The right information, at the right time, is vital in the present tough business climate. Managing information technology is the focus of a new two-monthly series, which Jane Bird kicks off with this report on computer networks, the first of five articles.
Information is the killer weapon of the 1990s. Companies that can press a button and produce the answers first are the ones that will win. The power behind the button is a computer network.
By providing instant access to information, computer networks enable a company to improve productivity, cut inventory, respond faster to changes in the marketplace and exert strategic control from the centre based on a clearer picture of the business position. "Trying to run a business without a computer network will soon be like attempting to operate without a telephone," says Tony Linsell, strategic communications manager at British Telecom.
Market analysts expect computer networks to be one of the biggest growth areas of the information technology industry in the next few years. According to Dataquest, the market research company, 41% of all PCs sold in the UK will be linked to networks by 1995 - more than anywhere else in Europe.
"In its simplest form, a network consists of two computers joined together. This could mean an office sending orders to a factory down the road rather than someone having to leg it with a piece of paper," Linsell says.
But implementing a network can be a complex and expensive task which requires careful planning. Linsell advises taking a long cool look at your business, and deciding where you want to be in five years' time. This is also the ideal opportunity to move in a new direction. The goal is not to automate existing structures but to make your company flexible and well equipped to cope with change. For example, you could cut overheads by having staff work at home with a phone, fax and personal computer.
Do not allow yourself to be carried away by the wonders of new technology. One of the most common mistakes is overestimating equipment needs. Many users do not require the latest technology and buy too much powerful equipment. However, be sure to plan a system that can grow as your business expands.
To justify a network, information created in one place should be needed somewhere else, says Linsell. Part of your business assessment should be a "communications audit", he suggests. This includes examining your use of electronic media such as fax, telex and existing networks. But it should also involve aspects of the business that may not normally be viewed as telecoms. "For example, how much time do you waste in meetings? A better communications system could make them unnecessary. How much paper floating around your in-tray could be delivered directly to your screen via electronic mail?" One recent survey found that companies spend on average more than one third of their budget on communications, less than half of which is handled by computer.
The next step would be to examine detailed questions such as how far the network should extend, how users should be billed and how much intelligence should be provided so that, for instance, users could be recognised wherever they log on. A small company might choose to transmit the day's business from each of its sales outlets to head office overnight, so as to take advantage of cheap rate calls on the public network. On the other hand, a company with lots of calls abroad might achieve substantial cost savings by going to an independent service such as a value added network (VAN).
However, VANs offer relatively low transmission speeds for data, and tend to be targeted at specific users such as retailers or banks. A multinational corporation with constant need to be in touch with overseas business contacts for voice and data communications might find it more appropriate to use leased lines. The more crucial the link to a company's core business, the more backup and contingency measures are needed.
The simplest network connects several personal computers in one office - a local area network (LAN). It offers considerable cost and space savings by allowing users to share expensive peripherals, computer power, software and information files. LANs function at such high speeds that as far as the user is concerned the information might just as well be coming from inside his own machine. "LANs enable office workers to have relatively cheap dumb terminals with one really powerful file server handling software and data processing for the whole department," says Alan McGibbon, managing director of The Networking Centre, a networking and communications consultancy.
Another advantage of LANs is that you can control which software is used by staff, and impose correct backup and archiving procedures - routines often neglected by individuals with their own PCs. "It is like bringing back all the old controls of the data processing department into the anarchic world of the PC," McGibbon says. Most LANs are used for fairly mundane office automation applications such as word processing and databases. But they have also spawned a new category of software known as groupware, designed to help communication between office workers. For example, several people's diaries can be rapidly brought together to fix a mutually convenient date for a meeting.
A large company headquarters might have several LANs in individual departments such as accounts, marketing or sales. These can be linked with ingenious devices such as "bridges" and "routers" for high speed sharing of data across departments.
One of the biggest problems with networks is accommodating the wires to carry them, especially in older buildings without floor and ceiling cavities. The problem was made worse by the fact that during the 1980s many computers needed their own special cables. It was impossible to tell which of the old cables were still needed, so when new wires were installed engineers left the old ones, creating spaghetti-like conditions in ducts. Now standard cables exist that are capable of carrying information from any machine.
Modern buildings generally have at least one socket per desk into which a computer can be connected as easily as plugging an electrical appliance in to the mains.
Another solution to the wiring problem is cordless LANs, which have just arrived in the UK from America. Cordless LANs use radio waves to transmit and receive data. But they are still expensive, industry standards are not yet established, and they are inherently less secure than hard-wired networks.
