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The Black Box Paradox

As the power of information technology increases, the ability of business to translate that power lags. But there is a way CEOs can get more benefit from “the backbox” without having to micro-manage the process.

Not so long ago, laser technology seemed mired in science fiction-a curiosity, an orphan, a promise unfulfilled. With a laser, you could draw a bead on the moon, scientists would say amid head-scratching all around. Nothing indicated lasers would one day revolutionize the retail trade, the music business, printing, or medicine…indeed, the very fabric of the economy and society itself.

Historically, of course, necessity hasn’t always been the mother of invention. Invention proliferates; some technologies are ahead of their time, others are beside the point. Most technologies need a nudge in the direction of usefulness, or must be championed by someone with a vision.

So it has been with information systems-the infrastructure of computer hardware, software, the links between them, and the people behind them. Computers may not have been orphans, but they spent their formative years, the 1960s, cloistered in corporate back rooms, relegated almost exclusively to data processing. But as vacuum tubes gave way to integrated circuits, the ’80s ushered in an era of integration.

Today, few would dispute that information technology is essential. Essential, but occasionally mysterious, more often a crutch to support integral functions than a propellant to deliver decisive competitive advantage. Accordingly, IT tends to be defense rather than offense, just part of the price of admission-”a necessary, costly ante for business survival,” according to a recent Computerworld survey.

Over the years, we’ve made tremendous advances in underlying technologies. And we’re fascinated by all this. We herald every new technology-from the 64-megabit DRAM chip to optical computers-as another triumphant breakthrough for society. Somehow, we get seduced by it. Why? Because we often fail to notice that our ability to apply this magnificent technology hasn’t kept pace. Our ability to invent has far outstripped our ability to apply. Whether “strategic” or otherwise, information technology may be more like the early lasers than we care to admit.

Indeed a chasm yawns between the investment that businesses have made in information technology and their ability to reap significant business benefits from it. Moreover, as technical innovation streaks forward at a blistering speed, businesses are becoming increasingly frustrated, attempting in vain to keep up with “leading-edge” technology even before they’re completely satisfied with more prosaic solutions. In three decades, the cost of computer power has decreased six thousand-fold, while the number of American workers using computing tools now nears 100 million.

For all this, analysts are hard-pressed to find proof that workers are more productive now than they were 20 years ago. The rest of us are forced to rethink IT’s role.

LOOKING FOR LEADERSHIP IN ALL THE WRONG PLACES

This disconnection has three principal causes: the failure of companies to organize work flows efficiently, their inability to fully exploit computing’s power to integrate information flows, and their natural resistance to change.

Underscoring all three is the matter of leadership. “Strategic” is usually a useful trigger word within a corporation, signaling the CEO to get involved. But that’s not the case with IT, which also may help explain the gulf that separates the IT infrastructure from the rest of the enterprise. For various reasons-among them the “black box” mystique of technology-the most important player, the CEO, remains on the sidelines.

In a competitive economy, people don’t ask for technology-they ask for improved product quality, better customer service, quicker time to market, or more creative, cost-effective product delivery. For information technology to be a catalyst in these areas, the mechanics of technology must become secondary to outcomes.

This, then, is the paradox of IT: As technology’s power increases, the ability of business to translate that power into significant performance improvements appears to lag behind. And the more we spend, the more frustrated we become.

The raw figures are daunting: Investment in information technology now surpasses that in other capital investments, and it is certain to continue rising worldwide. IT expenditures worldwide will mushroom from $800 billion today to $2 trillion by the year 2000. Morgan Stanley’s Stephen S. Roach notes that inflation-adjusted capital investment in IT per white-collar worker has doubled from $6,000 in 1982 to 512,000 today.

