office equipment manufacturer installedcomputer links for its entire sales force: each salesperson could key in anorder on-site at the customer's premises and get an immediate responseabout availability and delivery. Once this investment had been made it wasthen cost-effective to use the network for other purposes such as communi-cating price changes and product updates to the sales force.

(c) More integration with suppliers and customers.An organisation's suppli-ers and customers will both have IT equipment that links with its own.For example, stock levels will be controlled by linking retailers with theirmanufacturing suppliers. Customers will have smart cards to speed finan-cial transactions.

(d) Information will be used better. After managers have learned how to usethe technical equipment the next logical step will be for them to learn tomake proper use of all the information available because of it. There willbe an increase in the use of the decision techniques described in the earliermodules.

(e) Companies will co-operate over IT. Companies within the same valuechain will form strategic alliances linking their IT strategies to ensure propercommunications; competing companies will form alliances to afford the ITdevelopments that will enable them to protect and expand their marketpositions.

(f) IT will form a major part of corporate strategies. Instead of being a

peripheral cost-saver, IT will be inherent in organisations' activities. Forexample, plans to expand into different overseas markets will depend on ITto provide the necessary management information for planning and control.

IT is bringing about a revolution in the business world and in the way bothpublic and private sector organisations are run. This revolution first had animpact on the operations of organisations as technical and clerical functionssuch as payroll and inventory systems were taken over by computers. Morelately IT has made an impact on strategy and management functions at alllevels. Decision making in all areas from strategy formulation to day-to-daypricing and purchasing has started to change. The changes are pervasive andaffect many dimensions of the organisation but some issues are of fundamentalimportance to anyone in management.

IT changes business. It is not just a question of being able to do the currentjob 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 bookstore. However, by doing so over the Internet it gives itself some significantadvantages. First, it can reach customers anywhere in the world. Second, it haslower costs because it does not have the expense of a chain of stores. Third, it canprovide 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'sbusiness. The main activity of a company in the building industry was installingbathrooms. Then the managing director came across some software for designingbathrooms. It allowed the customer to design the bathroom for his new houseon-screen, being able to see immediately the effect of moving facilities aroundand to know the cost of different options. The company rapidly became adesigner of bathrooms, a much more profitable area of business.

IT changes management style. Not only do companies change their busi-ness, managers change the way they manage. For example, technical authorsused 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 itera-tions. Automated offices allow authors to make their own corrections on screen,speeding up the process and obtaining better results. Some authors even inputtheir material themselves, leaving the typing pool to tackle difficult diagramsand generally to tidy up.

In the past computer systems belonged to the computer department and theusers were kept at arm's length - and generally preferred to be so. Newersystems, based on decentralised resources, belong at least as much to the usersas to the specialists. The users feel responsible for them and feel able to generatenew ideas for further developments and new systems.

Although the benefits can be great, so can the problems and IT should beseen as an iceberg: seven-eight of an IT project is unseen. IT projects can beso 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. Whena retailing organisation first issued its own charge card, customers who had notused their card were surprised to receive statements telling them they owed£0.00 which had to be paid by the 15th of the month. Meanwhile, customerswho had used their cards a lot were surprised to receive the two pages of theirstatement in different envelopes, often at different times. This demonstratesthe inevitability of there always being some errors, rather than pointing tonegligence.

Perhaps the biggest problem for managers is that IT changes rapidly. It is noteasy to keep up to date with the latest developments and opportunities for thesuccessful deployment of IT. The Internet is proving a very effective mediumfor selling software. It is a good place to search to see if the software you thinkmight help you is available.

Managers must also be aware of the 'information' part of information tech-nology. Information is a corporate resource and should be treated as such. Justas 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 searchfor useful information not currently available which will support the decisionsthey have to take.

The above discussion has looked at things from the point of view of 'whatcan go wrong?' Looking at the situation more positively, the opportunitiesare immense. The example of an American wholesaler supplying goods todrugstores shows how IT can affect companies and industries at the highestlevels with immense benefits for those who use it properly and devastatingeffects for those who do not.

The company was essentially a warehousing operation, buying goods frommanufacturers and holding them in stock until ordered by a drugstore. Under-standably the first computer development was inventory control, a typical firstfunctional application. The next step was to computerise sales processing. Again,this was a straightforward cl:-oicebut what happened afterwards led to someexciting developments.

The next step was to put, at the wholesaler's own expense, terminals incustomers' stores. There were advantages on both sides. Customers could makean order electronically, know immediately whether the item was available andwhen it could be delivered. The wholesaler saved paperwork and manpower.

