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ch.docxInformation Systems: A Manager's Guide to Harnessing Technology, v. 3.0
Digital All Access Pass
by John Gallaugher
11.1 Introduction
Learning Objectives
1. Recognize the importance of software and its implications for the firm and strategic decision making.
2. Understand that software is everywhere; not just in computers, but also cell phones, cars, cameras, and many other technologies.
3. Know what software is and be able to differentiate it from hardware.
4. List the major classifications of software and give examples of each.
We know computing hardware is getting faster and cheaper, creating all sorts of exciting and disruptive opportunities for the savvy manager. But what’s really going on inside the box? It’s software that makes the magic of computing happen. Without software, your PC would be a heap of silicon wrapped in wires encased in plastic and metal. But it’s the instructions—the software code—that enable a computer to do something wonderful, driving the limitless possibilities of information technology.
Software is everywhere. An inexpensive cell phone has about one million lines of code. [1] Ford automobiles actually have more lines of code than Twitter and Facebook combined. [2] Software might even be in grandpa. The average pacemaker has between 80,000 and 100,000 of code. [3] In this chapter we’ll take a peek inside the chips to understand what software is. A lot of terms are associated with software: operating systems, applications, enterprise software, distributed systems, and more. We’ll define these terms up front, and put them in a managerial context. A follow-up chapter, Chapter 12 "Software in Flux: Open Source, Cloud, and Virtualized and App-driven Shifts" “Software in Flux: Partly Cloudy and Sometimes Free” will focus on changes impacting the software business, including open source software, software as a service (SaaS), cloud computing, virtualization, and the rise of apps. These changes are creating an environment radically different from the software industry that existed in prior decades—confronting managers with a whole new set of opportunities and challenges.
Managers who understand software can better understand the possibilities and impact of technology. They can make better decisions regarding the strategic value of IT and the potential for technology-driven savings. They can appreciate the challenges, costs, security vulnerabilities, legal and compliance issues, and limitations involved in developing and deploying technology solutions. In the next two chapters we will closely examine the software industry and discuss trends, developments and economics—all of which influence decisions managers make about products to select, firms to partner with, and firms to invest in.
What Is Software?
When we refer to computer hardware (sometimes just hardware), we’re talking about the physical components of information technology—the equipment that you can physically touch, including computers, storage devices, networking equipment, and other peripherals.
Software refers to a computer program or collection of programs—sets of instructions that tell the hardware what to do. Software gets your computer to behave like a Web browser or word processor, lets your smartphone play music and video, and enables your bank’s ATM to spit out cash.
It’s when we start to talk about the categories of software that most people’s eyes glaze over. To most folks, software is a big, incomprehensible alphabet soup of acronyms and geeky phrases: OS, VB, SAP, SQL, to name just a few.
Don’t be intimidated. The basics are actually pretty easy to understand. But it’s not soup; it’s more of a layer cake. Think about computer hardware as being at the bottom of the layer cake. The next layer is the operating system, the collection of programs that control the hardware. Windows, Mac OS X, iOS, and Linux are operating systems. On top of that layer are applications—a range of which include end-user programs like those in Office, apps that run on smartphones, and the complex set of programs that manage a business’s inventory, payroll, and accounting. At the top of the cake are users.
Figure 11.1 The Hardware/Software Layer Cake
The flexibility of these layers gives computers the customization options that managers and businesses demand. Understanding how the layers relate to each other helps you make better decisions on what options are important to your unique business needs, can influence what you buy, and may have implications for everything from competitiveness to cost overruns to security breaches. What follows is a Manager’s Guide to the main software categories with an emphasis on why each is important.
Key Takeaways
· Software refers to a computer program or collection of programs. It enables computing devices to perform tasks.
· You can think of software as being part of a layer cake, with hardware at the bottom; the operating system controlling the hardware and establishing standards, the applications executing one layer up, and the users at the top.
· How these layers relate to one another has managerial implications in many areas, including the flexibility in meeting business demand, costs, legal issues and security.
· Software is everywhere—not just in computers, but also in cell phones, cars, cameras, and many other technologies.
Questions and Exercises
1. Explain the difference between hardware and software.
2. Why should a manager care about software and how software works? What critical organizational and competitive factors can software influence?
