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A&D High Tech (A): Managing Projects for Success KEL156 ©2006 by the Kellogg School of Management, Northwestern University. This case was prepared by Derek Yung ’03 and Alex Gershbeyn ’03 under the supervision of Professor Mark Jeffery. Cases are developed solely as the basis for class discussion. Some facts within the case have been altered for confidentiality reasons. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. To order copies or request permission to reproduce materials, call 800- 545-7685 (or 617-783-7600 outside the United States or Canada) or e-mail
[email protected]. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of the Kellogg School of Management. MARK JEFFERY A&D High Tech (A): Managing Projects for Success In his twelve years as a technology project manager at A&D High Tech, Chris Johnson had a strong track record of delivering projects on time and on budget. His techniques for project planning, estimating, and scheduling had become best practices at the St. Louis-based computer products company. He had just led a project team that successfully revamped the supply chain systems in less than eighteen months. He was especially proud since many observers had doubted that the project could be completed on time. As part of the strategic initiatives set forth by its CEO and founder, Ted Walter, A&D was to be second to none in utilizing technology to increase operational efficiency and reduce costs. The supply chain project therefore received notable attention in the boardroom and with its competitors. Time and again, Johnson was asked to tackle difficult assignments that were critical to the company’s growth and profits. He had already been mentioned as the successor to the vice president of e-business, Chuck Gagler, pending his retirement. (See Exhibit 1 for the A&D High Tech organizational chart.) In early May 2003 Johnson received an urgent message from the company’s CIO, Matt Webb. Webb asked Johnson to join him for a meeting with A&D’s senior managers to discuss taking over the company’s online store project. Johnson realized that up to that point the company’s top brass had virtually ignored the Internet and its sales potential. But that situation was about to change. As Webb explained, A&D’s vice president of sales, Jeff White, had advised CEO Ted Walter that A&D was losing its competitive advantage by not selling online. As a result, Walter had made the online store project the company’s highest priority. Walter wanted to know whether the project could be completed in time for the holiday shopping season, when A&D’s cyclic business traditionally boomed. The current project manager, Eric Robertson, was taking a one-month leave of absence due to a family emergency, just as he was about to begin formulating the project plan and make staffing decisions. Johnson immediately began thinking about the best way to ensure the online store project’s success. He was concerned that there was too little time to get up to speed on this new project. It was already May, and the holiday season would approach soon. Given the urgency put forth by Webb and Walter, Johnson was already feeling pressure to come up with solid recommendations in short order. Do N ot C op y or P os t This document is authorized for educator review use only by VIK KORTIAN, Macquarie University until Jan 2023. Copying or posting is an infringement of copyright.
[email protected] or 617.783.7860 A&D HIGH TECH (A) KEL156 2 KELLOGG SCHOOL OF MANAGEMENT Company History A&D High Tech sold computer products, accessories, and services to consumers and small businesses. The company had its roots in Lincoln, Nebraska, where Ted Walter started its first store in 1988. A&D’s made-to-order products were very innovative at the time, and were the first to be introduced in the personal computer industry. Walter emphasized friendly customer service, a value that was deeply ingrained in the culture of the Midwestern heartland where Walter had lived his entire life. A&D’s revenues grew consistently for ten years and approached $400 million for fiscal year 2000. The company was primarily a regional player, with more than 90 percent of sales coming from customers in the Midwestern states. However, Walter was strategically seeking to increase its distribution nationally. A&D sales had come predominantly through retail outlets in shopping malls across the Midwest and via phone orders handled by its fifty-person call center in Lincoln. Before 1999, sales orders at the call center were written on paper and then passed to order-entry clerks. This added time to order entry, delayed shipment, and resulted in poor accuracy. Consequently, sales representatives often had to contact customers to correct errors or to suggest different options due to inventory shortages. On average, 30 percent of the orders required customer callbacks, compared to only 5 percent at A&D’s primary competitor. In 1999 A&D implemented its first enterprise resource planning (ERP) system, using software from J. D. Edwards. A&D opted to use J. D. Edwards