The End Of Corporate Computing

Published Date: 02 Nov 2017

Being a smaller firm, the greatest impact would be in the area of entry barriers. To remain competitive such a company would no longer need to develop their own IT infrastructure nor would they require the necessary staff to maintain it. By treating the IT infrastructure as a utility, the firm would not require a large capital investment to gain access to the same IT resources as their largest competitors. Rather, they would be able to contract with one or multiple companies to supply their IT resources, paying only for their actual usage. Such a model would allow the firm to remain focused on their primary objectives of manufacturing without the extra burden of the IT overhead. Of course having access to the computing capabilities does excuse the management team from determining how to make the best use of the expanded resources.

While the reduced entry barriers may initially appear to give the firm an advantage over their larger competitors, it could also lead to a greater number of companies providing substitute services and products. As other firms begin treating IT as a utility to be purchased instead of built, they would continue to level the playing field resulting in increased competition. More companies would have access to advanced IT capabilities, allowing them to design and manufacture complex products that only the top manufactures could before.

Along with the decreased entry barriers and increase in substitutes there would likely be an increase in rivalry levels. More companies would be able to provide the same services and have access to more powerful computing resources which could spur a growth of product innovation. The increase in rivalry would also likely force the companies to develop and nurture other areas of their business, such as providing expanded warranties and targeted marketing promotions.

A move towards utility computing would further develop the firm’s ability to coordinate with both their suppliers and buyers. The current model of developing a custom supply chain management system is both costly and labor intensive, and even once deployed there is often no guarantees that it will work as promised. There may be integration issues with their partners, or even worse they may have no system in place to integrate with. Alternatively a move to a hosted solution, such as one offered by One Network Enterprises, could immediately connect the firm with both their suppliers and buyers and also provides them growth opportunities that they would otherwise not have (Demand Driven Supply Chain Management, n.d.). And perhaps more importantly, the firm would not have to invest in developing their own systems and could easily evaluate other options without building a costly new infrastructure.

References

Case Studies. (n.d.). Retrieved February 20, 2013, from Amazon Web Services, Inc. website: https://aws.amazon.com/solutions/case-studies/

Demand Driven Supply Chain Management. (n.d.). Retrieved February 20, 2013, from One Network Enterprises website: http://www.onenetwork.com/industries/automotive-manufacturing/

Porter, M. (1985). Competitive Advantage: Creating and Sustaining Superior Performance. New York London: Free Press Collier Macmillan.

Question 2:

Ronald Coase, in his influential paper "The Nature of the Firm", introduced the model of transaction costs and how it relates to the organization of firms. In this paper, he concluded that a firm can only exist if it is able to produce a good or service more efficiently itself as compared to using an outside entity to provide the same functions. Coase also concluded that a firm will only continue to grow to a particular size before the overall internal transaction costs themselves become a burden on the firm and it is no longer effective to procure the services internally. While Coase did not formally define transaction costs in this paper, today they can be largely categorized as "as the costs of gathering information, evaluating alternative options, negotiating, contracting, and the physical transaction of the object" (Cordella, 2001, p. 2). For a firm to build and maintain a competitive advantage it must understand their costs and reduce any waste of resources.

Kiichiro Toyoda, the founder of Toyota Motor Corporation, also understood the importance of minimizing waste and developed what would eventually become the Toyota Production System (TPS) (The Toyota Production System, n.d.) The two founding principles of TPS are Jidoka, or quick detection and prevention of defects, and Just-in-Time production, where products are made and delivered only as needed by each successive process. Another key principle of TPS is that each process should be continually improved upon, developing new innovations along the way (Liker, 2004, p. 37). While these notions were not specifically targeted towards reducing transactions costs, the end results are the same and by implementing TPS many firms have become leaner and more efficient than their competitors.

While both the Toyota Productions System and the concept of transaction costs were evolving, another important concept in business management was identified and later termed the Value Chain by Michael Porter (1985). The value chain includes all activities the organization performs to design, produce, ship, market and support their products or service. With all three of these concepts in place, firms now had a very effective model to become more efficient. By applying TPS to each step of the value chain they could lower their overall transaction costs and become build a stronger competitive advantage.

The next evolution came as information systems became pervasive in business operations. By applying information systems to evaluating their processes firms gained three main advantages. First, the amount of information available at any given moment increased, allowing for a more complete picture of the processes to be understood. Secondly, with electronic integration both buyers and sellers, along with the firm itself could establish connections amongst each other, allowing for quicker communication. Thirdly, both buyers and sellers could establish electronic contracting; making the entire process more efficient (Cordella, 2001, p. 3).