3. What role has software played in your decision to select certain products? Has this influenced why you favored one product or service over another?
4. Find the Fortune 500 list online. Which firm is the highest ranked software firm? While the Fortune 500 ranks firms according to revenue, what’s this firm’s profitability rank? What does this discrepancy tell you about the economics of software development? Why is the software business so attractive to entrepreneurs?
5. Refer to earlier chapters (and particularly to Chapter 2 "Strategy and Technology: Concepts and Frameworks for Understanding What Separates Winners from Losers"): Which resources for competitive advantage might top software firms be able to leverage to ensure their continued dominance? Give examples of firms that have leveraged these assets, and why they are so strong.
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11.2 Operating Systems
Learning Objectives
1. Understand what an operating system is and why computing devices require operating systems.
2. Appreciate how embedded systems extend Moore’s Law, allowing firms to create “smarter” products and services
Computing hardware needs to be controlled, and that’s the role of the operating system. The operating system (sometimes called the “OS”) provides a common set of controls for managing computer hardware, making it easier for users to interact with computers and for programmers to write application software. Just about every computing device has an operating system—desktops and laptops, enterprise-class server computers, your mobile phone. Even specialty devices like iPods, video game consoles, and television set-top boxes run some form of OS.
Some firms, like Apple and Nintendo, develop their own proprietary OS for their own hardware. Microsoft sells operating systems to everyone from Dell to the ATM manufacturer Diebold (listen for the familiar Windows error beep on some cash machines). And there are a host of specialty firms, such as Wind River (purchased by Intel), that help firms develop operating systems for all sorts of devices that don’t necessarily look like a PC, including cars, video editing systems, and fighter jet control panels.
Anyone who has used both a PC and a Mac and has noticed differences across these platforms can get a sense of the breadth of what an operating system does. Even for programs that are otherwise identical for these two systems (like the Firefox browser), subtle differences are visible. Screen elements like menus, scroll bars, and window borders look different on the Mac than they do in Windows. So do the dialogue boxes that show up when you print or save.
These items look and behave differently because each of these functions touches the hardware, and the team that developed Microsoft Windows created a system distinctly different from their Macintosh counterparts at Apple. Graphical user interface (UI) items like scroll bars and menus are displayed on the hardware of the computer display. Files are saved to the hardware of a hard drive or other storage device. Most operating systems also include control panels, desktop file management, and other support programs to work directly with hardware elements like storage devices, displays, printers, and networking equipment. The Macintosh Finder and the Windows Explorer are examples of components of these operating systems. The consistent look, feel, and functionality that operating systems enforce across various programs help make it easier for users to learn new software, which reduces training costs and operator error. See Figure 11.2 for similarities and differences.
Operating systems are also designed to give programmers a common set of commands to consistently interact with the hardware. These commands make a programmer’s job easier by reducing program complexity and making it faster to write software while minimizing the possibility of errors in code. Consider what an OS does for the Wii game developer. Nintendo’s Wii OS provides Wii programmers with a set of common standards to use to access the Wiimote, play sounds, draw graphics, save files, and more. Without this, games would be a lot more difficult to write, they’d likely look differently, be less reliable, would cost more, and there would be fewer titles available.
Similarly, when Apple provided developers with a common set of robust, easy-to-use standards for the iPhone and (via the App Store) an easy way for users to install these applications on top of the iPhone/iPod touch/iPad’s operating system (iOS), software development boomed, and Apple became hands-down the most versatile mobile computing device available. [1] In Apple’s case some fifty thousand apps became available through the App Store in less than a year, and well over a million apps in total. A good OS and software development platform can catalyze network effects (see Chapter 7 “Understanding Network Effects: Strategies for Competing in a Platform-Centric, Winner-Take-All World” “Understanding Network Effects: Strategies for Competing in a Platform-Centric, Winner-Take-All World ”). While the OS seems geeky, its effective design has very strategic business implications!
Firmware and Embedded Systems
Most personal computers have an operating system installed on their hard drives. This system allows the OS to be replaced or upgraded easily. But many smaller, special-purpose computing devices have their operating systems installed on nonvolatile memory, often on read-only memory (ROM) chips. Control programs stored on chips are sometimes referred to as firmware. The OS in an iPod, mobile phone, or your TV’s set-top box is most likely stored as firmware. Your PC also has a tiny bit of firmware that allows it to do very basic functions like start-up (boot) and begin loading its operating system from disk.