Even so, little relief is in sight: The hardware may change, but the basic problem has not. Though corporations shift from mainframe-equipped data centers, client/server processing will more than take up the slack. Spending on PCs already far exceeds outlays for mainframes. Information technology today represents 7 percent of the global economy, en route to 14 percent by the end of the decade. In the budgets of tomorrow, the traditional, discrete line item won’t tell the half of it. IT-driven expenditures-for hardware, software, communications, data processing, and services-will instead be integrated directly into manufacturing, transportation, and other areas.

Precisely because IT has become such an embedded and expensive endeavor for an organization, technology management cannot be passive or dispersed. In the face of this chasm between invention and application, the perpetuation of the status quo is a sure sign that businesses still don’t know what to make of IT or how to realize its value. Even when benefits are delivered, who can clearly tell?

MOVING OFF THE SIDELINES

Ideally, the CEO should know. If we reflect on the root causes of the current dilemma-the inability to tap computing’s power to integrate, the failure to reassess work flows, and widespread inertia-it’s clear the buck stops at the corner office.

But pointing fingers won’t bridge the technology gulf. The CEO must be an agent of change, who, through a profound understanding of IT’s strategic role, sets in motion the process. of closing the gap. Leadership is fundamentally the same as always, but it now has an additional lever-IT.

Does this imply hands-on, micromanagement of technology, even to the point of usurping the role of the chief information officer? Decidedly not. Instead, it suggests three orders of business:

  • Recognize on a visceral level that, as Helene Curtis Chief Executive Ronald J. Gidwitz recently noted, information is “the single most-critical tool” for managing the business.
  • Understand that an emerging and ultimate role of information technology is to improve business performance by constantly changing and tuning business processes.
  • Embark on a corporatewide “self-examination” effort, with the goal of achieving a flatter, more responsive organization, using IT as a means to that end. To accomplish these objectives, CEOs may need to broaden their understanding of information technology’s role by defining it, integrating it into the overall strategic planning process, and eliciting feedback on that role from their senior management team. There can be no strategic payoff from information technology without its intimate involvement in company strategy as that strategy is being developed. It may seem painfully obvious, but I think it’s worth repeating: This is how each of us can utilize information technology strategically.

By the same token, information technology shouldn’t be the tail that wags the dog. IT’s real organizational role is that of an enabler, a strategic lever to quantify the value of change and manage it. It’s now within the purview of IT to ask: “Is this the way we ought to do business?” However, thrusting IT into that role represents a departure for many companies.

If we take a step back, we can cushion the shock of recognition. The fact is, virtually every company in every nook of the economy is grappling in some way with the need to work through change (the more perceptive add a sense of urgency to their quest). And fashioning a framework to manage change inevitably involves information technology.

RETHINKING BUSINESS PROCESSES

When we look at those companies that have synchronized business goals and the role of information technology, we don’t see the invention/application gap that so bedevils many businesses. Among the most productive, business and technology work together seamlessly.

At Federal Express, for example, information technology is inseparable from the business; you can credibly say it is the business. Says CEO Fred Smith: “Technology is absolutely the key to our operations. We consider our information technology division a line organization, absolutely involved in the day-to-day operation of the company. I’m just as close to the information technology division as to our sales division.”

In large measure, Federal Express has woven technology into its product-with a direct and immediate payoff in customer satisfaction. John Shaw, author of “The Service Focus,” notes that FedEx’s Cosmos tracking system doesn’t burden the customer with the nuances and numbers of package tracing. Working with little more than city name and zip code, FedEx does the rest; the company has made it its job to know who its customers are.

The real key here is the shattering of traditional boundaries between functions. Shucking a provincial approach, FedEx instead devised cross-functional business systems that stitch together affiliated processes. It aims to do the job in a fashion that supports the customer. This is not a “zero-defects” program, but one that depends on critical information-delivered at the right place and time          to compensate for occasional errors.

In combining technology and business fundamentals, the goal should be to ensure a sustainable competitive advantage. This is achieved by crafting a framework for technology’s role, which in turn tends to work against ephemeral technology-driven gains.

