Allen 4

Paul G. Allen

William Gerken


Nov 19, 2002

The Effects of Technology on Management

The speed at which improvements in technology have occurred is increasing at an ever-expanding rate. The effect this has on the IT industry is such that by the time a computer system is purchased and acquired, it is often obsolete within months or even weeks of going online for the first time. This fact has made technology decisions by managers difficult at best and impossible at worst, with far reaching implications for the many decisions made.

Probably the least of these implications is the reductions in cost over time. As time and technology moves forward, relative hardware costs are ever decreasing. As an example of the significant changes in cost, the system I purchased in August of 2001 cost roughly $2,000. This same system a scant two months later would have cost only about $1,000, or half of what I paid for it. Had I waited those two months, I would have either saved 50% on the cost of the system, or would have been able to purchase a better system for the same $2,000 price tag. The results of these drastic, potential changes in cost add an additional requirement when a manager must decide upon the purchase of new computer hardware.

The question now becomes not only what to buy, but when to buy it. While managers and accounting must always deal with the monetary implications of equipment purchases, now the costs involved with these purchases are not as fixed as they once were. When a department is in need of new, faster, better hardware, the decision must be made whether it must be purchased today, of if it can be purchased in a month or two when the prices are lower. There is a rule I tell all my clients when it comes to purchasing computer hardware: There will always be a lower price, if not today, certainly tomorrow. Given this rule, the choice of hardware now becomes the threefold decision of what to buy, when to buy it, and where to buy it from, instead of the usual twofold decision of what to buy and where to buy it from. This compound decision also brings us to a more difficult to resolve. This issue is what to buy.

The advent of the computer and other technologies, information and knowledge has grown at an exponential rate. With information and knowledge have come advances in technology. Over time, each advance has become greater and they have become more frequent. Coupling this with the pressures of competition and the desire by technology innovators to be first to market, managers are faced with another problem when faced with decisions relating to IT. Advances in hardware come to market far faster than the businesses that purchase that hardware can manage. This fact has several implications for IT managers, and in my experience is often overlooked.

By the time new technology is released (and more often than not by the time it is even announced) to the industry the next generation of technology is already in development. Over the past decade this has created an industry where almost the instant a new technology is available for purchase, it is obsolete. In the personal computer industry, this has resulted in a six-month technology cycle. Every six months a given piece of hardware has become obsolete by a newer piece of hardware that is faster, more powerful, and less expensive, complicating the decision making process for hardware and software managers alike.

Hardware managers must determine which technology will take them the farthest into the future without becoming obsolete to the point where it must be replaced. In addition, when managers make the decision to invest in new hardware, they must consider the decisions that are, or might be, made by the competition. For example, when a graphics development company makes a decision to purchase new workstations based upon the latest hardware available, they are going to be spending a lot of money. Given the heavy competition in this area, if newer, better hardware is released in a relatively short time after the purchase, not only could the hardware purchased become obsolete, but the competition may gain an advantage by purchasing the newer hardware. The decision now becomes one with several alternatives:

      1. Should we buy it now and take the chance that the competition will not upgrade later and gain the advantage?

      2. Should we buy it later in the hopes that we can make do with what we have now, and gain an advantage later?

      3. Should we buy it now and upgrade later in order to maintain an advantage, at an overall higher combined cost?

An additional consideration with the rate at which new hardware is released is compatibility. For a prime example of this, the system I spoke of earlier was the fastest, newest system on the market when I purchased it. There were few people in the world (relatively speaking) with these systems and even fewer businesses. The problem with such a new system was that it was incompatible with some hardware and software. These problems resulted in unstable operation in some circumstances and some applications that would not run. While eventually all these issues were resolved, I initially had to spend time writing software and experimenting with different things in order to make my system productive. When all the incompatibilities and other problems were finally worked out, the system was no longer the fastest that could be found and some newer technology had been released, making part of it obsolete. This presents additional questions that a manager must answer from a hardware standpoint:

