Belling the strategic information systems cat

D28

WORKING

PAPER

ALFRED

P.

SLOAN

SCHOOL

OF

MANAGEMENT

BELLING

THE

STRATEGIC INFORMATION SYSTEMS CAT

CHRIS

F.KEMERER

GLENN

L.SOSA

MIT

Sloan

WP

#

2020-88

September 1988

MASSACHUSETTS

INSTITUTE

OF

TECHNOLOGY

50

MEMORIAL

DRIVE

CAMBRIDGE,

MASSACHUSETTS

02139

BELLING

THE

STRATEGIC INFORMATION SYSTEMS CAT

CHRIS

F.KEMERER

GLENN

L.SOSA

MIT

Sloan

WP

#

2020-88

September 1988

Sloan

School

of

Management

Massachusetts

Instituteof

Technology

Cambridge,

MA

02139

(c)

1988

ChrisF.

Kemerer, Glenn

L. Sosa

All rights reserved.

Helpful

comments

from

E.

demons,

J. Rockart,

M.

Scott Morton,

and

N.

Venkatraman

on earlier

BELLING

THE

STRATEGIC INFORMATION SYSTEMS CAT

CHRIS

F.KEMERER

GLENN

L.SOSA

Sloan

School

of

Management

Massachusetts

Instituteof

Technology

Cambridge,

MA

02139

MIT

Sloan

WP#

2020-88

September 1988

(c)

1988

Chris F.

Kemerer, Glenn

L. Sosa

All rights reserved.

Helpful

comments

from

E.

demons,

J. Rockart,

M.

ScottMorton,

and

N.

Venkatraman

on

earlier versions ofthispaperare gratefullyacknowledged.

Belling

the

Strategic

Information

Systems Cat

ABSTRACT

Business executives

and

systemsprofessionalsareconfrontedalmostdailywith suggestionstouse information technologystategically.

While

thisadvicehas

had

a

number

of positiveeffects, including

broadeningthethinking about

how

ITcan beused, ithasatthe

same

timefailedtosuggestthe significantdiiTiculties inactually

implementing

thesesystems.

This paperhighlights adozensignificantbarrierstothe successful conception,

development

and

implementation

of strategicinformationsystems(SISs).

These problems

areillustrated withactual

examples

gleaned

from an

extensivereviewofthebusinesspress

and from

confidentialinterviews with

managers

who

have

attempted todevelopSISs.

A

riskmatrixisprovidedtoassist

managers

in

The

mice oncecalledameetingtodecide

on

aplantofreethemselvesoftheirenemy,thecat.

At

leastthey

wished

to

find

some

way

of

knowing

when

she

was

coming,so they

might

have timeto

runaway

...

Many

plans werediscussed,

but noneof

them

was

thought

good

enough.

At

lastavery

young mouse

gotup

and

said: 'Thaveaplanthat

seems

very simple, butI

know

itwillbesuccessful. All

we

haveto

do

is to

hang

abellaboutthecat's neck.

When

we

hearthebell

ringing

we

will

know

immediatelythatour

enemy

iscoming."Allthe mice were

much

surprisedthatthey

had

not

thoughtofsuch a

plan

before.

But

inthe _{midst of}rejoicing overtheir

good

fortune,

an

old

Mouse

arose

and

said,

7

will

saythattheplanof the

young

Mouse

isverygood.

But

let

me

ask onequestion:

Who

willbellthe cat?

-AESOP

"Belling the Cat"(c.

500

BC)

I.

INTRODUCTION

JustasAesop's

mice

faced a

common

problem,

many

business executives

and systems

professionals are similarly

justifiablyconcerned withtheformidable evolutionofcorporateinformation

systems

and

the rapidly

expanding

market

for information technology(IT)relatedservices

and

products.

They

have

seen budgetsforinformation systems(ISs)skyrocket overthepast severaldecades, while littleprogresshas

been

made

indeveloping

means

to

evaluatethe appropriatenessoftheseinvestments.

One

recent proposalforjustifyingIT

investment

has

been

the notionof strategicinformation

systems

(SISs).

At

leastadozenarticles

have appeared

insuch journals asthe

Harvard

Business

Review

.Sloan

Management

Review

,

and

MIS

Quarterly proposingSISs,

which

are definedbyIves

and

Learmonth

as"anapplication ofIT that

changes

a

firm'sproductorthe

way

a

firm

competes

initsindustry"[Ives84]. This

stream

ofarticleshas

had two

salutary

effects.

The

firstisthatithas increased

many

firms'

awareness

of ISs'strategicpotential. This

movement

from

narrowly viewing ITas only appropriatefor

automating back

officefunctionstoa broader conceptionofIT's

applicabilityhas

been

ofbenefit. Second,ithas relievedthe necessityfor costbenefitstyle justificationof

many

investmentsinIT

where

such justification

may

have been

inappropriate[Vita88].

However,

forallthese positiveeffects,thereis

growing

recognition that the SIS concept has

been

oversold.

The

articlesencouraging firmsto"get

on

board theSIS

movement"

have

rightlypointedtoa holytrinityoflegitimate successes: MerrillLynch's

Cash

Management

Account,

American

HospitalSupply's

ASAP

order entrysystem,

and

the

American

Airlines

SABRE

reservationsystem.

However,

thesearticles

have

generallynotaddressedthe

significant barriers to conceiving,developing

and implementing

SISs^.

For example,in

August

of

1984

Fortunemagazine, in

an

articleon Federal Express's

Zapmail

and MCI's MCIMail,

said,"Wall Street'sanalystsgenerally agree thateach

company

willturnaprofit inelectronicmailby

1986 and

that

eachservice willbegrossingover $1billionayearbythe early 1990s" [Loui841. Sincethen,

Zapmail

has

been

discontinued amidst

$350

millionin losses

and

MCIMail

hasfallen farshort oftheinitialoptimisticpredictions [Bair87a]. Inlightofexperiencessuchas these,

managers

needtolookveryclosely at

any

SISproposal.