In all of these improvements, the one step of the value chain that has seen the greatest gains is the production/operation step. By implementing all of these practices a firm can minimize the amount of waste and streamline their practices so that they are producing products as efficiently as possible. Once that is achieved the firm would have a strong completive advantage.

A recent example of this is ACH Foods’s implementation of SAP’s Enterprise Resource Planning (ERP) suite. By replacing their legacy systems with SAP’s ERP, ACH was able to improve their business processes and gain greater visibility into their current and future operations. Once the second phase of their implementation was complete ACH had realized a 20% reduction in inventory, a 75% reduction in the time to initiate new products and acquired the ability to view their inventory across the entire organization (SAP, 2012).

References

Cordella, A. (2001). Does Information Technology Always Lead To Lower Transaction Costs? The 9th European Conference on Information Systems, Bled, Slovenia, June 27-29.

Liker, J. (2004). The Toyota Way: 14 Management Principles from The World's Greatest Manufacturer. New York: McGraw-Hill.

Porter, M. (1985). Competitive Advantage: Creating and Sustaining Superior Performance. New York London: Free Press Collier Macmillan.

SAP (2012). ACH Food Companies: Transforming from a Commercial to a Consumer-Branded Business [White Paper] Retrieved February 23, 2013, from http://www54.sap.com/solutions/bp/erp.html

The Toyota Production System. (n.d.). Retrieved February 22, 2013, from Toyota Motor Manufacturing Kentucky, Inc. website: http://www.toyotageorgetown.com/tps1.asp

Question 3:

In his article, "Stand and Deliver", Paul Travis describes how many companies are spending upwards of 80% of their IT budget on maintenance and operation costs while only leaving 20% on new innovations and business processes. Travis then describes what steps other companies have taken to control their ongoing maintenance costs which allowed them to allocate more resources on innovative ideas and enhancing their capabilities. In the most extreme example Travis highlighted how Carlson Companies has reversed this trend and spends 20-25% of their IT budges on maintenance and operation costs.

Another firm, the Security Benefit Group, was able to reduce their maintenance costs to approximately 40% of their IT budget. Among other methods they used to minimize their costs, each project and business process was evaluated to ensure it added value to the company. By ensuring that they only invested their resources in initiatives that added they were able to create a competitive advantage from within their IT department. Michael Porter (1985) suggested that all activities the organization performs to design, produce, ship, market and support their products or service, known as the value chain, should be similarly evaluated to ensure that these operations were providing value to the company.

Porter identified five key activities which firms undertake to evaluate as the value chain: inbound logistics, operations, outbound logistics, marketing, and service. While these activities are extremely important to a manufacturing company, they do not hold the same importance to a service organization such as a dentist or plumber. This is because the business operations of a manufacturing firm are different from a service firm. In the service industry the service is produced and used by the customer almost immediately whereas in the manufacturing sector the necessary operations typically happen far removed from the customer (Gabriel , 2006, p. 14-15). With this in mind, the supporting activities of the value chain of a service industry may prove to be the best way to create a competitive edge and is an excellent way to leverage their IT resources (Gabriel, 2006,, p. 16, 22). Using the services of a dentist as an example, we will see how IT can be best utilized to provide a competitive advantage.

Assuming two dental practitioners are equally skilled and are able to provide the same services to similar markets, what in their value chains could be improved to help make one succeed over the other? The practice which has the capabilities to process information most efficiently, such as billing, medical records, and appointments, will have a superb advantage over the other practice. These are the processes that the customer will take note of and allow the practices to separate themselves from one another.

For example, assume practice "A" uses virtually no IT systems in their practice. Dental appointments are scheduled manually on day planners, hard-copy medical records are kept and billing is manually conducted on each patient. Each of these steps is treated as a separate process and there is virtually no continuity between them or a method to gain any business intelligence from their daily operations. Compare this to practice "B", who has recently invested in a state of the art information system, such as QSIDental (Dental Solutions | QSIDental, n.d.). Appointments are scheduled online and assign a default value to each type of appointment. This ensures that patients are not double-booked and the appropriate amount of time is scheduled for each person. The patients’ medical file is fully electronic, allowing the information to be viewed at any workstation and gives each user timely access to the files. Billing is can also be fully automatic, sending the correct forms to different insurers as the procedure is billed. The system can also provide inventory control as certain resources are used, prompting reorders as pre-determined thresholds are met. (Olsen, 2012). These processes reduce the cost of doing business, allowing the practice to operate more efficiently and leave the customer more satisfied about the services they have received.