Another term you might hear is embedded systems. As computing gets cheaper, special-purpose technology is increasingly becoming embedded into all sorts of devices like cars, picture frames, aircraft engines, photocopiers, and heating and air conditioning systems. The software programs that make up embedded systems are often stored as firmware too. Using microprocessors and embedded software to enable commonly encountered devices to communicate with one another (think of the Nest thermostat or app-controlled lighting and door locks by SmartThings) is sometimes referred to as the Internet of Things. Embedded systems are now found in everything from herd-tracking cow collars [2] to pipeline monitoring sensors, eliminating the need for workers to trek out and monitor operations. [3]
Moore’s Law (see Chapter 5 “Moore’s Law and More: Fast, Cheap Computing, Disruptive Innovation, and What This Means for the Manager” ) enables embedded systems, and these systems can create real strategic value. The Otis Elevator Company, a division of United Technologies, uses embedded systems in its products to warn its service centers when the firm’s elevators, escalators, and moving walkways need maintenance or repair. This warning provides Otis with several key benefits:
1. Since products automatically contact Otis when they need attention, these systems generate a lucrative service business for the firm and make it more difficult for third parties to offer a competing business servicing Otis products.
2. Products contact service technicians to perform maintenance based on exact needs (e.g., lubricant is low, or a part has been used enough to be replaced) rather than guessed schedules, which makes service more cost-effective, products less likely to break down, and customers happier.
3. Any product failures are immediately detected, with embedded systems typically dispatching technicians before a client’s phone call.
4. The data is fed back to Otis’s R&D group, providing information on reliability and failure so that engineers can use this info to design better products.
Collectively, software embedded on tiny chips yields very big benefits, for years helping Otis remain at the top of its industry.
11.3 Application Software
Learning Objectives
1. Appreciate the difference between desktop and enterprise software.
2. List the categories of enterprise software.
3. Understand what an ERP (enterprise resource planning) software package is.
4. Recognize the relationship of the DBMS (database system) to the other enterprise software systems.
5. Recognize both the risks and rewards of installing packaged enterprise systems.
Operating systems are designed to create a platform so that programmers can write additional applications, allowing the computer to do even more useful things. While operating systems control the hardware, application software (sometimes referred to as software applications, applications, or even just apps) perform the work that users and firms are directly interested in accomplishing. Think of applications as the place where the users or organization’s real work gets done. As we learned in Chapter 7 "Understanding Network Effects: Strategies for Competing in a Platform-Centric, Winner-Take-All World" , the more application software that is available for a platform (the more games for a video game console, the more apps for your phone), the more valuable it potentially becomes.
Desktop software refers to applications installed on a personal computer—your browser, your Office suite (e.g., word processor, spreadsheet, presentation software), photo editors, and computer games are all desktop software. Enterprise software refers to applications that address the needs of multiple, simultaneous users in an organization or work group. Most companies run various forms of enterprise software programs to keep track of their inventory, record sales, manage payments to suppliers, cut employee paychecks, and handle other functions. Another term you might hear is apps. While the definition of apps is somewhat fluid, most folks use the term app to refer to smaller pieces of software that are designed for a specific platform, such as the programs that are executed on a smartphone, tablet, television, or specialized platform like Google Glass or Oculus Rift.
Some firms write their own enterprise software from scratch, but this can be time consuming and costly. Since many firms have similar procedures for accounting, finance, inventory management, and human resource functions, it often makes sense to buy a software package (a software product offered commercially by a third party) to support some of these functions. So-called enterprise resource planning (ERP) software packages serve precisely this purpose. In the way that Microsoft can sell you a suite of desktop software programs that work together, many companies sell ERP software that coordinates and integrates many of the functions of a business. The leading ERP vendors include the firm’s SAP and Oracle, although there are many firms that sell ERP software. A company doesn’t have to install all of the modules of an ERP suite, but it might add functions over time—for example, to plug in an accounting program that is able to read data from the firm’s previously installed inventory management system. And although a bit more of a challenge to integrate, a firm can also mix and match components, linking software the firm has written with modules purchased from different enterprise software vendors.
