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CASE 3 (to be pass on your blog): Henry Schein Inc.: The Business Value of a Data Warehouse

October 8, 2009 at 20:38 (IT-414 MIS)

Most companies store reams of data about their
customers. The IT challenge has been how to
integrate and massage that information so the
business units can respond immediately to changes in sales
and customer preferences.
Henry Schein Inc. (www.henryschein.com) has it figured
out. The $2.8 billion distributor of health care products designed
and built a data warehouse with an in-house team of
six IS professionals. CIO Jim Harding says he knew that having
the right skills was critical to the data warehouse project,
yet at the time, Schein had zero warehousing experience in its
IT shop. So he and Grace Monahan, vice president of business
systems, hired people for what they call “Team Schein.”
Because Harding had chosen two key tools for the data
warehouse—data extraction software from Informatica Corp.
and user query and reporting software from MicroStrategy
Inc.—the focus was on finding people who had experience
with those tools. So Monahan hired three people from outside:
project director Daryll Kelly, data modeler Christine
Bates, and front-end specialist Rena Levy, who’s responsible
for the user interface and data analysis, as well as user support
and training. Dawen Sun, who handles extract, transform,
and load issues, and database administrator Jamil
Uddin hold two other key positions. Another team member
is rotated in from Schein’s application development group.
Besides having the right skills, the other top priority was
ensuring data quality. “It seems kind of obvious,” says Harding,
“but sometimes these projects forget about quality, and then
the data warehouse ends up being worthless because nobody
trusts it.” So at the outset of the project, the team interviewed
about 175 potential business users to determine the information
they needed to access and the reports they wanted to see.
Plus, the team analyzed the old paper reports and the condition
of the data housed in the company’s core transaction system.
Monahan says those steps brought to light the importance of
cleansing data in a system that’s designed for transactional purposes
but not suitable for a data warehouse. That led to a long
period of standardizing transactional codes in order to produce
the sales reporting that business analysts needed.
“It’s the in-house people who have this gold coin of
knowledge of how their systems really work, which data is really
good and not so good, and how the end users really want
to use the data,” Kimball says. “Data quality is the hardest
part of the project, because it’s very time-consuming and detailed,
and not everyone appreciates it unless they’ve been
through a couple of projects, like Daryll has,” Harding says.
And there was yet another tedious obstacle. The data
warehouse was designed to provide a very granular level of
detail about customers, “so we can slice and dice at will,”
Harding says. But the result was sluggish system performance.
So the team created summary tables to make the
queries work faster, and those tables needed to be tested. It
was a lengthy process, Harding says, but in the end, it
worked very well. The journey has taken well over two years.
The system went live 18 months ago but “really came into its
own” in February, Harding says.
Of course, building a data warehouse is a never-ending
job. New companies are acquired, products are added, customers
come and go, and new features and enhancements
are ongoing. But from an IT standpoint, the data warehouse
is complete and has 85 percent of the data from the
core transactional system. The next major goal is to provide
the European operation with its own data warehouse system
and tie it into the one in the United States.
Harding says his project will surely justify the costs, but
he lacks hard numbers. “We didn’t have a formal ROI that
you could track later. I don’t even know how you would do
it,” he says. “The reason we’re doing the project is because of
the value it brings to the business.”
Lou Ferraro, vice president and general manager of
Schein’s medical group, says the business benefits are outstanding.
He can now figure out who his most profitable customers
are, target customers for certain types of promotions,
and look at the business by product categories or sales territories.
Ferraro says the data warehouse also helps select
customers for direct-mail marketing campaigns that range
“upward of 25 million pieces annually.”
One of the most valuable features of the data warehouse
has been the ability it gives users to add more fields to reports
as they are using the system. “Once you create a basic
report, draw a conclusion, and drill further based on those
assumptions, it allows you to use that data and go even further,
as opposed to creating a new report, and another and
another,” Ferraro says. The IT department used to create,
edit, revise, run, download, reprogram, and print piles of paper
reports—daily, weekly, monthly and quarterly—for the
analysis of sales and market trends. But today, business users
search, sort, and drill down for that information themselves
in a fraction of the time. The data warehouse has become “a
part of our culture,” says Harding. “It’s got that kind of aura
about it within the company.”
Case Study Questions
1. What are some of the key requirements for building a
good data warehouse? Use Henry Schein Inc. as an
example.
2. What are the key software tools needed to construct
and use a data warehouse?
3. What is the business value of a data warehouse to
Henry Schein? To any company?