This paperoutlines adozensignificant

problems

inrealizinga SIS,

and

provides

examples

ofunsuccessfulSIS

attempts gleaned

from

an

extensivereview ofthebusiness

and systems

press

and

confidentialinterviews with

individuals involvedinSISsattempts. All of the

systems

usedas

examples

here

have been

described as strategic

and

meet

the Ives

and

Learmonth

definition. It is

shown

that thepaucityofSISsuccessstories isnot

merely

a lag

between

the proposal ofsuchideasinjournalarticles

and

their

implementation

inthereal world. Rather, itis

because SISs investments areonly appropriateforthoseorganizationsthatcan

overcome

the

numerous

hurdlesthat

have

stoppedother organizations. Clearly,buildinga successful SISisa desirablegoal.

However,

thequestion

managers

must

askthemselvesis,

"How

willthisbe accomplished?"

II.

STUDY

METHODOLOGY

Answering

thequestionof

why

therearenot

more

successful

examples

ofSISsis a

much

more

difiicult

assignment

thanfindingthe successes,for

two

reasons.

The

firstisthat

much

of the data,mostlyinthe

form

of institutional evidence,isinthe

hands

offirms

who

would

preferto

keep

theirfailures private. Second,itwillbe

argued

that a

number

of prerequisites

must

be

met

before

an

SISideacan

even

make

itthroughtheconceptualization stage,

and

therefore

an

additionaltask istotryto identifyevidencefor

systems

that

were

noteven attempted.

These

are

somewhat

daunting

tasks,

and

the results that follow

were

based on

two

main

approaches.

The

first

was

a

thorough reviewofbusiness

and systems

journalsforthelast

two

years

(some 645

issues),lookingforevidenceof

firms'experiences withSISs. (See

Table

1)

The

second

was

a series of confidentialinterviewswithindividualsin

eightfirms representinga

spectrum

of

American

business. (See table 2foralistofindustries

and

disguised titles.)

III.

STUDY RESULTS

From

thebusinesspressreview

and from

interviewswithleadersintheSISs area,itappearsthatthe potential

pitfallsfaced

when

working

withstrategic informationsystemscan beclassified intothree steps of the strategic

information systemscreation process.

These

are:

1 .

Identification offeasibleopportunitiesforsustainable competitive

advantage

isdiiTicult,

2. given

an

idea,strategic

systems

aredifTicuItto implement,

and

3.

even

if

implementation

issuccessful

and

the

system

is strategic, successcan becostly.

Examples

ofpitfallswithineachof the threeareasthat

have

proventobeobstacles fororganizations' successful creation ofSISsarepresentedinthe following threesections.

Belling

the Strategic

Information

Systems

Cat

4

lineinvolvement

demands

that thecorporate

environment

supporttherequiredinteractionif successistobe

achieved.

An

executive of a

consumer

goods

manufacturer

provided

an

example

thatsupports Rockart'sresults.

He

remarked,

"Creatingthe

environment

between

thesponsor

and

theinformation

systems group

forparticipation

and

enthusiasm

ina recent project

was

thebiggestdifficulty.

There

is

a

lack ofa

mutual

conceptual understanding

between

thebusinessunit

and

the

MIS

group."

A

conducive

environment

alone doesnot,however,solve the

dilemma.

The

supporting

environment

must

becoupled withvisionary individuals.

An

executive ofa

consumer

goods

manufacturer

stated that

"To

develop SISs

we

need

people withvision;

dreamers

who

could step

beyond

thecurrentlimitsoftechnology." Thisfirsthurdleis very

difficult toclear

and

isone

where

many

firmsfail.

A

senior

manager

ata

manufacturing

firmsaidthatthe translationofskills

between

theindividuals

working on

SISsisa hindrance.

He

remarked,

"The

peoplewith business needs

must

tobeabletotranslate

them

intoasystem,

and

thepeople withtechnical

knowledge

needtotranslate that

knowledge

intoa businessopportunity."

A

member

of the

company

from

thebusinessside

remarked

thathisbiggest

problem

was

to"get

some

technical directiontoget the job doneright."

He

had

come

up

with

an

ideafora strategic

system

butdidnot

have

the

background

to

implement

it.

Some

components

ofthe originalsystem- concept

were

leftoutbecausetheusers did not

have

the

technicalexpertiseto use them.

A

senior

manager

ofaconstruction

company

remarked

thatthe lack ofduel expertisecauses

some

ISdifficulties.

The manager

stated,

"Systems

thatare developedout of the organization'sbusiness-end tendtobefaulty. This

problem would

be eliminatedifthebusiness individualspossessed

some

information technologyskills."

In

summary,

many

barriers existthatprevent

even

theconceptionofSISsideas.

Firms

shouldstrive toprovidea supportive

environment

that actsto

encourage

the generationof creative

systems

ideas.

A.2.Currenttechnicalinfeasibilitycanlimitinnovation

InSISconceptualization,technology isoften thoughtof as a driver,providing the inspirationfor

new

ideas.

However,

thetechnologyto

make

ideas

work

as conceptualized

must

be currentlyavailableforthe

company

to benefit.

Without

thepropertechnologyavailableforuse,

even

the bestSISideacannotbe

brought

to fruition.

For example,inthe 1970'sa few

companies

triedtoallow

customers

to

pay

billsbydialingdigits

on

a telephone.

The

billpaying

phone systems were

hard-to-use

and

errorproneas thestandard telephoneisavery limited input

medium.

Although

theconceptof

paying from

home

seemed

attractive,the technical difTicultiesof thesystems

limited thepay -by-phone

method

toonly

6%

ofthe bill-paying optionsaslateas 1987[Pay-87]. Similarly,

home

Belling the

Strategic

Information

Systems

Cat

In early

1984 Shearson

American

Express

had

the idea ofapplyingartificial intelligence tothe task of interest rate

swapping

[Ross88]. Unfortunately,the

LISP

machines

that

were

requiredtoprovidesufficient_{processing speed then} costapproximately

$100K

piece,

and

therefore aless satisfactorypersonal

computer

version

was

developed.

The

lack of

performance

ofthe

PC

technology

was

onefactorinthissystem'seventualfailure.

Equitable Life

Assurance

SocietyInc.regardsthe lack of high-quality computer-graphicsas akeylimitation of

Knight-Ridder's

Viewtron

service [Stix86].

The

screensthatthein-house developed softwarecould create

were

"dull

astoast",accordingto

James

Johnson,Equitable's chief

MIS

strategist.

Conceivably,the

above

ideas

might have been

successful.

However,

becausethe technologycurrently available

was

notsufficient tosupportthem, they

were

doomed

tobeideasbefore their time. Additionally,itiseasyto

imagine

that other ideasneverpubliclysurfaced

due

totechnical limitations.

