Information Technology and the Firm 553warehouses to the vendors, eliminating the costs of both warehouse mainte-
nance and surplus inventory. The distribution centers were automated, allow-
ing cross docking, whereby goods being received for specific stores were
immediately sent to the shipping area designated for those stores, thus putting
an end to all time lags.
Wal-Mart now has the lowest cost of inbound logistics in its industry. Its
selling G&A is 6% below its nearest competitor, enabling it to be the most
aggressive retailer in its industry. Wal-Mart aligned its IT strategy and infra-
structure to support the company’s overall strategy. IT was the agent for
change. Without the newer information technologies, none of the newer strate-
gies and directions could have been successful.
JUSTIFYING THE COST OF
INFORMATION TECHNOLOGY
Should companies take that giant leap of faith and invest millions of dollars in
new machines and software? Can we measure the return on a company’s in-
vestment in technology?
These are questions that, for years, have concerned professional technology
managers. Today, information technology consumes an increasing share of com-
panies’ budgets. While we cannot live with the cost of technology, ultimately, we
cannot live without the technology. Thus, when every new version of the per-
sonal computer chip or Windows hits the market, companies must decide
whether it is a worthwhile investment. Everyone wants the latest and greatest
technology, and they assume that, with it, workers will be more productive.
While IT is the medium for change, its costs and soft benefits are diffi-
cult to measure. As technology gets disbursed throughout a company, it be-
comes increasingly difficult to track costs. As workers become their own
administrative assistants, each company must determine whether its workers
are more or less productive when they type their own documents and prepare
their own presentations. These are many of the issues that companies are fac-
ing now and will be in the future as they struggle with new IT investments.
INTERNET/INTRANET/EXTRANET
The Internet, intranets, and extranets provide companies with a plethora of
opportunities to find new ways of transacting business. An alternative to some
of the older technology, an intranet, a subsystem of the Internet, was devel-
oped in 1996 to allow employees from within a company to access data in the
company’s system. A “firewall” prevents outsiders from accessing any data
that a company wishes to keep confidential. An intranet refers to those sys-
tems that are inside the firewall. Employees have the access authority to break
through the firewall and access information, even though they might be using