      1. Will this new hardware work for us today?

      2. Can we wait, purchase the hardware later, and achieve the compatibility needed?

      3. Can we purchase it today and work out any incompatibilities in-house?

From a software standpoint, decisions can be more or less complex, depending upon the software that is needed, currently being used, currently in development, or is planned for development. For companies that develop software that takes advantage of the latest in hardware, the rapid rate at which hardware advances take place is a significant problem. In such a case, the managers must constantly keep track of the market and the advances in order to track and predict where it is going. They must also, if they wish to remain ahead of the competition, develop for the next generation of hardware using the current generation of hardware and software as mush as possible. This is by far no easy task and because of this most areas of software development are at least one generation behind hardware development. This brings us to the software that is currently being used.

New hardware may not always work with the current software a business is using. In the above example of the system I purchased, the operating system itself did not fully support the hardware, causing an untold number of problems. So now the question becomes Will the software we are currently using work reliably or at all with this new hardware? If not then a determination must be made as to how important the new hardware is as compared to the use of the software, and how soon the software can or will be made compatible with the hardware.

Another factor relating specifically to the personal computer industry is hardware reliability. The PC industry is heavily market driven and extremely competitive. Consumers want less expensive computers and, as is the nature of the consumer market, in general they can not afford to spend large amounts of money on computer systems. For this reason hardware manufacturers often cut corners when it comes to research, development, testing, and manufacturing. As a result, prices are significantly less than they are in the commercial market, but the hardware is far less reliable. This brings me to two more statements I often make to my clients:

      1. You get what you pay for.

      2. Take the time to do the research before you buy.

When it comes to electronics, aside from paying an inflated price for a "name brand" piece of equipment, you get better quality when you spend more money. Certain electronic devices simply can not be made inexpensive and still operate reliably, and computers are no exception. For this reason it is rarely ever a good decision to purchase the lowest cost system or piece of hardware on the market. When it comes to business and IT infrastructure, low cost of PC hardware should be at, or at least near, the bottom of the list of priorities. Reliability should be at or near the top, and given that reliability and low cost do not go hand-in-hand, this requires low cost to be at the opposite end of the list - toward the bottom. While cost is always a factor, careful research will still allow the manager to select the best solution for a good price.

Research is always important when making decisions. It is especially important when making decisions about computer hardware from the PC industry. As stated above, because of the low cost requirement of PC hardware, hardware manufacturers cut many corners. As a result there are many unreliable, incompatible, and downright poorly designed and manufactured pieces of PC hardware on the market. As a result, many companies spend millions every year replacing, repairing, and maintaining systems. In addition, they spend millions more keeping a staff of qualified administrators and technicians in order to keep their IT infrastructure online and operational. This fact has driven the Total Cost of Ownership (TCO) of PCs within many companies extremely high, all due to the lack of proper research. In many cases that I have been involved with, some simple research into the hardware available before purchase may have cost a little more in the short term, but in the long run would have saved far more in TCO.

Many companies choose to purchase systems from brand name manufacturers because they offer exceptional service contracts. While on the surface this looks great, underneath it often is not. Let me ask this question: What good is a system that is always in the shop being repaired, even though the repair is free or extremely inexpensive, if the system is not in the office being used by the intended employee? The answer is that it is just a waste of money on several fronts. First, the company has purchased a service contract in addition to the initial cost of the PC itself. Second, the company is paying the employee who needs that computer a salary when they are not being productive with their computer. Third, the IT administrator and department is spending time - and therefore money - when they have to process the broken computer. This entire process could be averted or the impacts significantly reduced if some research had been done in the beginning as to what hardware was the most reliable. In my experience, more often than not TCO is far lower by buying reliable hardware without service contracts than it is to buy any hardware with a service contract.

The managers of today are faced with many implications to their IT decisions that the managers of yesterday were not. As technology improves at an ever faster rate, and the market drives prices lower, power higher, and technology as a whole further, managers are faced with increasingly more difficult decisions. Combating these difficulties can be made more manageable and accomplished by being aware of the implications and keeping abreast of the technology available at any given time.