An ERP system with multiple modules installed can touch many functions of the business:
· Sales—A sales rep from Vermont-based SnowboardCo. takes an order for five thousand boards from a French sporting goods chain. The system can verify credit history, apply discounts, calculate price (in euros), and print the order in French.
· Inventory—While the sales rep is on the phone with his French customer, the system immediately checks product availability, signaling that one thousand boards are ready to be shipped from the firm’s Burlington warehouse, the other four thousand need to be manufactured and can be delivered in two weeks from the firm’s manufacturing facility in Guangzhou.
· Manufacturing—When the customer confirms the order, the system notifies the Guangzhou factory to ramp up production for the model ordered.
· Human Resources—High demand across this week’s orders triggers a notice to the Guangzhou hiring manager, notifying her that the firm’s products are a hit and that the flood of orders coming in globally mean her factory will have to hire more workers to keep up.
· Purchasing—The system keeps track of raw material inventories, too. New orders trigger an automatic order with SnowboardCo.’s suppliers, so that raw materials are on hand to meet demand.
· Order Tracking—The French customer can log in to track her SnowboardCo. order. The system shows her other products that are available, using this as an opportunity to cross-sell additional products.
· Decision Support—Management sees the firm’s European business is booming and plans a marketing blitz for the continent, targeting board models and styles that seem to sell better for the Alps crowd than in the U.S. market.
Other categories of enterprise software that managers are likely to encounter include the following:
· customer relationship management (CRM) systems used to support customer-related sales and marketing activities
· supply chain management (SCM) systems that can help a firm manage aspects of its value chain, from the flow of raw materials into the firm through delivery of finished products and services at the point-of-consumption
· business intelligence (BI) systems, which use data created by other systems to provide reporting and analysis for organizational decision making
Major ERP vendors are now providing products that extend into these and other categories of enterprise application software, as well.
Most enterprise software works in conjunction with a database management system (DBMS), sometimes referred to as a “database system.” The database system stores and retrieves the data that an application creates and uses. Think of this as another additional layer in our cake analogy. Although the DBMS is itself considered an application, it’s often useful to think of a firm’s database systems as sitting above the operating system, but under the enterprise applications. Many ERP systems and enterprise software programs are configured to share the same database system so that an organization’s different programs can use a common, shared set of data. This system can be hugely valuable for a company’s efficiency. For example, this could allow a separate set of programs that manage an inventory and point-of-sale system to update a single set of data that tells how many products a firm has to sell and how many it has already sold—information that would also be used by the firm’s accounting and finance systems to create reports showing the firm’s sales and profits.
Firms that don’t have common database systems with consistent formats across their enterprise often struggle to efficiently manage their value chain. Common procedures and data formats created by packaged ERP systems and other categories of enterprise software also make it easier for firms to use software to coordinate programs between organizations. This coordination can lead to even more value chain efficiencies. Sell a product? Deduct it from your inventory. When inventory levels get too low, have your computer systems send a message to your supplier’s systems so that they can automatically build and ship replacement product to your firm. In many cases these messages are sent without any human interaction, reducing time and errors. And common database systems also facilitate the use of BI systems that provide critical operational and competitive knowledge and empower decision making. For more on CRM and BI systems, and the empowering role of data, see Chapter 13 "The Data Asset: Databases, Business Intelligence, Analytics, Big Data, and Competitive Advantage" .
The Rewards and Risks of Packaged Enterprise Systems
When set up properly, enterprise systems can save millions of dollars and turbocharge organizations. For example, the CIO of office equipment maker Steelcase credited the firm’s ERP with an eighty-million-dollar reduction in operating expenses saved from eliminating redundant processes and making data more usable. The CIO of Colgate Palmolive also praised their ERP, saying, “The day we turned the switch on, we dropped two days out of our order-to-delivery cycle.” [2] Packaged enterprise systems can streamline processes, make data more usable, and ease the linking of systems with software across the firm and with key business partners. Plus, the software that makes up these systems is often debugged, tested, and documented with an industrial rigor that may be difficult to match with proprietary software developed in-house.