"The cost will fall, and they can be a major advantage in buildings not designed for cables, but given the security issues and the need for radio licensing, we wouldn't advise anyone to take a cordless LAN yet," says McGibbon.
When a network extends beyond a single building it becomes known as a wide area network (WAN). To the user this increase in geographic coverage should not make much difference, although the added complexity of the network tends to slow it down. However, optical fibres capable of carrying hundreds of millions of pieces of information a second are gradually being installed. The ultimate goal is to deliver computer files, voice traffic and live video pictures round the globe at speeds that make them seem as if they were coming from the next room.
One of the most important uses to which networks are being put is paperless trading, technically known as electronic data interchange (EDI). This allows companies to set up permanent links with their customers and suppliers so that orders and deliveries are dispatched automatically whenever stocks run low. Information that would previously have been duplicated on several pieces of paper - purchase order, invoice, dispatch note, credit note, remittance advice - are all created, transmitted and received electronically.
This is not just faster but also more accurate, because there are fewer opportunities for errors to creep in. Britain is pioneering EDI, having 3,500 of Europe's 5,000 users, although these companies are proving reluctant to close the loop with automatic payments.
Security is another essential matter to consider when setting up a network. Last year UK companies lost an estimated £1 billion through inadequate computer security. Networks are a hazard because information is broadcast down the lines where it can be intercepted, and viruses spread at high speed. Dial-in access also creates the risk of hackers, and cordless LANs are even more vulnerable.
To minimise the risks you should look at ways to identify legitimate users, such as personal identification numbers (PINs), passwords and infra-red badges. Data encryption may also be appropriate for sensitive files, and everyone connected to the network should use rigorous procedures.
As networks expand they can become highly complex to manage. Management must be considered at the outset of a project, rather than bolted on at the end. Some companies want to keep control of information technology (IT) in house - they argue that it is foolish to delegate responsibility for your key competitive weapon. Most large organisations have a big in-house telecoms team.
But one increasingly popular alternative is "outsourcing". This is where a company undertakes to manage its own hardware and software, but uses outside expertise to design and implement enhancements.
Another option is to use a facilities management service to provide a company's entire IT needs. "FM is ideal for companies that want to focus on their business and concentrate on what they are good at, leaving the black art of computing and telecoms to the specialists," McGibbon says.
But managing an advanced telecoms network is such a complex task that there are powerful reasons for leaving the job to an expert. As George Cox, managing director of Butler Cox, the IT consultancy, puts it: "Suppose you hired an IT director to build an international system to link together all your European offices. If it failed, you could fire him. But if you used an FM house and it failed, you could sue for millions. I know which I'd choose."
Just as we do not all have private generators because we need electricity to function, it may well make sense to use outside organisations to provide basic systems, Cox says. Users in Britain seem to agree. The UK is Europe's largest FM market, at £250m last year, and is forecast to grow 25 per cent over the next two years.
Another key problem is that most computer systems speak different languages, so linking them in networks demands lots of expensive language translators. The industry is attempting to solve this problem with a universal set of protocols dubbed Open Systems Interconnect (OSI). But meanwhile, companies continue to develop their own separate systems at the leading edge. The moral is: try and keep to as few vendors as possible and try to ensure that any new investment is planned for migration to open environment.
A final word of warning comes from Linsell. "When you are about to define a new networking strategy, one easy mistake is to start by looking at your existing network, and consulting your telecoms manager or office services. This is fatal. There are too many vested interests. Get some independent advice."
The brewer's tale.
If a pint of your favourite ale conjures up pictures of shire horses, liveried drays and a publican pulling pints in a country pub, that is fine with Britain's big brewers. But behind the carefully cultivated old world image is a ferociously competitive high-tech industry.
To meet the challenge, The Whitbread Beer Company is spending £13 million on installing computer equipment. Its information technology programme resulted from a major cost-cutting exercise which the company began in 1980, reducing its breweries from 22 to nine within six years.
But in 1986 further cost savings were needed. The board decided to investigate whether a new computer strategy might be a better solution. The result is a streamlined stock level control, production and distribution system that has slashed £5 million off inventories, improved productivity by 30% and reduced average time spent in the warehouse from four to three days. It also allows management to get a snapshot of the company's inventory at the touch of a button.
To help formulate the strategy, Whitbread hired the services of Coopers and Lybrand Deloitte, the management consultancy.
