Why is enterprise computing so difficult?

Kristina Steffenson McElheran, a professor at Harvard Business School, examines the impact of information technology on business process innovation. It’s a topic, is sometimes said, which is certainly less than exciting.

“People have told me that studying computer use is like studying plumbing – every business has it, so why is it interesting?” she says. “I think it’s a very sexy plumber.”

“There is a big gap between IT-savvy companies and LAGGARDS IT”
McElheran believes that information technology can completely change the supply side of businesses by flattening hierarchies, reducing supply chains, and speeding communication. The result: “People can spend more time designing new products and serving customers, and less time ticking.”

To achieve this, most companies need to be ready for radical change and completely rethink their cooperation and competitiveness. Few companies, especially the larger ones, have made it. Those who have done the extensive IT and organizational work, like Walmart, are seriously reaping.

“There is a big gap between most computer savvy companies and late risers,” says McElheran, assistant professor at Lumry Family and member of the Technology and Operations Management Unit at HBS. “The sooner we understand that, the more likely it is that some of the best companies will gain this competitive advantage.”

More likely to become radical
In his research, McElheran examined the characteristics of companies that radically change their business processes against a gradual change. It is generally accepted that market leading companies often look for product improvements rather than retroactively in terms of product innovation, which is very slow – an approach that protects short term competitive advantage while making them vulnerable to long distance travel.

Would this trend also be valid for companies that deal with business process innovations? Asked McElheran – a question that has been little studied by researchers.

To find this out, it was based on data from the 1999 US Census: some 35,000 factories in 86 different manufacturing industries. The amount of data allowed him to uniquely test innovative innovations compared to radical enterprise innovations. For a gradual change, McElheran examined a company’s online shopping activities as a proxy. For a radical change, “e-selling” was the substitute.

Electronic purchasing (electronic purchasing of products such as pencils, staples and toilet paper) is a simple and less risky process. Online selling involves a much more complex product group and requires interaction between departments as well as a large group outside the company: the customer. The assumption is economically and organisationally riskier.

“I immediately noticed that online buying and selling for businesses in my sample were fundamentally different,” said McElheran. She was also impressed by how the reality of the e-commerce innovations described in the census differed from what she had read in the press. “It was clear that companies did far less than you would think if you read the paper.”

Respondents’ e-commerce was in line with the original theory: large companies, market leaders, favored incremental e-shopping, while small firms were more likely to embrace the dramatic changes in e-commerce. ,

The reason was surprising. Online sales are more difficult to implement as this is a complicated process that, of course, becomes more complex if it has to be implemented in a large distributed organization.

“Big companies certainly had a lot to do,” says McElheran. “But it seems that the best companies have adopted practices to deal with this complexity, and the real stumbling block was that their customers had to hit them, even if a particular manufacturer could be willing, if his customers could not do that, the cabinet could not make the leap. ”

The full results of the study are described in their discussion paper. Are market leaders leading companies in business process innovation? Case or cases of acceptance of electronic commerce.

Missing ingredients
So what should companies do to improve their IT business processes? Unfortunately, there is no simple answer.

“It’s not just about sending a check to an IT provider,” says McElheran. “There is a complex mix of processes and people, organizational structures and supply chain partners that really need to come together.”

The first step is “to treat them as an innovative process, to understand that there is uncertainty, and to create processes to manage it.” For example, when companies invest in a new product, they usually have a strategy in case it bombs. “The same should apply to process innovation,” says McElheran.

Other ingredients:

Organization understanding. A deep understanding of business processes and competition is essential as IT must support critical business processes, not the other way around.
Supporting senior management High-level organizational support is crucial. “Do not treat it like a plumber,” says McElheran. “I do not know any CEO who worries about the company’s sewage system.”
Long-term horizon. The transformation of business processes takes time. Therefore, companies need to be prepared to live in the dark rather than looking for a quick fix. “When you talk to people at the front line, they know it’s complicated and difficult,” she says.
communication error
Investments in technological change without organizational changes will also not work. McElheran and his co-authors James B. Oldroyd and David Elkington have measured the processing time of 2,241 small and mid-sized US companies to respond to the demand for online sales.

The majority – 37% – did so in less than an hour; 16% answered between 1 and 24 hours; and 24% took more than 24 hours. Surprisingly, 23% never responded.

Another study shows that companies that respond to inquiries from potential customers within an hour have a seven-fold higher chance of communicating with a key decision maker than companies that wait more than an hour and 60 times more than companies that do wait more than 24 hours. , ,

“That sounds absolutely crazy,” says McElheran. “It’s the companies that already know they want to be fast, they’ve already invested in IT to speed things up, so why do not paper-based computing companies run?”

Subsequent investigations showed what may be missing. “It has to do with the complementary organizational practices that IT has been deployed with,” she says. Deep hierarchical structures with long communication channels encode the signal.

“We talked to this manager, whose organization is completely flat,” says McElheran. “He’s at the forefront of everything in this organization, he knows everyone, oversees his training, checks the software daily, conducts experiments, and adjusts all the reports to tell him exactly what he needs. and they are ultra-fast. ”

Of course, it is impossible for a manager to do all this in a large company, and McElheran can not say for sure which part is most important. Is it the business plan, is it a process that evaluates IT production on a daily basis, and is the company investing heavily in customizing computers? ” Future research aims to answer these questions.

The competitive advantage
Despite the hard work, some companies succeed. “Walmart did very well,” McElheran said. “One of the reasons why Walmart was able to do so well was the fact that huge costs were being removed from the supply chain and from the information technology operations store for storage – at a low level, but not yet in stock”

This Walmart does not know how he manages to coordinate the vast global supply network so well. “They really hide it because it’s a competitive advantage for the company.”

McElheran is anxious to continue the exploration.

“I’m still at the beginning of a very long and interesting journey,” she says. “It would be sad if I had all the answers now.”

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