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CASE 2(to be passed on examination day): Harrah’s Entertainment and Others: Protecting the Data Jewels

October 8, 2009 at 20:35 (IT-414 MIS)

In the casino industry, one of the most valuable assets is the
dossier that casinos keep on their affluent customers, the
high rollers. But in 2003, casino operator Harrah’s Entertainment
Inc. filed a lawsuit in Placer County, California,
Superior Court charging that a former employee had copied
the records of up to 450 wealthy customers before leaving
the company to work at competitor Thunder Valley Casino
in Lincoln, California.
The complaint said the employee was seen printing the
list—which included names, contact information, and credit
and account histories—from a Harrah’s database. It also
alleged that he tried to lure those players to Thunder Valley.
The employee denies the charge of stealing Harrah’s trade
secrets, and the case is still pending, but many similar cases
have been filed in the past 20 years, legal experts say.
While savvy companies are using business intelligence
and CRM systems to identify their most profitable customers,
there’s a genuine danger of that information falling into the
wrong hands. Broader access to those applications and the
trend toward employees switching jobs more frequently have
made protecting customer lists an even greater priority.
Fortunately, there are managerial, legal, and technological
steps that can be taken to help prevent, or at least discourage,
departing employees from walking out the door
with this vital information.
Organizations should make sure that certain employees,
particularly those with frequent access to customer information,
sign nondisclosure, noncompete, and nonsolicitation
agreements that specifically mention customer lists, says
Suzanne Labrit, a partner at the law firm of Shutts & Bowen
LLP in West Palm Beach, Florida.
Although most states have enacted trade-secrets laws,
Labrit says they have different attitudes about enforcing
these laws with regard to customer lists. “If you don’t treat it
as confidential information internally,” she says, “the court
will not treat it as confidential information either.”
From a management and process standpoint, organizations
should try to limit access to customer lists only to
employees, such as sales representatives, who need the information
to do their jobs. “If you make it broadly available to
employees, then it’s not considered confidential,” says Labrit.
Physical security should also be considered, Labrit says.
Visitors such as vendors shouldn’t be permitted to roam
freely in the hallways or into conference rooms. And security
policies, such as a requirement that all computer systems
have strong password protection, should be strictly enforced.
Some organizations rely on technology to help prevent
the loss of customer lists and other critical data. Inflow Inc.,
a Denver-based provider of managed Web hosting services,
uses a product from Opsware Inc. in Sunnyvale, California,
that lets managers control access to specific systems, such as
databases, from a central location.
The company also uses an e-mail scanning service that allows
it to analyze messages that it suspects might contain
proprietary files, says Lenny Monsour, general manager of application
hosting and management. Inflow combines the use
of this technology with practices such as monitoring employees
who have access to data considered vital to the company.
A major financial services provider is using a firewall
from San Francisco-based Vontu Inc. that monitors outbound
e-mail, Webmail, Web posts, and instant messages to
ensure that no confidential data leaves the company. The
software includes search algorithms and can be customized
to automatically detect specific types of data such as lists on
a spreadsheet or even something as granular as a customer’s
Social Security number. The firm began using the product
after it went through layoffs in 2000 and 2001.
“Losing customer information was a primary concern of
ours,” says the firm’s chief information security officer, who
asked not to be identified. “We were concerned about people
leaving and sending e-mail to their home accounts.” In fact,
he says, before using the firewall, the company had trouble
with departing employees taking intellectual property and
using it in their new jobs at rival firms, which sometimes led
to lawsuits.
Vijay Sonty, chief technology officer at advertising firm
Foote Cone & Belding Worldwide in New York, says losing
customer information to competitors is a growing concern,
particularly in industries where companies go after many of
the same clients.
He says the firm, which mandates that some employees
sign noncompete agreements, is looking into policies and
guidelines regarding the proper use of customer information,
as well as audit trails to see who’s accessing customer
lists. “I think it makes good business sense to take precautions
and steps to prevent this from happening,” Sonty says.
“We could lose a lot of money if key people leave.”
Case Study Questions
1. Why have developments in IT helped to increase the
value of the data resources of many companies?
2. How have these capabilities increased the security
challenges associated with protecting a company’s
data resources?
3. How can companies use IT to meet the challenges of
data resource security?
Source: Adapted from Bob Violino, “Protecting the Data Jewels:
Valuable Customer Lists,” Computerworld, July 19, 2004. Copyright
© 2004 by Computerworld, Inc., Framingham, MA 01701. All
rights reserved.
I

