After transferring from Trident Technical College, where I did my
freshman and sophomore years of college, this was the first major
paper I wrote. This was written for my Introduction to Management
Principles course (MGMT 301) with Bill Perry. Clearly one
of my favorite professors at the College of Charleston. If
you can take him, do it.
Specialization
inside Organizations -
Decentralization of Organizations
Networking &
Information Sharing - K-Mart vs. Wal-Mart
E-Commerce - Conclusion
Since the dawn of information technology in the workplace, IT has
changed what organizations do, how they are organized, their relationships
with other businesses and customers, how they will operate, and
in some cases, if they will even exist at all. Many of these
changes are giving business organizations new ways to improve productivity
and competitiveness, build partnerships with other companies, reduce
costs, and to increase autonomy and specialization within organizations.
The IT field remains a frontier with many opportunities and pitfalls.
But like most frontiers, Information Technology offers great potential
for those with the courage, vision, and ability to confront the
unknown.
Information
Technology and Specialization inside Organizations
Management consultant Peter Drucker sees growing specialization
within organizations when he forecasted "a third period of
change: the shift from the command-and-control organization, the
organization of departments and divisions, to the information-based
organization, the organization of knowledge specialists."
Drucker believed information technology would allow organizations
to focus on doing what they did best, creating a stronger focus
on specialization in organizations (Drucker).
U.S. Group is a general construction contractor based in Columbia,
South Carolina, specializing in site and road design and construction,
project engineering, and construction management services.
In seeking to become one of the few construction companies in South
Carolina with a statewide presence, U.S. Group is faced with the
challenge of developing an organization that can manage construction
projects statewide, while maintaining profitability and insuring
customer satisfaction (Cook).
To help implement U.S. Group's growth plan, the Lowcountry Region
office was opened in 1999 with Greg Cook, a registered Professional
Engineer, as Regional Manager, and work crews borrowed from the
corporate office. Since then, the Lowcountry division has
grown, adding two Project Managers, an Administrative Assistant,
and laborers and equipment operators who work directly for the Lowcountry
region. "Not only are we gaining self-sufficiency,"
says Cook. "We're even providing support to our corporate
office in the areas of marketing, research, and human resources
(Cook)."
U.S. Group traditionally focused on certain aspects of construction
projects, while relying on subcontractors to perform other parts
of projects. This allowed them to focus on their strengths,
but it also limited their ability to win contract awards for larger
projects, where larger full-service companies had advantages in
cost and organization. "It's hard to compete with someone
who can come in with the full range of services, while we're trying
to collect, track, and organize quotes from dozens of subcontractors,"
said Laura Brown, a Project Manager for U.S. Group's Lowcountry
region (Brown).
Information Technology
and the Decentralization of Organizations
Drucker saw the growing trend of Information Technology empowering
the decentralization of organizations when he wrote "the information-based
business will use more and more smaller self-governing units, assigning
them tasks tidy enough for a 'good man to get his arms around',
as the old phrase has it (Drucker)." In their book "The
Impact of Information Systems on Organizations and Markets",
organizational analysts Vijay Gurbuaxani and Whang Seungjin believe
that when used properly, IT can reduce external coordination costs
of an organization and increase its use of outside resources.
More and more, organizations are using information technology to
create more autonomy for themselves and finding new ways to employ
their strengths and skills to engage in business ventures that previously
would not have been possible.
Cook credits investment in IT as playing a key role in the ability
of his Region to manage far-flung projects as far as ninety miles
from his office, and nearly two hundred from the corporate office.
A DSL Internet connection allows his staff to research upcoming
bidding prospects, a network allows for greater file sharing, and
laptop computers and Pocket PC handheld computers allow U.S. Group
managers to take their information into the field to job sites and
meetings (Cook).
In the past, U.S. Group, like many other construction companies,
relied on a central staff to handle all aspects of bid preparation.