This was quickly followed by a really creative move. Software showing thefloor plans of the stores and giving guidance about the most profitable locationsfor different goods was installed. Customers were given this extra service,helping them manage their stores, at no charge. Once the terminals were in thestores, extra facilities such as this floor plan software could be added at lowcost but it brought the enormous advantage to the wholesaler that it tied in thecustomer. It would be difficult for a customer to change to a different supplierand revert to the old ways of conducting business.

Success encouraged the wholesaler to offer a further service. The customersreported that one of their major problems was cash flow because part of theirbusiness 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 retailermade it possible to do this efficiently. Again, there were advantages all round.The drugstores improved their cash flows and, presumably, had fewer excusesfor late payments to the wholesaler; the wholesaler expanded its business.

IT had given the wholesaler, and the drugstores, typical benefits such as costand manpower savings but the later developments had gone much further. Thewholesaler had gained competitive advantage by offering a better service andhad in fact moved into a new line of business in a different industry: factoringin the financial services industry.

The effect on the drugstore wholesaling industry was dramatic. Naturallyother wholesalers could not stand by and had to take action quickly. Somehad the expertise to develop their own systems; others had to buy in expertise.Some with expertise were taken over by others without expertise but withmoney. There were mergers and some companies went bankrupt. The net resultwas that the number of companies in the industry was reduced to about a tenthof the original. And it all happened very quickly.

The conclusion has to be that IT has the power to affect companies at alllevels as well as the industries of which they are a part. At the centre of whatis happening is decision support systems: the use of management informationand decision techniques for decision making. Not only are the techniques nowmore accessiblebecause of the availability of hardware and software but also theIT revolution is providing the good quality information which feeds them. Theencroachment of IT into all areas of management has created an environment inwhich systematic decision making is becoming essential.

7.1 Which one of the following is hardware?

A An accounting package.

B An electronic diary.

C A laser printer.

D A spreadsheet.

7.2 A smart credit card:

I Can hold up-to-date information about the holder's bank account.

II Contains a silicon chip.

III Is a piece of equipment 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 is not used as cabling in local area networks?A Coaxial cable.

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 operationalsystems was successful whereas the development of computerised managementinformation 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 between data and information.

III Users sometimes had a blind faith in the systems and made no attempt toanticipate problems.

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 of decentralised com-puter resources in a large organisation?A Electronic mail.

B Payroll.

C Statistical analysis of downloaded data.

D Word-processing.

7.7 A car manufacturer has developed a computer system which links retail establish-ments with distribution channels and manufacturing plants, allowing customersto know when a car of some particular specification might be available. Whattype 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 manufacturerswhich have been approved by the organisation's computer department and cantherefore be approached to tender for IT investments.

7.9 Adopting a 'top-down' approach means that the source of ideas for IT projectsshould be:

A The board of directors.

B An analysis of business needs.

C The computer department.

D A report on recent technical advances in computers.

7.10 A patient describes his problem to his medical consultant who keys the factsinto a desktop computer which in turn reports that there is a 72% chance thatthe patient has appendicitis, 26% influenza and 2% Lassa fever. What type ofsystem 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 youngman to come up from London to tell us about the Internet. He seemed atypical whizz-kid wearing a smart suit and a slick hairstyle. He spoke veryenthusiastically but the room was stuffy and I wasn't quite sure why I wasthere. However, I did know that unless I got to grips with the Internet myfuture in the company might not ~e very rosy. I stirred myself and began tolisten.'

That was Jim Hamilton's first impression of the Internet implementation policybeing implemented in the Electronics Group of BE (British Engineering) in thelate 1990s. At the time he was Manager of Costing for BE Distributions, acompany in the Electronics Group, in Manchester where he had worked forabout 30 years. The young man giving the talk was Mike Driver who had beenwith the company for the five years since his graduation. During this time hehad completed BE's Graduate Training Programme, specialising in InformationTechnology. In 1997/ he was given the responsibility for creating a policy forco-ordinating the introduction of the Internet in the Group.

BE Structure and Management StyleThe British Engineering Company (BE)pIc is one of the country's largest engi-neering and manufacturing companies. For the year ending 31 March 1999/BEhad a turnover of almost £4 billion with a pre-tax profit of just over £600 mil-lion. It employs about 50000 people in more than 14 countries and has over 50subsidiaries.