But for all the promise of packaged solutions for standard business functions, enterprise software installations have proven difficult. Standardizing business processes in software that others can buy means that those functions are easy for competitors to match, and the vision of a single monolithic system that delivers up wondrous efficiencies has been difficult for many to achieve. The average large company spends roughly $15 million on ERP software, with some installations running into the hundreds of millions of dollars. [3] And many of these efforts have failed disastrously.
FoxMeyer was once a six-billion-dollar drug distributor, but a failed ERP installation led to a series of losses that bankrupted the firm. The collapse was so rapid and so complete that just a year after launching the system, the carcass of what remained of the firm was sold to a rival for less than $80 million. Hershey Foods blamed a $466 million revenue shortfall on glitches in the firm’s ERP rollout. Among the problems, the botched implementation prevented the candy maker from getting product to stores during the critical period before Halloween. Nike’s first SCM and ERP implementation was labeled a “disaster”; their systems were blamed for over $100 million in lost sales. [4] Even tech firms aren’t immune to software implementation blunders. HP once blamed a $160 million loss on problems with its ERP systems. [5] Manager beware—there are no silver bullets. For insight on the causes of massive software failures, and methods to improve the likelihood of success, see Chapter 11, Section 6 "Understanding Technology beyond the Price Tag: Total Cost of Ownership (TCO) and the Cost of Tech Failure".
Learning Objectives
1. Understand the concept of distributed computing and its benefits.
2. Understand the client-server model of distributed computing.
3. Know what Web services are and the benefits that Web services bring to firms.
4. Appreciate the importance of messaging standards and understand how sending messages between machines can speed processes, cut costs, reduce errors, and enable new ways of doing business.
When computers in different locations can communicate with one another, this is often referred to as distributed computing. [1] Distributed computing can yield enormous efficiencies in speed, error reduction, and cost savings and can create entirely new ways of doing business. Designing systems architecture for distributed systems involves many advanced technical topics. Rather than provide an exhaustive decomposition of distributed computing, the examples that follow are meant to help managers understand the bigger ideas behind some of the terms that they are likely to encounter.
Let’s start with the term server. This is a tricky one because it’s frequently used in two ways: (1) in a hardware context a server is a computer that has been configured to support requests from other computers (e.g., Dell sells servers) and (2) in a software context a server is a program that fulfills requests (e.g., the Apache open source Web server). Most of the time, server software resides on server-class hardware, but you can also set up a PC, laptop, or other small computer to run server software, albeit less powerfully. And you can use mainframe or super-computer-class machines as servers, too. Also note that many firms chose not to own some of their applications or any of their own server hardware at all. Instead, they pay third-party firms to host their software “in the cloud.” This option is particularly attractive for smaller firms that can’t or don’t want to invest in the expense and expertise associated with owning and operating hardware, for firms looking for extra computing capacity, and for firms that want public servers (e.g., Web sites) to be in fast, reliable locations outside of a company’s own private network.
The World Wide Web, like many other distributed computing services, is what geeks call a client-server system. Client-server refers to two pieces of software: a client that makes a request and a server that receives and attempts to fulfill the request. In our WWW scenario, the client is the browser (e.g., Internet Explorer, Chrome, Firefox, Safari). When you type a Web site’s address into the location field of your browser, you’re telling the client to “go find the Web server software at the address provided, and tell the server to return the Web site requested.” Smartphone and tablet apps can also act as clients that make requests of more powerful server programs running elsewhere on the web. Another example is smartphone voice recognition software, such as Apple’s Siri. Voice recognition typically requires computing power far greater than that held on a smartphone, so Apple sends your voice to a more powerful collection of servers for processing and interpretation.
It is possible to link simple scripting languages to a Web server for performing calculations, accessing databases, or customizing Web sites. But more advanced distributed environments may use a category of software called an application server. The application server (or app server) houses business logic for a distributed system. Individual Web services served up by the app server are programmed to perform different tasks: returning a calculation (“sales tax for your order will be $11.58”), accessing a database program (“here are the results you searched for”), or even making a request to another server in another organization (“Visa, please verify this customer’s credit card number for me”).