The notion of “getting close” to IT is hardly unique to FedEx. In the retail sector, Kmart CEO Joseph Antonini launched a “renewal” program to analyze, update, and renew the company’s capabilities, and thereby change and grow with its customers. Antonini tapped technology to drive the renewal. Kmart’s ability to enhance information-intensive functions indicates just how far beyond the data center technology can reach.

In this case, it extended all the way to the shopping cart. Kmart redesigned its customer service processes by implementing comprehensive, highly integrated point-of-sale bar code and scanning systems. Assisted by satellite hookups, the retailing giant can monitor sales data on 200,000 items in 2,300 stores. Automatic reorders fill shelves faster, decrease markdowns, speed checkouts by 25 percent, ensure instant credit authorizations, eliminate pricing errors, and increase economies of scale. A point-of-sale link with a just-in-time system at Kmart distribution centers has cut inventory costs dramatically. The system enables the company to identify and respond to shifts in customer buying patterns with unprecedented speed and accuracy. Happier customers have led to higher sales, and profits, for the nation’s second-largest retailer.

One lesson from the experiences of Kmart and Federal Express: To manage change, focusing on process is as important as focusing on product. According to the Harvard Business Review, Japanese companies invest 70 percent of their R&D funds in process innovations; U.S. firms invest a like amount in product innovations, even though process investment makes new product development easier. At Toshiba, the rule is: First set up the organization efficiently, then computerize. Not surprisingly, MIT’s Sloan School now offers courses in “Coordination Science” to examine how computer/communications technology can improve organizational structures.

This rethinking is necessary, because in the race to automate organizations have tripped over the starting block. Now, the automation of obsolete, uncompetitive practices limits the benefits and reach of technology. In her newsletter, Release 1.0, computer industry analyst Esther Dyson laments, “Pointless processes are automated but not redesigned or streamlined, as companies try to adopt technology without disruption. A little disruption-rethinking of business processes and policies       is key to making the new technology useful.”

COLLAPSING THE ORGANIZATION

In bridging this “chasm of expectations,” technical skills are less valued than leadership ability and the willingness to act decisively. Systems are useless by themselves. The move to re-examine business processes is really about empowering people and leveraging information technology. As Peter Drucker puts it, “Computer technology will not be able to improve productivity as promised unless people learn to think through the information they need to do their jobs. Information is data processed so it can become knowledge and the basis for action.”

Levi Strauss is moving to improve customer service and time-to-market by applying technology as close to the point of customer contact as possible-with suppliers and retailers alike. IT traditionally assumed data processing chores from users, so centralization made sense. But the trend toward employee empowerment has prompted firms to put information back in users’ hands: Without access to relevant customer data, strategic decision making is impossible.

Information technology may well be the most potent tool we have for employee empowerment. When McKesson Drug, the nation’s largest distributor of pharmaceuticals, needed to cut distribution costs and improve quality, employees were enlisted to help define the solution. In overhauling its operations, McKesson automated and streamlined the work processes of warehouse employees, strapping to their belts a wearable terminal/bar code scanner.

The result: Warehouse mistakes shrunk 70 percent, while paper and data entry were eliminated, and stock replenishment became almost automatic. “Process thinking” and worker involvement saved the day. Interestingly, although quality improvement was McKesson’s goal, productivity soared as well.

Another benefit: Though point-of-contact users may be less sophisticated technically, they’re far more in tune with what the business needs and what the market wants.

IF IT’S NOT BROKEN, IT WILL BE

What of those successful businesses that have already embraced the new role of IT? Well, as Churchill said, “Success is never final.” Continue with the examination effort, the re-evaluation of the status quo. The current economic climate demands no less.

In the not-too-distant past, information technology suffered from a lack of access and a lack of respect. Events in business and science have converged to change that irreversibly. But the wise CEO appreciates that information technology today is due more than respect: It deserves a permanent place in the leadership arsenal.


Les Alberthal is chairman, president, and chief executive officer of Dallas, TX-based EDS, a full-service information technology and consulting company serving customers in 30 countries.

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