A.3.

SISs

requiredeeppockets

Attempts

tousestrategicinformation systems,

whether

they

become

successful ornot,typicallyrequire large

investments.

Of

course,finding

examples

of SISsthat

were

notattempted

due

toinadequate fundsisextremely

difficult, butthere is

some

evidence.

According

totheEquitableLife

Assurance

SocietyInc.,the

company

could not afford the$15 millionrequiredto

developits

own

electronicinsurance

marketing system

[Stix86]. Instead ofspendingthe

money

todevelopasystem,

itpaid

between

$.5

and

$1.0 milliontojoinKnight-Ridders

Viewtron

videotex service. UnfortunatelyforEquitable,

Viewtron

ceased operationin

March,

1986.

A

manufacturing

firmreports that strategic

systems

employing

leadingedge technologyare not aggressively

pursued

becausethedivision'sfundsareeaten

up

by software maintenance.

The

controller

commented, "The

company

needsto bringback

some

goodideas

and

work

with

them

(iffunds

become

available)."

While

theevidenceforunafi'ordable

systems

isdifficult toobtain,thereis

much

proofthatSISsare expensive.

The

costofsupporting

an

SIS concept can be

enormously burdensome, even

fora large firm. Citicorpspent$3.25billion

on

hardware,software,

and

personnel

between 1979 and

1984todeveloptheGlobal Transaction

Network

[Harr86].

Sears

and

IBM

have

invested

$450

millionon

an

interactivevideotex servicetoprovideinformation,entertainment,

home-

shopping

and

banking

[Bair87]. Federal

Express

lost

$350

million

from

two

years ofoperatingitsfailed

Zapmail

facsimileinformationtransmissionservice [Fous87]. UnitedAirlinesInc.spent

$250

million tobuildits

Apolloairline, hotel,

and

car rentalreservation

system

[ben-86b]. Additionally,

United

will

have

spent

$120

million

building a reservation

system

fora

European

partner [Whee87].

SISs

may

be

beyond

thereachofallbutafewindustrygiants,

even

ifthe idea islikely tobesuccessful.

Of

course,in

the following sectionsitwill be suggestedthat successisverydiiTlcult toachieve,therebyraising theSIS ante.

A.4.

SISs

stillrequirecustomers

Even

after

an

organizationhas conceived

an

affordable, technically feasible SISidea,it

must

have

a

market

inorder

tobesuccessful. Severalvery expensive

and

technically feasibleattemptstoobtaincompetitive

advantage

usingIT

failedbecauseof

market

problems.

Four

well-documentedfailed attemptsare: electronictransmissionservices,

shop-at-home,on-line

mortgage

services,

and

debit cards.

A.4.a)Electronictransmissionservices

FederalExpress Corp. is

an

innovative userof strategicinformationtechnology inthe

package

delivery industry.

After 5yearsofplanning. Federal

Express

launcheda2-hourfacsimiletransmissionserviceinJuly, 1984[ben-86a,

Hell87, Port85].

The

service,Zapmail,

was

based

on

non-standard but highquality fax technology

and

was

positioned as ahigh-end productrelativetoFederal's overnightdeliveryservice.

The

company

lost

more

than

$200

million dollars before iteliminatedthe servicein

March,

1986.

The

program

never reachedthe 20,000

transmissions-per-day

volume

that

was

necessarytobreakeven,

even though

theretail transmissionprice

was

reduced

from

$36 to$25.

One

reason forZapmail's

market problems

may

have been

a

growing

installedbaseof increasingly affordable fax

machines

[Hell871.

A.4.b)

Shop-at-home

services

Videotexservicesallow firmsto offerinteractiveinformation

and

services

through

computers

and can

provide

home-shopping,

home

banking,travel information

and

reservations. Wildlyoptimistic projectionsaboutthe potential

market

forvideotex

were

made

(e.g.,as recently as1983a prediction

was

made

that salesin

1987

would

be $7billion;

actual sales

were

lessthan

2%

ofthisforecast[Brod88]).

However,

todate

consumers have

resistedthe costly

videotex electronicinformationservices concept. Knight-Ridder

Newspapers

Inc.,thepioneerofthevideotex market,

was

abletoobtain only 20,000subscribers

and

leftthebusinessin

March,

1986afterlosing

more

than $50

million

[Baum881.

Times

MirrorCo.,another industrypioneer,

was

also forcedoutbecauseof thepoor market.

Consumer

resistancetothe

complex

technology,

and

thehighcostofoperatingaterminal

have been

citedas the

main

reasons forthe videotexfailures.

The

low

number

ofhouseholds with

PCs

hasalso

been

a

problem

[Bair87].

IBM,

Sears,

and

CBS

createdavideotex

company

calledTrintexin 1984.

The

market's poor

showing

caused

CBS

to "bailout" of the jointventureon

November

14,

1986

afterspending $20million

and

expectingto

spend

atleast$80

million

more [Baum88]. Other

sources estimatethat

between $300 and $500

million

have been

invested intotal

[DeJe88]. Trintex

had

predicted a10millionhousehold subscriberbase overthenext10 years.

However,

thereare

only currently 5 million

home

computers

that

have

thenecessary

512K

memory

touse Trintex's system,

and

less

Belling

the

Strategic

Information

Systems Cat

8

thatitexpectedtobegin serviceinearly 1988.

However,

by

March, 1988

the

company

still

had

not deliveredits

service. Apparently, Trintexisveryconcernedthatthelow

number

of

modem-equipped

home

computers

willcause

ittofailjustasprevious services

have

and,in

an

effort toincrease the potentialfor

market

success, Trintex

announced an

alliancewith

Hayes

Microcomputer

Products, Inc.toofTera

modem-software package

[Robe88].

The

collaborationis

an

effort toincrease the

number

of

home

computers

with

modems,

and

therefore increaseitschance

for success.

Another example

isa

New

York

bank

thathas spent over

$10

milliondevelopinga

home

banking system

[Bonn87]. Sofar,the

system

hasattractedfewerthan 20,000users.

Nationwide

itis estimatedthatfewerthan 100,000people

and

small businesses use

home

banking

services, a

number

smaller thanthatlikely to be requiredto

make

these serviceseconomicallyjustifiable tothe

banks

[Zinn88].