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Chap 4 and Chap 8 MIS 2nd Trinal

August 28, 2009 at 05:40 (IT-414 MIS)

CHAPTER 4SYSTEM USERS AND DEVELOPERS
Management Information Systems, 9th edition,
By Raymond McLeod, Jr. and George P. Schell
© 2004, Prentice Hall, Inc.
Learning Objectives:
Learn that the organizational context for systems development and use is changing from a physical to a virtual structure.
Recognize the benefits and disadvantages of the virtual office and the virtual organization.
Know who the information specialists are and how they can be integrated into an information services organization.
Be alerted to new directions that the information services organization might take.
Understand what is meant by end-user computing and why it came about.
Learning Objectives (cont.):
Appreciate that users, especially those with an end-user computing capability, are a valuable information resource.
Know the benefits and risks of end-user computing.
Be aware of the types of knowledge and skill that are important to systems development, practiced by both end-users and information specialists.
Understand knowledge management and the challenges that must be addressed for successful implementation.
Be aware of the special constraints that face developers of global information systems.

Introduction
The first office automation applications were mostly designed for secretarial and clerical tasks; but soon spread to managerial and professional ranks, leading eventually to the virtual office
As firms evaluated the advantages and disadvantages of centralized and decentralized IS organizations, three structures were identified: the partner, platform, and scalable models
Systems development is an evolving activity, with the organizational setting and the roles played by the users and information specialists constantly changing
THE BUSINESS ORGANIZATION
Information systems have been developed to support all organizational levels (Figure 4.1)
At the strategic level, executive information systems are used by the firm’s top managers
An MIS is designed to meet the information needs of managers throughout the firm
At the lowest, operational level systems are designed to meet the firm’s day-to-day information needs in those business areas

OFFICE AUTOMATION
OA includes all of the formal and informal electronic systems primarily concerned with the communication of information to and from persons inside and outside the firm
Figure 4.2 shows an OA model of computer- and non computer-based applications used by a firm
Innovations in IT made it possible for many firm activities to be conducted independent of their location
This is called a virtual organization, and evolved out of office automation

A Shift from Clerical to Managerial Problem Solving
The first OA applications supported secretarial and clerical personnel
As managers and professionals became more computer literate they learned to use the computer applications in problems solving
They began using e-mail to communicate, electronic calendaring to schedule meetings, video conferencing to link problem solvers over a wide geographical area, and so on
OA applications have also been extended by such technologies as hand held computers and PDAs

THE VIRTUAL OFFICE
Evidence of the virtual office began to emerge during the 1970s as low-priced microcomputers and communications equipment made it possible for individuals to work at home
At the time, the term teleprocessing was used, later the term telecommuting was introduced to describe how employees could electronically “commute” to work
Advantages and Disadvantages of Telecommuting
Advantages:
Provides employees with scheduling flexibility so that personal tasks can also be accommodated
Firms typically pay more attention to communications needs of telecommuters
Disadvantages:
Employees can develop a sense of not belonging
Employees can get the idea that they are expendable
The division between home and office responsibilities can become blurred
Hoteling
The concept of “hoteling” is for the firm to provide a “sharable” central facility that employees can use as the need for office space and support rises and falls
The guiding principles for hoteling include:
Design the spaces for functional needs
Similar sized offices are built
Centralized storage space is provided
Fewer enclosed office spaces
Assigned offices spaces are eliminated
Advantages and Disadvantages of Telecommuting
Advantages:
Reduced facility cost
Reduced equipment cost
Reduced work stoppages
Social contribution
Disadvantages
Low morale
Fear of security risks
The virtual office demands cooperation by both the firm and the employees if it is to succeed
THE VIRTUAL ORGANIZATION
In a virtual organization, firm operations are designed so they are not tied to physical locations
Industries that are the most attracted to these concepts are those that add value in the form of: information, ideas and intelligence
Such as: education, health care, entertainment, travel, sports, and consulting
Workers in this “3I Economy” need to have the knowledge and skills required to succeed as IT and information systems are included in business processes
THE INFORMATION SERVICES ORGANIZATION
Require
The Information Resources
The Information Specialists
Systems Analysts
Database Administrators
A Webmaster
Network Specialists
Programmers
Operators
A structure that is typical of a centralized operation is illustrated in Figure 4.4
THE INFORMATION SERVICES ORGANIZATION
Information services organizations usually require:
The Information Resources
The Information Specialists
Systems Analysts
Database Administrators
A Webmaster
Network Specialists
Programmers
Operators
Figure 4.4 shows the structure of a typical information services organization