A small headquarters staff in London has overall control of cash, capitalinvestment plans and acquisitions. Each company in BE produces an annualbudget and sends monthly reports to London. These reports record the mon-th's figures for about 30 factors, such as sales, orders, staff costs/ overheadsand bank balance. In addition, details of seven key BE ratios are given, forexample sales/capital employed, sales/ debtors, and sales per employee. Theheadquarters staff takes a direct interest in these monthly reports, particularlythe ratios. Nevertheless, managing directors of operating units have a great dealof autonomy in deciding how to achieve their business-plan targets.

This blend of firm central monitoring of business performance but with decen-tralised operational management control is the distinctive flavour of the BEstyle. Managing directors realise they have considerable freedom but will beheld responsible for their company's success or failure.

There is, however, an organisational level between London and the operatingcompanies in that each company belongs to a group. Group managing directorsare expected to co-ordinate the work of companies in the group, keep a close eyeon performance, hire and fire managing directors and seek ways of improvingoverall performance. BE's groups are continually changing and can be seen as thedriving force of BE's organisational structure. The direct relationship betweenmanaging directors of operating companies and the London HQ is fixed butcompanies are frequently re-formed into different groups to take account ofchanging needs and opportunities. Over the years a flexible group structure hashelped to integrate new acquisitions and start-up companies into the overallstructure. Over the last ten years the groups have become more focused ondistinct areas of business as BE has rationalised. There are still many distinctcultural streams within BEreflecting the origins of particular units.

By their nature, groups within BE are seen primarily as an administrativeand management overhead needed to aid communication and co-ordinationbetween London and operating companies. As an overhead, costs and staffingare expected to be kept very low.

Challenges Faced by the Electronics Group

The Electronics Group had between five and ten companies within it during theyears 1996 to 1999. The sizes of these companies in terms of annual turnoverranged from just over £2 million to more than £100million. In 1999,the Group'stotal turnover was about £350 million.

The Group was originally formed in 1986 and its current Managing Director,James Houghton, was faced with the task of steering the companies throughwhat were likely to be turbulent and competitive times. One of his key objectiveswas to stimulate management methods that would meet the challenges of thenew millennium.

How the Need for a Computer Decentralisation Strategy Evolved

In the early 1990s, the Internet was mainly being used in the home but by1998 its potential for performing useful business work was well established ascompanies started to use it to handle typical business tasks. Houghton wasaware of these developments and was beginning to get requests from managersto move in this direction.

Computer services for the Electronics Group were the responsibility of BEComputers (BEC),part of another group of BE, although a substantial part ofthe mainframe operations were outsourced. Companies in the Electronics Groupalso had their own local IT managers (ITMs) who reported to BEC and wereresponsible for investigating IT needs within the company and liaising with BECfor the provision of an appropriate solution. Some, but not all, of these ITMshad local computer systems in their charge, such as large microcomputers whichacted as 'front ends' to BECmainframes.

For some time, BEChad been thinking primarily in terms of more microcom-puters linked to the mainframes. BECwas cautious about the introduction of theInternet because of the inability to control developments and ensure consistencyand proper support.

Nevertheless, Houghton felt the Internet could be of value in helping man-agers rationalise the supply chain and provide better links with customers, whichwere his prime management objectives. He felt the Internet could stimulate afresh sense of involvement among managers at all levels because it providedcapabilities for sharing information and assisting in planning and decision mak-ing. He saw the Internet as an agent of change at a time when the Group wasfacing an urgent need to respond to a rapidly changing business environment.

In 1996, Houghton was aware that Driver was looking for his next stepup within BE. Driver had general IT experience but particularly with end-user computing and was keen to apply his expertise to Internet applications.The availability of Driver as a skilled resource was the final factor in leadingHoughton 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 importantjob and anxious to move rapidly up the corporate ladder, Driver was keento get started in implementing the new technology that so many people weresaying was the key to success, individually and corporately. He soon learnedthat his job involved much more than sorting out technical problems: there werecomplex human and organisational interactions that lay beneath the surface ofhis formal job description (see Table 7.1).

Table 7.1 Mike Driver's job description(a) To introduce Internet technology into offices where it may benefit the company.

(b) To ensure a maximum degree of cohesion within and between different departmentsin order to reduce costs and maximise utilisation of resources.

(c) To evolve a Group Internet Strategy to include recommendations on:

(i) when the Internet is appropriate compared to other alternatives;

(ij) introducing new systems: personnel, training and back-up procedures;

(iij) communications requirements, 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 issuesare. Concentrate on the main issues rather than points of detail.