In 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 of IT into every facet of manufacturing operations—had evaporated by the beginning of the decade. The introduction of so-called integrated standard software 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 were not 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 efficiency gains.

Companies now recognize that the use of a particular software application cannot guarantee business success; strategic benefits, they have learned, rarely emerge from a simple increase 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...