Chapter 14 Z Irani & P.E.D. Love

Presented By: Nasim JafarzadehCIS 590

This research uses case study approach to examine the technology management experience of a leading UK manufacturing organization (Company V).

In this study, author compared development process of two software systems and provided detailed information about factors which were accountable for success or failure of system.

Company first implemented a vendor-supplied Manufacturing Resources Planning (MRPII), which ended up being a failure, because system failed to satisfy user requirements ; therefore, later it was abandoned. So in order to stay competitive in market, the company was forced to develop a bespoke MRPII.

In today’s competitive business markets companies strive for a unique competitive advantage enhanced with a successful information technology.

However the adoption of information technology is a very lengthy and complex process that the efficiency of its management spells the difference between corporate success and failure.

Based on M Irani Z and D E Love Evaluating the Impact of IT on the Organization

Moreover, not meeting user expectation is thought to be one of the major attributes to unsuccessful I.T implementation; therefore, in this study authors (Z.Irani and P.E.D Love) adopted a research methodology that would involve the users.

They conducted interviews with the Managing Directors, Production Directors and more importantly with the Shop floor employees.

They also collected secondary and primary data resources to help them analyze the success and failure factors of the information system implementation.

By doing do, they could identify several factors which have contributed to the failure of the first system [vendor-supplied (MRPII) ]

1. Traditional appraisal techniques2. Software Package unfit for purpose3. Cost So what did Company V do different with the bespoke

MRPII to make it a success story?

Based on M Irani Z and D E Love Evaluating the Impact of IT on the Organization

Primarily Company V sells time and expertise using many different conventional and computer controlled machines

It has a make-to-order inventory policy with almost every component part having a very low level of standardization and very few common components; It produces a wide variety of made to order parts for large number of customers in diverse industries

To produce this very complex and less common products, highly flexible production capability is required

It produces materials according to customers’ specifications. In this type of manufacturing, timing and effective communication with the customers are of paramount importance and adopting information technology appeared to be a very beneficial investment for the company.

So in order for the company to improve, innovate and remain competitive, it needed to have versatile manufacturing equipment, flexible employees and maximum utilization of technology

The Case Study presented here describes the experiences of a leading UK manufacturing organization which adopted a vendor based Manufacturing Resource Planning system (MRPII )

Reason for this failure was attributed to the lack of consideration of human and organizational benefits and costs implications during the evaluation process

Functional managers later developed bespoke MRPII system, which took into account the financial, human and organizational costs and benefits of the system

Later, the new system was very successful and the company was cited the UK’s top 100 for its best IT and business practice

Based on M Irani Z and D E Love Evaluating the Impact of IT on the Organization

The 'success' of Company V's previous investments helped give them the encouragement and motivation they needed to introduce a computerized Production Planning and Control (PPC) system.

The measure of 'success' used by Company V was the removal of 'procedural pain ' -that is, if it was not considered painful to carry out the new computerized procedure, the project was considered a success.

When asked to further elaborate on the issue of ‘procedural pain’, the measures of laborious, repetitive, boring, and time - consuming were all identified

It should be noted that these are all nontraditional 'subjective' intangible and non-financial measures

Therefore, traditional criteria for evaluating IT project success are no longer correct and should be replaced by measures that reflect new approaches to system development and management.

In this project, Company V lacked a formal justification process, because they had not previously invested in projects that were outside the scope of traditional appraisal techniques.

Company’s Previous Investment Experience Computer Numerically Controlled (CNC) equipment had been financed through loan

agreements where cash flow projections and sensitivity analysis had been used to assess the impact and risk of the investment

Clearly, in such cases the focus is on direct financial benefits and costs, whereas the PPC system was viewed as providing a portfolio of benefits and costs, which were not easily accommodated within those appraisal techniques traditionally used by Company V

Therefore, soon the company discovered that the accountancy frameworks that it has considerable experience in using were not suitable for investments with intangible and nonfinancial benefits and indirect costs, as they provided inappropriate information for rigorous evaluation.

A new and inexperienced management team (which was unaware of the latest appraisal techniques, which could take into account qualitative costs and benefits) used a simplistic Cost/Benefit Analysis (CBA).