In this multitiered distributed system, client browsers on various machines (desktop, laptop, mobile) access the system through the Web server. The cash register doesn’t use a Web browser, so instead the cash register logic is programmed to directly access the services it needs from the app server. Web services accessed from the app server may be asked to do a variety of functions, including perform calculations, access corporate databases, or even make requests from servers at other firms (for example, to verify a customer’s credit card).
Those little chunks of code that are accessed via the application server are sometimes referred to as Web services. The World Wide Web consortium defines Web services as software systems designed to support interoperable machine-to-machine interaction over a network. [2] And when computers (instead of people) can talk together, this often results in fewer errors, time savings, cost reductions, and can even create whole new ways of doing business! Each Web service defines the standard method for other programs to request it to perform a task and defines the kind of response the calling client can expect back. These standards are referred to as application programming interfaces (APIs).
Look at the advantages that Web services bring a firm like Amazon. Using Web services, the firm can allow the same order entry logic to be used by Web browsers, mobile phone applications, or even by third parties who want to access Amazon product information and place orders with the firm (there’s an incentive to funnel sales to Amazon—the firm will give you a cut of any sales that you send Amazon’s way). Google offers many APIs, including hooks that other developers use to leverage Google Maps. And Facebook and Twitter have APIs that, among other things, allow programmers to write apps that can post status updates and tweets. Organizations that have created a robust set of Web services around their processes and procedures are said to have a service-oriented architecture (SOA). Organizing systems like this, with separate applications in charge of client presentation, business logic, and database, makes systems more flexible. Code can be reused, and each layer can be separately maintained, upgraded, or migrated to new hardware—all with little impact on the others.
Web services sound geeky, but here’s a concrete example illustrating their power. Southwest Airlines had a Web site where customers could book flights, but many customers also wanted to rent a car or book a hotel, too. To keep customers on Southwest.com, the firm and its hotel and rental car partners created a set of Web services and shared the APIs. Now customers visiting Southwest.com can book a hotel stay and rental car on the same page where they make their flight reservation. This process transforms Southwest.com into a full service travel destination and allows the site to compete head-to-head with the likes of Expedia, Travelocity, and Orbitz. [3]
Think about why Web services are important from a strategic perspective. By adding hotel and rental car services, Southwest is now able to eliminate the travel agent, along with any fees they might share with the agent. This shortcut allows the firm to capture more profits or pass on savings to customers, securing its position as the first place customers go for low-cost travel. And perhaps most importantly, Southwest can capture key data from visitor travel searches and bookings (something it likely couldn’t do if customers went to a site like Expedia or Travelocity). Data is a hugely valuable asset, and this kind of customer data can be used by Southwest to send out custom e-mail messages and other marketing campaigns to bring customers back to the airline. As geeky as they might at first seem, Web services can be very strategic!
Formats to Facilitate Sharing Data
Two additional terms you might hear within the context of distributed computing are EDI and XML. EDI (electronic data interchange) is a set of standards for exchanging information between computer applications. EDI is most often used as a way to send the electronic equivalent of structured documents between different organizations. Using EDI, each element in the electronic document, such as a firm name, address, or customer number, is coded so that it can be recognized by the receiving computer program. Eliminating paper documents makes businesses faster and lowers data entry and error costs. One study showed that firms that used EDI decreased their error rates by 82 percent, and their cost of producing each document fell by up to 96 percent. [4]
EDI is a very old standard, with roots stretching back to the 1948 Berlin Air Lift. While still in use, a new generation of more-flexible technologies for specifying data standards are taking its place. Chief among the technologies replacing EDI is extensible markup language (XML). XML has lots of uses, but in the context of distributed systems, it allows software developers to create a set of standards for common data elements that, like EDI messages, can be sent between different kinds of computers, different applications, and different organizations. XML is often thought of as easier to code than EDI, and it’s more robust because it can be extended—organizations can create formats to represent any kind of data (e.g., a common part number, photos, the complaint field collected by customer support personnel). In fact, most messages sent between Web services are coded in XML (the technology is a key enabler in mash-ups, discussed in Chapter 9 “The Sharing Economy, Collaborative Consumption, and Creating More Efficient Markets through Technology”). Many computer programs also use XML as a way to export and import data in a common format that can be used regardless of the kind of computer hardware, operating system, or application program used. And if you design Web sites, you might encounter XML as part of the coding behind the cascading style sheets (CSS) that help maintain a consistent look and feel to the various Web pages in a given Web site.