Coopers' first move was to determine what business Whitbread thought it was in. At first this seemed easy - Whitbread has been brewing since 1742. But it turned out to be the hardest part of the entire exercise, says Whitbread's supply operations director, Brian de la Salle. For example, operations had to be reconsidered. Was there a more effective method? Did it want to be centralised, or each brewery run as an independent unit? Was it providing what its customers wanted?
Whitbread formulated a strategy to control stock levels automatically; to ensure that production was carried out according to strict routines; and to ensure accountability.
The aim of the stock control system was constant monitoring of volumes at each stage of the production process. It should be possible to say how many hops, malt, water and sugar were currently in use; what stage they had reached in the fermentation/maturation/packaging cycle; and the precise level of duty payments made - which are typically £25 million a month. "Also, we wanted to use the system to receive sales orders from pubs and supermarkets, and automatically to order our materials requirements," says de la Salle.
The objective of improving production routines was to get more of the beer right first time, reducing the amount that had to be returned to the vat because it was the wrong colour. Monitors and control panels on the brewery floors would remind operators to carry out routine procedures, open or close control valves, and check temperature, pressure, colour and so forth.
It is the integration of the various computer applications which Whitbread believes is its greatest achievement. In 1986 it had 24 different and frequently incompatible computer systems installed in each of its breweries. Now the system is all built around IBM. It has speeded up the average time to make a decision by 30 per cent.
One of Whitbread's smartest decisions was to pick its best people to run the IT programme, says de la Salle. Even so, the project has taken longer than expected. "This is partly because of the tendency to add more things as we went along. And we didn't realise the length of time it would take to understand our basic business. It took months analysing what we were doing, how it went wrong, and where we wanted to be in future."
But unlike many IT projects, costs did not rise beyond the original budget. "As technology advanced we found it actually makes things cheaper," de la Salle says.
Untying the knot.
It was not until the keyboard arrived on Jonathan Haskell's desk that he realised the enormity of what he had done. In an attempt to propel his corporate neckwear business into the 21st century, Haskell had ordered a computer for all of his staff.
"Something had been nagging at the back of my mind ever since I had embarked on the computerisation project. Then I realised what it was - I had no idea how to type."
But he was convinced that new technology was the way to beat his 40-odd rivals in Britain's £40 million market for company ties and head-scarves. Haskell reckoned that computers could give him the competitive edge in marketing, sales and production.
He was right. Since implementing its computer system in 1986, his company, Welbon Haskell, has seen its sales increase from £425,000 to £1.6 million. The time taken to produce a new design is down from the industry's average of 10 days to 24 hours.
Most of Haskell's customers come to him as a result of seeing a magazine advertisement, recommendation or direct mail. The computer system helps monitor the effectiveness of advertising far better than could be done by hand. It also stores the names of individuals in organisations with responsibility for ordering company ties, and helps ensure that all enquiries are followed up. "We run a catch-all programme at the end of every month to identify any potential customers that seem to be losing interest."
When his keyboard was installed, Haskell spent two days trying to input one line of data and accidentally wiping it, until he was ready to throw it out of the window. He even awoke bolt upright in bed in a cold sweat one night, panicking about the technology. "But I soon realised that it was frankly very easy. Too many managers view keyboard operation as menial and prefer to leave new technology to the next generation, although they think nothing of taking up golf in later life."
Having mastered the basics, he found it much easier to keep abreast of new developments and suggest improvements to the system.
The fact that the system stores enquirers' postcodes means that Haskell can plot all of his sales trips with military precision, fitting in visits to the maximum number of potential customers en route. He can also use it to assess the performance of sales staff. "If it came to the crunch I would run the operation myself, without a telesales force or even a secretary."
Next Haskell turned his attention to the design side, where manual drawing limited daily output of his small team to a maximum of nine designs. When clients required changes, the drawings had to be begun again.
Thanks to a computer-aided design (CAD) system, Haskell's designers can now experiment with patterns and logos, changing shapes, sizes, colours and positions at the touch of a button.
To complete the IT strategy, Haskell last year implemented a tailor-made production system to help him track the progress of each order through design and manufacturing. "It helps eliminate mistakes all along the line by specifying quantity, quality, price and special requests for weaving and make-up."
He has been able to build a big customer database and use it to test new markets, spot trends and identify strengths and weaknesses in the product range. For example, Welbon Haskell has spawned a sister company which applies logos to a wide range of goods such as T-shirts, playing cards, pens and umbrellas.
Haskell says: "I'm not advocating a world totally run by computer. But an organisation like ours has to maximise what it has got and ensure that it operates to the best of its ability in the most creative way possible."