A.4.c)

Mortgage

services

Ives

and

Learmonth

specifically citeShelternet,a

system

thatallowspotential

home

buyerstosearchforthe best

mortgage

rates

and

applyfora

mortgage

as

an

SIS[Ives84].

However,

Shelternet,developed byFirstBostonCapital

Group,didnot

become

popular with

home

buyersorrealestatebrokers

and

thereforenever founda market.

Accordingtoa senior

VP

atthe

Furash

&

Co.

management

consultingfirm,the

system

ignoredthecriticalityof face-to-facecontact

between

the

customer and

loan processor.

At

leastsixother

mortgage networks have been

either

discontinuedorreducedtoproviding only

rudimentary

information,accordingtoa

September 1986

survey

by

the

Washington

Post[Rifk881.

A.4.d)Debitcards

The

Electronic

Funds

Transfer Association has completeda study,based on surveysofretailers inthe gasoline, grocery,airline

and

fasts-food industries,on theuseof debitcardsforpoint ofsale

(POS)

transactions [Stei88e]

The

studyreveals that debitcardsare notbeingreadilyaccepted

by

consumers.

Consumers

fear thatdebitcardswill

create "irreversibleerrors"in personalfinancial information

through

electronic transactions,

and

that unauthorized

accesstobank-account datawilloccur. Additionally, thelossof "float"

from

usingdebitrather

than

credit cardsis

unattractive. Retailers expect

POS

debit-cardusetoincreasethe

average

amount

spenton purchases, however, theyare hesitantto installterminalswithoutwidespread acceptanceof

POS.

B.

SISs

are

complex

to

develop

Achievinga fundable, technicallyfeasible,

and marketable

SIS concept

moves

an

organization onlypartlytowards

success.

The

examination

ofthe literature

on

successful SISs suggeststhatsystemsofteninvolveoneor

more

ofthe following attributes;

1. telecommunications,

2. relianceon multiple-vendors,

3. inter-organizational cooperation,

and

4. "bleedingedge"technology.

These

areas, either separately orcombined,can providesufficient difTiculty duringthe

development and

implementationprocessto

make

an

SISidea unsuccessful.

B.l.

Telecommunications

dramaticallyincreasessystem complexity intoday's

environment

The

inclusion oftelecommunicationsinto

an

SIS dramaticallyincreases that system'scomplexityintoday's

environment.

The

problems

today

stemming

from

thiscomplexity can becategorizedinto

two

areas:

equipment

problems

and

staflingproblems.

B.l.a)

Equipment

problems

The

proliferationof different varieties of

equipment,

and

theirproprietary protocols

make

itdifTiculttocreate

and

monitora

network

effectively.

Equipment

can

come

from

localtelephonecompanies,satellitesuppliers,

microwave

vendors, local-area

networking

companies

and

value-added

network

operators.

Moreover,

the

equipment

may

handle analog

and

digitallinks as well asintermixedvoice, data,

and

videosignals.

Compounding

thiscomplexityis

the diversity

and

large

number

of service

and equipment

providers[Davi87].

One

extreme

example

of

equipment problems were

those facedby Federal

Express

Corp,

which

was

forcedtostopits

Zapmail

electronic

document

transmission service afterbeingplagued with

telecommunications equipment

difficulties[ben- 86a].

The

telephonelines

performed

extremelypoorly;they

were

slow

and

noisy, creating theneed

tore-transmit

many

ofthe packets.

These problems

caused Federal Expresstoincurverylarge additionalcosts.

The

company

then installedsatellitetransmissionfacilitiesat

customer

sites

and

installed rewritten software

and

more

mainframe

switchingstations

around

thecountry.

The company

also

had

torequesta

communications

satellite.

The

FCC

approveda satellitelaunch,buttheChallenger spaceshuttledisastercausedthe cost of satellites toskyrocket

and

theirlaunchingtobedelayed. All ofthese

problems

contributedtoZapmail'sfailure,causinga

$200

millionloss

for FederalExpress.

B.l.b) Staff

problems

The

complexities of

working

withtelecommunications

equipment

are

made

even

more

challenging

by

thecurrent

tremendous

shortageofpeople

who

can providea

mix

ofstrongtechnical

and

businessskills[Keen86].

As

firms

continueto recognize theimportanceoftelecommunicationstotheirbusinessstrategies, theyare willingto

pay

whatever

isneededtogetthese people.

Belling

the Strategic

Information

Systems Cat

10

However, even

largefirmsthat

might

bewilling

and

ableto

pay

the large salariesrequired

have

difficulty in

attractingkeypeople. For example,

Westinghouse

ElectricCorp. is

working on

a vast

network

that includes

Tl

lines

from

fourdifTerent carriers,a private

Tl

microwave

network, 10nodes, a variety of multiplexors,channel banks,

and

AT&T

System

85 switches [Stam87]. Findingthestafftodothatengineeringhas slowed theimplementation, accordingtoa

Westinghouse

telecomsystems

manager. Westinghouse began

the projectin1983

and was

still

working

onitin

December,

1987.

Northern

Business Information (NBI)in

New

York

cannotfindpeopleto

manage

their

new

big

networks

[Stam87].

An

NBI

analyststates,"Thereisnopoolofexperienced operatorstohirefrom." In

an

effortto

make

useofthe Internal

Revenue

Service's electronic

income

tax-returnfiling

program,

Tax

Masters

Inc.

had hoped

to

become

atelecommunications channel

between

independenttaxpreparers

and

the IRS. Accordingto

thepresident of

Tax

Masters,the

company

may

goout ofbusiness becausehisstaffcouldnothandleallofthe technical issues involvedwith

communications

between

Tax

Master's

and

itscustomers'computers. [SteiSSf]

Of

course,itcanbe

argued

that

many

ofthe

problems

cited hererelative to telecommunications are temporary;that afterthe industry adjuststo deregulation

and

the labor

market

adjuststotheshortage,these

problems

will

diminish.

These

contentions are no doubttrueinthelong

term

However,

they are scarcecomforttoa firmtryingto

implement an

SIStoday. Also, the

problems

oftelecommunications are

symptomatic

of

any

leadingedgetechnology,

and

firms should expectsimilardifficulties inotherrapidly

changing

areasof technology.

B.2.