Rearden Commerce: A Business Built on Web Services
Web services, APIs, and open standards not only transform businesses, they can create entire new firms that change how we get things done. For a look at the mashed-up, integrated, hyperautomated possibilities that Web services make possible, check out Rearden Commerce, a San Francisco firm that is using this technology to become what AMR’s Chief Research Office referred to as “Travelocity on Steroids.”
Using Rearden and the firm’s Deem Network of integrated apps and web services, firms can offer their busy employees a sort of Web-based concierge/personal assistant. Rearden offers firms a one-stop shop where employees can not only make the flight, car, and hotel bookings they might do from a travel agent, they can also book dinner reservations, sports and theatre tickets, and arrange for business services like conference calls and package shipping. Rearden doesn’t supply the goods and services it sells. Instead it acts as the middleman between transactions. A set of open APIs to its Web services allows Rearden’s one hundred and sixty thousand suppliers to send product and service data to Rearden, and to receive booking and sales data from the site.
In this ultimate business mash-up, a mobile Rearden user could use her phone to book a flight into a client city, see restaurants within a certain distance of her client’s office, have these locations pop up on a Google map, have listings accompanied by Zagat ratings and cuisine type, book restaurant reservations through Open Table, arrange for a car and driver to meet her at her client’s office at a specific time, and sync up these reservations with her firm’s corporate calendaring systems. If something unexpected comes up, like a flight delay, Rearden will be sure she gets the message. The system will keep track of any cancelled reservation credits, and also records travel reward programs, so Rearden can be used to spend those points in the future.
In order to pull off this effort, the Rearden maestros are not only skilled at technical orchestration, but also in coordinating customer and supplier requirements. As TechCrunch’s Erick Schonfeld put it, “The hard part is not only the technology—which is all about integrating an unruly mess of APIs and Web services—[it also involves] signing commercially binding service level agreements with [now over 160,000] merchants across the world.” For its efforts, Rearden gets to keep between 6 percent and 25 percent of every nontravel dollar spent, depending on the service. The firm also makes money from subscriptions, and distribution deals. Some 14 million transactions and over $5 billion a year in commerce ran through the Rearden Deem Network. [5]
Connectivity has made our systems more productive and enables entire new strategies and business models. But these wonderful benefits come at the price of increased risk. When systems are more interconnected, opportunities for infiltration and abuse also increase. Think of it this way—each “connection” opportunity is like adding another door to a building. The more doors that have to be defended, the more difficult security becomes. It should be no surprise that the rise of the Internet and distributed computing has led to an explosion in security losses by organizations worldwide. 11.6 Understanding Technology beyond the Price Tag: Total Cost of Ownership (TCO) and the Cost of Tech Failure
Learning Objectives
1. List the different cost categories that comprise total cost of ownership.
2. Understand that once a system is implemented, the costs of maintaining and supporting the system continue.
3. List the reasons that technology development projects fail and the measures that can be taken to increase the probability of success.
4. Examine the failed launch and eventual fix associated with HealthCare.gov, understanding the factors associated with the system’s botched rollout and techniques used to recover the effort.
Managers should recognize that there are a whole host of costs that are associated with creating and supporting an organization’s information systems. Of course, there are programming costs for custom software as well as purchase, configuration, and licensing costs for packaged software, but there’s much, much more.
There are costs associated with design and documentation (both for programmers and for users). There are also testing costs. New programs should be tested thoroughly across the various types of hardware the firm uses, and in conjunction with existing software and systems, before being deployed throughout the organization. Any errors that aren’t caught can slow down a business or lead to costly mistakes that could ripple throughout an organization and its partners. Studies have shown that errors not caught before deployment could be one hundred times more costly to correct than if they were detected and corrected beforehand. [1]
Once a system is “turned on,” the work doesn’t end there. Firms need to constantly engage in a host of activities to support the system that may also include the following:
· providing training and end user support
· collecting and relaying comments for system improvements
· auditing systems to ensure compliance (i.e., that the system operates within the firm’s legal constraints and industry obligations)
· providing regular backup of critical data
· planning for redundancy and disaster recovery in case of an outage
· vigilantly managing the moving target of computer security issues
With so much to do, it’s no wonder that firms spend 70 to 80 percent of their information systems (IS) budgets just to keep their systems running. [2] The price tag and complexity of these tasks can push some managers to think of technology as being a cost sink rather than a strategic resource. These tasks are often collectively referred to as the total cost of ownership (TCO) of an information system. Understanding TCO is critical when making technology investment decisions. TCO is also a major driving force behind the massive tech industry changes discussed in Chapter 12 “Software in Flux: Open Source, Cloud, and Virtualized and App-driven Shifts” .
