The History of Digital Intelligence - Part Four

This blog shows the the true value of digital intelligence that just needs the decision-making business owner’s attention. 

Otis Transformation by IT (2009) 

Otis transformation by IT (2005) happened two decades later. It shows the dramatic reduction of spare parts and equipment inventory levels ($2 billion was taken out of work-in-process inventory) enabled by new IT technology. This was accomplished by new technology allowing the company to shift to a just-in-time manufacturing schedule for elevator components. Previously, the firm had a constant schedule each month, which delivered plant cost efficiencies but led to large buffer inventories being created. The new system, when fully implemented, took almost one year out of these work-in-process inventories. It enabled the company to stop having inventory scattered all across the globe (mostly outdoors on construction sites, rusting in the rain) and move to a world where they now manufacture components of an elevator only when they are actually ready to install it (six-week, just-in-time delivery). This provided extraordinary benefits to the company in terms of its use of capital. 

It was the new CEO who, after examining the assumptions in the company’s old operating model, recognised the potential for massive transformation in inventory levels by using IT to change their production-scheduling processes. He then put pressure on his staff to transform production-scheduling activities to this just-in-time operating model. As a result, the company was able to reinvent itself into a formidable, low-cost, fast-response, high-service level firm. Again, massive CEO-sponsored support enabled an information-enabled transformation to be executed, with the CEO taking personal heat for any potential disruption of the entire organisation. 

Eastman Kodak (1988) 

Simultaneous to the above-described shift in IT’s strategic impact on the organisation, there also began a radical transformation in the way companies were accessing IT services. The notion of a central IT organisation inside the company, with staff writing code and running data centres, no longer seemed the only possibility or even the most effective or efficient way to deliver services and support. Tasks historically located for execution in the central MIS Organisation were suddenly challenged as to why they were being done there. The question was posed as to whether clustering these tasks inside a company was in fact the most efficient way to operate. While, in the 1960s, certain functions like payroll had been outsourced to companies like ADP, overwhelmingly, IT software development and data centre operations were contained inside the company until the mid 1980s. 

The journey of Eastman Kodak captured this dramatic shift in the delivery model of IT services. The case showed that running data centres was not a core competency of Kodak, but rather an activity that could be safely delegated to IBM. For IBM, running data centres was a core competency, and hopefully a profitable business. By clustering together the data centre activities for many companies, they could achieve scale economies not possible for Kodak. Kodak, as a consequence, could get cheaper and more reliable data centre service from IBM, and focus their resources instead in areas where they could differentiate themselves. Just as key punch departments had disappeared two decades earlier from the IT organisation, so could data centres. With this shift, task domains that had previously been the province of corporate MIS departments suddenly began to be relocated outside the organisation. Outsourcing of these activities in the USA first went to US-based providers such as IBM, Electronic Data Services Corp. (EDS) and Computer Sciences Corp. (CSC). Then, courtesy of the cheap telecommunications provided by both fibre optic lines and satellites, the work was further moved to low labour-cost, English-speaking India, which rapidly became a major global provider of outsourcing processes as well as software development activities. This led to the rapid growth of the great Indian companies such as Tata, Wipro and HCL. 

Of course, another way of outsourcing was acquisition of software packages from companies like Microsoft, SAP, and Oracle. The notion of writing all your operating code rapidly became a prohibitively expensive concept left over from the mid 1960s, and the internal IT development group became less code writers and much more assemblers and customisers of packages, tailoring them to their specific company needs. Previously, for companies like Harmony Life, mostly only management processes outside the internal MIS department were changed by new IT capabilities. Now, processes inside the IT department were impacted too. The number of staff and their mix of skills in a firm’s internal IT staff began to rapidly change in this new environment. In 2016, of course, as the Cloud has emerged, newer dominant data centre suppliers like Amazon have appeared, challenging the very existence of their competitors. 

Providian Trust (1997) 

Finally, there are the systems implementation and change management issues that always lie at the heart of the IT world. These have dominated the field since 1960. Providian Trust (1997) is an account of a typical major project failure and what lay at its root. It is a sobering account, because the process of its transformation could have been written any time between 1961 and 2016. It features users failing to articulate requirements, and IT, in turn, not being completely familiar with the nuances of a new technology. It was a recipe for disaster. Sadly, project implementation continues to be an even bigger challenge in the twenty-first century than it was in the twentieth, even though more and more software packages and project management tools have been created to help in this task. It turns out, one cannot overestimate the ability of people to mismanage projects and execute changes in processes despite a proliferation of new tools. The ‘Big Dig’ phenomena continue to be an unfortunate reality in many IT implementation efforts. Providian Trust was a project management failure that nearly brought down the company and thus is a particularly sobering and instructive example. The techniques of project management are more complex today (as we move from waterfall processes to agile ones). The implementation and coordination efforts are more sophisticated, but in the end the results and challenges are often just like those experienced in the 1960s by Harmony Life. IT remains a field where ineffective dealing with change management issues has dominated the landscape from the very beginning until today. Providian illustrates the potential milestones of IT. Even as new targets for strategic transforming opportunities arise, achieving their potential is really hard. These practical implementation problems have existed from the very beginning of the industry. Repeatedly, execution has turned out to be harder than initially visualised. 

In the next blog we speculate what could be the future trends…