Innovative Organizational Structures
During the 1990s, large firms sought to achieve a “centrally decentralized” organizational structure
Three innovative organizational structures that have since been identified are:
the partner model;
the platform model; and
the scalable model
Whereas the organizational structure in Figure 4.4 illustrates how the information specialists are grouped, the innovative structures show how the IT functions are grouped
Three Innovative Structures
The Partner Model (Figure 4.5): IT coordinates business areas to achieve value innovation and accomplish delivery of solutions
The Platform Model (Figure 4.6): IT provides the networks so that innovation can be accomplished by the business areas
The Scalable Model (Figure 4.7): shows that two sourcing networks are utilized to interface with vendors when engaging in infrastructure management and solutions delivery within a flexible structure

What All Three Models Share
All three models recognize that the IT function is not a self-contained unit, but interfaces with both users and vendors
Responsibilities for certain functions must be allocated to specialists such as divisional information officers and account managers
All three models reflect an effort to make the IT unit a team player in the firm’s use of information resources sharing and delegating functions when it is best for the firm
END-USER COMPUTING
The first Information Systems were developed with IT specialists doing all of the work for the users (Figure 4.8)
In the late 1970s, users began developing their own computer applications
End-user computing evolved out of four main influences
The impact of computer education
The information services backlog
Low-cost hardware
Prewritten software
In Figure 4.9 the end-user relies on the information specialists for some degree of support

USERS AS AN INFORMATION RESOURCE
In deciding how the firm will use its information resources, management must consider how end-user computing will be conducted, so as to maximize the benefits and minimize the risks
Benefits and Risks of End-User Computing
Benefits:
Match Capabilities and Challenges
Reduce Communications Gap  
Risks:
Poorly Aimed Systems  
Poorly Designed and Documented Systems  
Inefficient Use of Information Resources  
Loss of Data Integrity
Loss of Security    
Loss of Control  
SYSTEMS DEVELOPMENT KNOWLEDGE AND SKILL
The development of information systems requires certain knowledge and skills
It is possible to identify not only the types of knowledge and skill needed by information specialists and users, but also how users can be divided into general management and their staff
Table 4.1 identifies the types of knowledge needed and whether they are of major, intermediate, or minor importance
In the same way, we can identify different types of skills and their relative importance (Table 4.2)

Knowledge Management
This knowledge relates to the firm’s processes, technology, management, and interactions with its environmental elements
Firms are embarking on projects to develop knowledge management systems for the purpose of achieving a competitive advantage
Firms typically regard KM as another type of system to be developed as an IS that gathers knowledge, stores it and makes it available to users
Table 4.3 lists the challenges that must be faced by firms in developing KM systems

A Successful KM Development Project at Nortel Networks
Nortel Networks (using knowledge management software from Excalibur Technologies) credits its pilot KM project with enabling its transformation from a technology-focused company to one that is opportunity/customer-focused
The old new product development system illustrated in Figure 4.10 consisted of a five-phase process
The new project involved an NPD system that enabled Nortel to:
leverage multidisciplinary NPD knowledge assets;
improve NPD decision making; and
facilitate learning and knowledge exchange

CHALLENGES IN DEVELOPING GLOBAL INFORMATION SYSTEMS
GIS describes the information system used by multinational companies (MNC)
GIS developers must address the following constraints:
Politically Imposed Constraints
Cultural and Communications Barriers
Restrictions on Hardware Purchases and Imports  
Restrictions on Data Processing
Restrictions on Data Communications  
Technological Problems
Lack of Support from Subsidiary Managers
PUTTING THE SYSTEM USERS AND INFORMATION SPECIALISTS INPERSPECTIVE
Early systems development was accomplished solely by information specialists, but over time the users have played increasingly important roles
Not only has systems development work changed, but the setting in which the work is performed has changed as well
Electronic communication networks enable firms to become virtual organizations, so now their development work can be done almost anywhere
END OF CHAPTER 4

===================================================

CHAPTER 8INFORMATION IN ACTION
Management Information Systems, 9th edition,
By Raymond McLeod, Jr. and George P. Schell
© 2004, Prentice Hall, Inc.
Learning Objectives
Recognize that the transaction processing system processes data that describes the firm’s basic daily operations.
Become familiar with the processes performed by a transaction processing system for a distribution firm.
Recognize that organizational information systems have been developed for business areas and organizational levels.
Understand the processes performed by a marketing information system.
Understand the processes performed by a human resources information system.
Know the basic architecture of an executive information system.