Why Do Technology Projects Fail?
Even though information systems represent the largest portion of capital spending at most firms, an astonishing one in three technology development projects fail to be successfully deployed. [3] Imagine if a firm lost its investment in one out of every three land purchases, or when building one in three factories. These statistics are dismal! Writing in IEEE Spectrum, risk consultant Robert Charette provides a sobering assessment of the cost of software failures, stating, “The yearly tab for failed and troubled software conservatively runs somewhere from $60 to $70 billion in the United States alone. For that money, you could launch the space shuttle one hundred times, build and deploy the entire 24-satellite Global Positioning System, and develop the Boeing 777 from scratch—and still have a few billion left over.” [4]
Why such a bad track record? Sometimes technology itself is to blame, other times it’s a failure to test systems adequately, and sometimes it’s a breakdown of process and procedures used to set specifications and manage projects. In one example, a multimillion-dollar loss on the NASA Mars Observer was traced back to a laughably simple oversight—Lockheed Martin contractors using English measurements, while the folks at NASA used the metric system. [5] Yes, a $125 million taxpayer investment was lost because a bunch of rocket scientists failed to pay attention to third grade math. When it comes to the success or failure of technical projects, the devil really is in the details.
Projects rarely fail for just one reason. Project post-mortems often point to a combination of technical, project management, and business decision blunders. The most common factors include the following: [6]
· Unrealistic or unclear project goals
· Poor project leadership and weak executive commitment
· Inaccurate estimates of needed resources
· Badly defined system requirements and allowing “feature creep” during development
· Poor reporting of the project’s status
· Poor communication among customers, developers, and users
· Use of immature technology
· Unmanaged risks
· Inability to handle the project’s complexity
· Sloppy development and testing practices
· Poor project management
· Stakeholder politics
· Commercial pressures (e.g., leaving inadequate time or encouraging corner-cutting)
Managers need to understand the complexity involved in their technology investments, and that achieving success rarely lies with the strength of the technology alone.
Firms are also well served to leverage established project planning and software development methodologies that outline critical businesses processes and stages when executing large-scale software development projects. The idea behind these methodologies is straightforward—why reinvent the wheel when there is an opportunity to learn from and follow blueprints used by those who have executed successful efforts. When methodologies are applied to projects that are framed with clear business goals and business metrics, and that engage committed executive leadership, success rates can improve dramatically. [8]
While software development methodologies are the topic of more advanced technology courses, the savvy manager knows enough to inquire about the development methodologies and quality programs used to support large scale development projects, and can use these investigations as further input when evaluating whether those overseeing large scale efforts have what it takes to get the job done.
Lessons Learned from the Failure and Rescue of HealthCare.gov
To say the Affordable Care Act was controversial is an understatement. What many regard as the signature legislation of President Obama’s domestic agenda had barely passed the U.S. Senate, squeaking by with just one vote. The U.S. House of Representatives has voted at least fifty times to repeal or rollback parts of the law. [9] But politics aside, for the law to be successful, technology needed to work, and at rollout it didn’t.
The Affordable Care Act (a.k.a. Obamacare) called for a Web site, HealthCare.gov, that served as a national health care exchange where citizens could shop for, compare, and enroll in health care plans. The site would also offer subsidies for low-income enrollees and assist those eligible to sign up for Medicaid. Interest surged the first day the site went live. [10] Over 250,000 users were said to have visited HealthCare.gov on day one. What is the total enrollment after the first day? Eight. [11] That’s not a typo. The system implementing HealthCare.gov was full of bugs and design flaws that it had enrolled very few people, the number of which is enough to count using your two hands. And this is for a system where the government had agreed to pay the lead contractor $292 million. [12]