The

hazards of vendor-drivensystems

Developersof nearly

any

type ofinformation

system

are typically reliant

upon

vendorsofonesortoranother for

parts of thesystem. But,thesevendor- related

problems

aremagnified

by

the scale of

most

SISs efforts,

and

are

compounded

by the typicalpresenceofmultiplevendorsonlargeprojects.

B.2.a Reliance

on

outsidevendorsisrisky

An

example

ofatechnologysupplyingvendor preventinga successfulSIS is provided

by

an

executiveata

consumer

goods

manufacturing

company.

A

software vendorindicated that theirproductscouldhandlethe

performance

needs

of a verylarge

and complex

sales

system

that

was

being developed

However,

the softwaredidnot

perform

to

expectations.

The

executivestated,

"When

the vendor'sproduct expert

was

calledinto

examine

the situationhe

remarked

that he

had

never seen such

an

ambitiousattempttouse thesoftwareand, thatif

we

figured out a solution,topleaselet

him

know."

Accordingtoa recentarticle inDatamation,

some

sophisticatedusers of

IBM

equipment have been

forced tocreate solutions ontheir

own

because

IBM

isreportedly tooslow to

come

up

withkey parts of

announced

architecture

[Moad881.

American

Airlines

had

todevelopits

own

package

switched

network

protocolbecause

SNA

was

tooslow

transaction

network and

reservations system. Neither

was

currently available

from

IBM

and

theycould not afford

to wait.

A

consumer

goods

company

is

having

diiTicultyfinishing a

system

because certain sections ofneeded software

have

notbeen completed

by

a vendor. Additionally,questionsconcerning

communications

capability

between two

different

mini-computer

models keep

arising.

The

company

hastoverify the

communications

capabilitiesthat the

vendor promises

whenever

aquestionoccurs.

The

verificationprocesskeeps slowing

up

theproject.

Allofthese

examples

show

thatthereare large risksinrelying

upon

the timelyavailabilityofvendor products

and

services.

B.2.b

The

Hydra

ofMultiplevendors

The

needtouse

equipment from

multiplevendorscan

make

the

development

ofSISsextremelydifficult,asproducts

from

differentvendors areoften incompatible

and

thepresenceofmultiplevendors

makes

diagnosisof

systems

problems

very complex. For example,Merrill

Lynch

&

Co. maintains

and

monitors links

between

600-plus

brokeragelocations

around

theworld

and

withoutthe telecommunicationslinks,theycannot dobusiness.

However,

itisvery difficult toidentify

which

linksare

down when

problems

occur,

and

to

determine

thecorrespondingtrafilc load. Merrill

Lynch buys network equipment from

30 vendors

and

eachpiece hasits

own

method

oftracking

equipment

performance.

When

equipment

fails, Merrill

Lynch

must

firstidentify

and

locate a failure (oftena

difficultprocess)beforecontactingthevendor [Guyo88].

The problems

withusing products

from

differentvendorsispreventingBig Eight accounting firms

from

successfully

implementing

strategic

systems

topreventthe lossofaudit

customers

who

areinsearchoflower accountingfees.

During

1987 approximately

1000

companies

switched accountingfirmstolower auditingcosts.

To

preventthelossof a

customer

toacompetitor,Big Eight firmstry toreduce audit costs

by

integrating their

hardware and

softwarewith

theclients' systems.

However,

clientsoperateindifferent industries,

and

usedifferent applicationswithdifferent

software

and

hardware.

The

multitudeof

equipment

and

softwareispreventingtheBigEight firms

from

standardizing

on

a

system

thatwillallow

them

to

keep

costslowerthanthose of

competing

firms [BermSSb].

B.3.

Lack

of inter-organizational cooperation

may

doom

an SIS

effort

One

of the clear

themes

intheSISliteratureisthelargeroleplayed byinter-organizational

systems

(lOSs)[Barr82, Cash85].

However,

SISsideasthat require

multiple-company

effortsoftenfailbecauseofthe difficultiesinvolved

when

usually

autonomous

organizationsattemptto

work

together.

For example,

lack of inter-organizational cooperationisonefactor preventingpoint of sale

(POS)

debit

systems from

beingsuccessfully

implemented by

retailers[Perr881. Retailers see

POS

as a

way

to

become more

competitivein three

mature

industries: the

supermarket,gasoline-station,

and

fast-foodchain.

There

isadispute

between

theretailers,banks,

and

switching

companies

over

who

willbe responsiblefor

system

operating expenses.

Belling

the Strategic

Information

Systems

Cat

12

There

isa

more

seriousconflict

between

debit-type

POS

charges

and

credit-card charges.

POS

ispresently available

onlyinbusinessesthat either

have

never acceptedcreditcardsor

have

begun

todiscouragetheiruse.

POS

will

eventually

compete

withcreditcards

and

cash,

and banks

that issue creditcardsareworriedthat they will lose

credit-card

income

(thepercentageoftotal transactions

charged

retailers).

Banks

want

tochargefor

POS

transactions,but retailersdonot

want

to

pay

largefees foracashsubstitute.

Unless

the organizations involved can

work

outtheissues,

POS

willnotbesuccessfully

implemented

by retailers.

A

specificSIS

example

cited

by

Ives

and

Learmonth

isa retailgasoline

POS

system

[Ives84].

However,

oil

companies

are also facing inter-organizationalchallengesintheirdealings with

banks

to set

up

successful

POS

systemsat

gasoline-stations[Hind87].

The

banking

industryhasnotagreed

on

standardsforconnecting

ATMs.

Accordingto

the president of the

New

York

Cash Exchange (NYCE),

the

ATM

connections

were

basedona

model

of the

banking

industrythat

may

not be applicabletotheoil industry

and

debit cards. Oil

companies

arechallenged with writing

special softwareinterfacestoconnecttodifferent

ATM

networks.

Another problem

isthat

ATMs

generally only

acceptcashtransaction

amounts

thataremultiplesofeitherfiveor tendollars,while a gasolinepurchasetypicallyis

an

odd

amount. For

a

bank

toparticipateinoil-industry

POS

it

would have

tomodify software

programs

tohandle

theoddtransaction

amounts.

The

NYCE

president alsoreports thattherearedifferences

between

the industries

on

whether

banks

oroil

companies

should

pay

each otherfora transaction, as well aseachparty'sperceptionof

who

gainsthe

most

value

from

inter-connection.