Management's use of CBA allowed the listing of perceived project benefits and costs, but no assignments of financial values were made to the PPC implications identified.

This was due to the complexity, subjectivity, and time-consuming nature of identifying and assigning arbitrary values to the intangible and nonfinancial benefits and costs associated with the PPC investment.

In terms of costs, CBA could only identify direct financial costs such as uninterruptable power supply , file servers, additional networking software, & …, but failed to measure costs of intangible factors

In terms of benefits, CBA proposed that investment benefits typically fall into three categories : strategic, tactical and operational benefits, but failed to provide further info about impact of each In particular, major strategic benefits such as perceived market leadership, leadership in new technology, and promotion of an 'open business culture' were not readily convertible in financial terms.

Next slide illustrates a taxonomy of strategic benefits identified as part of Company V’s cost and benefit analysis

Classification of MRPII benefits Financial Non Financial Partly/totally

Strategic Benefits

Improved Growth and Success

Leader in New Technology

Improved Market Share

Market Leadership

Enhanced Competitive Advantage

Based on M Irani Z and D E Love Evaluating the Impact of IT on the Organization

intangible

X X X

X

X

X XX

X X X

X

X

---

Since Company V was unable to accurately calculate the financial returns achievable, an 'act of faith' decision to invest was made. The basis for this investment strategy, although ad hoc, was that the company was unable to calculate accurately the scope and magnitude of the investments' benefits.

Particularly, the far-reaching implications of intangible & nonfinancial benefits together with indirect costs that later appeared, added to the complexity of evaluation of investment

During the implementation of the core PPC module, it became evident that the vendor-supplied system required the data to fulfill its (the software's) needs, rather than fitting the way Company V operated.

However, 'major' reengineering of business processes just to satisfy the software was considered expensive, non-value- adding, and time-consuming for Company V. Besides, reengineering would cause disruptions to production performance. Moreover, these implications appeared as significant cost factors that had not been acknowledged within their CBA. Therefore, preferably reengineering of business process needed to be avoided.

On the other hand, the reengineering of processes, presented themselves as unavoidable, to achieve the necessary functionality for the effective use of the PPC system.

Employee resistance and a culture based on reactive isolation added to the implementation problems.

People openly blamed the IS when things went wrong. Confrontation between Company Director and Production

Director It appeared that Company V's biggest problem was their core

vendor- supplied PPC module, which worked extremely well if kept supplied with a continuous flow of 'clean data.'

If there was any 'hitch' in data recording or accuracy, the system became highly unstable and unreliable . To remedy this situation, implementation team researched to purchase a vendor shop floor data collection (SFDC) module.

It was also found that the operational workforce did not receive an orientation on the importance of PPC and on how a new module like SFDC could make a contribution to the performance of the PPC function.

Finally, the software selection and implementation team regretted not educating the workforce

This was particularly painful to the team, because management considered this lack of education and training as a barrier to the program being accepted at an operational level

Skepticism and the implications of misuse resulted in 'unreliable' data, which brought 'noise' into the Master Production Schedule (MPS).

The above mentioned issues later resulted in the following:

inaccurate customer delivery lead times being quoted falls in productivity loss of a customer base Obviously, these factors had a significant impact on the perceived success of

the IS and were not acknowledged as implementation issues during the system’s evaluation phase.

At this point, due to the lack of success, managing director turned his attention to a new project which was bespoke MRPII

Due to Company’s need for an integrated system, key employees set about developing their own business solution. However, this contradicted the managing director’s initial justification for purchasing vendor software

It would appear that human and organizational issues played a crucial part in the decision-making process to develop a bespoke software system

The development of bespoke software was intended to give Company V a new opportunity to gain operational support for the successful implementation of MRPII

As far as benefit/cost analysis is concerned, the majority of benefits that were identified in Table 14.1 seemed to be still relevant. However, the scope of costs associated with developing a bespoke MRPII was considered greater than what originally was estimated.

