Management And Accounting Web

Bensaou, M. and M. Earl. 1998. The right mind-set for managing information technology. Harvard Business Review (September-October): 119-128.

Summary by Kevin Elliott
Master of Accountancy Program
University of South Florida, Fall 2004

AIS/MIS Main Page | Technology Main Page

Managing IT systems has become as an important a part of business as any in recent years. The frustration of integrating this new form of business management has not been shared by all that have integrated it into everyday business. United States and European senior executives have had a particular difficult time maintaining an efficient and useful IT function. They have typically identified five problems when dealing with information technology. These problems consist of:

1. IT investments are unrelated to business strategy.
2. Payoff from IT investments is inadequate.
3. There’s too much “technology for technology’s sake.
4. Relations between IT users and IT specialists are poor.
5. Systems designers do not consider user’ preferences and work habits.

In investigating these issues western executives have found a blueprint for successfully implementing IT management by studying how IT is managed by the Japanese. In a study of the Japanese way of managing IT we will discover that the problem lies in the mindset used by western executives in approaching the IT management function. Each of these five problems is addressed and contrasted with the Japanese style of IT management through a series of five principles (Strategic instinct, performance improvement, appropriate technology, organizational bonding, and human design) and questions that highlight the weaknesses of the western management style.

1. Strategic Instinct vs. Strategic Alignment

How do we decide what information systems our business needs? Western executives develop an IT strategy that aligns with our business strategy, a concept known as strategic alignment. This strategy evolved out of western companies focusing IT projects on technological criteria rather than business imperatives. Strategic alignment would be achieved by IT vendors, consultants, and academics inventing and selling planning techniques that aimed first at discovering a company’s competitive strategy and second suggesting an IS profile to support it. This system rarely achieves its goal of an IT strategy that aligns with business strategy and thereby makes IT investment useless in achieving business needs. This also leads to a separate IT culture that is rarely understood by management.

In Japan however executives have never really considered developing a separate IT strategy. Japanese executives are far more comfortable sticking to operational goals. IT is seen only as part of the whole, rather than a special system. The Japanese focus on how IT can help to make the company more efficient, not an arena for competition with other companies in the same market. The function of the IT is stressed rather than attempting to gain an advantage by implementing the latest state of the art system. Seven-Eleven Japan is a textbook case for the Japanese outlook on IT investment. In an effort to bring their customer the freshest product each day Seven-Eleven Japan implemented a system that would replenish its inventory multiple times daily. In order to achieve this objective in the most efficient way possible the company invested in a just-in-time inventory system that made their objective possible. This is just one of many small implementations made over the history of this company to help improve customer satisfaction, each improvement making the company more and more competitive. The strategy of continual improvement of IT systems investment through meeting operational goals (such as customer satisfaction) is known as strategic instinct. Strategic instinct allows Japanese companies to compete by meeting operational goals. Compared to western strategic alignment (IT investment to meet with business strategy) the Japanese system is simpler and more effective.

2. Performance Improvement vs. Value-for-money

How do we know whether IT investments are worthwhile? From the beginning western executives have struggled to appraise the return on IT investments. Many western executives take a capital budgeting approach in an effort to legitimize IT projects in the eyes of management. Another approach is to use audits of the IT projects in an effort to investigate how much value IT investments have delivered. While these practices are positive in their effort to ensure shareholder value they tend to breed a value-for-money mind-set which can be counterproductive. In western companies too much emphasis is placed on the immediate return on investments rather then a broader view of how the investment has improved their business.

Japanese companies do not focus on assessing IT projects primarily on financial metrics. Unlike their western counterparts, audits and formal approval for IT investments are very rare. IT investments are made when managers conclude that they could not solve a problem without a new information system. This approach is know as the performance improvement approach to IT investment. The Japanese believe that if an IT investment supports improvement in the area in question, it not only justifies itself but can also be validated easily by operational efficiency measures. This mind-set leads to a lot of IT spending coming in small steps.

3. Appropriate Technology vs. Technology for Technology's Sake

When we’re trying to improve a business process, how does technology fit into our thinking? Western executives often face the difficult phenomenon of “technology for technology’s sake.” This phenomenon occurs in an environment where IT vendors are constantly trying to create new markets, IT specialist want to try out the latest and greatest technology and users can’t judge what’s possible until thy use a new technology. In the United States it is part of our national pride to be the first to adopt new technologies ahead of the rest of the world. This mind-set has lead to such positive results as the growth of the internet and the World Wide Web. However, more often than not this situation results in companies acquiring technology that is to advanced for their business needs when older systems were still perfectly adequate. Known as technology solutions, these IT pioneers can yield an early-mover advantage for their company but in most cases they just end up using valuable company resources for little advantage.