A

Mobil Corp.official statedthat their

program

has

done

well inregions

where banks promote

theability for

customers

to use

ATM

cardsforgas purchases.

However,

Mobil has

been

disappointed by acceptancelevels inotherregions [Hind87].

PCS

Inc.,

an

insuranceclaimsprocessor,isattemptingtoestablish

communications

links

between

itself

and

pharmacies

throughoutthecountryin ordertoextendits

market dominance

[SteiSSa].

However,

without

pharmacy

cooperationthe

system

willnever be astrategicsuccess

The

biggestchallenge isconvincingthepharmacists,

who

are neither

PCS

customers norsuppliers, that theywillbenefit

from

thesystem.

Pharmacists

thatalready

have

a

system would

doubletheirdata-entry

by

installingthe

PCS

system.

The

largechains

would need

toadapttheir centralin-house

system

topermit

communications

with

PCS PCS

has

been

processingclaimsfor 19years butfeels

that their

growth

and

survival is

dependant on

the on-line

pharmacy

linkplan,

and

that the linkplan is

dependent

on

pharmacy

cooperation.

B.4.

The

"leading

edge"

may

bethe "bleeding

edge"

The

use ofSISsoftenrequires

working

with thelatest,

most advanced

hardware

and

softwaretechnology. Infact,it

canbe

argued

thatitis

new

technology that often providesthesourceforSISideas.

However,

attemptingto

work

efibrts to

implement an

ambitiousstrategictrustaccounting system,

Masternet

[Ludl88].

The

SIS setback caused

thelossofseveral institutionalclients. Accordingto aformer employee,

Masternet

failed to

maintain

current data

and

fell

months

behindingenerating statements.

The

difficulties

were

caused by slow run

and

responsetimes,

communications problems and

troublesomedisk-drives. Moreover, thedifficultiesapparentlycaused

BankAmerica

toviolate

banking

laws,asit did notinform

customers

thatit

was

unableto

keep

currentrecords of securities transactions as the result of a

system

conversion.

The

company

is apparently beinginvestigated

by

the U.S.

Comptrollerof the

Currency

[Stei88c].

BA

hassetaside

$60

million tocover

monetary

lossesarising

from Masternet

[PortSS].

In 1985a largeinvestment bank's informationcenter

committed

itselftothe recently released

Smart

Series integratedsoftware

by

Innovative Software Inc. [Brid88]. In 1988, the

company

reachedthe software'slimits:

databases

and

otherapplications

were

no longer accepting

any

additionaldata

and began

destroying datathat

had

been

entered.

The

company

was

abletorecover

most

of thelostdata.

However,

convertingtoanother

program

was

expensive

and

requireduserretraining.

C.

Adaptation requires constant

management

Even

after

an

SISideahas

been

created,

and

the

system

has

been

successfully developed

and implemented,

the successofthe

system can

becostly forthe organization[Vita86]. Strategic

systems

can;

1.be copied

by

competitors,

2 create oversubscription,

3.be expensiveto

maintain

and/orenhance,

and

4.createhighexitbarriers

Of

course,there arecurrently onlyafew

systems

that

have

reachedthisphase,

and

thereforetherearerelativelyfew current

examples

ofthese types ofproblems.

However,

the

examples

that followarelikely tobe representativeof

problems

thatare predictedtobefall otherSISsattempts inthefuture.

C.l.

Copied

by competitors

Strategicsystems areunlikelyto

maintain

a

company's

competitive

advantage

if theyare copied. Competitors

eliminate the

advantage by

developingtheir

own

system

in-houseorby purchasinga similarsystem.

Automated

Teller

Machines

(ATMs)

providedafew

banks

with a competitive

advantage

fora shorttime [Clem86b].

The

advantage

ended

when

smaller

banks

responded

by

joining their

networks

to

form

consortia.

For

example,

BayBanks

Systems

Inc.,ofBoston,

launched

their

XPress

24

system

inapproximately

1978

[Hell87b]. Inlate 1987

BayBanks'

ATM

network

includedabout

850

machines,

650

of

which

are

owned

by

Baybanks

and

thebalance by

more

than 70 smaller banks.

BayBanks

marketed

its retail

banking

servicesaggressively

by

featuring their vast

Belling

the Strategic

Information

Systems Cat

14

sizeofBaybanks',

was

tojoin forceswithseveralConnecticut

banks

inacollectively-ownedrival

network

called

Yankee

24.

demons

and

Kimbrough

report that

most

industryobservers

acknowledge

that the universaladoption

of

ATMs

hasbenefited the substantial portion ofretail

customers

who

usethem.

However,

since

ATMs

are offeredby almostallbanks,the

machines

provide neither

margin

nor

market

share

advantage

and have become,

in

demons

and Kimbrough's

terminology,

mere

"strategicnecessities",

and

donotofferstrategic

advantage

[ClemSV].

Similarly, electronicdata interchange (EDI) tempwrarilydifferentiatesafirm

from

thecompetition by allowing itto

handlesalestransactions

more

efficiently[Benj88].

The

benefitssuppliedby

EDI

tendtobeintangible as

EDI

does

not create costsavingssubstantial

enough

toprovide low-cost leadership. Benefitsare

an

improvement

ina firm's service oriented

image and an enhanced

roleas

an

industryleader intheapplication oftechnology.

However,

the

advantage

isshort-livedas other supplierscopythe

EDI

system.

The

EDI

system

becomes

acompetitivenecessity

and

doesnot create a

measurable

gain in business

volume

United

Parcel Service(UPS), aggressively

pursuing

Federal Express'overnight deliverymarket,isusing technology

toprovidethe

same

levelof servicesthat Federal

Express

offers[Reib88].

These

servicefeaturesincludeon-call

pick-up and

continuous trackingofpackages. Additionally,

UPS

istryingto

compete

with Federal

by

installing

computers

initstrucks [Fous87].

At

acostof$15 million,

UPS

purchaseda

company

that

makes

vehicletracking systems[Colo87].

The

trackingsystemswillallow dispatcherstolocatevehiclesonelectronic

maps,

thereby allowing

UPS

to

determine

theexact location ofits60,000trucks,

and

provide

customers

withbetterpick-upservice.

Perhaps

the

most

widelycited

example

of the strategicuseofIT arethe airlinereservationsystems.

However, due

to

competitivepressures,the early excessprofits

have been

eliminatedorsharplyreduced.

