Doing Business in an Age of Electronic Miracles and Wonder

Wriston, Walter B.

2007

New Methods and New Functions

Information technology can and does change not only the way we do things, but perhaps, more importantly, what we do. Automating yesterday does not produce tomorrow's products, although sometimes it will suggest what they might be. Computerized airline reservation systems are a case in point.

American Airlines Sabre system, by getting there first with the most enhancements, captured the lion's share of travel agents' computerized reservation business. But American went further. It built a data base of frequent flyers and used that information to develop not only marketing strategies, but also new products. The hundreds of millions of dollars and the many years it took to build the Sabre system created a competitive business advantage that will be hard to duplicate.

In another field, J.C. Penney has achieved one of the truly remarkable uses of information technology to let the company do more business in a better way in more places. Everyone who ever tried to sell anything knows that the closer one gets to the customer, the better one's information is about the consumers' likes and dislikes.

In the ideal world of management text books, store managers who know the community in which their stores are located should pick out the merchandise assortments most pleasing to local tastes. If their judgments are correct, sales increase, markdown decreases, and profits rise. The problem has been to maintain the leverage of the huge buying power of a central office, while at the same time letting store managers make merchandise selections.

Penney built a direct broadcast telecommunication system that links all their stores. The system can and is used for inventory control, reorders, accounting and all the standard business purposes. But that is only the beginning.

Currently store managers gather in centers fairly close to their stores to view a television screen on which appears the latest merchandise picked out by the buyers in New York. Standing in a Penney television studio on Sixth Avenue, the buyer displays a dress, or sweater or other items, describes the material, the price and delivery times, and in effect, asks for orders. The enthusiasm, or lack thereof, for an item reflects each store manager's assessment of his or her marketplace. Heavy sweaters may be hot items in Minneapolis but of little interest in Houston. The order system itself is basically paperless and a vast simplification of the old many layered process.

From a management point of view, the store manager can no longer excuse substandard store results by complaining that some buyer sent out a poor merchandise assortment that had little appeal in his or her particular marketplace. Today managers can be held accountable, while at the same time each store benefits from the mass buying power of the central office. Technology has permitted a widely dispersed organization with about 1,400 stores to follow customer-driven business practice and gain a very real business advantage.

Whenever some company gets out in front, there are always competitors whose managements will adopt await-and-see attitude. The arguments are familiar. Why spend the money now? Perhaps the competitor may fail in his efforts, but even if successful, we can simply copy them. Let the other companies break trail and we will learn from their mistakes.

The trouble with that strategy is that the time needed to bring up major new systems in today's world is no longer measured in months, but in years, and the capital required not in millions, but hundreds of millions of dollars. In the meantime, the world does not stand still, and people playing catch-up are pursuing a moving target that they may never catch.

 
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  • This document was created from the article, "Doing Business in an Age of Electronic Miracles and Wonder," written by Walter B. Wriston for the June 22, 1987 edition of "American Banker." The original article is located in MS134.003.027.00002.
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