Learning Objectives (cont.)
Know what customer relationship management is and why it requires a large computer storage capability.
Know how a data warehouse differs from a database.
Know the basic architecture of a data warehouse system.
Know how data is stored in a data warehouse.
Know how a user navigates through a warehouse data repository.
Know what on-line application processing is.
Know the two basic ways to engage in data mining.
Introduction
This chapter gives examples of how information is used in today’s firms
Transaction Processing Systems process data that describe the firm’s daily operations and produce a database used by other firm systems
A related application is Customer Relationship Management (CRM)
CRM uses data warehousing, meaning data accumulates over time and can retrieved for use in decision making
THE TRANSACTION PROCESSING SYSTEM
This term TPS is used to describe the IS that gathers data describing the firm’s activities, transforms the data into information, and makes the information available to users both inside and outside the firm
Figure 8.1 is a model of a TPS where data is gathered from the firm’s physical system and environment, and entered into a database
Data processing software transforms the data into information for the firm’s management and for individuals and organizations in the firm’s environment

System Overview
Data flow diagrams (DFDs) are used to document the system in a hierarchical manner
The diagram in Figure 8.2 represents the highest level, called a context diagram because it presents the system in the context of its environment
The data flowing from the distribution system to management consists of the standard accounting reports

The Major Subsystems of the Distribution System
While context diagrams define the system boundary, other DFDs are used to describe the major subsystems in the firms data processes
When a series of DFDs are used in a hierarchy, they are called leveled DFDs
Figure 8.3 which is a Figure 0 diagram showing three major subsystems
These subsystems are identified by the numbered upright rectangles in Figure 8.3

Systems That Fill Customer Orders
Figure 8.4 shows the four main systems involved in filling customer orders:
The order entry system enters customer orders into the system
The inventory system maintains the inventory records
The billing system prepares the customer invoices, and
The accounts receivable system collects the money from the customers
Figure 8.4 expands Process 1 shown in the Figure 0 diagram, and is called a Figure 1 diagram

Systems That Order Replenishment Stock
The subsystems concerned with ordering replenishment stock from suppliers are shown in Figure 8.5, which is called a Figure 2 diagram since it explodes Process 2 of the Figure 0 diagram
The purchasing system issues purchase orders to suppliers for the needed stock
The receiving system receives the stock, and
The accounts payable system makes payment

Systems That Perform General Ledger Processes
Figure 8.6 shows the detail for the last of the three processes in the Figure 0 diagram
The general ledger system is the part of the accounting system that combines data from other accounting systems to present a composite financial picture of the firm. Two subsystems are involved:
The update general ledger system posts records that describe the various actions and transactions to the general ledger
The prepare management reports system uses the contents of the general ledger to prepare the balance sheet and income statement

ORGANIZATIONAL INFORMATION SYSTEMS
Other specialized information systems used in a firm include the marketing information system (MKIS) and the human resources information system (HRIS)
Another IS that is implemented at the organizational level is the executive information systems (EIS), used by upper level managers in an organization
The MKIS, HRIS, and EIS are described below.
The Marketing Information System
An MKIS is made up of input and output subsystems connected by a database (Figure 8.7)
The Input Subsystems are:
Transaction processing system
The marketing research subsystem
The marketing intelligence subsystem
Each output subsystem provides information about four critical elements in the marketing mix:
The product subsystem
The place subsystem
The promotion subsystem
The price subsystem

The Human Resources Information System
Figure 8.8 illustrates the human resources information system (HRIS)
The figure shows three main HRIS input subsystems:
The transaction processing system provides input data
The human resources research subsystem used for gathering specialized research information
The human resources intelligence subsystem that gathers environmental data that bears on HR issues

The Executive Information System
The executive information system (EIS) provides information to top-level managers on overall firm performance.
A firm’s EIS usually includes executive workstations networked to a central server (shown in Figure 8.9)
Some executives prefer more detail, so EIS designers build in flexibility so their systems fit the preferences of all executives, whatever they are
One approach is to provide a drill-down capability, giving executives the ability to bring up a summary display and then display successively greater levels of detail (Figure 8.10)

