Free Course on Chapter 3 THE IMPACT OF INFORMATION TECHNOLOGY
Benefits for the Organization
What benefits can you expect from information technology? IT
can affect the structure of the organization, its strategy, its revenues and
expenses, and the individuals working within it.
A number of organizations use technology to gain a competitive advantage and design
creative applications that allow them to compete more effectively. A good
example of strategic use of IT comes in the drug supply industry. McKesson
Corporation developed a system called Economist that increased and protected its
share of the market. The first version of the system featured hand-held
terminals used by McKesson customers, generally drugstores. When a product was
out of stock or the stock was low, an employee checking store shelves read a
product code from the shelf label and keyed it into the terminal. On completion
of the inventory, the terminal was used to transmit the order over telephone
lines to McKesson's central computer.
Over the next eight years, McKesson enhanced the system and
included various terminal types of different needs. There is also a bar-code
scanner for picking up a product code directly from a bar code on the shelf
label, eliminating the keying operation. Since the system “knows” what products
are stored in which aisles, it creates packing lists ordered by shelf location
so that items for the same section of the store can be packed in the same
container.
McKesson also offers a claims service for programs such as
Medicare. Individuals apply for and receive plastic identification cards similar
to a credit card. On paying a nominal amount, say $1 for the prescription, they
use the credit card to prepare a claims form, which the drugstore uses to obtain
the remaining payment from the insurance company. A McKesson subsidiary
processes the claims and the entire application tends to keep customers coming
back to the same drugstore.
Some firms use technology to generate revenue, for example,
by making information products available through computer systems. There is an
abundance of financial databases and services to which one can subscribe. It is
possible to obtain hundreds of types of data about companies and their financial
conditions. Mead Data, a subsidiary of Elsevier, offers a system called Lexis /
Nexis that contains citations for various court decisions and an archive of
articles from a number of newspapers and periodicals. The system is used
extensively in law offices where attorneys and their assistants search for past
decisions that may be relevant to the legal problems at hand. Our MBA students
and faculty also have access to the system to gather corporate data. The
Internet also provides a vast amount of information, though it is hard to find
and can seem very disorganized at time.
One traditional use of computers in organizations is for cost
saving Companies automate clerical tasks to reduce costs. Insurance companies
and banks generate products that are really information; bills, notices,
renewals, and so on represent output of products that must be printed and
distributed to customers. Some of these systems eliminated existing positions,
whereas other reduced the number of additional employees needed in the future.
Manufacturing firms save money by using computers to control their inventory and
production.
If the use of IT either increases revenues or decreases
costs, it should contribute to increased profitability, all other things held
constant. In many applications it is very hard to show that IT has an impact on
the “bottom line” because so many other factors influence profits. Increasing
revenues and/or decreasing costs should certainly contribute to profitability,
as long as the amounts involved exceed the operating and capital recovery costs
for the IT application.
One reason to use technology is to improve the quality of
output: computer aided design is a good example. An engineer or draftperson uses
a workstation to create engineering drawings. He or she stores the drawing on a
computer file; it can be recalled later for easy modification. A system like
this will also plot a drawing copy; changes are redrawn in minutes. The system
reduces much of the drudgery of design work and has dramatically reduced the
need for drafts people.
