SchmidtCo. (A) & (B) - Team 3
1. Why is the decision facing John a difficult one?

The decisions John is facing are difficult for one of many reasons. Though he did “grow up” with the business, he had pursued another career and was coming into this position to assume the role of his father. After being with the company officially for five years, John knew that the main concern he had was to implement a new computer system in order to could better control operations. The current system was not very encouraging to John and he knew the only way to get better, more accurate results was to assemble a Selection Team to gauge which functions were needed and how they could attain them through a new computer system.
Rising costs of implementing the new Enterprise Requirements Planning (ERP) system began to wear on John. The company had already spent $600,000 and realized that it was not going according to their plans. In addition to this cost, the company was spending money on an outside network management company, which was becoming too expensive for the input
Schmidt Co was receiving. With key employees leaving and networks being un-secure, John had no choice but to hire a new team, which gave him a full-time project manager and a new IT person to oversee the data conversion, improve infrastructure, and write reports. Even though he was advised to get rid of the new system, DTech, John knew that he would have wasted time and money bringing on the second choice vendor and decided to stay with DTech and see the project through to the end.
2.

How does this project fit into John's overall strategy?

When John joined the company, he wanted to improve customer satisfaction and inventory processing. He knew that the 18-year-old system was unreliable and that he needed to bring things into the new millennium. With this new project, John knew that there was a chance that the conversion would not go as well as he had planned, but he knew that it was the only way to get things back in running order and to improve the company in its entirety. Choosing the
DTech system, John felt this was the better option because of the superior functionality in warehouse and inventory management. By using DTech, John knew that once all the kinks had been worked out of the system and he had a good team in place, he would be able to get operations for Schmidt Co. running more smoothly than they had in many, many years.
3.

What are the problems?

SchmidtCo’s computer system that controlled the expanding business with new products each year. With more and more types of automobile parts being created, SchmidtCo needed to keep the parts stocked in order to keep up with demand. The computer system was not able to track all the many individual parts. SchmidtCo suffered greatly as distribution slowed and caused many problems for the company and the 90 employees that helped make the company function. Having three warehouses around the country that used an outdated, unsuccessful computer software system did not help anyone keep track of the entire inventory. SchmidtCo’s consultant and assistant IT manager were not able to perform tasks to the high demand of the business. Once John decided to purchase a new operating system, the old consultant quit overnight. John should have implemented the new system so that he would not lose his

consultant who knew more about it than anyone else. Without the new operating system in place yet, the old system was not secure and was constantly getting viruses. Outsourcing become very expensive during the transition of new software.
4.

What should be John's Objectives?

There are so many ways to look at a business and write down the objectives that need to be met. A successful business is one that choose the correct objectives and create a profitable company. SchmidtCo has had 3 generations that established their name and contacts with automobile parts stores. Today, everything has become computer automated and John has to create a better way to track his inventory. John’s main objective is to create a better information technology system that will help the company track the inventory of parts. Dtech offered the best software to do this type of business. John created a list of objectives that will help create a software system that will count, track, check, and keep inventory on what product ships out the most. His main objectives were to implement Dtech software successfully, improve current reliability system, create competitive advantage, IT vision, and manage future projects successfully. If John is able to get his new software developed to where all his employees are able to use it, then the company will be efficient and able to grow.
5.

What are John's Alternatives (at least 4)?

When taking a closer look at alternatives, John produced five that he felt could potentially take his business to the next level. They consisted of replacing the IT manager, hiring a temporary IT individual, permanently hiring a new IT person, hiring an IT person and a CIO, or lastly hiring an IT person as well as using a consultant as a project manager. To properly decipher which, if any, of these alternatives would be the most beneficiary in meeting his objectives he created a chart in which he listed the consequences of each of his alternatives - how well they met his objectives. In addition, to make the chart easier to follow, he also added the ranking of each alternative against each objective. For example, when viewing the chart you find that in the fifth column in the first, second, fourth, fifth and sixth row there is a “1” in the corner of the box - this means that hiring an IT person as well as a CIO is the best alternative for the objectives: Implement Dtech successfully, improve current reliability system, create competitive advantage, develop IT vision, and also manage future projects successfully.
6.

What are the Consequences of each alternative?