New indirect costs (such as organizational and human costs) in addition to the already realized direct costs were identified

So company needed to find ways to reduce the cost as much as possible to make the new system effective and functional

1. Management/ Staff Resource2. Management Time3. Cost of ownership: system support4. Management Effort and Dedication5. Employee Time6. Employee Training7. Employee Motivation8. Changes in Salaries9. Software Disposal10. Staff Turnover

Based on M Irani Z and D E Love Evaluating the Impact of IT on the Organization

1. Productivity Losses2. Strains on Resource3. Business Process Reengineering4. Hardware Disposal5. Organisational Restructuring

It was decided by the managing director to hire a consultant firm, as help was needed to facilitate the design, development and implementation process

Company V also decided to reassess its strategic direction, organizational strengths/weakness, and revise its business plan to develop a project strategy

Company also began a series of intensive strategic educational sessions and workshop trainings◦ All functional managers were educated on the importance of MRPII and its

impacts on their job◦ In addition, a simplified course was developed for shop floor stakeholders (this

course addressed educational issues as well as practical implications of such a system on stakeholders job functions.

◦ Also, where necessary, employees were sent on external training courses to gain technical skills

Based on M Irani Z and D E Love Evaluating the Impact of IT on the

Organization

To help keep the cost down, Company employed industrial students for a period of 6 months to 1 year to work on this project

Students were supervised by a member of staff from university, so company had technical academic support

This policy helped to keep the system development cost down, thus reducing the need for expensive consultants and outside contract engineers

In addition, having students maintained constant stream of innovation, inspiration and motivation

Based on M Irani Z and D E Love Evaluating the Impact of IT on the Organization

During development phase, company mapped out its entire business process using flowchart tools

This enabled processes to be reengineered and facilitated the removal of non-value-adding activities before any systems were computerized

This approach was considerably different from earlier attempts which were mainly generic and around the functionality of the vendor-supplied software

The reengineering of business processes prior to development of bespoke system allowed for the software to be programmed and modeled on best practice activities

Based on M Irani Z and D E Love Evaluating the Impact of IT on the Organization

Technology Management Factors Vendor software Bespoke software

Investment Strategy Act of Faith Educated Decision without Financial Quantitative Analysis

Formal Project Management No Yes

Company Culture Closed Open

Concept Justification to Workforce No Yes

Workforce Educated/ Trained No Yes

Management Educated/ Trained No Yes

Appraisal Technique Cost/ Benefit Analysis Cost/ Benefit Analysis

Consultancy Support No Yes

Academic Involvement No Industrial Placement of Students

Continuous Project Evaluation No Monthly Management Review Meetings

Investment Integrated in Business Plan No Yes

Classification of Benefits Strategic, Tactical and Operational Strategic, Tactical and Operational

Nature of Benefits identified Financial, non-financial, and Intangible Financial, non-financial, and Intangible

As a result of this case study findings, a number of technology management factors have been identified as having an impact on the failure or success of Company V’s adoption of MRPII

Technology Management Factors Vendor software Bespoke software

Classification of Costs Identified Direct Costs Direct and Indirect Costs

Nature of Costs Identified Financial Financial and Intangible

Risk Considered Competitive Risk Competitive Risk

Implementation Process Implementation Team Implementation Team with contribution from Other Functions

Project Leader Managing Director Production Director

Development Scope Short/ Medium Term Long Term

Human Factors Not Considered Addressed Where Possible

Organisational Implications Not Considered and Not Considered Far-Reaching

Acknowledged as Being Far-Reaching

Implementation Documentation Ad hoc Formal Documentation Process

Stakeholder Analysis No Yes

Perceived Project Outcome

Failure

Success

Based on M Irani Z and D E Love Evaluating the Impact of IT on the Organization

Highlighted the significance of:-1. human and organizational factors;2. proposed technology management

taxonomies;

Exemplified the need of consideration of certain factors/issues within any robust evaluation criteria

Based on M Irani Z and D E Love Evaluating the Impact of IT on the

Organization

The increased scope of new technology has not only provided organizations with enablers for change, but also prompted companies to reassess the way they evaluate, manage, and exploit technology.

The strategy adopted by the case study when evaluating the MRPII investment was an 'act of faith,' and thus ad hoc in nature.

The relatively new and inexperienced management team further complicated the justification process, as a result of their lack of knowledge in regards to IS-related benefits and costs

There are also serious implications connected with the poor project management, which in part was exacerbated by indecisive and inconsistent leadership

The case study points to the significance of human and organizational factors that need to be taken into consideration during evaluation process