Manufactura

INFORMATION TECHNOLOGY/SYSTEMS

MANUFACTURING’S
Rolf-Dieter Kempis and Jürgen Ringbeck
Research indicates the greatest potential for IT lies in product development and sales Moving from laggard to star will take two to three years Seven highly eƒfective habits

Rolf-Dieter Kempis is a director and Jürgen Ringbeck is a principal in McKinsey’s Dusseldorf oƒfice. Copyright © 1998 McKinsey &Company. All rights reserved.

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THE McKINSEY QUARTERLY 1998 NUMBER 1

USE AND ABUSE OF IT

I

N SERVICE INDUSTRIES such as banking and airlines, information technology has established itself as a vital strategic tool. Yet in manufacturing, it has largely failed to live up to its promise. Widespread early euphoria – visions of productivity gains from reengineering and the integration ofIT into every facet of manufacturing operations – had evaporated by the beginning of the decade. The introduction of so-called integrated standard soƒtware had proven time-consuming and risky. Not only did implementation costs quickly outstrip initial estimates, but anticipated benefits failed to materialize in all but a few cases.

Plant managers complained that production planning systems werenot up to the job. Sales managers unable to reorganize order processing condemned their sales information systems as inflexible. Only in handling basic administrative tasks concerned with accounting and personnel, it seemed, could IT demonstrate clear eƒficiency gains.

Bio

MICHAEL ROSENFELDER/TONY STONE IMAGES

THE McKINSEY QUARTERLY 1998 NUMBER 1

139

MANUFACTURING’S USE AND ABUSE OFIT

ABOUT THE RESEARCH

A

s part of the survey, interviews were conducted with top managers from many relevant manufacturing sectors, from machine manufacturers, automobile suppliers, component producers, and electronics firms to companies in the process industry. The sample included companies from Europe, the United States, and Asia. Operating units with revenues of $0.2 to $1 billion werethe focus of the research. More than 3,000 items of data were gathered on each organization. On average, the companies that took part spent about 2.2 percent of their revenues on IT. Most employed standard software, especially in administration. Over 60 percent used functionally integrated standard software, and more than 40 percent used

SAP software in at least some areas. More than 40percent still used a mainframe as a system platform. Information management performance was measured in terms of both efficiency (IT cost as a percentage of revenues, plus project management performance against schedule and budget) and effectiveness (the availability, functionality, and utilization rates of IT applications for each core business process). Management performance was judged by a company’sreturn on sales, revenue growth rate, profitability, and market share. We also developed indicators to assess performance in specific core processes such as product development, sales, order processing, and service.

Companies now recognize that the use of a particular soƒtware application cannot guarantee business success; strategic benefits, they have learned, rarely emerge from a simpleincrease in IT resources. In response, some manufacturing companies are managing IT purely on the basis of cost, eschewing strategic considerations. In Germany, auto maker Porsche and wire manufacturer Continental have gone so far as to outsource their entire data processing function. Fueled by such developments, the IT outsourcing business is now valued at more than $32 billion worldwide. None the less,IT can still serve as a powerful driver of process innovation. Technologies such as the Internet and multimedia-supported simulations hold enormous commercial potential. How, then, can a manufacturing company harness superior IT to gain competitive advantage in strategic business processes? What can IT contribute to corporate success? To answer these questions, McKinsey and the University of...