primarily because its software could be customized to handle the thousands of parts that A&D used for production. The customization required many outside consultants to design and build the system, and since they left soon after the system was implemented there were some concerns that the system might be difficult to maintain. Even so, the project was deemed a success: after ERP was up and running, customer callbacks were reduced to less than 1 percent of orders. In 2001, given the successful implementation of ERP, A&D decided to further invest to improve its systems in handling the supply chain, payment process, customer relationship management (CRM), and order management. A series of technology initiatives was launched. A&D saw immediate benefits in reduced costs, as well as a significant return on investment on its supply chain and data warehousing projects. Business Case In 2002, faced with tough competition and decreasing margins, A&D decided to explore new segments of the market for growth. In particular, it focused on sales via the Internet. Historically, A&D was shy to adopt the Internet as a sales channel because it did not seem to play to the company’s sales strength of friendliness and customer service. However, since A&D’s products were approaching commodity status, the product cost was largely the determining factor for a customer. Furthermore, competitors had successfully increased their revenues and recognized cost savings in selling, general, and administrative expenses (SG&A) per order after starting to sell through the Internet. Do N ot C op y or P os t This document is authorized for educator review use only by VIK KORTIAN, Macquarie University until Jan 2023. Copying or posting is an infringement of copyright.
[email protected] or 617.783.7860 KEL156 A&D HIGH TECH (A) KELLOGG SCHOOL OF MANAGEMENT 3 So in early 2002, Ted Walter and vice president of sales Jeff White gave the go-ahead to CIO Webb to begin the project to create an online store. One of the first decisions Webb faced was “build vs. buy.” A custom-developed program would allow A&D the opportunity to build exactly what it needed, whereas a commercial application might not meet all of the requirements. For example, the commercial off-the-shelf (COTS) software might not have the formats, input processes, reporting capabilities, and other elements needed to make the program work well for A&D. Moreover, buying off the shelf might require A&D to purchase functionality it did not need and would not use. On the other hand, Webb realized that a commercial application could potentially cost much less than a custom application. However, this was not always the case, especially if the commercial application required more than 10 percent custom modifications to meet all the requirements. Webb knew that the key questions in the build vs. buy decision were: Were there resources available in-house for project management, software development, hardware support, and long-term maintenance? How much budget was available for the project? How unique were the processes that the new application would automate? Would the company be paying for commercial software functionality that it did not need and would not use? In his analysis, Webb listed some key determiners that pointed toward the “build” decision: “Hidden” risks and costs of purchasing software increased as the need to customize a package increased. Information technology (IT) could be used as a strategic weapon and a point of differentiation, versus just trying to keep up. Potential benefits of an integrated but flexible system in custom-built software (versus simply integrating multiple vendors) could be significant. There was a possible competitive advantage to be gained from a custom-built system. The off-the-shelf package’s elements only met 60 percent of A&D’s functional requirements. A few established quality vendors were committed to the market but no single vendor was a clear market leader. After deliberating for a month with his top managers, Webb was set on the “build” option. Do N ot C op y or P os t This document is authorized for educator review use only by VIK KORTIAN, Macquarie University until Jan 2023. Copying or posting is an infringement of copyright.
[email protected] or 617.783.7860 A&D HIGH TECH (A) KEL156 4 KELLOGG SCHOOL OF MANAGEMENT Project History Webb created a cross-functional team of six people to plan the project based on his “build” decision (see Exhibit 1). Led by Eric Robertson, a young but bright IT project manager, the team’s planning components included: Define the business requirements Define the process flows Create the technical architecture requirements Build a simple prototype of the system Create the work breakdown structure (WBS) for the project Estimate the effort for each of the tasks in the WBS Define the resources available for the project and assign resources to project tasks Create a schedule with task dependencies and proper resource allocation After four weeks, the team presented its findings to the steering committee. A summary outcome for each of the planning