Is it smart for companies to invest heavily in information technology (IT)? Numerous studies indicate that excessive IT spending will usually reduce company profits and slow productivity. According to an article in the MIT Sloan Management Review, “Avoiding the Alignment Trap in Information Technology,” IT can become a huge bottleneck to growth in companies if they focus on the wrong remedies for their IT problems (Shpilberg, Berez, Puryear, & Shah, 2007). The article first focuses on Charles Schwab and its IT struggles during the early 2000’s. Then, it presents a study on 504 companies, and IT’s effect on their revenue growth. Lastly, it covers the steps to ensure success in IT’s effectiveness.
Charles Schwab is a Fortune 500 Company that manages nearly $2 trillion in assets for a wide range of clients (Hoovers, Inc., 2014). The mega-broker has obviously done something right. However, as Charles Schwab grew, it’s not surprising that its IT problems grew as well. Charles Schwab approached the situation by spending loads of money on new IT projects rather than fixing the existing systems or starting fresh altogether. Eventually, the company found itself smothered in an over-complicated system that was eating 18% of revenue annually (Shpilberg et al., 2007). “IT’s effort to satisfy its various (and sometimes conflicting) business constituencies created a set of Byzantine, overlapping systems that might satisfy individual units for a while but did not advance the company’s business as a whole (Shpilberg et al., 2007, p. 52).”
The article refers to Charles Schwab’s problem as the “Alignment Trap,” and 11% of the 504 surveyed companies were struggling with it. Despite the group spending 13% above average on IT, their revenue growt...
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...me to execute trades went down by 80%, and as a result, clients increased their trades exponentially (Shpilberg et al., 2007).
Creating an effective IT system, and then aligning it to business objectives, reignited Charles Schwab’s growth. It’s important that other companies do the same to ensure IT success. To do so, companies must emphasize simplicity in the IT plan, outsource capabilities when needed, and then create end-to-end accountability for the system.
Works Cited
Hoovers, Inc. (2014). The Charles Schwab Corporation Company Information. Retrieved from Hoovers: A D&B Company: http://www.hoovers.com/company-information/cs/company-profile.The_Charles_Schwab_Corporation.26727649f435940e.html
Shpilberg, D., Berez, S., Puryear, R., & Shah, S. (2007). Avoiding the Alignment Trap in Information Techonology. MIT Sloan Management Review, 49(1), 51-58.
A great deal of information was covered this week such as, the necessity in which businesses need to effectively plan and set objectives, the strategies utilized and how they are executed to obtains results, and how managements decisions can potentially affect those results. Although each topic covered was found to be interesting and informational, there was something in particular that struck a chord, which was how business establishments have to be flexible and adaptable and in many instances plan and change their strategies of today, in order to keep up with the evolving technology of tomorrow. Something that one often thinks about is how individuals use technology today and how companies that provide that technology are adapting. For instance, author Richard Daft of the textbook, Management, 12th ed. brings to light the potential issues that Intel is facing explaining “As another example of an external threat, Intel, whose microprocessors power most PCs, is being hurt by the decline in demand for personal computers as more people turn to tablets and smartphones.” (Daft, 2016, pg. 259). After reading this, one wanted to take a deep look into what it is exactly that Intel intends to do to overcome this obstacle and found some
Strategic use of information systems is one of the most important issues facing firms in today’s business environment. Information systems (IS) can either enable or hinder business growth, so organizations must learn to use IS advantageously. The case study “Building Business Agility at Southwest Airlines” by Ross and Beath (2007) demonstrates how a firm can drive business success through a revolutionary change in its use of IS. In the following case analysis, I will introduce and evaluate Southwest Airlines, describe and analyze its approach to IS as outlined in “Building Business Agility at Southwest Airlines,” and provide future recommendations for the company.
There are limits to customer-centric responsiveness. Correct assessment however it may be tricky to implement. This is where business-IT alignment becomes critical. While IT may not always meet customer objective, it’s important to build the relationships and not alienate
The new IT governance model which satisfies the call for collaboration has enabled the company to meet the demands of its clients and end users and also keep its employees on the cutting edge of technology. The numbers tell the story themselves – a leading industry analyst benchmark of the world’s largest IT organizations ranked Accenture the best in 3 key measurements: lowest IT workforce as a percentage of headcount; lowest IT expense as a percentage of net revenue; and lowest IT expense per employee. This was all possible only due to the robust IT governance which has strengthened the company’s ability to transform IT into a strategic asset. Thus it has helped ensure that it’s IT strategy is closely aligned with its business strategy from the start.
Decisions on investments in IT are controversial and crucial in an organization. With a thorough understanding of a company’s strategic context, managers can identify business and IT maxims that can help determine the IT infrastructure capabilities necessary to achieve their business goals.
Laudon, K., & Laudon, J. (2007). Essentials of Business Information Systems (7th ed.) (Bob Horan, Ed.). Upper Saddle River, New Jersey: Pearson Prentice Hall.
Information Technology (IT) is a foundation for conducting business today. It plays a critical role in increasing productivity of firms and entire nation. It is proven that firms who invested in IT have experienced continued growth in productivity and efficiency. Many companies' survival and even existence without use of IT is unimaginable. IT has become the largest component of capital investment for companies in the United States and many other countries.
Keri E. Pearlson and Carol S. Saunders (2010). Strategic Management of Information Systems, 4th Edition. John Wiley & Sons, New York
Subsequently, in order to assess and understand the practices involved with KM, we must first recognize the underlying provisions and implications within the IT sector. Information technology has had a dramatic influence over organization overall performance, IT driven structures have been able to evolve over time, in part due to the integration and implementation of such practices alike. Resulting from such assimilations, most division have yet to maintain proper executive IT sectors and overall preservation, mainly due to either lack of knowhow or inefficient policies in place that limit any advancement.
In his 2003 article ‘IT Doesn’t Matter’, Nicholas Carr charts the evolution of Information Technology from the invention of the microprocessor in 1968 to present day omnipresence of IT solutions. His bone of contention with IT is not concerned with its widespread presence, but the magnified costs involved in the upkeep of IT infrastructure. He wants to bulldoze the myth that increased IT spending will culminate in higher returns and better profits. Acknowledging that though “Information technology has become the backbone of commerce” (Carr, 2003), he notes that its omnipresence works against its strategic advantage.
Effectively integrating information technology (IT) into an organization’s business processes is critical if the organization wants to increase productivity and remain profitable. IT includes items such as the systems software, application software, computer hardware, and the networks and databases that help manage the organization’s information. When implementing quality standards and processes that are forever changing in the IT world, organizations must balance these changes while continuing to rapidly implement new systems technologies in order to stay competitive.
Without a successful business strategy put in place the company would fail and be unable to compete with competitors. There would be on way of knowing what resources are required. No planning for the future of the business. If there are no targets set out to achieve there would be no way of measuring how successful the company has been.
Turban, E. (2009) Information technology for management : transforming organizations in the digital economy. 7th ed. Hoboken: John Wiley & Sons Inc.
Perry, B., 2005, Organisational Management and Information Systems. [e-book] Oxford; Elsevier. Available at: Google Books . [Accessed 14 November 2013]
One main apprehension that they have against Information System is the high investment cost. In addition to this there is the high maintenance and upgrade costs associated with the deployment of new IT systems. In fact they prefer to outsource the heavy IT department expenditures to other companies having IT as their core activities. In return they expected to receive a full solution pack to meet their requirements and they are ready to pay these IT services as an operating cost. At the same time the risks associated with IS are being shifted to the other