Brown, who was recruited to U.S. Group for her expertise in bidding
and with the Hard Dollar software, expects benefits from the software:
"Hard Dollar allows us to bid accurately, using fewer people
and less work, while allowing us more control and independence over
projects at the local level." In addition to other hardware
and software used by in-the-field personnel, the bidding software
gives them a larger role in the bidding process. As they are
closer to potential subcontractors needed to perform work, and are
more able to scrutinize project details in person, they can provide
key information needed to submit a bid that is competitive without
losing money (Brown).
In the home mortgage business, which was once dominated by banks
and large mortgage finance companies, Ron Turner is a self-employed
mortgage broker in Summerville, South Carolina. With this
desktop computer and his Palm Pilot, he is able to keep in touch
with a wide range of contacts in the real estate and finance businesses,
as well as to keep in close contact with potential customers.
"Twenty years ago, it would have been impossible to be in this
business by myself or in a small organization," says Turner,
who previously worked as a realtor and high school and college teacher.
"I couldn't be in business for myself without these advances
in information technology (Turner)."
Information
Technology, Networking, and Information Sharing
Gurbuaxani and Seungjin find that IT allows more cost-effective
means to access market information and process transactions.
IT also allows closer connections between businesses by increased
ease of information sharing and mutual monitoring, which can also
help to reduce costs (Gurbuaxani and Seungjin).
One of the largest limitations facing U.S. Group was the inability
of personnel in the field to connect to the corporate accounting
system. "In construction, people expect results, not
excuses," said Cook. "The subcontractors and vendors
we deal with already work ten or twelve hour days. They don't
want to hear 'we'll have to get back to you on that'. They
want answers to their questions when they ask them and expect prompt
payment for their work (Cook)."
The old accounting system had created a number of problems, including
delayed processing of invoices submitted from vendors, and the difficulty
in being able to track the status of invoices submitted for payment.
In most cases, tracking payment information required calling the
corporate office, waiting while the question was researched, then
for a call from the corporate office with the needed information
(Kenner).
The Hard Dollar software allows U.S. Group's estimators to collect
and electronically track quotes and bids from potential subcontractors,
as well as to build a database of quotes from previous projects
and bids to help evaluate future quotes. This allows U.S.
Group to more accurately analyze quotes for the lowest costs, and
present a complete and competitive bid package. The software
also improves efficiency within the company, reducing by one-third
the man hours in preparing a bid package, and if won, the bid items
can be transferred directly into the company's accounting system
to help track costs on the project (Brown).
With the use of high-speed Internet connections, such as DSL and
cable Internet services, coupled with U.S. Group's new Timberline
accounting software, invoices can be entered for payment in a local
office when received, and invoices can be tracked from any computer
with an Internet connection. This enables field staff to expedite
payment, as well as to assure vendors and subcontractors that their
invoices had been processed and that payment would be forthcoming
(Kenner).
Ron Turner relies heavily on the use of information technology to
locate and arrange competitive mortgages for his clients.
Turner subscribes to several electronic services, allowing him to
browse available mortgages for clients for the best possible deals,
to verify the credit histories of his customers, and to submit loan
applications. "Not to many years ago, this kind of information
was either not available, not in a user-friendly format, or was
prohibitively expensive for small businesses and entrepreneurs,
such as myself (Turner)."
K-Mart vs. Wal-Mart: Different approaches,
different results
For years, two large retailers have squared off in the American
marketplace: K-Mart and Wal-Mart. Wal-Mart's decision
to use IT as a tool within its organization to facilitate its primary
mission has reaped great benefits, while K-Mart's failure to embrace
the effective use of Information Technology has put it at a competitive
disadvantage. While K-Mart has struggled to keep its doors
open, Wal-Mart has thrived and created a global empire, moving over
one billion dollars a day in sales from over four thousand locations,
while managing over thirty thousand suppliers (Lundberg).
Kevin Turner, CIO of Wal-Mart, describes Wal-Mart's emphasis on
quality: "we don't talk a lot at Wal-Mart about being the largest
company in the world … What we do talk about it being the best company
in the world." Turner, who became Wal-Mart's CIO at the
age of thirty-three, views IT as a tool of the company's primary
objectives: profitability through increased customer sales, explains
Wal-Mart's three philosophies of IT strategy:
1. CENTRALIZATION: Run a centralized information system
for Wal-Mart's global operations.
