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Case Study - Information Technology Mgt.

- MBA
Long-Term IT Plan
Because the rate of technological change is so rapid, most people see IT through the
narrow lens of short-term, silver-bullet solutions. IT vendors want you to believe that
their important new technologies will blow away what has come before. You cant blame
a salesperson for trying to sell, or CIs for having a !ueasy buy-or-lose feeling, but this
attitude is precisely the opposite of the one companies should be ta"ing. #e would argue
that because the winds of change affect IT more than any other area of the organi$ation,
IT benefits most from a long-term, disciplined, strategic view, and a s!uare focus on
achieving the companys most fundamental goals.
%or e&ample, %rito 'ays strategic goal has always been to ma"e, move, and sell tasty,
fresh snac" food as rapidly and efficiently as possible. That goal hasnt changed since
()*+s, when founder ,erman 'ay ran his business from his -tlanta "itchen and one
delivery truc". ,e bought and coo"ed the potatoes. ,e delivered the chips to the stores.
,e collected the money and "new all his customers. ,e balanced the boo"s and did his
own !uality assurance. ,erman 'ay "new how to conduct the perfect .sense and
respond/ e-business before such a thing ever e&isted, for he held real-time customer,
accounting, and inventory information all in one place 0 his head1
-fter years of spectacular growth, the company became progressively distracted from this
simple business model. By the early ()2+s, the companys sales force had swelled to
(+,+++, and information grew harder and harder to manage. The companys old batch-
based data processing systems were all driven by paper forms that too" (3 wee"s to print
and distribute to the sales force. -ll sales transactions were recorded by hand4 reams of
disparate data were transferred to the companys mainframe computers. 5uch was lost in
the process of setting up a do$en different functional organi$ations and a variety of
databases, none of which communicated with each other.
This modus operandi made it impossible to change prices !uic"ly or develop new
regional promotions, streamline production, or improve inventory management. It was as
if ,erman 'ays company had suffered a spinal cord in6ury, with the brain and body no
longer connected. -t the same time, the company was seeing the rise of strong regional
competitors. The leaders reali$ed that if trends continued as they were, its overall
revenues would fall significantly by early ())+s.
5i"e 7ordan, who too" over as C8 of %rito 'ay in ()2*, decided to tac"le the problem.
,e reconstructed the company as a hybrid organi$ation that was neither totally
centrali$ed nor decentrali$ed. ,is goal was to teach the company to .wal" and chew the
gum at the same time/, as he put it, by separating the companys two competitive
advantages9 the purchasing, production, and distribution leverages of a national
powerhouse, and the local resources that gave the company regional speed and agility.
-ll this led to an organi$ational design that "ept purchasing, manufacturing, distribution,
systems, accounting, and :;< as the centrali$ed platform, leaving the decentrali$ed sales
and mar"eting organi$ations to launch their store-by-store and street-by-street offensives.
,aving identified the companys strategy, 7ordan then developed a long-term renewal =as
opposed to .rip and replace/> plan. -n e&ecutive committee- comprised of C8, C%,
CI, and two e&ecutive vice presidents- outlined a shift from paper to a ris"y, emerging
handheld technology for the sales people on the street, as well as transformation from
batch accounting to online operational systems. The goal was to digitally reconnect the
companys nervous system. 8!uipped with the cool new handhelds, the sales force would
be able to manage price, inventory, and customer changes in real time and connect to
supply pipeline. The handheld computers would also establish a technological .beach-
head/- one sufficiently important to "eep businesss attention and achieve fast operating
results.
?aying for all this, of course, would not be easy. The 6ourney would ta"e from ()2@ to
()22, at a huge cost =at the time>9 A@+ million for the handhelds and about A (++ million
for databases and core systems. Bome of the e&ecutive committee bal"ed, arguing that
efficiencies gained by the technology would be lost by the sales people wor"ing fewer
hours. But the company had no choice but to revitali$e its regional sales, and though the
systems overhaul would be costly, staying put would be even costlier.
To fund the new computers, 7ordan set up a long term, ongoing funding mechanism
designed to "eep IT spending both predictable and fairly stable from year to year. To get
things rolling, each sales region had to commit to a reduction in selling e&penses from 33
cents on the dollar to 3( cents within a year of the handhelds installation. The savings
would be achieved by increasing sales at constant cost, reducing costs, or a combination
of two.
The scheme wor"ed9 with the new system in place, the company saved between *+,+++ to
C+,+++ hours of paperwor" per wee". By ()22, savings resulting from better control over
sales data came to more than A @+ million per year 0 savings that in turn funded the
renewal of the core data systems. %rito 'ay was able to cut the number of its distribution
centres, reduce stale product by C+D, and increase its domestic revenues from A * billion
in ()2E to A @.3 billion by ()2). Today, %rito lay continues to be the dominant player in
the snac"-food industry.
%rito 'ays technology story received a lot of press at the time, mostly because the
handheld technology was se&y. But notice what the story was really about9 it was about
e&ecuting ,erman 'ays original, real-time business e&perience 0feeling the money
6ingling in the poc"et and seeing the inventory in the truc"1
In ()EC ?epsi cola and %rito 'ay merged to form ?epsiCo
Today, %rito-'ay has more than fifteen A(++ million brands9 '-YFB
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Luestions9
(. #hat IT measures were ta"en by 7ordan to ma"e the company fighting fit in the
mar"etM
3. #ere the IT ris"s ta"en by 7ordan appropriateM #hyM