Managing Information System part 5
A manager told me: “Managing is managing whether it is people or technology, it is all the same.” A business graduate with a MBA degree also said: “We are trained in managing and we can manage everything.” That is the view of most managers but they are making a big mistake when it comes to technology.
Today Information Technology (IT) is no longer just a few desktops connected to a server and network to support the business but a complex system with many issues that must be deal with from a strategic view. Company needs to have skilled IT managers who understand both the business as well as the technology to develop the IT strategy which defines how the company will do business with customers, suppliers in this information age. These IT managers must also have soft-skills, such as communication skills, presentation skills, and leadership skills so they can work across many business units, each with its own opinion that may not agree with one another.
A skilled IT manager can help transform a company from a hierarchical bureaucracy into an efficient and well-managed business. A business manager without IT knowledge often depends on recommendations of technology sales persons rather having a well-defined strategy. That is why sometime technology can become just a cosmetic adding to existing processes without any benefits. I have seen many business managers add technologies into their area just because others have done it. For example, some companies have websites then they also want to have a website too; when someone use tablets in their company, they also buy tablets for their people without any good reason. That is why you see a lot of expensive hardware in some companies that are never been use. A business manager admitted: “Many business managers have iPhone so I have one too, but I never use it for anything else besides making phone call. I do not know how to send text messages, search the Internet, or download apps.” Having a lot of technologies does not benefit a company and without skilled IT managers, many companies continue to waste money and receive no benefits.
Companies owners should NOT ask, “How do I use technology?” but “How do I optimize the business for efficiency and reducing waste?” When they ask what they can do with technology, they already think of technology as the solution but it may not be a good decision. When they think about improving the business, they get a different view. By reviewing the business strategy to determine how they can make customers happy; how to optimize existing processes to reduce wastes and how to increase profits, they may want to update existing systems, automate processes, or changing certain organization structures and to do it, certain technologies may be useful.
The first activity when applying information technology is to have a standard processes across the company so you can use technology to automate some activities for efficient. Only by doing that a company can operate the same way, everywhere, and creates a reliable, quality and efficiency in the operation that meet customers’ needs. For example, if a factory can standardize its assembly lines to produce quality products, the company can sell them at the same price regardless where products are made; by having standard financial processes, the company can manage its revenues, costs and profits effectively regardless where the business is operated. With standard processes, company can create new product faster because it does not have to change anything but continue to use the same processes. Standard process saves the company time, money and makes business more profitable.
The reason many companies are having difficulty in applying information technology because their organization structure is based on the hierarchy model with separate functions and units typically taught in business schools. Each business manager controls its own unit, function, area, or product. They often do not share information or cooperate with others so companywide operation is a bureaucracy system where things move very slowly from one place to others, and decision is being discussed in meetings but often not made. By having a companywide standard processes that span across all units and be automated by information technology the entire operation can improve. Information can be sent by emails to all levels of manager in matter of seconds, important issues can reach decision makers in minutes and data can be collected, analyzed and turned into valuable reports in an hour. Senior managers can make decision quickly based on facts and data rather than rely on meetings and discussions. Of course, to do that the company needs skilled IT managers to have this responsibility. Today, top executives often depend on the Chief Information Officers (CIO) who is responsible to standardize every process in the company, and who has the authority to overcome resistance from business managers.
An insurance company has many sales persons who sell insurance policy to customers; for each sale, sales persons have to write sale report to sales unit manager; the sales unit manager must review the policy to make sure it is correct then files an order to the billing unit; the billing manager reviews the order for accuracy then sends a sale invoice to customer; customer receives the invoice and sends a check to the finance unit; finance manager confirms the payment and files the payment report to the insurance policy department who issues the insurance policy to customer. Any error happens during this traditional functional structure will be sent back to previous step until it is corrected because each function unit is only responsible for its own function. On the average, it takes one week to complete the transaction.
By having a standard process that spans across all units and controls by an information system, an insurance policy can be put into a computer by a sales person. The insurance policy is checked by software for accuracy in few seconds then all information is collected, analyzed and stored. At the same time, a billing invoice can be sent as email or text message to customer for payment. Customer can type the credit card number in by rely to the email or by sending a text message back. The credit card is charged to a bank account and if valid, an insurance policy is issued. The whole process only took less than ten minutes. By using information technology, insurance company operates faster, better, more accurate and get money in quickly. By reduce all the bureaucracy and inefficient of the old functional model, it can reduce the number of people in the transaction processes since everything is managed and controlled by computers.
For most insurance companies, the advantage of information technology is also on the data they collect. Since company has all information about customers, it use Big data analytics to know how much more insurance it can get sold if they drop the price by some percentage. In other word, how many insurance policies they can sell to the same customers if they have other needs. If they buy car insurance, company can also offer life insurance by reducing the price by 10% if they buy both. If they buy home insurance they may get another 15% price reduction etc. Big data analytics technology can help company to pushes decision making down to sales person levels, if they sell more, they can make more money by having bonus. Instead just selling one type of insurance like in the past, sales persons can sell more as all information about customers is stored in the computer. Basically with information technology, the company have fewer people but still operates effectively and profitable. Since information technology and big data were used in the past ten years, the numbers of insurance company in the U.S. were reduced to less than fifty from over six hundreds in 1980s. Insurance companies who did not use information technology were mostly eliminated.
A mobile phone retail company has over 10,000 store in the U.S. and Canada has an information systems to control operations and logistics. It pushes the decision making down to the sales person at each store. These sales persons receive information on how many phones have been sold in their store as well as the brands of phone on a daily basis. Each sales person must predict how many phones they can sell each week and what brands would be best sellers. Sales persons place orders to the company each Friday according to their predictions, and company sends the number of phones ordered to the store over the weekend. By placing ordering decisions to individual sales person, the company ensures that inventory in each store will be customized to the demands of that store’s customers. The result is better inventory control as sales person know the market area and customers well so the store do not have to keep phones that they cannot sell and reducing number of storage place and waste. If certain brands are not selling well, company would give higher incentive bonus to sales person to sell more which develop an innovation in local offerings. By having business intelligent system in place, company owner and managers know exactly how many phones are sold every hour, each day, and each week so they can make decision quickly. If a store is not doing well, it can be shut down immediately so company does not lose money. If an area is doing very well, it may open more stores to capture the market. The company has plan to expand to Europe and Asia soon and it is predicted that many local phone stores will not be able to compete with this giant company and its sophisticated information systems.
- Blogs of Prof. John Vu, Carnegie Mellon University