Executive information systems (EIS)

Custom Software: Organizations develop their own custom software from scratch, rather than use or customize packaged software for three reasons. First, no packaged software meets the required specifications, and modifying existing software is too difficult. Second, the company plans to resell the custom software at a profit. Third, custom software may provide the company with a competitive advantage by providing services for customers, increasing management’s knowledge and ability to make good decisions, reducing costs, improving quality, and providing other benefits. Only custom software can provide such a competitive advantage because the competition can easily buy packaged and customized software. Merrill Lynch recognized such a competitive advantage when it planned to invest $1 billion in software (and associated hardware) to allow its financial consultants to operate with mobile computers at customer sites[1].

Custom software is expensive to produce, costly to maintain, subject to bugs, and usually takes many years to develop. Not only does this development time delay the benefit, but it reduces the value of the software as company needs and the competitive environment change constantly. Finally, if software developers can mimic the key features of the software’s design and resell it to a company’s competitors, they may quickly dilute any competitive advantage the company has gained.

Mutual originally developed CNS because the available packaged software did not meet its needs and because it felt that it could achieve a competitive advantage with CNS. At the time it developed CNS, no software provided an integrated view of a customer across multiple insurance products. CNS gave Mutual agents a competitive advantage by allowing them to cross-sell products where appropriate. Conder has learned that about one-half of all companies in the insurance industry who replace their software use custom software, primarily for these same reasons. By contrast, in the health care industry, less than one-fifth use custom software[2].

Managers who decide to develop custom software must decide whether to use internal company resources or to hire a company that specializes in software development. VARs develop customized software cost-effectively because they have substantial expertise in the base software product, but this advantage disappears for custom software because they cannot use preexisting packages. Small organizations that lack internal resources for software development may create custom software by paying another company to do it. Boston Software Corporation and ECTA Corporation, for example, develop software for companies in the insurance industry[3]. Managers in large organizations usually must use internal IS personnel or let the IS staff decide who will develop the software. Sometimes company policy allows functional managers to seek development bids from both internal and external candidates. Grange Mutual Casualty Company, an Ohio-based insurer with annual premium sales of $500 million, has outsourced some of its development and operations to Policy Management Systems Corporation[4].

THE POTENTIAL OF VARIOUS EIS FEATURES

Integrated solutions coordinate the activities of suppliers, distributors, and customers. This integration, called supply-chain management, requires the cooperation of companies outside of the company’s own and a secure way of communicating between them. Supply chain management can reduce the costs of a company with $600 million in annual sales by as much as $42 million. Companies using supply chain management needed only two weeks on average to increase production by 20 percent compared to several months without supply-chain management. Also, companies with supply-chain management delivered goods on time 96 percent of the time compared to 83 percent for the average company[5]. Ames, the $200 million maker of garden tools, and Ace Hardware Corporation use Manugistics supply-chain management software to keep track of and replenish Ames’s products sold in Ace hardware stores[6].