American's

SABRE

system'sprofits

have

been

squeezed bythe

need

to

compete

withlowerprices

and

incentives offeredtotravelagents by the otherairline'ssystems. Inonly

two

years,

from 1985

to 1987, theprofit

margin dropped

50%

[Harr87,

Whee87].

C.2.Oversubscription

Sometimes, an

SIS can betoosuccessfulforits

own

good. Inability of

an

SIS to

meet

unanticipated

demand

can cause unexpected expenditures, wipeout potential benefits

and

possiblycausethe

system

or

even

thefirm tofail.

H&R

BlockInc.'selectronic taxfilingsystem.

Rapid

Refund, createda

tremendous

demand

thatcompletely

overwhelmed

the

company's

data-processingfacilities, creating

embarrassing

delays[Slei88d].

The

service

promised

taxrefund checks justone

day

after a

customer

filedtax forms.

H&R

temporarily stopped advertisingthe service

and had

to

increase

computing

capabilitiesby

50%,

thereby incurringlargeexpenses. Additionally,

H&R

hasnot

been

ableto

provide theinitially

promised

1

day

turn-around.

requestfor technicalassistance

was

toogreata loadforthestaff.

According

tothe president of

Tax

Masters,the

company

willeithergoout ofbusinessorwillget out ofperforming data

communications

forsmalltax preparers.

C.3.Expensivetomaintain/enhance

The

expenseofmaintaining

and enhancing

installed

systems

can

be verycostly.

As

competitorsbegintocopy

successfulsystems,originatorsarepressuredto

maintain

theiradvantage. Therefore, theyare

burdened

withthe

expense

ofcontinuously

improving

their

systems

and

offering

more

features.

It isestimatedthat

United

AirlinesInc. will

have

spent $1billion

between

1986

and

1991 toreplace theApollo

BusinessSystem,

an

office

automation

package

fortravelagents[ben-86b].

The

new

system,theEnterprise

Agency

Management

System,is

needed

becausethe old

system

grew haphazardly and

is thereforedifficult tomaintain.

Citicorphas

implemented

aseparatedivision,the Information

Bank,

to continuouslydevelop

and

market

technology

products[CultSTJ.

The

Information

Bank

is

viewed

asalong

term

venture,

and

in

1986

itlost

$34

million, according

toForbes Magazine.

C.4.Create highexitbarriers

The

verylargeexpensesassociatedwithstrategicsystems (seesectionIV.A.2)

can

createhighexitbarriers.

Firms

may

investsuchagreat

amount

of

money

that exiting

from

theindustry

may

bedevastating.

For

example. Federal Express*

Zapmail

failurehasforced the

company

to

market

international

X.25

networking

services at "exceptionally

lowrates"[Stei88b].

The

servicewillbe provided

through

theFederal

Express

International

Transmission

Corporation subsidiaryusingthedatalinesthat

were

intendedtosupportinternational

Zapmail

transmission.

IV.

IMPLICATIONS

FOR

MANAGERS

A. Introduction

This research has

shown

thatthe conceptualization,development,

and implementation

of strategicinformation

systems

is

much

more

difficult

than

previousliterature

might have

indicated.

Over

adozenpotential pitfallsthat

make

theSIScreationprocessextremely

complex have been

identified

and

supported with industry examples.

Of

course,itis importantnottoconfusethe

examples

withtheunderlying problems.

Current

difficultiesin

telecommunicationswillno doubt be mitigated inthenearfuture.

And

videotex,a failureinitsfirstincarnation,

may

yet besuccessful[Hann87).

However,

theunderlyingtheme,that

working

with

new

technology isexpensive

and

risky,still remains.

The

1990swillnodoubt providedifferentbutanalogous

examples

ofleadingedgefailures.

The

precedingsections ofthispaper

have

describedoveradozenpitfallsthat can imperil thesuccess ofanSIS.

While

beingafairly

comprehensive

list,at leastsofarasitisbased onthe actual

systems

experiences reportedinthe

Belling

the

Strategic

Information

Systems

Cat

16

businesspress

and through

confidentialinterviews,it isarather lengthylist,unsuitableforadvicetopracticing

managers.

Ordinarily,suchlistsare orderedin

some

way,

perhaps byrelative

importance

of theproblems. In this case,however,thatisnotstrictlyappropriate.

As

eachofthe

problems

has the potential ofcausingthefailure of

an

SIS,theyareallimportant.

However,

thereisa

way

for

managers

toconcentratetheirenergies

on

those

problems

thattheyare

most

likely to face. Table 3contains

an

SIS Failure Risk Matrix,

which

highlights thepitfallsthatarelikely tohinder firmsthat possess particular characteristics. Inthismatrix,firms are characterized alongthree relativedimensions.

The

manager

shouldassesshisorherfirm's relativepositionalongthe followingresource

dimensions

of:

FIRM RELATIVE

Technolosicalsophistication. Relativetothecompetitionisthe

manager's

firmatechnologyinnovator, or a

relatively lateadopter?

Firms

thatdonotpossesshighquality technical talent

and

experiencewillruna greaterrisk

of certainpitfalls.

OrganizationalFlexibility. Isthefirmonethat

can

adapt quickly

and

easilytochange,orisit

hidebound

to

traditionsthat

make

itrelativelyinfiexible.

Even

withall therequired

money

and

technology,firmsthatcannot adaptto

changing

markets

and customer

requirementswillbe

hard

pressedto deliver a successfulSIS.

B.

Limited

Monetary

Resources

While

no organizationislikely toclaimthatithas excessslackin

terms

of

monetary

resources, clearly

some

firms are

working

under

tighterconstraints thanothers. For example, firmsincertain

commodity-type

industries

may

be

subjecttoverylow

margins on

goodsorservicessold.

How

doesafirmrecognize

whether

itscoreshighorlow

on

this scale, relative toother firms?

While

itis

beyond

the

scope ofthispapertodevelop

an

exact metric, thefollowingquestions

may

give

some

insightintotheproblem.

How

do the

budgeted

expenses fortheproposedSIS

compare

tothe firm'sotherIT expenditures?

How

do they

compare

to

thefirm's

annual

revenues?

Very

large projectsobviously pose

more

risk.

What

would

bethe financial

impact

of a

completeprojectfailure,including boththe

sunk

project costs

and any

market

exit-relatedexpenses?