On the alternatives chart John put together, to ensure he selected the most efficient option, he listed each alternative’s consequences on a scale of 1-6 (including the current status quo as an option) based on the concept: consequences of each of his alternatives - how well they met his objectives. For the alternative in which he would replace the IT Manager he found: there would be slight improvement for the implement Dtech successfully objective (5), there would be slight improvement in the current liability system (4), as far as control costs goes they could save up to possibly $5k a year (1), there would be slight improvement in creating competitive advantage (3), there would be slight improvement in the development of the IT vision (3), and lastly there would be slight improvement in the management of future IT projects (4). Looking at the alternative in which he would temporarily hire an IT person he found the following results: there would be some improvement for the implement Dtech successfully objective (3), there would be no change in the current liability system (5), as far as control costs goes they could add

up to possibly $60k a year (3), there would be no change in creating competitive advantage (5), there would be no change in the development of the IT vision (5), and lastly there would be no change in the management of future IT projects (5). When reviewing the option of permanently hiring a new IT person they found: there would be some improvement for the implement Dtech successfully objective (3), there would be some improvement in the current liability system (2), as far as control costs goes they would remain at around $50K a year (4), there would be slight improvement in creating competitive advantage (3), there would be slight improvement in the development of the IT vision (3), and lastly there would be some improvement in the management of future IT projects (2). The alternative of hiring a new IT as well as CIO person, which ultimately proved to have the most effective and efficient results, resulted in: there would be major improvement for the implement Dtech successfully objective (1), there would be major improvement in the current liability system (1), as far as control costs goes they could be up to possibly $200k a year (6), there would be major improvement in creating competitive advantage
(1), there would be major improvement in the development of the IT vision (1), and lastly there would be major improvement in the management of future IT projects (1). The last alternative of hiring a new IT person and using a consultant as a project manager projected: there would be large improvement for the implement Dtech successfully objective (2), there would be large improvement in the current liability system (2), as far as control costs goes they would remain around $50K + $100K a year (5), there would be some improvement in creating competitive advantage (2), there would be some improvement in the development of the IT vision (2), and lastly there would be some improvement in the management of future IT projects (2).
7.

What should John do next?

In our opinion, John should take a long-term view and use the analysis and alternatives presented to come up with an optimal solution. It is very clear from the objectives laid out that,
The first priority is to implement the DTech system successfully, John also wants to improve the overall IT System’s reliability, control costs, create competitive advantage through the implementation, develop a clear IT vision for Schmidt and successfully manage future IT implementations. These priorities essentially drive the decision on what to do next. Obviously, the choice of permanent hiring IT and CIO will produce major improvement but it also has a recurring cost of $200K per year. This option does not satisfy the priority 3 of controlling cost.
The current costs of implementation already is over budget and the company has spent $50K over budget. As John mentions, SchmidtCo being a family business, they are not in the practice of laying off people quickly. Given the considerations of the priorities, John should go with hiring an IT person and get a consultant as the Project Manager. This would result in addition of
50K per year and 100K for consultant for implementing the project. This model would also enable John to look at outsourcing future IT projects depending on the skill set needed.
8.

How does this case apply to your organization?

This case is a classic model on the dilemma faced by organizations on IT projects. There is no one size fits all solution. The company I work for is a family owned small business (dance studio). The primary IT need is for payment processing from students and following up. Until two years ago, the studio collected monthly checks from the students and spent days reconciling and following up on payments of fees. The problem was 20% of students paid late and 6% did not pay left the classes. The objective was to make it seamless for both the students and the

management so this is not a recurring problem while controlling costs. The options were to hire a part time administrator at the cost of $25K per year and setup processes and follow up routines or to go for an online solution with the help of a consultant at the cost of $10K and additional cost of $80 per month along with transaction fees of 29 cents per check. The management decided to go with the online solution. The consultant set up the process and got the students sign up for ACH payments (online check debit monthly). The online solution had the flexibility to set up recurring payments and to start and stop payments on a need basis. The solution took two months to implement. The new solution made it to 100% collection with no late payments. It also help stop student attrition and improved customer satisfaction.
9.

What are the general lessons from this case?

The case presents several interesting lessons learned. The first one in John’s words was to assess the internal capabilities and staff the project with the right resources. He assumed that he would be able to manage the project along with his current responsibilities. In his own words, it would have gone much better if there were better planning up front. Establish objectives and their priorities up front along with creating a decision matrix early on would have helped weigh options better and would have helped coming up with an optimal solution. In summary, early planning, setting objectives and selecting the right resources were the key lessons learned from this case.