CUSTOMER RELATIONSHIP MANAGEMENT (CRM)
CRM systems are used to manage relationships between a firm and its customers so both can receive maximum value from the relationship
Using more effort to cultivate long-term client relationships makes good marketing sense since its usually cheaper to keep existing customers than to obtain new ones
The CRM system accumulates customer data over a long period and uses the data to produce information for users. A CRM system’s central element is the data warehouse
DATA WAREHOUSING
Until recently, computer technology could not support a system with such large-scale data demands
The term data warehouse was coined to describe a data store with the following characteristics:
Very large scale storage capacity
The data is accumulated into new records instead of updating existing records with new information
The data is easily retrievable.
The data is used for decision making, not for the firm’s daily operations
The Data Warehousing System
A data warehousing system (Figure 8.11) enters data into the warehouse, transforms the data into information, and makes the information available to users
Data is gathered from data sources and goes through a staging area before being entered in the warehouse data repository
An information delivery system obtains data from the warehouse data repository and transforms it into information for the users
The data warehousing system also includes a management and control components

How Data Is Stored in the Warehouse Data Repository
The warehouse data repository stores two types of data in separate tables, which are combined to produce an information package
Identifying and descriptive data are stored in dimension tables (Figure 8.12)
Fact tables contain the quantitative measures of an entity, object, or activity (Fig. 8.13)
An information package identifies all of the dimensions that will be used in analyzing a particular activity. Figure 8.14 shows the format and Figure 8.15 includes some sample data

The Star Schema
The key that identifies the dimension and provides the link to connect the dimension tables to the fact table is called a star schema
Figure 8.16 shows how the keys in four dimension tables are related to keys in the information package in the center
Fig. 8.17 is an example using the four dimension tables: customer, time, salesperson, and product
The warehouse data repository contains multiple star schemas – one for each activity type to be analyzed

INFORMATION DELIVERY
The final element in the data warehousing system is the information delivery system
Information is obtained from the data repository, transformed into information, and made available to users
Figure 8.18 shows how the user can navigate the data repository to produce summary information, detailed information, and detailed data
Figure 8.19 shows the results of a drill-across navigation, producing outputs in different hierarchies

ONLINE ANALYTCAL PROCESSING
OLAP is a type of software especially developed for data warehouses
Using OLAP, users can communicate with the data warehouse either through a GUI or Web interface, and quickly produce information in a variety of forms, including graphics
There are two approaches to OLAP (Figure 8.20):
ROLAP (for relational online analytical processing) that utilizes a standard relational DBMS
MOLAP (for multidimensional online analytical processing) that utilizes a special multidimensional DBMS

ROLAP and MOLAP
Both OLAP types include a data warehouse server and a second server that houses OLAP software
A major difference is that the MOLAP workstation includes a downloaded multidimensional database
The data in this database has already been formatted in various dimensions so that it may be made available quickly rather than go through time-consuming analyses
Figure 8.21 illustrates a report that is the type that ROLAP can easily prepare
MOLAP can produce information in many dimensions
Figure 8.22 illustrates a summary report in four dimensions: store type, product, age, and gender

DATA MINING
Data mining is the process of finding relationships in data previously unknown to the user
Data mining helps users discover relationships and present them in an understandable way so the relationships can be used in decision making
The two basic data mining techniques are:
Hypothesis Verification where data is used to test theories
Knowledge Discovery in which users search for common characteristics within the data
END OF CHAPTER 8

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IT-414 – MIS – Case 4

July 30, 2009 at 19:29 (IT-414 MIS)