What

would

the

impactofsuchlossesbetothefirm's reserves? SISprojects withpotentialbalancesheetlevel impacts should be

scrutinizedextracarefully. Ingeneral,inrecent history

how

wellhasthe firm

been

able to

weather

severefinancial shocks,suchaslargedisruptionsto itscashflow?

Such

history

may

be a good guidetothelikelyimpactof

an

SIS

failure.

Firms

thatscore relatively poorly

on

the

monetary

resource

dimension

areat relativelygreaterrisk ofa)notbeing

abletofundtheSISventure,b)not beingable toaffordtoproperly

maintain

and enhance

the SIS, orc)falling victim

tohighexitbarriers.

These

risksare highlightedinthefirst

column

of

Table

3

by

denoting

them

as"High". Pitfalls

where

therisk ishigh butnot quite ashighas

marked

as

"Medium".

For

example,

theriskofnot

having

a

market

is

relativelyhigherforfund-poor organizationssince they

may

not

have

theresourcesrequiredforadvertising,

promotion,

and

other

market

building activities.

They

may

alsonot

have

the resourcesrequiredto

weather

along

profitlessstartup phase.

These

firms are also at riskinventures involving telecommunications,since thecostof qualifiedspecialistsis

currently so high.

Vendor problems

aresimilarlylikely,inthat thefund-poor firm

may

notbeabletoafford the top qualityvendororvendors

who

arecapable ofdevelopingthesystem.

Leading

edge technologyisa greaterrisksince thefirm

may

notbeableto

pay

forthe in-houseexpertisenecessarytolocate

and

utilizetheleadingedge. Finally,

oversubscriptionisa greaterchallengesinceitislesslikelythatthe necessaryresourceswillbe able tobe

made

quickly available.

Belling

the

Strategic

Information

Systems Cat

18

In

summary,

thereis,ofcourse,

some

sensethat

any

organization

would

prefer to

have

more

money, and most would

be abletoputittogooduse.

However,

the particularpitfallshighlightedaboveare thoseto

which monetary

resource-poor organizationsare especiallylikely tofallvictim.

C.

Technological Unsophistication

Technologicalsophistication, like

money,

isclearlyaresourceof

which

most

organizationscould usemore.

However,

certainofthepitfallsare

more

likely totrapfirms that are relativelyunsophisticatedadoptersoftechnology.

There

are a

number

of possiblecluesasto

where

afirm

may

rateon a relative technologicalsophisticationscale.

Does

the

firm

have

a history ofbeing

an

"earlyadopter"oftechnology?

Has

thefirm

had

any

previous successesitcanpointto

where

technologyhasbeenused,

even

internally,tosolve abusiness

problem?

Ifthe

answer

tothosequestionsisno,

this

may

indicatethat the technologyaspects ofSISswillpose relativelygreater risksthan they

would

to other

firms. Ifformal

mechanisms,

suchasan

"advanced

technology group" within information systems,ora

CIO

position are not present, thesetoo

may

be

warning

signs thatthefirm rates relativelylowonthetechnological sophistication

scale. Finally,doesthefirm hiregraduates

from

the nation's leadingtechnologyintensive

programs? These

junior

staff

members

can be

an

important sourceofinformationaboutthelatesttechnologyalternatives.

Firms

that ratepoorlyonthisresource

dimension

would

have

three relatively highriskareas:a) technological

feasibilityof

an

SISidea,b) telecommunicationsintensive SISs,

and

c) leadingedge technologyapplications.

Other

areasof lesserbutstill greatriskare

somewhat

lessobvious.

Technology

unsophisticates

may

have

greater

difficultiesinconceivingSIS ideas,since

many

SISideasaredriven

by

new

advances

intechnology.

The

necessarily greater relianceonoutsidevendorswillbe

compounded

by the lack ofin-houseexpertisewith

which

to monitor them. In addition, a lack of thorough understandingofthe interfaces

among

multiple technologieswill

make

it

relatively

more

difficult tosortout inevitable multi-contractor disputes. For example,thefailureof

an

interface

between

atelecommunicationsvendor

and

a

hardware vendor

may

be

blamed

byeach on the other,

and

theclient

firmwill be requiredtosortoutthese conflicting claims. Finally, the technologically unsophisticatedfirmis

more

likelytodevelop

an

SIS

whose

technological

approach

is

more

easily copied.

D.

Organizational Adaptability

One

factthatappearsin

many

oftheSIScase studiesisthat

systems

rarely developexactly asplanned.

Changing

requirements,technologies

and markets

all conspiretoupsetcarefullylaidoutdevelopments. Therefore,

organizational adaptability orflexibilityislikely tobeavaluableresource.

through

a variety ofassignments.

Matrix

organizations

and

so called

"Theory

Y"

organizations

would

alsobe positiveindicators.

A

finalclue

may

beprovided

by

how

welltheorganization has

handled any

period of rapid

growth

or

change

in itshistory.

That

experience

may

beaprecursortotheimpactof

an

SISon parts of the

organization.

The

lack of organizationalflexibilitygreatly raisesthe risk of

key

line

and

stafT

members

notgettingtogetherto

conceive SISideas. Inabilityto

work

wellwithoutsideorganizations

make

lOS-type SISsrelatively

more

risky,

and

theslownessatadaptingtounanticipatedover-subscriptionisalsoarelatively greaterrisk.

Lesser,butstillsignificant risksfororganizationswithlimitedfiexibility include thedifficultiesincreating

customer

demand

inareasthat

have

not traditionally

been

thefirm's markets.

These

new

markets

may

require

tactics

and

practicesthat thefirmwill

have

toquicklylearn,

and

rigidorganizations

may

notbeabletoreactin

time. Finally,ashas

been

pointedout,eventually

many

firmswill

have

to exitSIS ventures. Infiexibleplayersin

those

markets

willfindthistask relatively

more

difficult,

and

thereforeare

more

likely to fall victimtohighexit costs.

E.

Conclusion

Industry

examples

have

shown

that

working

withstrategicinformation

systems

is difficult

and

complex.

A

firm's

leader

must

be

aware

ofthepitfallsthatcan preventa

system from

achievingsuccess,

and

must

work toward

avoidingas

many

aspossible.

As

Aesop'smice,they

must

realizethatitisone thingtosay that

something

should be

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