The Japanese strive for an environment where they may not have the latest technology but that they do have the appropriate technology. A typical Japanese factory has many high tech areas alongside a few low-tech zones that still require human decision making skills. The Japanese will implement high tech hand hand-held monitoring devices but still walk the production floor while they monitor it through their technology. Their belief is that technology does not replace traditional was of doing business, it enhances them. Very few Japanese companies rely on EDI (Electronic Data Interchange) whereas US companies use it extensively. They are not behind in technology they just didn’t assume that advanced forms of electronic communications were advantageous and therefore there was no need to implement them.

4. Organizational Bonding vs. IS User Relations Liaison

How should IT users and IT specialists connect in our organization? Western executives take a IS user relations approach to educating IT users. IT in the west is often viewed as a centralized process, believing that IT specialists are remote and have too much control. IT specialists often do not have a good knowledge of how business works. Western executives complain that by the time they can teach the IT specialists about the business world they have already left the company. So how do they bridge the gap? Western companies have employed a liaison designed to close the gap between IT users and IT specialist but they often become a middleman, keeping the two sides apart. And all attempts to create a management position knowledgeable in both business and IT have failed because the position has no hope for advancement.

The Japanese have a far more simple and effective approach. Japanese managers spend two or three years in an IT department as part of a job rotation scheme. Although the managers usually dislike this position it will grant them knowledge of IT that will prove valuable in future assignments. Also when IT projects are in progress in Japan, IT specialists are usually collocated with the users and managers for whom the application is being developed. Senior executives in charge of IT are in charge of other functions as well, preventing IT from being isolated within the company. Japanese IT departments rely heavily on IT vendors for advice, usually developing applications in-house, working closely with a dedicated vendor. These policies make up the process of organizational bonding which is achieved most simply by not treating IT as something that requires special handling.

5. Human Design vs. Systems Design

How can we design systems that improve organizational design? Systems development in the west usually ignores the people who will use the product and focuses more on the business process being supported or redesigned. This western approach of systems design creates systems that are often difficult to use, counterproductive and annoying. These systems often leave no room for human judgment, creating more de-skilled and rationalized work. This situation reduces job enrichment while failing to meet its original goal of making the business more efficient.

The Japanese subscribe to a human design approach when creating new IT systems. This approach stands on the pillars of two main ideals of Japanese organizational behavior. First is the belief that broad participation and consensus not only facilitate commitment but also produce better decisions. And second is the Japanese reliance on social and experimental processes of knowledge creation. For example, the Matsushuta Company’s development of a new bread-making machine was focused not on x-raying and analyzing the dough kneaded by a master baker but rater by observing the traditional craft of kneading and twisting dough. A Japanese system design based around the principle of valuing people is chowa, or harmonization, which is a powerful idea in Japanese culture.

The underlying question of this discussion is: Can western executives reinvent the wheel? Is it possible for the west to change the way they think about IT and about business as a whole. Each one of the differences discussed in this paper can be attributed to the culture of the two groups and their underlying social and political beliefs. Western executives need to pull away from long term IT planning and begin implementing IT like their Japanese counterparts, on an as needed basis. The west must learn that sometimes the most advanced IT makes sense, but sometime older systems will do the job more effectively. They need to learn that sometime high tech and low tech should coexist in a business process. A single culture must be achieved within western companies. As long as a separate IT culture exists, bridges between specialists and users will collapse. Above all else western business leaders need to treat their employers not just as users of the system but as compliments or even alternatives to the system. The Japanese may not have all the answers when it comes to IT systems but the west can learn much from a study of their approach.

__________________________________________________

Related summaries:

Davenport, T. H. 1998. Putting the enterprise into the enterprise system. Harvard Business Review (July-August): 121-131. (Summary).

Dehning, B., K. E. Dow and T. Stratopoulos. 2003. The Info-Tech "productivity paradox" dissected and tested. Management Accounting Quarterly (Fall): 31-39. (Summary).

Elliott, R. K. 1992. The third wave breaks on the shores of accounting. Accounting Horizons 6 (June): 61-85. (Summary).

Martin, J. R. Not dated. Investment management. Management And Accounting Web. https://maaw.info/InvestmentManageSum.htm

Martinsons, M., R. Davison and D. Tse. 1999. The balanced scorecard: A foundation for the strategic management of information systems. Decision Support Systems (25): 71-88. (Summary).

Roberts-Witt, S. L. 2002. Data mining: What lies beneath? Finding patterns in customer behavior can deliver profitable insights into your business. PC Magazine (November, 19): iBiz 1-6. (Summary).

Williams, S. 2011. 5 Barriers to BI success and how to overcome them. Strategic Finance (July): 26-33. (Note).