GE, Dell, Intel, and Others: The Competitive Advantage of Information Technology

There’s nothing like a punchy headline to get an article
some attention. A recent piece in the Harvard
Business Review (May 2003), shockingly labeled “IT
Doesn’t Matter,” has garnered the magazine more buzz than
at any time since the Jack Welch affair. The article has been
approvingly cited in The New York Times, analyzed in Wall
Street reports, and e-mailed around the world. But without
such a dramatic and reckless title, I doubt the article would
have been much noticed. It’s a sloppy mix of ersatz history,
conventional wisdom, moderate insight, and unsupportable
assertions. And it is dangerously wrong.
Author Nicholas Carr’s main point is that information
technology is nothing more than the infrastructure of modern
business, similar to railroads, electricity, or the internal combustion
engineering advances that have become too commonplace
for any company to wangle a strategic advantage from
them. Once-innovative applications of information technology
have now become merely a necessary cost. Thus Carr thinks
today’s main risk is not underusing IT but overspending on it.
But before we get any further, let’s have a reality check.
First, let’s ask Jeff Immelt, the CEO of General Electric Co.,
one of the premier business corporations in the world, this
question: “How important is information technology to GE?”
Here’s his answer: “It’s a business imperative. We’re primarily a
service-oriented company, and the lifeblood for productivity is
more about tech than it is about investing in plants and equipment.
We tend to get a 20 percent return on tech investments,
and we tend to invest about $2.5 billion to $3 billion a year.”
Then let’s ask Dell Corporation CEO, Michael Dell:
“What’s your take on Nick Carr’s thesis that technology no
longer gives corporate buyers a competitive advantage?” Here’s
his answer: “Just about anything in business can be either a
sinkhole or a competitive advantage if you do it really, really
bad or you do it really, really well. And information technology
is an often misunderstood field. You’ve got a lot of people who
don’t know what they’re doing and don’t do it very well. For us,
IT is a huge advantage. For Wal-Mart, GE, and many other
companies, technology is a huge advantage and will continue
to be. Does that mean that you just pour money in and gold
comes out? No, you can screw it up really bad.”
Finally, let’s ask Andy Grove, former CEO and now
Chairman of Intel Corporation, a direct question about IT:
“Nicholas Carr’s recent Harvard Business Review article says:
‘IT Doesn’t Matter.’ Is information technology so pervasive
that it no longer offers companies a competitive advantage?”
Andy says: “In any field, you can find segments that are close
to maturation and draw a conclusion that the field is homogeneous.
Carr is saying commercial-transaction processing
in the United States and some parts of Europe has reached
the top parts of an S-curve. But instead of talking about that
segment, he put a provocative spin on it—that information
technology doesn’t matter—and suddenly the statement is
grossly wrong. It couldn’t be further from the truth. It’s like
saying: I have an old three-speed bike, and Lance Armstrong
has a bike. So why should he have a competitive advantage?”
So, basically, Carr misunderstands what information
technology is. He thinks it’s merely a bunch of networks and
computers. He notes, properly, that the price of those has
plummeted and that companies bought way too much in recent
years. He’s also right that the hardware infrastructure of
business is rapidly becoming commoditized and, even more
important, standardized. Computers and networks per se are
just infrastructure. However, one of the article’s most glaring
flaws is its complete disregard for the centrality of software
and the fact that human knowledge or information can be
mediated and managed by software.
Charles Fitzgerald, Microsoft’s general manager for platform
strategy, says that Carr doesn’t put enough emphasis on
the “I” in IT. “The source of competitive advantage in business
is what you do with the information that technology
gives you access to. How do you apply that to some particular
business problem? To say IT doesn’t matter is tantamount
to saying that companies have enough information
about their operations, customers, and employees. I have
never heard a company make such a claim.”
Paul Strassman who has spent 42 years as a CIO—at
General Foods, Xerox, the Pentagon, and most recently
NASA—was more emphatic. “The hardware—the stuff
everybody’s fascinated with—isn’t worth a damn,” he says.
“It’s just disposable. Information technology today is a
knowledge-capital issue. It’s basically a huge amount of labor
and software.” Says he: “Look at the business powers—most
of all Wal-Mart, but also companies like Pfizer or FedEx.
They’re all waging information warfare.”

Case Study Questions

1. Do you agree with the argument made by Nick Carr to
support his position that IT no longer gives companies
a competitive advantage? Why or why not?

2. Do you agree with the argument made by the business
leaders in this case in support of the competitive advantage
that IT can provide to a business? Why or why not?

3. What are several ways that IT could provide a competitive
advantage to a business? Use some of the companies
mentioned in this case as examples. Visit their websites
to gather more information to help you answer.

Source: Adapted from David Kirkpatrick, “Stupid-Journal Alert:
Why HBR’s View of Tech Is Dangerous,” Fortune, June 9, 2003,
p. 190; Robert Hoff, “Andy Grove: We Can’t Even Glimpse the
Potential,” BusinessWeek, August 25, 2003, pp. 86–88; and “Speaking
Out: View from the Top,” BusinessWeek, August 25, 2003,
pp. 108–13.

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