2. STANDARDIZATION: Using common hardware systems run
on common software platforms.
3. BUSINESS FIRST: Emphasizing being retailers
first, and using IT as a tool to support that goal (Lundberg).
John Ferramosca, a retail IT consultant, identified K-Mart's failure
to embrace IT in its supply-chain management. "Kmart
has never had the technology culture. But that culture lets
you know what consumers want, when they want it, and by constantly
taking the data you collect at the cash register, getting your suppliers
to get you inventory when you need it (Lundberg).
K-Mart has had considerable difficulties with managing its Information
Technology program. In seven years, five Chief Information
Officers have held the CIO position in K-Mart, including a five-month
period in which the position went vacant. Retired CIO Dan
Hammond, a thirty-year K-Mart veteran, had begun a massive overhaul
of K-Mart's IT systems to overcome its inability to effectively
manage inventory and collect sales information. Shortly after
Hammond's retirement, the project was abruptly cancelled by K-Mart's
CEO and the $130 million investment in hardware and software technology
was written off (Wendland).
While K-Mart's aborted supply-chain management system implementation
kept vendors and suppliers shut out of its operations, Wal-Mart
has reached outside of its corporate organization, using IT to build
stronger relationships with its suppliers. "Wal-Mart has decided
that sharing mission-critical information with its suppliers is
in both their interest and the supplier's interest," said retail
logistics expert Joseph Andraski. Over ten thousand retailers
are given near-total access to Wal-Mart's retail system to track
the sales of their products and help insure they can supply the
needs of Wal-Mart stores (Wendland).
While Wal-Mart views information technology as a means to reduce
operating costs, IT is not viewed as a "final solution"
for improving efficiency within its organization. "Eliminate
before we automate," says Turner. "Eliminate steps,
processes, reports, keystrokes (Lundberg)."
E-Commerce: The Next Frontier of Information
Technology
Information technology has been a valuable tool to help organizations
with management, planning and cost reduction. In recent years,
the continuing growth of information technology has created a whole
new frontier: Electronic commerce, also known as E-commerce.
In the four decades since the dawn of E-commerce, technology and
market pressures have transformed it from a tool to help facilitate
financial transactions to an all-encompassing approach that allows
businesses and consumers to shop and purchase goods and services,
without ever going to a store or speaking with another person.
Now, for as little as $50 a month, businesses can purchase business
services, including simple product catalogs and online purchase
transaction processing. Larger companies will sometimes invest
hundreds of thousands of dollars in a full-fledged E-commerce website,
able to reliably handle large volumes of traffic, display large
catalogs, and process many different kinds of transactions (Lyman).
The first step was the introduction of Electronic Data Interchange
(EDI) in 1968. While a major breakthrough, the lack of compatibility
through a common standard limited the appeal of EDI. In 1984,
the introduction of the ASC X12 standard for EDI created a universal
standard which dramatically increased the use of EDI for information
transfer. The release of the Netscape web browser in 1994
gave Internet users an interactive and graphic interface with which
to access information, making online retail a possibility.
Online retailing exploded during the 1998 holiday shopping season,
when America Online and Amazon.com each generated over $1 billion
in sales (Lyman).
Beginning in New York City in the 1960's, Barnes and Noble had built
itself into a nationwide empire in the book retail industry.
In 1995, the retail chain was caught off guard by the rollout of
the E-commerce website Amazon.com, an online book retailer who took
aim at more upscale and literate Internet users that comprised Barnes
and Noble's customer base, offering them the conveniences of large
selection and direct delivery to their doorstep. Barnes and
Noble scrambled to catch up, offering online retail services via
its own website: barnesandnoble.com (Patton).
By 1999, Amazon held a staggering lead over Barnes and Noble in
online retail, with $1.6 billion in sales, compared to Barnes and
Noble's $193 million. In December of that year, Time
magazine named Jeff Bezos, Amazon's founder, their Man of the Year,
crediting him for Amazon's role in E-commerce's rise to prominence.
The next year, Amazon continued to lead the E-commerce field in
book sales, growing their sales receipts to $2.8 billion, compared
to $320 million for Barnes and Noble's website (Patton).
While Amazon dominated in online retail, Barnes and Noble held an
advantage in real-time book sales. According to Prudential
Securities, Barnes and Noble held twenty-eight percent of the overall
book market, compared to twenty-one percent for Amazon. Instead
of trying to outdo Amazon's website sales, Barnes and Nobles chose
to develop their website services in partnership with their traditional
in-store services, including piggybacking in-store and website marketing
together, using the website's database to help order books for customers
and offering in-store returns for online customers. This approach
showed results, as Barnes and Noble's web business showed twenty-three
percent growth in revenue in 2001, as compared to just two percent
for Amazon's book and music sales (Patton).
While E-commerce has brought great changes in the retail sector,
it has also been embraced in business-to-business relationships,
also known as "B2B". "Traditional B2B is governed
by complex processes and constrained by information inefficiencies,
geography, and market hours," wrote Rakesh Sood, an analyst
for Goldman Sachs. However, Sood noted the Internet offered
B2B purchasers "a single destination for commerce, content,
and community that wraps around end-used and compels them to come
back (Landry)." In 1998, Business to Business, or B2B
e-commerce made up eighty-four percent of all e-commerce revenue
in the United States (Greenberg).
While E-commerce has become a useful tool for organizations, there
are those who point out E-commerce's limitations. Charlie
Moore, who founded the website Carstation.com, a online supplier
of parts to automotive garages, points out that those who provide
E-commerce solutions must still understand the features and processes
unique to the industries they seek to serve. Tim Stojka, CEO
of Commerx, a provider of E-business services to the E-commerce
industry, shares Moore's view. Stojka believes that the purpose
of E-business is not to reinvent businesses, but rather to help
them improve upon their operations and allow them remain true to
their own missions.
Conclusion
Information technology continues to transform how organizations
are designed, and how they will perform. However, new innovations
in Information Technology need not spell the end for traditional
organizations. Those organizations willing to combine their
existing organizations and knowledge with the wise and appropriate
use of new technology can survive, grow, and prosper in the Electronic
Age.
Peter Drucker predicted: "the job of actually building the
information-based organization is still ahead of us - it is the
managerial challenge of the future (Drucker)." Indeed,
this will be the challenge faced by organizations as they seek ways
to use information technology in designing effective and successful
organizations.
WORKS
CITED
Brown,
Laura. Personal interview. 23 November 2002
Cook,
Greg T., P.E. Personal interview. 23 November 2002
Drucker,
Peter. "The Coming of the New Organization".
Harvard Business Review. Jan-Feb 1988.
Greenberg, Paul A.. "B2B E-commerce: The Quiet
Giant." 4 January 2000. E-Commerce Times.
<http;//www.ecommercetimes.com/perl/story/2130.html>
Gurbaxani,
Vijay and Seungjin, Whang. "The impact of information
systems on organizations and markets". Communications
of the ACM, Vol 34. Jan 1991.
Kenner,
Bruce. Personal interview. 21 November 2002
Landry,
Julie. "Is B2B e-commerce ready for prime time?"
19 November 1999. Red Herring. <http://www.redherring.com/insider/1999/1117/news-b2bconf.html">
Lundberg,
Abbie. "The I.T. inside the world's biggest company."
CIO Magazine. 1 July 2002. <http://www.cio.com/archive/070102/walmart_content.html>
Lyman,
Jay. "Ups and Downs of Building an E-Commerce Site."
E-Commerce Times. 18 November 2000. <http://www.ecommercetimes.com/perl/printer/20006>
Patton,
Susannah. "Barnesandnoble.com fights back."
CIO Magazine. 15 September 2001.
Turner,
Ron. Personal Interview. 16 November 2002.
Weisman,
Jon. "The Making of E-Commerce: 10 Key Moments."
E-Commerce Times. August 22, 2000. <http://www.ecommercetimes.com/perl/printer/4085>
Wendland,
Mike. "Kmart missed the opportunity Wal-Mart found in
technology." Detroit Free Press. 26 January 2002.
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